[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33567-33575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15621]
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[A-201-817]
Final Determination of Sales at Less Than Fair Value: Oil Country
Tubular Goods from Mexico
Agency: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 28, 1995.
FOR FURTHER INFORMATION CONTACT: John Beck or Jennifer Stagner, Office
of Antidumping Investigations, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone (202) 482-3464
or (202) 482-1673, respectively.
Final Determination:
Department of Commerce (the Department) determines that oil country
tubular goods (OCTG) from Mexico are being, or are likely to be, 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
margins are shown in the ``Suspension of Liquidation'' section of this
notice.
Case History
Since the preliminary determination on January 26, 1995, (60 FR
6510, February 2, 1995), the following events have occurred.
In March and April 1995, the Department verified the cost and sales
questionnaire responses of Tubos de Acero de Mexico, S.A. (TAMSA).
[[Page 33568]] Verification reports were issued in April and May, 1995.
On May 9 and 16, 1995, the interested parties submitted case and
rebuttal briefs, respectively. TAMSA submitted revised sales and cost
tapes that corrected clerical errors discovered at verification on May
18 and 23, 1995. A public hearing was held on May 19, 1995.
Scope of Investigation
For purposes of this investigation, OCTG are hollow steel products
of circular cross-section, including oil well casing, tubing, and drill
pipe, of iron (other than cast iron) or steel (both carbon and alloy),
whether seamless or welded, whether or not conforming to American
Petroleum Institute (API) or non-API specifications, whether finished
or unfinished (including green tubes and limited service OCTG
products). This scope does not cover casing, tubing, or drill pipe
containing 10.5 percent or more of chromium. The OCTG subject to this
investigation are currently classified in the Harmonized Tariff
Schedule of the United States (HTSUS) under item numbers:
7304.20.10.10, 7304.20.10.20, 7304.20.10.30, 7304.20.10.40,
7304.20.10.50, 7304.20.10.60, 7304.20.10.80, 7304.20.20.10,
7304.20.20.20, 7304.20.20.30, 7304.20.20.40, 7304.20.20.50,
7304.20.20.60, 7304.20.20.80, 7304.20.30.10, 7304.20.30.20,
7304.20.30.30, 7304.20.30.40, 7304.20.30.50, 7304.20.30.60,
7304.20.30.80, 7304.20.40.10, 7304.20.40.20, 7304.20.40.30,
7304.20.40.40, 7304.20.40.50, 7304.20.40.60, 7304.20.40.80,
7304.20.50.15, 7304.20.50.30, 7304.20.50.45, 7304.20.50.60,
7304.20.50.75, 7304.20.60.15, 7304.20.60.30, 7304.20.60.45,
7304.20.60.60, 7304.20.60.75, 7304.20.70.00, 7304.20.80.30,
7304.20.80.45, 7304.20.80.60, 7305.20.20.00, 7305.20.40.00,
7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90,
7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10,
7306.20.60.50, 7306.20.80.10, and 7306.20.80.50.
After the publication of the preliminary determination, we found
that HTSUS item numbers 7304.20.10.00, 7304.20.20.00, 7304.20.30.00,
7304.20.40.00, 7304.20.50.10, 7304.20.50.50, 7304.20.60.10,
7304.20.60.50, and 7304.20.80.00 were no longer valid HTSUS item
numbers. Accordingly, these numbers have been deleted from the scope
definition.
Although the HTSUS subheadings are 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 January 1, 1994, through June
30, 1994.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the Statute and to the
Department's regulations are in reference to the provisions as they
existed on December 31, 1994.
Such or Similar Comparisons
We have determined for purposes of the final determination that
OCTG covered by this investigation comprises a single category of
``such or similar'' merchandise within the meaning of section 771(16)
of the Act. Where there were no sales of identical merchandise in the
third country 1 to compare to U.S. sales, we made similar
merchandise comparisons on the basis of the characteristics listed in
Appendix V of the Department's antidumping questionnaire. We made
adjustments, where appropriate, for differences in the physical
characteristics of the merchandise, in accordance with section
773(a)(4)(C) of the Act.
\1\ The home market in this case is not viable. Sales to Saudi
Arabia are being used as the basis for foreign market value and cost
of production analysis.
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Fair Value Comparisons
To determine whether TAMSA's sales of OCTG from Mexico to the
United States were made at less than fair value, we compared the U.S.
price (USP) to the foreign market value (FMV), as specified in the
``United States Price'' and ``Foreign Market Value'' sections of this
notice.
United States Price
We calculated USP according to the methodology described in our
preliminary determination, with the following exceptions:
1. We applied the net financial expense of the consolidated parent to
the further manufacturing costs of the related U.S. company, Texas Pipe
Threaders (TPT).
2. We made deductions from gross unit price for movement variances that
represent the difference between the accrual and actual movement costs.
3. We recalculated inventory carrying cost for the inventory time in
the United States using a U.S. interest rate, in accordance with the
Department's practice to use the interest rate applicable to the
currency of the transaction (see Final Determination of Sales at Less
Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings from
Thailand (60 FR 10552, February 27, 1995)).
Foreign Market Value
As stated in the preliminary determination, under 19 CFR 353.48, we
found that the home market was not viable for sales of OCTG and based
FMV on sales to Saudi Arabia. During the course of this investigation
the petitioner questioned the legitimacy of certain transactions made
by TAMSA to the Saudi Arabian market. The Department closely examined
these transactions at verification and found no reason to alter its
decision to use Saudi Arabia as the appropriate market for determining
FMV (see Comment 1 in the ``Interested Party Comments'' section of this
notice).
