Oil Country Tubular Goods from Korea: Final Results of Antidumping Duty Administrative Review

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of 1930, as amended (the Act), are to the provisions effective January 1, 1995, the effective date of the amendments made to the Act by the Uruguay Round Agreements Act (URAA). In addition, unless otherwise indicated, all citations to the Department's regulations are to 19 CFR part 351 (1998).

Background

On August 11, 1995, the Department published in the Federal Register (60 FR 41057) the antidumping duty order on oil country tubular goods from Korea. On August 4, 1997, the Department published in the Federal Register (62 FR 41925) a notice indicating an opportunity to request an administrative review of this order for the period August 1, 1996, through July 31, 1997, and on August 29, 1997, SeAH requested an administrative review for its entries during that period. On September 25, 1997, in accordance with section 751 of the Act, we published in the Federal Register a notice of initiation of an administrative review of this order for the period August 1, 1996 through July 31, 1997 (62 FR 50292). Under section 751(a)(3)(A) of the Act, the Department may extend the deadline for completion of an administrative review if it determines that it is not practicable to complete the review within the statutory time limit of 365 days. On January 30, 1998, the Department published a notice of extension of the time limit for the preliminary results in the review to August 31, 1998. See Oil Country Tubular Goods from Korea; Extension of Time Limit for Antidumping Duty Administrative Review, 63 FR 4624. On December 21, 1998, the Department extended the deadline for determination of the final results in this case to March 8, 1999. See Extension of Time Limit for Final Results of Antidumping Duty Administrative Review of Oil Country Tubular Goods from Korea, 63 FR 70389. The Department is conducting this review in accordance with section 751(a) of the Act.

Scope of Review

The merchandise covered by this order is oil country tubular goods (``OCTG''), 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, whether or not conforming to American Petroleum Institute (``API'') or non-API specifications, whether finished or unfinished (including green tubes and limited service OCTG products). This scope does not cover casing or tubing pipe containing 10.5 percent or more of chromium, or drill pipe. The OCTG subject to this order are currently classified in the Harmonized Tariff Schedule of the United States (``HTSUS'') under item numbers: 7304.29.10.10, 7304.29.10.20, 7304.29.10.30, 7304.29.10.40, 7304.29.10.50, 7304.29.10.60, 7304.29.10.80, 7304.29.20.10, 7304.29.20.20, 7304.29.20.30, 7304.29.20.40, 7304.29.20.50, 7304.29.20.60, 7304.29.20.80, 7304.29.30.10, 7304.29.30.20, 7304.29.30.30, 7304.29.30.40, 7304.29.30.50, 7304.29.30.60, 7304.29.30.80, 7304.29.40.10, 7304.29.40.20, 7304.29.40.30, 7304.29.40.40, 7304.29.40.50, 7304.29.40.60, 7304.29.40.80, 7304.29.50.15, 7304.29.50.30, 7304.29.50.45, 7304.29.50.60, 7304.29.50.75, 7304.29.60.15, 7304.29.60.30, 7304.29.60.45, 7304.29.60.60, 7304.29.60.75, 7305.20.20.00, 7305.20.40.00, 7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90, 7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10, 7306.20.60.50, 7306.20.80.10, and 7306.20.80.50. The HTSUS item numbers are provided for convenience and Customs purposes. The written description remains dispositive of the scope of this review.

Verification

We verified cost and sales information provided by SeAH, examining relevant accounting and financial records, production records, and original sales documentation. Our verification results are outlined in the verification report from Abdelali Elouaradia and Juanita H. Chen to The File, dated February 12, 1999 (``Verification Report'').

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. SeAH Steel Corporation, Ltd. (``respondent'') and Maverick Tube Corp., IPSCO Tubulars Inc., and Lone Star Steel Co. (``petitioners'') submitted case briefs on October 16, 1998. SeAH also submitted a rebuttal brief on October 23, 1998. None of the parties requested a public hearing.

