                        Slip Op. 00-

        UNITED STATES COURT OF INTERNATIONAL TRADE

___________________________________
                                  :
U.S. STEEL GROUP - A UNIT OF USX :
CORPORATION, and BETHLEHEM STEEL :
CORPORATION,                      :
                                  :
          Plaintiffs,             :
                                  :
          v.                      :    Court No. 97-06-01015
                                  :
THE UNITED STATES,                :
                                  :    Public Version
          Defendant,              :
                                  :
          and                     :
                                  :
ALGOMA STEEL, INC.,               :
                                  :
          Defendant-Intervenor.   :
__________________________________:

[Commerce Antidumping Review Determination Sustained.]

                                  Dated:   August 15, 2000


     Skadden, Arps, Slate, Meagher & Flom LLP (Robert E.
Lighthizer, Daniel L. Schneiderman, Stephen Munroe, John J.
Mangan, and Ellen Schneider) for plaintiffs.

     David W. Ogden, Assistant Attorney General, David M.
Cohen, Director, (Velta A. Melnbrencis), Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice, Thomas H. Fine, Office of the Chief
Counsel for Import Administration, United States Department of
Commerce, of counsel, for defendant.

     Hogan & Hartson L.L.P. (Mark S. McConnell, Craig A.
Lewis, Stephen F. Propst and Behnaz L. Kibria) for defendant-
intervenor.
COURT NO. 97-06-01015                                        PAGE 2


                             OPINION

    RESTANI, Judge:     This matter is before the court on

plaintiffs’ USCIT Rule 56.2 motion for judgment on the

administrative record.    Plaintiffs, domestic steel companies,

challenge the final determination in Certain Corrosion-

Resistant Carbon Steel Flat Products and Certain Cut-to-Length

Carbon Steel Plate from Canada, 62 Fed. Reg. 18,448 (Dep’t

Commerce 1997) (final results of antidumping duty admin.

review) [hereinafter “Final Results”].    At issue therein was

the second review period of August 1, 1994 through July 31,

1995.

    Plaintiffs request application of adverse facts available

pursuant to 19 U.S.C. § 1677e(b) (1994) on the basis that

Algoma Steel, Inc. failed to provide cost information

requested by the United States Department of Commerce

(“Commerce” or “the Department”).    Alternatively, plaintiffs

request a remand for a new review because the information

accepted by Commerce was unreasonably distorted.

              Jurisdiction and Standard of Review

    The court has jurisdiction under 28 U.S.C. § 1581(c)

(1994).   In reviewing final determinations in antidumping duty

determinations, the court will hold unlawful those agency
COURT NO. 97-06-01015                                       PAGE 3


determinations which are unsupported by substantial evidence

on the record, or otherwise not in accordance with law.     19

U.S.C. § 1516a(b)(1)(B)(i) (1994).

                           Background

    During the administrative review, Commerce requested that

Algoma respond to the cost of production ("COP") portion of

section D of Commerce's questionnaire.   Antidumping

Questionnaire (Sept. 14, 1995), at 1, P.R. Doc. 9, Pls.’ App.,

Tab 4, at 1.   Section D requested Algoma (1) to report COP

figures based on the actual costs incurred by Algoma during

the period of review ("POR") as recorded under its normal

accounting system; and (2) to calculate the reported COP

figures on a weighted-average basis using model-specific

production quantity as the weighting factor.   Id. at D-1 to D-

2, Pls.’ App., Tab 4, at 2-3.   If Algoma produced the

merchandise under review at more than one facility, it was to

report COP based on the weighted-average of costs incurred at

all facilities.   Id. at D-2, Pls.’ App., Tab 4, at 3.    Algoma

explained in its responses to Commerce's original and

supplemental questionnaires, that it was not reporting COP

based on the weighted-average costs incurred at each of its

two rolling mills.   Algoma’s Response to Section B of

Questionnaire (Nov. 22, 1995), at B-59 to B-60, P.R. Doc. 43,
COURT NO. 97-06-01015                                       PAGE 4


Pls.’ App., Tab 5, at 8-9; Algoma’s Response to Sections A, B

and C of Supplemental Questionnaire (Jan. 19, 1996), at 34,

P.R. Doc. 53, Pls.’ App., Tab 7, at 3.

