67 FR 45956, July 11, 2002 A-533-810 Administrative Review POR: 02/01/2000 - 01/31/2001 PUBLIC DOCUMENT I/1: R. Langan x2613 MEMORANDUM TO: Joseph A. Spetrini Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Import Administration DATE: July 5, 2002 SUBJECT: Issues and Decision Memorandum for the Final Results of the Administrative Review of Stainless Steel Bar from India ----------------------------------------------------------------------- BACKGROUND On March 7, 2002, the Department published the Notice of Preliminary Results of Antidumping Administrative Review and Partial Rescission of Administrative Review: Stainless Steel Bar From India, 67 FR 10377 ("Preliminary Results") in which it invited parties to submit comments. The petitioners in this review submitted a case brief on April 8, 2002. The sole respondent subject to this review, Viraj Group Ltd. ("Viraj"), submitted a rebuttal brief on April 15, 2002. (1) We have analyzed the case and rebuttal briefs, and, as a result of our analysis, we have made changes to the preliminary results calculations. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is a complete list of the issues for which we received comments: Comment 1. Collapsing the Viraj Group Comment 2. Duty Drawback Comment 3. Calculation of Interest Expense for VIL Comment 4. Calculation of Interest Expense Comment 5. Ministerial Errors DISCUSSION OF ISSUES Comment 1: Collapsing the Viraj Group Companies The petitioners argue that the Department should not have collapsed Viraj Alloys, Ltd. ("VAL") with the Viraj Group companies, Viraj Forgings, Ltd. ("VFL") and Viraj Impoexpo, Ltd. ("VIL"), in the preliminary results. According to petitioners, only VIL and VFL should be collapsed. First, petitioners contend that the Department misinterpreted the Department's regulations on collapsing affiliated producers by basing its analysis on the use of production facilities. See, e.g., 19 CFR section 351.401(f)(1) of the Department's regulations. According to the petitioners, the collapsing test is correctly based on whether affiliated producers, such as VAL and VIL, "possess" similar production facilities. The petitioners argue against collapsing VIL and VAL because VAL does not "possess" production facilities similar to VIL's. Furthermore, the petitioners argue against collapsing because VAL does not have the production facilities to manufacture products similar or identical to those produced by VIL, and VAL could not produce these products without substantial retooling of its production facilities. Second, the petitioners contend that Department precedent does not support collapsing. The petitioners state that in a recent review the Department decided not to collapse VAL with VIL and VFL, and that nothing in the Viraj Group has changed to compel a reversal of that decision. See Notice of Final Results of Antidumping Duty Administrative Review: Certain Stainless Steel Wire Rod from India, 65 FR 31302 (May 17, 2000) ("Wire Rod") and accompanying Issues and Decision Memorandum at comment 6. The petitioners argue that the Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Bar from Germany, 67 FR 3159 (January 23, 2002) ("German Bar") and accompanying Issues and Decision Memorandum at Comment 15, establish precedent that emphasizes the importance of a firm's production facilities over its product line in the Department's collapsing analysis. The petitioners contend that the differences in VIL and VAL's production facilities prevent the Department from collapsing the Viraj Group companies. The petitioners also cite the Notice of Final Results and Partial Rescission of Antidumping Duty Administrative Review: Stainless Steel Sheet and Strip from Taiwan, 67 FR 6682 (February 4, 2002) ("Sheet and Strip") and accompanying Issues and Decision Memorandum at Comment 16, among other cases, in support of their argument against collapsing. Lastly, the petitioners argue against collapsing VAL with VIL and VFL because VAL's products are commercially distinct and collapsing these entities would result in improper price comparisons. Since the companies cannot be collapsed, the petitioners believe the Department should use VIL and VFL's third country sales to calculate normal value. However, because Viraj has not provided third country sales data, the petitioners contend that the Department must use adverse facts available for the final results. Viraj contends that the Department correctly collapsed VAL with VIL and VFL in the preliminary results because VIL and VAL produce subject merchandise with the same production facilities. Furthermore, Viraj states that VIL produces subject merchandise in VAL-owned production facilities under leasing agreements and that VAL could use the same facilities to produce bright bars. Viraj argues that Department precedent set in the most recent reviews of Stainless Steel Wire Rod from India: Notice of Preliminary Results of Antidumping Administrative