(65 FR 13364, March 13, 2000) A-580-825 ARP 8/1/97-7/31-98 Public Document ITA/IA/III/7: JML MEMORANDUM TO: Robert S. LaRussa Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary Enforcement Group III SUBJECT: Issues and Decision Memo for the Administrative Review of Oil Country Tubular Goods from Korea – 8/1/97 through 7/31/98 Summary We have analyzed the comments and rebuttals of interested parties in the 1997-1998 administrative review of the antidumping duty order covering Oil Country Tubular Goods from Korea. As a result of our analysis, we have not made changes in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments and rebuttals by parties: 1. Date of Sale for Third-Country Sales 2. Normal Value Currency Conversions for Third-Country Sales Background On September 8, 1999, the Department of Commerce (the Department) published the preliminary results of administrative review of the antidumping duty order on Oil Country Tubular Goods from Korea (64 FR 48783). The merchandise covered by this order is hollow steel products of circular cross-section, including only oil well casing and tubing, of iron (other than cast iron) or steel (both carbon and alloy), whether seamless or welded. This scope does not cover drill pipe. The period of review (POR) is August 1, 1997 through July 31, 1998. We invited parties to comment on our preliminary results of review. SeAH submitted a Case Brief on October 8, 1999 ("Case Brief") and Petitioners submitted their rebuttal on October 13, 1999 ("Rebuttal Brief"). At the request of certain interested parties, we held a public hearing on October 19, 1999. Discussion of the Issues Comment 1: Date of Sale For SeAH’s Third-Country Comparison Sales. SeAH Steel Corporation, Ltd. ("SeAH") argues that the Department incorrectly used invoice date, rather than contract date, as the date of sale for its third-country comparison market sales in Myanmar. SeAH asserts that the Department treated these sales in the same manner as it had in the previous administrative review, rather than consider the unique facts of the current period of review. SeAH is only contesting the Department’s use of invoice date as date of sale for SeAH’s third-country comparison market sales. For its U.S. sales, SeAH maintains that invoice date is the proper date of sale. SeAH notes that the Department used invoice date as date of sale for third-country sales in its preliminary determination, "consistent with [its] methodology in the prior review." See Memorandum from Steve Bezirganian to Chris Cassel re: Analysis for SeAH Steel Corporation, Ltd.: Preliminary Results of the Third Administrative Review of Oil Country Tubular Goods other than Drill Pipe from Korea (August 31, 1999) at 3. SeAH asserts that although it responded to the Department’s initial questionnaire with invoice date as the most appropriate date of sale, it became apparent as respondent reviewed its sales documentation that the material terms of sale between SeAH and its Myanmar customers were set on the date of contract, well before invoices were issued. As a result, SeAH amended its response by reporting contract date as the most appropriate date of sale. See SeAH’s March 19, 1999 Supplemental Questionnaire Response (Section B) at 17. SeAH asserts that the Department’s regulations allow the Secretary to "use a date other than the date of invoice if the Secretary is satisfied that a different date better reflects the date on which the exporter or producer establishes the material terms of sale." See 19 CFR section 351.401(i). SeAH cites Notice of Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber from Mexico ("Rubber from Mexico"), 64 FR 14872, 14880 (March 29, 1999) (using contract date as date of sale where price and quantity were fixed on that date); Notice of Final Results and Partial Recission of Antidumping Duty Administrative Review: Canned Pineapple Fruit from Thailand ("Pineapple from Thailand"), 63 FR 43661, 43668 (August 14, 1998) (using contract date as date of sale for U.S. sales when the essential terms of the sale were set on the date of contract); and Porcelain-on-Steel Cookware from Mexico: Preliminary Results of Antidumping Duty Administrative Review ("Cookware from Mexico"), 62 FR 4723, 4725 (January 31, 1997), unchanged in final (defining date of sale as the day that "represents the first occasion where the price and quantity are fixed") as examples of instances where the Department has found evidence that may indicate the material terms of sale are established on some date other than the date of invoice. SeAH also notes other cases that demonstrate the Department’s established practice of making case-by-case factual determinations in deciding whether a date other than invoice date better reflects the date on which the material terms of sale were established by the producer or exporter. See Case Brief at 8. SeAH notes that in a recent administrative review of circular welded non-alloy steel pipe from Korea, the Department required SeAH to revise its