Pohang Iron and Steel Co., Ltd. v. United States

Consol. Court No. 98-04-00906, Slip Op. 99-112 (CIT October 20, 1999)

SUMMARY

The Department of Commerce has prepared these final results of redetermination pursuant to the remand order of the Court of International Trade in Pohang Iron and Steel Co., Ltd. v. United States, Consol. Court No. 98-04-00906, Slip Op. 99-112 (Ct. Int'l Trade

October 20, 1999). In accordance with the Court's instructions, we have re-examined, and recalculated in part, certain contested aspects of Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products From Korea: Final Results of Antidumping Duty Administrative Reviews, 63 Fed. Reg. 13170 (March 18, 1998) (amended at 63 Fed. Reg. 20572 (April 27, 1998)). Specifically, we (1) further explained our basis for classifying the POSCO Group's U.S. sales as constructed export price sales, (2) elaborated upon our treatment of the POSCO Group's U.S. interest expenses, (3) excluded movement expenses from the "total expenses" component of the constructed export price profit formula, and (4) explained our basis for concluding that the Department adequately verified the claim of Union Steel Manufacturing Co., Ltd. that it received free U.S. warehousing with respect to certain transactions. We received interested party comments to our draft remand results on January 31, 2000, and rebuttal comments on February 4,  2000.

BACKGROUND

On March 18, 1998, the Department published Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products From Korea: Final Results of Antidumping Duty Administrative Reviews, 63 Fed. Reg. 13170 ("Final Results"), the third consecutive reviews of the underlying antidumping duty orders, covering the period of review ("POR") August 1, 1995 through July 31, 1996. These third reviews involved three Korean producers/exporters: (1) Dongbu Steel Co., Ltd. ("Dongbu"), (2) Pohang Iron and Steel Co., Ltd. ("POSCO"), Pohang Coated Steel Co., Ltd. ("POCOS"), and Pohang Steel Industries Co., Ltd. ("PSI") (collectively, "the POSCO Group"), and (3) Union Steel Manufacturing Co., Ltd. ("Union"). On

April 27, 1998, the Department published Notice of Amended Final Results of Antidumping Duty Administrative Reviews: Certain Cold-Rolled Carbon Steel Flat Products From Korea; Certain Corrosion-Resistant Carbon Steel Flat Products From Korea, 63 Fed. Reg. 20572 ("Amended Final Results"). Both the POSCO Group and domestic producers of the like product (National Steel Corporation, U.S. Steel Group - A Unit of USX Corp., Inland Steel Industries, Inc., Bethlehem Steel Corporation, and LTV Steel Co., Inc. (collectively "Domestic Producers" or "Petitioners")) contested various aspects of the Final Results and the Amended Final Results.

On October 20, 1999, the Court issued confidential slip opinion 99-112 in Pohang Iron and Steel Co., Ltd. v. United States, Consol. Court No. 98-04-00906 ("Pohang"). In its decision, the Court remanded four aspects of the Final Results and the Amended Final Results. Regarding the Department's decision to classify the POSCO Group's U.S. sales during the POR as constructed export price ("CEP") sales, the Court ordered the Department either to demonstrate the factual basis justifying departure from the earlier export price ("EP") classification, or, if a new legal standard was applied in reaching the CEP classification, to explain such standard. See Pohang at 19-32. The Court also ordered that if the Department continues CEP classification for the POSCO Group's U.S. sales, it must also revisit two aspects of the CEP calculation. Specifically, first the Department must exclude movement expenses from the "total expenses" component of the statutory formula for the calculation of CEP profit. See id. at 36-37. Second, the Department must further explain its facts available-based calculation of U.S. indirect selling expenses (especially with respect to U.S. interest expenses) for the POSCO Group. See id. at 40-41. Finally, the Court ordered the Department to clarify whether the record contains substantial evidence that the Department adequately verified Union's assertion that it received free U.S. warehousing with respect to certain observations. See id. at 50-52.

DISCUSSION

A. Standard Governing CEP Classification

As explained above, the Department determined during the underlying administrative reviews that the POSCO Group's U.S. sales should be classified as CEP transactions. In reaching this decision, the Department reversed its earlier decisions - in prior reviews and in the preliminary results of the third reviews - that these sales warranted EP treatment. See Final Results, 63 Fed. Reg. at 13172, 13182-83.

The essence of the Court's holding on this issue is that the Department may not alter its classification of U.S. sales in an administrative review absent either new facts or a new legal standard. "Commerce's decision to change classification from EP to CEP must be based on some new configuration of facts or, if based on the same facts, Commerce must provide an explanation for its change in approach." Pohang at 31-21 (citing Cultivos Miramonte S.A. v. United States, 980 F. Supp. 1268, 1274-76 (Ct. Int'l Trade 1997)). In these reviews, as further explained below, the Department's determination hinged on the latter - a "change in approach."⁽¹⁾

In the Final Results, the Department carefully reviewed the longstanding three-part test for determining whether U.S. sales warrant EP or CEP treatment, and concluded that the third prong should be expanded to capture more reliably the geographic distinction in the statutory definitions of EP and CEP. Under the previous articulation of the third prong, the Department inquired only "whether the functions of the U.S. sales affiliates . . . were limited to those of processors of sales-related documentation and communications links with unrelated U.S. buyers." Final Results, 63 Fed. Reg. at 13182. However, in addition to citing the "old standards"⁽²⁾ in the Final Results, Pohang at 32, the Department indicated that, in applying the three-part test, it would undertake the following additional inquiry under the third prong:

Where the facts indicate that the activities of the U.S. affiliate were ancillary to the sale (e.g., arranging transportation or customs clearance, invoicing), we treated the transactions as EP sales. Where the U.S. affiliate had more than an incidental involvement in making sales (e.g., soliciting sales, negotiating contracts or prices) or performed other selling functions, we treated the transactions as CEP sales.

Final Results, 63 Fed. Reg. at 13172 (emphasis added). See also id. at 13182-83 ("where a U.S. affiliate is involved in making a sale, we normally consider the sale to be CEP unless the record demonstrates that the U.S. affiliate's involvement in making the sale is incidental or ancillary").

This expanded test more reliably captures the statutory distinction between sales made "outside the United States," and sales made "in the United States." The statute defines EP as "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 or to an unaffiliated purchaser for exportation to the United States." 19 U.S.C. § 1677a(a) (emphasis added). By contrast, 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." 19 U.S.C. § 1677a(b) (emphasis added). Thus, we find that, where the U.S. selling process is supported by significant indirect selling expenses incurred in the United States, or where a U.S. entity is involved in the sales process, the presumption arises that such sales are properly classified under the statutory scheme as CEP sales. We further find that such a presumption is especially appropriate where, as here, the U.S. entity takes title to and resells the subject merchandise.

The previous articulation of the three-part test may in certain instances have led to EP classification where, in our view, CEP treatment would have been more appropriate. For example, in administering the previous version of the test, the Department sometimes indicated that EP treatment was appropriate where "routine selling functions" were merely "relocated geographically from the country of exportation to the United States." See, e.g., Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty Administrative Review, 62 Fed. Reg. 33588, 33597 (June 20, 1997). We no longer apply this criterion because it does not accord with the statutory distinction between EP and CEP. Specifically, this criterion could potentially allow for EP treatment where crucial selling functions (e.g., invoicing and collecting payment; arranging, and paying for, warehousing, insurance, and freight) take place in the United States and commensurately high selling expenses are incurred. The performance of significant selling functions in the United States should, under the statute, give rise to the presumption that a sale warrants CEP, rather than EP, treatment. In short, having carefully examined in the Final Results whether the existing three-part test advanced the crucial statutory distinction between sales made inside and outside the United States, we concluded that it required refinement to do so properly. Between the second and third reviews the Department, thus, did modify - and in our view, correct - the standard governing the classification of U.S. sales as EP or CEP.

We emphasize that the Department's modification to its EP/CEP decision-making standard is not isolated to this case; overall agency practice reveals a clear demarcation between the old and revised standards. Upon adoption of the expanded third prong shortly before the Final Results at issue here, the Department began to employ this standard in all proceedings. See, e.g., Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Stainless Steel Wire Rod From Spain, 63 Fed. Reg. 10849, 10852 (March 5, 1998); Industrial Phosphoric Acid From Belgium; Preliminary Results of Antidumping Duty Administrative Review, 63 Fed. Reg. 25830, 25831 (May 11, 1998); and Notice of Preliminary Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils ("SSPC") From the Republic of Korea, 63 Fed. Reg. 59535, 59538 (November 4, 1998).