Review, 67 FR 10377 (March 7, 2002) and accompanying Issues and Decision Memorandum at Comment 1 and Certain Forged Stainless Steel Flanges from India; Notice of Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review, 67 FR 10358 (March 7, 2002) ("Flanges") support collapsing because in both cases, the three Viraj Group companies were collapsed. Viraj also states that the Department found in earlier reviews of this case that VAL's products were comparable to VIL's products (sold by VIL and VFL) and the petitioners supported that finding. Viraj also states that VAL's products were appropriately matched and compared to VIL and VFL's products because they passed the Department's standard 20 percent difference-in-merchandise ("DIFMER") test. Finally, Viraj argues that use of adverse facts available is not appropriate, if the Department decides not to collapse the Viraj Group companies. Viraj states that the Department never requested its third country sales in the current review and that the petitioners raised this issue after the data collection phase of the review. Therefore, Viraj argues, the appropriate facts available, if needed, are VAL's home market sales. Department's Position: In order for the Department to consider two or more producers as one entity, it must find that the "producers have production facilities for similar or identical products that would not require substantial retooling of either facility in order to restructure manufacturing priorities and…there is a significant potential for the manipulation of price or production." See Section 351.401(f) of the Department's regulations. The Department disagrees with the petitioners' claim that it misinterpreted the regulations for several reasons. First, the regulations do not place an emphasis on the "possession" of similar production facilities. Furthermore, in applying the term "use" in the preliminary results, the Department was not making a distinction between the term "use" and the term "have" with respect to section 351.401(f) of the regulations. Second, the Department disagrees with the petitioners' claim that the regulations emphasize production facilities over product line. In order to collapse affiliated producers under section 351.401(f) of the regulations, the affiliates' production facilities must have the ability to manufacture similar or identical products, without substantial retooling. VAL and VIL can produce subject merchandise (i.e., similar or identical products) and can continue to do so, independently or under existing leasing agreements, without substantial retooling of their production facilities. Furthermore, the three Viraj Group companies share the same two directors who have significant ownership of each company. The two directors oversee all aspects of production, pricing and sales. See Viraj Section A Questionnaire Response (June 29, 2001) at A-6 to A-8. Therefore, we find a significant potential for the manipulation of price and production among VIL, VAL and VFL. For these reasons, we find that VIL, VAL and VFL meet the regulations' collapsing requirements. The preamble to the Department's regulations, Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27,296, 27,345 (May 19, 1997), states that "{collapsing} determinations are very much fact specific in nature, and require a case-by-case analysis." Accordingly, when making decisions concerning collapsing, the regulations instruct the Department to consider the facts particular to the case. For example, in German Bar, the Department did not collapse two affiliated producers, in part, because it found a "limited overlap of production capability and significant impediments to expanding this overlap" among the producers. See German Bar at Comment 15. Contrarily, the relevant fact in this review is that VIL and VAL can produce subject merchandise and have a broad overlap of production capability. Furthermore, VIL and VAL can maintain this broad overlap of production capability without substantial retooling. In Sheet and Strip, the Department did not collapse two affiliated producers because one did not produce subject merchandise. See Sheet and Strip at Comment 4. However, in this case VAL and VIL both produce subject merchandise. Concerning the petitioners' reference to Wire Rod in support of their argument against collapsing, we note that the Department collapsed the Viraj Group companies in the most recently completed administrative review of that order. See Stainless Steel Wire Rod from India: Notice of Final Results of Antidumping Administrative Review, 67 FR 37391 (May 29, 2002) ("Wire Rod 2002") and accompanying Issues and Decision Memorandum at Comment 1. Similarly, in the most recent flanges administrative review, the Department also collapsed the Viraj companies. See Flanges. With respect to the petitioners' concerns as to whether appropriate product comparisons have been made, consistent with its practice, the