database and report contract date as the date of sale for its U.S. transactions in order to avoid "inappropriate comparison." See Circular Welded Non-Alloy Steel Pipe from the Republic of Korea: Final Results of Antidumping Duty Administrative Review ("Circular Pipe from Korea"), 63 FR 32833, 32836 (June 16, 1998). According to respondent, the Department indicated that long lag periods between contract date and invoice date exemplify a situation in which invoice would not normally be an appropriate date of sale for such contracts. See Case Brief, at 6. SeAH supports this argument by noting that because this is an administrative review, where the Department makes monthly, rather than annual, weighted-average comparisons, the differences in time lags and the fluctuating value of the won become even more significant for comparison purposes. See Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From the United Kingdom ("Stainless Steel from the United Kingdom"), 64 FR 30688, 30696 (June 8, 1999). SeAH notes that one of the invoices associated with the contract in the instant review was dated almost five months after the contract date. Respondent argues that the facts in Circular Pipe from Korea are virtually identical for SeAH’s third- country sales in the instant review. Specifically, SeAH notes that its third-country sales in the instant proceeding were negotiated directly between SeAH and its third-country customer and were produced to order. SeAH also argues that no changes in price, quantity or other material terms were made between contract date and invoice date for certain sales to the unaffiliated trading company for shipment to Myanmar, as described in SeAH’s June 10, 1999 Supplemental Questionnaire Response, at 4. SeAH argues that the use of invoice date as the date of sale for their third-country comparison market resulted in a significant distortion to the calculated margin. SeAH contends that because its sales in both the U.S. and third-country markets were made on a dollar basis, the date of sale has implications for both the cost test and the price-to-price comparisons as the sale date determines the exchange rate with which U.S. dollar values are converted to Korean won. SeAH notes that in the instant review, the lag time between contract and invoice date for many sales was marked by a significant foreign exchange loss as a result of the Korean economic crisis. Because the material terms of sale were fixed on the date of contract, SeAH argues, it was unable to adjust its prices in response to the economic downturn. Accordingly, SeAH argues that the exchange rate that existed on the date of contract most accurately reflects the price and profit margin at the time of sale. Petitioner argues that the invoice date is the most appropriate date of sale for third-country sales. Petitioner notes that SeAH represented invoice date as the date of sale in its initial questionnaire response (November 2, 1998), as well as in past proceedings. Petitioner argues that SeAH changed its position only in a later supplemental questionnaire response (March 19, 1999), stating that it had become apparent that "the material terms of the sale between SeAH and its Myanmar customers were set on the date of contract, well before the invoice was issued." See Case Brief, at 4. Petitioner argues that respondent’s own submissions nullify this argument. Petitioner notes that the "sample sales documentation" for third- country comparison market sales was submitted by respondent in support of its original position that invoice date is the most appropriate date of sale in its supplemental questionnaire response of January 15, 1999. Petitioner alleges that this information contradicts SeAH’s position taken in the March 19, 1999 supplemental questionnaire response and SeAH’s case brief. Without a clear and complete demonstration that a date other than invoice date should be used for date of sale, petitioners argue that the Department must maintain its presumption for invoice date. Department’s Position The Department’s regulations express a preference for using the invoice date as a respondent’s date of sale. Section 351.401(i) of the Department’s regulations states that "[i]n identifying the date of sale of the subject merchandise or foreign like product, the Secretary normally will use the date of invoice, as recorded in the exporter or producer’s records kept in the ordinary course of business." This preference is qualified, however, by the following statement: "the Secretary may use a date other than the date of invoice if the Secretary is satisfied that a different date better reflects the date on which the exporter or producer establishes the material terms of sale." Id. We note that this issue is specifically addressed in the preamble to the regulations, which notes that section 351.401(i) provides that "absent satisfactory evidence that the terms of sale were finally established on a different date, the Department will presume that the date of sale is the date