BACKGROUND

The Department of Commerce (the Department) has prepared these final results of redetermination pursuant to the remand orders issued by the United States Court of International Trade (Court), dated September 8, 1997, in the two above-captioned consolidated actions, in accordance with the decision of the Court of Appeals for the Federal Circuit (Court of Appeals) in Sigma Corp. v. United States, 117 F.3d 1401 (Fed. Cir. 1997) (Sigma).

The Court of Appeals ordered that these cases be remanded with respect to three issues: (1) freight costs for raw materials valued using CIF import prices in all underlying reviews; (2) choice of the surrogate value for overhead in the 1989-90 review; and (3) selection of the "country-wide" rate for the 1989-90 review. Therefore, on remand the Court ordered the Department to take the following actions: First, the Court instructed the Department to recalculate the constructed foreign market values for the three review periods (May 1, 1987 - April 30, 1988; May 1, 1988 - April 30, 1989; and May 1, 1989 - April 30, 1990), using a methodology that does not overvalue total freight expense by double-counting ocean freight and foreign inland freight. Second, the Court ordered the Department to obtain, for the purposes of the 1989-90 review, additional information from its representatives in Pakistan with regard to the size of the "large Lahore based foundry" upon which the Department originally based the surrogate factory overhead component of the constructed foreign market value for the Guangdong branch of the China National Metals and Minerals Import and Export Corporation (Guangdong). The Court ordered the Department to determine whether the overhead for that Pakistani foundry is comparable to the overhead that would be experienced by a foundry the size of the foundries which provided iron construction castings to Guangdong and, if necessary based on this information, recalculate the surrogate factory overhead component of constructed foreign market value. Finally, in accordance with the recent decision of the Court of Appeals in D&L Supply Co. v. United States, 113 F.3d 1220 (1997) (D&L Supply), the Court ordered the Department to determine a country-wide or "all others" rate based upon the best information available (BIA) to be assigned to non-responding exporters in the 1989-90 administrative review without using the rate for Guangdong from a previous review which was invalidated by the Court of Appeals in D&L Supply. The Department released draft results of redetermination on December 12, 1997. Interested parties submitted comments on the Department's draft results and on additional information regarding factory overhead sent to the Department by the U.S. Embassy in Pakistan.

ANALYSIS

The Department has made the following changes to its draft remand calculations for the final results of this remand:

1) We have applied the methodology used to value the freight component of foreign market value not only to pig iron inputs, but to all inputs valued using a surrogate CIF import price. Thus, all such inputs were revalued to include the surrogate CIF price plus a value for freight based on the shorter of the reported distances from either the closest PRC seaport to the castings foundry or from the PRC domestic materials supplier to the foundry. Because for most inputs the actual supplier was closer to the castings foundry than the nearest seaport was to the castings foundry, this change in methodology affected only the following inputs: scrap iron purchased by Beijing Metals and Minerals Export and Import Corporation (Beijing) during the 1987-88 and 1988-89 review periods⁽¹⁾; coke purchased by Guangdong during the 1987-88 and 1988-89 review periods; coke purchased by Guangdong's Dongguan and Shaoguan City foundries during the 1989-90 review period; and all inputs purchased by Guangdong's Guangzhou foundry during the 1989-90 review period.

The Department has also corrected errors in the draft remand calculations of freight costs for Beijing's Songzhuang foundry and for Guangdong's Dongguan foundry during the 1987-89 review and in freight costs attributed to brass bolts, brass washers, and steel cotter pins used in producing Dongguan foundry's Model L-2286 for the 1989-90 review.

2) We have recalculated the 1989-90 factory overhead rate for Guangdong's three medium-sized foundries as 18.47 percent, and for Guangdong's small foundry as 13.19 percent, as explained below.

