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Final Determination - Certain Corrosion-resistant Steel Sheet Products

OTTAWA, June 29, 1994

4258-93

AD/1014

STATEMENT OF REASONS

IN THE MATTER concerning the final determination of dumping pursuant to paragraph 41(1)(a) of the

Special Import Measures Act regarding

CERTAIN CORROSION-RESISTANT STEEL SHEET PRODUCTS FROM AUSTRALIA, BRAZIL, FRANCE, THE FEDERAL REPUBLIC OF GERMANY, JAPAN, THE REPUBLIC OF KOREA, NEW ZEALAND, SPAIN, SWEDEN, THE UNITED KINGDOM AND THE UNITED STATES OF AMERICA.

DECISION

Pursuant to paragraph 41(1)(a) of the Special Import Measures Act, the Deputy Minister of National Revenue has, on this date, made a final determination of dumping with respect to certain corrosion-resistant steel sheet, originating in or exported from Australia, Brazil, France, the Federal Republic of Germany, Japan, the Republic of Korea, New Zealand, Spain, Sweden, the United Kingdom and the United States of America.

This Statement of Reasons is also available in French.

Cet énoncé des motifs est également disponible en français.

STATEMENT OF REASONS

Summary

On November 17, 1993, as a result of a complaint filed by Stelco Inc. and Dofasco Inc., both in Hamilton, Ontario, the Deputy Minister of National Revenue initiated an investigation into the alleged injurious dumping of certain corrosion-resistant steel sheet originating in or exported from the named countries.

As a result of the investigation, the Deputy Minister is satisfied that the subject goods have been or are being dumped and the margin of dumping and the actual and potential volume of dumped goods are not negligible. Therefore, a final determination of dumping respecting the subject goods was made on June 29, 1994.

Interested Parties

Complainants

The complainants are Dofasco Inc. and Stelco Inc., hereinafter referred to as Dofasco and Stelco, respectively. Their mailing addresses are:

Dofasco Inc.

P.O. Box 460

Hamilton, Ontario

L8N 3J5

Stelco Inc.

P.O. Box 2030

Hamilton, Ontario

L8N 3T1

Exporters

Appendix 1 lists all known exporters who exported subject goods to Canada from the named countries during the period of investigation.

Importers

Appendix 2 lists all known importers who imported subject goods into Canada from the named countries during the period of investigation.

Background

Following discussions between industry and departmental officers from November 1992 to September 1993, a formal dumping complaint was submitted by Dofasco and Stelco on September 27, 1993, respecting certain corrosion-resistant steel sheet products. Following additional import analysis by the complainants, the Department received a written request on October 7, 1993, that goods of Swedish origin be added to the complaint. In addition, the Department received a letter from another Canadian producer of subject goods, Sorevco Limited (Coteau-du-Lac, Quebec), which indicated Sorevco's concurrence in and support of the complaint. On October 18, 1993, the Department advised Stelco and Dofasco that the complaint was properly documented.

On November 17, 1993, a dumping investigation was initiated, pursuant to subsection 31(1) of the Special Import Measures Act (SIMA), on the basis that there was evidence that the subject goods were being dumped and that the dumping had caused, was causing and was likely to cause material injury to the production in Canada of like goods.

On February 2, 1994, due to the number of countries and firms involved in this case, the period for completing the preliminary investigation was extended to 135 days, i.e., to April 1, 1994, pursuant to paragraph 39(1)(b) of SIMA.

On March 31, 1994, the Deputy Minister made a preliminary determination of dumping with respect to the subject goods, pursuant to paragraph 38(1)(a) of SIMA.

Product

For the purpose of this investigation, certain corrosion-resistant steel sheet is defined as follows:

flat-rolled steel sheet products of a thickness not exceeding 0.176 inches (4.47mm), coated or plated with zinc or an alloy wherein zinc and iron are the predominant metals, excluding automotive exposed qualities designed for and used in the manufacture of outer body components for motor vehicles, originating in or exported from Australia, Brazil, France, the Federal Republic of Germany, Japan, the Republic of Korea, New Zealand, Spain, Sweden, the United Kingdom and the United States of America.

Some of the more common applications for subject corrosion-resistant steel sheet include motor vehicle components (e.g. inner body panels, exhaust systems, structural members, etc.), farm buildings, grain bins, culverts, garden sheds, roofing material, siding, floor decks, roof decks, wall studs, drywall application products (e.g. corner beads), doors, door frames, ducting and other heating and cooling system applications, flashing, hardware products and appliance components.

Appendix 3 contains additional product information.