Cost of Production Analysis
Based on information contained in the petitioner's allegation that
TAMSA is selling OCTG in Saudi Arabia at prices below its cost of
production (COP), the Department initiated a COP investigation for the
Saudi Arabian sales of TAMSA, under 19 CFR 353.51. This COP
investigation was initiated on December 22, 1994. Because TAMSA
submitted its cost information on February 1, 1995, which was after the
preliminary determination, the Department was unable to use this
information for purposes of the preliminary determination.
In order to determine whether the third-country prices were below
the COP, we calculated the COP based on the sum of TAMSA's reported
cost of materials, fabrication, and general expenses, in accordance
with 19 CFR 353.51(c). After computing COP, we compared product-
specific COP to reported third-country prices, net of movement charges
and direct and indirect selling expenses. We accepted TAMSA's COP data,
with the following exceptions:
1. We revised TAMSA's financing expense rate to reflect the first two
quarters of 1994 consolidated results (see Interested Party Comment 6).
2. We revised costs for TAMSA's allocation methodology for fixed costs
and variances based on standard cost (see Interested Party Comment 7).
3. We revised TAMSA's general and administrative (G&A) expenses to
reflect 1994 unconsolidated results (see Interested Party Comment 8).
Results of COP Analysis
Under our standard practice, when we find that less than 10 percent
of a [[Page 33569]] company's sales are at prices below the COP, we do
not disregard any below-cost sales because that company's below-cost
sales were not made in substantial quantities. When we find between 10
and 90 percent of the company's sales are at prices below the COP, and
the below-cost sales are made over an extended period of time, we
disregard only the below-cost sales. When we find that more than 90
percent of the company's sales are at prices below the COP, and the
sales were made over an extended period of time, we disregard all sales
for that product and calculate FMV based on constructed value (CV), in
accordance with 773(b) of the Act.
In accordance with section 773(b)(1) of the Act, in order to
determine whether below-cost sales were made over an extended period of
time, we compare the number of months in which below-cost sales
occurred for each product to the number of months of the POI in which
that product was sold. If a product was sold in three or more months of
the POI, we do not exclude below-cost sales unless there were below-
cost sales in at least three months of the POI. When we find that all
sales of a product only occurred in one or two months, the number of
months in which the sales occurred constitutes the extended period of
time; i.e., where sales of a product were made in only two months, the
extended period of time is two months, where sales of a product were
made in only one month, the extended period of time is one month (see
Preliminary Results and Partial Termination of Antidumping Duty
Administrative Review: Tapered Roller Bearings, Four Inches or Less in
Outside Diameter, and Components Thereof, From Japan (58 FR 69336,
69338, December 10, 1993)).
Following the above type of analysis, we determine that sales below
cost were in substantial quantities over an extended period of time,
and that there were no remaining sales above cost. Accordingly, we
compared USP to CV.
Constructed Value
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of TAMSA's cost of materials, fabrication, general
expenses, and profit. In accordance with section 773(e)(1)(B)(i) and
(ii) of the Act, we included in CV: (1) TAMSA's revised general
expenses because they were greater than the statutory minimum of ten
percent of the COM, and (2) for profit, the statutory minimum of eight
percent of the sum of COM and general expenses because it was greater
than the actual profit, as calculated on a market-specific basis.
We made the same adjustments to TAMSA's reported CV data as to
TAMSA's COP data, as described above.
For CV to U.S. price comparisons, we made deductions from CV, where
appropriate, for the weighted-average third country direct selling
expenses, in accordance with 19 CFR 353.56. We also deducted the
weighted-average third country indirect selling expenses. We limited
this adjustment by the amount of indirect selling expenses incurred on
U.S. sales, in accordance with 19 CFR 353.56(b)(2).
Currency Conversion
Because certified exchange rates for Mexico were unavailable from
the Federal Reserve, we made currency conversions for expenses
denominated in Mexican pesos based on the official monthly exchange
rates in effect on the dates of the U.S. sales as published by the
International Monetary Fund, in accordance with 19 CFR 353.60(a).
Verification
As provided in section 776(b) of the Act, we verified the
information used in making our final determination.
Interested Party Comments
Comment 1: Date of Sale Methodology and Home Market Viability.
The petitioner argues that the date of shipment, rather than the
date of purchase order, is the appropriate date of sale for all home
market transactions. It notes that the Department verified that TAMSA
had home market sales that were shipped prior to TAMSA receiving an
order, and that this was not revealed prior to verification. The
petitioner contends that in Final Determination of Sales at Less Than
Fair Value: Certain Forged Stainless Steel Flanges from India (58 FR
68853, December 29, 1993), the Department found significant
discrepancies between a company's response and the randomly selected
documents and, thus, determined that the response had not been
verified. It also notes that in the Final Results of Administrative
Review of Roller Chain, Other Than Bicycle, from Japan (Roller Chain
from Japan) (54 FR 3099, January 23, 1989), the Department used the
shipment date as the date of sale since orders were taken by phone and
generally shipped before issuance of the sales documentation.