Comment 1: Payment Date/Credit Expenses

Respondent argues the Department incorrectly concluded that SeAH extended credit to one of its customers beyond the reported payment date of February 20, 1997 for several sales where SeAH had not received payment. Respondent also believes the Department incorrectly imputed a payment date other than the date on which payment for the involved sales was actually made. Respondent claims that payment was in fact made for the involved sales, but that such payment was misdirected to and misappropriated by an unrelated third party. For the involved sales, Panther Supply, Inc. (Panther), a sales division of State Pipe and Supply Co. (an affiliate of respondent), sold merchandise to an unaffiliated purchaser. According to respondent, the unaffiliated purchaser accidentally directed payment for these sales to the wrong party. This other party then wrongfully misappropriated the payment intended for Panther. Panther sued to secure payment, which in turn led to a June 24, 1998 summary judgment order awarding full payment to Panther, plus interest beginning February 20, 1997. In its preliminary results, the Department did not take the court- ordered payments into account in determining dates of payment. Instead, the Department set the payment date for these sales equal to the date of the last submission made by SeAH prior to determination of the preliminary results (August 19, 1998), and recalculated credit expense accordingly. According to respondent, the Department normally constructs imputed credit costs to represent credit that a seller extends to a customer for the time between shipment and payment. Respondent states that such costs are opportunity costs to the seller for not having possession of payment funds between the dates of shipment and actual payment. Respondent emphasizes that the basis for this theory rests on the concept that the seller incurs an opportunity cost because it voluntarily extends credit to the buyer until such time as payment is made. In this case, respondent argues, the Department was incorrect in assigning August 19, 1998 as payment date and in concluding that the seller was extending credit to one of its customers for two reasons. First, respondent argues that assigning August 19, 1998 was incorrect because a court had already recognized February 20, 1997 as the date of full payment. Second, respondent argues that because the court also awarded

SeAH interest revenue on the late payments from February 20, 1997 forward, any opportunity costs that would arise from an extension of credit cease to exist. Finally, respondent argues that if the Department uses any date other than February 20, 1997 as payment date for the sales in question, the Department must then conform the period used for calculation of the imputed credit expense with a comparable period for calculating an interest income offset. To do so, respondent believes the Department must add an additional day--for each day beyond February 20, 1997 that the Department extends the imputed credit periods--for which Panther is entitled to receive interest income. Petitioners did not submit comments related to this issue.

Department's Position

Contrary to SeAH's claim, the Department normally calculates credit expense based on the time between shipment and actual payment to the seller, regardless of the credit terms given to a particular customer. For example, Appendix I at 4 of the Department's September 16, 1997 Questionnaire (``Questionnaire'') states that credit expense ``is the interest expense incurred (or interest revenue foregone) between shipment of merchandise to a customer and receipt of payment from the customer (emphasis added). Similarly, the Department asked SeAH to report interest revenue based on the per unit interest charges collected on each sale for late payment of the invoice (emphasis added) (see Questionnaire at C-23). In this case, while a court decision appears to indicate that State was entitled to receive payment and interest revenue, it did not in fact receive it. In a previous case involving unpaid U.S. sales, the Department clearly stated that the issue of concern for purposes of imputed credit was the receipt of payment: ``Prior to verification OAB had not indicated in its original questionnaire response or its subsequent supplemental responses that it had not yet received payment for certain of its U.S. sales'' (emphasis added). See Brass Sheet and Strip From Sweden; Final Results of Antidumping Administrative Review, 60 FR 3617, 3620 (January 18, 1995). This is also true for interest revenue. For example, in a recent case the Department ``made circumstance-of-sale adjustments for credit expenses (offset by interest revenue actually received by the respondent)...'' (emphasis added). See Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors From Taiwan, 63 FR 8909, 8915 (February 23, 1998). Furthermore, neither SeAH nor its U.S. affiliates appear to have had a practice of charging U.S. customers interest on late payments; in response to the aforementioned request that the respondent report collected interest revenue, the respondent indicated that ``{n}either SeAH nor State charged customers interest for late payment during the POR.'' See SeAH's November 12, 1997 Section C response at 31. Consequently, no adjustment for interest revenue is warranted. It is the Department's current practice to calculate imputed credit for unpaid sales based on the last day of verification. However, in this case use of the last day of verification, January 27, 1999, would be inappropriate for several reasons. First, in administrative reviews verifications are typically conducted prior to the issuance of the Department's preliminary results. However, in this case verification was conducted several months after the issuance of the preliminary results; consequently, using the last day of verification as the basis for payment date extends the credit period several months beyond what is typical for unpaid sales, covering a period in which the respondent was unable to provide new information. Second, references to ``unpaid'' sales typically involve circumstances in which no payment has been made, rather than payment to the wrong party. While it is clear, as stated above, that imputed credit is based on the receipt of payment, the particular circumstances of this case (i.e., payment made to the wrong party, court judgment in favor of the U.S. affiliate, and a credit period of approximately two years under the aforementioned Department practice) suggest that using the last day of verification as the payment date would be unwarranted. Consequently, we have decided to use as payment date the date of the last submission made by SeAH prior to determination of the preliminary results (August 19, 1998), the same date we utilized in our preliminary results.

