66 FR 12759, February 28, 2001 A-533-819 Investigation Public Document MEMORANDUM TO: Bernard T. Carreau, fulfilling the duties of Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary for Import Administration Group II DATE: February 14, 2001 SUBJECT: Issues and Decision Memorandum for the Investigation of Steel Wire Rope from India Summary We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of steel wire rope from India. As a result of our analysis, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Interested Party Comments section of this memorandum. Below is the complete list of issues in this investigation for which we received comments from the parties. In Section I, we identify the issues in this investigation for which we received comments from the interested parties. Section II sets out the scope, or product coverage, of this investigation. Section III identifies the changes made in the margin calculation since the preliminary determination. Section IV analyzes the comments of the interested parties. Finally, we recommend approval of the Department's positions developed for each of the issues. Background On October 2, 2000, the Department of Commerce (the Department) published its preliminary determination in the antidumping investigation of steel wire rope from India. See 65 FR 58736. The period of the investigation (POI) is January 1, 1999, through December 31, 1999. The respondent in this investigation is Usha Martin Industries, Ltd. (Usha). We invited parties to comment on the preliminary determination. Usha and the petitioner (1) submitted case briefs on January 10, 2001. The petitioner submitted a rebuttal brief on January 16, 2001. Usha did not submit a rebuttal brief. The petitioner requested a public hearing, and subsequently withdrew its request. I. List of issues 1. Facts Available 2. Major Input Rule 3. Financial Expense Ratio 4. Duty Drawback 5. Home Market Credit Expense 6. Home Market Warehousing Expense 7. Critical Circumstances 8. Treatment of Negative Margins 9. Ministerial Errors II. Scope of the investigation For purposes of this investigation, the product covered is steel wire rope. Steel wire rope encompasses ropes, cables, and cordage of iron or carbon or stainless steel, other than stranded wire, not fitted with fittings or made up into articles, and not made up of brass-plated wire. Imports of these products are currently classifiable under subheadings: 7312.10.6030, 7312.10.6060, 7312.10.9030, 7312.10.9060, and 7312.10.9090 of the Harmonized Tariff Schedule of the United States (HTSUS). Although HTSUS subheadings are provided for convenience and Customs Service purposes, the written description of the scope of this investigation is dispositive. III. Changes in the Margin Calculation Since the Preliminary Determination 1. We made several minor adjustments to the reported U.S. and home market sales data to account for ministerial errors presented by the respondent at the outset of the verifications in India and Houston. These included corrections to (a) the reported length for five observations, and reallocation of associated expenses for those sales; (b) the reported core and coating for eight observations; (c) certain sales to account for returns of merchandise; (d) home market warehousing expenses; (e) two duplicated sales in the U.S. sales database; and the short-term interest rate for U.S. sales. 2. We reduced all U.S. prices, other than those the Department's verification team specifically examined, by the percentage discrepancy between the total value of U.S. sales Usha reported to the Department, and the total value of U.S. sales reported in its financial statement. See Comment 1 of Section IV, below. 3. We denied the claimed duty drawback adjustment. See Comment 3 of Section IV, below. 4. We revised Usha's home market warehousing expense proxy by basing it on the weighted average of the two different rates charged by the Delhi warehouse during a five-month period. See Comment 6 of Section IV, below. 5. We revised U.S. credit expense to be calculated on a per foot rather than a per kilogram basis as Usha reported all other expenses in dollars or rupees per foot. 6. We revised quantity on several credit notes. For certain claims, we reduced the amount of the gross unit price by the amount of the claim granted. For several additional claims where Usha had issued a credit for the full amount of those sales, we dropped those observations from the sales database. 7. We recalculated indirect selling expenses to include warranty expense. 8. We reclassified the reported "class" for home market sales that Usha had as having a class of "other," based on findings of verification. Minor Changes resulting from cost verification: 9. We recalculated the general and administrative (G&A) rate to correct a misclassification of salary expense and exclude net exchange gains related to sales. See February 14, 2001, memo from Heidi Norris to Neal Halper. 