67 FR 6495, February 12, 2002 A-588-845 ADR: 01/04/99-06/30/00 Public Document III / 9 / JHC February 4, 2002 MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary for Import Administration, Group III SUBJECT: Issues and Decision Memorandum for the 1999-2000 Antidumping Duty Administrative Review of Stainless Steel Sheet and Strip in Coils from Japan SUMMARY: We have analyzed the comments and briefs of interested parties in the antidumping duty administrative review of stainless steel sheet and strip in coils ("SSSS") from Japan. As a result of our analysis, we have made changes from the Notice of Preliminary Results of Antidumping Duty Administrative Review: Stainless Steel Sheet and Strip in Coils from Japan, 66 FR 41543 (August 8, 2001) ("Preliminary Results"). The specific programming changes can be found in our Analysis Memorandum for Kawasaki Steel Corporation: Final Results in the 1999-2000 Antidumping Duty Administrative Review of Stainless Steel Sheet and Strip in Coils from Japan (February 4, 2002) ("Final Analysis Memo"). We recommend that you approve the positions developed in the "Discussion of the Issues" sections of this Issues and Decision Memorandum. Below is the complete list of the issues in this administrative review: General Issues: Comment 1: Negative Dumping Margins Comment 2: Currency Conversion of Advertising Expenses Comment 3: Choice of Home Market CONNUM Comment 4: Home Market Sales Reporting Period Comment 5: Grade Codes Comment 6: Downstream Sales Comment 7: Coil Reporting Errors Comment 8: Post-Shipment Revisions Comment 9: U.S. Market Database DISCUSSION OF THE ISSUES: Comment 1: Negative Dumping Margins Respondent Kawasaki Steel Corporation ("Kawasaki") argues that the Department violates the World Trade Organization's ("WTO") Antidumping Agreement by adjusting negative margins on home market sales to zero as part of its margin calculation analysis. Kawasaki argues that keeping the positive margins and discounting the negative margins is data manipulation to create a final positive margin that should otherwise be zero percent. Kawasaki notes the WTO Antidumping Agreement requires a fair comparison between the home market normal value price and the U.S. export price when calculating the margin, citing Article 2.4 and paragraph 2.4.2. Kawasaki relies on a decision by a WTO Panel, later affirmed by the Appellate Body, that the European Communities acted inconsistently with the WTO Antidumping Agreement by using a methodology that included zeroing negative price differences. See European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, para. 6.116 (October 30, 2000) ("Bed Linen Panel Decision"); WT/DS141/AB/R (March 1, 2001) ("Bed Linen Appellate Body Decision") ("collectively, Bed Linen Decision"). Kawasaki points out that the Appellate Body report states the "United States supports the methodology of the European Communities for calculating the overall margin of dumping." Kawasaki asserts that the methodology used by the Department "mirrors" the methodology of the European Communities and, in light of the Bed Linen decisions, the Department should "abandon its violative zeroing practices." Kawasaki disagrees with the Department's rejection of such an argument, wherein the Department stated that the "Bed Linens Panel and Appellate Decisions concerned a dispute between the European Union and India. We have no WTO obligations to act." See Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Sweden, and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews and Revocation of Orders in Part, 66 FR 36551 (July 12, 2001) and accompanying Decision Memo at Comment 38; see also Certain Preserved Mushrooms from India: Final Results of Antidumping Duty Administrative Review, 66 FR 42507 (August 13, 2001) and accompanying Decision Memo at Comment 16 ("Preserved Mushrooms from India"). Kawasaki argues that the Bed Linen ruling is directly applicable to the United States, even though the Department was not a named party in the dispute, as Congress intended U.S. trade law to be consistent with WTO rulings by enacting the Uruguay Round Agreements Act ("URAA"). Additionally, Kawasaki argues that the U.S. antidumping statue does not provide for the Department's methodology of zeroing out negative margins. Kawasaki points out that "dumping margin" is defined as "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise" (section 771(35)A of the Act; 19 U.S.C. § 1677(35)(A)), and the "weighted average dumping margin" is defined as "the percentage determined by dividing the aggregate dumping margins determined for a specific exporter or producer by the aggregate export prices and constructed export prices of such exporter or producer," citing section 771(35)(B) of the Act (19 U.S.C. § 1677(35)(B)). Kawasaki argues that by zeroing out negative margins, the Department is not following the mandate that margin calculations be made in the aggregate. Kawasaki notes that zeroing out negative margins is not an express statutory creation in U.S. law which would prevail over a WTO obligation, citing Hyundai Elecs. Co., Ltd. v. United States, 53 F. Supp. 2d 1334, 1344 (Ct. Int'l Trade 1999) in support. In Hyundai, the Court stated that it had to consider whether a Departmental revocation practice was consistent with the WTO's Antidumping Agreement, as Congress did not expressly provide for it in the regulations. Similarly, Kawasaki argues the Department must determine whether its zeroing out methodology is consistent with the WTO's Antidumping Agreement; Kawasaki argues the methodology "plainly offends" the agreement and is counter to Congressional intent. Kawasaki further argues that the recent WTO Appellate Body decision in United States - Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan (Appellate Body Report in HRS, VI. 7) adopts the Bed Linen determination, wherein the Appellate Body stated the "margin reflects a comparison that is based upon examination of all the relevant home market and export market transactions." Kawasaki