Finally, we note that, given the facts before the Department in this case, CEP classification would have been correct even absent the Department's expansion of the third prong of the test.⁽³⁾ The proper inference to draw from the facts of record is that POSAM and BUS did indeed play a central role in the overall U.S. sales process for the POSCO Group such that the sales at issue should be considered to have been made in the United States. Again, U.S. customers communicated with POSAM and BUS regarding most aspects of the sales process, while POSCO's and POCOS' approval of sales proposals appears to have been pro forma. Additionally, POSAM and BUS performed crucial selling functions ranging from initial contact with U.S. customers through invoicing and receiving payment.

For the above-enumerated reasons, we continue to maintain that the Department properly classified the POSCO Group's U.S. sales during the POR as CEP transactions.

B. Movement Expenses and CEP Profit

In accordance with the Court's order, we have excluded movement expenses from the "total expenses" component of the CEP profit calculation for Dongbu, the POSCO Group, and Union.⁽⁴⁾

C. POSCO Group U.S. Indirect Selling Expenses

On remand, the Department must "explain the substance of its approach" in calculating U.S. indirect selling expenses - especially interest expenses - for the POSCO Group's two U.S. sales affiliates, BUS⁽⁵⁾ and POSAM. Pohang at 40. This explanation must address both our choice of facts available in the underlying administrative reviews, as well our general methodology for calculating the interest expenses of U.S. sales affiliates for purposes of CEP. We also have been instructed to explain in detail our rejection of the POSCO Group's ministerial error allegation, and, in doing so, to contrast our treatment of the different allegations. Id. at 41. Given the relative factual complexity of this issue, this discussion will first set forth in detail (1) the Department's methodology in the Final Results, (2) the allegations of ministerial error submitted by the POSCO Group and Petitioners, and (3) adjustments made for purposes of the Amended Final Results. We will then address the Court's concerns regarding our choice of facts available and our U.S. interest expense methodology.

1. The Department's Final Results

In our March 13, 1998 analysis memorandum, we explained that, because the POSCO Group failed to report the requested CEP data, the Department was required to estimate, using available record evidence, values for the following variables: Indirect selling expenses incurred in the country of manufacture ("DINDIRSU"), indirect selling expenses incurred in the United States ("INDIRSU"), inventory carrying costs incurred in the country of manufacture ("DINVCARU"), and inventory carrying costs incurred in the United States ("INVCARU").⁽⁶⁾ See March 13, 1998 analysis memorandum at 3 ("These variables are needed in these reviews for the calculation of CEP price, but were not reported by the POSCO Group. . ."). See also Final Results, 63 Fed. Reg. at 13183 ("At least in part as a result of the respondent's choice not to report the information we requested, we cannot determine the extent of U.S. selling expenses pertaining to sales of subject merchandise.").

Regarding the U.S. indirect selling expenses at issue here,⁽⁷⁾ we explained our calculation of BUS' expenses as follows:

For BUS, Exhibit 1 of the California Verification contains pages for "operating expenses" and total sales. We weight-averaged data for 1995 and 1996 by the number of months in the period of review in the year in question (5 for 1995, 7 for 1996). The data that were weight-averaged were the quotients resulting from the following calculations for each year individually: "operating expenses" (less "freight out") divided by [ * * * ]; for 1995, this calculation was [ * * * ], and for 1996 this calculation was [ * * * ]. As noted, each of these two resulting quotients were weight-averaged (the former by 5/12 and the latter by 7/12), resulting in an average indirect selling expenses factor for BUS for the twelve months of the POR. For U.S. sales of POCOS merchandise, we multiplied this average indirect selling expense ratio for the twelve months of the POR by the gross unit price (GRSUPRU) to obtain INDIRSU.

Id. at 4-5 (emphasis added).⁽⁸⁾

Regarding the calculation of POSAM's U.S. indirect selling expenses, the Department explained:

For POSAM, Verification Exhibit 1 of the New Jersey Verification contains "General and administrative expenses," "Rental operating expense," and total "Revenues" information. We weight-averaged data for 1995 and 1996 by the number of months in the period of review in the year in question (5 for 1995, 7 for 1996). The data that were weight-averaged were the quotients resulting from the following calculations for each year individually: "General and administrative expenses" plus "Rental operating expenses", in turn divided by "Revenues"; for 1995, this calculation was [ * * * ], and for 1996 this calculation was [ * * * ]. As noted, each of these two resulting quotients were weight-averaged (the former by 5/12 and the latter by 7/12), resulting in an average indirect selling expense factor for POSAM for the twelve months of the POR. For U.S. sales of POSCO merchandise, we multiplied this average indirect selling expenses ratio for the twelve months of the POR by the gross unit price (GRSUPRU) to obtain INDIRSU.

Id. at 5.⁽⁹⁾

The Department further specified, in footnote 2 of the March 13, 1998 analysis memorandum, that "{a}fter reviewing the information in the BUS and POSAM financial statements relating to these types of expenses, we determined that the only one that should be deducted was 'freight out' for BUS. The POSCO Group reported U.S. movement expenses that are being deducted in the calculation of constructed export price, and 'freight out' for BUS, unlike any of the other listed sub-totals, appeared to be accounted for in the reported variables." Id. at 5, n.2 (emphasis added).

2. Allegations of Ministerial Errors in the Final Results

By letter dated March 23, 1998, the POSCO Group alleged three clerical errors. Specifically, the POSCO Group claimed, first, that the Department failed to deduct home-market freight expenses from normal value for corrosion-resistant merchandise due to a typographical error in its computer program.

In its March 23, 1998 letter, the POSCO Group also alleged that the Department inadvertently failed to exclude certain U.S. expenses from its calculation of indirect selling expenses for the POSCO Group's U.S. sales affiliates. Specifically, the POSCO Group argued that the Department failed to exclude certain direct U.S. selling expenses for BUS, and certain other U.S. expenses for POSAM.

On March 31, 1998, Petitioners also requested that the Department correct an alleged clerical error. As stated in Petitioners' letter, "the Department inadvertently failed to include [ * * * ]with respect to [ * * * ], and [ * * * ] with respect to POSAM." Id. at 3. According to Petitioners, these amounts could be obtained directly from the [ * * * ] and POSAM financial statements used in the original indirect selling expense calculation. See id. at 5, and Attachments 1 and 2. In their letter, Petitioners further claimed that, according to the Department's analysis memorandum, the Department had intended to exclude only so-called "freight out" costs from its calculation of indirect selling expenses for BUS and POSAM. Id. at 4.

On April 3, 1998, the POSCO Group responded to Petitioners' March 31, 1998 letter, arguing that the Department should not include interest expenses in its calculation of the U.S. affiliates' indirect selling expenses because the Department's practice was not to include interest expenses in U.S. indirect selling expenses. The POSCO Group also argued that the Department accounted for U.S. interest expenses by deducting from the U.S. starting price an amount for imputed credit. See April 3, 1998 POSCO Group letter at 2.

3. The Department's Amended Final Results

On April 15, 1998, the Department issued a recommendation memorandum analyzing the ministerial errors alleged by the POSCO Group and Petitioners. First, regarding the POSCO Group's claim that the Department had inadvertently set home-market movement expenses to zero as a result of a typographical error, the Department agreed. See April 15, 1998 ministerial error memorandum at 2; Amended Final Results, 63 Fed. Reg. at 20573.

Second, regarding the POSCO Group's contention that the Department should have excluded - in addition to "freight out" expenses - "commissions" and "bank charges" from operating expenses, we disagreed. As we explained, "{a}s indicated in footnote 2 of the Department's March 13, 1998, final analysis memorandum, the Department did not intend to exclude 'commissions' or 'bank charges' from its calculation of INDIRSU for U.S. sales of POCOS merchandise." April 15, 1998 ministerial error memorandum at 3.

Third, regarding the POSCO Group's argument that the Department should have excluded "rental operating expenses" from the numerator of the indirect selling expense calculation for POSAM, we also disagreed. As we explained, "{a}s indicated on page 5 of the Department's March 13, 1998, final analysis memorandum, the Department intended to include the 'rental operating expenses' in question in its calculation of INDIRSU for U.S. sales of POSCO." April 15, 1998 ministerial error memorandum at 3-4.

Finally, regarding Petitioners' allegation that the Department failed to include certain U.S. interest expenses in its calculation of indirect selling expenses for BUS and POSAM, we agreed. The reasons are set forth in the ministerial error memorandum:

The Department's Analysis Memorandum at 5 (in footnote 2) states that " [ * * * ]fter reviewing the information in the BUS and POSAM financial statements relating to these types of expenses, we determined that the only one that should be deducted was 'freight out' for BUS." The Department did not indicate that it would exclude interest expenses from its calculation, and such an exclusion made in the numerical analysis that followed this general statement (and in the actual programming) should be interpreted as a ministerial error. The same holds true for the other net expense for 1995.

