65 FR 36406, June 8, 2000 A-122-506 NSR: 6/1/98-11/30/98 Public Document OIV: NN MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary For Import Administration SUBJECT: Issues and Decision Memo for the New Shipper Review of Oil Country Tubular Goods from Canada -- June 1, 1998 through November 30, 1998 Summary We have analyzed the comments and rebuttal comments of interested parties in the 1998 new shipper review of the antidumping duty order covering oil country tubular goods from Canada. As a result of our analysis, we have made changes in the margin calculations, including corrections resulting from verification. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is a complete list of the issues in this new shipper review for which we received comments and/or rebuttals by parties: Cost of Production/ Constructed Value Product Specific Costs Date of Sale Contract Date versus Invoice Date Home Market Sales and Export Price Sales Billing Adjustments Background On November 30, 1999, the Department of Commerce ("the Department") published the preliminary results of administrative review of the antidumping duty order on oil country tubular goods ("OCTG") from Canada (64 FR 66886). The review covers one manufacturer/exporter, Atlas Tube, Inc. ("Atlas"). The period of review ("POR") is June 1, 1998 through November 30, 1998. We invited parties to comment on our preliminary results of review. Comments were submitted by petitioners, Lone Star Steel Company and Maverick Tube Corporation, (collectively "the petitioners"), on March 21, 2000, and rebuttal comments by respondent, Atlas, on March 28, 2000. None of the interested parties requested a public hearing, therefore none was held. The Department has conducted this administrative review in accordance with section 751 of the Tariff Act of 1930, as amended ("the Act"). Verification As provided in section 782(i) of the Act, we conducted verifications of the information provided by Atlas. We used standard verification procedures including on-site inspection of the manufacturer's facilities, examination of relevant sales and financial records, and selection of relevant source documentation as exhibits. Our verification findings are detailed in the memoranda dated March 8, 2000, the public versions of which are on file in the Central Records Unit, Room B-099 of the Main Commerce building. See Sales Verification Report, dated March 8, 2000; see also Cost Verification Report, dated March 8, 2000. Changes from the Preliminary Results of Review The Department, at verification, found certain errors in the reported values for inland freight in the home market and U.S. sales databases. The Department adjusted for these errors in these final results of new shipper review. See Sales Verification Report; see also Final Calculation Memorandum, dated June 1, 2000. No other changes were made to our margin calculation program. Discussion of Issues Cost of Production/ Constructed Value Comment 1: Product Specific Costs Petitioners argue that Atlas failed to accurately report product-specific costs. Petitioners' basic contention is that the production of various shapes and sizes of tubular products (e.g., round and square tubes) requires the maintenance of separate costs and Atlas' reason behind its failure to report separate costs is not supported by record evidence. Petitioners also argue that certain additional services provided for sales of limited service OCTG products, such as flash removal, require that Atlas incur additional costs which were not properly reported to the Department. Finally, citing section 773(f)(1)(A) of the Act, petitioners contend that the Department should only rely on the records of the producer for purposes of calculating the cost of production and constructed value if these records "reasonably reflect the costs associated with the production and sale of the merchandise." Petitioners argue that the products that Atlas manufactures involve different processes and therefore must incur different costs, and Atlas' claim that it records a single cost for the production of all merchandise is a false assertion. Petitioner argues that by failing to accurately distinguish between costs incurred for the production of circular versus square tube products, Atlas reported data which do not reasonably reflect the costs associated with production of OCTG. As a consequence, petitioners contend that the Department should resort to total facts available in its final results of review. Atlas rebuts petitioners' argument by stating that, although it does not calculate product-specific costs in the normal course of business, it derived a methodology to allocate costs on a product-specific basis for reporting purposes. Atlas contends that it notified the Department in its initial responses that it does not record product-specific costs; however, Atlas was segregating costs into several sub-categories (e.g., coil costs, slitting yields, rolling yields, yielded materials, scrap offset, direct labor, slitting variable costs, finished goods variable overhead, and fixed production overhead) in order to develop a product-specific cost for the Section D response. Atlas argues that petitioners erroneously assume that it did not report product-specific costs and call for the use of total facts available. Atlas concludes that (1) it calculates one overall production cost in the normal course of business; and (2) that it allocated its actual costs based on yield differences and processing times to report product-specific costs. Therefore, according to Atlas, the Department should disregard petitioners' argument and continue to utilize the reported costs of production and constructed value information for the final results of new shipper review. Department's Position: We disagree with petitioners' claim that Atlas' reported cost methodology distorts the reported costs, and petitioners' argument that we should reject Atlas' reported costs and resort to total facts available in our final results of review. We find that the methodology used by Atlas to determine total overall costs was consistent