We based our recalculation on information regarding overhead on the record of the review, adjusted to reflect the relative size of Guangdong's supplier foundries. Because the 1991 Pakistan Embassy cable upon which our original overhead value was based did not include information specific to medium-sized foundries such as those which produce castings for sale by Guangdong, we adjusted the overhead in that 1991 cable using information on foundry sizes developed during the course of the remand.

We used values from the 1991 cable, rather than values obtained in the course of the remand, because the 1991 cable contained information contemporaneous with the period of review, and because the components of factory overhead for the "large Lahore based foundry" referenced in the 1991 cable are detailed, whereas none of the more recent information gathered from Pakistan for the remand provides such a breakdown for any size foundry.

On November 19, 1997, in response to our request for further information on overhead costs, especially with respect to the "large Lahore-based foundry" whose experience served as the basis of the values in the 1991 cable originally used by the Department, the Department received a facsimile from the U.S. embassy in Pakistan. In this facsimile, the embassy stated that it had contacted "possibly the largest Lahore-based foundry," which had a monthly production capacity of approximately 25,000 metric tons per month. The foundry told the embassy that its overhead rates ranged from 15 to 20 percent, and estimated that small foundries with capacities of two to ten metric tons per month would have overhead rates ranging from 5 to 10 percent. The embassy stated that they did not know whether the foundry they had contacted was the "large Lahore-based foundry" referred to in the 1991 cable.

On December 9, 1997, we received a second facsimile from the U.S. Embassy in Pakistan, transmitting a letter from the Pakistan Steel Melters' Association. That letter indicates that there are ten to fifteen "large foundries" that produce more than 500 metric tons per month. The letter also indicates that most of the ten to fifteen large Pakistani foundries are closed due to a recession in the market. This suggests that the six foundries mentioned in the 1991 cable that produce 1000 metric tons per month and "cannot compete with . . . cottage industry competitors" appear to correspond to the "large foundries" mentioned in the same 1991 cable, and not the larger of the mini-foundries mentioned in that cable.

The Steel Melters' letter also clarifies the size of the "cottage-based industries" of which the 1991 cable tells us there are "some two-thousand" operating in Pakistan. It tells us that there are only 45-60 foundries in Pakistan with monthly production capabilities between 100-1000 metric tons per month, and approximates that there are 300-350 foundries with monthly production capabilities of less than 100 metric tons. Therefore, it is reasonable to conclude that the mini-foundries mentioned in the 1991 cable produced no more than 100 metric tons per month.

The Steel Melters' letter includes a category that was absent in the 1991 cable: medium-sized foundries. This letter tells us that medium-sized foundries have production capabilities of 100 to 500 metric tons per month. During the review at issue, Guangdong was supplied by four foundries with production capabilities in the range of 90 to 420 metric tons per month. Only one of these foundries falls into the "below 100 MT" group. See Exhibit 4 of Guangdong's Section C response of October 1, 1990, Public Document 208. Therefore, three of Guangdong's foundries would be termed medium-sized, and the fourth would be classified as a "small" foundry.

Because the 1991 cable tells us that overhead rates for small foundries are 20-30 percent and that overhead rates for large foundries are 40-50 percent, we can reasonably infer that the medium-size factories would have an overhead range of between 30 and 40 percent. We based this inference on the fact that both the 1991 cable and the information submitted by the U.S. Embassy on November 19, 1997 reflect approximately the same proportion between the overhead rates for small foundries and those for large foundries. The 23.75 percent overhead rate used in the underlying review is based on the most specific information available to the Department. However, in light of the information discussed above, for these final results of redetermination, we have concluded that the 23.75 percent overhead rate calculated for the 1989-90 review period was taken from a large foundry and have assumed that this foundry represents the median of the large firms that the 1991 cable referenced as having overheads of 40 to 50 percent. In order to extrapolate what the overhead rate would be for a medium and a small foundry based on similarly specific information, we adjusted the 23.75 percent figure to reflect the size of Guangdong's foundries. For Guangdong's small foundry, we calculated overhead as (23.75% / 45) X 25, i.e. 13.19 percent. For each of Guangdong's medium size foundries, we calculated overhead as (23.75% / 45) X 35, i.e. 18.47 percent.