of invoice" (62 FR 27349). The preamble also notes that "a preliminary agreement on terms, even if reduced to writing, in an industry where renegotiation is common, does not provide any reliable indication that the terms are truly ‘established’ in the minds of buyers and sellers. This holds even if, for a particular sale, the terms were not renegotiated" (Id.). Thus, the regulations allow the Department the flexibility to examine the date of sale issue on a case by case basis. Recent determinations such as the Notice of Final Determination: Certain Circular Welded Carbon Steel Pipes and Tubes from Thailand, 64 FR 56759, 56766 (October 21, 1999) demonstrate the threshold parties must meet in order for the Department to determine that a date other than invoice date "better reflects" the proper date of sale in a determination. The Court of International Trade (CIT) has recently held that we should only abandon the use of invoice date in "unusual" situations. See Thai Pineapple Canning Industry Corp., LTD, and Mitsubishi International Corp. v. United States, Court No. 98-03-00487, Slip Op. 00-17 (CIT February 10, 2000). Additionally, to avoid manipulation or double-counting or omitting sales, the Department must be particularly cautious about changing a long- standing date-of-sale determination. For our final results of this review, we agree with petitioners, and with our preliminary finding, that invoice date is the appropriate date of sale for SeAH’s third- country comparison market sales. While we agree with respondents that the date of sale question has more serious implications during periods of significant currency fluctuation, the Department’s responsibility to analyze the specific information on the record remains unchanged. We therefore do not agree with respondent that the use of contract date as date of sale in Rubber from Mexico, Pineapple from Thailand, or Cookware from Mexico is suggestive of a proper course of action in the instant review. Additionally, our procedure for adjusting exchange rates to respond to a severe currency fluctuation during a POR is outlined in the portion of our Final Results of Review published in the Federal Register. The sample sales documentation placed on the record by respondents for the current period of review does not sufficiently demonstrate that the material terms of sale remain fixed between contract and invoice date to override the Department’s regulatory preference to use invoice date. In Certain Cold-Rolled and Corrosion- Resistant Carbon Steel Flat Products From Korea: Final Results of Antidumping Duty Administrative Review ("CR-CR"), 64 FR 12927, 12933 (March 16, 1999), we explained that, "even if documentation from a few sample U.S. sales suggests that essential terms of sale did not change after initial contract date, this does not demonstrate that essential terms of sale were not subject to change after initial contract date, or that essential terms of sale did not in fact change after initial contract date for significant numbers of sales. The Department has no basis to conclude that essential terms of sale were set and not subject to change at the initial contract date." In past reviews, respondent made clear arguments and demonstrations that invoice date was the proper date of sale for third-country sales. Invoice date was used as the appropriate date of sale for the final results of the1996-1997 administrative review. At the outset of the present review, respondent again claimed invoice date as the correct date of sale. In fact, respondent's date of sale choice did not change until the third Supplemental Response, on March 19, 1999. Respondent's rationale for the shift was that there was no change evident in the price or quantity for the subject merchandise on the sample sales documentation previously submitted. The date of sale determination should not be changed from review to review without evidence of changes in a company’s business or marketing practices. This is because changes to the material terms of sale between contract date and invoice date found in prior periods tend to indicate that such terms were subject to change in the current POR, even if, in fact, they did not change. Nothing submitted by respondent suggests there was a change in their approach to selling, third-country customers, market, or any other aspects of their standard business practices, which appear to routinely allow for changes to the material terms of sale, as established in the sales contract, during the time period between contract date and invoice date. We also note that only a small portion of respondent’s third- country sales were fully documented in the sample sales information. Absent complete sales documentation supporting respondent’s argument for a change in sale date methodology, and demonstrating a shift in their standard business practices, the Department cannot conclude that invoice date is no longer the appropriate date of sale because we cannot determine whether or not there were changes