67 FR 3152, January 23, 2002 A-583-836 Investigation Public Document I/1: B. Ziv x4207 MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Import Administration DATE: January 15, 2002 SUBJECT: Issues and Decision Memorandum for the Final Determination of the Investigation of Stainless Steel Bar from Taiwan -------------------------------------------------------------------------- SUMMARY We have analyzed the briefs and rebuttal briefs of interested parties in the antidumping duty investigation of stainless steel bar from Taiwan. As a result of our analysis, we have made changes to the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is a complete list of the issues in this investigation for which we received comments and rebuttal comments from parties: Comment 1: Gloria's Direct Material Costs Comment 2: Gloria's Grade Designations Comment 3: Cost Data with Zero Production Quantities Comment 4: Golden Win's G&A Comment 5: Interest Expense Calculation Comment 6: Credit Expenses Comment 7: Additional U.S. Sales Comment 8: Packing Comment 9: Variable and Fixed Overhead Adjustment I. BACKGROUND The preliminary determination in this investigation was issued on July 26, 2001. See Notice of Preliminary Determinations of Sales at Not Less Than Fair Value: Stainless Steel Bar from Taiwan, 66 FR 40198 (August 2, 2001) ("Preliminary Determination"). Since the Preliminary Determination, the following events have occurred: On July 27, 2001, the Department solicited additional information from the respondent Gloria Material Technology Corporation and its domestic affiliate Golden Win Steel Corporation ("Golden Win") (collectively, "Gloria"). On August 6, 2001, we received a response, including revised cost of production and constructed value databases. Verification of the response submitted by Gloria took place from August 12 through 23, 2001. On November 14, 2001, the petitioners in this case (i.e., Carpenter Technology Corp., Crucible Specialty Metals, Electralloy Corp., Empire Specialty Steel Inc., Slater Steels Corp., and the United Steelworkers of America) and Gloria submitted case briefs. The petitioners and Gloria submitted rebuttal briefs on November 19, 2001. At the request of the petitioners, the Department held a hearing on November 28, 2001. The period of investigation ("POI") is October 1, 1999, through September 30, 2000. II. DISCUSSION OF ISSUES Comment 1: Gloria's Direct Material Costs The petitioners argue that the Department should recalculate Gloria's direct material costs to correspond to the Department's model match criteria for grade. The petitioners contend that while Gloria collapsed certain products under the same grade code for reporting sales of a particular control number ("CONNUM"), it has incorrectly reported distinct raw material costs within the same grade code. To support their argument that respondents cannot report costs in a manner inconsistent with the model matching methodology, petitioners cite to Brass Sheet and Strip from Canada; Final Results of Antidumping Duty Administrative Review and Notice of Intent Not to Revoke Order in Part, 63 FR 33037, 33039 (June 17, 1998) ("Brass Sheet and Strip"). According to the petitioners, in that case, the Department rejected the respondents' efforts to create separate costs and separate CONNUMs for two products based on claims that some of the products went through a different manufacturing step than other goods. The petitioners also cite to Notice of Final Determination of Sales at Less Than Fair Value; Stainless Steel Wire Rod from Japan, 63 FR 40434, 40438 (July 29, 1998) ("Stainless Steel Wire Rod from Japan"). In that case, the Department rejected the respondent's attempt to report separate costs for a particular CONNUM for different production operations based on the respondent's claim that "its proprietary rod has different product characteristics than the other products initially included within the same control number." The petitioners contend that the Department's model match methodology does not permit different cost structures for products that are deemed to be the same. Therefore, the petitioners conclude that the Department should correct this error in Gloria's cost database by finding a single, weighted-average raw material cost for all products within the same grade code. The respondent counters that the petitioners' argument is meritless and should be rejected. First, Gloria asserts that it followed the Department's instructions to revise reported costs to account for grade specific cost differences between each CONNUM. Gloria further states that the revised costs were verified by the Department without discrepancies. See the Department's November 6, 2001 Verification Report for Gloria ("Verification Report") at pp. 49-52. Gloria argues that differentiating raw material costs between different CONNUMs is fully in compliance with the Department's instructions because the remelting process (i.e., ESR, VAR) is one of the product characteristics established by the Department for the build-up of model match criteria. Therefore, products with or without the remelting process will be defined as different CONNUMs which represent different products. Finally, Gloria argues that the cases cited by the petitioners do not support their argument and are contrary to the facts in this investigation. Gloria contends that the cases cited by the petitioners represented situations where different costs were being reported for the same CONNUM. Gloria, however, maintains that it reported different costs for different CONNUMS as instructed by the Department. Department's Position: We agree with the petitioners. Gloria should not have reported separate costs for raw