Notice of Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber From the Republic of Korea

[Federal Register Volume 64, Number 59 (Monday, March 29, 1999)]
[Notices]
[Pages 14865-14872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7526]


-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

International Trade Administration
[A-580-833]


Notice of Final Determination of Sales at Less Than Fair Value: 
Emulsion Styrene-Butadiene Rubber From the Republic of Korea

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: March 29, 1999.

FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or James Nunno, AD/CVD 
Enforcement Group II, Office V, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
2613 or (202) 482-0783, respectively.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (the Act), are references 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 of Commerce's (the 
Department's) regulations are references to 19 CFR Part 351 (April 1, 
1998).

Final Determination

    We determine that emulsion styrene-butadiene rubber (ESBR) from the 
Republic of Korea is being sold in the United States at less than fair 
value (LTFV), as provided in section 735 of the Act. The estimated 
margins of sales at LTFV are shown in the ``Continuation of Suspension 
of Liquidation'' section of this notice, below.

Case History

    Since the preliminary determination in this investigation on 
October 28, 1998 (see Notice of Preliminary Determination of Sales at 
Less Than Fair Value and Postponement of Final Determination: Emulsion 
Styrene-Butadiene Rubber from the Republic of Korea, 63 FR 59514 
(November 4, 1998) (Preliminary Notice)), the following events have 
occurred:
    In November 1998, we received a supplemental response to Section D 
of the Department's antidumping questionnaire from Korea Kumho 
Petrochemical Co. Ltd. (KKPC).
    In January 1999, we verified the questionnaire responses of KKPC. 
In February 1999, we issued our verification reports for KKPC. Also in 
February 1999, KKPC submitted a revised sales database, reflecting 
verification revisions, at the Department's request.
    On February 16, 1999, the petitioners (i.e., Ameripol Synpol 
Corporation and DSM Copolymer), and KKPC submitted case briefs. On 
February 22, 1999, the petitioners and KKPC submitted rebuttal briefs. 
The Department held a public hearing on February 25, 1999.

Scope of Investigation

    For purposes of this investigation, the product covered is ESBR. 
ESBR is a synthetic polymer made via free radical cold emulsion 
copolymerization of styrene and butadiene monomers in reactors. The 
reaction process involves combining styrene and butadiene monomers in 
water, with an initiator system, an emulsifier system, and molecular 
weight modifiers. ESBR consists of cold non-pigmented rubbers and cold 
oil extended non-pigmented rubbers that contain at least one percent of 
organic acids from the emulsion polymerization process.
    ESBR is produced and sold, both inside the United States and 
internationally, in accordance with a generally accepted set of product 
specifications issued by the International Institute of Synthetic 
Rubber Producers (IISRP). The universe of products subject to this 
investigation are grades of ESBR included in the IISRP 1500 series and 
IISRP 1700 series of synthetic rubbers. The 1500 grades are light in 
color and are often described as ``Clear'' or ``White Rubber.'' The 
1700 grades are oil-extended and thus darker in color, and are often 
called ``Brown Rubber.'' ESBR is used primarily in the production of 
tires. It is also used in a variety of other products, including 
conveyor belts, shoe soles, some kinds of hoses, roller coverings, and 
flooring.
    Products manufactured by blending ESBR with other polymers, high 
styrene resin master batch, carbon black master batch (i.e., IISRP 1600 
series and 1800 series) and latex (an intermediate product) are not 
included within the scope of this investigation.
    The products under investigation are currently classifiable under 
subheading 4002.19.0010 of the Harmonized Tariff Schedule of the United 
States (HTSUS). Although the HTSUS subheading is provided for 
convenience and customs purposes, the written description of the scope 
of this investigation is dispositive.

Period of Investigation

    The period of investigation (POI) is April 1, 1997, through March 
31, 1998.

[[Page 14866]]

Facts Available

    The petition in this investigation named both KKPC and Hyundai 
Petrochemical Co., Ltd. (Hyundai) as producers/exporters of ESBR from 
Korea to the United States. On May 8, 1998, Hyundai requested that it 
be excluded from participation as a mandatory respondent. On May 12, 
1998, the petitioners submitted a letter to the Department opposing 
Hyundai's exclusion from this proceeding. On May 13, 1998, the 
Department notified Hyundai that it was selected as a mandatory 
respondent. On May 21, 1998, the Department issued the antidumping duty 
questionnaire to both companies. Hyundai did not submit a response to 
the questionnaire. Consequently, for purposes of the preliminary 
determination, the Department based the antidumping margin for Hyundai 
on facts otherwise available and assigned it a margin of 118.88 
percent, which was the higher of either the highest margin in the 
petition or the highest margin calculated for a respondent. See 
Preliminary Notice. Hyundai did not submit comments on the Department's 
preliminary determination and, thus, has continued not to participate 
in this investigation. Accordingly, for the final determination, the 
Department has continued to base the antidumping margin for this 
company on facts otherwise available and assigned it a margin of 118.88 
percent, which was the higher of either the highest margin in the 
petition or the highest margin calculated for a respondent.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products sold in the home market as described in the ``Scope of 
Investigation'' section of this notice, above, that were in the 
ordinary course of trade for purposes of determining appropriate 
product comparisons to U.S. sales. Where there were no sales of 
identical merchandise in the home market made in the ordinary course of 
trade to compare to U.S. sales, we compared U.S. sales to sales of the 
most similar foreign like product made in the ordinary course of trade, 
based on the characteristics listed in Sections B and C of our 
antidumping questionnaire.

