SUMMARY
In accordance with the U.S. Court of International Trade's (CIT's) order in Slip Op. 99-141 (December 23, 1999), Consol. Court No. 98-05-02185, the Department of Commerce (the Department), has prepared these final results of redetermination on remand with respect to the final results of the 1996 countervailing duty administrative review of certain welded carbon steel pipe and tube products from Turkey. See Certain Welded Carbon Steel Pipe and Tube and Welded Carbon Steel Line Pipe from Turkey: Final Results and Partial Rescission of Countervailing Duty Administrative Reviews, 63 FR 18885 (April 16, 1998) (Pipe and Tube). The CIT instructed the Department to either include foreign exchange gains in the denominator of the subsidy margin calculation or provide an adequate explanation of how this case differs from prior determinations, where the subsidy margin calculation was performed in this manner. The CIT also stated that if the Department takes the latter course of action then it must also explain why Turkish generally accepted accounting principles (GAAP) and respondents' accounting methods are unreliable and distortive.
The Department believes that its current practice is reasonable and in accordance with the law. Therefore, pursuant to the court's remand order, the Department explains below how the prior determinations cited by the court reflect a practice no longer ascribed to by the Department, and why Turkish GAAP and the respondents' accounting methods are not relevant to the issue at hand.
REMAND ANALYSIS
The CIT reversed in part and affirmed in part, the Department's final results of administrative review covering the calendar year 1996. The CIT held that the Department erred in its exclusion of "kur farki" foreign exchange differences from the denominator of the subsidy calculations, but affirmed the Department's methodology for calculating the benefits under the freight rebate program.
In the 1996 administrative review of Pipe and Tube, the respondents argued that the Department should include the amount of foreign exchange difference, called "kur farki," in the companies' sales figures (denominators). The Department disagreed stating that the "kur farki" accounts are not income derived from sales, but income from fluctuations of the relative value of the dollar versus the Turkish Lira. Therefore, the Department excluded the "kur farki" from the sales denominators. This determination was consistent with the Department's position in the prior (1995) administrative review. See Certain Welded Carbon Steel Pipe and Welded Carbon Steel Line Pipe from Turkey: Final Results of Countervailing Duty Administrative Reviews, 62 FR 43984 (August 18, 1997).
In its opinion, the CIT cites to two determinations where the Department included foreign exchange gains in the total sales denominator. These cases are the Final Affirmative Countervailing Duty Determination: Certain Pasta from Turkey, 61 FR 30366, 30372 (June 14, 1996) (Pasta from Turkey), and the Final Affirmative Countervailing Duty Determination: Brass Sheet and Strip from Brazil, 51 FR 40837, 40841 (November 10, 1986) (Brass Sheet). Although the Department included exchange rate gains in the sales denominator in these two investigations, these cases are not reflective of general Department practice. However, while the general practice of the Department is not to include exchange rate gains or losses in the sales denominator, this may be difficult to demonstrate through public information.
In the vast majority of cases, no party has taken issue with the policy of excluding exchange rate gains or losses from the sales denominator of our subsidy calculations. Therefore, this aspect of our calculations is not directly addressed in the public notices describing our investigative or review results. To verify that exchange rate gains and losses are not normally included in the sales values used to compute subsidy margins, one would have to review respondents' sales responses, verification documents, and financial statements, data that cannot be easily accessed or discussed since it is proprietary, segment-specific information. Lacking this data, one place where the Department's policy can be inferred is in the countervailing duty (CVD) questionnaire we send in investigations or reviews. If it were the Department's normal practice to include exchange rate gains and losses in the sales denominator of our subsidy calculations, then this information would be requested or addressed in the Department's standard CVD questionnaire.