materials which fall under the same grade code in the Department's model match methodology. The Department's June 11, 2001 questionnaire instructed Gloria to calculate reported cost of production ("COP") and constructed value ("CV") figures "based on the weighted average cost of those internal product codes included within that grade." See the Department's June 11, 2001 Questionnaire at page 2. We agree with Gloria that products with or without the remelting process will be defined as different CONNUMs which represent different products. However, further processing, such as "remelting," is a manufacturing process and does not affect the grade of the raw material input. Gloria has not demonstrated that the manufacturing process undergone (e.g., ESR or VAR) requires certain chemical properties at the raw material input stage. Therefore, we have combined Gloria's raw material costs into a single weight-averaged cost for each grade designation under the Department's model matching methodology. See the January 15, 2002 Final Calculation Memorandum for Gloria Material Technology Corporation and Golden Win Steel Corporation ("Calculation Memorandum"). Comment 2: Gloria's Grade Designations The petitioners argue that for the final determination, the Department should combine grade codes 32, 33, 52, and 53 into the single grade code 32. While minor differences in the chemical composition may exist, the petitioners contend that based on the overall similarity in chemical composition and steel classification (i.e., martensitic, ferritic, etc.), all of these products should be combined into a single grade code 32. Moreover, the petitioners argue that Gloria created separate grade codes for these products in part, based on whether the product has undergone a remelting process (i.e., ESR or VAR) rather than on the chemical properties. According to the petitioners, the type of production process is a separate model matching criterion that is lower in the model matching hierarchy than grade. Therefore, the petitioners assert that the only physical feature that should be relied upon for grade designation and selecting the most similar grade is chemical composition, not production process. Gloria responds that the petitioners' argument is an attempt to manipulate grade designation criteria to inflate margins and is contradicted by the evidence on the record. Gloria contends that the Department did not request model matching criteria based on steel types, but on chemical composition. Furthermore, Gloria states that the Department's Verification Report confirms that, "they reported most similar grades based on the chemical composition of each grade." See the Verification Report at p. 24. Department's Position: We agree with the petitioners in part. According to the Department's instructions, Gloria should have reported a separate grade designation in lieu of a standard AISI classification, only when the composition of the internal SSB grade was inconsistent with AISI specifications. A review of the information on the record indicates that Gloria properly classified grade codes 32 and 33 within the appropriate grade designations. Based on the chemical compositions reported, however, grade code 52 should also have been combined with grade codes 32 and 33. The chemical composition of products with a grade code 52 had similar nickel and chromium content and identical molybdenum and carbon content. With respect to grade code 53, the information on the record concerning chemical composition does not support combining grade code 53 with codes 32, 33 and 52. The chemical composition of products with a grade code 53 had similar chromium content but varying nickel, molybdenum and carbon content. Therefore, we have maintained grade code 53 as a separate grade code for the final determination. Comment 3: Cost Data with Zero Production Quantities The petitioners argue that the Department should apply partial adverse facts available for each of the products for which Gloria reported a zero production quantity. The petitioners assert that under the Department's model matching methodology, Gloria had a "more similar" product than the ones reported. For other products, the petitioners contend that while Gloria provided costs of similar products, they failed to explain the basis for the substituted costs. Furthermore, the petitioners argue that because cost differences are likely to exist between two products given the different characteristics, there is no information on the record that the Department could use to adjust for these differences. To support their argument, the petitioners cite Gray Portland Cement and Clinker From Mexico; Final Results of Antidumping Duty Administrative Review, 64FR 13148, 13158 (March 17, 1999) ("Cement from Mexico"). In that case, the petitioners note that the evidence on record demonstrated affirmatively that physical differences between similar types of product contributed to different production costs. The petitioners further cite to section 773(a)(6)(C)(ii) of the Act, which directs the Department to "make an adjustment to normal value to account for differences in the physical characteristics of merchandise where similar products are compared." The petitioners argue that Gloria's omission and understatement of costs, and failure to cooperate by not acting to the best of its ability to comply with the Department's request for information, warrants the application of partial adverse facts available. As partial facts available, the petitioners assert that the Department should assign the highest margin to any U.S. sale with a CONNUM for which Gloria has reported a zero production quantity. Gloria counters that the petitioners' argument