[Federal Register Volume 60, Number 38 (Monday, February 27, 1995)]
[Notices]
[Pages 10552-10558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4727]
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DEPARTMENT OF COMMERCE.
[A-549-809]
Notice of Final Determination of Sales at Less Than Fair Value:
Certain Carbon Steel Butt-Weld Pipe Fittings From Thailand
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: February 27, 1995.
FOR FURTHER INFORMATION CONTACT: Vincent Kane or Julie Anne Osgood,
Office of Countervailing Investigations, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW, Washington, DC 20230; telephone
(202) 482-2815 or 482-0167, respectively.
Final Determination
We determine that certain carbon steel butt-weld pipe fittings
exported by Awaji Sangyo (Thailand) Co., Ltd. (AST), from Thailand are
being sold in the United States at less than fair value, as provided in
section 735 of the Tariff Act of 1930, as amended (the ``Act''). The
estimated margin is shown in the ``Suspension of Liquidation'' section
of this notice.
Case History
Since the publication of the preliminary determination in the
Federal Register on October 4, 1994 (59 FR 50568), the following events
have occurred:
On November 14, 1994, we published in the Federal Register a notice
postponing the publication of the final determination in this case
until February 16, 1995 (59 FR 56461). From October 20 to October 26,
1994, we verified the sales information of AST at its offices in
Samutprakarn, Thailand. From December 2 to December 6, 1994, we
verified AST's cost of production and constructed value data. On
January 23 and January 30, 1995, petitioner and respondent submitted
case and rebuttal briefs to the Department. A public hearing in this
investigation was held on February 6, 1995.
We note that all other producers and exporters of the subject
merchandise in Thailand, which export to the United States, are subject
to an antidumping duty order currently in effect for this merchandise.
(See 57 FR 29702, July 6, 1992.) AST was excluded from this order
because in the previous investigation, the Department found its margin
of sales at less than fair value at that time to be de minimis.
Scope of the Investigation
The products covered by this investigation are certain carbon steel
butt-weld pipe fittings having an inside diameter of less than fourteen
inches (355 millimeters), imported in either finished or unfinished
condition. Pipe fittings are formed of forged steel products used to
join pipe sections in piping systems where conditions require permanent
welded connections, as distinguished from fittings based on other
methods of fastening (e.g., threaded, grooved, or bolted fittings).
Butt-weld fittings come in a variety of shapes which include
``elbows,'' ``tees,'' ``caps,'' and ``reducers.'' The edges of finished
pipe fittings are beveled, so that when a fitting is placed against the
end of a pipe (the ends of which have also been beveled), a shallow
channel is created to accommodate the ``bead'' of [[Page 10553]] the
weld which joins the fitting to the pipe. These pipe fittings are
currently classifiable under subheading 7307.93.3000 of the Harmonized
Tariff Schedule of the United States (``HTSUS''). Although the HTSUS
subheading is provided for convenience and Customs purposes, our
written description of the scope of this investigation is dispositive.
Period of Investigation
The period of investigation (``POI'') is September 1, 1993, through
February 28, 1994.
Such or Similar Comparisons
In making our fair value comparisons, in accordance with the
Department's standard methodology and section 771(16) of the Act, we
first compared sales of merchandise identical in all respects. If no
identical merchandise was sold, we compared sales of the most similar
merchandise, as determined by the model-matching criteria contained in
Appendix V of the questionnaire (``Appendix V'') (on file in Room B-099
of the main building of the Department of Commerce (``Public File'')).
Fair Value Comparisons
To determine whether AST's sales for export to the United States
were made at less than fair value, we compared the United States price
(``USP'') to the foreign market value (``FMV''), as specified in the
``United States Price'' and ``Foreign Market Value'' sections of this
notice. For those U.S. sales compared to sales of similar merchandise,
we made an adjustment, pursuant to 19 CFR 353.57 (1994), for physical
differences in the merchandise. Regarding level of trade, AST reported
that it sells to an importer/distributor in the United States and
directly to distributors, end users, and a commissionaire agent in
Thailand. AST negotiates prices on a sale-by-sale basis and states that
it is unable to discern any correlation between selling prices and
customer categories. Further, AST states that its selling expenses do
not vary by customer category. We examined this issue at verification
and found no evidence that AST's prices or conditions of sale differed
on the basis of level of trade. Therefore, in keeping with established
practice (see, e.g., Final Results of Administrative Review:
Antifriction Bearings and Parts Thereof from the Federal Republic of
Germany, et al. (56 FR 31692, 31709-11; July 11, 1991) and Import
Administration Policy Bulletin 92/1, Matching at Levels of Trade,
issued on July 29, 1992), and in accordance with 19 CFR 353.58, we have
compared AST's U.S. sales to its home market sales to all customers.
