AK STEEL CORP. ET. AL. v. UNITED STATES
(Court No. 96-05-01312)
This remand determination is submitted in accordance with the U.S. Court of International Trade's ("CIT") November 14, 1997, Memorandum Opinion in the case of AK Steel Corp. et. al. v. United States, Slip Op. 97-152 (CIT, November 14, 1997) ("Memorandum Opinion") in which the CIT remanded three issues to the Department of Commerce ("Commerce"). For Continuous Colour Coat, Ltd. ("CCC"), Commerce was ordered to reconsider CCC's credit and debit adjustments to price. Specifically, Commerce must indicate where on the record the adjustments in question are shown to be properly related, either directly or through allocation, to specific sales transactions. Memorandum Opinion at 58. For Dofasco Inc. and Sorevco Inc. ("Dofasco") Commerce was ordered to reconsider Dofasco's partial reversal of restructuring charges. The CIT determined that Commerce must "eliminate the credit for the reversals unless it can articulate a rational reason for abandoning its past practice." Memorandum Opinion at 32. Finally, for Stelco Inc. ("Stelco") Commerce requested, and was granted, a remand to correct ministerial errors in Stelco's final margin calculation. For the reasons discussed below, Commerce has determined that CCC's credit and debit adjustments to price are correct (or, in the case of the specific debit adjustment examined at verification, are not distortive), eliminated Dofasco's partial reversal of restructuring charges and corrected the ministerial errors in Stelco's final margin calculation. Having made these adjustments, we have re-calculated the antidumping duty margin for Dofasco and Stelco.
On March 28, 1996, Commerce published its final results of administrative review of the antidumping duty order on corrosion-resistant steel from Canada. See Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada; Final Results of Antidumping Duty Administrative Reviews, 61 FR 13815 (March 28, 1996) ("Final Results"). In its final results, Commerce determined that CCC's price adjustment methodology regarding credit or debit notes for sales in both the home market and U.S. was acceptable. Specifically, Commerce determined that the allocation of a credit or debit note over multiple invoices was reasonable and accepted these notes as direct adjustments. Final Results at 13822.
B. PRICE ADJUSTMENTS
From March 14 to March 17, 1995, Commerce conducted a sales verification of CCC. In addition to questioning CCC about its adjustment , Commerce determined the validity of the adjustments through an examination of CCC's home market and U.S. sales. Prior to verification, CCC had explained in its questionnaire responses that it made adjustments to prices through credit notes (in case of cancellations, rejects or partial returns) or debit notes (in case of an invoice covering less than the merchandise actually shipped) that were issued after invoicing the merchandise. See, e.g., November 22, 1994 Questionnaire Response to Section IV at 17-18; November 22, 1994 Questionnaire Response to Section V at 17-18. At verification, CCC stated that the notes were linked either to an individual invoice or to multiple, yet specifically identified, invoices. See CCC Sales Verification Report at 7.
During verification we examined a total of 20 home market and U.S. sales of subject merchandise. Of the 10 home market sales examined, four contained adjustments that were made after the merchandise had been invoiced. None of the U.S. sales contained adjustments that were made after the merchandise had been invoiced.
1. First Home Market Sale
As explained below, Commerce verified that each of the four home market sales contained billing adjustments that were properly allocated to specific sales transactions. For the first sale, we observed that the credit note, relating to the sales transaction in issue, was work-order specific and identified several work-orders over which the note was being applied. See CCC Sales Verification Exhibit 29a at 2. For the work-order relating to the sales transaction at issue, we noted that CCC allocated the credit note to all transactions made pursuant to this specific work-order on a weighted average basis. See Id. at 1. The work-order contained multiple invoices. We noted that the invoice which pertained to the transaction at issue contained only this transaction. See April 13, 1995 Home Market Sales computer listing. Therefore, the credit adjustment is transaction-specific and properly accepted by Commerce.