in the material terms of the sales not included in the sample. In fact, certain other changes, such as those to the terms of payment, are documented in the sample sales data. In recent cases, the Department has determined that changes such as those documented in SeAH’s sales data are material to our analysis of the proper date of sale. In the Notice of Final Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil, 64 FR 38756, 38780 (July 19, 1999), the Department defined date of sale as "the date on which all substantive terms of sale are agreed upon by the parties, including the price, quantity, delivery and payment terms." See also Notice of Final Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-Rolled Carbon Quality Steel Products from Brazil, 65 FR 5554, 5574-75 (Feb. 4, 2000) (where the Department chose not to use contract date because of the fact that "sales conditions and payment terms" could change after the contract date). Additionally, the sample sales material placed on the record by respondents was part of a larger contract that also included non- subject merchandise. While the information submitted by SeAH indicated that there were no changes to overall price and quantity for the subject merchandise, it did include a number of material changes between contract date and invoice date for the other merchandise. The fact that there were no changes in overall price and quantity to the subject merchandise appears to be happenstance in this case rather than a clear demonstration that once the contract is agreed upon, the terms of sale do not change. Further, we do not agree with respondent that the facts in Circular Pipe from Korea (another case involving SeAH) are virtually identical for SeAH’s third-country sales in the instant review. While the Department did allude to long lag periods between contract date and invoice date, the discussion involved SeAH’s U.S. sales. For the instant review, only the third-country comparison market sales are at issue. Here, we note that periods between contract date and invoice date varied widely, with "long" lag times not necessarily representative of SeAH’s third-country sales. SeAH also notes in its Questionnaire Response, dated November 2, 1998, that "there are no long-term contracts in either market" (at A-21), which emphasizes the variability of time lags in this review. Finally, we do not agree with SeAH’s assertion that Stainless Steel from the United Kingdom directs the Department to recognize significant lag times and therefore use contract date, rather than invoice date as the date of sale because of the differences between investigations and reviews. In that case, the Department again used invoice date as the proper date of sale. Comment 2: Normal Value Currency Conversions SeAH argues that in its preliminary results, the Department erroneously compared third-country comparison market sales to U.S. sales after subjecting the third-country sales to two unnecessary currency conversions. SeAH states that it negotiates prices and invoices its third-country customers in U.S. dollars. Respondent is then paid in Korean won based on the U.S. dollar invoiced price. See Case Brief at 11. SeAH notes that it reported U.S. dollar values for these sales consistent with the Department’s instructions. SeAH argues that because its third-country sales are denominated and invoiced in U.S. dollars, the invoiced prices do not require conversion to won for U.S. comparison purposes. Respondent cites Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses From Colombia ("Roses from Colombia"), 60 FR 6980, 7006 (February 6, 1995); Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Korea, ("Stainless Steel Wire Rod") 63 FR 40404, 40413 (July 29, 1998); and Final Determination of Sales at Less Than Fair Value: Silicon Metal From Argentina ("Silicon Metal"), 56 FR 37891, 37896 (August 9, 1991) as evidence that use of the actual, invoiced U.S. price is warranted by the Department’s practice and preference to accept charges in the currency in which the charges were made. Additionally, SeAH contends that the Department’s "double conversion" creates artificial distortions in the normal value comparison due to the significant depreciation of the Korean won during the POR. SeAH argues that the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 requires a "fair comparison" and limits the circumstances under which the Department can convert foreign currencies. SeAH states that since the sales were comparable within the meaning of Article 2.4.1 of the Antidumping Agreement, no conversion of currencies is required. Petitioners argue that the Department’s methodology for converting third-country sales revenues and expenses to the local currency was appropriate and in accordance with precedent. Petitioners note that respondent’s reliance on Stainless Steel Wire Rod is misplaced, as that case actually supports the Department’s methodology in the instant review. In Stainless Steel Wire Rod, petitioners note, the Department