Canadian Industry

The Canadian industry consists of four producers: Stelco and Dofasco of Hamilton, Ontario, Sorevco of Coteau-du-Lac, Quebec and Continuous Colour Coat of Rexdale, Ontario. The combined output of Stelco and Dofasco, in terms of domestic shipments, represents the overwhelming majority and therefore constitutes a major proportion of Canadian industry for purposes of this investigation.

Canadian Market

Corrosion-resistant steel sheet is sold directly to end users and through steel service centres/distributors across Canada. Approximately 30 per cent of Canadian mill shipments are sold through service centres. These service centres stock standard sizes for re-sale in smaller quantities to low volume end users, as well as offering custom cutting, slitting or "inventorying" services. The latter term refers to a practice where a service centre purchases a quantity of steel for a specific customer, keeps it in inventory, and then delivers small quantities to the customer on a "just in time" basis.

The balance of Canadian domestic shipments go directly to large end-users located from coast-to-coast in Canada, but who tend to be concentrated in the Windsor to Quebec City corridor.

The Department is unable to make public the actual domestic shipments for the period because of the confidentiality of domestic shipment figures supplied for each producer.

At the time of initiation, the Department reported imports of subject goods based on import data obtained from the Department's automated entry data system. To remove automotive exposed quality product which is excluded from this investigation, import volumes were adjusted by removing imports entering Canada under the duty-free provisions of tariff code 5933 on the understanding that such imports were corrosion-resistant steel sheet used exclusively in automotive exposed applications.

It became apparent during the investigation that a significant volume of automotive quality product for use in unexposed automotive applications (subject goods) did have access to the duty-free provisions of tariff code 5933. As a result, the import levels of subject goods from the United States and Japan were underestimated at initiation. Revised import volumes during the period of investigation are presented in Appendix 4. Customs was unable to segregate previous years' duty-free imports of automotive exposed and unexposed quality product from the United States and Japan and it is likely that the import figures reported in Appendix 4 are also understated for all but the period of investigation. It is noted that the understatement of import volumes relates only to imports from the U.S. and Japan, the two primary foreign suppliers of corrosion-resistant steel sheet to the automotive industry.

The Investigation

For purposes of determining the margins of dumping of the goods imported into Canada during the period of investigation, the Department limited its examination to the largest volume of imports from each country that could reasonably be investigated.

All identified exporters of the subject goods were advised of the information the Department required to determine whether or not dumping was taking place. However, for each exporting country subject to the investigation, the Department required information only from those exporters whose apparent exports to Canada collectively comprised at least 60 percent of the apparent volume of goods imported into Canada from that country during the relevant period.

Exporters not required to provide information were offered the opportunity to make a voluntary submission in response to the Department's Request for Information.

The period of investigation covered shipments of the subject goods made from January 1, 1993 to

June 30, 1993.

Subsequent to the preliminary determination, disclosure meetings were held with various companies and further representations were received from a number of companies. The main issues raised are discussed in the following section.

A number of the companies were also requested to supply additional information to further clarify data used for estimating margins of dumping for the preliminary determination.

On June 14, 1994, following a binational panel review of the final determination of dumping regarding certain cold-rolled steel sheet from the United States, the panel remanded to Revenue Canada three issues for reconsideration:

- treatment of charges incurred under the Coal Industry Retiree Health Benefit Act,

- treatment of pension costs, and

- treatment of interest income.

The conclusions of the panel were taken into consideration in the calculations of normal value for the final determination.

Results of the Investigation

Due to the large number of exporters involved in this case, the methodology for determining the normal values and export prices used to establish the margins of dumping is provided here on a general basis. In addition, each exporter investigated has been provided with an explanation of any changes in normal values and export prices from the preliminary determination to the final determination.

General Approach in Determining Normal Values

Where possible, normal values were determined under section 15 of SIMA on the basis of the preponderant domestic selling price of like goods or the weighted average domestic selling price in the applicable period, with adjustments as provided in the Special Import Measures Regulations (Regulations).

Where there were no sales of like goods to more than one customer at a profit, normal values were determined pursuant to paragraph 19(b) of the Act using the aggregate of the cost of production of the goods, an amount for administrative, selling and all other costs and an amount for profit. The amount for profit was determined pursuant to Regulation 11(b).

Where normal values could not be determined under either section 15 or 19 of SIMA, they were established, pursuant to subsection 29(1) of SIMA, on the basis of the export price plus an amount equal to the highest margin of dumping found for the final determination.

General Approach in Determining Export Price

Export prices were generally determined under section 24 of SIMA as the lesser of the exporter's selling price or the importer's purchase price. However, in instances where sales to Canada were made to related parties and a review of resale prices in Canada indicated that the determination of export price under section 24 was inappropriate, export prices were determined in accordance with section 25 of SIMA. These were calculated on the basis of resale prices in Canada less appropriate costs and an amount for profit. The amount for profit used was the weighted average profit earned by Canadian vendors of the goods in question who were at substantially the same trade level as the importer. There were also limited shipments where there was no selling price for the subject goods entering Canada. In such instances, export prices were also determined pursuant to section 25 of SIMA.