3) For the draft remand results, we calculated a 12.64 percent PRC-wide rate for the 1987-88 review period, a 30.50 percent PRC-wide rate for the 1988-89 review, and an 18.86 percent rate for Guangdong for the 1989-90 review period. Also in the draft remand results, we used the 30.50 percent PRC-wide rate from the 1988-89 review as the replacement for the PRC-wide BIA rate for the 1989-90 review invalidated in D&L Supply.

Due to changes made to freight costs and the factory overhead rate, and the correction of related clerical errors, all of the margins used for the draft remand results have been changed for these final remand results. For these final remand results we have calculated a 12.50 percent PRC-wide rate for the 1987-88 review period, a 28.77 percent PRC-wide rate for the 1988-89 review period, and a 23.27 percent rate for Guangdong for the 1989-90 review period. Because 1988-89 PRC-wide rate, as recalculated at 28.77 percent for these final remand results, continues to be the highest margin not invalidated by the Court, we used this rate as the PRC-wide BIA rate for the 1989-90 review period in the final results of remand.

INTERESTED PARTY COMMENTS

Comment 1:

The domestic industry argues that the Department's recalculation of the freight component of foreign market value in the draft results of remand was inaccurate and does not necessarily eliminate the double-counting found by the Court of Appeals. The domestic industry states that freight costs would have been more accurately valued had the Department added freight costs to the FOB, rather than the CIF, value for pig iron, and then calculated freight costs based on the actual distances from the suppliers to the foundry. The domestic industry argues that using the FOB value for pig iron would eliminate any freight costs that would have been included in the CIF value. Furthermore, this would allow the Department to base freight costs on actual freight factors submitted by the respondents.

Department's Position

We disagree. The Court ordered the Department to adopt a methodological change "that does not overvalue total freight expense by double-counting ocean freight and foreign inland freight." CIF import prices into the surrogate country are more representative of the price of the input to producers in the surrogate country than are FOB values. Therefore, we prefer to use CIF values when available. Furthermore, because CIF input values, in contrast to FOB values, are normally available for a wide range of surrogate countries, we are able to use CIF values in connection with an overall freight methodology in NME cases.

Comment 2:

Guangdong and D&L Supply Company, an importer of subject merchandise from China (D&L), argue that the Department was not justified in adding any freight costs to the CIF import price for pig iron during any of the review periods because the CIF import price already includes ocean and foreign inland freight. Guangdong and D&L state that this methodology was originally used in the final results for the 1987-89 review, and that a decision by the CIT allowing the Department to add an additional amount for freight was reversed by the Court of Appeals in Sigma.

Department's Position:

We disagree. While CIF import prices include any foreign inland freight from the foreign producer to the port of export and ocean freight to the port of importation in the surrogate country, they do not include foreign inland freight from the port of importation to the factory. Therefore, an adjustment to account for the freight from the port of importation to the factory is necessary. See Final Determination of Sales at Less than Fair Value: Certain Cut-to-Length Carbon Steel Plate From the People's Republic of China, 62 FR 61964, 61977 (Nov. 20, 1997); and Final Determination of Sales at Less than Fair Value: Collated Roofing Nails from the People's Republic of China, 62 FR 51410, 51414 (October 1, 1997). The holding of the Court of Appeals in Sigma rejected a particular approach to valuing this additional freight component. It did not reject the possibility of adding some additional freight component, but rather required Commerce to do so following a methodology that would not double count the portion of freight cost already embodied in a CIF value. Sigma, 117 F.3d at 1408. The methodology adopted by the Department reflects the reasoning of the Court of Appeals that, under market economy conditions, a producer would tend to purchase inputs from the closer of an import source or a domestic source (Id.) and thus treats the CIF price as a surrogate for the price of the input at the closer of the actual source or the nearest seaport.