Fair Value Comparisons

    To determine whether sales of ESBR from Korea to the United States 
were made at less than fair value, we compared the export price (EP) to 
the normal value (NV). Our calculations followed the methodologies 
described in the preliminary determination except as noted below under 
the ``Export Price'' and ``Normal Value'' sections of the notice.

Level of Trade

    For purposes of the preliminary determination, we conducted a level 
of trade analysis for KKPC, and determined that the level of trade for 
all EP sales is the same as that of the home market sales. See 
Preliminary Notice. Based on our findings at verification, we find no 
indication that the level of trade for EP sales is different from that 
of the home market sales. Furthermore, neither the petitioners nor KKPC 
commented on the Department's level of trade determination. Therefore, 
for purposes of the final determination, we have continued to hold that 
a level of trade adjustment is not warranted for KKPC.

Export Price

    In accordance with section 772(a) and (c) of the Act, we used EP 
methodology for KKPC because the subject merchandise was sold directly 
to the first unaffiliated purchaser in the United States prior to 
importation and CEP methodology was not otherwise indicated.
    We calculated EP based on the same methodology used in the 
preliminary determination, with the following exceptions: (1) we 
recalculated U.S. credit expenses using the average short-term lending 
rates calculated by the Federal Reserve (see Calculation Memorandum for 
the Final Determination for Korea Kumho Petrochemical Co., Ltd. dated 
March 19, 1999 (Final Calculation Memorandum)); and (2) we adjusted the 
reported amounts for U.S. bank charges and packing expenses based on 
corrections presented at the start of verification.

Normal Value

    We used the same methodology to calculate NV as that described in 
the preliminary determination, with the following exceptions: (1) we 
used the February 12, 1999, home market sales listing reflecting 
verification revisions, submitted at the Department's request; (2) we 
adjusted the reported amounts for home market inland freight charges 
and packing expenses based on corrections presented at the start of 
verification; and (3) we recalculated home market credit expenses 
denominated in U.S. dollars using the average short-term lending rates 
calculated by the Federal Reserve (see Final Calculation Memorandum). 
We continued to make no adjustment for imputed credit expenses related 
to the payment of value-added taxes (VAT), in accordance with our long-
standing practice (see Comment 2 below). In those instances where KKPC 
did not report payment dates, we recalculated reported credit expenses 
using the date of the last day of the sales verification as the payment 
date.

Cost of Production

    We calculated the cost of production (COP) based on the sum of 
KKPC's cost of materials and fabrication for the foreign like product, 
plus amounts for home market selling, general and administrative (SG&A) 
expenses and packing costs, in accordance with section 773(b)(3) of the 
Act. We relied on the submitted COPs, except for the following specific 
instances where we modified the margin calculation program to correct 
for certain adjustments and updated cost data based on verification 
findings (see Final Calculation Memorandum): (1) based on information 
obtained at verification, we adjusted KKPC's reported cost of 
manufacturing (COM) to reflect the POI costs (see Comment 5 below); (2) 
we recalculated KKPC's financial expense ratio used in the calculation 
of COP and CV on a consolidated basis (see Comment 6 below), and 
additionally, in accordance with Department practice to exclude 
exchange gains and losses from accounts receivable (see Comment 7 
below, and Notice of Final Determination of Sales at Less Than Fair 
Value: Stainless Steel Wire Rod from Korea, 63 FR 40404, 40416 (July 
29, 1998)); and (3) based on our analysis of KKPC's supplemental 
response to Section D of the Department's antidumping questionnaire, we 
determined that an adjustment to the direct labor costs reported in 
KKPC's COP and CV databases was unwarranted (see Comment 8 below).
    We also conducted our sales below cost test in the same manner as 
that described in our preliminary determination. As with the 
preliminary determination, we found that, for certain grades of ESBR, 
more than 20 percent of KKPC's home market sales were at prices less 
than the COP within an extended period of time. See Section 
773(b)(1)(A) of the Act. Further, the prices did not provide for the 
recovery of costs within a reasonable period of time. We, therefore, 
disregarded the below-cost sales and used the remaining above-cost 
sales as the basis for determining NV, in accordance with section 
773(b)(1) of the Act.

Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of KKPC's cost of materials, fabrication, SG&A 
expenses, profit, and

[[Page 14867]]

U.S. packing costs. We relied on the submitted CVs, except in the 
specific instance noted in the ``Cost of Production'' section above.

Currency Conversion

    As noted in the Preliminary Notice, our preliminary analysis of 
Federal Reserve dollar-won exchange rate data showed that the won 
declined rapidly at the end of 1997, losing over 40 percent of its 
value between the beginning of November and the end of December. The 
decline was, in both speed and magnitude, many times more severe than 
any change in the dollar-won exchange rate during the previous eight 
years. Had the won rebounded quickly enough to recover all or almost 
all of the initial loss, the Department might have been inclined to 
view the won's decline at the end of 1997 as nothing more than a 
sudden, but only momentary drop, despite the magnitude of that drop. As 
it was, however, there was no significant rebound. We continue to 
determine that the decline in the won at the end of 1997 was so 
precipitous and large that the dollar-won exchange rate cannot 
reasonably be viewed as having simply fluctuated during this time, 
i.e., as having experienced only a momentary drop in value. Therefore, 
for purposes of the final determination, the Department continued to 
use daily rates exclusively for currency conversion purposes for home 
market sales matched to U.S. sales occurring between November 1 and 
December 31, 1997. For sales occurring after December 31, but before 
March 1, 1998, the Department continued to rely on the standard 
exchange rate model, but used as the benchmark rate a (stationary) 
average of the daily rates over this period. In this manner, we used an 
``up-to-date'' (post-precipitous drop) benchmark, but at the same time 
avoided undue day-to-day fluctuations in the exchange rates used. For 
sales occurring after March 1, the standard model and standard 
(rolling, 40-day) benchmark rate were used (see Comment 1 below).