is contrary to the facts in the record of this investigation and should be rejected. Gloria argues that there is no basis to apply adverse facts available when parties are cooperative and the information submitted has been verified without discrepancies. Gloria notes that in its August 6, 2001 Section D supplemental questionnaire response, it clearly stated that "For the CONNUMs sold but not produced during the POI, Gloria has either 1) reported the acquisition costs of purchased SSB, or 2) reported, in the absence of such purchases during the POI, Gloria's production costs for similar products manufactured by Gloria on a grade-specific basis." According to Gloria, it reported the per-unit acquisition costs in the raw material cost field for those CONNUMS that were purchased and sold, but not produced during the POI. Gloria continues that it provided the costs of the most similar products only for those CONNUMs that were sold, but not purchased or produced during the POI. Moreover, Gloria asserts that the Department's verification report indicated that its selection of the most similar product was accurate and reliable. Department's Position: Gloria reported zero production quantities in two instances: 1) for products it sold but did not produce (i.e., products Gloria purchased from other manufacturers and sold during the POI); and 2) for products it sold but did not purchase or produce during the POI (i.e., products sold during the POI that Gloria produced prior to the POI). Concerning products produced by other manufacturers and resold by Gloria, section 773(a)(1)(B)(i) of the Act incorporates, by reference, the definition of foreign like product in section 771(16) of the Act. Therefore, consistent with Department practice, we have excluded from our analysis sales of merchandise not produced by Gloria because no such products were sold to the United States (see Notice of Final Determination of Sales at Less Than Fair Value: Certain Pasta from Italy, 61 FR 30326, 30333 (June 14, 1996)). We have also excluded all costs associated with these products from our cost calculations. For the products reported sold but not purchased or produced during the POI, Gloria provided costs of similar products for these CONNUMs. However, Gloria did not provide costs for the most similar product according to the Department's model matching requirements. While CONNUM1H is based on Gloria's internal product coding system, CONNUM2H is based on the Department's model matching requirements. Gloria reported the most similar based on CONNUM1H but should have based its most similar on CONNUM2H. Therefore, we have reassigned the appropriate costs to the next most similar grade based on a more appropriate match than those reported by Gloria (i.e., based on CONNUM2H). For further discussion, see the Calculation Memorandum. We disagree with the petitioners' assertion that facts available is warranted in this instance. Gloria has cooperated in attempting to provide the Department with the requested information for merchandise not produced or purchased by Gloria during the POI. While Gloria did not provide the most appropriate cost match, the methodology of applying the costs of the most similar product in the absence of actual production costs was reasonable. Further, as stated above, we were able to assign a more appropriate cost match based on information on the record. Concerning the petitioners' assertion that Gloria should have reported a difference in merchandise adjustment, adjustments for product differences were not necessary because these CONNUMs were not matched to U.S. sales. Comment 4: Golden Win's G&A The petitioners assert that the Department should revise Golden Win's (Gloria's domestic affiliate) G&A expenses because the reported expenses do not include all of the G&A costs incurred by Golden Win. Moreover, the petitioners argue that the total G&A expenses and the total cost of goods sold ("COGs") do not correspond to the "operating expenses" reported in Golden Win's financial statements. Citing to the cost reconciliation portion of the Verification Report, the petitioners state that although Golden Win's cutting expenses were included in its operating expenses, none of the G&A expenses reported appear to include these type of expenses. Furthermore, the petitioners argue that Gloria also failed to include other relevant expenses in Golden Win's G&A calculation that were listed in Golden Win's financial statements. As a result, the petitioners assert that as partial facts available, the Department should rely on the data submitted in Golden Win's financial statements to calculate G&A expenses. Gloria counters that the petitioners' argument should be rejected because it is contrary to the Department's findings as noted in the Verification Report. Gloria argues that the evidence collected at verification shows that all of Golden Win's G&A expenses were properly accounted for and reported accordingly. Gloria notes that the Department not only reconciled the total reported G&A expenses to Golden Win's financial statements, but also randomly selected several accounts to review the source documentation. In addition, Gloria states that the reported G&A amount included all expenses incurred by Golden Win during the POI and this reported amount reconciled to the account "operating expenses" of the company's audited financial statements. Department's Position: We agree with petitioners that the calculation of Golden Win's G&A expenses should be based on its financial statements. The Department's February 20, 2001 questionnaire instructed Gloria to calculate G&A using the full-year G&A expense and COGS reported in its audited financial statements