The Department's standard CVD questionnaire requires the respondent to report export sales value on a F.O.B. (port) basis and domestic sales value on a F.O.B. (factory) basis in order to correspond to the sales basis on which the U.S. Customs Service assesses CVD duties. The questionnaire also instructs respondents to describe any adjustments that were made to report these sales on a F.O.B. basis if the sales in the company's records were recorded on some other basis than the F.O.B. terms we specified. However, this instruction addresses only the delivery terms of the sales transactions. See e.g., the May 9, 1997 Questionnaire in Pipe and Tube. The Department does not solicit any data regarding a company's exchange rate gains and losses in the standard questionnaire. Therefore, unless a company's recorded sales are routinely adjusted for exchange rate gains or losses, the Department would not have the data to make this adjustment itself.
As a practical matter, companies do not routinely adjust the booked value of their sales for exchange rate gains and losses. In general, a company records a sale denominated in a foreign currency at the exchange rate in effect on the date of the sales booking. Nonetheless, the Department does not rule out the possibility that a company's sales ledger could be recorded on a "cash" basis or that a company may book sales with a fixed-forward exchange rate. We note, though, that these would be exceptions to the normal accounting practices of most companies. Indeed, even respondents concede that they book their sales on the date of invoice using that day's exchange rate based upon accounting convention. See CIT Opinion at 22. Therefore, had respondent reported sales as the Department requested in its CVD questionnaire, it would have been the F.O.B. value of these sales without adjustment for exchange rate gains and losses despite the fact that "kur farki" is included in a Turkish company's financial statement as sales revenue. This, coupled with the absence of any reference to exchange rate gains and losses in the standard CVD questionnaire, supports the Department's position that it is not the Department's normal practice to reflect exchange rate gains and losses in the sales denominators of our subsidy calculations.
On page 24 of its Opinion, the CIT stated that it recognized the "intuitive force" of respondents' argument that from their perspective, the ultimate value of the sale is the total amount of Turkish lira received. However, not withstanding this perspective, whether or not to use this value in our subsidy margin calculation is a policy matter. The statute does not specify the basis for the sales denominator to be used in calculating the ad valorem subsidy rate. Given the discretion provided in the statute, the Department could have chosen to determine the sales denominator on a "net revenue" basis, rather than a F.O.B. basis. Under a "net revenue" basis, the Department could adjust a respondent's sales value by accounting for exchange rate gains and losses, and other post-sale adjustments that reflect the actual amount of Turkish lira received by a company such as the payment of commissions and rebates and the write-off of receivables. (1) However, the Department did not adopt the practice of determining a company's ad valorem subsidy rate based upon the net revenue earned by that company on its sales. Instead, the Department decided that the margin calculation should be based on the F.O.B. value of a
company's sales. These values are simply derived from a company's sales records based upon the booking of the invoiced amount of the sale, adjusted for delivery terms if appropriate. In addition to being less burdensome, we note that the U.S. Customs Service uses the F.O.B. value of imports to establish the CVD duties an importer must pay at the time the goods enter the country. By using the F.O. B. value of goods in our calculations, we ensure that the basis for the Department's ad valorem subsidy margin and the sales basis for the deposit and assessment of CVD duties by U.S. Customs are the same. This approach is reasonable and within the Department's discretion to employ, given that the statute does not indicate a specific choice of a sales denominator.
Although Turkish GAAP has been raised by interested parties, the issue of Turkish accounting standards is not directly relevant to the issue at hand in this case. It is the Department's practice to require a respondent company to provide the F.O.B. value of its sales and to use these values in its subsidy margin calculations. (2) If a respondent country's GAAP required that sales be booked on a C.I.F. basis, the Department would still require that the respondent provide its sales value on a F.O.B. basis. In other words, the Department expects the sales values reported by respondent to be provided on a F.O. B. basis regardless of the accounting practices in the respondent's home country. Indeed, the Department specifically instructs the respondent that if the actual sales value recorded in a company's accounting records are not recorded on a F.O.B. basis, then the respondent must make adjustments to its accounting records to report the sales denominator on a F.O.B. basis. In this respect, the accounting practices of a country's GAAP are not relevant to the reporting requirements for a company's sales denominator.