General Approach in Determining Margins of Dumping

Margins of dumping were determined for every exporter identified as having shipped subject goods directly to Canada or through a vendor/agent during the period of investigation.

The margins of dumping for all exporters who shipped the subject goods during the period of investigation were determined as follows:

Ø for imports from those exporters required to provide information who fully complied with the Department's Request for Information, the weighted average margin of dumping for a specific exporter was determined on the basis of the information supplied by that company;

Ø for imports from those exporters required to provide information but who failed to provide a complete response, the margin of dumping was based on the highest margin of dumping found for the final determination;

Ø for imports from exporters not required to provide information but who made a voluntary submission which was complete, the weighted average margin of dumping was determined on the basis of the information supplied by that company;

Ø for imports from exporters not required to provide information and who did not make a submission, the margin of dumping was based on the weighted average margin of dumping for exporters in that same country who were required to provide information and who fully complied with the Department's request; and

Ø for imports from exporters not required to provide information and where all selected exporters in that same country failed to provide a complete response, the margin of dumping was based on the weighted average margin of dumping for exporters in all other countries who were required to provide information and who fully complied with the Department's request.

Results by Country

The following outlines the final determination results on a country basis for the firms required to provide information and firms not required to provide information who made a voluntary submission which was complete. Appendix 5 details the margins of dumping for these firms.

Australia

John Lysaght Ltd, the only Australian company identified at initiation, provided the Department with a complete submission prior to the preliminary determination which was verified at the exporter's premises.

No additional information was received from the company for purposes of the final determination.

The margin of dumping of 32.7% established at the preliminary determination is unchanged for the final determination.

Brazil

Companhia Siderurgica Nacional (CSN), was the only company in Brazil identified at initiation that exported subject goods to Canada during the period of investigation. The company's submission was verified at its premises.

For the purposes of the preliminary determination, the Department did not rely on the domestic sales information submitted by CSN because it excluded sales of like goods with a different packing type than that used for the exported sales. Consequently, normal values were estimated on the basis of the aggregate of the cost of production of the goods, an amount for administrative, selling and all other costs and an amount for profit.

Following the preliminary determination, CSN provided revised domestic sales information including sales with the different packing types. Analysis of the revised domestic sales data indicated that the domestic sales of the like goods were made at an overall loss and therefore could not be used as a basis for determining normal value.

In addition, representations were received with respect to the manner in which the Department estimated normal values for the preliminary determination. The following addresses the main issues raised by the company.

CSN submitted that the estimated normal values were flawed since the effects of inflation were taken into account twice in constructing the cost of production of the goods. As a result, the Department modified its methodology for adjusting the cost of the goods to reflect inflation.

CSN also contended that the discounts earned on the purchase of raw materials used in the steel making process must be taken into consideration in the calculating the costs of production. The Department concurs with CSN's position and has reduced the cost of goods sold to recognize the impact of the purchase discounts.

With respect to the allocation of general, selling and administrative expenses and all other costs, CSN submitted that such allocations should be based on the financial statements prepared in accordance with the integral method of accounting whereby the effects of inflation are fully allocated to the individual line items in the statements. CSN's proposal was considered inappropriate as its costs were not presented in accordance with the integral method of accounting but rather under the corporate legislation method. This method is an allocation method, where statements are prepared in accordance with the traditional historical cost approach, with the effects of inflation being reflected as a single line item in the income statement.

CSN further submitted that their interest income is a function of the inflationary economy in Brazil and is attributable to its steel making operation. As such, the company argued that if the effects of inflation are to be considered in establishing costs, then the interest income must also be considered.

The decision of the binational panel on cold-rolled steel sheet respecting the treatment of interest income in the calculation of interest expenses was also considered in examination of this matter.

The Department re-examined the information submitted by the company to determine whether the interest expenses/income related to the steel making operation. To the extent that such items could be identified from available information as relating to the steel making operations, the Department offset interest income from interest expenses.

Despite the adjustments as noted above, the company's domestic sales of like goods were found to be unprofitable. Accordingly, normal values were determined using the constructed value approach of paragraph 19(b) of SIMA.

As a result of the changes made, the weighted average margin of dumping decreased from 55.9% at the preliminary determination to 51.4% at the final determination.

France

Only one company, Daval, Aciers d'Usinor et de Sacilor, was identified as an exporter at initiation and required to respond to the Department's Request for Information. The investigation revealed that this company acted solely as the vendor of the subject goods manufactured and exported by Sollac. Sollac and Daval are related companies and are a part of the Usinor Sacilor group. These companies provided the Department with a complete submission which was verified at their premises.