Critical Circumstances

    On September 24, 1998, the petitioners alleged that there is a 
reasonable basis to believe or suspect that critical circumstances 
exist with respect to imports of ESBR from Korea. Section 733(e)(1) of 
the Act provides that the Department will determine that there is a 
reasonable basis to believe or suspect that critical circumstances 
exist if: (A)(i) there is a history of dumping and material injury by 
reason of dumped imports in the United States or elsewhere of the 
subject merchandise, or (ii) the person by whom, or for whose account, 
the merchandise was imported knew or should have known that the 
exporter was selling the subject merchandise at less than its fair 
value and that there was likely to be material injury by reason of such 
sales, and (B) there have been massive imports of the subject 
merchandise over a relatively short period.
    For purposes of the preliminary determination, we found that no 
critical circumstances existed because there was no history of dumping, 
and the preliminary margins were insufficiently high to impute 
knowledge of dumping to exporters, producers, or importers of the 
subject merchandise. Because the margin remains insufficiently high to 
impute such knowledge, our final determination of critical 
circumstances remains negative (see Comment 4 below).

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by KKPC for use in our final determination. We 
used standard verification procedures, including examination of 
relevant accounting and production records, and original source 
documents provided by KKPC.

Interested Party Comments

General Issues
Comment 1: Exchange Rate Methodology
    The petitioners argue that the Department did not fully analyze its 
methodology for currency conversion used in the preliminary 
determination in which it modified the exchange rate database by using 
the actual daily exchange rates during the period of devaluation, 
November 1, 1997-December 31, 1997, to convert prices denominated in 
Korean won into U.S. dollars. The petitioners contend that the 
Department neither explained how it identified the devaluation of the 
Korean won as too precipitous and large to represent a fluctuation, nor 
did it cite any support for its decision to use a modified benchmark 
for sales after January 1, 1998, which provided no clear notice to 
interested parties as to what the official exchange rate would be on a 
particular date of sale. The petitioners argue that the Department's 
methodology used for the preliminary determination, in addition to 
being unnecessarily complex and unpredictable, is inconsistent with 
Congressional intent that the currency conversion process not distort 
dumping margins, and should, therefore, not be used for purposes of the 
final determination.
    The petitioners contend that the Department should, instead, use 
its standard exchange rate model, which would treat the won as a 
fluctuating currency. As an alternative, the petitioners suggest that 
the Department apply its existing ``sustained movement'' analysis (used 
for situations in which a foreign currency appreciates against the U.S. 
dollar) to the period of devaluation in Korea. The petitioners claim 
that using this approach would deny an exporter the benefit of lower 
dumping margins when it is selling products in the United States at 
less than fair value, and would also provide a consistent treatment of 
both increases and decreases in the value of the foreign currency. 
Finally, the petitioners suggest that, as a third option, the 
Department limit the POI to the seven months preceding the devaluation 
of the won.
    KKPC argues that the depreciation in the Korean won cannot be 
considered a ``fluctuation'' because its value at the end of March 
1998, three months after the period of devaluation, was still 50 
percent less than what it had been in October 1997, which is contrary 
to the definition of a fluctuation. Further, KKPC asserts that the 
Department's ``sustained movement'' analysis is designed to prevent 
artificial dumping margins created by appreciations in the foreign 
currency in situations in which there would ordinarily be no margins. 
KKPC contends that if the Department were to implement a ``sustained 
movement'' policy to devaluating currency situations, it would apply an 
exchange rate reflective of the pre-devaluation period to prices 
reflective of the won's devaluation, and would, thus, penalize 
exporters that immediately adjust their prices when the foreign 
currency depreciates in value instead of waiting to adjust prices until 
after the won rebounds in value. KKPC cites to recent cases involving 
currency depreciations in which the Department chose not to follow this 
approach (e.g., Final Determination of Sales at Less Than Fair Value: 
Certain Preserved Mushrooms from Indonesia, 63 FR 72268, 72269 
(December 31, 1998)). Moreover, KKPC argues that the Department should 
not alter the POI because the Department's regulations require that the 
Department investigate sales during the four fiscal quarters prior to 
the filing of the petition. KKPC asserts that the petitioners had 
knowledge of the currency devaluation in Korea before filing the 
antidumping petition, and could have avoided a POI including the 
devaluation of the won by filing their petition at an earlier date.

[[Page 14868]]