Furthermore, the 1995 and 1996 total revenue figures for BUS that the Department used as denominators in the calculation of INDIRSU for BUS included comparable revenue categories (e.g., interest income), further evidence of the Department's intention to include the corresponding expenses in the numerators of the calculations for both BUS and POSAM. The Department inadvertently did not include the net other income of POSAM for 1996 in the calculation of POSAM's total 1996 revenue, and it also inadvertently did not include two other income categories (for interest income and for a joint venture) of POSAM for 1995 or 1996 in the calculation of POSAM's total 1995 revenue and POSAM's total 1996 revenue.

April 15, 1998 ministerial error memorandum at 5.

In our April 16, 1998 amended final results analysis memorandum, we set forth the revised INDIRSU calculation for BUS and POSAM, and explained:

{W}e have now included the following expense and income items from the POSAM and BUS financial statements in the calculations (in addition to those included in the programming used in the final results): for U.S. sales of POSCO merchandise, the expense and income items listed within the "Other income (expense)" category of the POSAM income statement for 1995 and 1996; and for U.S. sales of POCOS merchandise, the "interest expense" category of the BUS income statement for 1995 and 1996. The appropriate expense figures have now been included in the appropriate numerators of the calculations, while the appropriate income figures have now been included in the appropriate denominators of the calculations.

April 16, 1998 amended final results analysis memorandum at 2. See also Amended Final Results, 63 Fed. Reg. at 20573.

4. The Department's Choice of Facts Available

We recognize that, in the Final Results and Amended Final Results, we did not explicitly state that our estimation of the POSCO Group's CEP expenses was based on facts available pursuant to 19 U.S.C. § 1677e(a). Nor did we explain whether we employed an adverse inference pursuant to 19 U.S.C. § 1677e(b) in deriving this estimation. We now clarify that we did employ partial adverse facts available in filling the gap caused by the POSCO Group's unwillingness to supply the requested CEP expense information.

As we explained in the Final Results:

The POSCO Group chose not to report the indirect selling expenses and inventory carrying cost information in its U.S. sales response, despite the fact that such reporting for U.S. sales of subject merchandise was requested in the Department's original questionnaire. When the Department indicated in a supplemental questionnaire that it may use facts available to determine these expenses if they were not reported the POSCO Group, the POSCO Group again failed to report those expenses.

Final Results, 63 Fed. Reg. at 13183. We thus find that the POSCO Group withheld requested information for purposes of 19 U.S.C. § 1677e(a)(2)(A), such that we were required by statute to employ facts otherwise available.

As explained above, as facts available we used information derived from POSAM's and BUS' financial statements. Specifically, we aggregated expenses from these financial statements, excluding only those individual expense items that appeared to be adequately accounted for in expense variables that the POSCO Group did report. We retained interest expenses in this aggregation of U.S. expenses because we had no information indicating that these expenses were unrelated to activities associated with the sale of the subject merchandise in the United States.

We further find that the POSCO Group failed to cooperate by not acting to the best of its ability to comply with our requests for CEP-related information, such that an adverse inference is warranted pursuant to subsection 1677e(b).⁽¹⁰⁾ The Department instructed the POSCO Group to report the expenses in question in our original questionnaire and supplemental questionnaire. However, as explained above, the POSCO Group chose not to report these expenses. At no point did the POSCO Group indicate that it could not report CEP-related information, or that reporting it would cause undue hardship. Indeed, the POSCO Group suggested that it would report this information if the Department indicated it would use a CEP methodology. Ultimately, however, the POSCO Group did not comply with our information request.

In this case, the adverse inference is that certain of the financial statement expense items (i.e., the expenses enumerated in POSAM's and BUS' financial statements) that the Department could conceivably classify as indirect selling expenses (excepting certain expenses clearly captured elsewhere) were in fact related to the POSCO Group's sale of subject merchandise in the United States. We have included interest expenses in our estimation of U.S. indirect selling expenses because we cannot be certain that these expenses are unrelated to the POSCO Group's U.S. sales activities.

We find this inference to be reasonable given that the POSCO Group refused to provide transaction-specific CEP expense data as we requested. These data, to state the obvious, are required to perform calculations mandated by the statute. Further, the record contains no other information better suited as a proxy for the withheld information. Finally, we must ensure that the POSCO Group does not benefit from its refusal to supply the requested CEP expense data. As expressed in the Statement of Administrative Action accompanying the Uruguay Round Agreements Act, H.R. Doc. 103-316 (1994) ("SAA"), "{w}here a party has not cooperated, Commerce . . . may employ adverse inferences about the missing information to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully." SAA at 200.

For these reasons, we maintain that both our grounds for applying adverse partial facts available, as well as our choice of facts available, are reasonable and supported by substantial evidence.

D. Union U.S. Warehousing Expenses

During the underlying administrative review of corrosion-resistant merchandise, Union claimed, and the Department verified, that Union did not incur U.S. warehousing expenses with respect to certain transactions. The Court, however, finds that the Department's verification with respect to one of these transactions - observation 83 - was legally insufficient. Specifically, the Court holds that it cannot be discerned from the record either that the coils associated with this sale met the conditions for free warehousing as set forth in an agreement between Union and [ * * * ], the warehousing provider, or that the ultimate customer paid for any additional warehousing beyond the [ * * * ] period specified in this agreement. See Pohang at 51. The Court has instructed the Department to "clarify whether the record contains substantial evidence for its decision as to observation 83." Id. at 52. If we conclude that it does not, we must "re-assess" our conclusions with respect to Union's warehousing expenses. Id.

We respectfully submit that the record contains substantial evidence supporting Union's claim of free U.S. warehousing as to observation 83, and that our verification of this claim was adequate. As explained in the Union verification report, the Department's verifiers carefully examined U.S. warehousing for a group of sales that included observation 83.

{W}e also looked at individual adjustments for three particular U.S. sales. They were U.S. warehousing for observations 83 and 203, and U.S. inland freight for observation 651.

With respect to observation 83, we inquired as to why Union had reported no U.S. warehousing costs despite a [ * * * ]-day gap between the entry date and the reported SHIPDT2U (date of shipment from the U.S. factory or distribution warehouse). Union explained that under the terms of its contract with its warehousing provider, Union is allowed [ * * * ]. Union also stated that for this sale the warehousing costs incurred after the completion of the [ * * * ]were paid by the U.S. customer. A copy of Union's contract with its warehousing provider is contained in page 1 of exhibit 29.

June 30, 1997 Union Verification Report at 16. Thus, the verifiers discussed Union's claim of free warehousing with company officials, collected supporting materials, and recorded no inconsistencies or contradictions in Union's explanation regarding observation 83. As such, there is an abundant showing in the verification report that the verification team scrutinized Union's claim of free warehousing and, in applying its expertise, accepted Union's explanation.

We emphasize that, despite Petitioners' arguments to the contrary, the Department cannot - and is not required to - amass background documentation at verification supporting each claimed element of an adjusted U.S. price. The nature of verification is such that Department officials must carefully select particular data-points from voluminous records, and rely on their expertise to determine the appropriate level of scrutiny for each issue. (The Court appears to agree: "The court defers to the agency's sensibility as to the depth of the inquiry needed." Pohang at 45.) Also, the Department's verifiers cannot memorialize every statement made by company officials or their counsel during verification; nor can the verifiers accumulate documentary evidence or sworn statements supporting every individual data-point. Under existing case-law, the Department "does not have an obligation to verify every piece of information supplied to it." Union Camp Corp. v. United States, 941 F. Supp. 108, 115 (Ct. Int'l Trade 1996) (citing Sugiyama Chain Co. v. United States, 797 F. Supp. 989, 995 (Ct. Int'l Trade 1992)).

We are confused by the Court's holding, which appears to suggest that the Department should have collected additional evidence at verification supporting Union's claim of free warehousing for observation 83. On the one hand, the Court agrees that verification need not entail "a comprehensive examination of each sale." Pohang at 44. On the other hand, the Court's holding with respect to observation 83 suggests the existence of a minimum evidentiary threshold below which a particular "fact," once selected for verification, remains "unverified." If the latter interpretation of the Court's holding is correct, we submit that such a rule would massively complicate and lengthen verification by forcing verification officials to collect comprehensive paper trails supporting each adjustment to each sale - even where verifiers are satisfied with the company's explanation on a particular issue. We also do not understand why, under the applicable law, evidence of an explanation by company officials regarding a particular claim which the Department determined was satisfactory, coupled with the fact that the Department observed nothing in the company's records to contradict their explanation - the evidence on the record that exists in this instance - is not enough to consider such claim to be "verified."

