65 FR 39367, June 26, 2000 A-583-815 ARP: 12/1/97-11/30/98 Proprietary Document PUBLIC VERSION DAS III / 9 / JHC June 19, 2000 MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Administrative Review of Certain Welded Stainless Steel Pipe from Taiwan: December 1, 1997 through November 30, 1998 SUMMARY: We have analyzed the comments of interested parties in the sixth administrative review of the antidumping duty order covering certain welded stainless steel pipe from Taiwan. 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 "Changes Since the Preliminary Results" and "Discussion of the Issues" sections of this Issues and Decision Memorandum. Below is the complete list of the issues in this administrative review: Changes Since The Preliminary Results: 1. Export Price or Constructed Export Price Status 2. Packing Expenses - Allocation of Labor Discussion of the Issues: 1. EP/CEP a. Calculation and Allocation of U.S. Inventory Carrying Cost (Time on Water) b. Calculation and Allocation of U.S. Inventory Carrying Cost and Credit Expense (Short-Term Borrowing Cost) 2. Other AD Issues a. U.S. Date of Sale b. Advertising c. Date of Payment BACKGROUND: On December 22, 1999, the Department of Commerce ("Department") published the preliminary results of administrative review and intent to revoke in part the antidumping duty order on certain welded stainless steel pipe from Taiwan. See Certain Welded Stainless Steel Pipe From Taiwan: Preliminary Results of Antidumping Administrative Review and Intent to Revoke in Part, 64 FR 71728 (December 22, 1999) ("Preliminary Results"). The merchandise covered by the order is welded stainless steel pipe as described in the "Scope of the Review" section of the Federal Register notice. The period of review ("POR") is December 1, 1997 through November 30, 1998. We invited parties to comment on our preliminary results. Ta Chen Stainless Pipe Co., Ltd. ("Ta Chen") submitted comments on May 23, 2000. Petitioners did not submit a case brief or rebuttal comments. CHANGES SINCE THE PRELIMINARY RESULTS: 1. Export Price or Constructed Export Price Status In the Preliminary Results, the Department determined that Ta Chen had both export price ("EP") and constructed export price ("CEP") sales, as reported by Ta Chen. See Preliminary Results, 64 FR at 71730-71731. Ta Chen reported in its questionnaire response that for its EP sales, "TCI buys the pipe from Ta Chen Taiwan and takes title to it. TCI in turn resells the pipe to the U.S. customer." See Ta Chen's Section A Questionnaire Response, at 9-10 (March 12, 1999) ("Section A Response"). At the U.S. verification at the Los Angeles, California office of its affiliate, Ta Chen International Corp. ("TCI"), the Department inquired about EP sales and the passage of title to the merchandise in these sales. TCI stated that while Ta Chen holds title to the merchandise in Taiwan, TCI holds title to the merchandise on the water, and the U.S. customer takes title when receiving the merchandise, either at the U.S. port or when delivered to the customer by TCI. See Memorandum to the File from Robert A. Bolling and Juanita H. Chen for the U.S. Sales Verification of TCI, at 4 (May 10, 2000) ("TCI Verification Memo"). In its questionnaire response, Ta Chen identified its U.S. sales as involving back-to-back transactions. See Section A Response at 9-10. The Department commonly refers to transactions involving sales from the foreign producer and/or exporter of subject merchandise to an affiliated company, who sells the merchandise to an unaffiliated U.S. buyer, as "back- to-back sales." In its questionnaire responses, Ta Chen also reported the various sales activities either handled by TCI, or in which TCI was involved, in the U.S. TCI's sales activities on these sales, in addition to taking title of the merchandise prior to entry into the U.S., include: 1) invoicing and receiving payment from the U.S. customer; 2) paying for international freight and charges incurred with the U.S. customs broker, as well as clearing the shipment through Customs; 3) arranging the inland freight and delivery in the U.S.; 4) issuing discounts to the customer and absorbing these losses on sales; and 5) contacting the U.S. customer on late payments. See Section A Response, at 10; see also Memorandum to the File from Juanita H. Chen for the Home Market Verification of Ta Chen, at 18 (March 17, 2000) ("Ta Chen Verification Memo"); see also Ta Chen's first Supplemental Questionnaire Response, at 6, 13-15, 17, 33 (August 3, 1999) ("First Supplemental Response"); see also Ta Chen's Sections B-D Questionnaire Response, at 28 (April 5, 1999) ("Sections B-D Response"). This is not an exclusive list, as Ta Chen also reported other involvement in the sale by TCI in