for the fiscal year that most closely correspond to the POI. See the Department's February 20, 2001 Questionnaire at page D-14. Gloria, however, incorrectly reported Golden Win's G&A expenses based on expenses incurred during the POI. The Department's accepted practice is to use the audited fiscal year financial statements that most closely corresponds to the POI to calculate period expense ratios such as G&A. See Final Results of Antidumping Duty Administrative Review: Silicon Metal From Brazil, 63 FR 6900 (February 11, 1998) ("Silicon Metal"). As noted in Silicon Metal, period expense categories such as G&A capture all expenses incurred during a company's standard reporting period, i.e., its fiscal year. The Department normally does not adjust these period expenses to account for certain expenses which were incurred at a particular point in time during the period of investigation. Thus, the methodology used in calculating Golden Win's reported G&A expenses (i.e., based on the POI) is inconsistent with Department policy, and does not accurately reflect expenses realized during the most recent fiscal year for which financial statements were available. Concerning Gloria's contention that the reported expense was verified, the information examined by the Department at verification established that the numbers reported were accurate, not that the methodology reported was necessarily correct. Further, based on our review of the year-end CPA adjustments at verification, we noted an adjustment for "bad debt loss" related to accounts receivable. It is the Department's normal practice not to include losses resulting from bad debt related to accounts receivable in the calculation of G&A expenses. Therefore, we have recalculated Golden Win's G&A expense ratio based on its financial statements with the exclusion of the "bad debt loss" noted in the CPA adjustment. For further discussion, see the January 15, 2002 Calculation Memorandum. Comment 5: Interest Expense Calculation The petitioners argue that Gloria's foreign exchange losses related to cash amounts should be included in the company's interest expense calculation. According to the petitioners, any possible gains or losses are generated as a result of a company's investments in foreign currencies, currency hedgings or from a company's financing activities. The petitioners point out that Gloria's year 2000 Consolidated Statement of Cash Flow indicates that the company incurred losses related to the company's financing activities. The petitioners contend that it is the Department's practice to include exchange gains and losses from financing operations in the calculation of the financial expense ratio. To support their contention, the petitioners cite a decision in the Notice of Final Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Flat- Rolled Carbon Quality Steel Products from Brazil, 64 FR 38765, 38786 (July 19, 1999) (Hot-Rolled Steel from Brazil). According to Gloria, the petitioners' argument is based on a misunderstanding of the evidence on the record and should be rejected. Gloria argues that while the amount cited by the petitioners that appears on its financial statements relates to financing activities, the amount has nothing to do with exchange losses related to cash. Rather, Gloria contends that the amount cited by petitioners was incurred from "increase in short-term debts," "decrease in short-term bills payable," "decrease in bonds payable," "increase (decrease) in long-term debts," and "increase in guaranty deposits received." Gloria asserts that the petitioners' argument is misleading because they cite to a broader category reported in Gloria's consolidated financial statements rather than the amount reported by Gloria for exchange losses related to cash. Furthermore, Gloria states that the reported exchange gains and loses were verified by the Department as complete and accurate without discrepancies. Department's Position: We agree with the petitioners that it is the Department's normal practice to include exchange gains and losses associated with finance transactions in the calculation of the interest expense rate. Gloria's explanation with respect to the amount cited by the petitioners is not supported by evidence on the record. On the contrary, while Gloria listed "exchange loss from notes payable" in its interest expense calculation, there were no amounts reported. See Gloria's April 17, 2001 Questionnaire Response at Exhibit 8-1, 8-2. Therefore, we find that the information on the record supports the petitioners' argument and have recalculated the interest expense ratio accordingly. For further discussion, see the January 15, 2002 Calculation Memorandum. Comment 6: Credit Expenses The petitioners contend that Gloria misreported its U.S. credit expenses. According to the petitioners, because Gloria used the first payment field (i.e., "PAYDAT1U") and excluded the second and third payment fields when it calculated its credit expenses, Gloria understated its U.S. credit expenses. The petitioners further contend that because Gloria did not provide information on the percentages of payment made at each of the payment dates, the Department should recalculate these expenses for the final determination based on the final date payment was received. Gloria counters that the Department verified its reported credit expenses without discrepancies. Gloria contends that it did not receive any benefit based on how it calculated its reported U.S. credit expense because it applied the same methodology to calculate home market credit expenses. Therefore, Gloria concludes that the methodology applied to both the U.S. and home markets is reasonable and does not distort the margin