Finally, Union's weighted-average dumping margin for imports of corrosion-resistant merchandise during the third administrative review is 0.39% - significantly below the de minimis threshold. Even if we disregarded our conclusions at verification and imputed a substantial warehousing expense to Union's observation 83 based upon the facts available as suggested by Petitioners, the rate would not be raised above the de minimis level. Specifically, even if we imputed the highest Union U.S. warehousing expense ( [ * * * ]) to observation 83, there would be no effect on Union's overall weighted-average dumping margin of 0.39%.

For these reasons, we respectfully conclude that the record does contain substantial evidence supporting Union's claim of free warehousing for observation 83, and that the Department's verification of this claim was legally sufficient.

INTERESTED PARTY COMMENTS

Comment 1: EP vs. CEP

The POSCO Group argues that the draft remand results both fail to establish a clear and transparent test and fail to justify treating its U.S. sales as CEP sales, contrary to the Court's remand instructions. The POSCO Group contends that the Department's draft remand results acknowledge that the facts have not changed from the second administrative reviews, in which the Department treated its U.S. sales as EP sales. Further, the POSCO Group asserts that the draft remand results' purpose appears to be to establish a "new" clear test for distinguishing between EP and CEP sales that was not in effect previously. The POSCO Group alleges that the Department has implemented a new policy, and that the Department has not justified or explained what its new policy is; nor has it established a clear test demonstrating what factors it now relies upon, and what factors it purportedly discounted in its "prior" test. Moreover, the POSCO Group alleges that the Department has not enunciated a test which is consistently applied in new cases.

The POSCO Group further charges that the Department did not set forth a clear and transparent new standard which would justify the arbitrary reversal of the EP determination in the second administrative reviews. The POSCO Group asserts that the purported new test is in effect a restatement of the Department's prior methodology. According to the POSCO Group, the draft remand results attempt to imply that the Department now focuses more heavily on the third prong of the traditional three-part test - that is, whether the U.S. affiliate played a substantive, "central" role in the sales negotiation process, and whether the U.S. affiliate incurs significant indirect selling expenses.

Citing Pohang at 32, the POSCO Group argues that the Department failed to implement the Court's remand instructions that "{t}he application of any new standard must be transparent", and that "the need for clear standards is to avoid agency decision making that may descend into arbitrariness." The POSCO Group maintains that the Department has failed to explain what factors are now discounted and why. The POSCO Group also notes that the Department's draft remand results claim that there is a "clear demarcation" between the standards and methodology the Department uses in current cases and those that it used in prior cases. The POSCO Group contends, however, that the Department's new test continues to examine similar factors to those examined during the second administrative reviews.

Additionally, the POSCO Group argues that the draft remand results at pages 6-7 imply that the Department will more likely treat sales as CEP sales if the U.S. affiliate takes title and transfers title to the customer, and if the customers have communications with the U.S. affiliates. The POSCO Group argues that if these elements were meant to be part of the new test, the Department has not followed this approach consistently in all cases. The POSCO Group asserts that there are a myriad of cases since the Final Results in these administrative reviews in which the Department has treated U.S. sales as EP sales when the U.S. affiliate took title to the merchandise and when the U.S. customers had some contacts with the U.S. affiliates. See Certain Welded Stainless Steel Pipe from Taiwan, 63 FR 38382, 38386 (1998) (final admin. review); Cut-to-Length Carbon Quality Steel Plate from Korea, 64 FR 73196 (1999) (final LTFV determ.); Stainless Steel Wire Rod from Korea, 63 FR 40404 (1998) (final LTFV determ.); and Hot-Rolled Flat-Rolled Carbon Steel Products from Japan, 64 FR 24329, 24345 (1999) (final LTFV determ.).

The POSCO Group points out several areas where the draft remand results fail to cite to substantial record evidence to support the Department's CEP classification. First, according to the POSCO Group, the draft remand results fail to cite substantial record evidence supporting a conclusion that its U.S. affiliates played a "central role" in the overall sales process or that they in fact possessed the authority to negotiate with U.S. customers.

Second, the POSCO Group points out that the draft remand results claim that the lack of evidence that POSCO or POCOS ever rejected prices proposed by the U.S. affiliates supports a CEP finding. However, the POSCO Group asserts, the Court in its opinion specifically noted that the absence of price rejections was not surprising or revealing of the U.S. affiliates' role in the sales negotiation process. See Pohang at 30.

Third, the POSCO Group states that the draft remand results claim that the provision of "significant" sales support functions by the U.S. affiliates, such as invoicing and collecting payment from U.S. customers, and arranging for freight and insurance, somehow supports the conclusion that those affiliates played a "central role" in the overall sales process. However, the POSCO Group argues, the Court noted that the mere fact that customers largely contacted the U.S. affiliates did not justify CEP treatment when those identical facts had been present in numerous prior reviews. See Pohang at 26-27.

Fourth, the POSCO Group alleges that the draft remand results fail to follow the Court's instructions that the Department must state any additional facts "in the present record, not existent or considered during the second review, which warranted a re-weighing of the evidence." The POSCO Group claims that the Department instead merely restated the same facts and inferences which the Court already rejected in its opnion.

Fifth, the POSCO Group claims that the draft remand results fail to show how the record supports a finding regarding the presence of "significant indirect selling expenses incurred in the United States." The POSCO Group states that it explained in its briefs to the Court that the selling and general administrative expenses incurred by the U.S. affiliates were in fact not significant, and that Petitioners' claims to the contrary were invalid based upon the face of the financial statements.

Finally, the POSCO Group finds objectionable the draft remand results' position that a presumption of CEP treatment is appropriate where the U.S. affiliate takes title to the merchandise. The POSCO Group argues that the Department has not consistently ruled that the mere transfer of title in the United States requires CEP treatment for a given set of sales. The POSCO Group argues that such a standard is meaningless and, in essence, does away entirely with the Department's three-part test.

Petitioners argue that the Department should use this remand proceeding to adopt a bright-line test for the identification of CEP sales. Petitioners contend that the Court remanded this case to the Department so that the agency could reconsider its prior determination that the sales at issue are CEP transactions. Petitioners assert that Department's newly articulated test could result in arbitrary decision-making if not further explained. Petitioners also assert that the possibility of arbitrary decision-making could be avoided if the Department were simply to adopt the test advocated by Petitioners, as explained below. Petitioners maintain that their proposed test is fully consistent with the plain language of the statute.

According to Petitioners, the statute plainly distinguishes between sales made without the involvement of a U.S. affiliate and sales made with the involvement of a U.S. affiliate. Therefore, Petitioners maintain, the only relevant inquiry should be whether or not the U.S. sale was made with the involvement of an affiliated party in the United States. Petitioners argue that, in the present case, where the U.S. affiliate is involved in the sale, those sales should be deemed CEP sales.

Petitioners argue that, if the Department determines to retain the more ambiguous and problematic language proposed in the draft remand redetermination, then the Department should clarify that it has abandoned its three-prong test entirely, and that it instead adopts an entirely new test. Petitioners assert that, to satisfy the Court's concerns, the Department should do the following: first, the Department should do away with the first two prongs of the test as unnecessary and irrelevant; second, the Department should further define the phrases "significant indirect selling expenses" and "substantively involved in the sales process," so that uniform and predictable results can be expected from application of the test.

Petitioners maintain that, in the Department's attempt to clarify the three-prong test, the Department has focused on the third prong, which relates to the U.S. affiliate's role in the U.S. sale. Petitioners argue that selling from inventory is sufficient, but not necessary, to deem sales CEP, and thus not particularly relevant to the question of whether the sales are properly categorized as CEP transactions. With regard to the second prong, which asks whether the sales channel between the foreign producer and the U.S. customer was the customary sales channel, Petitioners charge that this prong is so wholly irrelevant that it never has, to the best of their recollection, been used to distinguish between EP and CEP sales.

Therefore, Petitioners argue that there is no need for any test at all - the mere presence of a U.S. affiliate mandates that U.S. sales be categorized as CEP transactions. Petitioners urge that, should the Department determine to retain the test articulated in the draft remand, it should focus on the only element of the three-prong test which is relevant to the question being decided. Further, Petitioners assert that the Department should provide additional clarification as to the standards which will be applied.

Petitioners argue that the Department should further explain the standards to be applied under the new CEP test. Petitioners assert that the draft remand redetermination establishes a new standard, whereby the presence of "significant indirect selling expenses incurred in the United States, or where a U.S. entity is substantively involved in the sales process," establishes a presumption that the transactions in question are CEP sales. Draft Remand Redetermination at 5-6. Petitioners state that the Department should define what is meant by "substantial" indirect selling expenses and what would count as "substantive" involvement. Petitioners assert that if any indirect selling expenses are incurred, they should be deemed significant and the transactions characterized as CEP transactions. Petitioners contend that adopting such a test does not harm respondents, because if the level of selling activity in the United States is low, so will the extra costs incurred.