DOC Position
    We have continued to use the currency conversion methodology used 
for purposes of the preliminary determination, for the reasons 
explained in the Preliminary Notice. Although neither party requested 
that we use separate averaging periods, the petitioners did request 
that we consider using a truncated POI. Under section 777A(d)(1)(A) of 
the Act, the Department has wide latitude in calculating the average 
prices used to determine whether sales at less than fair value exist. 
More specifically, under 19 CFR 351.414(d)(3), the Department may use 
averaging periods shorter than the POI where NV, EP, or constructed 
export price varies significantly over the POI. In the instant case, NV 
(in dollars) in the last five months of the POI differs significantly 
from NV earlier in the POI due primarily to a significant change in the 
underlying dollar value of the won. In this case, the change is 
evidenced by the precipitous drop in the won's value that occurred in 
November and December 1997, without a quick, significant rebound. The 
won's value decreased by more than 40 percent in relation to the dollar 
in the span of these two months and remained substantially at this new 
lower value for the remainder of the POI. While we do not believe that 
it is appropriate in this case to ignore sales that occurred in the 
latter five months of the POI, and, thus, truncate the POI as the 
petitioners have proposed, it is appropriate to use two averaging 
periods to avoid the possibility of a distortion in the dumping 
calculation. Therefore, we have used two averaging periods for purposes 
of the final determination: April through October 1997, and November 
1997 through March 1998.
    We disagree with the petitioners' claim that we should not have 
modified the currency conversion model, as was done for purposes of the 
preliminary determination. As the petitioners themselves have 
acknowledged, ``whenever the decline in the value of a foreign currency 
is so precipitous and large as to reasonably preclude the possibility 
that it is only fluctuating, the lower actual daily rates will be 
employed from the time of the large decline.'' Exchange Rate 
Methodology, Policy Bulletin, March 4, 1996. The petitioners dispute 
our interpretation of the movement in the dollar-won exchange rate 
during November and December of 1997 as so precipitous and large as to 
reasonably preclude the possibility that it was only fluctuating. 
However, as KKPC points out in its case brief, within an approximately 
two-month period, the won's value fell from 920 per U.S. dollar to 1700 
per U.S. dollar. In addition, while the won recovered slightly after 
the rapid two-month decline, it did not regain its value of the period 
prior to the rapid devaluation. A devaluation of almost 50 percent over 
a period of two or three months cannot reasonably be seen as a mere 
fluctuation. Accordingly, the Department continued to apply the 
currency conversion methodology outlined above in the ``Currency 
Conversion'' section, and divided the POI into two separate averaging 
periods for purposes of the final determination.
Sales Issues
Comment 2: Calculation of Home Market Credit Expenses
    According to KKPC, the Department erred in its decision to not 
include home market VAT in the price used as the basis for the 
calculation of home market credit expenses. KKPC explains that the 
purpose of calculating credit expenses is to determine the economic 
cost to the seller when it decides to allow the customer to delay its 
payment. KKPC asserts that the Department should calculate credit 
expenses based on the total price actually paid by the customer, 
because the cost to KKPC of the delayed payment must be measured by the 
total amount on which payment was delayed, which includes the tax-
exclusive price, plus VAT. KKPC argues that calculating credit expenses 
on a tax-exclusive basis understates the economic effect of its 
decision to extend credit.
    Furthermore, KKPC states that calculating credit expenses net of 
only VAT, without also deducting other costs borne by the seller, is 
incongruent with the Department's stated methodology in Final 
Determination of Sales at Less Than Fair Value: Sulfur Dyes, Including 
Sulfur Vat Dyes, From the United Kingdom, 58 FR 3253 (January 8, 
1993)(Sulphur Vat Dyes). KKPC argues that the treatment of VAT should 
not differ from the treatment of other costs that the seller pays from 
the proceeds of the sale (e.g., commissions), and asserts the 
Department has never calculated credit expenses net of such other 
costs.
    KKPC cited cases in which the Department calculated credit expenses 
based on prices that include taxes (e.g., Notice of Final Determination 
of Sales at Less Than Fair Value: Circular Welded Non-Alloy Steel Pipe 
From Mexico, 57 FR 42953 (September 17, 1992); Notice of Final 
Determination of Sales at Less Than Fair Value: Silicon Metal From 
Brazil, 56 FR 26977 (June 12, 1991); and Notice of Final Results of 
Administrative Review of Antidumping Duty Order: Color Television 
Receivers from Korea, 49 FR 50420 (December 28, 1984). KKPC contends 
that the Department's past practice on calculating credit expenses has 
been inconsistent, and that there is no rationale for excluding VAT 
from the total price paid by the customer.
    The petitioners state that such a circumstance-of-sale adjustment 
for credit expenses relating to VAT is not warranted by the 
Department's regulations, and refer to the stated methodology 
concerning credit expense calculations in Notice of Final Determination 
of Sales at Not Less Than Fair Value: Stainless Steel Bar from Italy, 
59 FR 66921 (December 28, 1994), in which the Department explained that 
the regulations contain no indication that an adjustment should be 
granted for a government imposed tax such as VAT, or for any type of 
so-called ``opportunity cost.'' The petitioners assert that KKPC did 
not support its argument with any statutory or regulatory basis. In 
addition, the petitioners argue that KKPC supports its argument with 
cases that are outdated, and that the Department has since then 
reflected on the treatment of VAT for credit expense calculations and 
concluded that it should not make a circumstance-of-sale adjustment for 
imputed interest expenses related to the payment of VAT. Finally, the 
petitioners assert that the Department should continue to calculate 
credit expenses net of VAT, because these expenses do not bear a 
``direct relationship'' to the sales in question, as defined by the 
Department's regulations.
DOC Position
    We agree with the petitioners. As the petitioners noted, we have 
evaluated this issue in past cases, and have come to the conclusion 
that our regulations do not imply that we should treat the payment of 
VAT as an opportunity cost to the seller on behalf of the buyer (See 
Sulfur Vat Dyes). Furthermore, no statute or regulation requires us to 
include VAT in the home market credit expense calculation (see Circular 
Welded Non-Alloy Steel Pipe and Tube from Mexico: Final Results of 
Antidumping Duty Administrative Review, 63 FR 33041, 33050 (June 17, 
1998)). As the Statement of Administrative Action accompanying the 
Uruguay Round Agreements Act, H.R. Doc. No. 103-316, vol. 1 (1994) 
(SAA) states at page 827, ``[t]he deduction from normal value for 
indirect taxes constitutes a change from the existing statute. The 
change is intended to ensure that dumping