    Algoma produced all plate sold during the POR at its

facility in Sault Ste. Marie, where most of the slab was

rolled into plate on the 166" Plate Mill ("plate mill").

Response to Section B, at B-59, Pls.’ App., Tab 5, at 7.        For

approximately 20 percent of the total Canadian and U.S. sales

reported, however, slab was rolled into plate on Algoma’s 106"

Wide Strip Mill ("strip mill").   Id.    According to Algoma, it

was not in a position to report actual rolling costs for the

subject merchandise at each mill because (1) its cost

accounting system computed one average rolling cost for all

products rolled on the plate mill and one average rolling cost

for all products on the strip mill; (2) less than five percent

of the sales of products rolled on the strip mill during the

POR would be considered plate based upon Commerce's

width/gauge definition for subject merchandise; and (3) Algoma

had no records that would permit direct calculation of costs

incurred at the strip mill that related only to plate defined

by Commerce as subject merchandise.     Id., at B-59 to B-60,

Pls.’ App., Tab 5, at 7-8.

    It appeared to Algoma that it had two options to
COURT NO. 97-06-01015                                        PAGE 5


calculate rolling costs for the plate rolled at the strip

mill:     either (1) assign the average cost of the strip mill to

the small fraction (less than five percent) of products

produced there that constituted subject merchandise; or (2)

assign the average rolling cost of the plate mill to all

plate.     Response to Sections A, B, and C, at 34, Pls.’ App.,

Tab 7, at 3.     It appears that the first option would not have

been an appropriate choice, because less than five percent of

the products rolled on the strip mill during the POR consisted

of subject merchandise.     Thus, an attempt to allocate costs of

the strip mill to the small fraction of the subject

merchandise produced on that mill would have been a relatively

speculative exercise because virtually all of the cost of the

mill relates to non-subject merchandise sheet products.      See

id.     The second option appeared to be a good substitute

because it was a conservative cost approach because, during

the POR, the cost of producing plate on the strip mill was

substantially less than the cost of producing plate on the

plate mill. Id.1



      1Higher costs are usually adverse to the respondent.
Substantial below cost sales may result in use of cost-based
constructed value instead of actual price and a high
constructed value will result in a larger antidumping duty
margin. See 19 U.S.C. § 1677b(b) (1994) and infra, note 3.
COURT NO. 97-06-01015                                       PAGE 6


    Algoma chose the second option.     It reported estimated

weighted-average rolling costs based upon the actual rolling

costs incurred at the plate mill.     To allocate these costs to

specific products, Algoma developed a "productivity matrix"

(or production factors) based upon the length of time it took

to produce a product of a specific width and thickness on each

mill. Response to Section B, at B-57, Pls.’ App., Tab 5, at 5.

For each product (i.e., "CONNUM"), Algoma weight-averaged the

productivity factor for the plate mill with the productivity

factor for the strip mill to derive a composite productivity

factor.   Id. at B-58, Pls.’ App., Tab 5, at 6.    Algoma then

applied these composite productivity factors to the average

cost of production on the plate mill to derive product

specific costs for all CONNUMs.     Id. at B-56 to B-59, Pls.’

App., Tab 5, at 4-7.

    At verification, Commerce examined the issue of the two

mills in great detail, including Algoma's analysis of plate

mill versus strip mill rolling costs.     Verification of

Algoma’s Cost Response (Aug. 12, 1996), at 10-13, P.R. Doc.