In addition, Petitioners urge the Department further to define the concept of "substantively involved in the sales process." Petitioners propose that holding title to the subject merchandise, and financing the U.S. sale (either through the direct extension of credit to the unaffiliated U.S. customer or by paying the foreign producer's invoice prior to receiving the unaffiliated U.S. customer's payment), are functions indicative of CEP transactions and should be made explicit in the final remand results.

Finally, Petitioners suggest that the Department note in the final remand that all parties to these reviews were aware of the fact that a new CEP test was being used by the Department, which would preclude any claim by the POSCO Group that it was not provided with sufficient notice or opportunity to respond to the new analysis.

The POSCO Group argues that the Department should reject Petitioners' request that the Department abolish the three-part test and rule as a matter of law that any sale involving a U.S. affiliate should automatically be deemed a CEP sale. The POSCO Group maintains that both the Department and the Court have repeatedly upheld the test for determining whether sales involving U.S. affiliates should be treated as EP or CEP sales.

The POSCO Group argues that the Department cannot use this remand proceeding to reverse the CEP standard and institute a new test that it did not use in the challenged third reviews. The POSCO Group contends that the Department's authority on remand is limited to reviewing the issues which the Court instructed it to review. According to POSCO, whether or not the Department has the lawful authority to employ a three-part test to classify U.S. sales as EP or CEP sales was not an issue before the Court in the appeal of the challenged third reviews. Rather, the POSCO Group asserts, the only issue on appeal is the application of the Department's three-part test to the facts of this case, as well as the Court's instructions that the Department enunciate more clearly the test and policy that the Department utilized in the challenged third reviews when determining that POSCO's U.S. sales were CEP sales.

The POSCO Group maintains that the statutory definitions of EP and CEP nowhere define the term "sold," and thus leave the Department with discretion to develop a reasonable test to determine whether the merchandise was "sold" outside the United states or in the United States. The POSCO Group argues that the three-part test is the Department's response to this statutory ambiguity. The POSCO Group asserts that the Department has stated that the application of the three-part test is consistent with the statute. See Brief to the Court of Appeals for the Federal Circuit ("CAFC") in AK Steel Corp. v. United States, Appeal No. 99-196, June 28, 1999, at 20-22. Moreover, the POSCO Group contends that the Department's three-part test has been repeatedly approved by the courts. See, e.g., Outokumpu Copper Rolled Products v. United States, 829 F. Supp. 1371, 1378 (Ct. Int'l Trade 1993); Mitsubishi Heavy Industries, Ltd. v. United States, 15 F. Supp. 2d 807, 813-14 (Ct. Int'l Trade 1998).

The POSCO Group charges that Petitioners' proposed revisions to the three-part test should be rejected because they effectively would write the test out of the law. The POSCO Group claims that, in all recent and current cases, the Department continues to cite the three-part test, including the first two prongs of the test.

The POSCO Group claims that the first two prongs are important because they relate to the overall participation by the U.S. affiliate in the sales process. The POSCO Group also objects to Petitioners' argument that the first two prongs of the test should be abandoned because the statutory definitions of EP and CEP do not list the location of inventory or distribution channels as factors to be examined when determining where the sale occurred. The POSCO Group maintains that, as the Department itself has repeatedly argued before the courts, the three-part test represents a lawful exercise of its statutory authority to classify sales as EP or CEP.

The POSCO Group objects to Petitioners' arguments that the presence of any indirect selling expenses incurred by the U.S. affiliate should result in a finding that such sales are CEP sales and that the performance of any functions relating to the transfer of title, such as invoicing U.S. customers or collecting payment from U.S. customers, should as a matter of law require CEP classification. The POSCO Group argues that both positions should be rejected because they would effectively do away with the Department's three-part test, and would improperly result in the automatic classification of sales as CEP sales whenever a sale was made through a U.S. affiliate. According to the POSCO Group, under Petitioners' suggested approach, whenever title is transferred in the United States, or whenever a U.S. affiliate performs any other services related to the sale - no matter how trivial or ancillary to the sale process - then that sale would receive CEP treatment.

The POSCO Group claims that Petitioners' argument that the presence of any indirect selling expenses incurred by the U.S. affiliate should automatically result in a CEP finding confuses the classification of a sale as EP or CEP with the calculation of the constructed export price. The POSCO Group asserts that the statute does not list the presence of indirect selling expenses as a factor to be utilized in the determination of whether a given sale is an EP or CEP sale. The POSCO Group argues that the mere fact that a different statutory provision provides for the deduction of indirect selling expenses from the CEP starting price, does not mean that any sale for which indirect selling expenses are incurred in the United States should result in an automatic CEP classification.

Moreover, the POSCO Group agrees with Petitioners that the Department has not consistently applied its purported "new" test in all recent proceedings. Specifically, the POSCO Group asserts that, to the extent that the Department's draft remand results are meant to imply that the Department now consistently examines whether title transferred in the Untied States or other similar factors, the Department's current cases do not in fact support such a conclusion.

With regard to Petitioners' assertion that the Department should note that the "parties were aware of the fact that a new CEP test was being used by the Department," the POSCO Group states that the document relied upon by Petitioners as the basis for this argument does not identify the parameters of any purported "new" test that the Department might have employed. The POSCO Group contends that this document merely states that "the Department is currently evaluating possible clarifications," and does not identify a specific test or factors the Department might employ in any future cases.

Petitioners rebut the POSCO Group's argument that the Department must "justify the arbitrary reversal of the Department's prior determination in the second administrative review that POSCO's U.S. sales should be treated as EP sales." Petitioners argue that this argument is misleading because there is no "history" of treating POSCO's sales as EP sales. Petitioners assert that POSCO had only a single affiliate in the United States involved with the sale of the subject merchandise, a joint venture known as UPI. Petitioners assert that at least some of POSCO's sales of hot-rolled steel to this entity were deemed to be exporters sales price sales, the precursor to CEP. Petitioners claim that the POSCO Group's sales of the other products were deemed to be purchase price (the precursor to EP), because the sales were made directly from Korea, and did not involve an affiliate in the United States.

Petitioners argue that history supports classifying the POSCO Group's sales as CEP transactions when POSCO sells through a U.S. affiliate. Petitioners point out that only after September of 1994 did POSCO begin to sell in the United States through U.S. affiliates, and that the Department analyzed these sales in the second administrative review. Petitioners assert that, while the Department initially found those sales to be EP sales, the Department identified its error and requested a remand, which the Court refused.

Petitioners urge the Department to adopt a test that would require all sales through a U.S. affiliate to be classified as CEP transactions. In the alternative, the Department should still clarify the test it has articulated in its draft remand. Petitioners agree with the POSCO Group that the Department has long focused on the third prong of the three-prong test, and that the first two prongs are essentially irrelevant to the Department's analysis. Also, Petitioners agree with the POSCO Group that the Department has not been particularly consistent in its application of the new test and further agree that clearer standards are necessary.

However, Petitioners disagree with the POSCO Group's argument that the Department's newly enunciated test is not in fact "new." Petitioners assert that the Department applied the revised third prong of the three-prong test for the first time only two weeks before issuance of the Final Results. Petitioners argue that, under the new test, even a document processor could be categorized as having more than an incidental involvement in the sales process, rendering all sales through that affiliate CEP transactions.

Further, Petitioners disagree with the POSCO Group that the Department is required to identify new fact patterns, never before considered, before it may characterize sales as CEP transactions. Petitioners argue that the Court ordered the Department on remand to indicate whether it applied a new standard or considered new facts in its determination regarding the POSCO Group's sales. Petitioners assert that the Department has clarified that it applied a new standard, and under this new standard, facts which once warranted EP treatment now warrant CEP treatment.

Petitioners maintain that there is substantial record evidence supporting the Department's determination to treat the POSCO Group's U.S. sales as CEP transactions. Petitioners point to statistics demonstrating that BUS and POSAM incur significant indirect selling expenses in the United States. Petitioners also claim that BUS and POSAM were substantively involved in the sales transactions during the POR, and that the Department identified several factors which demonstrate substantive involvement. These include taking title and reselling the subject merchandise, invoicing and collecting payments, and arranging and/or financing warehousing, insurance and freight.

Department's Position:

After careful consideration of the parties' extensive comments regarding the modified three-part test, we decline to alter our approach for purposes of these final remand results. As further explained below, the modified three-part test, as applied in the underlying Final Results and in numerous other proceedings since, is a reliable guide for determining whether U.S. sales should be classified as sales made "in the United States" or sales made "outside the United States" - the core statutory distinction between EP and CEP.