In its Opinion at 29, the CIT stated that the Department failed to explain why its methodology in Pipe and Tube differs from its prior determinations in Brass Sheet and Pasta from Turkey. As noted above, these two cases are not indicative of the Department's general practice of not including exchange rate gains and losses in the sales denominator. The decision in Brass Sheet was made in 1986. Because this decision occurred 14 years ago, it is difficult to determine why exchange rate gains were included in the sales denominator. It appears that at the time of Brass Sheet, the Department was examining the issue of how to adjust subsidy calculations in a country experiencing high inflation in order to accurately determine an ad valorem CVD rate. The Department may have been trying to devise a methodology to take into account the effect of inflation, and therefore, an adjustment was made using the inclusion of exchange rate gains to account for inflation in Brazil. Accounting for the effects of high inflation to ensure that subsidy calculations are accurate poses difficult methodological issues. However, subsequent to the Brass Sheet determination, a methodology was adopted by the Department which included indexing for inflation or "dollarization," instead of adjusting for exchange rate gains and losses. (3) See e.g., Final Affirmative Countervailing Duty Determinations: Certain Steel Products From Brazil, 58 FR 37295 (July 9, 1993).
A review of the final determination in Pasta from Turkey provides no explanation for the inclusion of exchange rate gains. However, the review took place during a brief period of time in which the Department was following the sales policy articulated in the "General Issues Appendix" (GIA) appended to the Final Affirmative Countervailing Duty Determination: Certain Steel Products From Austria, 58 FR 37217, 37236-37 (July 9, 1993). In the GIA the Department announced that it would begin collecting respondent's total sales values as recorded in the firm's financial statements, as opposed to the F.O.B. value of those sales. This change was introduced with the belief that this approach would be more accurate and would reduce the reporting burden on respondent firms. Despite this change, however, in order to ensure that the Customs Service collected the correct amount of duties based on a F.O.B. (port) basis, we adjusted the calculated ad valorem subsidy rate using the ratio of the invoice value of exports to the United States to the F.O.B. value of exports to the United States. Therefore, this change did not signal a change in the Department's methodology, but a different way of arriving at the F.O.B. value of sales for the denominator of our subsidy calculation.
In the end, only one of the respondents in the 1993 steel investigations had the information needed to calculate this ratio. As a consequence, after reviewing some of the problems faced by respondents to effectively implement this policy change, the Department reverted back to its original practice of requesting the F.O.B. value of sales of subject merchandise. This policy is the Department's current practice and is codified at 19 CFR 351.525. However, by requesting different data in Pasta from Turkey, it is possible that the parties interpreted the change as requiring the company to report its booked sales value, adjusted by "kur farki." In any event, because the Department has no practice of including foreign exchange differences in the sales denominator used for its subsidy margin calculations, it appears that in Pasta from Turkey the Department departed from its practice without a substantive explanation.
REMAND RESULTS
In summary, it is the Department's current practice not to include exchange rate gains or losses in a respondent's sales denominator. (4) The sales denominator used in the Department's ad valorem subsidy margin calculation is based upon our established F.O.B. policy, not upon the investigated country's individual GAAP. Thus, the Department correctly calculated a sales denominator in Pipe and Tube, exclusive of exchange rate gains or losses. Therefore, we submit that the ad valorem subsidy rates calculated in the final results of Pipe and Tube are correct, consistent with established Department policy, and in accordance with law. (5)
On March 15, 2000, the Department received comments from counsel for petitioners and from counsel for respondents on our draft remand results. See "Comment Section" below. After consideration of the comments, the Department maintains its position in these final results of redetermination on remand with respect to the final results of the 1996 countervailing duty administrative review of certain welded carbon steel pipe and tube products from Turkey.