emphasizes the "all" in the determination, and reasons this determination is tantamount to an affirmation by the Appellate Body that the Bed Linen zeroing precedent is applicable to the U.S. antidumping law practices. Kawasaki argues that to make a fair assessment, and to be in compliance with the WTO's Antidumping Agreement, the Department should recalculate the dumping margin without zeroing out negative margins. Petitioners Allegheny Ludlum, AK Steel Corporation, J & L Specialty Steel, Inc., North American Stainless, United Steelworkers of America, AFL- CIO/CLC, Butler Armco Independent Union, and Zanesville Armco Independent Organization, Inc. (hereinafter collectively "Petitioners") state that zeroing out negative margins is longstanding Departmental practice, and argue the Department explicitly found Bed Linen does not apply to U.S. proceedings, citing Preserved Mushrooms from India, 66 FR 42507 and the accompanying Decision Memo at Comment 16. Department Position: We agree with Petitioners. As we have discussed in prior cases, our methodology is consistent with our statutory obligations under the Act. See, e.g., Certain Hot-Rolled Carbon Steel Flat Products from The Netherlands, 66 FR 50408 (October 3, 2001) (final determination), and accompanying Issues and Decision Memorandum, at Comment 1. Sales that did not fall below normal value are included in the weighted-average margin calculation as sales with no dumping margin. The value of such sales is included in the denominator of the weighted-average margin along with the value of dumped sales. We do not, however, allow sales that did not fall below normal value to cancel out dumping found on other sales. The Act requires that the Department employ this methodology. As pointed out by Kawasaki, section 771(35)(A) of the Act defines "dumping margin" as "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise." Section 771(35)(B) of the Act defines "weighted-average dumping margin" as "the percentage determined by dividing the aggregate dumping margins determined for a specific exporter or producer by the aggregate export prices and constructed export prices of such exporter or producer." These sections, taken together, direct the Department to aggregate all individual dumping margins, each of which is determined by the amount by which normal value exceeds export price or constructed export price, and to divide this amount by the value of all sales. The directive to determine the "aggregate dumping margins" in section 771(35)(B) of the Act makes clear that the singular "dumping margin" in section 771(35)(A) of the Act applies on a comparison-specific level, and does not itself apply on an aggregate basis. At no stage in this process is the amount by which export price or constructed export price exceeds normal value on sales that did not fall below normal value permitted to cancel out the dumping margins found on other sales. This does not mean, however, that sales that did not fall below normal value are ignored in calculating the weighted-average rate. It is important to note that the weighted-average margin will reflect any "non-dumped" merchandise examined during the investigation; the value of such sales is included in the denominator of the dumping rate, while no dumping amount for "non-dumped" merchandise is included in the numerator. Thus, a greater amount of "non-dumped" merchandise results in a lower weighted-average margin. This is, furthermore, a reasonable means of establishing duty deposits in investigations, and assessing duties in reviews. In an investigation such as the present case, the deposit rate calculated must reflect the fact that the U.S. Customs Service is not in a position to know which entries of merchandise entered after the imposition of a dumping order are dumped and which are not. By spreading the estimated liability for dumped sales across all investigated sales, the weighted-average dumping margin allows the U.S. Customs Service to apply this rate to all merchandise entered after an order goes into effect. Finally, the Bed Linen decisions concerned a dispute between the European Union and India. We have no WTO obligation to act based on these decisions. See also Preserved Mushrooms from India, 66 FR 42507. Accordingly, we are continuing to apply our margin calculation methodology pursuant to Department practice. Comment 2: Currency Conversion of Advertising Expenses Kawasaki argues the Department should have converted the reported Japanese advertising expense amounts from Japanese yen to U.S. dollars when calculating the U.S. direct selling expenses in the margin calculation. Petitioners submitted no comment on this issue. Department Position: We agree with Kawasaki. Accordingly, we have converted Japanese advertising expense amounts from Japanese yen to U.S. dollars for purposes of these final results. Comment 3: Choice of Home Market CONNUM Kawasaki states that CONNUMH is the control number for the products sold by Kawasaki and its affiliate Kawasho Corporation ("Kawasho") during the period of review ("POR"), while CONNUM2H is the control number for the mother coil prior to further processing by an affiliated processor which Kawasho bought back and sold to an unaffiliated party. Kawasaki argues the Department incorrectly used CONNUM2H instead of CONNUMH when matching home market sales to U.S. sales. Petitioners argue Kawasaki fails to offer any support for and is mistaken in its allegation. Petitioners point out that after introducing Kawasaki's home market sales database in the programming, CONNUM2H was not among the variables kept in the preliminary programs (i.e. CONNUM2H did not appear in the"keep" statement), which precluded the variable from being used in the margin calculation. Kawasaki argues that the Department consistently used the variable CONNUMH in the programming, citing to the specific lines in the program where CONNUMH appears. As a result, Kawasaki argues, the preliminary programs correctly use CONNUMH, contrary to Kawasaki's allegation. Department