112, Def.’s App., Ex. 1, at 10-13.     At verification, Algoma

explained that, although it did not track width and gauge for

costing purposes in the normal course of business, it did have

sensors that can track the length of time that a slab product
COURT NO. 97-06-01015                                        PAGE 7


spends on the mill and that slabs were time stamped for both

the plate mill and the strip mill.      Id. at 11, Def.’s App.,

Ex. 1, at 11.     After the slabs were time stamped, the data was

entered into a mill performance data base, from which Algoma

selected the weight and time data for slabs produced during

the POR and those rolled to plate gauges and sorted the slabs

by CONNUMs.     Id.   Commerce verifiers examined a summary of the

mill performance data base for both mills, which showed the

percentages of the plate mill production and of the strip mill

production that were captured by the data base.      The verifiers

were able to tie the volume and value amounts to process cost

sheets for both mills.      Id. at 11-12, Def.’s App., Ex. 1, at

11-12.

    Based upon Algoma's responses and the results of the

verification, Commerce accepted Algoma's reported costs,

stating in pertinent part:

    Algoma's cost reporting methodology is reasonable,
    considering (1) we verified its cost accounting
    system, (2) Algoma's verified inability to determine
    specific rolling costs based upon the gauge of the
    material being manufactured at either facility, (3)
    the conser- vative methodology adopted by Algoma and
    verified by the Department, and (4) respondent's
    compliance with Department instructions on cost
    reporting methodology in this review.

Final Results, 62 Fed. Reg. at 18,451.
COURT NO. 97-06-01015                                          PAGE 8


                             Discussion

    Commerce’s decision not to apply facts available to

Algoma for the first administrative review period based on

this exact reporting methodology was sustained in Bethlehem

Steel Corp. v. United States, No. 96-05-01313, 2000 WL

726931, at *2-5 (Ct. Int’l Trade June 2, 2000).     The reasoning

of that decision on this point is adopted here.     Whatever

one’s view of Commerce’s decision to accept Algoma’s

methodology, Commerce did accept it here and accepted it

previously.   Further, there is no allegation that Algoma

deceived Commerce or somehow tricked Commerce into accepting a

faulty methodology.     Thus, Algoma cannot be penalized under 19

U.S.C. § 1677e(b) by the use of adverse facts available for

failing to comply to the best of its ability.     Algoma gave

Commerce exactly what was requested after Commerce’s final

decision on what it would accept.

    The next issue is whether remand for a new review is

required because the methodology was distortive.     First, the

fact that Commerce accepted a different methodology

(essentially an expanded productivity matrix) in a subsequent

review is irrelevant.     Many methodologies may be acceptable.

The only real basis for objecting to this methodology hinges
COURT NO. 97-06-01015                                        PAGE 9


on its effect on the difference in merchandise (“DIFMER”)2

adjustment.

    Commerce was aware that accepting some high costs (as

indicated, normally adverse to the respondent) might cause

DIFMER adjustments more favorable to respondents, but it

reasonably concluded that COP allocation issues were

paramount.3   Final Results, 62 Fed. Reg. at 18,451.   The


    2  It is well recognized that, in calculating margins, it
is not always possible to compare the product sold in the
United States to an identical product sold in the home market.
If there is no identical product in the home market, the
statute directs the Department to base its margin calculation
on the next most similar product. 19 U.S.C.A. § 1677(16)
(West Supp. 1999). The statute recognizes, however, that an
adjustment to price is necessary to account for the fact that
the price of the home market product and the price of the U.S.
market product will reflect the different costs associated
with their different physical characteristics. 19 U.S.C.
§ 1677b(a)(6)(C)(ii), referring to 19 U.S.C.A. § 1677(16)(B)
or (C). The DIFMER adjustment is used to eliminate this cost
difference and to permit a fair comparison of the two prices.
    3  In this case the DIFMER issue relates only to rolling
costs and not to all costs, so that the DIFMER distortion
would have to be quite significant to affect the outcome. On
the other hand, the COP calculation is central to any
antidumping review. Higher cost numbers tend to lead to
higher normal values, and thus higher antidumping margins.
Sales at prices below cost in the home market are subject to
being eliminated from the calculation of normal value. See 19
U.S.C. § 1677b(b)(1). Higher costs thus tend to remove low
priced sales, increasing normal value and increasing
antidumping margins. Further, where there are no sales above
cost for a given home market product, U.S. sales will be
compared to constructed value, not home market prices. See
id. & see 19 U.S.C. § 1677b(a)(4). And constructed value
                                                (continued...)
COURT NO. 97-06-01015                                      PAGE 10