We made revisions to AST's reported data, where appropriate, based
on findings at verification.
United States Price
Because AST's U.S. sales of certain carbon steel butt-weld pipe
fittings were made to an unrelated distributor in the United States
prior to importation, and the exporter's sales price methodology was
not indicated by other circumstances, we based USP on the purchase
price (``PP'') sales methodology in accordance with section 772(b) of
the Act.
We calculated PP based on packed, c.i.f. import prices to an
unrelated customer in the United States. We made deductions from the
U.S. price for foreign brokerage, foreign inland freight, ocean freight
and marine insurance.
We made an adjustment to U.S. price for the consumption tax paid on
the comparison sales in Thailand, in accordance with our practice,
pursuant to the Court of International Trade (CIT) decision in Federal-
Mogul, et al v. United States, 834 F. Supp. 1391. See Preliminary
Antidumping Duty Determination and Postponement of Final Determination;
Color Negative Photographic Paper and Chemical Components Thereof from
Japan, 59 FR 16177, 16179, April 6, 1994, for an explanation of this
tax methodology. In accordance with section 772(d)(1)(B) of the Act, we
made an addition to the U.S. price for the amount of import duties
imposed on inputs which were subsequently rebated upon exportation of
the finished merchandise to the United States. (See Comment 2, below.)
Upon exportation of finished pipe fittings, AST receives a drawback
of import duties, which is greater than the import duties that would
have been assessed had the fittings been sold for home consumption. In
our calculation of USP, we limited the addition for drawback to the
amount of duties that would have been assessed had the goods been sold
in the home market. This approach is consistent with section
772(d)(1)(B) of the Act, which provides that the USP shall be increased
by the drawback of any import duties ``imposed in the country of
exportation which have been rebated or not collected by reason of
exportation of the merchandise to the United States.'' Therefore, we
have capped the amount added to USP at the level of the import duties
imposed in the country of exportation.
For U.S. sales which had not been shipped and for which payment had
not been received, we based AST's credit expense on the average number
of days outstanding between shipment and payment for AST's U.S. sales
with reported shipment and payment dates. For a discussion of the
Department's treatment of the appropriate interest rate to use in the
calculation of credit in this investigation, see Memorandum from
Barbara R. Stafford to Susan G. Esserman (September 26, 1994) on file
in room B-099 of the U.S. Department of Commerce.
Foreign Market Value
In order to determine whether there was a sufficient volume of
sales in the home market to serve as a viable basis for calculating
FMV, we compared the volume of home market sales of subject merchandise
to the volume of third country sales of subject merchandise, in
accordance with section 773(a)(1)(B) of the Act. On this basis, we
determined that the home market was viable.
For purposes of calculating FMV, we used AST's sales to its home
market customers and constructed value (CV), as described below.
Cost of Production
Petitioner alleged that AST made home market sales during the POI
at prices below the cost of production (COP). Based on petitioner's
allegation and other information on the record, we concluded that we
had the requisite reasonable grounds to believe or suspect that sales
were made below COP. Thus, in accordance with section 773(b), we
initiated a cost investigation.
In order to determine whether home market prices were below COP
within the meaning of section 773(b) of the Act, we performed a
product-specific cost test, in which we examined whether each product
sold in the home market during the POI was priced below the COP of that
product. We calculated COP based on the sum of AST's cost of materials,
direct labor, variable and fixed factory overhead, general expenses,
and packing, in accordance with 19 CFR 353.51(c). For each product, we
compared this sum to the home market unit price, net of movement
expenses and commissions.
With the following exceptions, we relied on submitted and verified
COP information. Material costs were modified to reflect only the cost
of seamless pipe used in manufacturing the subject merchandise, rather
than a pipe cost which included not only seamless pipe for fittings
within the scope, but also for fittings outside the scope, and for
welded pipe fittings. Also, we used an interest cost based on the
combined interest cost of AST and [[Page 10554]] its parent, ASK,
rather than one based on AST's interest costs alone.