Position: We agree with Petitioners. The Department did not use CONNUM2H in any of the programming for the preliminary results. It is clear on its face, from a review of the preliminary programming, that CONNUM2H appears nowhere in the arm's length program, model match program, or margin calculation program. The programming specifically instructs, through "keep" statements, that CONNUMH should be used. See arm's length test program at line 83; model match program at line 874; and margin calculation program at line 2390 (July 31, 2001). Accordingly, as the Department used the correct control number in the programming, we are not making any changes to the final programming on this issue. Comment 4: Home Market Sales Reporting Period Petitioners argue the Department clearly requires the total quantity and value of the merchandise under review for the POR to be reported, but that Kawasaki failed to report its home market sales for the last month of the POR. Petitioners note that if Kawasaki wishes to be exempt from reporting certain sales, it must obtain approval from the Department at the outset of the proceeding, as it did when it requested limiting its reporting of home market sales to those with certain physical characteristics. See Letter from Kawasaki to Import Administration (September 20, 2000). Petitioners dismiss Kawasaki's argument that it did not need the Department's approval, as it reported over 12 months of sales in its home market database. Petitioners point out that this first administrative review covers 18 months and is not a regular administrative review of 12 months. Petitioners argue that an incomplete home market sales database could adversely affect the accuracy of the Department's sales-below cost test. Petitioners observe that if low-priced sales are in the portion of the POR that goes unreported, below-cost sales in certain product control numbers that might have surpassed the 20% threshold would be incorrectly retained in the pool of comparison sales used as the basis for normal value. Petitioners argue Kawasaki repeatedly ignored the Department's questionnaire and supplemental questionnaire instructions to report its sales data for the entire POR, despite its awareness that the Department historically applies adverse facts available for withholding relevant data. As a result, Petitioners argue Kawasaki failed to cooperate with the Department to the best of its ability; thus, the Department should resort to total adverse facts otherwise available and apply the rate calculated in the original investigation. At a minimum, Petitioners argue, the Department should apply partial facts available, as the normal value calculation is unreliable due to the missing data. Petitioners suggest basing normal value on home market sales of identical grade merchandise with the highest selling prices (net of movement and packing expenses, and other allowable adjustments), and they provide a sample normal value calculation methodology. Petitioners argue that because the Department cannot determine the actual degree of below-cost sales made by Kawasaki during the POR due to Kawasaki reporting incomplete home market sales data, using the highest-priced home market sales as partial facts available is warranted. Kawasaki asserts that it did not wrongfully fail to report June 2000 sales. Kawasaki argues it followed the Department's explicit instructions, citing to the Departmental questionnaire which states "{r}eport all sales of the foreign like product during the three months preceding the earliest month of U.S. sales, all months from the earliest to the latest month of U.S. sales, and the two months after the latest month of U.S. sales. If this is less than twelve months in total, please contact the official in charge immediately." See Department's Antidumping Duty Questionnaire, at B- 1 (September 8, 2000). Kawasaki notes that its U.S. sales were made in April 1999 and March 2000, thus the two months after the latest month of U.S. sales is May 2000, up through which Kawasaki reported its sales. Kawasaki reasons that under the questionnaire's clear directive, it was not required to "contact the official in charge" prior to reporting its sales based on a 17-month reporting period, as this period was not less than twelve months total. Kawasaki dismisses Petitioners' argument that the failure to report June 2000 could improperly include below-cost sales in the pool of comparison sales as an extremely remote possibility. Kawasaki notes the Department has previously allowed limited reporting of as little as six months of a twelve-month period of review. See e.g. Fifth Administrative Review of Certain Corrosion-Resistant Carbon Steel Flat Products from Japan, 65 FR 8935 (February 23, 2000) (final admin. review). Kawasaki also presumes the language of the questionnaire indicates the Department is less concerned about the possibility of below-cost test distortions where over 12 months of data is reported, as a majority of the relevant sales data will be provided. In this instance, Kawasaki argues, the Department has data that covers 17/18, or 94% of the POR, thus there is "little chance" the remaining data would push particular products below cost. As a result, Kawasaki states the Department should reject the Petitioners' request for application of adverse facts available for the June 2000 data. Department Position: We agree with Kawasaki. In our original questionnaire, the Department requested that the respondent report "all sales of the foreign like product during the three months preceding the earliest month of U.S. sales, all months from the earliest to the latest month of U.S. sales, and the two months after the latest month of U.S. sales. If this is less than twelve months in total, please contact the official in charge immediately." See Antidumping Duty Questionnaire at B-1 (September 8, 2000). On November 3, 2000, Kawasaki submitted its Section B and C response ("Section B/C response"), which the Department noted contained variables