Subsequent to the preliminary determination, Sollac provided additional information to the Department and requested revisions to the normal values.

To permit determination of general expenses on an annualized basis rather than a six month basis, the company submitted its full year general expenses. This resulted in a minor reduction of the general expenses compared to those based on the six month period used for the preliminary determination.

In addition, the company presented information to demonstrate that the selection of like goods for a particular grade of product exported to Canada was inappropriate. The Department concurred with the position put forward by the company. As this product represented only a small portion of the company's shipments of subject goods to Canada, this change had little impact on the margin of dumping.

The company also requested that normal values be determined by aggregating domestic sales of like goods from all of its mills. In its analysis, the Department only considered domestic sales of like goods from the mill at which the goods were produced and shipped to Canada. Sollac shipped goods to Canada from four mills.

Paragraph 16(1)(a) recognizes that goods produced from a specific mill may be sold from another place other than the mill itself (for example, a distribution centre.) If the domestic sales from a mill are not sufficient, the sales from this other location may be included with the sales of the mill. The sales from one mill are not included with the sales from another mill for establishing normal values. Each mill is recognized as an independent production facility with different costs of production.

The Department did not change its approach on this matter for the final determination.

In addition to the information submitted by Sollac, the related importer in Canada provided additional information respecting its general, selling and administrative expenses incurred in selling the goods in Canada. This information was taken into consideration for the final determination in establishing export prices.

As a result of the changes made, the overall weighted average margin of dumping decreased from 34.1% at the preliminary determination to 32.8% at the final determination.

Federal Republic of Germany

Of the three companies identified at initiation in the Federal Republic of Germany, only one was required to respond to the Department's Request for Information. This company, Preussag Handel GmbH, did not supply the Department with a submission. A second company, Thyssen Stahl, advised the Department that it did not ship subject goods during the investigation period.

As information was not provided to permit the Department to establish normal values pursuant to sections 15 or 19 of SIMA for goods shipped to Canada by Preussag Handel GmbH, normal values were established pursuant to section 29 on the basis of the export price plus an amount equal to the highest margin of dumping found for the final determination.

The margin of dumping for the final determination is 60.8%

Japan

Of the ten Japanese companies identified at initiation, only one was required to respond to the Department's Request for Information. This company, Mitsubishi Corporation, did not supply the Department with a submission.

Normal values for imports from Mitsubishi Corporation were established pursuant to section 29 on the basis of the export price plus an amount equal to the highest margin of dumping found for the final determination.

The margin of dumping for the final determination is 60.8%

The Republic of Korea

Three of the five companies identified at initiation in Korea were required to respond to the Department's Request for Information. Dongbu Steel Co. Ltd., Pohang Coated Steel Co. Ltd. (POCOS) and Pohang Iron and Steel Co. Ltd. (POSCO) provided the Department with complete submissions which were verified at their premises.

Following the preliminary determination, additional information and representations were received from Dongbu Steel and POSCO. The conclusions of the binational panel in the cold-rolled steel sheet case also impacted on the determination of normal values for POCOS. The following provides an outline of the issues and the impact on the final margins of dumping.

Dongbu Steel

For the preliminary determination, the normal value for one product was estimated under paragraph 19(b) of the Act because there were domestic sales to only one customer. Dongbu requested that the Department consider sales to another trade level to determine normal values. For the final determination, domestic sales to the nearest and subsequent trade level to that of the Canadian importer were used to determine normal value pursuant to section 15 of the Act.

Dongbu provided information following the preliminary determination to show the amount of import duty borne on domestic goods that is not borne on goods exported to Canada. While the Department agreed there should be an adjustment, the amount of the adjustment was less than that calculated by the company as much of the imported product did not go into the production of domestic goods.

Dongbu also requested that interest expense be offset by interest earned on all short-term deposits, including marketable securities. To the extent that the interest earned related to steel production, the Department agreed. However, the reduction in cost that resulted had no affect since normal values were determined under section 15 of SIMA for the final determination.

As a result of the changes made, the weighted average margin of dumping has decreased from 12.6% at the preliminary determination to 12.5% at the final determination.

POCOS

POCOS had interest income that was not offset against interest expenses for the preliminary determination. For purposes of the final determination, where such income could be identified as stemming from near liquid short-term investments relating to the steel making operation, such interest income was offset against interest expense.

As a result of this change, the weighted average margin of dumping has decreased from 16.0% at the preliminary determination to 15.4% at the final determination.

POSCO

At the preliminary determination, the normal value for one product was estimated under paragraph 19(b), as sales were made to only one customer. POSCO subsequently provided additional domestic sales information showing sales to more than one customer. Accordingly, normal value was calculated pursuant to section 15 of SIMA.