Both Petitioners and the POSCO Group contend that the modified three-part test inevitably leads to arbitrary and unpredictable decision-making. We disagree. It is precisely because the earlier version of the three-part test led to uncertainty where there was some involvement by an entity in the United States in the sales process that the Department found it necessary to expand the third prong. This expanded third prong is more reliable than its predecessor because it more fully describes the type of circumstance that would be appropriately regarded as EP despite some involvement by an affiliated U.S. entity.

We recognize that any administrative test based on the totality of circumstances, rather than on certain "bright lines," may generate a certain amount of uncertainty. Nevertheless, we disagree with Petitioners' proposal to create a per se rule requiring CEP classification whenever a U.S. affiliate of the producer or exporter is involved in the sales process. We find that such an approach is inappropriate because we continue to believe that in certain situations EP classification is proper despite some minimal involvement in the sales process by a U.S. affiliate. Moreover, such a test would require a companion test for sales involving certain unaffiliated entities, because the statutory definition of CEP at 19 U.S.C. § 1677a(b) clearly anticipates that CEP sales may be sales through affiliates or non-affiliates (CEP sales are sales "by or for the account of the producer or exporter of such merchandise or by a seller affiliated with the producer or exporter"). Accordingly, we are convinced that the better approach is to ascertain where, in substance, a sale is made.

Regarding the record evidence supporting the Department's CEP classification, we stress that the Court did not hold that the facts are on their face inconsistent with CEP treatment. Rather, as explained above, the Court's specific remand order to the agency was to explain either the new legal standard governing the sales classification decision in the third reviews or the new facts warranting a different conclusion. To restate the obvious, the Department's decision in the Final Results of the third reviews was grounded in the application of a new legal standard (i.e., an expanded third prong). Accordingly, our explanation regarding the application of the modified test is sufficient to implement the Court's order.

At the same time, we emphasize that the facts of record readily support the conclusion in the Final Results that BUS and POSAM were substantively involved in the U.S. sales process such that CEP treatment was appropriate. While there is no statement by the POSCO Group in either its questionnaire responses or the verification reports that POSAM and BUS actually negotiated prices with U.S. customers, the record is clear that these entities performed the principal role in organizing sales and maintaining relationships with POSCO's and POCOS' established customers.⁽¹¹⁾ The Korea Verification Report contains this description:

For the POSCO-POSTRADE-POSAM-U.S. customer channel, the customer submitted an inquiry for sales volume and price. POSAM summarized all such inquires for the time period in question (one or more times per quarter), and transferred this summary to POSTRADE, and then POSTRADE transmitted the summary to POSCO. The company noted that these transmittals were automatic (i.e., neither POSAM nor POSTRADE had the authority to accept or reject them). The Export Marketing Team reviewed these transmittals, decided how to respond to the U.S. customer's proposals, and notified POSTRADE of its response. POSTRADE in turn notified POSAM. If a counter-offer was suggested by POSCO, POSAM sent such an offer to the customer in question; if the customer accepted, the customer submitted a purchase order to POSAM; this purchase order transmittal, as well as the previously mentioned transmissions, was typically by fax (though sometimes information was communicated by telephone). The company noted that the same series of actions constituted the POCOS-AKO-BUS-U.S. customer sales process, and that the same version, with the POSTRADE steps eliminated, characterized the POSCO sales process for the later part of the POR.

Korea Verification Report at 5. This passage reveals that, even if BUS and POSAM had little latitude in negotiating with U.S. customers, they did play a central role in maintaining contact with U.S. customers and generating quarterly (or more frequent) base prices. This significant responsibility, taken in conjunction with the many other actual sales functions performed by BUS and POSAM (e.g., invoicing U.S. customers, collecting payment, arranging for freight and insurance, incurring credit costs), points to one conclusion - that BUS and POSAM were substantively involved in the U.S. sales process such that their sales are properly viewed as sales made "in the United States."

Comment 2: U.S. Indirect Selling Expenses and Facts Available

The POSCO Group argues that the Department unlawfully included interest expense in the calculation of U.S. indirect selling expenses. The POSCO Group asserts that the Department never indicated in the underlying Federal Register notice or analysis memoranda that its intent was to apply adverse facts available in the calculation of U.S. indirect selling expenses. The POSCO Group points, inter alia, to the Department's statement in the Final Results, 63 Fed. Reg. at 13183 that "we are using the aggregate information as the basis for estimating the unreported U.S. indirect selling expense," and argues that this statement contradicts the Department's subsequent claim that it was applying adverse facts available.

The POSCO Group contends that, based on similar facts, the Court of International Trade rejected the Department's effort to present a post-hoc rationalization for the use of adverse facts available in Mannesmannrohren-Werke AG v. United States, Slip Op. 99-118 at 27 (October 29, 1999). The POSCO Group emphasizes that, according to numerous decisions of the Court, the Department must satisfy rigid procedural requirements before applying adverse facts available.

See Borden Inc. v. United States, 4 F. Supp. 2d 1211, 1246 (Ct. Int'l Trade 1998), Ferro Union, Inc. v. United States, 44 F. Supp. 2d 1310, 1329 (Ct. Int'l Trade 1999) and Mannesmann, Slip Op. 99-118 at 23.

According to the POSCO Group, before the Department may apply adverse facts available, it must make separate findings that (1) information was withheld, (2) the respondent failed to cooperate to the best of its ability, and (3) the information used by the Department as the basis for adverse facts available has been corroborated. See Borden, 4 F. Supp. 2d at 1246. Additionally, the POSCO Group contends that the Court has held that it is not enough for the Department simply to repeat its reason for applying facts available when explaining why an adverse inference is warranted. Id. The POSCO Group further contends that the Department's application of facts available in this case was impermissibly punitive, and that it is the Department's burden, unmet here, to justify its use adverse facts available.

The POSCO Group states that it did not provide the requested information on U.S. indirect selling expenses, but that it did inform the Department why the information was not relevant, as well as that it would provide the requested information if the Department ultimately found that CEP classification was appropriate. Also, the POSCO Group notes that it did not provide the requested information because the Department had not indicated a change in policy, or indicated a specific need for these data. Thus, the POSCO Group followed the reporting approach it had used in the prior, second administrative reviews.

The POSCO Group argues that there was no basis for the Department to impose a punitive calculation of indirect selling expenses by including interest expense which had already been deducted from U.S. price in the form of imputed credit expense. According to the POSCO Group, there is no basis for the statement in the draft remand determination that the punitive approach employed in the Amended Final Results was somehow needed to prevent it from benefitting from its failure to provide indirect selling expense information.

The POSCO Group argues that the Department's application of adverse facts available is neither proper nor lawful in the guise of a clerical error correction. The POSCO Group asserts that, once the Department issues its final results of administrative review, it no longer possesses the authority to reconsider its findings and issue new results that reverse earlier decisions.

The POSCO Group contends that the Department's draft remand results failed to justify the inclusion of interest expense in the calculation of indirect selling expenses, and did not respond to the Court's order to set forth a rationale for the inclusion of interest expense in the CEP calculation. Further, according to the POSCO Group, the draft remand results fail to explain why the methodology used did not double-count interest expenses, given that the Department accounted for interest expenses in the form of a deduction for imputed credit.

The POSCO Group argues that the record contains substantial evidence demonstrating that the interest expense used in the Amended Final Results was unrelated to the sale of subject merchandise, and that the Department errs in stating that it cannot be certain that these expenses are unrelated to the POSCO Group's U.S. sales activities. According to the POSCO Group, it provided evidence in its May 1, 1998 submission, that the interest expense at issue was for the production of non-subject merchandise.

Finally, the POSCO Group argues that the Department also failed to follow the Court's instructions to explain its rejection of the POSCO Group's ministerial error allegation, and that the Amended Final Results failed to correct clerical errors concerning the inclusion of commissions and bank charges in the calculation of indirect selling expenses.

In responding to Petitioners' arguments regarding the Department's standard interest expense methodology, the POSCO Group argues that the Department normally excludes interest expenses in calculating indirect selling expenses to avoid double-counting. In support, the POSCO Group cites Portable Electric Typewriters from Japan, 56 FR 14072, 14074 (April 5, 1991) (final admin. review); Bicycles from the People's Republic of China, 61 FR 19026, 19044 (April 30,1996) (final LTFV determ.); and Certain Cold-Rolled Carbon Steel Flat Products from the Netherlands, 63 FR 13204, 13205 (March 18, 1998) (final admin. review). Further, the POSCO Group asserts that the Department has not included interest expense in the calculation of indirect selling expenses for any other party in this proceeding. The POSCO Group notes that Petitioners could only cite a few cases in which the language implies that the Department included interest expense in the calculation of indirect selling expenses, and those cases do not appear to be significant precedent.