Comment 2: Clerical Error in Treatment of CREDITU

Petitioners allege that the Department made a clerical error in the preliminary results by using outdated values for imputed U.S. credit expense (``CREDITU'') in the margin program. According to petitioners, the Department recalculated CREDITU to replace several negative credit values, but failed to use the recalculated figures for CREDITU in the margin calculation. Petitioners argue the Department should correct the margin program to properly utilize the recalculated figures for CREDITU. To this end, petitioners provide a replacement code for the margin program used in the Preliminary Results, which designated August 19, 1998 as payment date for the involved sales. Respondent contends that the Department should not correct the clerical error identified by petitioners, but should instead determine that the date of payment for the sales at issue is February 20, 1997, the date of the aforementioned summary judgement. Respondent does not disagree with petitioners' suggested changes to the margin program, and concurs with petitioners' claim that the Department made a clerical error in its preliminary margin calculation. However, respondent disagrees with the need to use August 19, 1998 as the payment date for the sales at issue (those four sales which were the subject of the aforementioned litigation) for the same reasons articulated in Comment 1 above.

Department's Position

The Department acknowledges that it made a clerical error as described above. The Department has made a correction to the margin program and has properly utilized the recalculated figures for CREDITU, based on a payment date of August 19, 1998, as described in Comment 1 above.

Comment 3: Adding Duty Drawback to Third-Country Sales for Margin Analysis and Cost Test

Respondent argues that the Department should add duty drawback to third-country comparison market sales price for purposes of running both the margin analysis and cost test. For the preliminary determination, the Department used Myanmar as a comparison market. However, respondent points out that in doing so, the Department erroneously failed to account for duty drawback, as it was not added into third-country prices for use in the cost test and margin analysis. Respondent notes that the Department requested data on duty-inclusive costs, but not data on duty exclusive costs. As a result, in conducting the cost test and margin analysis, the Department compared duty- inclusive cost with duty-exclusive third-country sale price. To remedy this alleged error, respondent believes the Department must include duty drawback in third-country sales price, and then rerun the cost test and margin analysis.

Department's Position

We agree with the respondent. In a recent case involving use of third country sales as the basis for normal value, the Department made ``an adjustment to normal value for duty drawback'' for a respondent, Mares Australes. See Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR 31411 (June 9, 1998). The Department had determined that the home market was not viable for that respondent, and that sales to a third country, Japan, should be used as the basis of normal value. See Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Fresh Atlantic Salmon From Chile, 63 FR 2664, 2668-69. Furthermore, we note that the calculation of third country price for use in the cost test should also reflect an addition for duty drawback. It is the Department's current practice to request cost of production data inclusive of duty, as reflected at page D-12 of the Department's September 16, 1997 Section D Questionnaire: ``Direct materials costs should include transportation charges, import duties and other expenses normally associated with obtaining the materials that become an integral part of the finished product'' (emphasis added). As noted by respondent, the Department only requested duty- inclusive cost data for this review, and its reported costs include those duties. As a result, in order to effectuate an ``apples-to- apples'' comparison, the Department must add duty drawback to the third-country prices used for the cost test. Accordingly, the Department added duty drawback to both third-country net price for comparison to US price and to third-country price for comparison to cost of production in the cost test.