reported or calculated only through May 2000. Accordingly, on March 2, 2001, the Department requested that Kawasaki resubmit its databases and confirm that all variables are reported and calculated for the complete POR, from January 4, 1999 through June 30, 2000. See Department's Supplemental B/C Questionnaire, question 1 (March 2, 2001). In response to the supplemental questionnaire, Kawasaki at that time explained that it made no sales of subject merchandise to the United States in April 2000 through June 2000. Thus, Kawasaki explained that it believed reporting a home market sales reporting period of January 1999 through May 2000 was consistent with the Department's instructions in the original questionnaire. The Department noted in its second supplemental questionnaire that Kawasaki's "failure to provide the requested information is at {its} own risk; if it is determined that such information is necessary for our calculations, the Department may be required to use adverse facts available." See Department's Second Supplemental A/D questionnaire, question 9 (June 15, 2001). As a result, Kawasaki recalculated its expense variables to include June 2000 data in its databases. However, Kawasaki continued to submit home market sales for the period January 1999 through May 2000. After analyzing Kawasaki's questionnaire responses and the submitted data, it appears that Kawasaki has complied with the Department's antidumping duty questionnaire instructing the respondent to report all home market sales from the three months before, to the two months after, its U.S. sales of subject merchandise. As reported by Kawasaki, its U.S. sales database consists of sales made only in April 1999 and March 2000. Accordingly, counting three months back from Kawasaki's earliest U.S. sales during the POR starts the home market sales reporting period at January 1999, and counting two months after Kawasaki's latest U.S. sales ends the home market sales reporting period through May 2000. Review of the home market database indicates that Kawasaki properly reported its home market sales for the enumerated home market sales reporting period. Reporting home market sales for the month of June 2000 is not necessary, as there is no evidence to indicate that Kawasaki omitted any U.S. or home market sales from its submitted databases. While Petitioners assert that Kawasaki should have obtained permission from the Department to report sales for a period of time shorter than the POR, Kawasaki correctly notes that the Department's questionnaire specifically stated that the respondent was to contact the official in charge if the reporting period "is less than twelve months in total." The Department did not inform Kawasaki, either during or after issuance of the questionnaire, that there was any need for Kawasaki to make a separate request or obtain special permission to report sales for a period of time shorter than the POR. As the period for which Kawasaki reported its sales fell during the months of January 1999 through May 2000, seventeen months total, this period was longer than the twelve months in total requested in the questionnaire by the Department. Thus, Kawasaki was not remiss in failing to contact the Department regarding its reporting period. We do not agree with Petitioners' argument that because the first administrative review covers a POR of eighteen months, rather than the typical annual review period of twelve months, Kawasaki attempted "to cut short of the entire POR for this review based on its reading of the standard language in part of the Department's questionnaire for a regular administrative review." We note that the extended period of time typically used in analyzing the cost of production "means a period that is normally 1 year, but not less than 6 months." See section 773(b)(2)(B) of the Act. Accordingly, the current home market sales period of seventeen months reported by Kawasaki falls well within the extended period of time. Furthermore, we note that our regulations provide that in calculating normal value if sales are made at less than the cost of production, "{t}he 'extended period of time' under section 773(b)(1)(A) of the Act normally will coincide with the period in which the sales under consideration for the determination of normal value were made." See section 351.406 of the Department's regulations. Additionally, it should be pointed out that requiring Kawasaki to report its home market sales for June 2000 would have no effect on the Department's sales below cost test. Petitioners indicate they are concerned that there is a possibility, had Kawasaki reported its June 2000 home market sales, that below-cost sales in certain product control numbers could have surpassed the 20% threshold of the sales below cost test. As stated before, Kawasaki reported that it only made sales of subject merchandise in the U.S. during the months of April 1999 and March 2000 in the POR. In analyzing Kawasaki's reported home market database, there were no below cost sales made in the home market during these pertinent months of sales. See Final Analysis Memo at Section B. Thus, even if all of Kawasaki's home market sales in June 2000 were below cost, there were no sales below cost made in the relevant months of sales for us to disregard in our calculations. Accordingly, because Kawasaki followed the sales reporting period as outlined in our antidumping duty questionnaire, and because there is no evidence indicating that provision of home market sales information for the omitted month of June 2000 is necessary for our calculations, we are not applying facts available for Kawasaki's failure to report such information. Comment 5: Grade Codes Petitioners find fault with Kawasaki's self-selected grade codes for some home market sales, for which Kawasaki explained there were no Department equivalents due to differences in their chemical and mechanical properties. See Kawasaki's Section B response at B-11 (November 3, 2000). Petitioners note that Kawasaki excluded such sales from