Section 773(b) of the Act requires us to examine whether below cost
sales were made in substantial quantities over an extended period of
time, and whether such sales were made at prices that would permit
recovery of all costs within a reasonable period of time in the normal
course of trade.
For each product where less than ten percent, by quantity, of the
home market sales during the POI were made at prices below COP, we
included all sales of that model for the computation of FMV. For each
product where ten percent or more, but less than 90 percent, of the
home market sales during the POI were priced below COP, we disregarded
those home market sales which were priced below COP for purposes of
calculating FMV, provided that the below-cost sales of that product
were made over an extended period of time. Where we found that more
than 90 percent of respondent's sales were at prices below COP, and
such sales were over an extended period of time, we disregarded all
sales of that product for purposes of calculating FMV.
In order to determine whether below-cost sales had been made over
an extended period of time, we compared the number of months in which
below-cost sales occurred for each product to the number of months in
the POI in which that product was sold. If a product was sold in fewer
than three months during the POI, we did not exclude sales unless there
were below cost sales in each month of sale. If a product was sold in
three or more months, we did not exclude the below-cost sales unless
there were below-cost sales in at least three months during the POI.
If sales below cost occurred in three or more months of the POI,
they are considered to be made over an extended period of time. When
items are sold in just two or three months of the POI, we would
consider below cost sales of these items to be over an extended period
of time, if they occurred in at least two months of the three months.
When items are sold in just one month of the POI, we would consider any
below cost sales of these items to be over an extended period of time.
(See Final Determination of Sales at Less Than Fair Value: Saccharin
from Korea (59 FR 58826, November 15, 1994); and Preliminary Results
and Partial Termination of Antidumping Administrative Review: Tapered
Roller Bearings, Four Inches or Less in Outside Diameter, and
Components Thereof (58 FR 69336, 69338, December 10, 1993)). AST
provided no evidence that the disregarded sales were at prices that
would permit recovery of all costs within a reasonable period of time
and in the normal course of trade. (See, Section 773(b)(2).
Constructed Value
In accordance with section 773(e), we calculated CV based on the
sum of the cost of materials (with adjustments as described in the
``Cost of Production'' section of this notice), fabrication, general
expenses, U.S. packing costs and profit. The cost of materials included
import duties paid on imported seamless pipe used to produce the pipe
fittings. The amount of import duties included in CV was equivalent to
the duties that would have been imposed had the fittings been sold for
home consumption. In accordance with section 773(e)(1)(B)(i) and (ii)
of the Act we: 1) included the greater of AST's reported general
expenses or the statutory minimum of ten percent of the cost of
manufacture (COM), as appropriate; and 2) for profit, we used the
statutory minimum of eight percent of the sum of COM and general
expenses because actual profit was less than the statutory minimum.
Price-to-Price Comparisons
For price-to-price comparisons, we calculated FMV based on packed,
ex-factory or delivered prices to home market customers. From these
prices, we deducted commission, where appropriate. We deducted home
market packing costs and added U.S. packing costs in accordance with
section 773(a)(1) of the Act. We also made adjustments, where
appropriate, for differences in the physical characteristics of the
merchandise in accordance with section 773(a)(1) of the Act.
In light of the Court of Appeals for the Federal Circuit's decision
in Ad Hoc Committee of AZ-NM-TX-FL Producers of Gray Portland Cement V.
United States, 13 F.3d 398 (Fed. Cir., January 5, 1994), the Department
no longer can deduct home market movement charges from FMV pursuant to
its inherent power to fill in gaps in the antidumping statute. Instead,
we adjust for those expenses under the circumstance-of-sale provision
of 19 CFR 353.56(a) and the exporter's sales price offset provision of
19 CFR 353.56(b)(2), as appropriate. Accordingly, in the present case,
we deducted post-sale home market movement charges from the FMV under
the circumstance-of-sale provision of 19 CFR 353.56(a). This adjustment
included home market inland freight.
For both price-to-price comparisons and comparisons to CV, we also
made circumstance-of-sale adjustments, where appropriate, for
differences in credit expenses, pursuant to 19 CFR 353.56(a)(2). In
accordance with 19 CFR 353.56(b)(1), we added U.S. indirect selling
expenses as an offset to the home market commission, but capped this
addition by the amount of the home market commission.
We adjusted for a consumption tax collected in the Thai home
market. (See the United States Price section of this notice, above.)
Currency Conversion
We made currency conversions based on the official exchange rates
in effect on the dates of the U.S. sales as certified by the Federal
Reserve Bank of New York. See 19 C.F.R. 353.60.