Department applied the 20 percent DIFMER test when determining the appropriate home market sales to compare to U.S. sales in the preliminary results. See Calculations for the Preliminary Results of Viraj Group, Ltd, dated February 28, 2002. Despite the fact that there are commercial distinctions among the products sold by Viraj in the United States and its home market, all product comparisons made in the preliminary results passed the DIFMER test. We have continued to implement the DIFMER test in the final results. See Viraj Group, Ltd. Final Results Calculation Memorandum ("Calculation Memorandum"), dated July 5, 2002, at Attachments 7 and 8. Therefore, we disagree with the petitioners' contention that the differences between products sold in the home market and the United States would result in improper product matching and price comparisons. For the reasons stated above, we have continued to collapse VAL, VIL and VFL for the final results. Comment 2: Duty Drawback The petitioners argue that the Department incorrectly granted Viraj a duty drawback adjustment to U.S. price. The petitioners contend that Viraj is ineligible for the adjustment because it never paid import duties on raw material imports. In addition, the petitioners claim that Viraj failed to meet the Department's requirements for the adjustment. Petitioners argue that Viraj did not link the duty paid to the rebate received. The petitioners also argue that the drawback adjustment was made to account for the Indian Duty Entitlement Passbook Scheme ("DEPB") and that the Department determined DEPB to be ineligible for a duty drawback adjustment. See Final Results of Antidumping Duty Administrative Review: Stainless Steel Wire Rod from India, 65 FR 31,302 (May 17, 2000) and accompanying Issues and Decision Memorandum at Comment 3. Viraj contends that it accurately calculated the duty not paid so that the appropriate duty drawback adjustment could be made, as in the preliminary results. Viraj also states that it provided information to the Department in this review to meet the requirements for the adjustment. Department's Position: We have considered our preliminary results finding and agree with the petitioners that Viraj does not meet the requirements for receiving a duty drawback adjustment to U.S. price. Section 772(c)(1)(B) of the Act provides that export price (or constructed export price) shall be increased by "the amount of any import duties imposed by the country of exportation which have been rebated, or which have not been collected, by reason of the exportation of the subject merchandise to the United States." The Department determines that an adjustment to U.S. price for claimed duty drawback is appropriate when a company can demonstrate that there is (1) a sufficient link between the import duty and the rebate, and (2) sufficient imports of the imported material to account for the duty drawback received for the export of the manufactured product. See Rajinder Pipes Ltd. v. U.S., 70 F. Supp. 2d 1350, 1358. See, also, Pipes and Tubes from India, 62 FR 47634 (1997) and Federal Mogul Corp. v. United States, 862 F. Supp. 384, 409 (CIT 1994). In reviewing the duty drawback information submitted by Viraj, we find that Viraj has not met the Department's requirements for the duty drawback adjustment. While Viraj has provided a sample calculation of duty drawback received, it has not provided the necessary links between the import duty and the rebate, nor has it demonstrated that there were sufficient imports to account for the drawback received on the export of the manufactured product. Therefore, based on the record information, we are unable to determine if Viraj accurately calculated duty drawback. In addition, upon further examination, we note that the drawback amount in the sample calculation was not the amount reported in the database. Therefore, we have not made a duty drawback adjustment for the final results. Comment 3: Calculation of Interest Expense for VIL The petitioners argue that Viraj improperly deducted imputed credit expenses from its interest expense calculation for VIL. The petitioners assert that the Department's standard practice is to not accept adjustments to financial expenses for imputed amounts. See Notice of Final Determination of Sales at Less than Fair Value: Stainless Steel Sheet and Strip in Coils from France ("French Sheet and Strip") 64 FR 30820, 30842 (June 8, 1999) at Comment 30. In addition, the petitioners contend that Viraj has overstated the amount of bank charges deducted from VIL's reported interest expenses. Specifically, the petitioners argue that the amount of bank charges deducted from the interest expense calculation exceeds the total amount of bank charges reported in the U.S. sales database. Concerning VIL's deduction of imputed credit expenses from the interest expense calculation, Viraj contends that the total amount of interest shown in the financial statements