The petitioner further argues that the home market becomes viable
when the date of shipment serves as the date of sale. Because TAMSA did
not report home market sales, the Department should therefore reject
TAMSA's third country sales and use the best information available
(BIA) in its final determination. Because the Department has previously
recognized that the misreporting of the date of sale warrants the use
of BIA, the petitioner asserts that the Department should use the
highest margin provided in the petition, 45.22 percent, as BIA (see
Final Determination of Certain Corrosion-Resistant Carbon Steel Flat
Products and Certain Cut-to-Length Carbon Steel Plate from Mexico (58
FR 37192, July 9, 1993) and Final Determinations of Sales at Less Than
Fair Value: Calcium Aluminate Cement, Cement Clinker and Flux from
France (59 FR 14136, March 25, 1994)).
TAMSA contends that the Department verified the actual volume and
value of TAMSA's home market and third country sales and the basis for
the non-viability determination. It argues that the reported date of
sale methodology was appropriate because the purchase order date is the
date when all substantive terms of sale are finalized.
TAMSA argues that there were a few pre-order shipments in the POI,
and those were the result of an ``aberrational'' request by the
customer for shipment before the customer issued the written order. It
asserts that the Department verified that shipment before receipt of an
order is against company policy and is unusual. TAMSA argues that, in
the rare instance where shipment occurred prior to the order, it
properly reported the date of shipment as the date of sale pursuant to
the Department's instructions and precedent that the date of sale
cannot be later than the date of shipment.
DOC Position
We agree with TAMSA. The Department generally defines the date of
sale as the date when all substantive terms of the sale, particularly
price and quantity terms, are agreed to by interested parties (see
Final Determination of Sales at Less Than Fair Value: Certain Forged
Steel Crankshafts from the United Kingdom (52 FR 18992, July 28,
1987)). At verification, we thoroughly examined TAMSA's home market
sales process, including numerous sales documents, and found that the
price and quantity terms did not change between the date of the
purchase order and the date of shipment.
Furthermore, Roller Chain from Japan is not applicable to this
investigation because, in that investigation, the Department revised
the date of sale because most sales were taken over the phone and
shipped prior to the issuance of a purchase order. We verified that, in
its home market, TAMSA normally ships merchandise after receipt of a
[[Page 33570]] purchase order and found that, only rarely, were sales
shipped prior to receipt of the purchase order.
Thus, based on our findings at verification, we determine that the
date of purchase order is the appropriate date of sale, except when
date of shipment occurred prior to the purchase order, which occurred
rarely. In those instances, date of shipment was the appropriate date
of sale. TAMSA, therefore, properly reported its POI sales.
Comment 2: Cancellations.
The petitioner asserts that, in the instances where purchase orders
were received prior to the shipment date, a substantial number of those
purchase orders in Mexico were cancelled. The petitioner contends that
TAMSA erred in its reconciliation of its reported sales to its
financial statements at verification because the pre-shipments
cancelled orders would not have been recorded as shipments in the
financial statements, thus, arguing that TAMSA must have sold and
shipped this merchandise during the POI prior to issuing the
unexplained cancellations.
In 64K Dynamic Random Access Memory Components from Japan: Final
Determination of Sales at Less Than Fair Value (DRAMs from Japan) (51
FR 15943, April 29, 1986), the Department determined that no binding
agreement had been entered into as of the purchase order date (because
there were significant cancellations) and found that the appropriate
date of sale was the shipment date since this was the earliest point in
the transaction at which any sort of binding commitment could be
inferred. The petitioner thus argues that the purchase order does not
constitute a binding commitment between the parties; and, consequently,
the Department should find that the shipment date represents the date
of sale as it did in DRAMs from Japan.
Moreover, the petitioner contends that if the Department accepts
the order date as the basis for determining home market sales and if
the Department disallows post-petition credit memos and order
cancellations, the home market was viable during the POI. It notes that
disallowing post-petition credit memos and order cancellations is
consistent with the Department's policy of not allowing rebates which
are instituted retroactively after the filing of a petition (see
Antidumping Manual and Preliminary Determination of Sales at Less Than
Fair Value and Postponement of Final Determination: Antidumping Duty
Investigation of Color Negative Photographic Paper from Japan (59 FR
16177, April 6, 1994)).
TAMSA argues that the invoice cancellations did not affect the
terms of the purchase order and had no contractual significance. TAMSA
states that the amounts in question represent credit memos, corrections
to the booking and invoicing processes, or cancelled invoices, not
cancellations in the orders, and that they had no effect on the
quantity ordered.
TAMSA asserts that DRAMs from Japan does not support the
petitioner's date of sale argument. In that investigation, the
Department determined that neither party to the purchase order intended
it to be a binding agreement or treated it as such. TAMSA argues that
this situation does not apply to its home market sales process because
the customer's order constitutes the binding sales agreement between
the parties, and the Department found there were no changes in the
sales terms from the order date to the invoice date. Thus, its date of
sale methodology is correct.
DOC Position
We agree with TAMSA. At verification, we found that these
``cancellations'' were, for the most part, changes to invoices (e.g.,
correcting for a wrong shipment date) or were credit memoranda; they
were not similar to post-petition rebates as the petitioner claims.
DRAMs from Japan is inapposite because, in that case, the
respondent argued that it did not normally acknowledge purchase orders,
but instead stated that its normal acceptance of an order occurs when
the order is actually shipped. Furthermore, the Department found, in
that case, in addition to cancellations by both parties, that there
were frequent price revisions.
At verification, we thoroughly examined TAMSA's sales process and
found that the purchase order is the binding agreement; the terms did
not change between the order date and the shipment date. Thus, we
determine that the order date, when used as the basis for date of sale,
was appropriate.