10. We revised the financial expense ratio using the consolidated financial statements. The revised ratio includes exchange losses and interest expense which had been capitalized in raw materials. Finally, we excluded interest income generated by accounts receivable. See February 14, 2001, memo from Heidi Norris to Neal Halper. 11. We revised reported direct material costs in the direct material (DIRMAT) field to reflect the cost of production of inputs received from Usha Alloys Steel Division (UASD). See February 14, 2001, memo from Heidi Norris to Neal Halper. 12. We corrected errors identified by Usha in its weight-averaging program, including revised TOTCOMs and VCOMs. See February 14, 2001, memo from Heidi Norris to Neal Halper. Discussion of Interested Party Comments Comment 1: Facts Available The petitioner argues that the Department should reject the databases submitted by Usha and base the dumping margin on adverse facts available because of the respondent's alleged propensity for clerical errors, procedural miscues, missed deadlines, and incomplete submissions in this case. According to the petitioner, the inability of Usha's U.S. sales affiliate (UMAI) to reconcile total value of sales from its questionnaire responses to its financial statements should alone give rise to the application of facts available. The petitioner argues that, alternatively, the Department should apply adverse facts available to any price adjustments that were not reported correctly. Usha did not respond to the petitioner's comment. The Department's Position: While we share many of the petitioner's concerns regarding Usha's reporting and procedural errors, we do not find that the use of total facts available is warranted and, therefore, cannot apply total adverse facts available, pursuant to section 776(b) of the Act. However, we agree that the value of reported CEP sales is overstated by approximately two percent with respect to the value of sales on UMAI's financial statements, and that UMAI officials were unable to explain this discrepancy. We believe that in view of the nature and magnitude of the omission, it is appropriate to reduce the prices of all CEP sales (except those specifically examined at verification) by the percentage of the discrepancy, to make the sales prices conform in the aggregate to the financial statements. Any remaining errors were either corrected by the Department based on verification findings or handled through the limited use of facts available, pursuant to section 776(a) of the Act, as discussed below. Comment 2: Major Input Rule The petitioner asserts that Usha and Usha Alloys Steel Division (UASD), divisions of Usha Beltron Ltd. (UBL), are affiliated entities under section 771(33)(F) of the Act, in that they are under the common control of UBL. The petitioner claims that the transactions between the divisions should, as such, be subject to the major input rule under section 773(f)(3) of the Act. The respondent did not comment on this issue. Department's Position: We disagree with the petitioner. We found at verification that Usha and UASD are not corporations in their own right, but rather unincorporated divisions of UBL. As such, the two divisions are part of a single entity. (2) See January 3, 2001, Usha verification report at 4. See also December 1, 2000, Usha COP/CV verification report at 4. Consequently, because Usha and UASD are unincorporated divisions of the same entity (i.e., UBL), they cannot be considered affiliated persons. See, e.g., Certain Forged Steel Crankshafts from the United Kingdom; Final Results of Antidumping Duty Administrative Review, 61 FR 54613, 54614 (October 21, 1996). The major input rule is applicable to transactions between affiliated persons, not to internal transfers within a single corporate entity. See section 773(f)(3) of the Act. Comment 3: Financial Expense Ratio The petitioner requests that Usha's financial expense ratio be adjusted consistent with the Department's verification findings. Specifically, the petitioner urges the Department to recalculate Usha's financial expense ratio based on UBL's financial statements, the highest level of consolidation. The petitioner also argues that the Department should include the company-wide net exchange gains and losses and interest expense that was capitalized to the raw materials inventory in the revised financial ratio calculation. Finally, the petitioner argues that interest income generated by accounts receivable should be excluded from the calculation. The respondent did not comment on this issue. Department's Position: We agree with the petitioner. For the final determination, we have revised the financial expense ratio based on the consolidated financial statements. In addition, we adjusted the ratio to include company-wide net exchange gains and losses and capitalized interest expense, while excluding interest income related to accounts receivables. The Department's long-standing practice is to calculate this rate based on the financing expenses of the consolidated entity. If the Department were to ignore that the consolidated entity determines the capital structure of its subsidiaries