Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe From Mexico

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE:

February 4, 2000.

FOR FURTHER INFORMATION CONTACT:

Russell Morris or John R. Brinkmann, at (202) 482-1775 or (202) 482-4126, respectively; AD/CVD Enforcement II, Office VI, Group II, Import Administration, Room 1870, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930 (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 refer to the regulations codified at 19 CFR part 351 (April 1999).

Preliminary Determination

We preliminarily determine that certain large diameter carbon and alloy seamless standard, line, and pressure pipe (seamless pipe) from Mexico are being sold, or are likely to be sold, in the United States at less than fair value (LTFV), as provided in section 733 of the Act. The estimated margins of sales at LTFV are shown in the Suspension of Liquidation section of this notice.

Case History

This investigation was initiated on July 20, 1999. See Initiation of Antidumping Duty Investigations: Certain Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Japan and Mexico and Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from the Czech Republic, Japan, the Republic of South Africa and Romania, 64 FR 40825 (July 28, 1999) (Initiation Notice). Since the initiation of the investigation, the following events occurred:

On August 12, 1999, the Department issued its antidumping questionnaire to Tubos de Acero de Mexico, S.A. (TAMSA), the sole Mexican producer of the subject merchandise.

On August 23, 1999, the United States International Trade Commission (ITC) preliminarily determined that there is a reasonable indication that imports of the products subject to each of these antidumping investigations are materially injuring the U.S. industry. See Certain Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe from the Czech Republic, Japan, Mexico, Romania, and South Africa, 64 FR 46953 (August 27, 1999).

We issued supplemental questionnaires where appropriate. Responses to those supplemental questionnaires were timely filed between November 1, 1999 and November 16, 1999, and we have incorporated the information provided in those responses into this preliminary determination.

On November 17, 1999, the Department concluded, consistent with section 733(c)(1)(B) of the Act, that the Mexican investigation of large diameter pipe is extraordinarily complicated, and that additional time was necessary to issue the preliminary determination. Consequently, we extended the deadline for the preliminary determination to January 26, 2000. See Notice of Postponement of Preliminary Antidumping Duty Determinations: Certain Small and Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe From the Czech Republic, Romania and Mexico, 64 FR 66168 (November 24, 1999).

Although the deadline for this determination was originally January 26, 2000, due to the Federal Government shutdown on January 25 and 26, 2000, resulting from inclement weather, the time frame for issuing this determination has been extended by two days.

Postponement of Final Determination and Extension of Provisional Measures

Section 735(a)(2) of the Act provides that a final determination may be postponed until not later than 135 days after the date of the publication of the preliminary determination if, in the event of an affirmative preliminary determination, a request for such postponement is made by exporters who account for a significant proportion of exports of the subject merchandise, or in the event of a negative preliminary determination, a request for such postponement is made by the petitioners. The Department's regulations, at 19 CFR 351.210(e)(2), require that requests by respondents for postponement of a final determination be accompanied by a request for extension of provisional measures from a four-month period to not more than six months.

On January 14, 2000, TAMSA requested that, in the event of an affirmative preliminary determination in this investigation, the Department postpone its final determination until not later than 135 days after the date of the publication of the affirmative preliminary determination in the Federal Register. TAMSA also included a request to extend the provisional measures to not more than six months. Therefore, in accordance with 19 CFR 351.210(b), because (1) our determination is affirmative; (2) the requesting exporter accounts for a significant portion of exports of the subject merchandise; and (3) no compelling reason for denial exists, we are granting the respondent's request and are postponing the final determination until not later than 135 days after the date of the publication of the preliminary determination. Suspension of liquidation will be extended accordingly.

Period of Investigation

The period of this investigation (POI) comprises TAMSA's four most recent fiscal quarters prior to the filing of the petition, (i.e., April 1, 1998, through March 31, 1999).