its original home market listing, but reported sales of the separate grades in its revised home market sales listing. See Kawasaki's revised home market data bases (March 30, 2001 and July 6, 2001). Petitioners argue that sample mill certificates indicate the chemical compositions for an alleged new Kawasaki grade do not differ from an existing Departmental grade. See Kawasaki's Second Supplemental Response at 23 and Exhibit 15 (July 6, 2001) ("Second Supp. Response"). Petitioners assert that Kawasaki's explanation that its mill certificates do not reveal actual chemical composition so as to protect its trade secret (see Kawasaki's letter to Import Administration, at 4 (July 27, 2001)) is not credible, as Kawasaki provided technical documentation and catalogues which publicly discuss chemical compositions. See Kawasaki's Supplemental B and C Response at Exhibit 3a (March 30, 2001). Petitioners point out that it makes no sense for Kawasaki to withhold certain information in the mill certificate from its customer, when such information is available in public documents. Accordingly, Petitioners argue that grades with essentially the same chemical compositions should be collapsed into one department grade code. Petitioners claim similar problems exist with other grade codes and match variables, which warrants using facts available for Kawasaki's home market sales. Kawasaki asserts that Petitioners' claim, that Kawasaki tried to exclude sales by creating unwarranted separate grade code designations, is contrary to the facts. Kawasaki reiterates that it created separate grade codes because there was no Departmental equivalent to account for the product properties and the additional element of silver. Kawasaki states it has explained that while the mill certificate does not indicate the silver content to protect trade secret, it nevertheless indicates the existence of additional silver through the "AB" in the product code. Kawasaki notes that the antibacterial features of the products for which it created separate product codes are evidenced in its submitted technical documentation and catalogues. See Supp. B/C response, at Exhibit 3. Although Petitioners view these public documents as nullifying Kawasaki's claim of trade secret, Kawasaki points out that to the extent it publicly markets and sells the product, it does not fully describe the silver content. Kawasaki states that its customers understand its need to protect its trade secret and thus only require acknowledgment on the mill certificate that the product is an "AB" product. Kawasaki claims its practice does not differ from other major steel producers involved in the development of new products. As a result, Kawasaki argues the Department should retain Kawasaki's separate grade codes designations. Department Position: The Department does not need to decide the issue on grade raised by Petitioners. We note that even if we were to collapse Kawasaki's grade into the appropriate Departmental grade (i.e. grade 18), these sales would not match to Kawasaki's U.S. sales, as either similar or identical sales, due to differences in gauge. See, e.g. Final Analysis Memo at Section B; see Model Match Output at 45. As such, these sales of Kawasaki's AB products would not be used in the Department's margin calculation. Thus, the Department need not evaluate the issue in this administrative review. Accordingly, the Department is making no changes to the programming in relation to this issue. Comment 6: Downstream Sales Petitioners assert that Kawasaki has refused to report downstream sales for all affiliated resellers and processors. Kawasaki stated it is "unable to report the downstream sales of the affiliates whose sales record system do not retain essential sale-specific information that would allow sale information to be systematically gathered and reported." See Second Supp. Response at 1-2. However, Petitioners reason that Kawasaki has a way to tie the final sales to unaffiliated customers to the initial sales to affiliated processors, as it must deal with the final customers' warranty claims and with later invoicing where negotiations are not complete at the time of shipment. See Second Supp. Response at 2 (payment terms are later settled by use of a revised invoice). Petitioners point out that Kawasaki describes an intricate sales arrangement which includes "transfers between Kawasaki and its affiliated trading company, the sales and buy back between the trading company and its affiliated processors, and the final sales by the trading company to end-user customers, among Kawasaki, the trading company, the processor and the end-users with respect to its buy- back transactions." See Petitioners' Case Brief, at 9 (September 24, 2001). Petitioners argue that even if the end-user customers are not concerned about the product manufacturer, customers must be concerned about the actual supplier. Petitioners also assert that certain revised invoices in Kawasaki's home market database call into question Kawasaki's claim that it cannot link sales. Petitioners support the Department in not relying on Kawasaki's sales to downstream affiliated customers, but stress that it is unacceptable for Kawasaki to refuse to provide requested data when it has the ability to do so. For this reason, Petitioners state that the Department should not accept Kawasaki's reported home market sales data. Kawasaki argues Petitioners make an unfounded conclusion that Kawasaki is able to report downstream sales which ignores both Kawasaki's explanations of its limitations, as well as other reviews in which such explanations have been verified. Kawasaki repeats that it "can not report 'downstream' sales to the unaffiliated customer through certain affiliated resellers and processors in the home market, because the sales record systems of these affiliates do not permit the systematic linkage of final sales data with relevant product characteristics. Without such product characteristic information, Kawasaki cannot create a reportable control