United States: Significant Changes Proposed To US Department Of Commerce’s Methodology On Market-Economy Purchases In NME Cases

Originally published July 5, 2012

Keywords: Department of Commerce, market-economy purchases, non-market economy, NME

On June 28, 2012, the US Department of Commerce (Commerce) published a notice in the Federal Register proposing to dramatically modify its regulation on the treatment of market-economy purchases in antidumping proceedings involving non-market economy countries (NME cases). Commerce invited public comments on the proposed change (the June 28 Notice).1

In NME cases, as a general rule, surrogate values are used to determine the antidumping margin, irrespective of the foreign NME producer's actual commercial practice. The regulation at issue, 19 C.F.R. § 351.408(c)(1), allows, under certain conditions, an exception to the general rule for the use of NME foreign producers' market-economy purchase prices usually to the subject foreign producer's advantage. However, in the June 28 Notice, Commerce proposes to significantly limit the availability of this exception to producers located in NME countries, by greatly raising the threshold for its application from market economy purchases accounting for 33 percent of total purchases by quantity to 85 percent.

In US antidumping cases, dumping margins are determined by comparing the weighted-average price for US sales charged by the individually examined foreign producer with the "normal value" of the subject merchandise. Because China and Vietnam are considered NME countries by the United States,2 in cases involving these two countries, normal value is calculated by valuing the subject foreign producer's factors of production3 in a "surrogate country," unless Commerce considers an exception to the surrogate value methodology appropriate under the circumstances.

In practice, the use of surrogate values often results in inflated dumping margins for foreign NME producers, sometimes well over 100 percent,4 which renders their continued exports to the United States virtually impossible.

This is because surrogate value suffers from the inherent deficiencies of not being specific to the input at issue and ignoring the business realities of the particular NME producer examined. For the same reason, the market-economy purchase price rule generally confers an opportunity for foreign NME producers to partially mitigate the damages that the application of surrogate values would cause and, therefore, should be closely monitored by those communities dealing with NME exports in the course of their business.

In an NME case, Commerce may value a factor of production using the price paid to a market economy supplier in a market economy currency.5 The proposed rule would change Commerce's practice in situations where the foreign producer purchases only a portion of the factor from market economy suppliers and purchases the remainder from NME sources. As the rule currently stands, Commerce normally will value the entire input using the weighted average price of market-economy purchases, if the share of these purchases as a percentage of the total purchase volume of a particular input is more than 33 percent.6 If the 33 percent threshold is not met,7 Commerce will weight average the weighted-average market economy purchase price with a surrogate value. The proposed rule is intended to revise 19 C.F.R. § 351.408(c)(1) to raise the aforementioned threshold for the use of market-economy purchase price to 85 percent. As Commerce announced, the amended 19 C.F.R. § 351.408(c)(1) would require that the market-economy purchase price be used only if "substantially all of the total volume of the factor is purchased from the market economy supplier(s). For purposes of this provision, the Secretary defines the term â€Üsubstantially all' to be 85 percent or more of the total purchase volume of the factor used in the production of subject merchandise."

Commerce cited only one reason for this dramatic leap from the "meaningful," 33 percent standard to the "substantially all" 85 percent standard: that only if the latter is met, will Commerce have confidence that the price for the input being valued would have been the same had the firm purchased solely from market economy.8 However, when establishing the current threshold in 2006, Commerce quite explicitly found that the 33 percent threshold is "high enough" to confer the same confidence.9 Also, the existing standard of 33 percent is a threshold that Commerce has defended, and the Federal Circuit has upheld in a prior case.10 Given the statutory language on which the Federal Circuit based its decision, the change of course Commerce currently proposes, if it were to be adopted as the final rule, may very well invite future judicial challenge on the ground that it denies the use of "best available information" as required by the statute.

In the June 28 Notice, Commerce also proposed a rule that would require that the input at issue be produced in one or more market economy countries. Purchases from a market-economy reseller of an input produced in an NME country would not qualify as market economy purchases for the purposes of the rule. However, this would only codify a practice that Commerce has adopted since 2004,11 and, thus, would be unlikely to have any real-world impact if adopted as part of Commerce's regulation.

Before adopting the 33 percent threshold in October 2006, Commerce published, on May 26, 2005, August 11, 2005, and March 21, 2006, three notices requesting comment on its market economy purchase methodology in NME cases. Commerce similarly seeks comments on the proposed change in its June 28 Notice. Given the potential significant impact the proposed change in Commerce's market economy purchase methodology may have on the final antidumping margins, NME export communities should seriously consider submitting comments before the July 30, 2012 deadline set forth by Commerce. Also, foreign producers that are located in an NME country and are subject to a present or pending antidumping order, should start assessing the proposed rules' implications for their plans to purchase a production factor from market economies, in whole or in part, to prepare for the contingency that the proposed change were adopted as the final rule.

Footnotes

1 See Proposed Modification to Regulation Concerning the Use of Market Economy Input Prices in Nonmarket Economy Proceedings, 77 Fed. Reg. 38553 (Jun. 28, 2012).

2 Commerce considers Belarus, Georgia, the Kyrgyz Republic, the People's Republic of China, the Republic of Armenia, the Republic of Azerbaijan, the Republic of Moldova, the Republic of Tajikistan, the Republic of Uzbekistan, the Socialist Republic of Vietnam, and Turkmenistan to be non-market economies.

3 Simply put, "factors of production" are the raw material, energy, labor, and packing that are consumed to manufacture one unit of the product subject to the antidumping investigation or administrative review.

4 See, e.g., Certain Woven Electric Blankets from the People's Republic of China: Amended Final Determination of Sales at Less Than Fair Value, 75 Fed. Reg. 46911 (Aug. 4, 2010).

5 19 C.F.R. § 351.408(c)(1).

6 See Antidumping Methodologies: Market Economy Inputs, Expected Non-Market Economy Wages, Duty Drawback; and Request for Comments, 71 FR 61716 (October 19, 2006).

7 Commerce may find a market economy purchase ineligible to be included in the 33-percent threshold calculation for reasons such as that it disregards all input values that may be reasonably suspected of being dumped or subsidized. See Antidumping Methodologies: Market Economy Inputs, Expected Non-Market Economy Wages, Duty Drawback; and Request for Comments, 71 Fed. Reg. 61716 (Oct. 19, 2006).

8 June 28 Notice, 77 Fed. Reg. 38553, at 38554.

9 See Antidumping Methodologies: Market Economy Inputs, Expected Non-Market Economy Wages, Duty Drawback; and Request for Comment, 71 Fed. Reg. 61716, 61718 (Oct. 19, 2006).

10 Shakeproof v. United States, 268 F.3d 1376, 1382 (Fed. Cir. 2001) ("[T]he valuation of the factors of production shall be based on the best available information regarding the values of such factors in a market economy country or countries considered to be appropriate by the administering authority.").

11 See Final Determination: Polyethylene Retail Carrier Bags from the PRC, 69 FR 34125 (June 18, 2004) and accompanying Issues and Decision Memorandum, at Comment 20.

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