Comment 3: Possible Exclusion of a Certain Saudi Arabian
Transaction.
The petitioner argues that a certain Saudi Arabian transaction
should be excluded because the date of sale was misreported and
incorrectly included in the POI. Because the essential terms of sale,
specifically the payment terms, for this transaction were not fixed on
the reported date of sale, the Department should determine that the
date of sale is outside the POI. The petitioner notes that it is the
Department's policy to determine the date of sale to be the date on
which all substantive or material terms of sale are agreed upon by the
parties (see Antidumping Manual). In Roller Chain from Japan, the
Department found that the shipping documents were the first written
evidence of the merchandise, price, quantity, and payment terms and,
therefore, determined that the shipment date was the appropriate date
of sale.
The petitioner also contends that its claim is supported by Mexican
Commercial Law and notes that the Department has recognized that this
type of foreign contract law analysis is relevant in determining when a
sale occurs for the purposes of the antidumping laws (see DRAMs from
Japan).
TAMSA argues that the verification report acknowledged that the
purchase order by the Saudi customer is the ``culmination of the
negotiating process,'' establishing the essential terms of sale, which
did not change between order and shipment. It argues that
communications between the parties between the quote and the order
normally are not referenced in the order, and that it is ``not unusual
for negotiation during this period to take place.''
In addition, TAMSA contends that the Department verified that the
customer's order constitutes the contract between the parties and that
before the order is issued (including the time between bid and order),
the parties may conduct negotiations. Since the purchase order is the
earliest date of agreement between the parties on the terms of sale,
the purchase order date is the proper date of sale.
TAMSA states that the Department normally finds that the purchase
order constitutes the date of sale, focusing on the intent of the
parties to be bound by the order (see Final Determination of Sales at
Less Than Fair Value: Certain Small Business Telephone Systems and
Subassemblies Thereof from Taiwan (54 FR 42543, October 17, 1989)).
TAMSA notes that, in Notice of Final Determination of Sales at Less
Than Fair Value: Disposable Pocket Lighters from the People's Republic
of China (60 FR 22359, May 5, 1995), the Department considered the date
of sale to be the date on which all substantive terms of sale (normally
price and quantity) are agreed to by the parties, and that, in Roller
Chain from Japan, the Department found that payment terms are not an
essential term of sale.
In DRAMs from Japan, TAMSA maintains that the Department based its
date of sale determination on the intent of the parties. TAMSA argues
that the opinion by the Mexican lawyer on [[Page 33571]] Mexican law
provided by the petitioner omitted the fact, which the Department
verified, that between the quotation and the order there were
additional negotiations on the key sales terms in the order, and that
the action of the parties illustrate an intent by the parties to
contract on the order date.
DOC Position
We agree with TAMSA. The issue regarding the price and quantity
differences between the quotation and purchase order was argued
extensively by the parties and was examined thoroughly by the
Department at verification. At verification, the Department found no
written evidence of changes in the sales terms after the purchase
order.
The Department normally considers the essential terms of sale to be
price and quantity. We believe that, in this case, the term of payment
is not an essential term of sale because the terms of payment are
similar for all of TAMSA's sales to Saudi Arabia. Furthermore, at
verification, the Department examined all relevant sales documentation
of the transaction, including the quotation, purchase order, invoices,
and letters of credit. We did not find any discrepancies with the
documentation. Thus, we are not excluding this transaction from our
analysis.
Comment 4: Whether a Certain Saudi Arabian Transaction Was Made
Outside the Ordinary Course of Trade.
The petitioner argues that a certain Saudi Arabian transaction
should be excluded because it was made outside the ordinary course of
trade (i.e., was not made under normal conditions and practices). It
cites to Final Determination of Sales at Less Than Fair Value: Sulfur
Dyes, including Sulfur Vat Dyes, from the United Kingdom (Sulfur Dyes
from the U.K.) (58 FR 3253, January 8, 1993) to support its argument.
TAMSA argues that this Saudi Arabian transaction was consistent
with its terms and processes for all of its other Saudi Arabian
transactions; thus, it was made in the ordinary course of trade. At
verification, the Department examined documentation for the reported
Saudi sales and confirmed that they were made with a large, unrelated
customer. TAMSA further asserts that the Department verified sales
prior and subsequent to the POI, and found that the transaction in
question was consistent with the terms and process for other Saudi
Arabian sales.
TAMSA argues that this Saudi Arabian transaction was consistent
with its practice for other Saudi Arabian transactions. TAMSA argues
that the actions of the parties illustrate that the purchase order
finalizes the sales terms and concludes the sale; specifically, once it
receives an order, it secures a letter of credit guaranteeing payment
and begins production based on the terms in the order. Although after
the order there are no further contractual communications between the
parties until shipment and invoicing, the customer plans and arranges
for delivery and payment, and there are no changes to the terms of sale
between order and shipment, which TAMSA argues was verified by the
Department as the common practice for all Saudi sales.
In Sulfur Dyes, TAMSA maintains that the Department found a sale to
be outside the ordinary course of trade because it was larger than
other sales and was made at a lower price pursuant to a special
agreement. Because the transaction in question was similar to other
Saudi Arabian transactions, TAMSA argues that Sulfur Dyes is not
applicable to this investigation.