Verification
As provided in section 776(b) of the Act, we verified information
provided by the respondent using standard verification procedures,
including the examination of relevant sales, cost and financial
records, and selection of original source documentation. The public
versions of the November 29, 1994, and the January , 1995 verification
reports are available for review in the Central Records Unit located in
room B-099 of the Department's main building, the Herbert C. Hover
Building.
Interested Party Comments
Comment 1
Petitioner observes that according to AST's response, it did not
commence integrated production of tees in Thailand until after the POI.
However, tees were shipped during the POI. Petitioner claims that these
tees must be of Chinese origin because AST identified certain other
tees sold during the POI as being of Chinese origin. Petitioner argues
that, because the tees in question could not have been produced by AST,
the Department should exclude sales of these tees from the
investigation.
AST maintains that it has correctly identified all of the Chinese
tees which it sold in the home market during the POI. Moreover, AST
points out that it indicated in its response that it began a lengthy
testing of its integrated production of tees during the POI. AST claims
that a limited quantity of tees was produced from these test runs and
was sold in the home market. Therefore, AST argues that it properly
included these sales in its home market sales listing.
DOC Position
While there are statements in AST's response that would support
petitioner's [[Page 10555]] conclusion, AST's Section D response does
refer to a lengthy testing period commencing during the POI. In
addition, AST's July 25, 1994, supplemental response in Exhibit 1
specifically identifies certain tees as Chinese tees and the remaining
as tees being produced by AST, including certain tees which were
shipped during the POI. Because AST identified the Chinese tees in
Exhibit 1 of its July 25 response and because the quantity of tees
shipped during the POI is commensurate with production over a prolonged
test run, we have accepted these tees as tees produced by AST and have
included them in the home market data base.
Comment 2
Petitioner claims that the duty drawback amount added to purchase
price was greater than the drawback amount included in the constructed
value, because the drawback amount added to purchase price included
both import duty and value added tax (VAT) paid on purchases of
imported pipe, whereas the drawback added to constructed value included
only the import duty.
AST maintains that the Department properly excluded the VAT on
component material from the constructed value, because AST received a
rebate of this VAT upon exportation of the finished product. Section
773(e)(1)(A) of the Act states, in part, that constructed value shall
include the cost of materials exclusive of any internal tax applicable
in the country of exportation directly to such materials or their
disposition, but remitted or refunded upon the exportation of the
article in the production of which such materials were used. Therefore,
AST contends that the VAT on component materials was properly excluded
in the calculation of CV.
DOC Position
In accordance with the section 773(e)(1)(A) of the Act, our
practice is to exclude indirect taxes on component materials from CV,
if the taxes are rebated upon export. Once we have excluded the VAT on
component materials from the constructed value, we must also exclude it
from the USP because section 772(d)(1)(C) the Act requires that we add
internal taxes to USP but only to the extent that these taxes are
included in the FMV. When FMV is based on CV, no VAT is included in CV
and we are, thus, precluded from adding VAT to the USP.
Comment 3
AST states that following the rationale of section 773(e)(1)(A),
the Department should also not include the import duties on component
materials in constructed value because this duty is also either
refunded upon export or an exemption of the duty is granted by reason
of exportation of the merchandise.
DOC Position
Section 773(e)(1)(A) directs the Department to exclude from
constructed value internal taxes applicable in the country of
exportation but rebated upon export. We do not consider import duties
to be internal taxes. The courts also have recognized that the term
``internal tax'' denotes taxes other than import duties. See Serampore
Indus. Pvt. Ltd. v. United States Dep't of Commerce, Int'l Trade
Admin., 675 F. Supp. 1354, 1357 (CIT 1987). Therefore, in accordance
with past practice (see, e.g., Offshore Platform Jackets and Piles from
the Republic of Korea, 51 FR 11,795, 11,796 (April 7, 1986)), we have
included the import duties on component materials as part of the cost
of materials in our calculation of constructed value.
Comment 4
AST states that in July 1992, it was excluded from the July 6, 1992
antidumping duty order on pipe fittings from Thailand (57 FR 29702)
because its less than fair value margins were de minimis. In view of
this fact, AST maintains that the Department should have applied a more
rigorous standard in determining whether to initiate an investigation
in this case and that, had it done so, the case never would have been
initiated. Contrary to suggestions in the petition, AST argues that
there was no basis to assume that AST's costs had increased by 100
percent in two years, or that U.S. prices showed significant movement
during that time. Therefore, the Department should re-examine its
initiation and terminate the instant proceeding.