the U.S. See Section A Response, at 5-10; Sections B- D Response, at 25, 31-32; First Supplemental Response, at 8, 10, 14. Based upon a fuller understanding of TCI's role in these transactions, the Department has reconsidered its preliminary determination and has determined that these sales should be treated as CEP sales. Accordingly, the Department is reclassifying the sales reported by Ta Chen as EP sales, to CEP sales. Section 772(a) of the Act states that EP is "the price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation by the producer or exporter of the subject merchandise outside of the United States to an unaffiliated purchaser in the United States . . . ." Section 772(b) of the Act states that CEP is "the price at which the subject merchandise is first sold (or agreed to be sold) in the United States before or after the date of importation by or for the account of the producer or exporter of such merchandise or by a seller affiliated with the producer or exporter, to a purchaser not affiliated with the producer or exporter . . . ." In this case, Ta Chen identifies these sales as back-to-back sales, in which TCI takes title to the merchandise prior to passing title to the U.S. customer. In these back-to- back sales, TCI assumes control in setting its price with the U.S. customer. While Ta Chen sets the primary price at which it invoices TCI, TCI sets the price when invoicing the U.S. customer, marking-up the price to include not only general and administrative expenses, but also TCI's profit. See TCI Verification Memo, at 4. In addition, TCI determines the early payment discounts depending on TCI's payment deadline, as well as other discounts requested by the customer, determined on a case-by-case basis. See TCI Verification Memo, at 11. Additionally, TCI absorbs the losses incurred when a customer has quality problems with the merchandise. See Ta Chen Verification Memo, at 18. Thus, the evidence on the record demonstrates that, for the sales at issue, the first sales to an unaffiliated customer occurs in the U.S. between TCI and its customer. As a result, the Department has determined that Ta Chen's reported EP sales should be reclassified as CEP sales. Section 776(a)(1) of the Act states "if necessary information is not available on the record . . ." the Department shall ". . . use the facts otherwise available in reaching the applicable determination . . ." In this case, there is no information on the record regarding indirect selling expenses related to these sales. Accordingly, in reclassifying Ta Chen's reported EP sales as CEP sales, the Department calculated an average of Ta Chen's reported CEP indirect selling expenses and applied that average in its margin calculation program in reclassifying Ta Chen's reported EP sales. For more discussion on the reclassification of EP sales, see the Analysis Memorandum for Ta Chen: Final Results of the 1997- 1998 Administrative Review of Certain Welded Stainless Steel Pipe from Taiwan (June 9, 2000) ("Final Analysis Memo"). 2. Packing Expenses - Allocation of Labor The Department is changing the allocations for U.S. packing cost (PACKM2U) and home market packing cost (PACKH). Ta Chen reported labor and materials for packing, except for wooden crates, in these data fields. Ta Chen reported the cost of wooden crates used for U.S. packing cost in a separate field for U.S. packing cost (PACKM1U). At verification, Ta Chen confirmed that the material used in packing differed for domestic merchandise as compared to exports to the U.S. Although plastic belting and steel strips were used in packing for both domestic and export shipments, the U.S. merchandise included additional packing material of wooden plate and nails. See Ta Chen Verification Memo, at 9, 24-25, and Exhibit 36. While Ta Chen calculated a breakdown for the cost of material used for packing, separating the material costs for domestic and export merchandise (see Ta Chen Verification Memo, at Exhibit 36), it did not calculate such a breakdown for the cost of labor. See Ta Chen Verification Memo, at Exhibit 35. At the home market verification, Ta Chen noted that in an earlier review, it submitted an estimated split in packing labor of [ * * * ]% for exports and [ * * * ]% for domestic merchandise, but the estimate was deemed too arbitrary by the Department. Accordingly, Ta Chen continued to submit an overall average for packing labor. Id. The Department rejects the use of an overall average for the cost of labor for both domestic and export merchandise, as calculated by Ta Chen. Ta Chen's responses indicated that its U.S. shipments involved more packing material. The use of more packing material requires additional labor to prepare the U.S. shipments using these materials. Such