DOC Position
We agree with TAMSA. Under 19 CFR 353.46(b), in determining whether
a sale was made in the ordinary course of trade, the Department
considers the ``conditions and practices'' which have been normal in
the trade of the subject merchandise. At verification, we found no
abnormalities in the sales terms as compared to other Saudi Arabian
sales. We also verified that the procedures followed in this
transaction were consistent with the procedures in other Saudi Arabian
transactions. Regarding the delivery time, we do not believe that
differences in average time between order and shipment is evidence that
the sales were outside the ordinary course of trade. The shipments were
made within the period stipulated in the purchase order.
Furthermore, Sulfur Dyes from the U.K. does not apply to this
investigation because the sales terms of the transaction in question
are not significantly different than the sales terms of TAMSA's other
Saudi Arabian transactions. For these reasons, we are not excluding
this sale from our analysis.
Comment 5: Possible Extension of the POI.
The petitioner argues that the Department's decision not to extend
the POI to capture TAMSA's sales in the home market contradicts the
antidumping statute and regulations. The statutory and regulatory
provisions establish a preference for the home market as the basis for
FMV, and permits the Department to use third country sales data or
constructed value only if it has determined that home market sales are
small with respect to third country sales.
The petitioner notes that the Department's regulations state that
it can extend the POI ``for any additional or alternative period'' that
it determines is appropriate. The Department has extended the POI in
prior proceedings where the six-month period ``did not adequately
reflect the sales practices of the firms subject to the investigation''
(see Preliminary Determination of Sales at Not Less Than Fair Value:
Thermostatically Controlled Appliance Plugs and Internal Probe
Thermostats Therefor from Hong Kong (Thermostats from Hong Kong) (53 FR
50064, December 13, 1988) and Notice of Final Determination of Sales at
Less Than Fair Value: Defrost Timers from Japan (59 FR 1928, January
13, 1994)). If the Department expanded the POI an additional six
months, TAMSA's home market sales would be viable.
TAMSA argues that the Department's preference for the home market
simply means that it should look first to home market prices, and only
select alternatives when the home market is not viable. TAMSA asserts
that the Department has already determined that the home market is not
viable in its November 3, 1994, memorandum from Richard W. Moreland to
Barbara R. Stafford. SKF USA, Inc. v. United States, 762 F. Supp. 344,
page 352 (CIT 1991) acknowledged that ``as home market sales are the
statutorily preferred choice for comparison in FMV calculations, the
ITA cannot use third country sales without first making a definitive
determination that the home market is not viable'' (see also U.H.F.C.
Co. v. United States, 916 F.2d 689, page 696 (Fed. Cir. 1990)).
TAMSA further asserts that the cases cited by the petitioner
concern long-term contracts and U.S. and third country sales and do not
involve the extension of the POI solely to change home market
viability, thus, arguing that those cases do not apply to this
investigation.
DOC Position
We agree with TAMSA. According to 19 CFR 353.42(b), the POI will
normally include the month in which the petition is filed and the five
months prior to the filing of the petition, but the Department has the
discretion to examine any other period which it concludes is
appropriate.
The Department has previously expanded the POI. In Thermostats from
Hong Kong, the home market sales were [[Page 33572]] inadequate and the
Department expanded the POI in order to base FMV on third country sales
rather than on constructed value. In Defrost Timers from Japan, the
Department extended the POI to include a long-term contract. However,
the Department has never extended the POI to change the home market
viability ratio.
This investigation is unlike Thermostats from Hong Kong and Defrost
Timers from Japan because we have determined that sales to Saudi Arabia
is the appropriate basis for calculating FMV and there are no sales
made pursuant to long-term contracts.
According to 19 CFR 353.48(a), if the quantity of the subject
merchandise sold in the home market is so small in relation to the
quantity sold for exportation to third countries (normally less than
five percent of the amount sold to third countries) that it is an
inadequate basis for FMV, the Department will calculate FMV based on
third country sales or constructed value.
We have verified TAMSA's reported home market and third country
sales volumes and have determined that the home market is not viable
during the POI because the home market sales were less than five
percent of sales to countries other than the United States.
For these reasons, we are not extending the period of
investigation.
Comment 6: Appropriate Financial Expense.
The petitioner argues that the 1994 financial statements were
critically important to this investigation and TAMSA systematically
withheld these statements from the Department. The petitioner further
asserts that the 1994 financial statements were undeniably available at
the time of verification. As proof of this, the petitioner submitted,
with its case brief, TAMSA's 1994 financial statements filed with the
Mexican securities oversight agency and the Mexico Stock Exchange prior
to the completion of verification. The petitioner argues that TAMSA
refused to provide 1994 financial statement information because it
reflected considerably higher costs than the amounts reported in the
submission which were based on 1993 results.
Therefore, the petitioner contends that the Department must use
uncooperative BIA in this situation. The petitioner argues that as BIA
the COP and CV interest expense should be based on the interest costs
of 95 percent from TAMSA's 1994 consolidated financial statements
without any adjustment for the extraordinary costs associated with the
devaluation of the Mexican currency.
TAMSA asserts that it has fully cooperated with the Department's
requests for financial statements. TAMSA refutes the Department's cost
verification report, claiming that company officials did not state that
1994 financial statements would be available at a particular time.