Scope of Investigation

For purposes of this investigation, the products covered are large diameter seamless carbon and alloy (other than stainless) steel standard, line, and pressure pipes produced, or equivalent, to the American Society for Testing and Materials (ASTM) A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-335 (grades P1, P2, P11, P12, P21 and P22 only), ASTM A-589, ASTM A-795, and the American Petroleum Institute (API) 5L specifications and meeting the physical parameters described below, regardless of application. The scope of this investigation also includes all products used in standard, line, or pressure pipe applications and meeting the physical parameters described below, regardless of specification. Specifically included within the scope of this investigation are seamless pipes greater than 4.5 inches (114.3 mm) up to and including 16 inches (406.4 mm) in outside diameter, regardless of wall-thickness, manufacturing process (hot finished or cold-drawn), end finish (plain end, beveled end, upset end, threaded, or threaded and coupled), or surface finish.

The seamless pipes subject to this investigation are currently classifiable under the subheadings 7304.10.10.30, 7304.10.10.45, 7304.10.10.60, 7304.10.50.50, 7304.31.60.50, 7304.39.00.36, 7304.39.00.40, 7304.39.00.44, 7304.39.00.48, 7304.39.00.52, 7304.39.00.56, 7304.39.00.62, 7304.39.00.68, 7304.39.00.72, 7304.51.50.60, 7304.59.60.00, 7304.59.80.30, 7304.59.80.35, 7304.59.80.40, 7304.59.80.45, 7304.59.80.50, 7304.59.80.55, 7304.59.80.60, 7304.59.80.65, and 7304.59.80.70 of the Harmonized Tariff Schedule of the United States (HTSUS).

Specifications, Characteristics, and Uses: Large diameter seamless pipe is used primarily for line applications such as oil, gas, or water pipeline, or utility distribution systems. Seamless pressure pipes are intended for the conveyance of water, steam, petrochemicals, chemicals, oil products, natural gas and other liquids and gasses in industrial piping systems. They may carry these substances at elevated pressures and temperatures and may be subject to the application of external heat. Seamless carbon steel pressure pipe meeting the ASTM A-106 standard may be used in temperatures of up to 1000 degrees Fahrenheit, at various American Society of Mechanical Engineers (ASME) code stress levels. Alloy pipes made to ASTM A-335 standard must be used if temperatures and stress levels exceed those allowed for ASTM A-106. Seamless pressure pipes sold in the United States are commonly produced to the ASTM A-106 standard.

Seamless standard pipes are most commonly produced to the ASTM A-53 specification and generally are not intended for high temperature service. They are intended for the low temperature and pressure conveyance of water, steam, natural gas, air and other liquids and gasses in plumbing and heating systems, air conditioning units, automatic sprinkler systems, and other related uses. Standard pipes (depending on type and code) may carry liquids at elevated temperatures but must not exceed relevant ASME code requirements. If exceptionally low temperature uses or conditions are anticipated, standard pipe may be manufactured to ASTM A-333 or ASTM A-334 specifications.

Seamless line pipes are intended for the conveyance of oil and natural gas or other fluids in pipe lines. Seamless line pipes are produced to the API 5L specification.

Seamless water well pipe (ASTM A-589) and seamless galvanized pipe for fire protection uses (ASTM A-795) are used for the conveyance of water.

Seamless pipes are commonly produced and certified to meet ASTM A-106, ASTM A-53, API 5L-B, and API 5L-X42 specifications. To avoid maintaining separate production runs and separate inventories, manufacturers typically triple or quadruple certify the pipes by meeting the metallurgical requirements and performing the required tests pursuant to the respective specifications. Since distributors sell the vast majority of this product, they can thereby maintain a single inventory to service all customers.

The primary application of ASTM A-106 pressure pipes and triple or quadruple certified pipes in large diameters is for use as oil and gas distribution lines for commercial applications. A more minor application for large diameter seamless pipes is for use in pressure piping systems by refineries, petrochemical plants, and chemical plants, as well as in power generation plants and in some oil field uses (on shore and off shore) such as for separator lines, gathering lines and metering runs. These applications constitute the majority of the market for the subject seamless pipes. However, ASTM A-106 pipes may be used in some boiler applications.