For the purposes of the preliminary determination, the Department disregarded certain domestic sales to distributors because it appeared that these sales were not for domestic consumption. POSCO has since argued that inasmuch as the distributors sell these goods domestically to end-users for further processing into another product, albeit for export, the Department should consider these sales to be for domestic consumption. For the purposes of the final determination, the Department included these sales to distributors in determining normal values.

POSCO requested that the Department adjust normal values for domestic freight charges absorbed by the company. No change was made as no further information was provided regarding actual freight expenses for the domestic sales used to calculate normal values.

At the preliminary determination, the Department adjusted normal values to account for differences in payment terms for exports to Canada and domestic sales. The Korean prime rate of interest was used in making the adjustment. POSCO has made further representations in this regard and for purposes of the final determination, the Department agreed to use the rate charged to POSCO by its bank for short-term loans.

POSCO submitted that donation expenses should not be included as a cost when calculating the cost of production. The Department's position is that donations are a cost that must be allocated against a company's business.

POSCO requested that interest expense be offset by interest income on all short-term deposits, including marketable securities. To the extent that the interest earned related to steel production, the Department agreed. However, the reduction in cost that resulted had no affect on normal values which, for purposes of the final determination, were determined under section 15 of SIMA.

As a result of the changes made, the weighted average margin of dumping for goods shipped from the POSCO's Pohang mill has decreased from 10.5% at the preliminary determination to 10.1% at the final determination, and for goods shipped from the Kwangyang mill has decreased from 10.8% at the preliminary determination to 8.0% at the final determination.

New Zealand

BHP New Zealand Steel Limited ("BHP NZS"), the only company in New Zealand identified at initiation, provided the Department with a complete submission prior to the preliminary determination which was verified at the company's premises.

Subsequent to the preliminary determination, BHP NZS made representations concerning the appropriate selection of a domestic customer base and the selection of like goods for normal value determination. The Department agreed with the positions put forward by the company.

As a result of these changes, the weighted average margin of dumping has increased slightly from 30% at the preliminary determination to 32.1% at the final determination.

Spain

Only one exporter, Altos Hornos de Viscaya S.A. was identified at initiation and required to respond to the Department's Request for Information. The exporter provided the Department with a submission which was verified at its premises.

During the final investigation, the company made representations requesting the exclusion of interest expenses on accumulated debt in establishing normal values. The company put forward the postion that the interest paid on accumulated debt relates to periods prior to the period of investigation. The position of the Department is that current interest expenses on accumulated debt form part of the total cost of the subject goods.

The margin of dumping of 28.4% established at the preliminary determination for Altos Hornos is unchanged for the final determination.

Sweden

No direct exports from Sweden were identified at initiation. Goods originating in Sweden were, however, shipped to Canada from Germany by Preussag Handel, GmbH which did not supply the Department with a submission.

Normal values for the goods shipped by this company were established pursuant to section 29 of SIMA on the basis of the export price plus an amount equal to the highest margin of dumping found for the final determination.

For those goods originating in Sweden but exported to Canada from Germany, the margin of dumping for the final determination is 60.8%

The United Kingdom

Only one company in the United Kingdom was identified at initiation and required to respond to the Department's Request for Information. This exporter, British Steel plc, provided the Department with a complete submission which was verified at the company's premises.

The Department did not request additional information from this company for the final determination. The company did, however, provide information showing that the original submission contained a relatively minor computer data input error on a portion of the sales examined.

As a result of this corrected data, the overall weighted average margin of dumping has decreased from 24.3% at the preliminary determination to 23.5% at the final determination.

The United States of America

Nineteen of the 135 companies identified at initiation in the United States of America were required to respond to the Department's Request for Information. Of these 19 identified companies, only two provided the Department with complete submissions during the preliminary investigation: the Inland Steel Company and Michigan Steel Processing, both of which were verified by the Department.

It was also determined that 2 of the 19 companies included in the sample did not ship subject goods to Canada during the period of investigation. These companies were Triangle Wire & Cable and Arrowstrip Inc. The remaining 15 exporters in the sample either did not respond to the Department's questionnaire or provided an incomplete response.

Five companies voluntarily provided complete submissions which were also verified prior to the preliminary determination: US Steel, LTV Steel, Bethlehem Steel, American Steel Products and I/N Kote. In view of the extent to which Inland Steel Company markets the goods produced at the I/N Kote facility, the Department considered I/N Kote to be part of Inland Steel and the results of the investigation respecting shipments from the I/N Kote facility were reported as part of the Inland Steel margins.

Subsequent to the preliminary determination, 2 additional companies included in the sample, MST Steel Corporation and Triumph Industries, provided the Department with submissions that were verified at their premises. The margins of dumping for these companies as determined for the final determination are reported in Appendix 5.