TAMSA notes that the unaudited, unconsolidated trial balance was
presented at the cost verification. At the further manufacturing
verification, TAMSA presented a press release which provided summarized
unaudited 1994 financial results. Thus, TAMSA contends, it has provided
accurate responses to the Department's requests. TAMSA argues that the
Department should follow its practice and rely on the most recently
available audited financial statements, which in this case would be the
1993 statements, to calculate financial and general and administrative
(G&A) expenses. TAMSA notes that in the final determination of Final
Determination of Sales at Less Than Fair Value: Furfuryl Alcohol from
Thailand (Furfuryl Alcohol from Thailand) (60 FR 22557, May 8, 1995)
the Department used the most recent fiscal year for which the
respondent had complete and audited financial statements. TAMSA further
argues that the dramatic devaluation in the Mexican currency reflected
in the 1994 financial statements occurred well after the period of
investigation and is not representative of the comparatively stable
period experienced in 1993 and the first half of 1994. Finally, TAMSA
believes that it would be arbitrary and unjustified to use BIA in this
situation.
DOC Position
We agree, in part, with petitioner. In antidumping investigations,
we require respondents to provide accurate responses to our requests
for information. In this case, the record demonstrates that the
Department requested TAMSA's 1994 financial statements. Although the
financial statements were not available when TAMSA filed its initial
responses to the Department's questionnaires, these statements did
become available during the course of the investigation. Indeed,
although unaudited, these financial statements were filed with the
Mexican Securities Exchange. However, TAMSA failed to provide the 1994
financial data to the Department when it became available, even though
the Department specifically requested the information at verification.
We believe that a failure to be forthcoming with information during
verification is a serious problem.
Section 776(c) of the Act states that the Department will use BIA
``whenever a party or any other person refuses or is unable to produce
information requested in a timely manner and in the form required''
(see also 19 CFR 353.37). Accordingly, because TAMSA withheld
information requested by the Department, the statute requires us to use
BIA for this information.
As BIA, we calculated interest expense using TAMSA's financial
statements for the first two quarters of 1994. The January--June 1994
financing expense is substantially higher than the 1993 amount, in part
due to the fact that the Mexican peso lost approximately nine percent
of its value during the POI. Our finding is adverse because the full
effect of the change in the value of the currency that occurred during
the POI is reflected in the cost of financing for the first two
quarters of the fiscal year. Had it not been necessary to resort to
BIA, our calculation methodology would have resulted in a lower
financing expense.
However, contrary to petitioner's request, we have not calculated
TAMSA's financial expense based on the annual statements for 1994
because (1) the sudden and severe devaluation in December 1994--a drop
of over 50 percent in the value of the Mexican peso--makes TAMSA's
annual financial results unrepresentative of the POI and severely
distortive, and (2) the devaluation occurred well after the POI.
Thus, we reject TAMSA's request that we use 1993 financial data.
This information is not the most current information available, is not
indicative of the expenses incurred during the POI, and would reward
the respondent for not fully cooperating in the investigation.
Finally, TAMSA's reliance on Furfuryl Alcohol from Thailand to
support the use of financial expense from the 1993 audited financial
statements is misplaced. In that case, respondents fully cooperated
with respect to the Department's request for available information,
unlike the situation in this investigation.
Comment 7: Allocation Methodology for Nonstandard Costs.
In its normal accounting system, TAMSA calculates, in total, the
amount of the price variances, efficiency variance, total depreciation
and other fixed costs. It does not normally allocate these costs to
individual products. For financial statement purposes, TAMSA includes
the total nonstandard costs in the cost of goods sold. For purposes of
responding to the Department's questionnaire, TAMSA developed a
methodology to allocate nonstandard costs to its submitted per unit
COPs and [[Page 33573]] CVs based on machine time for a single process
(the finishing line).
The petitioner argues that TAMSA's allocation methodology for
variances, depreciation and other fixed costs (termed ``nonstandard''
costs) distorts actual production costs because it shifts overhead
expenses to products which undergo more finishing. This allocation
methodology may also shift costs to products purchased from Siderca
S.A.I.C., a related entity, if TAMSA is finishing the Siderca-produced
products. Furthermore, the relative finishing line time TAMSA used as
the allocation basis for variances and fixed costs is the least
accurate method for allocating these costs to specific products. The
petitioner asserts that finishing costs are only a fraction of the
costs incurred in other production processes. The differences resulting
from the finishing process will have little or no relationship to
product-specific cost differences in the other processes.
As a result, the petitioner argues that the Department should apply
BIA. As BIA, the Department should allocate the costs on a per-ton
basis over all production. The petitioner discounts the usage of
standard costs as a basis for allocation since the major component of
standard costs is materials.
TAMSA argues that machine time at the finishing line is the most
appropriate basis for allocating nonstandard costs according to
accounting theory. Production, and therefore costs, are dependent on
the slowest machine in the entire production process. TAMSA asserts
that the finishing line is the slowest process and argues that the
alternative of allocating nonstandard costs on a per-ton basis ignores
all differences in machine usage and physical differences between
products. Similarly, it contends that allocating nonstandard costs
based on standard costs would ignore the relationship of machine usage
for physically different types of products.
DOC Position
We agree with the petitioner that TAMSA's allocation methodology
for fixed costs and variances distorts actual production costs because
it shifts overhead expenses to products which undergo more finishing.