The scope of this investigation includes all seamless pipe meeting the physical parameters described above and produced to one of the specifications listed above, regardless of application, and whether or not also certified to a non-covered specification. Standard, line, and pressure applications and the above-listed specifications are defining characteristics of the scope of this investigation. Therefore, seamless pipes meeting the physical description above, but not produced to the ASTM A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-335 (grades P1, P2, P11, P12, P21 and P22 only), ASTM A-589, ASTM A-795, and API 5L specifications shall be covered if used in a standard, line, or pressure application.

For example, there are certain other ASTM specifications of pipe which, because of overlapping characteristics, could potentially be used in ASTM A-106 applications. These specifications generally include ASTM A-161, ASTM A-192, ASTM A-210, ASTM A-252, ASTM A-501, ASTM A-523, ASTM A-524, and ASTM A-618. When such pipes are used in a standard, line, or pressure pipe application, such products are covered by the scope of this investigation.

Specifically excluded from the scope of this investigation are boiler tubing and mechanical tubing, if such products are not produced to ASTM A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-335 (grades P1, P2, P11, P12, P21 and P22 only), ASTM A-589, ASTM A-795, and API 5L specifications and are not used in standard, line, or pressure pipe applications. In addition, finished and unfinished oil country tubular goods (OCTG) are excluded from the scope of this investigation, if covered by the scope of another antidumping duty order from the same country. If not covered by such an OCTG order, finished and unfinished OCTG are included in this scope when used in standard, line or pressure applications.

Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the merchandise under investigation is dispositive.

Class or Kind

From August through November 1999, the Department received submissions from importers, respondents, and consumers in the companion investigations involving small and large diameter seamless pipe from Japan, requesting that the subject merchandise be considered more than one class or kind. Specifically, those parties requested that the Department subdivide each of these investigations into the following separate classes or kinds of merchandise: (1) Commodity grade carbon seamless standard, line and pressure pipe; (2) alloy seamless pipe; and (3) high-strength seamless line pipe. On November 8, 1999, the petitioners rebutted these arguments. We have preliminarily determined that there is a single class or kind of merchandise for small diameter pipe and another distinct single class or kind of merchandise for large diameter pipe. For further discussion on this topic, including the comments received, see the Notice of Preliminary Determinations of Sales at Less Than Fair Value: Certain Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Japan and Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Japan and the Republic of South Africa, 64 FR 69721 (December 14, 1999).

Product Comparisons

In accordance with section 771(16) of the Act, all products produced by TAMSA covered by the description in the Scope of Investigation section, above, and sold in Mexico during the POI, are considered to be foreign like products for purposes of determining appropriate product comparisons to U.S. sales. We have relied on six criteria to match U.S. sales of subject merchandise to comparison-market sales of the foreign like product: specification/grade, manufacturing process, outside diameter, wall thickness, surface finish, and end-finish. These characteristics have been weighted by the Department, where appropriate. Where there were no sales of identical merchandise in the home market to compare to U.S. sales, we compared U.S. sales to the next most similar foreign like product on the basis of the characteristics as listed above.

Fair Value Comparisons

To determine whether sales of seamless pipe products from Mexico were made in the United States at LTFV, we compared the constructed export price (CEP) to the normal value (NV), as described in the Constructed Export Price and Normal Value sections of this notice, below. In accordance with section 777A(d)(1)(A)(i) of the Act, we calculated weighted-average CEPs for comparison to weighted-average NVs.

Constructed Export Price

In accordance with section 772 of the Act, we calculated a CEP for each sale. Section 772(b) of the Act defines CEP as the price at which the subject merchandise is first sold (or agreed to be sold) in the United States before or after the date of importation by or for the account of the producer or exporter of such merchandise or by a seller affiliated with the producer or exporter, to a purchaser not affiliated with the producer or exporter, as adjusted.