Petitioners disagree with the POSCO Group's argument that the Department impermissibly relied upon a post-hoc rationalization in the draft remand results because the Court specifically instructed the Department to explain its earlier determination. Further, Petitioners assert that it is obvious from the record that the Department's original indirect selling expense methodology was based on the facts available. Furthermore, Petitioners note that the Court stated that resort to facts available was warranted in this case.

Petitioners argue that the Department has satisfied the procedural requirements for applying adverse facts available. First, the Department correctly found that certain information was not on the record. Second, the Department provided the POSCO Group with the opportunity to submit the requested information. Third, the Department determined that the POSCO Group had not acted to the best of its ability to cooperate with the Department. Fourth, the Department explained why the missing data were necessary. Fifth, the Department employed, as facts available, information from the POSCO Group's own financial statements, and explained how this information related to the gap in the record.

Petitioners assert that the Department did not unlawfully switch methodologies (i.e., neutral facts available to adverse facts available) from the Final Results to the Amended Final Results because the Department stated in its Final Results that it was applying an adverse facts available methodology. Further, Petitioners contend that the Department's final analysis memorandum set forth a particular facts-available-based U.S. indirect selling expense methodology, but that the Department's computer program failed to implement this methodology. Petitioners argue that the correction of this programming error in the Amended Final Results constituted a valid exercise of the Department's authority to correct ministerial errors.

Petitioners disagree with the POSCO Group's argument that the Department overlooked the Court's instructions to provide an explanation of its standard methodology, and argue that the Department explained in its draft remand results why it included U.S. interest expense in the calculation of U.S. indirect selling expenses. Petitioners contend that the Department drew an adverse inference and found that the interest expense was related to POSCO's U.S. sales activities. Petitioners state that the Department might have double-counted certain expenses in its calculation of indirect selling expenses, but because the respondent failed to provide CEP expense data, the Department could not distinguish the credit expenses from the reported interest expenses. Thus, the Department cannot know the extent to which double-counting exists, or even that it exists at all. Furthermore, Petitioners argue that the POSCO Group's claim that the Department must have known that the interest expenses at issue related to a joint venture producing non-subject merchandise is entirely unsupported by the record.

Additionally, Petitioners contend that the Department did in fact address the POSCO Group's ministerial error allegation that it failed to deduct commissions and bank charges as instructed by the Court. Petitioners maintain that the Department has repeatedly explained that it intended to include all expenses in the indirect selling expense calculation but for "freight out" expenses. Accordingly, there was no error to correct.

Department's Position:

We agree with Petitioners regarding both the scope of the Department's authority on remand as well as the legality of our application of partial adverse facts available under the circumstances presented in these reviews. The POSCO Group errs in asserting that the Department was precluded from stating for the first time in this remand proceeding that its decision to apply facts available in fact constituted application of adverse facts available. In instructing the Department to clarify its application of facts available, the Court returned jurisdiction to the Department. Thus, our decision in the draft remand results to apply partial adverse facts available was not an impermissible post-hoc rationalization; rather, it was a new determination by the agency. Accordingly, the Mannesmann decision relied upon by the POSCO Group - which concerns explanations by Government counsel during litigation - is entirely inapposite to the issue at hand.

We further disagree with the POSCO Group that we failed to meet the statutory prerequisites to the application of adverse facts available. To summarize: The POSCO Group withheld information crucial to the calculation of CEP. Indeed, the respondent withheld information regarding all required CEP adjustments. Accordingly, as fully explained in the Final Results and above, the Department was left with no choice but to rely on other record information in "plugging the gap" in the record.⁽¹²⁾ The Department turned to the financial statements of BUS and POSAM, and attempted to identify expense categories related to the sale of subject merchandise in the United States. In creating this facts available proxy, the Department committed a ministerial error (e.g., failing to capture in its computer programming all expense categories identified in the narrative explanation). The Department then corrected this error, and issued the Amended Final Results.

Subsequently, the Court instructed the Department to explain whether its application of facts available included an adverse inference. The Department agreed that the Final Results and Amended Final Results were not clear on this point, and articulated in the draft remand results a revised determination clarifying that an adverse inference was warranted under the circumstances. In this revised determination - presented above - the Department first explained anew why it was required to resort to facts available. In a separate finding, the Department explained that the POSCO Group had failed to cooperate to the best of its ability in supplying the requested information. Specifically, it explained that, despite repeated requests, the POSCO Group simply refused to provide CEP-related data crucial to the calculation of the final results. The POSCO Group never claimed that it could not provide these data; again, it simply refused. The Department further explained that the adverse inference applied was the assumption that most expense categories in BUS' and POSAM's financial reports related to sales of subject merchandise in the United States, and therefore should be deducted from the CEP starting price.

We cannot accept the POSCO Group's arguments that it would have provided the CEP-related information had the Department only announced its intent to reclassify respondents' sales as CEP sales. The Department repeatedly requested this information, and could not have been more clear in its preliminary results that it intended carefully to examine the U.S. sales process before issuing the final results. Further, given tight statutory deadlines, the Department cannot allow information requests to devolve into protracted negotiations about what information is required to calculate dumping margins.

The POSCO Group's arguments concerning possible double-counting and the Department's usual methodology with respect to interest expenses are also misplaced, because these arguments presuppose that the respondent has provided all requested information.⁽¹³⁾ Because the POSCO Group refused to provide information regarding the indirect selling expenses incurred by its U.S. affiliates, the Department cannot know whether a deduction for imputed credit is sufficient to capture sales-related interest expenses incurred by these entities. It is impossible to state as a matter of record evidence whether double-counting exists at all, or if so, to what extent. At any rate, if there is double-counting of the POSCO Group's U.S. credit expenses, such double-counting represents an adverse inference entirely appropriate under the circumstances. In this respect, we stress that the Department did not assume that all expense categories delineated on the affiliates' financial statements were related to sales of the subject merchandise in the United States. As explained above, the Department excluded [ * * * ] expenses from the aggregation of BUS' indirect selling expenses, because this expense item "appeared to be accounted for in the reported variables." See March 13, 1998 analysis memorandum at 5, n.2. Accordingly, we also reject the POSCO Group's argument that our adverse facts available methodology is punitive.

For these reasons, we decline to alter the facts available approach adopted in the draft remand results.

Comment 3: Union U.S. Warehousing Expenses

Petitioners argue that the Court did not remand this issue because the Department's verification procedures were inadequate or because the agency should have collected additional evidence supporting its determination, but because the evidence on which the Department based its determination in fact demonstrates that Union did not, as it claimed, receive free U.S. warehousing.

Petitioners contend that, under the terms of the contract with its warehousing company, Union was entitled to free warehousing only [ * * * ]. Petitioners further assert that, for coils [ * * * ]. According to Petitioners, observation 83, the particular sale at issue here, would not have been eligible for [ * * * ], as Union did not [ * * * ]. For these reasons, Petitioners argue, the Department's draft remand redetermination does not address the Court's concerns, and will likely be rejected.

Petitioners argue that the Department must revise its explanation regarding its verification of observation 83. Specifically, the Department should explain how observation 83 could have qualified for [ * * * ]. In addition, it should further identify substantial record evidence which supports its determination that Union did not incur additional fees related to the warehousing. The Department should, as facts available, deduct the [ * * * ], and base the deduction on the per-ton rate of $ [ * * * ].

In response, Union argues that the discussions concerning observation 83 during verification, where the Department had full opportunity to examine this transaction and request any documents it deemed necessary, are more than adequate to establish that the data Union provided in its responses were complete and accurate. Union agrees with the Department that "evidence of an explanation by company officials regarding a particular claim which the Department determined was satisfactory, coupled with the fact that the Department observed nothing in the company's records to contradict their explanation," [ * * * ] be enough to consider such a claim to be "verified."

Union argues that Petitioners' allegations are based on an incomplete and incorrect representation of the facts. According to Union, the critical fact with respect to observation 83 is that its terms of sale were [ * * * ]. In other words, the U.S. customer took title to, and responsibility for, the merchandise upon its clearance at the U.S. port. Because all post-clearance expenses were the responsibility of the U.S. customer, Union also reported no U.S. inland freight charges or warehousing expenses with respect to observation 83. Union further states that any U.S. warehousing services it paid for during the POR were provided by [ * * * ] rather than [ * * * ]. Accordingly, the document relied upon by Petitioners in attempting to refute the claim of free refusing is inapposite.

Union contends that the problem identified by the Court concerning observation 83 results from the confusion of two separate issues raised by Petitioners regarding sales for which no U.S. warehousing expenses were reported. First, Petitioners identified some sales with sale terms "W&D" (warehoused and delivered), for which Union reported no warehousing expenses. Union states that the Department verified, and the Court affirmed, that the record contained substantial evidence supporting Union's explanation as to why these sales did not involve warehousing expenses, despite explicit terms of sale that included warehousing. Second, Petitioners speculatively assert that Union "must have" incurred warehousing expenses for sales for which there were gaps between the date of entry and the date of shipment to the U.S customer. Union states that the Department found that it had properly explained the circumstances concerning these sales and that there were no U.S. warehousing expenses that had gone unreported.