The basic premise that machine time can be a reasonable and appropriate
allocation basis for depreciation costs is well substantiated in both
accounting (Davidson & Weil, Handbook of Cost Accounting, Prentice
Hall, 1978) and Departmental practice (Final Determination of Sales at
Less Than Fair Value; Steel Wire Rope from Korea (58 FR 11029, February
23, 1993)). However, TAMSA did not rely on total machine time as the
basis for allocation. Instead, TAMSA based its allocation on the
standard time for only one production step, the finishing line. Thus,
TAMSA's allocation basis did not reflect the machine time for other
processes performed. TAMSA's methodology allocated more than just
depreciation expenses based on the finishing line time. It also
allocated material and energy price variances, efficiency variance, and
other fixed costs on the basis of standard finishing line. TAMSA's
chosen allocation methodology ignored the cost drivers for the price
variances, efficiency variance and other fixed costs. These costs are
not driven by machine time, as they are more closely associated with
material and transformation costs. For these reasons, machine time is
not the appropriate allocation basis for costs other than depreciation.
The petitioner's recommendation of allocating nonstandard costs on
a per-ton basis would allocate the same nonstandard cost to each ton
produced. This type of allocation would not accurately reflect the
processes needed to produce each product, or the differences in the
machine time and labor hours for each product. Similarly, it does not
capture the specific costs of the materials required to produce
different products.
The petitioners argument against using standard cost as the
allocation basis for the variances and fixed costs because a large part
of the standard costs is material cost is unfounded. The variances
being allocated include material price and material efficiency
variances. Therefore, the appropriate cost driver for the material
variances (materials) is included in the standard costs.
We have used total standard cost as the appropriate allocation
basis for the nonstandard costs. Total standard cost factors in machine
time, labor hours, direct and indirect material cost and usage, labor
cost and usage, energy cost and usage, other variable costs,
maintenance, and other services. Therefore, we revised the COP and CV
to include nonstandard costs as a percent of total standard costs.
Comment 8: Calculation of G&A Expenses.
TAMSA submitted G&A expenses based upon 1993 financial statements.
The petitioner argues that TAMSA should have used G&A expenses from its
1994 financial statements since they encompass the POI. Further, the
petitioner argues that the Department should base G&A expenses on BIA
because TAMSA has systematically withheld its 1994 consolidated
financial statements from the Department (see complete discussion at
Comment 6). As BIA, the petitioner recommends that the Department rely
on the reported amounts in the company's consolidated 1994 financial
statements which were filed with the Mexican securities oversight
agency.
TAMSA refutes the petitioner's arguments saying it has fully
cooperated with all Department requests. TAMSA asserts that the
different format and form of the information filed on the public record
with the U.S. and Mexican authorities and the time lag between
publication in the United States and filing with the SEC has led to
some confusion.
DOC Position
We agree, in part, with the petitioner that it is inappropriate to
use the 1993 G&A expenses. (See DOC position regarding Comment 6.) We
disagree with the petitioner, however, that BIA is appropriate because
TAMSA provided us with the 1994 G&A information that the Department
requested. As indicated in the questionnaire, it is the Department's
standard practice to calculate G&A based on the financial statements of
the producing company that most closely relates to the POI, which, in
this investigation, is January 1, 1994 through June 30, 1994.
Therefore, the appropriate financial statement for TAMSA's G&A
calculation is TAMSA's unconsolidated 1994 financial statement. We used
the 1994 G&A expenses from the unconsolidated producing entity.
All other comments concerning G&A are moot, as they concerned the
calculation of G&A using the 1993 financial statements.
Comment 9: Depreciation Expenses.
The petitioner argues that TAMSA's reported depreciation expense
was based on overstated useful lives and that TAMSA's appraised value
of assets was less than the acquisition cost adjusted for inflation.
Therefore, the petitioner argues that the submitted depreciation
expense was understated. The petitioner contends that TAMSA's
depreciation methodology is contradictory to U.S. practice and distorts
the POI actual costs. The petitioner concludes that the Department
should increase TAMSA's depreciation expense to reflect the difference
between TAMSA's average useful life of all assets and its purported
U.S. useful life.
TAMSA argues that its method of reporting depreciation expenses is
consistent with Mexican GAAP. TAMSA argues that the petitioner has
[[Page 33574]] not provided any evidence to support its assertion that
Mexican GAAP distorts costs. The Department verified the asset values
and useful lives at the cost verification and has accepted Mexican
GAAP's treatment of assets in Porcelain-on-Steel Cooking Ware from
Mexico; Final Results of Antidumping Administrative Review (Cooking
Ware from Mexico)(60 FR 2378, January 9, 1995).
DOC Position
We agree with TAMSA. The Department has relied on the revaluations
required by Mexican GAAP in other cases, such as Cooking Ware from
Mexico. We made no adjustment for the useful life of the assets because
there is no evidence that the lives used in the depreciation
calculation were overstated. In fact, as reflected in the cost
verification report, the Department reviewed the depreciation schedules
and calculations and found them to be reasonable. Mexican GAAP requires
an annual revaluation of assets. The annual revaluation was performed
by an independent appraiser and it calculates the useful life remaining
for depreciation expense calculation, and the valuation of the asset.
Therefore, the petitioner's assertion that we should use the asset life
as prescribed for U.S. income tax depreciation as a surrogate for the
asset life determined by the independent appraiser is unfounded.
Comment 10: Periodic Maintenance and Shut-Down Costs.
The petitioner argues that TAMSA's reported costs fail to capture
the variance associated with the actual shutdown costs.
The Department should increase the nonstandard costs for the
difference between the POI efficiency variance and the entire year
efficiency variance. It claims that, since the actual shutdown occurs
in August, the appropriate efficiency variance is the annual variance,
not the POI variance as used by TAMSA.