When sales are made prior to importation through an affiliated U.S. sales agent to an unaffiliated customer in the United States, it is the Department's practice to examine several criteria in order to determine whether or not the sales are CEP or export price (EP) sales. Those criteria are: (1) Whether the merchandise was shipped directly from the manufacturer to the unaffiliated U.S. customer; (2) whether this was the customary commercial channel between the parties involved; and (3) whether the function of the U.S. selling agent was limited to that of a “processor of sales-related documentation” and a “communications link” between the exporter and the unaffiliated U.S. buyer. See, e.g., Porcelain-on-Steel Cookware from Mexico: Final Results of Antidumping Duty Administrative Review, 64 FR 26934, 26941 (May 18, 1999); and Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada: Final Results of Antidumping Duty Administrative Reviews (Canadian Steel), 63 FR 12725, 12738 (March 16, 1998). In the Canadian Steel case, the Department clarified its interpretation of the third prong of this test, as follows:

Where the factors indicate that the activities of the U.S. affiliate are ancillary to the sale (e.g., arranging transportation or customs clearance, invoicing), we treat the transactions as EP sales. Where the U.S. affiliate has more than an incidental involvement in making sales (e.g., solicits sales, negotiates contracts or prices) or providing customer support, we treat the transactions as CEP sales.

Canadian Steel, 63 FR at 12738.

For sales of seamless pipe products during the POI, TAMSA utilizes the services of two affiliated selling agents in the United States, Siderca Corporation (Siderca) and another affiliate, hereinafter referred to as Company A (the name of Company A is business proprietary information). TAMSA reported, as EP transactions, its seamless pipe sales for which Siderca and Company A served as the importers of record and which were shipped directly from Mexico to the unaffiliated U.S. customer. Conversely, TAMSA reported as CEP transactions the subject merchandise that was stored in Company A's warehouse and later sold out of Company A's inventory. After careful examination of the record, the Department has preliminarily determined that both selling agents, Siderca and Company A, act as more than simply a “processor of sales-related documentation” or “a communication link.” As a result of our analysis, we are reclassifying TAMSA's reported EP sales as CEP sales, as defined in section 772(b) of the Act. Specifically, both Siderca and Company A solicit sales, negotiate the price, obtain customer approval, prepare sales documentation (i.e., invoices), receive payment and forward payment to TAMSA. For a further discussion, see Memorandum Whether to Reclassify Certain EP Sales by Tubos de Acero de Mexico, S.A in the U.S. Market as CEP Sales, dated January 28, 2000, public version, on file in the Central Record Unit (CRU), Room B-099, of the Main Commerce Building.

We based CEP on the packed, cost-insurance-freight (CIF), ex-factory, free-on-board (FOB), or delivered prices to the first unaffiliated customer in the United States, as appropriate. We reduced these prices for discounts and rebates, where appropriate.

In accordance with section 772(c)(2) of the Act, we made deductions, where appropriate, for movement expenses including inland freight from the plant or warehouse to the port of exportation, foreign brokerage, handling and loading charges, international freight, marine insurance, U.S. duties and U.S. inland freight expenses (from port to the customer).

In accordance with section 772(d)(1) of the Act, where appropriate, we deducted from the starting price those selling expenses that related to economic activity in the United States, including direct selling expenses (credit costs, warehousing, and warranties), indirect selling expenses and indirect selling expenses of the affiliated selling agents. We also deducted from CEP an amount for profit in accordance with sections 772(d)(3) and (f) of the Act. See Preliminary Calculation Memorandum, dated January 28, 2000, public version on file in the CRU.

Normal Value

A. Selection of Comparison Markets

Section 773(a)(1) of the Act directs that NV be based on the price at which the foreign like product is sold in the home market, provided that the merchandise is sold in sufficient quantities, and that there is no particular market situation that prevents a proper comparison with the U.S. price. The statute contemplates that quantities normally will be considered insufficient if they are less than five percent of the aggregate quantity of sales of the subject merchandise to the United States.

TAMSA had a viable home market for seamless pipe products, and reported home market sales data for purposes of the calculation of NV.