includes the cost of credit to all customers for all products during the fiscal year. Viraj contends it has deducted these expenses from its interest expense calculation because these types of expenses are already included in the sales listing and, as a result, the petitioners' suggested calculation would result in double counting interest costs. Furthermore, Viraj contends that interest expense was calculated using the same methodology as in prior reviews and that the Department has accepted this methodology in the past. Viraj asserts that it deducted from its total interest costs the type of bank charges included in the sales listings, since bank charges include charges on all sales of all products for the company during the fiscal year. Further, Viraj contends that the Department has accepted this adjustment in prior reviews and to do as the petitioners request would result in double counting bank charges. Finally, Viraj contends that the petitioners should have raised both of these issues earlier in the proceeding. Department's Position: We agree with the petitioners, in part. Consistent with Department practice of not accepting adjustments to financial expenses for imputed amounts, we are not reducing VIL's interest expenses for imputed credit expenses (see French Sheet and Strip at Comment 30). See Calculation Memorandum, dated July 5, 2002. With respect to the adjustment for bank charges, we disagree with the petitioners that the amount of the adjustment should be limited to the total bank charges reported in the U.S. sales listing. The issue here is not whether the amount of the offset ties to the sales listing, but whether the type of expense is an allowable offset to interest expense. In this instance, we find that bank charges are properly excluded from the calculation of interest expense. Furthermore, because interest expenses are based on company-wide data during the POR, we have allowed the offset in the full amount of the bank charges reported on the financial statements. We find that the petitioners' comments were filed in accordance with section 351.309(c)(2) of the Department's regulations. Comment 4: Calculation of Interest Expense The petitioners argue that Viraj incorrectly calculated its interest expense based on period of review ("POR") data instead of fiscal year data. The petitioners assert that the Department should recalculate the interest expense ratio using the most recent fiscal year data reported in the financial statements on the record. Viraj contends that POR data provides a more accurate interest expense ratio because the fiscal year data on the record correspond to only two months of the POR. Viraj also contends that this issue was untimely raised by the petitioners. Department's Position: We agree with the petitioners that interest expenses should be calculated using fiscal year data, as instructed in the Department's questionnaire. See the June 29, 2001, Section D questionnaire at D-24. We agree with Viraj to the extent that the data used to calculate interest expense should be for a fiscal year that corresponds to as much of the POR as possible. We disagree with Viraj that the petitioners' argument is untimely because the petitioners' argument was submitted in accordance with section 351.309(c)(2) of the regulations. Accordingly, we have recalculated Viraj's interest expense ratio based on VIL, VAL and VFL's March 31, 2000, end-of-year audited financial statements, the period for which we had a complete set of financial statements for each company. See Calculation Memorandum. Comment 5: Ministerial Errors The petitioners argue that the Department should include other U.S. transportation expenses and customs duty expenses in the calculation for U.S. movement expenses ("MOVEU") in the margin calculation program. Viraj contends that the Department's margin calculation program for the preliminary results are correct, with respect to MOVEU. See Calculation Memorandum at 2. Department's Position: We agree with the petitioners concerning the calculation of U.S. movement expenses and revised our calculations accordingly. See Calculation Memorandum at 2-3. In addition, we corrected certain other clerical errors in our preliminary results calculations. See Calculation Memorandum. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final results of this administrative review in the Federal Register. Agree Disagree _______________________ Joseph A. Spetrini Acting Assistant Secretary for Import Administration _______________________ (Date) __________________________________________________________________________ __ footnote: 1. Viraj raised certain affirmative arguments in its rebuttal brief. In accordance with Section 351.309(d)(2) of the Department's regulations which states that rebuttal briefs "may respond only to arguments raised in case briefs," we are not addressing those affirmative arguments raised by Viraj in its rebuttal brief.