Petitioner maintains that nothing in the statute bars the filing of
an antidumping petition against a specific exporter merely because
other exporters of the same product from the same country are already
subject to an antidumping duty order, nor does the statute impose a
higher burden on petitioner in such circumstances. Because the
proceeding was lawfully initiated, no basis exists for questioning the
Department's decision to initiate.
DOC Position
The fact that a petition on the same merchandise was filed in 1991
and AST was excluded from the subsequent antidumping duty order was not
taken into account in our decision to initiate the current case. A
finding at one point in time that a company is not dumping does not
create a presumption that the company will not dump in the future.
Lacking such a presumption, there is no basis for applying a higher
initiation threshold for later filed cases on the same merchandise.
Comment 5
AST claims that the Department should apply the sales-below-cost
test to all sales of such or similar merchandise on a combined basis,
before applying it on a model-specific basis. This was the approach
used in the prior investigation of the subject merchandise (Final
Determination of Sales at Less Than Fair Value: Certain Carbon Steel
Butt-Weld Pipe Fittings from Thailand, 57 FR 21065, 21070, May 18,
1992).
AST points out that the viability test required by section 773(a)
of the Act is done on a such or similar category basis. AST maintains
that section 773(b) of the Act, in discussing sales below cost, makes
reference to section 773(a). Therefore, the test for below cost sales
should also be done on a such or similar category basis.
Further, the language in section 773(b) suggests that the cost test
be applied on a such or similar category basis rather than on a model-
specific basis. Section 773(b) requires the Department to determine
whether ``sales were made at less than the cost of producing the
merchandise.'' Because the term ``merchandise'' has a broader
connotation than the term ``model'' or ``product, the cost test must be
done on a such or similar category basis.
AST claims that the Department's Policy Bulletin 92/3, dated
December 15, 1992, on the 10/90/10 test for below cost sales does not
provide any basis for performing the cost test solely on a model-
specific basis and bypassing the test on a such or similar category
basis.
In addition, AST maintains that the legislative history of section
773(b) indicates that Congress intended that the Department consider
the rationality of exporter's pricing practices, specifically by giving
allowances for model-specific below cost sales at the end of a model
year.
Finally, AST points out that it was excluded from the original
antidumping duty order on butt-weld pipe fittings from Thailand,
because its overall margin of sales at less than fair value
[[Page 10556]] was de minimis. During the original investigation, the
Department applied the two-tiered cost test and AST has continued to
use this test to avoid the possibility of dumping margins. For the
Department to apply a new test in this investigation is unfair.
Petitioner asserts that the Department's model-specific cost test
is in full accord with the requirements and purpose of Section 773(b)
of the Act because this test is the first step to be taken in
determining FMV, which is based on sales of particular models or
products.
Petitioner adds that the need for a model-specific cost test is
particularly evident for a product like pipe fittings. Despite the fact
that pipe fittings come in a wide range of sizes, only about 20 percent
of the sizes account for about 80 percent of the fittings sold. Below
cost sales of low-volume items in the home market might not be screened
out by a cost test applied on a such or similar category basis. If
these sales happen to be compared to high volume items sold for export
to the United States, many less than fair value sales would go
undetected. Clearly, the purpose of the cost test would be defeated by
such an outcome.
DOC Position
In our final determination, we have adhered to the Department's
Policy Bulletin 92/3, which provides that the cost test be done on a
model-specific basis. Policy Bulletin 92/3 is in complete accordance
with the statute and has been consistently applied by the Department
for over two years. The Policy Bulletin states that the cost test is
intended to avoid basing FMV on below cost sales. Because FMV is
determined on a model-specific basis, the Department has chosen to
apply the cost test on a model-specific basis, as well. Otherwise, for
certain models, FMV would likely be calculated on below cost sales.
AST claims that because 773(b) of the Act contains a reference to
773(a), the Department is required to conduct the below cost sales test
on the same basis as the market viability test. The such or similar
viability test is a general test to determine the level of sales
activity to determine the efficacy of spending resources in examination
of those home market sales. The cost test, on the other hand, is
designed to determine which market sales may be used for comparison
purposes. Nothing in the statute, the regulations, or the legislative
history suggests that tests for general home market activity and for
sales below cost must be on the same basis. Because the purposes of the
two tests are different and because the reference in section 773(b) to
section 773(a) clearly does not compel the Department to use the same
procedure for these tests, we followed Department policy and used the
model-specific cost test.