Additional selected exporters that provided incomplete or no information prior to the preliminary determination (Form-Tech Steel Inc., Majestic Steel Service Inc., Maksteel Service, NexTech, Rod Metals Inc., and Wheeling Corrugated Co.) provided information for purposes of the final determination which was incomplete.

In addition, 5 companies, not included in the Department's sample, established that they did not ship subject goods to Canada and were deleted from the list of exporters (Monogram Metals Inc., Mckey Perforating Inc., International Metals & Machines Inc., Phillips Mfg. & Tower Co., Phillips Mfg. & Machine Corp.). Three additional importers were also identified (General Electric Ltd., Ketchum Manufacturing Sales Ltd.and Metofer Ltd.).

Following the preliminary determination, additional information and representations were received from Inland Steel-I/N Kote, LTV Steel and U.S. Steel.

The following provides an outline of the issues involved and the impact on the final margins of dumping.

Inland Steel - I/N Kote

Inland Steel provided additional information to the Department and made representations regarding the manner in which normal values were estimated at the preliminary determination.

The company provided clarification relating to cost differences between the cost of like goods sold domestically and the goods shipped to Canada from the I/N Kote facility. Normal values were adjusted to reflect these cost differences.

The company also provided clarification which allowed for a more accurate calculation of the company's selling and works administration expenses relating to goods shipped from I/N Kote facility. In addition, information was provided which clarified the I/N Kote facility's output during the period of investigation which affected the manner in which unit costs were calculated. These clarifications had the effect of reducing the Department's calculation of the full cost of production of the subject goods.

At the final determination, the cost of goods sold was adjusted upward to take into account the cost of an early shut-down of the company's coke-making operation that was recorded as a charge in the fourth quarter of 1993. During the preliminary determination phase of the investigation, the Department was unaware of this expense and therefore did not include it in Inland's overhead expenses. As this cost is directly related to the production of the subject goods, it was included in the calculation of full cost for the final determination. While this charge was taken in the fourth quarter, such an expense is considered a full year cost and the Department attributed half of the charge to the company's overhead during the period of investigation.

The company made representations that intercompany interest expenses should be eliminated from both Inland and I/N Kote. It is the Department's position that the interest paid by I/N Kote to Inland is separately reported in I/N Kote's financial statements as an expense and as such, is properly included in the cost of the goods produced at this facility.

Inland reports the interest received from I/N Kote as interest income. The Department generally treats interest income from subsidiaries as non-operational income as such income is generally unrelated to the production and sale of subject goods. In this case, however, the Department considers the interest income earned by Inland from I/N Kote directly related to the production and sale of the subject goods and that the interest income should be offset against Inland's interest expense. The net result of this exercise is that the burden of the interest expense is placed solely where it is incurred, at the I/N Kote operation. Therefore, the Department has not changed the approach taken at the preliminary determination.

As a result of the changes made, the weighted average margin of dumping for goods shipped from the Indiana Harbor mill increased marginally from 5.0% at preliminary determination to 5.1% for the final determination. For goods shipped from the I/N Kote facility, the weighted average margin of dumping decreased from the preliminary determination margin of 15.4% to 12.4% for the final determination.

LTV Steel

LTV Steel provided additional information to the Department and made representations regarding the manner in which normal values were estimated at the preliminary determination.

For the preliminary determination, the costs of production of the goods exported to Canada were determined by adjusting reported "commodity costs" by a factor to reflect the higher costs incurred on the exported goods.

LTV argued that the costs of production ought to be based on the "commodity cost". The Department did not agree, since the "commodity cost" represents the average cost of a basket of products of various gauges, coating weights, surface qualities, etc. produced in any given month. While LTV was afforded the opportunity to present the Department with additional information, only unsupported data was provided. In these circumstances, the methodology used for the preliminary determination was not changed.

LTV participates in two joint ventures operating electro-galvanizing lines. LTV argued that inclusion of the full "tolling fee" charged to LTV for electro-galvanizing in the cost of production overstated its true cost, and that the element of profit realized by LTV from the joint venture should be deducted in establishing LTV's actual costs. An adjustment was made where the information on profits earned was substantiated.

LTV disagreed with the methodology employed by the Department in reallocating overhead expenses to the subject goods based on the manufacturing costs at each of the mills. LTV advocated that costs should be allocated such that each product receives the same amount of overhead, regardless of the mill in which it was produced. The Departmental position is that overhead should be allocated on a mill specific basis as this more accurately reflects the cost and efficiency differences between different mills.