with the methodology Atlas employs in the normal course of business. See Cost Verification Report, dated March 8, 2000, at 18-23. Atlas does not account for the cost differences associated with the diameter and thickness of subject merchandise. Rather it records a single rolling weighted-average cost for all pipe, whether round or square. See id. at 18. Nevertheless, we note that for reporting purposes, Atlas took the overall costs and then adjusted them for product-specific differences to derive the requested product-specific costs. This methodology took into account the cost differences associated with the production of subject merchandise by diameter and thickness, even though, in the normal course of business, Atlas does not distinguish costs based on these characteristics. Based on an analysis of the information placed on the record, we find that the absence of a product-specific cost methodology in the normal course of business does not impugn Atlas' reporting methodology, given that Atlas accounted for any differences in the diameter and wall thickness of all reported products, including limited service OCTG. With regard to the costs associated with limited service OCTG, we note that any cost extras associated with the "inside flash removal" for limited service OCTG were captured in the reported conversion costs, as stated in the Department's verification report. See id. at 21. The Department reviewed the production process and costing system at verification to determine the accuracy of Atlas' reporting methodology. We found no evidence of a means by which Atlas would track these costs in the normal course of business. Furthermore, we found that there were no significant differences in the cost of manufacturing limited service OCTG versus other OCTG products. See id. at 21. Moreover, we do not agree with petitioners that Atlas did not act to the best of its ability in reporting costs. First, record evidence demonstrates that Atlas reported its costs as recorded in the normal course of business. Second, Atlas adjusted for cost differences resulting from material differences in the size of the product, such as the diameter and wall thickness of the finished product. Third, any differences resulting from additional services provided, such as inside flash removal, were captured in the reported variable cost of manufacturing. Fourth, although Atlas did not provide the requested information concerning each individual CONNUM's cost of production, the Department was able to verify the accuracy of Atlas' assertion that it had no means by which it could prepare such product-specific costs. We also note that Atlas' allocation methodology accounted for the costs of all U.S. and home market products and that the methodology is not distortive. Pursuant to section 773(f)(1)(A) of the Act, we have determined that it is proper to rely on Atlas' reported costs in our final results of review, given that Atlas' reporting methodology reasonably reflected the costs associated with the production of OCTG. Date of Sale Comment 1: Contract Date vs. Invoice Date Petitioners argue that the most appropriate date of sale is contract date, and not invoice date. Petitioners contend that Atlas failed to provide sufficient evidence to support the argument that material terms of the sale change between contract and invoice date. Petitioners contend that the Department requires evidence of changes to the material terms of the contract. See Certain Welded Stainless Steel Pipe from Taiwan: Preliminary Results of Antidumping Duty Administrative Review and Intent to Revoke in Part, 64 FR 71,728, 71,730 (December 22, 1999). Petitioners then argue that if the quantity of merchandise shipped falls within the "shipping tolerances" in the order, it should not be considered a change to the order as the quantity shipped falls within the limits of the quantity ordered. Petitioners argue that quantity tolerances are a standard practice, and the Department does not treat subsequent variation within a specified tolerance as a change in material terms. As such, given that the contract permits variations in quantity without further negotiation, Atlas' assertions that the limited changes in quantity reflect material changes are unfounded and do not justify the use of invoice date as the date of sale. The date of sale should be the date on which material terms of sale are established, which in the instant case is order date and not invoice date. Atlas rebuts petitioners' argument by stating that it has provided sufficient evidence to support the use of invoice date as the date of sale. Summarizing the Department's statutory and regulatory preference for invoice date as the date of sale, Atlas argues that petitioners have not submitted any evidence to justify the Department's departure from this practice. See 19 CFR § 351.401(i); see also Canned Pineapple Fruit from Thailand, 63 FR 7392, 7394 (February 13, 1998). Atlas contends that, at verification, it provided evidence demonstrating that any changes to orders were not within any specified "shipping tolerance," as its sales agreements do not contain any such tolerances. Furthermore, Atlas states that it does not have any contracts for sale, as petitioners assume, but rather orders and order confirmations, which result in a sale agreement if all terms are agreed upon. After the formation of the sales agreement, any changes to the order are memorialized in the invoice and recorded in the company's accounting system. Therefore, Atlas argues that there are several instances where price and quantity are not finalized until the material is shipped and invoiced. Atlas further argues that it provided documentation at verification to demonstrate that a significant number of orders had changes to either price, quantity, or both, between order confirmation and invoicing. As such, this demonstrates that material terms of sale underwent changes during this time period, supporting the contention that invoice date is the most appropriate date of sale. Therefore, in accordance with 19 CFR § 351.401(k), the Department