AST's claim that use of the term ``merchandise'' in section 773(b)
requires the Department to apply the cost test broadly is erroneous.
The term ``merchandise'' is used throughout the statute, in some cases
with a broad connotation and in others, in a narrower sense. For
example, when the statute refers to ``the same general class or kind of
merchandise,'' the connotation is broad and includes the entire class
or kind of merchandise under investigation. However, when the statute
defines ``such or similar merchandise,'' the connotation is narrow,
referring to the particular model sold in the home market which is
identical, or most similar to, a particular model sold for export to
the United States. The fact that section 773(b) of the Act uses the
term ``merchandise'' with respect to the cost test does not require us
to apply the cost test on a broad basis.
AST claims that Policy Bulletin 92/3 does not provide any basis for
``bypassing'' a cost test using such or similar categories. The
Department formulated Policy Bulletin 92/3 as a statement of its intent
to implement uniformly a cost test methodology. The Policy Bulletin
itself states that the Department's practice will be to apply the
model-specific cost test in all future investigations and reviews. The
Policy Bulletin need not explain ``bypassing'' the such-or-similar cost
test because, to the extent that the such-or-similar test had been used
in prior cases, it was no longer Department practice when the
Department adopted the model-specific test advocated in the Policy
Bulletin.
The Department uniformly has applied the model-specific cost test
in both investigations and reviews since the bulletin was released.
(See, e.g., Final Determination of Sales at Less Than Fair Value:
Ferrosilicon from Venezuela, 58 FR 27522, 27533 (May 10, 1993); Final
Results of Antidumping Administrative Review: Sweaters, Wholly or
Chiefly of Man Made Fiber, from Korea, 59 FR 17513, 17515 (April 13,
1994)). Given these circumstances, AST had adequate notice as to Policy
Bulletin 92/3's contents and that the Department would apply the model-
specific cost test for all future investigations and administrative
reviews.
Regarding the legislative history's reference to below-cost end-of-
model-year sales, we note that this reference concerns whether below-
cost sales are made over an extended period of time. The end-of-model-
year sales are not relevant to a discussion of whether or not the cost
test can be applied on a model-specific basis.
Comment 6
When AST imports seamless pipe under bond, it becomes liable for
the normal duty of 15 percent, plus an additional surcharge of 3
percent, because the import is made under bond. AST states that it
receives a rebate or an exemption upon export of finished pipe fittings
of the surcharge, as well as the normal duty. Therefore, AST claims
that, in accordance with section 772(d)(1)(B) of the Act, both duty and
surcharge should be added to the USP.
Petitioner claims that AST has acknowledged that the three percent
surcharge is not imposed on seamless pipe used to produce pipe fittings
for home consumption. Section 772(D)(1)(c) provides for an increase in
USP for taxes rebated upon export but only to the extent that such
taxes are added to or included in the home market price. Because the
surcharge is not imposed in the home market, the rebate of the
surcharge on export should not be added to USP. In the alternative, if
the Department determines that the three percent surcharge is imposed
on imported pipe used to produce for home consumption, then it should
include the full 18 percent duty in the COP.
DOC Position
During verification, we established that the three percent
surcharge was imposed on seamless pipe used in the production of home
market fittings, in addition to the normal 15 percent duty. Therefore,
because both duty and surcharge are assessed on pipe used for home
market production and because both are exempted on pipe used for export
production, it is appropriate to include both the duty and the
surcharge in the drawback amount added to USP. In addition, because
both duty and surcharge are clearly a part of the cost of home market
pipe fittings, we included both in our calculation of the cost of
production.
Comment 7
AST maintains that the Department should not recompute AST's
submitted COP and CV interest expense to account for the financing
costs of its Japanese parent, Awaji Sangyo K.K. (``ASK''). According to
AST, under Japanese generally accepted accounting principles
(``GAAP''), only publicly-held companies are required to prepare
consolidated financial statements that [[Page 10557]] include the
operating results of their subsidiaries. Because ASK is a privately-
held Japanese company and not required to prepare consolidated
financial data under Japanese GAAP, AST argues that the Department
should base COP and CV interest solely upon AST's audited
(unconsolidated) financial statement information.