and affiliates, we would calculate costs that did not reasonably reflect the costs associated with the production and sale of the merchandise. The Court of International Trade, recognizing the fungibility of financing funds, has repeatedly sustained the Department's use of consolidated financial expense. See Gulf States Tube Division of Quanex Corp. v. United States, 981 F. Supp. 630 (CIT 1997). See also Camargo Correa Meais, S.A. v. United States, 17 CIT 897, 902 (August 13, 1993), and Final Determination of Sales at Less than Fair Value: Certain Small Business Telephone Systems and Subassemblies Thereof From Korea, 54 FR 53141, 53149 (December 27, 1989). Therefore, for the final determination, we have revised the financial expense ratio based on the consolidated financial statements. Comment 4: Duty Drawback The petitioner argues that Usha does not qualify for a duty drawback adjustment, because at verification it failed to show that the duty drawback received conformed to the Department's requirements for granting the adjustment. Usha did not respond to the petitioner's comment. The Department's Position: We agree with the petitioner. The Department applies a two-pronged test to determine whether a respondent has fulfilled the statutory requirements for a duty drawback adjustment pursuant to section 772(c)(1)(B) of the Act. Specifically, the Department grants a duty drawback adjustment if it finds that: (1) import duties and rebates are directly linked to and are dependent upon one another, and (2) the company claiming the adjustment can demonstrate that there are sufficient imports of raw materials to account for the duty drawback received on exports of the manufactured product. See Steel Wire Rope from the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 61 FR 55965, 55968 (October 30, 1996). At verification, the respondent was unable to demonstrate that import duties and rebates are directly linked to and dependent upon one another. On the contrary, the Department determined that when Usha applied for drawback on exported wire rope, it did not demonstrate to the Indian Government that the inputs were actually imported, and nonetheless automatically received the drawback for the full amount of dutiable inputs. See January 3, 2001, Usha verification report at 14 and 15. Moreover, Usha purchased substantial quantities of inputs domestically, and was unable to show that there were sufficient imports of raw materials to account for the duty drawback received on exports of the manufactured product. (3) Therefore, because we find that Usha has failed to meet both prongs of the Department's test, we have not made an adjustment to U.S. price for duty drawback in the final determination. Comment 5: Home Market Credit Expense The petitioner argues that the Department must reject Usha's reported home market credit expense because Usha used an average, rather than a sales-specific, credit period. While the petitioner acknowledges the Department's occasional acceptance of an average credit period, they contend that Usha could have calculated a sales-specific credit period. Moreover, the petitioner contends that the Department did not fully verify Usha's calculation of bank interest rates. Usha did not respond to the petitioner's comment. The Department's Position: We disagree with the petitioner. Usha explained its use of an average rather than a sales-specific credit period in its calculation of home market credit expense in its June 30, 2000, response to section B at B-11 and B-24, noting the extraordinary number of individual transactions involved, and the difficulties that would be involved in extracting a transaction-specific payment date from the respondent's records. Under these circumstances, the use of an average credit period is reasonable. Moreover, at verification, the Department thoroughly examined Usha's weighted average interest rate used in the calculation of home market credit expense. We examined interest rates at random, noting no discrepancy. See January 3, 2001, Usha verification report at 11. In addition, we ensured the accuracy of Usha's calculation of the average credit period by tying underlying receivable balances to the general ledger. Therefore, we have determined to accept Usha's calculation of an average credit period. Comment 6: Home Market Warehousing Expense The petitioner objects to Usha's use of a warehousing expense proxy for Mumbai based on its actual warehousing expenses incurred in Delhi. The petitioner argues that the expenses incurred in Delhi do not bear any relation to the expenses actually incurred in Mumbai. The petitioner argues that, in the alternative, the Department should base the proxy warehousing expense on the weighted average of two different rates charged by the Delhi warehouse during a five-month period. Usha did not respond to the petitioner's comment. The Department's Position: We disagree with the petitioner that the use of the Delhi warehousing expense as a proxy for the Mumbai warehousing expense is unreasonable. In its June 30, 