Comment 4: Duty Drawback when Normal Value is Constructed Value

Petitioners argue that where SeAH's CEP sales are compared to constructed value (CV), the Department must account for differences between the amount of duty included in CV and the amount of duty drawback adjustment claimed for CEP sales. Petitioners note that SeAH included duties in the raw material costs reported for cost of manufacture for CV. However, petitioners state, the duties respondent included in CV are not equivalent to the duty drawback adjustments claimed for U.S. sales. As a result, petitioners believe normal value and constructed export price are not being compared on the same basis. Petitioners state that this inequitable comparison is due to SeAH's improper calculation of raw material input costs. According to petitioners, SeAH calculated its raw material input costs based on the total average cost of domestic and imported steel for each product instead of on the cost of steel for the subject merchandise which only includes imported steel weighted by the relative amount of the duty drawback claimed on each sale. Petitioners note that according to 19 U.S.C. 1677b(e), ``the constructed value of imported merchandise shall be an amount equal to the sum of . . . the cost of materials . . . employed in producing the merchandise.'' Thus, petitioners assert, the statute requires that the cost of materials used in CV be the cost of materials for the product imported into the U.S. Petitioners argue that ignoring the resulting uneven treatment of duties in CV and Constructed Export Price distorts the dumping margin calculation. Thus, petitioners argue the Department must adjust for the difference. In order to make this adjustment, petitioners argue that the Department should have respondent report material costs for CV without including duties, and then add the amount of duty drawback claimed on each sale to the reported cost of manufacture when calculating CV for each sale. If duty drawback is not claimed, petitioners argue that the average duty calculated by SeAH should be used. Petitioners further argue that if the Department does not include the full amount of duties claimed in the drawback adjustment in CV, then it must make some other adjustment for the difference between normal value and CEP caused by the different values for duty by either limiting the drawback adjustment claimed by SeAH to the amount of duties included in CV, or by granting a circumstances of sale adjustment per 19 U.S.C. 1677b(a)(6)(C)(iii). According to respondent, petitioners' arguments to add duty drawback to constructed value have been previously rejected by the Court of International Trade. Laclede Steele Co. v. United States, 18 CIT 965 (1994). Respondent argues that there is nothing in the statute, the regulations or the Department's practice to sanction petitioners' approach. According to respondent, the Department has a two-tiered test for determining the appropriateness of a duty drawback adjustment. Respondent cites Final Determination of Sales at Less Than Fair Value: Circular Welded Non-Alloy Steel Pipe from Korea in support of this assertion. 57 FR 42942, 42946 (September 17, 1992). Respondent claims that according to this case, a party must first demonstrate that import duty and rebate are directly linked to, and dependent upon, one another. Id. Second, a party must demonstrate that the company claiming the adjustment can demonstrate that there were sufficient imports of imported raw materials to account for the duty drawback received on the exports of the manufactured product. Id. Respondent argues that it has satisfied this two-tiered test. According to respondent, petitioners' argument that duty drawback and import duties included in CV should be the same is not supported by the law, regulations, or practice, and that previous arguments in favor of imposing such a requirement have been rejected in court (e.g., in the Laclede case). Finally, respondent argues that the Department has deliberately not interpreted the relevant statutory language to limit such cost to the merchandise exported to the U.S. Respondent also argues that petitioners' suggested alternative adjustments to account for the difference between normal value and CEP--either by limiting the drawback adjustment claimed by SeAH to the amount of duties included in CV, or by granting a circumstances of sale adjustment'would require that an entity prove that cost of manufacturing includes the same amount of duty as that claimed in the drawback. This, according to respondent, goes beyond the requirements of the Department's current two-tiered test. Respondent notes that prior attempts to add such criteria to the two-tiered test have been rejected by the court. Respondent also argues that none of the cases cited in the petitioners' brief override the aforementioned court decision of Laclede.

Department's Position

An upward adjustment to sale price for duty drawback is provided for in section 772(c)(1)(B) of the Act. The Department utilizes a two prong test to determine whether a party is entitled to a duty drawback adjustment: (1) The import duty and rebate must be directly linked to, and dependent upon, one another, and (2) the company claiming the adjustment must demonstrate that there were sufficient imports of imported raw materials to account for the duty drawback received on exports of the manufactured products. See, e.g., Silicon Metal from Brazil: Notice of Final Results of Antidumping Duty Administrative Review, 64 FR 6305, 6318 (February 9, 1999). This test was in Far East Machinery Co. v. United

States, 699 F. Supp. 309, 311 (CIT 1988). The U.S. Court of International Trade has consistently held that there is no requirement that a specific input be traced from importation through exportation before allowing drawback on duties paid. Laclede Steel Co. v. United States, 18 CIT 965, 972 (1994). The only limit on the allowance for duty drawback is that the adjustment to U.S. sales price may not exceed the amount of import duty actually paid. Id. Respondent satisfied both prongs of the aforementioned test, and was therefore entitled to claim a duty drawback adjustment. Respondent's duty drawback rebates are received under Korea's individual application system, which limits such rebates to actual duties paid. Duty drawback was reviewed at verification, and no inconsistencies with respondent's reported methodology were noted. See Verification Report at 13-14. Thus, duty drawback rebates received by respondent are not excessive. It is the long standing-policy of the Department to require that respondents include import duties in constructed value. See Offshore Platform Jackets and Piles from the Republic of Korea: Final Determination of Sales at Less Than Fair Value, 51 FR 11795, 11796 (April 7, 1986). Requesting duty-exclusive constructed value data would add a new hurdle to the two prong drawback test that is not required under current Department regulations or policy. Accordingly, the respondent was not required to report duty- exclusive constructed value data, nor otherwise make additional adjustments to the duty drawback claimed.