In deriving NV, we made certain adjustments to price as detailed in the Calculation of Normal Value Based on Home-Market Prices section of this notice, below.

B. Arm's Length Test

Sales to affiliated customers for consumption in the home market which were determined not to be at arm's length were excluded from our analysis. To test whether these sales were made at arm's length, we compared the prices of sales of comparison products to affiliated and unaffiliated customers, net of all movement charges, direct selling expenses, discounts, and packing. Pursuant to 19 CFR 351.403 and in accordance with our practice, where the prices to the affiliated party were on average less than 99.5 percent of the prices to unaffiliated parties, we determined that the sales made to the affiliated party were not at arm's length. See Notice of Final Results and Partial Recission of Antidumping Duty Administrative Review: Roller Chain, Other Than Bicycle, From Japan, 62 FR 60472, 60478 (November 10, 1997) and Antidumping Duties; Countervailing Duties: Final Rule (Antidumping Duties), 62 FR 27295, 27355-56 (May 19, 1997). We included in our NV calculations those sales to affiliated customers that passed the arm's-length test in our analysis. See 19 CFR 351.403; Antidumping Duties, 62 FR at 27355-56.

C. Level of Trade

As set forth in section 773(a)(1)(B)(i) of the Act and in the Statement of Administrative Action (SAA) accompanying the Uruguay Round Agreements Act, H.R. Doc. No. 103-316, at 829-831 (1994), to the extent practicable, the Department will calculate NV based on sales at the same level of trade (LOT) as the U.S. sales.

To determine whether comparison market sales were at different LOTs we examined stages in the marketing process and selling functions along the chain of distribution between the producer and the unaffiliated (or arm's length) customers. If the comparison-market sales were at a different LOT and the differences affected price comparability, as manifested in a pattern of consistent price differences between the sales on which NV is based and comparison-market sales at the LOT of the export transaction, we made a LOT adjustment under section 773(a)(7)(A) of the Act, where appropriate.

In accordance with the Act, we examined the chain of distribution and the selling activities associated with sales reported by TAMSA to its two customer categories in the home market. TAMSA reported three distinct channels of distribution in the home market: (1) Sales to end users; (2) sales to distributors; and (3) sales to one specific end user which received additional services pursuant to a just-in-time agreement. We found that the channels of distribution through the distributors and the first referenced end users differed significantly from the channel to the end user that received additional services as enumerated in the just-in-time agreement. Based on our overall analysis, we found that the home market sales constituted two LOTs: (1) Distributors and end users (LOT 1), and (2) the end user that received additional services pursuant to the just-in-time agreement (LOT 2).

We examined the sales from TAMSA to the two affiliated resellers (i.e., at the constructed, or CEP LOT) and found only one LOT in the U.S. market. This CEP LOT was comparable to the home market LOT 1. For the vast majority of comparisons, we were able to determine NV based on sales of identical merchandise made at the same LOT as the U.S. CEP sales. Accordingly, because we compared U.S. to home market sales at the same LOT, no LOT adjustment was warranted under section 773(a)(7)(A) of the Act. Where there were no identical comparison market sales at the same LOT as the U.S. CEP sales, we compared U.S. sales to identical merchandise sold at the other LOT in the home market and made a LOT adjustment under section 773(a)(7)(A) of the Act. For a detailed description of our LOT analysis and adjustment methodology for these preliminary results, see the January 28, 2000, Antidumping Investigation of Certain Large Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Mexico: Preliminary Level of Trade Findings Memorandum, on file in the CRU.