indicated that "although it is our preference to recognize prices, expenses and revenues in the currency in which they are incurred, we have continued to use the reported Korean won prices in our final analysis" when the record was "inconclusive as to whether freight income is included in the reported dollar-denominated gross unit price field on [respondent’s] sales listing." See Rebuttal Brief, at 6. In the instant review, petitioners argue, the Department was correct to convert the sales to the local currency because certain expenses were reported in the local currency. Department’s Position In normal circumstances in reviews, as required by law, the Department converts normal value sales from the currency of the country in which they are made to U.S. dollars on the date of the U.S. sale to which they are being compared. This was the methodology followed by the Department in the preliminary results of review. Where the issue is unclear, the Department has considered in determining in which currency a sale is denominated, among other factors: 1) the currency in which the sale was actually paid; and 2) the currency in which the sale was recorded in the respondent’s books and records. Additionally, where the currencies in which a sale is invoiced, paid or recorded are not the same, the Department has examined whether the internal exchange rate used by the respondent generally coincides with the rate dictated by the Department’s standard exchange rate methodology. In the present case, although third country sales were putatively denominated in dollars, SeAH actually received payment in won, and recorded the sales in its books and records in won. Moreover, the record in this case does not contain information to establish that the dollar-to-won conversion internally used by SeAH and its customers coincides with the Department’s exchange rate methodology. Consequently, notwithstanding the existence of a putative dollar figure on some sales documents, we have concluded that the third country sales should be treated as won-denominated sales and converted to dollars using the standard exchange rate methodology. In Roses from Colombia, cited by respondent, all prices and costs were invoiced in dollars. Although these prices and costs were paid in the local currency, the Department verified that the internal exchange rate used by the respondent coincided with the prevailing exchange rate used by the Department. By contrast, in Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 64 FR 30664, 30678 (June 8, 1999), the respondent invoiced certain sales in dollars, but was paid in won, which was the currency in which the sales were recorded in the internal books and records of the company. Moreover, the Department found that the internal exchange rate used to convert the invoiced dollar price to the won-denominated price actually paid did not correspond to the Department’s exchange rate. Unless the internal exchange rate used to derive the won amount paid corresponds to prevailing exchange rates, which are the basis for the Department’s exchange rate methodology, the invoiced dollar amount is meaningless and subject to manipulation. See also, Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15444, 15456 (March 31, 1999). In the present case, although prices are invoiced in dollars, they are paid and recorded in won. Finally, the record does not establish whether SeAH’s internal exchange rates coincide with those used by the Department. Respondent’s reliance on Stainless Steel Wire Rod is misplaced. Although the Department expressed a general preference for analyzing expenses and revenues in the currency in which they are "incurred," this statement as applied to the present case merely begs the question: were the sales "incurred" in won or dollars. Our analysis, discussed above, leads us to conclude that the sales are most appropriately analyzed as won-denominated sales. Indeed, in Stainless Steel Wire Rod, 63 FR at 40414, the Department explained that, although the record was ambiguous, the fact that the sales and expenses were recorded in the respondent’s books and records in won led to the conclusion that the sales should be treated as won- denominated sales. Silicon Metal is similarly inapplicable to the present situation. While the Department stated generally that it is not prohibited from using home market prices denominated in dollars, it explained that it was doing so in that case based upon its finding at verification that the Argentine economy had been "dollarized," and that all sales and purchases were negotiated in U.S. dollars in the normal course of trade. This finding is simply inapplicable to the economy of either Myanmar or the Republic of Korea. * * * * * Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final results of review and the final weighted- average dumping margins for all reviewed firms in the Federal Register. AGREE ____DISAGREE ____ ____________________ Robert S. LaRussa Assistant Secretary for Import Administration (Date)