For this same sales transaction we also observed that, for a second credit note, CCC was unable to relate the transaction to a work-order and, thus, included the full value of the credit note in the warranty pool. See CCC Sales Verification Exhibit 29a at 4 and 5. In its supplemental response, CCC indicated that warranty "pools" were created for each customer that had warranty expenses on a given sale in excess of the value of that sale and that the expenses were allocated across all sales to a given customer. See February 17, 1995 Supplemental response at 14. For its final results, Commerce determined CCC's use of "warranty pools" to be acceptable.
2. Second Home Market Sale
For the second sale, the credit note identified one work-order to which the note applied. See CCC Sales Verification Exhibit 38a at 3. Through a trace of the material returned, CCC was able to identify the two invoices to which the credit applied and the amount of the note which applied to each. See Id. at 1. Also, we noted that the sales transaction we examined was the only transaction on the invoice to which it tied. See April 13, 1995 Home Market Sales computer listing. Finally, we noted that a small portion of the credit amount above the original invoice amount was transferred to the warranty pool. See CCC Sales Verification Exhibit 38a at 2. This was done based on CCC's above-referenced methodology in which warranty "pools" were created for each customer that had warranty expenses on a given sale in excess of the value of that sale.
In their comments on the draft remand determination, petitioners objected to CCC's warranty pool practice (see January 19, 1998 Letter from Skadden Arps at 8 and 9) and alleged a ministerial error for this sale in the calculation of freight expense and cash discount. For purposes of this remand determination, the relevant issue is whether CCC correctly allocated its post-invoicing price adjustments, though we note that this comment on the draft remand is the first instance where petitioners have commented on CCC's use of warranty pools. For this second sale, CCC was able to calculate the amount of the credit note which applied to the invoice for this sale through a trace of the skids (units on which to move merchandise) returned (see CCC Sales Verification Exhibit 38a at 1). Moreover, information on the record indicates that the amount of the credit note which was transferred to the warranty pool represented less than .001 percent of that sale's share of the canceled value (see Id. at 2). Thus, Commerce concludes that the credit adjustment for this sale, which was both invoice and transaction-specific, was justified.
3. Third Home Market Sale
For the third sale, the credit note referenced one work-order. See CCC Sales Verification Exhibit 40a at 2. We noted that CCC allocated the credit note to all transactions made pursuant to the work-order on a weighted-average basis. See Id. at 1. The work-order contained multiple invoices. We noted that the transaction in question appeared on an invoice which contained only that transaction. See April 13, 1995 Home Market Sales computer listing. In their comments on the draft remand determination, petitioners allege that CCC misapplied the credit note. They cite to a internal complaint form which referenced the work-order about which the customer complained, and also referenced a coil number (see CCC Sales Verification Exhibit 40 at 9). Petitioners argue that for the credit adjustment to be transaction-specific, only merchandise produced from this coil should be subject to the adjustment. However, information on the record does not substantiate petitioners' assertion that the material returned originated from the coil number identified on the internal complaint form. The returned merchandise consisted of two skids, each with its unique number (see Id. at 12 and 13). Information on the record indicates that the skids did not originate from the coil identified on the internal complaint form (see Id. at 3). In fact, using information available on the record, it is not possible to match the two returned skids to any specific coil. As CCC was unable to match the returned merchandise to the coil identified on the internal complaint form, we believe that CCC acted correctly by allocating the credit note across sales made pursuant to the work-order identified on the form. Commerce is satisfied that CCC acted to the best of its ability and allocated the note using the most specific methodology possible. Therefore, Commerce finds this credit adjustment to be related to the transaction in question and properly allocated.