additional labor includes loading the wrapped and bound merchandise into the crates, nailing the crates shut, as well as inserting the wooden plates between each crate when stacking the crates. Thus, use of the same overall average for the cost of packing labor for both the U.S. and domestic costs is inaccurate, because it results in Ta Chen over-reporting the cost of labor in packing for domestic sales, and under-reporting the cost of labor in packing for export sales. As discussed in the administrative review for the period December 1, 1995 through November 30, 1996, allocating the expense "so that home market packing labor is equal to, or greater than, export packing labor, while simultaneously acknowledging that the latter is more labor-intensive, is unreasonably distortive." See Certain Welded Stainless Steel Pipe From Taiwan: Final Results of Administrative Review, 63 FR 38382, 38387 (July 16, 1998) ("4th Review Final Results"), citing Antifriction Bearings (Other Than Tapered Roller Bearings), and Parts Thereof, From France, et al., 72 FR 2081, 2090 (January 15, 1997). Accordingly, as facts available, we have recalculated the cost of labor for packing, using Ta Chen's submitted data on the record for packing and labor. See Section 776(a)(1) of the Act. We have calculated the ratio of packing material used in the home market to the total packing materials. We also calculated the ratio of packing material used in the U.S. to the total packing materials. We used these ratios to allocate total labor costs. For a more detailed discussion on the recalculation of labor costs for packing, see the Final Analysis Memo. DISCUSSION OF THE ISSUES: 1. EP/CEP Comment 1: Calculation and Allocation of U.S. Inventory Carrying Cost (Time on Water) Ta Chen argues that time on the water should be excluded from the inventory carrying cost of TCI. Ta Chen cites to Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Romania, Sweden and the United Kingdom: Final Results of Antidumping Administrative Reviews, 64 FR 35590 (July 1, 1999) ("AFBs from France"), which states that only costs incurred in the U.S. should be included in inventory carrying costs. Ta Chen argues that only the average TCI warehouse inventory time should be included in inventory carrying cost (INVCARU), and that time on water should be excluded. Ta Chen submitted a calculation showing that the average TCI warehouse inventory time was [ * * * ]% of the inventory carrying cost, the remainder being average time on the water. Accordingly, Ta Chen argues that the reported TCI inventory carrying cost should be multiplied by a factor of [ * * * ]to exclude time on the water from the inventory carrying cost calculation. Department's Position: The Department agrees with Ta Chen. The Department's regulations state at 19 CFR 351.402(b) that the Department "will make adjustments for expenses associated with commercial activities in the United States that relate to the sale to an unaffiliated purchaser . . ." As stated in AFBs from France, in-transit inventory carrying costs do not meet this criterion, but rather reflect the interest expense of the exporting company. AFBs from France, 64 FR at 35619. Time on the water is an in-transit cost that should not be included in the reported inventory carrying costs of TCI. Accordingly, we have modified the margin calculation program to deduct time on the water from Ta Chen's reported inventory carrying costs. For a discussion of the computer programming used to deduct the time on the water from inventory carrying cost, see the Final Analysis Memo. Comment 2: Calculation and Allocation of U.S. Inventory Carrying Cost and Credit Expense (Short-Term Borrowing Cost) Ta Chen argues that during the credit period provided to TCI pursuant to their agreed payment terms, Ta Chen is incurring the imputed credit cost or inventory carrying cost on the U.S. sales. As TCI's short-term borrowing cost is higher than Ta Chen's short-term borrowing cost, Ta Chen argues that, for the period of time given under the payment terms to TCI, the inventory carrying cost on U.S. sales should be adjusted to use Ta Chen's short-term borrowing cost. Department's Position: The Department disagrees with Ta Chen. It is the Department's practice to use the short-term borrowing rate in the currency in which the cost of the inventory is incurred by the entity that bears the cost of producing or acquiring such inventory. The Department deviates from this practice only in instances where there is clear evidence that an entity other than the one holding the merchandise in inventory absorbs the full cost of financing the cost of the merchandise during the time that the merchandise is held in inventory. In this case, Ta Chen provided no clear