Comment 3:

Guangdong and D&L contend that the freight costs for coke for the Dongguan foundry should also have been revalued in accordance with the ruling of the Court of Appeals because, prior to the draft remand results, freight costs for coke had been treated exactly the same as freight costs for pig iron in all three reviews. The domestic industry notes that during the 1987-89 and 1989-90 review periods, the Dongguan foundry sourced coke and pig iron from the same location.

Department's Position:

We agree with Guangdong's assertion that the methodology used to value pig iron should be applied to coke as well. Furthermore, following the Court's instructions to recalculate foreign market value (not merely the value for pig iron) using a methodology that does not overvalue the freight expense, the Department has revalued freight in the same way for each input with a CIF import price. Because all inputs in both reviews were valued using CIF import prices, we reviewed all inputs to determine whether the source of the input or the nearest seaport was closer to the foundry in question. We revalued those for which the port was closer to include an amount for Chinese inland freight based on the distance between the closest PRC seaport and the castings foundry.

Comment 4:

The domestic industry argues that the methodology used by the Department to calculate factory overhead for the draft remand produced results less accurate than the method originally used. The domestic industry suggests that the Department use the Department's own "Index of Factor Values for Use in AD Investigations Involving Products from the People's Republic of China" (June 21, 1995). The domestic industry concludes that, based on the overhead values found in this index, the most appropriate overhead rate would be the 19.13 percent rate derived from Indian overhead information and used in Final Determination of Sales at Less Than Fair Value: Sulfur Dyes from the PRC, 58 FR 7537 (February 8, 1993) (Sulfur Dyes).

First, the domestic industry points out that the Court did not order the Department to reject the overhead information used in calculations for the 1989-90 review, but expressed concern as to whether the overhead rate incurred by a particular foundry in Lahore was comparable to the overhead incurred by Guangdong. The domestic industry further notes that the Department was unable to obtain information that would directly confirm such comparability, and therefore, for purpose of the draft results of remand, calculated an average overhead rate based on current data regarding Pakistani overhead rates for large and small foundries.

The domestic industry argues that, if an overhead rate based on contemporaneous data for foundries that may or may not have had different production levels than those which supplied Guangdong was unacceptable, then an overhead rate based on noncontemporaneous data and taken from foundries with production levels known to be significantly different than those which supplied Guangdong must also be unacceptable.

The domestic industry further argues that there is no information on the record suggesting that overhead incurred by Guangdong's foundries, with production ranging between 90 and 420 metric tons per month, would be comparable to an overhead rate experienced by a significantly larger producer and significantly smaller producers. Therefore, they argue, no justification exists for taking an average of two rates to arrive at a surrogate factory overhead rate.

Department's Position:

We agree with the domestic industry that contemporaneity is an important consideration when selecting surrogate values. In this case, our embassy in Pakistan was unable to ascertain the identity of the "large Lahore-based foundry" referenced in the 1991 cable, and thus we were unable to obtain definitive information regarding the size and overhead of that factory. However, information developed during the course of the remand indicates that size has considerable influence on overhead rates, and that Guangdong's foundries are in the small to medium range, and thus probably not comparable to that large Lahore-based foundry or any "large" foundry. Available information on Pakistani overhead rates includes three sets of data, only one of which is contemporaneous with the period of review. Since the current data is in no other respect preferable to the contemporaneous data, we have used the contemporaneous data for these final remand results, adjusting it to extrapolate a 1991 value for overhead at factories in the size ranges represented by Guangdong's suppliers.

We disagree with the domestic industry that the 19.13 percent rate used in Sulfur Dyes is an appropriate rate to use in this case. Because sulfur dyes are chemical products, overhead information on sulfur dyes is less desirable than information on comparable merchandise.

With respect to the domestic industry's argument regarding evidence of a relationship between production capacity and factory overhead, although this relationship may not be precisely linear, it is reasonable, based on information on the record, to estimate that factory overhead for medium-sized foundries falls somewhere between overhead for small foundries and overhead for large foundries.