Additionally, Union argues that Petitioners have failed to take note of the fact that the sales terms for observation 83 were [ * * * ]. Union also states that the Department was told during verification that warehousing was paid for by the customer. Union points out that the arrangement between Union America and this customer is such that the merchandise is warehoused at the discretion of the customer and Union America is informed when the merchandise is withdrawn from the warehouse and shipped to the customer. Any further manufacturing costs, as well as any costs for transportation to the warehouse or the warehousing itself, would be borne by the customer.

Union further contends that the Union home-market verification report incorrectly refers to the [ * * * ] warehousing agreement as a contract between Union and its warehousing provider. According to Union, this contract was not between Union and [ * * * ], but between [ * * * ], a Union customer, and [ * * * ]. The statement in the Union U.S. verification report appropriately clarified that any warehousing was the responsibility of the customer, not Union.

Finally, Union argues that the Department accepted Union's explanations regarding warehousing expenses for its U.S. sales, such that there is no legal basis for the application of facts available as urged by Petitioners. In addition, Union contends that Petitioners' assertion that "the remand impacts all sales with unreported warehousing expenses and not only observation 83" is incorrect. Union notes that the Court affirmed the Department's findings with respect to the other sales originally at issue.

Department's Position:

Upon review of the record evidence identified by Union, we agree that the sales terms for observation 83 were [ * * * ]. Accordingly, Union could credibly assert at verification that it was not required to pay any U.S. warehousing expenses associated with this transaction. Indeed, the obvious inference is that this fact formed the basis for the Department's conclusions in its verification report that Union adequately supported its claim of free warehousing with respect to certain U.S. sales. We again emphasize that it is impossible for the Department's verifiers to memorialize every detail encountered during verification. Verification officials must work quickly through enormous records. Accordingly, where there is an obvious explanation for a company's claim that a particular type of routine expense was not incurred on certain sales, it is reasonable for the verifiers simply to note their satisfaction with the explanation and to move on to other more complex issues.

Because we find that Union adequately supported its claim that it did not incur U.S. warehousing expenses with respect to observation 83, and nothing in the record (including documents obtained at verification) casts doubt on that finding, we agree with Union that the Court's opinion does not require us to re-evaluate our findings with respect to the other observations originally at issue in this litigation. The Court stated that "Commerce's conclusions as to four of the five examined sales are accepted by the court." Pohang at 52. In addition, the Court ordered the Department to "re-assess its overall decision on warehousing expenses" only if it could not "support its decision on this record" with respect to observation 83. Id. As explained, the Department's decision regarding observation 83 is fully supported. Accordingly, the Court's order expressly does not require reconsideration of our conclusions regarding any other observations.

REVISED WEIGHTED-AVERAGE DUMPING MARGIN

As a result of this redetermination, we have recalculated the dumping margins for all three producers/exporters. The revised margins are as follows:

Certain Cold-Rolled Carbon Steel Flat Products:

Dongbu 1.21 %

POSCO Group 5.73 %

Certain Corrosion-Resistant Carbon Steel Flat Products:

Dongbu 0.60 %

POSCO Group 1.47 %

Union 0.39 %

Upon the Court's affirmance of this remand redetermination, we will publish notice of our amended results of review in the Federal Register and instruct the U.S. Customs Service to collect duties in accordance with the results.

________________________

Robert S. LaRussa

Assistant Secretary

for Import Administration

________________________

Date

1. We acknowledge that the relevant facts did not change in substance from prior reviews. However, we continue to maintain that we properly characterized POSCO's and POCOS' U.S. affiliates - POSAM and BUS, respectively - as playing a "central role" in the overall sales process. Final Results, 63 Fed. Reg. at 13183. As explained in the Final Results, this finding flows from (1) evidence that U.S. customers in most instances contacted only POSAM and BUS in arranging for sales, (2) the provision of significant sales support functions by POSAM and BUS (e.g., invoicing and collecting payment from U.S. customers, arranging for freight and insurance), and (3) lack of evidence that POSCO or POCOS ever rejected prices proposed by POSAM or BUS. Id.

2. "Old standards" refers to the Department's longstanding three-part test, which was first used on remand in PQ Corp. v. United States, 652 F. Supp. 724, 729-35 (Ct. Int'l Trade 1987). As explained in the Final Results, the Department previously inquired:

(1) whether the merchandise was shipped directly from the manufacturer . . . to the unaffiliated U.S. customer;

(2) whether this was the customary commercial channel between the parties involved; and

(3) whether the functions of the U.S. sales affiliates . . . were limited to those of processors of sales-related documentation and communications links with unrelated U.S. buyers.

Final Results, 63 Fed. Reg. at 13182. Where all three questions were answered in the affirmative, the sales received EP treatment. See also AK Steel Corp. v. United States, 34 F. Supp. 2d 756, 759-60 (Ct. Int'l Trade 1998); U.S. Steel Group - A Unit of USX Corp. v. United States, 15 F. Supp. 2d 892, 902-03 (Ct. Int'l Trade 1998).

3. While respondents' U.S. sales received EP treatment in prior reviews, the Department sought a remand in the litigation of the second reviews to reconsider that decision. This Court rejected the remand request. See Pohang at 24, n. 20 (citing AK Steel, 34 F. Supp. 2d at 762).

4. In implementing this change, however, we respectfully disagree with the Court's conclusion that Domestic Producers were not required to exhaust their administrative remedies before the agency on this issue. The Court held that "parties should be encouraged to address only the issues that are currently relevant and to drop arguments that likely will have no significant effect on the administrative proceedings." Pohang at 36. Yet the CEP profit calculation was "currently relevant" for two reasons. It was relevant because certain sales did receive CEP classification in the preliminary results, and also because the Department explicitly highlighted the EP/CEP classification issue as one that would receive careful attention before publication of the Final Results.

5. In the underlying administrative reviews, we referred to POCOS' U.S. affiliate, [***], as BUS. The Court refers to this company as "GHI." See Pohang at 16, n.15. To ensure consistency with the many administrative documents that refer to [***] as BUS, we will continue to use that term for purposes of this remand determination.

6. As explained in the Department's antidumping questionnaire to the POSCO Group at C-4, the DINDIRSU and INDIRSU expense fields represent U.S. indirect selling expenses incurred in, respectively, the country of manufacture and the United States, and the DINVCARU and INVCARU expenses fields represent U.S. inventory carrying costs incurred in, respectively, the country of manufacture and the United States. In the end, we did not use either DINDIRSU or DINVCARU in our calculations.

7. As explained in our analysis memorandum, we did not deduct an amount representing DINDIRSU, or U.S. indirect selling expenses incurred in Korea, from the CEP starting price because "we have not assumed that any portion of the calculated DINDIRSU relates directly to U.S. economic activity." March 13, 1998 analysis memorandum at 6, n.4. The discussion here thus relates only to the calculation of INDIRSU.

8. Exhibit 1 of the California Verification Report contains BUS' audited financial statements for 1995 and 1996. ["***"] is one of [***] expense types in BUS' enumeration of its ["***"].

9. Exhibit 1 of the New Jersey Verification Report contains POSAM's audited financial statements for 1995 and 1996.

10. Because the facts available relied upon in estimating the POSCO Group's CEP expenses (that is, POSAM's and BUS' financial statements) were provided by the POSCO Group itself, this information qualifies as "information obtained in the course of an investigation or review" for purposes of section 1677e(c). The statute does not require corroboration under these circumstances.

11. As explained in the Korea Verification Report at 5-6, "{i}f a new customer was involved, as was the case of [***] during the period of review, that customer would be involved in discussions with POSCO and POCOS directly about product characteristics and prices" (emphasis added). The report further clarifies that "{o}nly once an understanding was reached between the new customer and the manufacturer would the former be referred to the U.S. affiliate for the normal contacts engaged in by those affiliates." Id. at 6.

12. Because the Department relied on record information rather than "secondary information" in applying the facts available, no obligation to corroborate this information pursuant to 19 U.S.C. § 1677e(c) arose.

13. Both Petitioners and the POSCO Group have cited numerous administrative determinations that discuss the role of interest expenses as a component of U.S. indirect selling expenses. We agree with the POSCO Group that the usual methodology is not to deduct imputed credit expenses and other credit or interest expenses from the CEP starting price. However, those decisions would only have precedential value in this proceeding if the POSCO Group had provided CEP expense data. Because it did not, we cannot assume that the POSCO Group did not incur significant interest expenses in selling the subject merchandise in the United States.