[[Page 14869]]

margins will be tax-neutral.'' Thus, Congress specifically intended for 
normal value to be tax-neutral. Accordingly, computing imputed credit 
expenses on a price that specifically includes an indirect tax such as 
the VAT, as KKPC insists that we do, would be clearly inconsistent with 
Congressional intent on this subject. For the final determination, we 
are following our established practice of excluding VAT from home 
market credit expense calculations for purposes of the final 
determination (see Frozen Concentrated Orange Juice From Brazil: 
Preliminary Results and Partial Rescission of Antidumping Duty 
Administrative Review, 64 FR 5767, 5769 (February 5, 1999)).
Comment 3: Home Market Date of Sale
    The petitioners argue that the Department should not use KKPC's 
invoice date as the date of sale for its larger home market customers, 
because the terms of sale are established at an earlier date (i.e., the 
order date). The petitioners cite past cases in which the Department 
used a date other than the invoice date for the respondent's date of 
sale, and assert that the Department can appropriately use KKPC's order 
date as the date of sale. The petitioners state that at a minimum, 
because KKPC's order dates are not on the record, the Department should 
use KKPC's date of shipment as the date of sale, since this information 
is on the record of this proceeding. The petitioners explain that 
because of the currency crisis in Korea, the order date during this 
time period may precede the invoice date by more than a month, which 
can have a significant effect on the calculation of dumping margins.
    KKPC asserts that it properly reported the invoice date as the date 
of sale for all sales to its larger home market customers, because in 
the normal course of business, such customers place orders and receive 
shipments throughout the month. KKPC maintains that it recognizes home 
market sales, and records them as sales in its accounting records, when 
it issues the invoice to the customer. In addition, KKPC states that 
reporting the shipment date for these sales based on the month-end 
invoice date understates the number of days between shipment and 
payment, reduces the amount of credit expense relating to the sale, and 
overstates the resulting dumping margin calculated for KKPC, since the 
average shipment date would be at the middle of the month. KKPC argues 
that the petitioners' allegation is untimely, because they had not 
contended its use of the invoice date as the date of sale until their 
case brief. Further, KKPC contends that using the invoice date is 
consistent with the Department's regulations, and that the petitioners 
did not provide a sufficient basis to use a different date. Finally, 
KKPC contests that, although the sales quantity can be tied to its 
transaction statements that are prepared for each shipment prior to 
invoicing, the invoice itself is the first document generated in its 
sales process which provides written evidence of the sales price 
charged to the customer. KKPC explains that the transaction statement 
and invoice relating to a specific shipment are always generated in the 
same month that the shipment is made, and, therefore, all of its 
relevant sales were included in the sales listing reported to the 
Department.
DOC Position
    We agree with KKPC. The Department's current practice is to use 
invoice date as the date of sale, unless record evidence demonstrates 
that the material terms of sale, i.e., price and quantity, are 
established on a different date. See 19 CFR 351.401(i). The Department 
explained in the preamble to its regulations at 62 FR 27348 (May 19, 
1997):

    * * * as a matter of commercial reality, the date on which the 
terms of a sale are first agreed is not necessarily the date on 
which those terms are finally established. In the Department's 
experience, price and quantity are often subject to continued 
negotiation between the buyer and the seller until a sale is 
invoiced.

    As noted in its responses to Sections A, B, and C of our 
questionnaire, KKPC explained its above-stated invoicing methodology 
for its home market customers. Furthermore, we noted ``* * * no 
inconsistencies between the information concerning the date of sale 
methodology in the company responses and the information gathered at 
verification.'' See Sales Verification Report, dated February 15, 1999, 
at page 9. During the course of this investigation, we found no 
indication that a different date is more suitable as a date of sale. We 
find that KKPC accurately reported the invoice date as the appropriate 
date of sale because the invoice date best reflected the date on which 
the essential terms of the sale were established.
Comment 4: Critical Circumstances
    The petitioners request the Department reconsider their critical 
circumstances allegation, should it calculate a final dumping margin 
greater than 25 percent.
    KKPC argues that even if the final calculated dumping margin, if 
any, exceeds 25 percent, there is no way that an importer knew or 
should have known that the subject merchandise was being sold at less 
than fair value. KKPC asserts that it is unfair for the Department to 
penalize importers with a retroactive assessment of duties when it 
changes its methodologies from the preliminary determination, which 
might cause the margin to exceed 25 percent, because an importer has 
limited information.
DOC Position
    As stated above in the ``Critical Circumstances'' section of this 
notice, KKPC's margin does not exceed 25 percent for EP sales, and 
there are no CEP sales in this investigation. Therefore, we find both 
the petitioners' and KKPC's arguments to be moot in this case.
Cost Issues
Comment 5: Use of Fiscal Year Costs Versus POI Costs
    According to KKPC, it correctly reported its costs based on the 
fiscal year (i.e., January 1 through December 31, 1997) and not based 
on the POI, because, although KKPC calculates monthly ESBR 
manufacturing costs on a product-specific basis, the costs for certain 
expenses, such as severance and depreciation costs, are based on 
estimates. In addition, KKPC explains that its monthly ESBR 
manufacturing costs for materials and inventories are valued using a 
monthly moving average method, while the annual cost calculations use 
an annual average method. As a result, the summation of KKPC's monthly 
costs do not reconcile directly to the annual costs because the 
differences between the monthly costs through November and the annual 
costs are recorded as year-end adjustments to the December costs, which 
can lead to aberrant December costs.
    Moreover, KKPC argues that the Department has allowed respondents 
to report fiscal year costs when the POI and fiscal year do not differ 
by more than a few months, citing Certain Corrosion-Resistant Carbon 
Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From 
Canada: Final Results of Antidumping Duty Administrative Reviews, 63 FR 
12725, 12734 (March 16, 1998), in which the Department granted the 
respondent's request to base its reported costs on its fiscal period 
rather than the period of review. KKPC asserts that it indicated its 
use of fiscal year data in its September 18, 1998, response to the 
Section D questionnaire, and that, although the petitioners asked the