calculation since any understatement of credit expenses would occur on both home market and U.S. sales. Furthermore, Gloria states that the sales with multiple payment installments account for a very small percentage of the total U.S. sales. Department's Position: We agree with the petitioners that Gloria has understated its U.S. credit expenses. While Gloria reported several payment fields, it calculated credit expenses based only on the first payment field. This methodology does not accurately reflect U.S. credit expenses incurred by Gloria. As noted by the petitioners, Gloria has not provided information on the payment made on each of the payment dates reported. Therefore, we recalculated U.S. credit expenses using the last payment date reported. We did not make changes to credit expenses for home market sales. Comment 7: Additional U.S. Sales The petitioners contend that the Department should include the additional U.S. sales provided by Gloria at verification in the final margin calculation because they were sales shipped during the POI. Furthermore, the petitioners contend that a facts available dumping margin should be applied because sufficient information was not submitted to calculate actual margins. Gloria did not comment on this issue. Department's Position: We agree with the petitioners that the additional U.S. sales provided by Gloria at verification should be included in our final calculations. However, we disagree with the petitioners that the application of a facts available margin is warranted in this instance. Gloria has cooperated in this investigation in attempting to provide the Department with the requested information which was sufficient to calculate margins. The Department has reconsidered what should be the appropriate date of sale with respect to Gloria's U.S. sales. For certain U.S. sales, Gloria does not issue the invoice until after the merchandise has been shipped. Based on this practice, and in order to ensure that date of sale does not occur after date of shipment, we find that date of shipment is the more appropriate date of sale with respect to Gloria's U.S. sales. Comment 8: Packing Gloria argues that in order to avoid double-counting, its COM and CV data should be adjusted to exclude packing costs. To support its argument, Gloria cites to the Verification Report, which confirmed that the reported packing costs were included in Gloria's ordinary cost of manufacturing. Gloria concludes that because packing costs had been reported both in the PACKH/PACKU fields of its sales databases and in its reported COM, the total reported packing costs should be deducted from its COP and CV data. The petitioners counter that Gloria's claim that its packing costs have been double-counted is not substantiated by any information on the record. The petitioners contend that the Verification Report demonstrates only that Gloria properly reported its overhead costs. The petitioners argue that there should be no adjustments made to Gloria's reported COP and CV data because Gloria has not sufficiently demonstrated that it included packing costs in its reported VOH/VOHCV fields. The petitioners add that if the Department were to accept Gloria's unsubstantiated claim that packing costs were being double-counted, corrections should be made in the PACKH/PACKU fields. The petitioners further assert that any adjustments made to TOTCOM should be limited to the amount of packing costs claimed by Gloria in its sales databases rather than the amount claimed by Gloria in its financial statements. Department's Position: As noted in the Verification Report, "the packing costs were double-counted because in addition to reporting packing costs in the PACKH/PACKU fields, they were also included in the variable overhead amounts reported in the COP/CV data (VOH, VOHCV)." See the Verification Report at p. 34. We agree with the petitioners that the adjustments made to TOTCOM should be limited to the total packing costs reported by Gloria in its U.S. and home market sales databases, rather than the amount claimed by Gloria in its financial statements. In its June 5, 2001, supplemental questionnaire response, Gloria stated that packing costs were calculated "based on the actual packing type prepared for the SSB sales during the POI, including both domestic and export sales" (at page 15). Based on this statement, it appears that the total packing cost figure based on the financial statements and reported by Gloria for purposes of adjusting TOTCOM may not be limited to actual packing expenses associated with U.S. and home market sales during the POI, but may include packing costs related to sales to other export markets. However, the expenses reported by Gloria in the PACKH/PACKU fields were verified and reflect actual costs of packing the subject merchandise during the POI. Therefore, we have adjusted TOTCOM by deducting the total packing expense as reported by Gloria in its U.S. and home market sales databases. . Comment 9: Variable and Fixed Overhead Adjustment Gloria argues that there should be no upward adjustment to its variable and fixed overhead costs as made in the preliminary determination. To support its claim, Gloria cites to the Verification Report which confirmed that Gloria did not understate variable and fixed overhead costs, but had accurately reported all the costs in its reported COM. The petitioners did not comment on this issue. Department's Position: We agree with Gloria and are not making an upward adjustment to Gloria's variable and fixed overhead costs for the final determination. _______ ________ Agree Disagree _______________________________ Faryar Shirzad Assistant Secretary for Import Administration (Date)