AST notes that the Department has a long-standing practice of
accepting home-country GAAP for purposes of computing COP and CV,
unless it can be shown that those practices distort production costs.
In this case, AST maintains that use of a consolidated interest
calculation would violate ASK's normal GAAP and produce distorted
results since AST receives no loans from ASK and did not receive any
new investment from its parent during the POI.
AST further asserts that despite ASK's ownership interest in AST,
the parent company does not exert ``control'' over its subsidiary's
operations. Instead, AST maintains that it operates independently from
its parent and does not rely on ASK for its production, sales (other
than export sales), engineering, financing, research and development,
or management activities.
Lastly, AST argues that the premise underlying the Department's
policy of using consolidated interest expense in computing COP and CV
(i.e., the fungible nature of invested capital) does not apply in this
case. AST asserts that the presumption of easy transfer (fungibility)
of money between parent and related affiliate is vitiated by the fact
that ASK and AST are located in different countries, whose currency
regulation requirements significantly impede the free flow of money
between countries.
Petitioner alleges that AST has understated its COP and CV by
excluding ASK's financing expense. Petitioner states that, because
capital is fungible, the Department requires consolidated interest
expense when the parent company maintains control over the subsidiary.
ASK maintained control over AST's operations and, for this reason, the
financing expenses of ASK and AST were combined in the Department's
prior antidumping investigation involving AST. (Final Determination of
Sales at LTFV: Certain Carbon Steel Butt-Weld Pipe Fittings from
Thailand, 57 F.R. 21065-69 May 18,1992) Petitioner asserts that there
is no reason for the Department to deviate from its approach in the
previous determination.
DOC Position
We agree with petitioner and have based our calculation of AST's
interest expense for COP and CV on the consolidated operations of AST
and ASK. This methodology is consistent with our long-standing practice
for computing interest expense in cases involving parent-subsidiary
corporate relationships. This methodology has been upheld by the CIT in
Camargo Correa Metals, S.A. v. U.S., Consol. Ct. No. 91-09-00641, Slip
Op. 93-163, at 14 (CIT August 13, 1993).
As petitioner has pointed out, AST has not provided us with any
additional information that would lead us to change our determination,
from the 1992 LTFV investigation of Butt-Weld Pipe Fittings from
Thailand, that the company's interest should be computed based on the
consolidated operations of AST and its parent, ASK. AST's argument that
ASK is not required under Japanese GAAP to prepare consolidated
financial statements ignores the fact that, as a privately-held
corporation, ASK is not subject to the same set of accounting
principles as publicly-held entities in Japan. As in most countries,
one of the major objectives of Japanese GAAP is to ensure consistency
in the accounting principles practiced by publicly-held corporations so
that investors may make informed decisions as to how they invest their
capital. There is no such objective under the Japanese Commercial Code
which governs the accounting practices of privately-held companies like
ASK. It should be noted, however, that were ASK a public company,
certain information submitted by AST indicates that ASK would be
required under Japanese GAAP to consolidate the operations of AST in
its financial statements.
ASK's ownership interest in AST places the parent in a position to
influence AST's financial borrowing and overall capital structure. We
note that, contrary to AST's assertions that AST is an independent
company and not ``controlled'' by its parent, the two companies share
common directors and other corporate officials. In fact, according to
AST, the two companies share the same managing director. ASK also acts
as the selling agent for AST's export sales and provided the
technology, equipment, training, engineers, and capital to establish
AST. Based on this information, it is difficult to see how AST's
operations are independent of its parent to such an extent that we
should ignore our normal practice of computing interest expense on the
basis of the consolidated parent and subsidiary.
Regarding AST's claim that it received no intercompany loans or
additional capital investment from its parent during the POI, we note
that this argument fails to take into consideration any borrowing costs
associated with ASK's initial capital investment in the company. AST
maintains that all interest expense incurred by ASK pertains solely to
the parent's operations. Under this principle, AST would have us accept
that its parent funds its own operations largely through borrowing
while, at the same time, funding its initial investment in AST solely
through equity capital. Such a principle ignores the fact that ASK's
capital structure is comprised of both debt and equity and, as such, it
is neither possible nor appropriate in our analysis for the company to
pick and chose which portions of its parent's operations should incur
the additional interest costs associated with borrowed funds.