[[Page 14870]]

Department to require KKPC to report POI costs, the Department did not 
request POI costs until verification. According to KKPC, it would be 
inappropriate for the Department to use the monthly POI costs now on 
the record, because the fiscal year 1997 covers nine months of the POI, 
and the monthly costs cannot be tied directly to its annual costs or to 
KKPC's financial statements.
    The petitioners argue that, although KKPC has maintained that only 
its annual costs could be reconciled to its audited financial 
statements, information gathered at verification proves that the 
monthly cost statements could be reconciled to its financial 
statements. In support of its argument, the petitioners refer to the 
following items noted in the Department's Cost Verification Report, 
dated February 7, 1999: (1) KKPC's cost accounting system is integrated 
with its financial accounting system; (2) KKPC produces monthly trial 
balances, income statements, and COM statements; and (3) the unit costs 
calculated in the monthly COM statements match the unit costs as 
calculated in KKPC's reconciliation of reported costs to its annual COM 
statement. The petitioners assert that the monthly cost information 
reported to the Department at verification could have been provided at 
an earlier date, and that the Department should, therefore, consider 
the information to be submitted in an untimely fashion. In addition, 
the petitioners argue that in light of the increase in the COM during 
the first quarter of 1998, as noted in the Cost Verification Report, 
KKPC's decision to report fiscal year costs and not POI costs was 
intended to minimize its costs of production. The petitioners suggest 
that, consequently, the reported COMs should be rejected, and the 
Department should apply adverse facts available, using the rate of 
118.88 percent for KKPC's sales of subject merchandise, as was applied 
to Hyundai.
    The petitioners argue that if the Department decides not to reject 
KKPC's reported COMs, it should, at a minimum, adjust KKPC's reported 
COPs to reflect the differences in COM between the fiscal year 1997 and 
the POI. However, the petitioners state that an upward adjustment based 
on the percentage difference should not be used because of the 
devaluation of the Korean won at the end of the POI, which would 
benefit KKPC rather than penalize it. As an alternative, the 
petitioners suggest that, as adverse facts available, the Department 
should either: (1) limit the POI to the seven months prior to the 
devaluation of the won (see Comment 1 above); or (2) convert HM prices 
denominated in U.S. dollars to won both for purposes of the cost test, 
as well as for calculating NV. The petitioners explain that although 
KKPC has HM sales denominated in U.S. dollars, these US dollar prices 
reflect won-based prices that were converted to U.S. dollars for the 
convenience of KKPC's customers. The petitioners state that converting 
all HM prices into won would, therefore, be consistent with KKPC's 
pricing practice.
DOC Position
    We disagree with the petitioners that we should reject KKPC's 
response in toto and apply total facts available for purposes of the 
final determination. We note that although the Department, in its May 
21, 1998, Section D questionnaire at D-3, instructed KKPC to report its 
costs based on the costs incurred during the POI, KKPC reported its 
costs to the Department based on its fiscal year 1997. In its September 
18, 1998, Section D response, KKPC stated that the company's cost 
accounting system calculates costs on an annual basis at the end of 
each fiscal year and these annual figures are the only calculations 
that reconcile to KKPC's audited financial statements (See pages 24 and 
25 at footnote 9). KKPC further stated that while the company also 
calculates monthly product costs for management purposes, using the 
same methodologies used in the company's normal cost accounting system, 
these monthly management cost calculations are not used in KKPC's 
accounting systems and do not reconcile directly to the company's 
audited financial statements. Based on such claims, the Department did 
not require KKPC to report POI cost data subsequent to its September 
18, 1998, submission. We note that the Department does allow a 
respondent to report fiscal year costs where there is only a few months 
difference between the POI and the company's fiscal year. In such 
instances, the Department will test the impact of the shift in the cost 
reporting period to ensure that the use of fiscal year costs is not 
distortive for purposes of our COP and CV analysis.
    At the start of verification, contrary to its statements in its 
questionnaire responses, KKPC disclosed to Department officials that 
KKPC does, in fact, record monthly cost data in its accounting system. 
Consequently, we requested and reviewed KKPC's monthly cost data, 
noting that the monthly costs do reconcile to the company's audited 
financial statements, after accounting for year-end adjustments for 
certain expenses. During verification, we tested and compared the POI 
costs based on the monthly cost data to the reported fiscal year costs 
and noted that the per-unit COMs for each grade of ESBR for the POI 
were higher than the per-unit COMs for the fiscal year (see Cost 
Verification Report at pages 7 and 8 for a detailed discussion). Thus, 
in this instance, because the Department originally requested POI cost 
data, and our verification findings indicate that the use of the 
reported fiscal year cost data is distortive, we have used the verified 
POI cost data for purposes of the final determination, as facts 
available, in accordance with section 776(a) of the Act (see Cost of 
Production and Constructed Value Calculation Adjustments for the Final 
Determination Memorandum, dated March 19, 1999). See e.g., Final 
Determination of Sales at Less Than Fair Value: Canned Pineapple Fruit 
from Thailand, 60 FR 29553, 29568 (June 5, 1995) (where the Department 
disagreed with the respondent's reporting period for cost data, and 
used the costs obtained during the verification for purposes of the 
final determination).
Comment 6: Allocation of Financial Expenses to Investment Activities
    KKPC argues that the Department erred in its calculation of 
financial expenses for purposes of the preliminary determination. KKPC 
calculated its financial expenses reported in the COP and CV data by 
allocating its total financial expenses between its investment 
activities and its manufacturing and sales activities, based on the 
ratio of the income generated by each of these lines of business. For 
purposes of the preliminary determination, the Department rejected 
KKPC's methodology and recalculated KKPC's financial expenses by 
allocating the company's total financial expenses over its cost of 
goods sold (see Preliminary Notice at 59517). KKPC, citing Final 
Determination of Sales at Less than Fair Value: Sweaters Wholly or in 
Chief Weight of Man-Made Fiber from Korea, 55 FR 32659, 326678 (August 
10, 1990) (Sweaters from Korea) and Porcelain-on-Steel Cooking Ware 
from Mexico: Final Results of Antidumping Duty Administrative Review, 
58 FR 32095 (June 8, 1993), argues that the methodology adopted by the 
Department for its preliminary determination is not consistent with 
established Department practice. KKPC contends that, as the Department 
recognized in Sweaters from Korea, financial expenses incurred by a 
company relate both to the company's investment activities and to its