We note that the U.S. Court of International Trade (CIT) has held that the Department's practice of determining LOTs for CEP transactions after CEP deductions is an impermissible interpretation of section 772(d) of the Act. See Borden, Inc., v. United States, 4 F. Supp. 2d 1221, 1241-42 (CIT 1998) (Borden). The Department believes, however, that its practice is in full compliance with the statute. On June 4, 1999, the CIT entered final judgment in Borden on the LOT issue. See Borden, Inc., v. United States, Court No. 96-08-01970, Slip Op. 99-50 (CIT June 4, 1999). The government has filed an appeal of Borden which is pending before the U.S. Court of Appeals for the Federal Circuit. Consequently, the Department has continued to follow its normal practice of adjusting CEP under section 772(d) prior to starting a LOT analysis, as articulated in the Department's regulations at § 351.412.

D. Calculation of Normal Value Based on Home-Market Prices

We calculated NV based on ex-factory or delivered prices. Pursuant to 19 CFR 351.401(c), we adjusted the gross unit price for discounts and rebates to arrive at the “starting price” for NV. We made deductions from the starting price for inland freight, warehousing, and inland insurance. In addition, we made circumstance-of-sale (COS) adjustments for direct expenses, where appropriate, in accordance with section 773(a)(6)(C)(iii) of the Act. These included imputed credit expenses, warranty expenses, commissions, interest revenue, and performance bond fees. In accordance with sections 773(a)(6)(A) and (B) of the Act, we deducted home market packing costs and added U.S. packing costs. See Preliminary Calculation Memorandum, dated January 28, 2000, public version on file in the CRU.

In accordance with § 351.410(e) of the Department's regulations, where commissions are incurred in one market (in this case the home market), but not in the other, we make an allowance for indirect selling expenses in the other market up to the amount of the commissions granted. In this case, because commissions were paid in the home market, but not in the United States, and thus were deducted from the home market price, we made an adjustment for U.S. indirect selling expenses incurred in Mexico which were associated with sales of the subject merchandise. We made such an adjustment by adding the U.S. indirect selling expenses, up to the amount of the home market commissions, to home market price rather than subtracting them from the CEP.

Currency Conversion

We made currency conversions into U.S. dollars, in accordance with section 773(A) of the Act, based on the exchange rates in effect on the dates of the U.S. sales as certified by the Federal Reserve Bank.

Verification

In accordance with section 782(i) of the Act, we intend to verify all information relied upon in making our final determination.

Suspension of Liquidation

In accordance with section 733(d) of the Act, we are directing Customs to suspend liquidation of all entries of large diameter seamless pipe products from Mexico, that are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register. We are also instructing Customs to require a cash deposit or the posting of a bond equal to the weighted-average amount by which the NV exceeds the CEP, as indicated in the chart below. These instructions suspending liquidation will remain in effect until further notice. The weighted-average dumping margins are provided below.

ITC Notification

In accordance with section 733(f) of the Act, we have notified the ITC of our determination. If our final antidumping determination is affirmative, the ITC will determine whether the imports covered by this determination are materially injuring, or threaten material injury to, the United States industry. The deadline for that ITC determination would be the later of 120 days after the date of this preliminary determination or 45 days after the date of our final determination.

Public Comment

Case briefs for this investigation must be submitted no later than March 16, 2000. Rebuttal briefs must be filed within five days after the deadline for submission of case briefs. A list of authorities used, a table of contents, and an executive summary of issues should accompany any briefs submitted to the Department. Executive summaries should be limited to five pages total, including footnotes.

Section 774 of the Act provides that the Department will hold a hearing to afford interested parties an opportunity to comment on arguments raised in case or rebuttal briefs, provided that such a hearing is requested by any interested party. If a request for a hearing is made in an investigation, the hearing will tentatively be held two days after the deadline for submission of the rebuttal briefs, at the U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230. Parties should confirm by telephone the time, date, and place of the hearing 48 hours before the scheduled time.

Interested parties who wish to request a hearing, or to participate if one is requested, must submit a written request within 30 days of the publication of this notice. Requests should specify the number of participants and provide a list of the issues to be discussed. Oral presentations will be limited to issues raised in the briefs.

If this investigation proceeds normally, we will make our final determination no later than 135 days after the date of publication of this notice in the Federal Register.

This determination is issued and published pursuant to sections 733(f) and 777(i)(1) of the Act.