Lastly, with regard to AST's claim that transfers between AST and
its parent are not ``fungible'' due to currency fluctuations and
restrictions on currency flows between Thailand and Japan, we note that
this argument misrepresents the fungibility principle underlying the
Department's practice regarding consolidated interest expense for COP
and CV. As noted above, ASK has already purchased a controlling capital
interest in AST. ASK's capital structure is comprised of both debt and
equity. These monies are fungible. That is, one cannot reasonably know
which portion of ASK's capital was used for a specific activity. AST
would have us believe that ASK's debt-based capital was used to fund
the company's production of nonsubject merchandise, while its less
costly equity-based capital was used to establish AST's operations.
This ignores the fact that the parent company's capital is used to fund
all of its operations and cannot be segmented and apportioned to
specific operations in any justifiable manner. Thus, it is the
fungibility of the controlling parent's capital structure that is at
issue and not, as AST argues, the parent's future ability to transfer
funds to its subsidiary.
Comment 8
Petitioner contends that all subject fittings sold in the United
States and the home market were made from seamless pipe. AST's
submitted pipe costs, however, included welded pipe and pipe used to
produce pipe fittings outside the scope of the investigation.
Petitioner states that for purposes of the final determination, AST's
raw material [[Page 10558]] costs should reflect only those costs
attributable to seamless pipe used in manufacturing the subject
merchandise.
AST states that its pipe consumption was calculated based on its
normal accounting inventory subledgers which do not track welded and
seamless pipe separately. Furthermore, the Department verified that
welded pipe accounted for a small percentage of total pipe costs and
the price of seamless pipe was not always higher than welded pipe.
Therefore, AST argues that excluding welded pipe would not materially
alter the weighted average cost of pipe used to produce the subject
merchandise.
DOC Position
In computing COP and CV, it is the Departments's practice to
include only those costs incurred in manufacturing the subject
merchandise. Therefore, we adjusted AST's reported material costs to
exclude the costs incurred for welded pipe and pipe inputs that were
used to produce merchandise outside the scope of this investigation.
Suspension of Liquidation
In accordance with section 733(d)(1) of the Act, we are directing
the U.S. Customs Service to continue to suspend liquidation of all
entries of butt-weld pipe fittings from Thailand, as defined in the
``Scope of Investigation'' section of this notice, that are produced
and sold by AST and that are entered, or withdrawn from warehouse, for
consumption on or after October 4, 1994.
The Customs Service shall require a cash deposit or the posting of
a bond equal to the estimated weighted-average amount by which the
foreign market value of AST's subject merchandise exceeds the United
States price as shown below. The suspension of liquidation will remain
in effect until further notice. The weighted-average dumping margin is
as follows:
------------------------------------------------------------------------
Margin Deposit
Manufacturer/Producer/Exporter percent percent
------------------------------------------------------------------------
Awaji Sangyo (Thailand) Co., Ltd...................... 38.41 37.67
------------------------------------------------------------------------
Adjustment of Deposit Rate for Countervailing Duties
Article VI, paragraph 5 of the General Agreement on Tariffs and
Trade provides that ``[no] product . . . shall be subject to both
antidumping and countervailing duties to compensate for the same
situation for dumping or export subsidization.'' This provision is
implemented by section 772(d)(1)(D) of the Act. Because antidumping
duties cannot be assessed on the portion of the margin attributable to
export subsidies, there is no basis to require a cash deposit or bond
for that amount.
Accordingly, the level of export subsidies as determined in the
most recent administrative review of the countervailing duty order,
Carbon Steel Butt-Weld Pipe Fittings From Thailand; Final Results of
Countervailing Duty Administrative Review (57 FR 5248, February 13,
1992), which was 0.74 percent, will be subtracted from the margin for
cash deposit or bonding purposes. This results in a deposit rate of
37.67 percent for AST. We did not determine an ``all others'' rate in
this investigation, because all other producers and exporters of butt-
weld pipe fittings from Thailand are already subject to an antidumping
duty order on this merchandise, which was published in the Federal
Register on July 6, 1992 (57 FR 29702).
ITC Notification
In accordance with section 735(b) of the Act, we have notified the
ITC of our determination.
Notice to Interested Parties
This notice also serves as the only reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 353.35(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 735(d) of the
Act (19 U.S.C. 1671(d)).
Dated: February 16, 1995.
Barbara R. Stafford,
Acting Assistant Secretary for Import Administration.
[FR Doc. 95-4727 Filed 2-24-95; 8:45 am]
BILLING CODE 3510-DS-P