should continue to use the date of invoice as the date of sale in this proceeding. Department's Position We agree with Atlas that invoice/shipment date is the correct date of sale for all home market and U.S. sales of subject merchandise in this case. Under our current practice, as codified in the Department's Final Regulations at §351.401(i), in identifying the date of sale of the subject merchandise, the Department will normally use the date of invoice, as recorded in the producer's records kept in the ordinary course of business. See Certain Welded Carbon Steel Pipes and Tubes from Thailand: Final Results of Administrative Review, 63 FR 55578, 55587 (1998). However, in some instances, it may not be appropriate to rely on the date of invoice as the date of sale, because the evidence may indicate that the material terms of sale were established on some date other than invoice date. See Preamble to the Department's Final Regulations at 19 C.F.R Part 351, 62 FR 27296 (1997). Thus, despite the general presumption that the invoice date constitutes the date of sale, the Department may determine that invoice date is not an appropriate date of sale where the evidence of the respondent's selling practice points to a different date on which the material terms of sale were set. In this review, in response to the original questionnaire, Atlas reported invoice/shipment date as the date of sale in both the U.S. and home markets. To ascertain whether it accurately reported the date of sale, the Department included in its January 6, 2000, supplemental questionnaire a request for additional information regarding changes in terms of sale subsequent to order date. In its January 31, 2000, response, Atlas indicated that there were numerous instances in which terms such as price and quantity changed subsequent to the confirmation of the original orders in the U.S. and home markets. At verification, we carefully examined Atlas' selling practices. We found that the company records sales in its financial records by date of invoice/shipment. For the home market and U.S. market, we reviewed several sales observations for which the price and quantity changed subsequent to the original order. See Sales Verification Report, dated March 8, 2000. Based on Atlas' representations and as a result of our examination of the company's selling records kept in the ordinary course of business, we are satisfied that the date of invoice/shipment should be used as the date of sale because it best reflects the date on which material terms of sale were established for U.S. and home market sales. We disagree with petitioners' claim that, given that the terms do not change after the order confirmation date, the order confirmation date is the most appropriate date of sale for Atlas' U.S. and home market sales. The Department verified that terms often changed subsequent to the original order, and even after an initial order confirmation, until as late as the invoice date. For sales that we reviewed, we found this to be true for material terms of sale such as price and quantity, including quantity changes outside of established tolerances. See id. at 3-4. Therefore, pursuant to our practice, and based on our findings at verification, we have determined that invoice date is the appropriate date of sale for Atlas' sales, as it most accurately represents the date on which the material terms of sale are established. Home Market Sales and Export Price Sales Comment 1: Billing Adjustments Petitioners contend that, although Atlas reported billing adjustments in both the U.S. and home market, it failed to identify whether the adjustments in the U.S. market are positive or negative. Petitioners contend that, due to the fact that Atlas failed to explain whether the adjustments in field BILADJ2U are associated with corrections for overbillings or debit notes, the Department should not use a single approach in adjusting for values reported within this field. As such, petitioners argue that the Department should review each reported billing adjustment and calculate the margin accordingly. Petitioners suggest that although the Department did not address this issue in its verification report, it is not precluded it from correcting this error in the calculation methodology for the final results of review. Atlas rebuts petitioners argument by stating that it reported only the specified number of billing adjustments (i.e. those associated with debit notes) in the computer field BILADJ2U. See Supp. Quest. Resp., dated Jan. 31, 2000, at 9-10. Due to the fact that the computer program enters a zero value for those sales with no billing adjustments, this field includes an adjustment for each reported U.S. sale rather than just the ones with actual adjustments. Atlas states that because all the debit adjustments are positive adjustments to U.S. price, the Department should add the amount reported in BILADJ2U to the gross unit price, as it did in the preliminary results of review. Department's Position We agree with Atlas that the reported billing adjustments in variable BILADJ2U are associated with the specific debit notes discussed in Atlas' Supplemental Questionnaire Response. Furthermore, the Department, at verification, reviewed U.S. sales with billing adjustments and found that these were accurately reported as upward adjustments to U.S. price. See Sales Verification Report, dated March 8, 2000, at Exh. 10 - 10d. As a result, the Department will continue to add the positive billing adjustments to gross unit price for purposes of the final results of new shipper review. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting the related margin calculations for corrections resulting from verification. If these recommendations are accepted, we will publish the final results of new shipper review and the final weighted-average dumping margins for all reviewed firms in the Federal Register. AGREE ______________________ DISAGREE ___________________ _________________________________________ Troy H. Cribb Acting Assistant Secretary for Import Administration __________________________ Date