COMMENT SECTION
Comment 1
The Turkish respondents argue that the Department's explanation as to why "kur farki" should not be included in the denominator is based upon faulty logic and a continued misunder- standing of the nature of exchange rate variations. In addition, they state that the Department's attempt to distinguish the prior determinations cited by the Court is unpersuasive and inaccurate, as exchange rate variations were specifically included in the denominator in those cases. The petitioners agreed with our draft remand results.
Department's Position
We have not contested the fact that exchange rate gains and losses were included in the sales denominator in the two cases cited by the CIT, Pasta from Turkey and Brass Sheet from Brazil. However, as explained in the body of this remand determination, these two cases do not reflect the Department's general position that the sales denominators used in our ad valorem subsidy calculations do not include exchange rate gains and losses. Moreover, although respondents do not explain the basis for their claim, we disagree with their assertion that our decision is based upon faulty logic and a continued misunderstanding of exchange rate variations. As we explained above, we use the F.O.B. value of booked sales to calculate the ad valorem subsidy margin because it is the F.O.B. value of imports that Customs Service uses to assess duties on imports.
_____________________
Robert S. LaRussa
Assistant Secretary
for Import Administration
March 17, 2000
Date
1. For example, if the respondent makes a sale which is entered in its sales ledger but is never paid by the customer,
then the ultimate amount of Turkish lira received is zero.
2. The CIT Opinion at 25 states that the Department requires respondents in other types of investigations to report data
consistent with home market GAAP, and cites Asociacion Colombiana de Exportadores de Flores v. United States and Cultivos
Miramonte S.A. v. United States. However, the issue in those cases was the use of a country's GAAP with respect to
determining a respondent's cost of production in an antidumping duty investigation. We respectfully submit that the
Department's established policy and subsequently codified practice (see 19 USC 1677b(f)(1)(A) (1995)) to normally use data
recorded in a company's financial records that is in accordance with the country's GAAP in calculating a respondent's costs is
not germane to the Department's methodology of calculating a respondent's sales denominator in a countervailing duty
investigation.
3. In the 1997 administrative review of Pipe and Tube, the Department used its methodology of indexing both the
subsidy benefits (the numerator) and sales revenue (the denominator) to account for the impact of high inflation in Turkey. See
Certain Welded Carbon Steel Pipes and Tubes and Welded Carbon Steel Line Pipe from Turkey: Preliminary Results of
Countervailing Duty Administrative Reviews, 64 FR 16924 (April 7, 1999); Certain Welded Carbon Steel Pipes and Tubes and
Welded Carbon Steel Line Pipe from Turkey: Final Results of Countervailing Duty Administrative Reviews, 64 FR 44496
(August 16, 1999).
4. We note that the Turkish respondents make two contradictory arguments to the Court. Respondents argue that the
Department should countervail benefits under the Freight Rebate Program based upon the date of export (shipment), yet they
argue that the sales denominator cannot be determined until payment on the export is received by the company in order that the
Department include exchange rate gains and losses in the sales denominator. Logically the exact amount of a countervailable
subsidy cannot be determined unless both the benefit and the sales denominator are known. Therefore, taken together, the
arguments made by respondents to the Court are inconsistent. One further note, the Department's established policy that certain
benefits can be countervailed at the point of export (shipment), a policy acknowledged by both respondents and the Court,
demonstrates that the sales denominator used to calculate those benefits cannot include exchange rate gains and losses. If the
Department had a policy to include exchange rate gains and losses in the sales denominator, then the Department could never
quantify the exact amount of the benefit from a subsidy program at the time of export. As noted above, the exact amount of a
countervailable subsidy can only be determined when both the amount of the benefit and the sales denominator are known. If the
Department had a policy to include exchange rate gains and losses in the sales denominator, then it could never calculate the
amount of the subsidy at the time of export (shipment). This is because, if exchange rate gains and losses were part of the sales
denominator, the sales denominator could only be determined after payment of the sales receivable is made. Again, a policy
which dictates that exchange rate gains and losses are included in the sales denominator logically contradicts a policy which
states that certain subsidies can be quantified at the time of export.