Comment 5: Duty Drawback Reported for CEP Sales

Petitioners argue that because duties were paid on an actual weight basis in Korea, and because duty drawback was paid on a theoretical weight basis, the Department should reduce duty drawback by multiplying the claimed drawback by the reported conversion. Petitioners cite Final Results of Antidumping Duty Administrative Review and Partial Termination of Administrative Review; Circular Welded Non-Alloy Steel Pipe from the Republic of Korea in support of this position. 62 FR 55574, 55577 (October 27, 1997). Respondent argues that the circumstances leading to the adjustment in the case cited by petitioners are not applicable to the sales in this review. Respondent notes that the adjustment in the cited case was made because an entity was receiving duty drawback under a fixed rate system. However, according to respondent, there were only two observations in which merchandise was received under a fixed rate duty drawback system in the present review. Respondent also notes that in the fourth review of the cited case, the entity selling under the fixed rate system switched to an individual application system. See Circular Welded Non-Alloy Steel Pipe from the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 63 FR 32833 (June 16, 1998). According to respondent, the Department determined that only the amounts received under the fixed rate system (received prior to the switch to the individual application system) warranted an adjustment. Id. at 32837. Respondent notes that in the present case, there is only one observation where duty drawback was received under the fixed rate system. Respondent notes that the drawback arguably should be adjusted for the difference between the theoretical and actual weight under the precedent cited by petitioners. Respondent notes, however, that the adjustment factor would be one, and thus have no effect, given that the product in question was produced and sold on a theoretical weight basis. In total, respondent argues that no additional adjustments to the reported duty drawback are warranted.

Department's Position

To the extent that duty drawback rebates exceed actual duties paid, the Department agrees with petitioners that adjustments to U.S. price should be limited to the amount of duties paid. However, with only one exception, the U.S. sales in this review, unlike those in the review cited by petitioners, were under the Korean individual application system, and the rebates received were limited to actual duties paid and were therefore not excessive. Again, duty drawback was reviewed at verification, and no inconsistencies with respondent's reported methodology were noted. As a result, the Department has used the full amount of duty drawback as reported in the analysis for the Final Results. For the abovementioned single sale made under the Korean fixed rate system, the Department agrees with the respondent that the conversion factor would be one, and thus have no effect. Both the total costs for the product in question and the total duty drawback requested reflect a higher quantity of the imported material than would have been the case if the product had been produced and sold on an actual weight basis. As this sale was of a product produced on a theoretical weight basis, and because duty drawback is paid on a theoretical weight basis, no adjustment to the reported duty drawback is necessary.

Final Results of Review

These administrative reviews and notices are published in accordance with 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 351.213 and 19 CFR 351.221(b)(5).

Oil Country Tubular Goods ------------------------------------------------------------------------ Weighted- Producer/manufacturer/exporter average margin (percent) ------------------------------------------------------------------------ SeAH.................................................... 2.93 ------------------------------------------------------------------------

The Department shall determine, and the U. S. Customs Service shall assess, antidumping duties on all appropriate entries. We have calculated an importer-specific duty assessment rate based on the ratio of the total amount of antidumping duties calculated for the examined sales to the total entered value of the same sales. The rate will be assessed uniformly on all entries of that particular company made during the POR. The Department shall issue appraisement instructions directly to the Customs Service. Furthermore, the following deposit requirements shall be effective upon publication of this notice of final results of review for all shipments of oil country tubular goods from Korea entered, or withdrawn from warehouse, for consumption on or after the publication date, as provided for by section 751(a)(1) of the Act: (1) The cash deposit rates for the reviewed company named above will be the rate for that firm as stated above; (2) for previously investigated companies not listed above, the cash deposit rate will continue to be the company- specific rate published for the most recent period; (3) if the exporter is not a firm covered in these reviews, or the original LTFV investigations, but the manufacturer is, the cash deposit rate will be the rate established for the most recent period for the manufacturer of the merchandise; and (4) if neither the exporter nor the manufacturer is a firm covered in these reviews, the cash deposit rate will continue to be 12.17 percent, which was the ``all others'' rate in the LTFV investigations. 60 FR at 41058. The deposit requirements, when imposed, shall remain in effect until publication of the final results of the next administrative review. This notice serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f) to file a

certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Secretary's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties. This notice also serves as a reminder to parties subject to administrative protective order (``APO'') of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with Sec. 351.306 of the Department's regulations. Timely notification of return/destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation.

Dated: March 8, 1999. Robert LaRussa, Assistant Secretary for Import Administration. [FR Doc. 99-6401 Filed 3-16-99; 8:45 am] BILLING CODE 3510-DS-P