4. Fourth Home Market Sale
The final sale examined involved a debit note issued to a customer in the home market which did not specify the invoice or work-order and was therefore allocated across all sales to this customer. See CCC Sales Verification Exhibit 43a at 1 and 2. The adjustment was denoted under the field DEBREVH in the home market sales listing. CCC had explained the use of this methodology in its supplemental response. See February 17, 1995 Supplemental Response at 17. Commerce notes that the allocation was limited to the nine home market sales made to this one customer, representing less than 0.5 percent of all home market sales. See April 13, 1995 Home Market Sales Computer listing. It is clear from the record that, for this debit adjustment, a more specific allocation was not feasible. Moreover, contrary to what petitioners assert, this allocation methodology does not cause a distortion to normal value which would affect CCC's margin. Even if Commerce were to make an adverse inference and apply the full amount of the debit note to any of the nine home market sales made to this customer, the resulting effect on CCC's margin would be insignificant. For eight of the home market sales, there would be no distortive effect (and, in fact, for one of these sales, there is a slightly negative effect) on CCC's margin if the debit note was fully applied to any one of these sales. For the last home market sale, the full application of the debit note to that sale would result in a small increase in CCC's margin. See CCC Analysis Memorandum for CIT Remand, pages 3 and 4. Therefore, the danger of allocation, which is the averaging effect on prices, is nonexistent in this case. To conclude, because the adjustment affected a limited number of sales made to the same customer and did not result in a distortion of CCC's margin, Commerce finds CCC's allocation methodology for this debit note to be acceptable.
It is clear from the record that in cases where a credit or debit note references an invoice or work-order, CCC properly related these notes either directly or through allocation to specific sales transactions. Furthermore, of the 20 sales examined, no U.S. sales, and only four home market sales, included post-invoice price adjustments. Of these four home market sales, the adjustments were either directly tied to specific transactions, or were tied to transactions through work-orders using a reasonable allocation methodology. With regard to CCC's methodology for the debit note associated with the fourth sale, we note that this allocation was reasonable as it affected a very small number of sales, and does not distort the calculation of CCC's margin.
Therefore, Commerce determines that CCC's post-invoice adjustments to price are acceptable. Accordingly, no adjustment has been made to CCC's margin.
In calculating Dofasco's Cost of Production ("COP") and Constructed Value ("CV") during the less-than-fair value ("LTFV") investigation, Commerce included in their entirety certain estimated expenditures related to restructuring of the corporation. Final Results, 61 FR at 13825 (citing Final Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 58 FR 37099, 37108 (July 9, 1993)). Commerce determined that estimated expenditures related to restructuring should be included in their entirety as part of Dofasco's COP and CV, because these expenditures were on Dofasco's financial statements and were considered ordinary expenses that Dofasco charged against its 1992 income.
In the final results of this administrative review, Commerce determined that Dofasco's prior period reversal of a portion of restructuring estimates should be allowed because Dofasco's financial statements include certain partial reversals of those earlier restructuring estimates (the reductions were included in Dofasco's financial statements in 1993 and 1994 as a credit to costs).
B. PRIOR PERIOD REVERSAL CREDIT
In defendant's memorandum dated April 15, 1997, Commerce requested a remand to clarify its policy with respect to the reversal charges and to determine if the adjustments made for Dofasco were consistent with that practice and policy. The court did not grant immediate remand, but ordered Commerce to explain and describe its policy and past practice. As articulated before the court, Commerce's past practice regarding reversal of charges for a prior period has two components. As a first step, Commerce will rely upon a respondent's books and records prepared in accordance with the home country's Generally Accepted Accounting Principles ("GAAP") unless those accounting principles do not reasonably reflect the costs of producing the merchandise. See Certain Cut-to-Length Carbon Steel Plate from Germany: Final Results of Antidumping Administrative Review, 61 FR 13834, 13837 (1996), in which Commerce did not allow a reversal of prior period costs because to do so would be to distort the costs in the subsequent period; see also Final Determination of Sales at Less Than Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from Italy, 60 FR 31981, 31991 (1995), in which Commerce noted that reducing a subsequent year's costs because of the reversal in that year of a prior year's estimate would mean distorting the actual production costs incurred in a subsequent year.