TAMSA argues that it properly captured the periodic maintenance and
shut-down costs for the POI. TAMSA argues that its accrual for repair
and maintenance in the POI was carefully established through a thorough
analytical process over a series of months and was approved by plant
engineers and management.
DOC Position
We agree with TAMSA. TAMSA accrues a monthly amount for the annual
shutdown which occurs in August. The difference between the accrued
shutdown expenses and the actual expenses was captured in the
efficiency variance. There is no evidence on the record indicating any
difference between the accrued and actual plant shutdown costs. The
actual expenses for the annual shutdown could be either higher or lower
than the accrued amount. The efficiency variance includes elements
other than the difference between accrued and actual shutdown costs. It
also reflects all other variances in efficiency. The petitioner's
argument to use the annual efficiency variance to capture the variance
in shutdown costs would have the effect of capturing other variances
that did not relate to production in the POI.
Comment 11: CV Interest Offset.
The petitioner asserts that TAMSA improperly included raw materials
and semi-finished products and non-customer accounts receivables in the
CV interest offset. The petitioner argues that the Department should
revise the CV interest offset for the final determination.
TAMSA did not comment on this issue.
DOC Position
We agree with the petitioner. TAMSA's calculation of the CV
interest offset was in error. As part of the Department's normal
methodology, we allow only finished goods inventory and customer
accounts receivable as an offset to CV interest expense. This offset
avoids double counting interest expense captured in the imputed
inventory carrying cost and the imputed credit expense. We revised the
CV financial expense ratio to reflect only the finished goods inventory
and the customer accounts receivable as an offset.
Comment 12: Rental Payments in Further Manufacturing Costs.
The petitioner argues that TAMSA's related company which performs
further manufacturing in the United States, TPT, reduced its general
expenses by net rental income received from Siderca Corp. The
petitioner contends that this is inappropriate and the income should be
removed.
TAMSA disagrees with the petitioner's assertion and clarifies that
the gross rental payments received by TPT are net rental income in
excess of expenses. In addition, TAMSA argues that the rental income is
directly offset by rent expenses reported on the books of Siderca Corp.
TAMSA argues that the petitioner's request would overstate expenses by
recognizing the rental expense as a selling expense and by not
recognizing the offsetting rental revenue as a reduction to further
manufacturing G&A.
DOC Position
We agree with TAMSA. The Department verified that the rental
payments made by Siderca are reflected as a selling expense on its
books. The depreciation, utilities, taxes, and other expenses
associated with the rental property are reflected on TPT's books. If we
disallowed the rental income offset, the expenses of the entities as a
whole would be overstated.
Comment 13: Financial Expenses in Further Manufacturing Costs.
The petitioner argues that TAMSA failed to add financial expenses
to the further manufacturing cost of unrelated companies. The
petitioner argues that the consolidated interest expense of TAMSA
should be applied to the amount charged to TAMSA by the unrelated
further manufacturer.
TAMSA argues that it properly reported the amount charged by the
unrelated further manufacturers. The fee it was charged includes an
amount for financial expense, because it must be assumed that the
unrelated further manufacturer charges an amount that would cover all
of its costs, including financial costs. TAMSA also argues that it
properly included the financial expenses of TIC and Siderca Corp. as
selling expenses and TPT's financial expense as a further manufacturing
cost on merchandise processed by TPT.
DOC Position
We agree with TAMSA. We verified that TAMSA included the amount
charged by the unrelated further manufacturers in its submitted costs.
This fee includes financing and G&A costs incurred by the unrelated
further manufacturer. If we added TAMSA's financing costs to the costs
reported for the unrelated company, we would be burdening an arm's-
length transaction with inappropriate costs. For products further
manufactured by TPT, TAMSA included TPT's G&A, and we added the
consolidated parents financial expense, pursuant to the Department's
practice (see Final Determination of Sales at Less Than Fair Value: New
Minivans from Japan (57 FR 21937, May 26, 1992)).
Suspension of Liquidation
Pursuant to section 735(c)(1)(B) of the Act, we will instruct the
Customs Service to require a cash deposit or posting of a bond equal to
the estimated final dumping margins, as shown below for entries of OCTG
from Mexico that are entered, or withdrawn from warehouse, for
consumption from the date of publication of this notice in the Federal
Register. The suspension of liquidation will remain in effect until
further notice.
[[Page 33575]]
------------------------------------------------------------------------
Weighted-
average
Manufacturer/producer/exporter margin
percentage
------------------------------------------------------------------------
Tubos Acero de Mexico, S.A................................. 23.79
All Others................................................. 23.79
------------------------------------------------------------------------
International Trade Commission (ITC) Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. The ITC will make its determination whether
these imports materially injure, or threaten injury to, a U.S. industry
within 75 days of the publication of this notice, in accordance with
section 735(b)(3) of the Act. If the ITC determines that material
injury or threat of material injury does not exist, the proceeding will
be terminated and all securities posted as a result of the suspension
of liquidation will be refunded or cancelled. However, if the ITC
determines that material injury or threat of material injury does
exist, the Department will issue an antidumping duty order.
Notification to Interested Parties
This notice serves as the only reminder to parties subject to
administrative protective order (APO) in this investigation of their
responsibility covering the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 353.34(d).
Failure to comply is a violation of the APO.
This determination is published pursuant to section 735(d) of the
Act and 19 CFR 353.20(a)(4).
Dated: June 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15621 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P