Comment 5:

Guangdong and D&L argue that, while the 12.5 percent rate suggested in the draft results of remand is more reasonable than the previous rate of 23.75 percent, it still overstates factory overhead costs. Guangdong and D&L note that the Department calculated the 12.5 percent rate by taking the midpoint between the 1997 overhead ranges for Pakistani foundries with production of about 25,000 metric tons per month and smaller foundries with an average production of two to ten metric tons per month which have overhead rates of five to ten percent. Guangdong and D&L maintain that, because production levels at Guangdong's foundries are so much closer to the production levels of the smaller foundries in Pakistan, the Department should consider whether any use of this larger factory overhead rate is appropriate.

Guangdong and D&L further argue that the Department should use the information included in their November 24, 1997 submission to the Department. This information is proprietary information from an Indian producer of iron construction castings and is contemporaneous with the 1989-90 review period. Using this data, Guangdong and D&L calculate an 8.74 percent factory overhead rate.

Department's Position:

Although the November 19, 1997 facsimile from the U.S. Embassy in Pakistan indicates that a large Lahore-based foundry contacted recently had a production capacity of 25,000 metric tons per month, the Steel Melters' letter indicates that "large" foundries are any with a capacity in excess of 500 metric tons per month, while medium-sized foundries have a capacity of 100 to 500 metric tons per month. Thus, Guangdong's foundries, which range in capacity from 90 metric tons per month to 420 metric tons per month, extend from just under the bottom of the medium range to near the top of that range. Therefore, use of the medium range, adjusted for the one foundry known to be in the small range, as done for these final remand results, is appropriate.

Second, the Department does not agree with Guangdong and D&L that the information contained in their November 24, 1997 submission is the best information available to the Department. Because the Court ordered the Department to "obtain additional information from its representatives in Pakistan with regard to the size of the 'large Lahore-based foundry,'" use of Pakistani factory overhead information already on the record, together with information regarding foundry sizes obtained during the course of this remand, is more appropriate than use of Indian overhead information.

Comment 6:

Guangdong states that the 1.5 percent to 3.0 percent 1997 factory overhead rate for Pakistani foundries cited by the Steel Melters' Association indicates that the 12.5 percent rate used for the draft remand results was excessively high. Guangdong suggests that, because the 3 percent rate for large foundries is the highest rate estimated by the association, it should not be objectionable to the domestic industry.

The domestic industry objects to the use of the information from the Steel Melters' Association. First, the domestic industry argues that the information is not contemporaneous with the period of review. Second, it claims that this information pertains to steelmaking, not iron construction castings. The domestic industry argues that the Steel Melters' letter indicates that the medium-sized foundries are mostly engaged in billet/ingot casting, while the Chinese producers pour the raw material into molds. The domestic industry contends that the Chinese construction castings producers incur substantial overhead costs that would not be incurred by steel melters.

Lastly, the domestic industry argues that we can learn from this information that the overhead costs of a large foundry are less than the overhead costs of a medium-sized or small foundry; thus, it argues that the overhead rate of a larger foundry can be used as a proxy for the overhead rate of a smaller foundry.

Department's Position:

The information on factory overhead rates in the Steel Melters' letter is not the best information on the record regarding surrogate overhead rates. First, as we noted in response to Comment 4, above, contemporaneity is a consideration in the selection of surrogate factory overhead rates. Secondly, we agree with the domestic industry that the inclusion of producers of billet/ingot castings makes these rates less reliable than if the merchandise produced consisted only of construction castings made using molds. Moreover, the observation made from this submission, that overhead decreases with the increase in size, contradicts all other information on the record of this remand. Both the 1991 cable and the November 19, 1997 facsimile show factory overhead increasing with an increase in the size of the foundry. Therefore, we have not adopted the overhead values in that submission.