2000, section B response at B-20, Usha proposed to use the average warehousing expenses incurred in Delhi in lieu of the actual expenses incurred in its own warehouse in Mumbai over a five-month period. Given the reporting burden associated with calculating the cost of the respondent's own warehousing facility, the relatively short time involved (five months), and the overall small magnitude of the expense, the Department accepted the reporting of Delhi costs (as charged by an unaffiliated warehouse) as a proxy for the Mumbai costs. However, we agree with the petitioner that, for the final determination, it is appropriate to base Usha's proposed proxy on the weighted average of the two different rates charged by the Delhi warehouse during the five- month period in question, as shown on the June 20, 2000, section B response at B-20. Comment 7: Critical Circumstances Usha argues that the Department should have used its company-specific shipment data, reported to the Department on September 11, 2000, with respect to the massive imports criterion of its critical circumstances analysis. While it concedes that its September 11, 2000, filing was rejected by the Department because it was filed with an incorrect certificate of service, it notes that it resubmitted the shipment data the following day. Usha argues that it is overly harsh to penalize the company by not using its own data for a procedural error of this nature. It further argues that the U.S. Census Bureau data upon which the Department relied to determine massive imports for the preliminary determination appears flawed in that it only reflects about one-third of Usha's actual imports of subject merchandise from November 1999 through February 2000. The petitioner contends that the Department must affirm its preliminary finding of masive imports. The petitioner argues that Usha only provided shipment data through June, 2000, despite the Department's request for shipment data through September, 2000. In addition, the petitioner notes that Usha provided estimated rather than actual values, and that the figures submitted by Usha were far out of line with official U.S. import statistics for wire rope from India for the period in question. The Department's Position: We agree with the petitioner. Section 735(a)(3) of the Act provides that the Department will determine that critical circumstances exist if: (A)(i) there is a history of dumping and material injury by reason of dumped imports in the United States or elsewhere of the subject merchandise, or (ii) the person by whom, or for whose account, the merchandise was imported knew or should have known that the exporter was selling the subject merchandise at less than its fair value and that there would be material injury by reason of such sales, and (B) there have been massive imports of the subject merchandise over a relatively short period. In determining whether the first criterion under section 735(a)(3) of the Act is met, we have taken note of an affirmative European Union antidumping and injury determination, announced in August 1999, on steel wire rope from India. On this basis, we find a history of dumping and material injury from India. Therefore, we find that the first criterion under section 735(a)(3) of the Act is met with respect to all companies. With respect to massive imports, the second criterion under section 735(a)(3) of the Act, we considered imports for a seven-month period ending with September 2000, the month of the preliminary determination, compared to imports during the preceding seven months. On August 28, 2000, the Department requested that Usha submit updated shipment data, as it became available, through September 30, 2000. The deadline for the requested information was September 11, 2000. Usha filed available shipment data by the deadline, for the months of June, 2000 through August, 2000. However, the Department rejected that submission because it was filed under an erroneous certificate of service. On September 12, 2000, Usha resubmitted the same shipment data with a corrected certificate of service, which the Department accepted. However, Usha did not subsequently update its monthly shipment data for the months of July, August, and September, 2000, despite our specific request for it to do so, and never claimed that such data was unavailable. This precluded the Department from examining the issue of massive imports based on the most up-to-date company-specific shipment figures for this final determination. Because Usha failed to submit the requested shipment data for July through September 2000, we have determined that the use of facts available is appropriate under section 776(a) of the Act, and we have relied on import data in conducting our analysis related to the massive imports criterion noted above. The U.S. Census import data for imports of steel wire rope from India for a seven-month period, ending September 2000, demonstrates that the increase in imports of steel wire rope from India was greater than 15 percent. See Memorandum to the File, Critical Circumstances Analysis Regarding Massive Imports (February 14, 2001). Accordingly, we determine that there were massive imports during the period in question. With respect to the "all others" category of companies, we normally rely on the massive imports findings for the selected mandatory respondents. