E6-4069. Market Economy Inputs Practice in Antidumping Proceedings involving Non-Market Economy Countries

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Request for Comments

SUMMARY:

The Department of Commerce (“the Department”) is considering amending its regulations with respect to the use of market economy inputs in the calculation of normal value in antidumping proceedings involving non-market economy (“NME”) countries. Specifically, in cases where an NME producer sources an input from both market-economy suppliers and from within the NME, this regulatory change would increase the Department's flexibility to value the input by weight-averaging the market economy purchase price with an appropriate surrogate value. The Department also intends to introduce an interim change in its practice that is consistent with the Department's regulations. Interested parties are invited to comment on these proposals.

DATES:

Comments must be submitted by April 19, 2006.

ADDRESSES:

Written comments (original and six copies) should be sent to David Spooner, Assistant Secretary for Import Administration, U.S. Department of Commerce, Central Records Unit, Room 1870, Pennsylvania Avenue and 14^th Street NW., Washington, DC, 20230.

FOR FURTHER INFORMATION CONTACT:

Lawrence Norton, Economist, or Anthony Hill, Senior International Economist, Office of Policy, Import Administration, U.S. Department of Commerce, 14^th Street and Constitution Avenue, NW, Washington DC, 20230, 202-482-1579 or 202-482-1843, respectively.

SUPPLEMENTARY INFORMATION:

Background

In antidumping proceedings involving NME countries, the Department calculates normal value by valuing the NME producers' factors of production, to the extent possible, using prices from a market economy that is at a comparable level of economic development and that is also a significant producer of comparable merchandise. The goal of this surrogate factor valuation is to use the “best available information” to determine normal value. See section 773(c)(1) of the Tariff Act of 1930 (“the Act”); Shangdong Huraong General Corp. v. United States, 159 F. Supp.2d 714, 719 (CIT 2001). Where an NME producer purchases inputs from market economy suppliers and pays in a market economy currency, however, the Department normally uses the average actual price paid by the NME producer for these inputs to value the input in question, where possible. See 19 CFR 351.408(c)(1); see also Final Determination of Sales at Less Than Fair Value: Oscillating Fans and Ceiling Fans from the People's Republic of China, 56 FR 55271, 55274-75 (October 25, 1991). Where a portion of the input is purchased from a market economy supplier and the remainder from a non-market economy supplier, the Department will normally use the price paid for the inputs sourced from market economy suppliers to value all of the input¹, provided the volume of the market economy inputs as a share of total purchases from all sources is “meaningful,” a term used in the Preamble to the Regulations but which is interpreted by the Department on a case-by-case basis. See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27366 (May 19, 1997) (Preamble). See also Shakeproof v. United States, 268 F.3d 1376, 1382 (Fed. Cir. 2001) (Shakeproof). This market economy input price must also reflect arms-length, bona fide sales. See Shakeproof, 268 F.3d at 1382-83.

Additionally, the Department disregards market economy input purchases when the prices for such inputs may be distorted or when the facts of a particular case otherwise demonstrate that market economy input purchase prices are not the best available information. For example, the Department disregards all input values it has reason to believe or suspect might be dumped or subsidized. See China National Machinery Import & Export Corporation v, United States, 293 F. Supp. 2d 1334 (CIT 2003), as aff'd by 104 Fed. Appx. 183 (Federal Circuit, July 9, 2004). The Department has also disregarded the prices of inputs that could not possibly have been used in the production of subject merchandise during the period of investigation or review. See, e.g., Final Determination of Sales at Less Than Fair Value: Certain Frozen and Canned Warmwater Shrimp from the Socialist Republic of Vietnam, 69 FR 71005 (December 8, 2004). The Department further does not accept market economy input purchase prices when the input in question was produced within an NME. See Final Determination of Sales at Less Than Fair Value: Polyethylene Retail Carrier Bags from the People's Republic of China, 69 FR 34125 and the accompanying issues and decision memorandum at Comment 20 (June 18, 2004).

The Department published on May 26 and on August 11 two notices in the Federal Register requesting comment on its market economy inputs practice in NME cases (70 FR 30418 and 70 FR 46816, respectively). Drawing on the many submissions the Department has received in response to these notices, the Department is currently considering revised proposals. Under the first of these revised proposals, the Department would amend its regulations to give it greater discretion to weight average market economy input purchase prices with standard surrogate values when NME producers source an input both domestically and from market economy suppliers based upon the facts of a given case. This change would remove the regulatory requirement that the Department “normally” use market economy input prices to value an entire input and allow the Department more flexibility to consider whether the standard surrogate value is the best available information to value the domestically purchased input. Under the second of these revised proposals, the Department would institute a rebuttable presumption that market economy input prices are the best available information for valuing an entire input when the portion of the input purchased from market economy sources exceeds 33%% of the total volume of the input. This would be consistent with our current regulations directing the Department to “normally” use market economy input prices to value an entire input.

These two proposals would affect the Department's practice in cases where NME firms purchase a portion of a given input from a market economy and source the remainder domestically. In such cases, the Department must determine what the best available information is for valuing the NME-produced portion of the input, i.e., the Department must continue to find an appropriate surrogate value. Whether the best available information to value the NME-produced portion of the input is the price of the firm's market economy input purchases or another surrogate value is a decision that should be made by the Department on a case-by-case basis.