LTV operated under the protection of Chapter 11 of the United States Federal Bankruptcy Code until emergence from bankruptcy on June 28, 1993. LTV argued that the Department should exclude from the total cost of goods sold, the administrative expenses resulting from Chapter 11 proceedings. Alternatively, if the Department held that the administrative costs were a component of the cost of production of the subject goods, LTV argued that the credit realized from debt discharged on emergence from bankruptcy should be used to offset the cost of production.

The Department maintained its position that bankruptcy expenses related directly to the general operations of LTV are allocatable to the products produced by LTV. However, the credit shown on the LTV's income statement which accounts for a write-off of outstanding debt is different. This credit recognizes the disposition of corporate debt, and has no relationship to the current cost of producing steel.

The Department allocated to LTV Steel Group a portion of the overhead expenses incurred by the Management Corporation Group. This group oversees corporate financial matters, prepares financial statements, and is involved in the wind-up of subsidiaries sold or dissolved as part of the bankruptcy re-organization plan. LTV argued that this body is a separate legal entity whose expenses have no relationship to the cost of producing steel. The Department disagrees. The group's ultimate function is to facilitate the on-going operations of the Steel and Energy groups. To this extent, the Management Corporation Group's expenses must be incorporated in the cost of products sold by the Steel and Energy Groups.

LTV also argued that the Department should apply the interest income earned on short-term investments against the cost of production of the subject goods. For the final determination, to the extent that such income could be related to interest costs related to steel production, an offset was made to interest costs.

LTV argued that accrued costs for Post-Employment Benefits (FASB 106) should not be applied to the cost of production of the subject goods. The Department maintained its position that these costs directly relate to steel production.

LTV also argued that interest charges accrued during the period of investigation as a result of liabilities under the Coal Industry Retiree Health Benefit Act should not be allocated to the subject goods. The issue of allocation of the extraordinary charge incurred by LTV in 1992 under this Act has been reviewed by a binational panel, who instructed Revenue Canada to reconsider its conclusion that the charge is related to LTV steel production. Further, the panel indicated that the idling of an operation did not preclude the allocation of a general corporate expense of this nature to the idled operation.

At issue in the current case is treatment of the interest charges incurred in 1993 relating to this liability. LTV has indicated that it has not produced coal since 1986, nor is there any indication that the mines will be activated in the near future. In the Department's view, a distinction must be drawn between idled operations which may not be producing revenues in a current period and operations which have been inactive for several years and where there is no clearly forseeable prospect of future revenues. In the latter case, it is the Department's view that general corporate expenses, such as the interest charge incurred by LTV Steel in 1993 relating to its liability under the Coal Industry Retiree Health Benefit Act must be allocated to the goods produced by LTV Steel in 1993.

As a result of the changes made, the margin of dumping from the Cleveland mill has decreased from 35.5% at the preliminary determination, to 34.1% for the final determination. From the Indiana Harbor mill, the margin of dumping has decreased from 8.6% at the preliminary determination, to 6.2% for the final determination. From the Hennepin mill, the margin has decreased from 9.1% at the preliminary, to 7.0% for the final.

U.S. Steel

The company provided additional information to the Department and made representations regarding the Department's treatment of certain expenses that the company considers to be unrelated to the production and sales of subject goods.

Following the preliminary investigation, the company provided the Department with its full year 1993 audited financial statements. Examination of these statements allowed the Department to refine its calculation of full cost of production, particularly with respect to interest and certain other expenses incurred during 1993. As a result of this examination, the interest expense attributed to the period of investigation was lower than that calculated for purposes of the preliminary determination.

The company advised that they reported a change in accounting method to give effect to the requirements of FASB 112, which relates to method of accounting for those employers who provide benefits to former or inactive employees after employment but before retirement. With this change, companies must recognize post-employment benefits on an accrual basis. Half of the full year charge for this accrual was included in the Department's calculation of full cost of production for the period of investigation.

U.S. Steel made representations that the Department should recognize a reduction in the company's cost of sales to reflect a credit reported in the company's 1993 financial statements to recover an overstatement of expenses relating the 1992 operating year. The credit involves the recovery of the difference between a litigation award involving Energy Buyers and the negotiated amount actually incurred by the company to settle the award. The Department disagreed with the company's position in this matter as the credit is considered a prior period adjustment relating to the company's 1992 operations.

For purposes of the preliminary determination, the Department included expenses relating to an anti-trust litigation award and related interest expenses against a former U.S. Steel Group subsidiary, the Bessemer & Lake Erie Railroad. While the railroad was sold in 1988, USX retained liability for this judgment and the company charged the expenses related to this judgement to the U.S. Steel Group. USX made representations that such expenses are not related to the production and sale of the goods and should not have been included by the Department in its calculation of full cost. Consistent with the direction provided by the binational panels involving gypsum board and cold-rolled steel sheet, the Department considers that this expense forms part of the cost of the goods. Half of the amounts actually reported in the 1993 financial statements were used by the Department in its cost calculations for the six-month period of investigation.