number for these sales." See Kawasaki's Rebuttal Brief, at 8 (September 28, 2001). Kawasaki asserts that Petitioners' examples of Kawasaki's ability to link sales information (price renegotiation and warranty claims) involve manual linkage which, while it may be used in certain sale-specific instances, Kawasaki's affiliates cannot use to trace each SSSS sale in the POR due to time constraints and limited resources. Kawasaki asserts that price renegotiations are upstream negotiations between affiliated parties which have no bearing on Kawasaki's ability to report the CONNUM of the reseller/processors' final sale to an unaffiliated customer. Kawasaki claims that identifying the reseller/processor in a particular transaction is simpler than reporting the reseller/processor's sale by CONNUM. Kawasaki explains that while it can identify a reseller/processor, it cannot report a reseller's/processors' downstream sale without the electronic link to Kawasaki's mother coil information due to the reseller's/processor's "unsophisticated" sales records. Kawasaki then states the manual nature of linking warranty claims was noted in the hot- rolled flat-rolled carbon-quality steel ("HR Steel") sales verification earlier this year, wherein the Department observed that to handle warranty claims more than three months following shipment, the reseller/processor must look up an inspection report from Kawasaki, which is kept as an image and not in a database. See Sales Verification of Kawasho Corporation and {proprietary name} Steel Center, at 9 (August 8, 2001) (A-588-846; ARP: 02/19/1999 - 05/31/2000). Finally, Kawasaki argues reporting upstream sales in this review is consistent with Departmental regulations, practice and prior treatment of Kawasaki's downstream sales. Kawasaki notes that Departmental practice has been not to require reporting of affiliates' downstream sales where such reporting would represent a significant or impossible burden or where there is little utility in reporting the sales relative to the burden of reporting them, citing Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea, 62 FR 47422, 47424 (September 9, 1997) (prelim. admin. review). Kawasaki likens its situation to that of the respondent in Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, et al., 63 FR 33320, 33341 (June 18, 1998) (final admin. review), where the Department allowed reporting of upstream sales to affiliates where the respondent was unable to report downstream sales because of the affiliates' unsophisticated computer systems. Kawasaki also stresses that the Department has previously noted the impossibility of reporting Kawasaki's affiliated processors' downstream sales. See HR Steel Sales Verification Report, at 31 (March 30, 1999); Certain Cut-to-Length Carbon Quality Steel Plate Products from Japan, 64 FR 73215, 73224-225 (December 29, 1999) (final determination). Thus, Kawasaki argues, as the Department actually verified Kawasaki's reporting limitations in those recent cases, the Department should accept those limitations in this review, and continue to accept the reporting of the upstream sales. Department Position: We agree with Kawasaki. It appears from Kawasaki's description of its sales process and downstream sales that the level of record-keeping maintained by its affiliated resellers and processors is not one which is conducive to Kawasaki effectively or correctly reporting its downstream sales in the manner required by the Department. Kawasaki has attested to the fact that it is unable to report certain downstream sales. E.g. Section A response at 3-4 (September 29, 2000); Supplemental Section A response at 1, 6 (February 23, 2001). Petitioners portray Kawasaki as refusing to report downstream sales for all affiliated resellers and processors. Kawasaki relies on the fact that verification has been conducted in other recent Kawasaki cases involving its other steel products. We note that because the verifications referenced by Kawasaki were conducted on Kawasaki products other than subject merchandise, we cannot rely on the findings in those cases concerning Kawasaki's downstream sales and apply them to this review. Those sales transactions involved not only different products, but possibly also different levels of trades, sales and resales activities, and resellers, processors and affiliates. As the Department did not have the opportunity to verify Kawasaki's questionnaire responses in this review due to case and time limitations, we must rely on the information on the record. In this instance, there is no information on the record which contradicts Kawasaki's claim that it cannot report its downstream sales. Thus, we must presume the information reported by Kawasaki was as far downstream as it had in its ability to report. Furthermore, Kawasaki appears to have complied with the Department's antidumping duty questions by reporting, where it was able, downstream sales of those affiliated resellers and processors for which sales information could be linked. Accordingly, the Department is not making changes to its analysis on this issue. However, we note that if Kawasaki's claim of its inability to report downstream sales is found to be false or incorrect in a future review of subject merchandise, the Department may resort to adverse facts available for Kawasaki's non-compliance. Comment 7: Coil Reporting Errors Petitioners argue the Department should not use Kawasaki's reported data because of reporting errors in variable CONNUM2H, where Kawasaki reported the original control number of the "mother coil" it produces, which is processed by a Kawasho affiliate for sale to its customers or for sale back to Kawasho for sale to Kawasho's customers. See Second Supp. Response at 23. Petitioners point out that none of the processed coils should be wider than the mother coils after the slitting, shearing or cutting-to- length processing reported by Kawasaki, as such processing would not increase the width of the product. Nevertheless, Petitioners note that for