While market economy purchase prices do constitute the best available information for the portion of an input sourced from a market economy, these prices may not always provide the most accurate valuation for the portion of an input that is produced from within the NME. While it may be unduly rigid to rule out using market economy purchase prices to value an entire input if the portion involved were lower than a particular threshold, neither can the Department automatically assume market economy purchases constitute the best available information to value the portion of the input produced in the NME. In some cases, the best available information is indeed the market economy purchase price. In other cases it may not be, and a standard surrogate value would constitute the best available information for the NME-produced portion of the input. For example, if the market economy price for an input varied dramatically over the period of investigation or review, and the NME firm only purchased from market economy sources when the market price was very low (and otherwise purchased from NME suppliers), the Department might determine that a specific, period-wide surrogate value would constitute a better surrogate value for the portion of the input that was produced from within the NME. While market economy input purchase prices present a valid price for the market economy purchases that an NME firm actually made, and the Department should use this data whenever possible to value the portion of the input purchased from market economy sources, these prices may not always be the best available information for valuing the portion of the input produced within the NME.

From the foregoing discussion, there is reason to believe that the most accurate approach would be to make case-by-case determinations concerning whether a market economy input purchase price or an alternative surrogate value constitutes the best available information for valuing the portion of an input that is produced within the NME. The regulations prescribe a preference, however, for the use of market economy input purchase prices, when they are available, over the use of traditional surrogate values. Under the regulations, the Department “normally” uses market economy input purchase prices to value an entire input when they are available, which has the effect of favoring market economy purchase prices over surrogate values and in some cases unnecessarily excludes surrogate values, even when a surrogate value might provide a more accurate valuation for the portion of the input that is produced within the NME. Therefore, the Department is considering beginning the formal procedures for amending its regulations to increase the Department's discretion to use surrogate values to value the NME-produced portion of an input. This regulatory change would increase the Department's flexibility to weight average the market economy input purchase price with an appropriate surrogate value for the NME-produced portion of the input to determine the overall value to be used for the input.

Because amending the regulation will be a lengthy process, the Department also intends to introduce an interim change in its practice that is consistent with the Department's regulations. Under this interim change, the Department would clarify that the term “meaningful,” as discussed in the Preamble, will be interpreted by the Department as being 33 percent or more of the total volume of the input used in production of the subject merchandise, unless there are case-specific reasons to conclude otherwise. In other words, the Department would institute a flexible, rebuttable presumption that when market economy input purchases are 33 percent or more of the total volume of an input, the market economy input purchase prices represent the “best available information” to value the entire input. Where market economy input purchases constitute less than 33 percent of the total volume of the input in question, the Department's rebuttable presumption is that the market economy input purchases do not represent the “best available information” to value the input. Instead, the Department would weight average the market economy purchase prices with an appropriate surrogate value, unless parties present evidence that the market economy purchase value constitutes the best available information to value the NME-produced portion of the input. Introducing such a flexible percentage threshold for accepting market economy purchase prices to value an entire input would improve the accuracy and predictability of the Department's current practice. The higher the ratio of the market economy-sourced portion to that produced in the NME, the more confident the Department can be that the market economy purchase prices are indeed representative of the value of the entire input.

The flexibility of the standard would allow the Department to continue to meet its statutory obligation to use the best available information while providing guidance to the public as to how normal value will be determined in such circumstances. In addition, the proposed standard of 33 percent is consistent with a threshold that the Department has defended, and the Court has upheld, as constituting a “meaningful” quantity in a prior case. See Shakeproof, 268 F.3d at 1382-83. A standard of 33 percent also balances two competing concerns. First, this standard would reduce the likelihood that special arrangements or short-term price fluctuations might seriously distort the valuation of the input in that the Department will only accept these prices to value the entire input when they constitute such a meaningful share of the total volume of the input. Second, a flexible 33-percent standard is consistent with our regulatory standard to “normally” use these prices. We believe there is merit in establishing general guidance on when the Department will use market economy input purchases to value an entire input and when it will rely instead on surrogate values. As discussed above, the only existing guidance on this point (beyond that developed through the Department's practice, e.g., the requirement that the input purchased from a market economy not be dumped or subsidized) is mentioned in the Preamble to the regulations, which indicates that the quantity involved should be “meaningful.” Such vague guidance may create an unnecessary level of uncertainty for both the Department and parties about how the Department will value a given input that an NME firm purchases both domestically and from market economy suppliers.

The Department welcomes comments on both pursuing a change in the Department's regulations and on adopting, on an interim basis, a flexible, percentage-based rebuttable presumption with respect to the use of market economy purchase prices to value a factor of production for an NME firm that purchases the input both domestically and from market economy sources. If the Department adopts such an interim approach, is 33 percent of the total volume of the input used in the production of the subject merchandise an appropriate level for this standard?

Comments

Persons wishing to comment should file a signed original and six copies of each set of comments by the date specified above. The Department will consider all comments received before the close of the comment period. Comments received after the end of the comment period will be considered, if possible, but their consideration cannot be assured. The Department will not accept comments accompanied by a request that a part or all of the material be treated confidentially because of its business proprietary nature or for any other reason. The Department will return such comments and materials to the persons submitting the comments and will not consider them in the development of any changes to its practice. The Department requires that comments be submitted in written form. The Department recommends submission of comments in electronic form to accompany the required paper copies. Comments filed in electronic form should be submitted either by e-mail to the webmaster below, or on CD-ROM, as comments submitted on diskettes are likely to be damaged by postal radiation treatment.

Comments received in electronic form will be made available to the public in Portable Document Format (PDF) on the Internet at the Import Administration website at the following address: http://ia.ita.doc.gov/​.

Any questions concerning file formatting, document conversion, access on the Internet, or other electronic filing issues should be addressed to Andrew Lee Beller, Import Administration Webmaster, at [phone], email address: [e-mail].

Dated: March 15, 2006.

David M. Spooner,

Assistant Secretary for Import Administration.

Footnotes

1.  See 19 CFR 351.408(c)(1)