As a result of the binational panel decision respecting certain cold-rolled steel sheet the Department re-examined its treatment of pension costs. The company claimed that pension credits should have been included in the Department's cost calculations to reduce the general, administrative and selling expenses of the company. The panel, in its decision, indicated that pension credits should be used to offset pension costs, but not overall GS&A expenses. For purposes of the final determination, the Department adjusted the company's pension cost downward in recognition of the pension fund surplus income during the period of investigation.

Also, as a result of the panel decision, the Department re-examined its treatment of interest income in calculating interest costs included in the cost of subject goods. A review of the evidence provided by the company concerning the source and nature of the interest income revealed that the income was primarily related to the company's non-steel operations. Accordingly, for purposes of the final determination, no adjustment was made to the interest expense figure as a result of interest income.
As a result of the changes made, the weighted average margin of dumping for goods shipped from the Gary works decreased from 9.8% at the preliminary determination to 2.2% for the final determination. For goods shipped from the Fairless works, the weighted average margin of dumping decreased from 24.1% at the preliminary determination to 17.0% for the final determination.

Conclusion

In view of the fact that the investigation revealed that the margins of dumping of the subject goods and the actual and potential volumes of the dumped goods are not negligible, a final determination was made, on this date, with respect to certain corrosion-resistant steel sheet, originating in or exported from Australia, Brazil, France, the Federal Republic of Germany, Japan, the Republic of Korea, New Zealand, Spain, Sweden, the United Kingdom and the United States of America pursuant to paragraph 41(1)(a) of SIMA.

Future Action

The Canadian International Trade Tribunal (CITT) inquiry concerning the question of injury to production in Canada of like goods is continuing and an order or finding will be made by July 29, 1994. Imported goods subject to the investigation which are released from Customs' possession will continue to be assessed provisional duty as determined at the time of the preliminary determination. This provisional period began on the date of the preliminary determination, March 31, 1994, and will end on the date the CITT makes its finding.

If the CITT finds that no injury has been caused or is likely to be caused by dumped imports, all proceedings relating to the dumped imports will be terminated pursuant to section 47 of SIMA. In such a case, imports will not be subject to anti-dumping duties and all provisional duties paid will be refunded to the importers. In the event that the CITT issues a finding of injury, any subject goods released from Customs following the CITT finding will be subject to anti-dumping duty equal to the margin of dumping, expressed as a percentage of export price, found for each exporter at the final determination. If this is the case, such duty is hereby demanded pursuant to section 3 of SIMA.

Anti-dumping duties to be collected in the event of a positive injury finding may be found in Appendix 6.

Should the CITT find injury, a re-investigation will be initiated by the Department on or about the time of the finding. As part of such a re-investigation, Requests for Information will be forwarded to all exporters involved in the investigation. Those exporters that choose to provide a complete response and permit verification will receive normal values at the conclusion of the re-investigation.

The normal values established by the re-investigation will be used to finalize amounts of anti-dumping duty applicable to shipments of subject goods released during the provisional period. Amounts of anti-dumping duty will be based on the lesser of the margin of dumping found at the preliminary determination or the margin of dumping found at the conclusion of the re-investigation. If appropriate, any excess duty collected during the provisional period will be refunded.

These normal values will also be applicable to shipments of the subject goods released from Customs' possession following the conclusion of the re-investigation. Any sales to Canada at prices below these values will be subject to anti-dumping duty.

These values will also be used to resolve any appeals received with respect to shipments released subsequent to the date of the CITT finding. The processing of these appeals could result in additional duties being requested or in refunds of duty.

For those exporters that decide not to respond to the Request for Information, the margin of dumping found for the final determination of dumping will continue to be applied to shipments of subject goods to Canada and will form the basis for processing any appeals. In addition, the lower of the margin of dumping found at the final determination or at the preliminary determination will be used to finalize amounts of anti-dumping duty applicable to shipments of goods released during the provisional period. Again, any excess duty collected during the provisional period will be refunded.

Information

Any person who intends to file a request for a binational panel review for goods of the United States may obtain the formal service list by contacting one of the officers listed below.

For further information, please contact one of the Senior Program Officers:

• Mr. Andrew Bradley, (613) 954-1641
• Ms. Judith Scott Houlahan, (613) 954-6720
• Ms. Jennifer Hughes, (613) 952-7547
• Mr. Michel Leclair, (613) 954-7232

Revenue Canada

Anti-dumping and Countervailing Division

191 Laurier Avenue West

Ottawa, Ontario

Canada

K1A 0L5

Telefax: (613) 941-2612

Telex: 053-4351

B. Brimble

Director General

Anti-dumping and Countervailing Division