some home market sales, Kawasaki reported a narrower width for the mother coils than for the processed coils. Petitioners argue that such errors in reporting affect both the accuracy in product matching and the control number-specific cost test. Petitioners stress that if this was a mere reporting error, Kawasaki should have caught and corrected the error much earlier, given the Department's line of questioning. Petitioners point out that they raised this issue in a pre-preliminary letter to the Department. See Petitioners' letter to Import Administration, at 3, 14-15 (July 24, 2001). Petitioners argue that it is notable that while Kawasaki provided a point-by-point rebuttal on Petitioners' other comments, it provided absolutely no defense or explanation on this issue. Kawasaki notes that Petitioners' allegations of reporting errors between the "mother coil" and the processed coil involve only five of the reported transactions. Kawasaki offers little explanation on the allegation, only stating that it did not rebut Petitioners' pre-preliminary comments merely because it "did not believe additional explanation was necessary." See Kawasaki's Rebuttal Brief, at 13. Kawasaki explains that "observations in which CONNUMH and CONNUM2H differ represent sales to a certain affiliate processor where the final sold product has different physical properties from the 'mother coil' . . . {thus}, it is little surprise that the CONNUMH field and CONNUM2H field might differ as to their reported widths." Id. Kawasaki fails to address Petitioners' argument that the processed coil cannot be smaller than mother coil using the processing reported by Kawasaki. However, Kawasaki points out that the five sales do not match to the U.S. sales; thus such sales are not relevant, even if there were a mistake. Department Position: We agree with Kawasaki. Although Kawasaki is correct in stating that the fields for mother coil and processed coil "might differ as to their reported widths," this difference should not be reflected by a narrower mother coil, as pointed out by Petitioners, and Kawasaki does not adequately explain how the processing done on the mother coil would increase the width. However, without further verification of Kawasaki's manufacturing process, we must accept the possibility of an actual increase in width. In addition, this discrepancy only appears in five home market sales, in a database consisting of thousands of sales. Furthermore, the relevant sales do not match to the sales of subject merchandise in the U.S. during the POR. Thus, these home market sales are not relevant for the Department's margin calculation purposes. Accordingly, the Department is making no changes to the programming in relation to this issue. Comment 8: Post-Shipment Revisions Petitioners argue the Department should not accept post-shipment revisions Kawasaki made after the shipment of the merchandise and/or issuance of the original invoice. Petitioners argue that the documents Kawasaki presented in response to the Department's questions on the post- shipment revisions fail to support Kawasaki's explanations for its post- shipment revisions, as does Kawasaki's submitted data base. Petitioners also question the rationale behind certain customers receiving both a post- shipment revision as well as a warranty expense adjustment on certain home market sales, and state that it appears that Kawasaki double-counted warranty expenses in such instances. Petitioners argue Kawasaki has presented no evidence supporting its claim that such post-shipment revisions are normal practice and assert that such post-shipment revisions make no business sense. Petitioners maintain that Kawasaki fails to meet its burden of proof by failing to provide sufficient evidence in support of its post-shipment revisions, citing 19 C.F.R. §351.401(b)(1), and state the Department should reject the adjustment for purposes of the final results of review. Kawasaki objects to Petitioners' arguments implying that its price revisions were made only for purposes of this antidumping duty administrative review. Kawasaki asserts it clearly described, and provided supporting sales documentation of, its normal practice of post-shipment adjustments, including documentation of a post-shipment renegotiation price change made five days after shipment. See Supp. B/C response at Exhibit 18. Kawasaki also notes it provided documentation showing that a party may explicitly request post-shipment price negotiations, in the form of an invoice marked with a "K" indicating a pending price negotiation. See Second Supp. Response at 21, Exhibit 14(a). Kawasaki states its sales practice of making post-shipment revisions has been noted, verified and accepted by the Department in other cases involving Kawasaki, citing HR Steel, A-588-846, Sales Verification Report (August 8, 2001) at 4-5, 8 (Department traced the original invoice to the cancelled invoice to the revised invoice); and Antidumping Duty Investigation of Certain Cut-to- Length Carbon-Quality Steel Products from Japan, A-588-847, Verification of Sales Responses (October 26, 1998) at 30 (no discrepancies noted between examined documents and Kawasaki's explanation of order confirmation and invoice revisions). While Petitioners question Kawasaki's reasons for adjusting prices, including changes in market price, Kawasaki dismisses Petitioners' assertion that the sales database indicates no change in market price, arguing that Petitioners aggregate the prices and fail to look at the market price of specific product grade codes, and also fail to take into account transaction-specific factors that drive market price (e.g. customer history, delivery size, region). Accordingly, Kawasaki argues the Department should continue to accept Kawasaki's post- shipment price revisions as it did in the preliminary results. Department Position: We agree with Kawasaki. Section 351.401(b) states that for adjustments to export price, "(1) The interested party that is in possession of the relevant information has