As a second step in the analysis, Commerce may recognize an exception to its general rule in cases such as this one. Commerce stated that the matching principle of accounting may be superseded by the concept of conservatism (the concept that certain expenses relating to liabilities for current and future periods be accrued in the first accounting period in which they can be estimated) in certain situations such as this one. Because in the LTFV investigation Commerce included, in its entirety, the amount of estimated expenditures in the COP/CV calculation and because implementation of the multi-year restructuring plan was still in progress during the review, Commerce determined that it was reasonable to allow Dofasco to include in its COP/CV calculation certain adjustments or reversals to the estimated expenditures accrued in 1992.
In response, the court stated that first, the concept of conservatism does not supersede the concept of matching, but should be incorporated into it. Secondly, the court stated that corrections to the financial records in one period should be made only in that same period; it is respondent's responsibility to correct estimates promptly and in the same proceeding to which they are applicable. Third, the court said that although it may not have been appropriate for Commerce to include all costs for a multi-year restructuring in the LTFV investigation cost calculation, that proceeding is not before the court. Finally, the court stated that allowing a credit against costs accounted for years earlier when they were estimated but not incurred may result in a double distortion and may impact the company in the current period. The court also said that Commerce's rationalization, that it "must abide by its long standing policy" (See Final Results at 13825), does not stand scrutiny because its practice is the opposite of what it did in the instant case. As such, the Court remanded this issue to Commerce with the instruction that Commerce was to eliminate the credit for the reversals unless it can articulate a rational reason for abandoning its past practice.
Therefore, we have eliminated the credit for the partial reversal of a prior period charge from the calculation of Dofasco's costs, as instructed by the Court. In addition, in reviewing the margin calculation, we identified ministerial errors in the calculation of interest expenses, general and administrative expenses, and variable and total cost of manufacturing for model match purposes. As such, we have corrected these errors for the draft remand results. See Analysis Memorandum dated January 28, 1998, for more information concerning this issue.
In its final results, Commerce calculated a margin for Stelco's imports of corrosion resistant product using Commerce's standard calculation programs. On April 19, 1996, petitioners alleged that there were three ministerial errors in Commerce's margin calculation program for this product. Commerce agreed with petitioners but was unable to correct these errors prior to jurisdiction vesting with the CIT.
B. MINISTERIAL ERRORS
B. MINISTERIAL ERRORS
The ministerial errors at issue consist of the following:
1. In the Final Results, 61 FR 13816, Commerce stated that it intended to follow the "Zenith footnote 4" methodology for adjusting United States Price ("USP") for home market consumption taxes. Pursuant to this methodology, when merchandise exported to the United States is exempt from home market consumption taxes, Commerce adds to USP the absolute amount of such taxes charged on comparison sales in the home market. Inadvertently, Commerce failed to calculate USP in accordance with this methodology.
2. Commerce intended to correct an adjustment to certain sales that resulted in double counting. Final Results at 13832. However, Commerce failed to recalculate USP in accordance with this methodology.
3. In the Final Results at 13832, Commerce stated that it intended to treat Stelco's slitting expenses as further manufacturing costs for purposes of calculating exporter's sales price. Nevertheless, Commerce neglected to make these adjustments in the calculations for the final results.
We have corrected these ministerial errors in the margin calculation for Stelco.
DRAFT RESULTS OF REDETERMINATION ON REMAND
For CCC, we have determined that CCC's adjustments to price are acceptable. For Dofasco, we have eliminated the credit for Dofasco's prior period reversal from Dofasco's cost calculation and corrected ministerial errors we discovered in the course of the remand proceeding. Finally, we have determined that Commerce made the above-described ministerial errors in its final results margin calculation program for corrosion-resistant products. Accordingly, we have re-calculated the weighted average margins for Dofasco and Stelco which are indicated below:
If the Court approves these results of redetermination, Commerce will instruct the Customs
Service to assess appropriate antidumping duties on entries of subject merchandise made by
Dofasco and Stelco during the period February 4, 1993, and July 31, 1994. Commerce will issue
appraisement instructions directly to the Customs Service.
Robert S. LaRussa
Assistant Secretary for