[[Page 14871]]

manufacturing and sales activities. Thus, KKPC asserts that an 
allocation that assigns all of the financial expenses to the company's 
manufacturing and sales activities is incorrect and urges the 
Department to revise its calculation of financial expenses for the 
final determination.
    The petitioners argue that KKPC offers no compelling reason for the 
Department to deviate from its long-standing practice of allocating a 
company's total financial expenses over its cost of goods sold, and, 
therefore, urge the Department to deny KKPC's request for reallocation 
of its financial expenses to the company's investment activities.
DOC Position
    We disagree with KKPC that we erred in rejecting its method of 
allocating interest expenses. As the Department has repeatedly stated, 
and the Court of International Trade has upheld, we

recognize the fungible nature of a corporation's invested capital 
resources, including debt and equity, and we do not allocate 
corporate financing expenses to individual divisions of a 
corporation on the basis of sales per division. Instead, we allocate 
the interest expense related to the debt portion of the 
capitalization of the corporation, as appropriate, to the total 
operations of the consolidated corporation. More importantly, our 
established practice of requiring the use of consolidated financial 
statements recognizes: (1) the fungible nature of invested capital 
resources such as debt and equity of the controlling entity within a 
consolidated group of companies; and (2) that the controlling entity 
within a consolidated group has the power to determine the capital 
structure of each member company within its group (see, e.g., Aramid 
Fiber Formed of Poly Para-Phenylene Terephthalamide From the 
Netherlands; Final Results of Antidumping Administrative Review, 62 
FR 38058 (July 16, 1997)).

E.I. Du Pont de Nemours & Co. v. U.S., SLIP OP. 98-7 (CIT 1998).
    In this instance, KKPC is asking that the Department deviate from 
its established practice of allocating financial expenses to the 
merchandise under investigation using consolidated results of 
operations (due to the proprietary nature of this issue, for a full 
explanation, please see Memorandum to Louis Apple, Office Director, 
from Team, dated March 19, 1999). Accordingly, for purposes of the 
final determination, we continued to rely on the interest expense 
calculation methodology used for purposes of the preliminary 
determination.
Comment 7: Treatment of Exchange Gains and Losses on Sales
    KKPC argues that foreign exchange gains and losses arising from 
sales transactions should be included in the calculation of COP and CV. 
KKPC asserts that foreign exchange gains and losses on sales 
transactions relate to a company's general operations and, as such, 
should be included as part of the financial expense of the company. 
Furthermore, KKPC maintains that the treatment of exchange gains and 
losses on sales transactions as a cost of financing sales is 
inconsistent with the fundamental principle that money is fungible. 
Accordingly, KKPC argues that the Department's financial expense 
calculation should include all exchange gains and losses, including 
gains and losses that arise from sales transactions.
    The petitioners maintain that KKPC presents no compelling 
justification for the Department to deviate from its long-standing 
policy of excluding exchange gains and losses on sales transactions 
from the calculation of COP and CV.
DOC Position
    We disagree with KKPC. The Department typically only includes 
foreign exchange gains and losses in a respondent's financial expense 
if such gains and losses are related to the cost of acquiring debt. 
Moreover, it is the Department's normal practice to distinguish between 
exchange gains and losses realized or incurred in connection with sales 
transactions and those associated with purchase transactions. See, 
e.g., Notice of Final Determination of Sales at Less Than Fair Value: 
Steel Wire Rod from Trinidad and Tobago, 63 FR 9177, 9181 (February 24, 
1998) (Steel Wire Rod from Trinidad and Tobago). The Department 
normally includes in its calculation of COP and CV foreign exchange 
gains and losses resulting from transactions related to a company's 
manufacturing activities (e.g., purchases of inputs). We do not 
consider exchange gains and losses from sales transactions to be 
related to the manufacturing activities of the company. See, e.g., 
Steel Wire Rod from Trinidad and Tobago, 63 FR at 9181 and Notice of 
Final Determination of Sales at Less Than Fair Value: Fresh Atlantic 
Salmon from Chile, 63 FR 31411, 31430 (June 9, 1998). Accordingly, for 
purposes of the final determination, we disallowed exchange gains and 
losses arising from sales transactions in the COP and CV calculation.
Alleged Clerical Errors Made in the Preliminary Determination Margin 
Calculation Program
Comment 8: Corrections to KKPC's Direct Labor Costs
    In the preliminary determination, we recalculated KKPC's reported 
direct labor cost, because, based on information on the record at the 
time, we could not reconcile KKPC's reported direct labor costs to its 
total labor costs. KKPC notes that, subsequent to the Department's 
preliminary determination, the company provided a reconciliation of its 
direct labor costs to its total labor costs in its November 2, 1998, 
response to the Department's section D supplemental questionnaire. In 
addition, KKPC states that the Department verified that the direct 
labor costs were calculated correctly. Therefore, KKPC asserts that the 
Department should accept the reported direct labor costs and should, 
accordingly, correct the margin program.
DOC Position
    We agree. We have made the appropriate corrections for purposes of 
the final determination.
Comment 9: Product Characteristics Used for Purposes of Model Matching
    The petitioners argue that, for purposes of the preliminary 
determination, the Department improperly excluded grade as one of the 
matching criteria in performing its model matching. In addition, the 
petitioners claim that by excluding grade, the Department assigned one 
control number to two different ESBR products (i.e., ESBR grades 1502 
and 1507).
    KKPC asserts that the Department clearly stated its intention to 
not include grade as a matching criterion, and that by not doing so, 
two products are treated as one product. KKPC argues that these do not 
constitute inadvertent or clerical errors, and that there is no basis 
for changing the matching criteria.
DOC Position
    We agree with both the petitioners and KKPC, in part. In response 
to our April 28, 1998, letter to interested parties, in which we 
requested information concerning the product characteristics, the 
petitioners stated that ``* * * any product matching that relied simply 
on the IISRP grading system as product matching criteria, rather than 
on the essential physical characteristics of ESBR product, would 
necessarily fail to match certain product sales that properly should be 
included