the burden of establishing to the satisfaction of the Secretary the amount and nature of a particular adjustment; and (2) The Secretary will not double-count adjustments." Kawasaki provided support for its post-sale price adjustments in its questionnaire response, both in the form of a written explanation of its negotiation and sales revision process and reasons for such revisions, and also in the form of a copy of a revised invoice. See Second Supplemental Response at 19-22, and Exhibit 14. There is no evidence on the record to indicate that Kawasaki has not met its burden of explaining the nature of its post-shipment price adjustments, nor is there any evidence that Kawasaki's post-shipment price adjustments are, in effect, double-counting warranty expenses. Accordingly, the Department is making no changes to the programming in relation to this issue. Comment 9: U.S. Market Database Petitioners question the validity of the U.S. sales database in light of certain factors, which include: 1) the volume of U.S. sales in the period of review ("POR") is strikingly different from the volume of U.S. sales in the original period of investigation ("POI"); 2) the U.S. sales database consists of only three sales, and Petitioners note that Kawasaki had several U.S. customers in the original investigation; 3) Kawasaki made three EP sales to trading companies in the POR, but made CEP sales as well as EP sales in the POI; and 4) certain other proprietary reasons involving the U.S. customer base. See Petitioners' Case Brief, at 15. Petitioners argue that after analysis of the facts and circumstances, the Department should reject the U.S. sales database as unusable. Petitioners note that a potential for price manipulation is sufficient reason to reject sales. Citing Koening & Bauer-Albert Ag v. United States, 15 F. Supp. 2d 834, 840, 22 CIT __ (1998). Petitioners assert that the potential for price manipulation is significant, given the "highly-contrived U.S. sales database," and Kawasaki's failure to submit a complete home market database. Accordingly, Petitioners argue that the Department should apply adverse facts available in conducting its final margin analysis. Kawasaki argues Petitioners provide no evidence for rejecting the U.S. database or that Kawasaki abused the administrative process. Kawasaki asserts that differences in customers, channels, and volume and value of sales for the POR from the original POI do not affect the accuracy, credibility and completeness of the submitted database. Kawasaki notes the antidumping statute anticipates changes in sales and pricing practices, citing Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom, 60 FR 44009 (August 24, 1995) (final admin. results) ("while there is no statutory requirement that a firm must act to eliminate price discrimination, if it decides to do so, how it does so is within its own discretion"); see also Certain Corrosion-Resistant Carbon Steel Flat Products from Japan, 65 FR 8935, 8937-38 (February 23, 2000) (final admin. results) (U.S. and home market prices may be changed to eliminate price discrimination). Kawasaki also maintains it has fully explained and provided supporting documentation for its reported price adjustments. In addition, Kawasaki challenges Petitioners' argument that Kawasaki's U.S. customers renders the database unusable, noting the Department has rejected similar common-customer arguments. See Certain Corrosion-Resistant Carbon Steel Flat Products from Japan, 64 FR 12951, 12954 (March 16, 1999) (final admin. results) ("CR from Japan") (mere fact sales were made to same customer in U.S. and home markets was insufficient to deem calculation based upon such sales inappropriate); Color Television Receivers, Except for Video Monitors, From Taiwan, 55 FR 47093, 47100 (November 9, 1990) (Department did not ignore third-country sales made to a purchaser related to the U.S. purchaser). Kawasaki notes that while there was greater potential for price manipulation in CR from Japan, because the customer bought identical, matching merchandise in both the U.S. and home markets, the Department stated "that the customer in question purchased the identical product in both markets is not, in itself, unusual, nor suggestive of an intentional evasion or circumvention of the antidumping duty law. Furthermore, as acknowledged by the Department in previous cases, it is permissible for a respondent to reduce or eliminate dumping either by raising its U.S. prices or by lowering its home market prices of merchandise subject to the order." CR from Japan, 64 FR at 12954. Accordingly, Kawasaki argues the Department should continue to accept Kawasaki's U.S. database as provided. Department Position: We agree with Kawasaki. The antidumping statute was not written with the expectation that the sales volume and value of subject merchandise would remain uniform from the investigation to the subsequent antidumping duty reviews. As pointed out by Kawasaki, the Department has previously recognized that a firm has discretion in taking action to eliminate price discrimination. See Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom, 60 FR at 44009; Certain Corrosion- Resistant Carbon Steel Flat Products from Japan, 65 FR at 8937-38. Such discretion certainly can include sales volume and value. Furthermore, changing market conditions, customer requirements, and the antidumping duty imposed certainly would have an effect on changes in sales. Finally, there is no evidence on the record which appears to indicate that Kawasaki provided false information to the Department. Accordingly, the Department is making no changes to the programming in relation this issue. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting the above changes and positions, and adjusting the programming accordingly. If 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___________ __________________________________________ Faryar Shirzad Assistant Secretary for Import Administration __________________________________________ Date