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil, 65 FR 5554 (February 4, 2000). In this case, we determined that there were massive imports for Usha, the only mandatory respondent. Although we made this determination on the basis of the facts available, we did not use an adverse inference. Therefore, we have considered this as evidence of massive imports for the "all others" category of companies. Furthermore, we were able to use U.S. Census import data to determine that there were massive imports. Therefore, we have determined that there are critical circumstances for Usha and for the "all others" category. Comment 8: Treatment of Negative Margins Usha argues that the Department should adhere to the finding of the WTO Panel Report European Communities - Antidumping Duties On Imports of Cotton-Type Bed Linen From India, WT/DS141/R (September 4, 2000), and discontinue its practice of zeroing out negative dumping margins in the calculation of the overall weighted-average dumping margin. The petitioner argues that the Department must not deviate from its practice of zeroing out sales with negative dumping margins. The petitioner contends that the WTO Panel Report at issue was aimed solely at the European Communities, and that the United States is under no obligation to modify its procedures and conform with the panel report. Further, the petitioner contends that it is unclear whether or not the appeal process surrounding the dispute settlement body's decision in this matter has been resolved, and thus not clear whether the panel report has been adopted. The Department's Position: We disagree with Usha. The WTO panel decision on bed linens from India applies only to the European Communities. Moreover, that decision, which is on appeal, has not been finalized as to the European Communities. Comment 9: Ministerial Errors The petitioner claims that the Department made several ministerial errors in the preliminary determination: (1) the Department double counted G&A and interest expenses in computing the U.S. cost component of CEP profit; (2) in the foreign market program, the Department calculated the inventory carrying cost rate (INVCVR) using a denominator based on cost of production (HMTOTCOP) rather than sales value (HMTOTCVP), and (3) while the Department recalculated Usha's variable and total cost of manufacturing data to correct for an error affecting material costs, it did not use the recalculated costs in making a difference-in-merchandise (DIFMER) adjustment. Usha did not comment on these issues. The Department's Position: With respect to the first alleged error, we agree that the Department double counted G&A and interest expenses in computing the U.S. cost component of CEP profit, and we have corrected this error for the final determination. With respect to the second alleged error, we disagree with the petitioner's comment regarding the calculation of the inventory carrying cost rate (INVCVR). It was the Department's intention to calculate (INVCVR) using a denominator based on cost of production (HMTOTCOP). (The preliminary foreign market program, at a note to line 305, erroneously suggests that all imputed expenses will be allocated using a price-based, rather than cost-based, variable. This is true of credit expenses, which are a function of sales value, but not of inventory carrying costs, which are a function of cost of production.) We have revised the explanatory note in the foreign market program to clarify this point. Finally, with respect to the third error, we agree that we should have used the recalculated variable costs of manufacture in making a DIFMER adjustment, and have done so for the final determination. Recommendation Based on our analysis of the comments received, we recommend adopting the positions described above. If these recommendations are accepted, we will publish the final determination of the investigation and the final weighted -average dumping margins in the Federal Register. Agree__________ Disagree__________ _________________ Bernard T. Carreau, fulfilling the duties of Assistant Secretary for Import Administration _________________ (Date) ________________________________________________________________________ footnotes: 1. The petitioner in this proceeding is the Committee of Domestic Steel Wire Rope and Specialty Cable Manufacturers. 2. We note that we have treated Usha, the only division of UBL that manufactures wire rope, as the respondent throughout this proceeding. However, inasmuch as Usha is a division of UBL, and not a separate legal entity, the cash deposit rate calculated for Usha will also apply to UBL. 3. Usha failed to make such a showing in its supplemental section C response of August 9, 2000, despite a specific request to do so.