[[Page 14872]]

in the Department's matching analysis.'' We, therefore, used the 
product characteristics attached to the petitioners' aforementioned 
response as our matching criteria, and did not include grade as a 
product characteristic. Excluding the grade from the matching criteria 
was, therefore, not an inadvertent or clerical error.
    However, based on the arguments raised in this proceeding, we have 
reexamined our matching criteria. We note that indeed two of KKPC's 
reported products are assigned one control number based on our matching 
criteria, as verified. Sales Verification Report at page 6. Based on 
KKPC's written description of ESBR grades 1502 and 1507, as noted in 
its June 18, 1998, response to Section A of the Department's 
questionnaire, grade 1507 has a ``* * * lower mooney viscosity than the 
1500 and 1502 grades.'' Based on our review of the record in this case, 
we find that the ranges for mooney viscosity, as defined by KKPC's 
standard specifications (and also reflected in the IISRP's The 
Synthetic Rubber Manual), are different for grades 1502 and 1507. In 
addition, there are cost and price differences between these two grades 
based on KKPC's submitted COPs and sales listings. Therefore, we 
recognize that mooney viscosity is an essential product characteristic 
that defines the grade, and conclude that KKPC's sales of grades 1502 
and 1507 should be treated as two separate products for purposes of the 
final determination (see Notice of Final Results and Partial Recission 
of Antidumping Duty Administrative Review: Roller Chain, Other than 
Bicycle, from Japan, 62 FR 60472, 60475 (November 10, 1997) (where the 
Department used additional product characteristics for the final 
results in order to prevent grouping of physically diverse chain as 
identical or similar merchandise)). In addition, for purposes of any 
future administrative reviews, the Department intends to include mooney 
viscosity as a product characteristic for matching purposes (see Final 
Calculation Memorandum).
Comment 10: Quantity Variable Used in the Margin Program
    The petitioners argue that the Department made a certain 
inadvertent programming error in its preliminary margin calculation, 
and that the Department should correct this error for purposes of the 
final determination. Specifically, the petitioners note that the 
Department overstated the U.S. sales quantity by using an incorrect 
quantity variable.
DOC Position
    We agree. We have made the appropriate corrections for purposes of 
the final determination (see Final Calculation Memorandum).

Continuation of Suspension of Liquidation

    In accordance with section 733(d) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
ESBR from Korea that are entered, or withdrawn from warehouse, for 
consumption on or after November 4, 1998, the date of publication of 
our preliminary determination in the Federal Register. The Customs 
Service shall continue to require a cash deposit or the posting of a 
bond equal to the weighted-average amount by which the normal value 
exceeds the U.S. price, as indicated in the chart below. These 
suspension-of-liquidation instructions will remain in effect until 
further notice. The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                               Weighted-
                                                                average
                    Exporter/Manufacturer                       margin
                                                              percentage
------------------------------------------------------------------------
Korea Kumho Petrochemical Co., Ltd..........................      16.65
Hyundai Petrochemical Co., Ltd..............................     118.88
All Others..................................................      16.65
------------------------------------------------------------------------

Pursuant to section 735(c)(5)(A) of the Act, the Department has 
excluded any zero and de minimis margins, and any margins determined 
entirely under section 776 of the Act, from the calculation of the 
``All Others Rate.''

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. As our final determination is affirmative, 
the ITC will, within 45 days, determine whether these imports are 
materially injuring, or threaten material injury to, the U.S. industry. 
If the ITC determines that material injury, or threat of material 
injury does not exist, the proceeding will be terminated and all 
securities posted will be refunded or canceled. If the ITC determines 
that such injury does exist, the Department will issue an antidumping 
duty order directing Customs officials to assess antidumping duties on 
all imports of the subject merchandise entered, or withdrawn from 
warehouse, for consumption on or after the effective date of the 
suspension of liquidation.

Return or Destruction of Proprietary Information

    This notice serves as the only reminder to parties subject to 
Administrative Protective Order (APO) of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to 
comply is a violation of the APO.
    This determination is published pursuant to section 777(i) of the 
Act.

    Dated: March 19, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-7526 Filed 3-26-99; 8:45 am]
BILLING CODE 3510-DS-P