record evidence that it, and not TCI, incurs the cost of the merchandise in inventory during the entire period of credit days given to TCI. Since there is no record evidence of when payment is made by TCI, the Department cannot assume that TCI does not pay Ta Chen until the last day of the payment period. TCI is invoiced by Ta Chen at time of shipment. Further, Ta Chen stated that TCI holds title to the subject merchandise on the water, and the U.S. customer pays TCI and not Ta Chen. See TCI Verification Report, at 4; see also Section A Response, at 10. Thus, although Ta Chen might provide a certain number of days of credit under its payment terms to TCI, it is TCI that bears the responsibility for all U.S. financial commitments. Ta Chen had U.S. borrowings for which the Department could construct a U.S. short-term borrowing rate. Therefore, for the final results the Department will continue to use TCI's information on the record regarding the U.S. short-term borrowing rate in effect during the POR as quoted in Ta Chen's questionnaire response. This rate was verified at the U.S. sales verification (see TCI Verification Memo, at 18), and replaces the rate used for the preliminary results. See Ta Chen's Second Supplemental Questionnaire Response, at 63 (October 5, 1999) ("Second Supplemental Response"). 2. Other AD Issues Comment 3: U.S. Date of Sale In the Department's third supplemental questionnaire, we requested that Ta Chen add a field to the U.S. and home market databases reporting the date of the order confirmation. Ta Chen responded to this request in its January 5, 2000 supplemental response by changing the date of sale in the home market variable (SALEDATH) and the U.S. variable (SALEDATU) to order date. However, Ta Chen argues that the Department should use the reported shipment date, with invoicing occurring at the time of shipment, as the date of sale in the dumping margin calculation. Department's Position: The Department agrees with Ta Chen. Section 351.401(i) of the Department's regulations states that the Department will normally use the date of invoice, as recorded in the exporter's or producer's records kept in the ordinary course of business, as the date of sale. After verification and review of Ta Chen's data, the Department has determined that invoice date is the appropriate date of sale. Therefore, for these final results, we have used invoice date as the date of sale. Comment 4: Advertising Ta Chen states that TCI's advertising was with respect to the product at TCI's U.S. warehouse, and the amount was "very small," but makes no further argument on this issue. Department's Position: The Department generally includes advertising as a direct selling expense when it is assumed by the seller on behalf of the buyer and directed toward the product under investigation. See Gray Portland Cement and Clinker From Mexico: Final Results of Antidumping Duty Administrative Review, 65 FR 13943, 13944 (March 15, 2000). However, Ta Chen reported its advertising expenses as part of its indirect selling expenses. At the U.S. verification, the Department reviewed the advertising expenses and noted that not all of the advertising expenses were related to subject merchandise. In addition, the Department observed that TCI's entire advertising expense for the POR was extremely small. See TCI Verification Memo, at Exhibit 18. In this instance, the reported advertising expense is so small as to have no effect on the margin. See also AFBs from France, 64 FR at 35624 (Department treated advertising as an indirect selling expense). Accordingly, for these final results, the Department has continued to treat TCI's advertising expense as an indirect selling expense. Comment 5: Date of Payment At the verification of Ta Chen's U.S. sales data, Ta Chen provided a new date of payment for invoice [ * * * ]. See TCI Verification Memo, at 2. Ta Chen explained that because there was a dispute on the final amount owed, payment on the sale was not complete until March 2, 1999. Department's Position: The Department accepts Ta Chen's new date of payment for the invoice and has changed the margin calculation program accordingly. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting all of the above changes and positions and adjusting the model match and margin calculation programs accordingly. If these recommendations are accepted, we will publish the final results of review, the final weighted- average dumping margin for the reviewed firm, and our determination to revoke the order as to the reviewed firm in the Federal Register. AGREE____ DISAGREE____ __________________________________________ Troy H. Cribb Acting Assistant Secretary for Import Administration __________________________________________ Date