parties disagree as to the number of sales comparisons

affected by a possible DIFMER distortion and the magnitude of

the potential distortion.   The court concludes, however, that

no possible factual scenario in this record could render

Commerce’s choice unreasonable or not supported by the record.

    First, while Commerce attempts to use the most directly

related costs of production as reported by respondents, see 19

U.S.C. § 1677b(f)(1)(A), sometimes allocations are required.

As recognized in Bethlehem whenever Commerce:

    relies on a respondent’s other, existing data to
    ascertain the cost of production, a petitioner may argue
    that they distort the DIFMER. But the law does not
    require reliance on actual costs, and the record
    indicates that the [Department] made a reasonably
    accurate assessment of the costs in this case, thereby
    minimizing any arguable distortion.

Bethlehem, 2000 WL 726931, at *5.4



    3(...continued)
itself is largely composed of a respondent’s costs, so higher
costs again will tend to increase dumping margins. See 19
U.S.C. § 1677b(e).
    4     Section 1677b(f)(1)(A) reflects Commerce’s long
established preference for using a respondent’s most directly
related reported costs. See 19 U.S.C. § 1677b(f)(1)(A).
Commerce, however, is not required to use costs reflected in
respondent’s records which are distortive. See Thai Pineapple
Public Co. v. United States, 187 F.3d 1362, 1366 (Fed. Cir.
1999), cert. denied, 120 S.Ct. 1830 (2000) (stating that
agency may accept records kept according to generally accepted
accounting principles or reject records which would distort
company’s true costs).
COURT NO. 97-06-01015                                    PAGE 11


    Second, Commerce’s view that in this case the DIFMER

issue likely could affect an extremely small portion of the

sales comparison is supported.5   Commerce reasonably decided

not to require a different cost allocation methodology based

on the possibility of a DIFMER distortion for a few sales.

The court finds the remainder of plaintiffs’ arguments are

without merit.




    5  In this case, [] of Algoma’s [] sales of subject
merchandise in the United States were matched to non-identical
products sold in the home market. Final Analysis Memorandum
(Apr. 3, 1997), at 1, C.R. Doc. 82, Pls.’ App., Tab 16, at 1.
In all of these [] non-identical matches, the U.S. product was
classified within a CONNUM that was produced only on the plate
mill. See Comparison of U.S. Products Matched to Non-
Identical Home Market Sales, Def. Int.’s App., Ex. 4.
Furthermore, [] of these U.S. transactions were matched to
home market products within CONNUMs that were produced only on
the plate mill. Id. (Plaintiffs contend that the [] sales
implicate strip mill costs based on petitioners’ method of
allocation of costs, but Commerce is not barred from testing
the hypothetical potential for DIFMER distortion based on full
CONNUM information.) For DIFMER on the [] transactions,
therefore, Commerce could conclude strip mill costs are
irrelevant. Thus, Commerce also could conclude that if Algoma
were to use a methodology that allocated strip mill costs to
the product categories that were produced on that mill, no
costs would be allocated to the CONNUMs involved in these []
transactions, because the strip mill did not produce any
products that are classified in those CONNUMs. See Final
Analysis Memorandum, at 1-2, Pls.’ App., Tab 16, at 1-2.
COURT NO. 97-06-01015                                     PAGE 12


    Accordingly, Commerce’s determination is sustained.




                              _______________________
                                   Jane A. Restani
                                        Judge

Dated:   New York, N.Y.

         This 15th day of August, 2000.