Comment 7:

U.V. International, Sigma Corporation, City Pipe & Foundry, Inc., and Long Beach Iron Works, Inc. (importers) contest the Department's inclusion, in the draft results of remand, of the 25.52 percent petition rate from the original investigation of sales at less than fair value (LTFV) in the pool of rates available for use as the PRC-wide BIA rate for the 1989-90 review. They argue that this rate is not a final rate, and that the Department's choice of 11.66 percent as the final rate in the LTFV investigation indicates that the petition rate was inflated and inaccurate. These importers contend that selection of what they term an "invalidated" petition rate is inconsistent with the Department's standard BIA selection methodology, as well as with the appellate court's decision prohibiting the Department from basing BIA on rates proven to be inaccurate.

Department's Position:

We disagree with importers. The Department's conclusion that the 11.66 percent final LTFV rate was more accurate than the 25.52 percent petition rate does not invalidate the 25.52 percent rate for BIA purposes. Because the 25.52 percent petition rate has never been overturned in a court, it remains available for use as BIA. However, because there is a higher calculated rate available during the course of this proceeding, we have not used the 25.52 percent petition rate as BIA in these final remand results. See Comment 1 in Final Results of Redetermination Pursuant to the Court Remand in D&L Supply Co. v. United States, Consol. Ct. No. 92-06-00424 (December 8, 1997) (adopting the 25.52 percent rate as BIA in the 1990-91 review of iron construction castings).

Comment 8:

Guangdong and D&L argue that the Department should correct an error in the calculations of the adjustment to foreign market value for packing in the 1987-89 review period.

Department's Position:

We disagree. Because the packing adjustment is not directly affected by the recalculation of inland freight, because these respondents did not timely raise this issue before the Court, and because the Court has not included such a change in the remand order, in the interest of finality the Department has not made this change.

Comment 9:

Guangdong and D&L argue that the Department should correct an error in the summation of freight costs for the Songzhuang and Dongguan factories during the 1987-89 review.

Department's Position:

We agree and, because the Court has ordered the Department to correct the freight calculation, we have corrected this error for these final remand results.

Comment 10:

Guangdong and D&L argue that the Department incorrectly calculated freight costs attributed to brass bolts, brass washers, and steel cotter pins on Dongguan factory's Model L-2286 for the 1989-90 review by measuring the quantities of these inputs in metric tons rather than in kilograms.

Department's Position:

We agree, and have corrected this error in the process of correcting the overall freight cost calculations for these final remand results.

Comment 11:

Guangdong and D&L argue that the Department should waive the interest accrued during these appeals, stating that importers should not be penalized with excessive interest payments when they have demonstrated the merits of their case.

Department's Position:

We disagree. An interest payment is not a penalty, but is rather a compensation for the value of the importers' use, during the appeals process, of monies eventually due upon liquidation as antidumping duties. Payment (or, as relevant, refund) of interest is therefore a statutory requirement, and the Department does not waive interest payments that have accrued during the course of the appeals process. 19 U.S.C. Sec. 1677g(a)(1)(1992).

FINAL RESULTS OF REDETERMINATION⁽²⁾

Producer/Exporter Period of Review Margin (%)

Guangdong Minmetals 5/1/89 - 4/30/90 22.50

PRC-Wide Rate 5/1/87 - 4/30/88 12.50

PRC-Wide Rate 5/1/88 - 4/30/89 28.77

PRC-Wide Rate 5/1/89 - 4/30/90 28.77

_____________________

Robert S. LaRussa

Assistant Secretary

for Import Administration

_____________________

(date)

1. The PRC-wide rates for the 1987-89 reviews were based on an average of rates assigned to Beijing and to Guangdong in each review. Therefore, in order to recalculate the PRC-wide rate for these review periods based on the new freight methodology, the Department recalculated foreign market value for both Beijing and Guangdong, both of which were subject to the PRC-wide rate.

2. China National Machinery Import and Export Corporation, Liaoning Branch, which received separate rates for all three review periods in previous redeterminations upon remand, is not affected by these results.