Federal Register: May 9, 2008 (Volume 73, Number 91)
DOCID: fr09my08-34 FR Doc E8-10527
DEPARTMENT OF COMMERCE
International Trade Administration
NOTICE: NOTICES
DOCID: fr09my08-34
ACTION: Antidumping Methodologies:
DOCUMENT ACTION: Request for comment.
SUBJECT CATEGORY:
Antidumping Methodologies for Proceedings that Involve Significant Cost Changes Throughout the Period of Investigation (POI)/ Period of Review (POR) that May Require Using Shorter Cost Averaging Periods; Request for Comment
DATES: Comments must be submitted within thirty days from the publication of this notice.
DOCUMENT SUMMARY:
The Department of Commerce (Department) seeks public comment
on its development of a predictable methodology for determining when
the use of shorter cost averaging periods is more appropriate than the
established practice of using annual cost averages due to the
occurrence of significant cost changes throughout the POI/POR. Although
the Department maintains that the established practice of using annual
cost averages is the most appropriate methodology to use in a majority
of proceedings, it may be preferable to use an alternative methodology
in certain cases. The Department now seeks comments from the public on
the factors to consider, the tests to apply, and the thresholds to
adhere to in determining whether or not shorter cost averaging [[Page 26365]]
periods (e.g., quarterly) are more appropriate.
SUMMARY:
Proceedings that involve significant cost changes throughout the period of investigation that may require using shorter cost averaging periods;; Request for Comment,
SUPPLEMENTAL INFORMATION
Background
The Department's methodology for calculating the cost of manufacture (COM) of subject merchandise in lessthanfairvalue investigations and antidumping administrative reviews is based on the cost over the entire POI or POR (i.e., on an annual basis). This yearly based methodology results in a normalized, weightedaverage production cost that can then be compared to sales prices covering the same extended period of time. Therefore, the Department's questionnaire requests that all respondents report their costs of producing merchandise on an annual average basis over the entire POI or POR. See, e.g., Certain Pasta from Italy: Final Results of Antidumping Duty Administrative Review, 65 FR 77852 (Dec. 13, 2000) (Pasta from Italy), and accompanying Issues and Decision Memorandum at Comment 18 and Notice of Final Results of Antidumping Duty Administrative Review of Carbon and Certain Alloy Steel Wire Rod from Canada, 71 FR 3822 (Jan. 24, 2006) (Wire Rod from Canada), and accompanying Issues and Decision Memorandum at Comment 5 (explaining the Department's practice of computing a single weightedaverage cost for the entire period). This methodology is predictable and generally applied consistently in all proceedings.
The Tariff Act of 1930, as amended (the Act), and the Department's
regulations describe the role of the cost of production (COP) in the
Department's antidumping analysis. ``Dumping'' is defined in section
771(34) of the Act as the sale or likely sale of goods at less than
normal value (NV) in the United States. A ``dumping margin,'' as
defined by section 771(35)(A) of the Act, is the amount by which the NV
exceeds the export price (EP) or constructed export price (CEP) of the
subject merchandise. In calculating NV, section 773(a)(1)(B) of the Act
states that the Department will consider only those sales in the
comparison market that are made in the ``ordinary course of trade.''
Section 771(15) of the Act and 19 CFR 351.102 explain that sales are
generally made ``in the ordinary course of trade'' if they are sold
under ``conditions and practices which, for a reasonable period of time
prior to the exportation of the subject merchandise, have been normal''
for sales of the foreign like product.\1\ None of these provisions
provides guidance on the methodology which the Department should use in calculating a respondent's COP.
\1\ Section 773(b)(1) of the Act states that if no sales made in
the ordinary course of trade remain, the normal value shall be based
on the constructed value (CV) of the merchandise. See also 19 CFR
351.405(a). CV is defined at section 773(e) of the Act as the cost
of materials, plus fabrication expenses, selling, general and administrative expenses, profit and packing expenses.
Furthermore, section 773(b)(1) of the Act and 19 C.F.R. 351. 406
provide that sales may be disregarded if they have been made at prices
which represent less than the COP of that product. Section 773(b)(3) of the Act defines the COP as:
an amount equal to the sum of
(A) the cost of materials and of fabrication or other
processing of any kind employed in producing the foreign like
product, during a period which would ordinarily permit the
production of that foreign like product in the ordinary course of business;
(B) an amount for selling, general, and administrative expenses
based on actual data pertaining to production and sales of the foreign like product by the exporter in question; and
(C) the cost of all containers and coverings of whatever
nature, and all other expenses incidental to placing the foreign like product in condition packed ready for shipment.
Thus, although the Act states that the COP is calculated using a ``period which would ordinarily permit the production'' of the foreign like product, no guidance is given with regard to whether or not the Department should use only a single, weightedaverage period of time, or multiple time periods within that ``production period'' for purposes of making comparisons and calculating a dumping margin.
The Department has established a practice of using a single weightedaverage COP that applies to the entire POI/POR, which it has applied in the vast majority of its investigations and reviews. Factors such as erratic production levels, the extent to which and how accurately monthly accruals are made, periodic maintenance, inventory valuation methods, etc. all impact the timing and accuracy of perunit costing over short periods of time. Relying on an annual average cost tends to smooth out these shortterm perunit cost fluctuations resulting in a normalized average production cost to be compared to sales prices over the same extended period of time. See Color Television Receivers from the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 55 FR 26225, 26228 (June 27, 1990) (where the Department stated that the use of quarterly data would cause aberrations due to shortterm cost fluctuations) and Grey Portland Cement and Clinker From Mexico; Final Results of Antidumping Duty Administrative Review, 58 FR 47253, 47257 (September 8, 1993) (where the Department explained that the annual period used for calculating costs accounts for any seasonal fluctuation which may occur as it accounts for a full operation cycle).
The Department has, however, in a limited number of cases, deviated from its normal methodology of calculating costs on an annual average basis over the entire POI/POR and resorted to shorter cost averaging periods. Examples of instances where the Department departed from its standard cost averaging period include high technology products that experienced significant and consistent cost and price changes over a short period of time. See Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909, 8926 (Feb. 23, 1998) (SRAMS from Taiwan) (where the Department determined that quarterly, rather than annual, averages resulted in a more accurate comparison of pricing behavior during the period of investigation (POI) given the significant decrease in the price and cost of static random access memory semiconductors throughout the POI) and Final Determination of Sales at Less Than Fair Value: Erasable Programmable Read Only Memories from Japan, 51 FR 39680, 39685 (Oct. 30, 1986) (EPROMS from Japan) (where the Department found that significant changes in the COP during a short period of time due to technological advancements and changes in the production process justified the use of quarterly weightedaverage costs).
The Department also found that shorter period averages resulted in
a more accurate comparison of pricing behavior where the respondent's
COM changed significantly throughout the cost reporting period. In Final Results of Antidumping Duty Administrative
[[Page 26366]]
Review and Determination Not to Revoke the Antidumping Duty Order:
Brass Sheet and Strip from Netherlands, 65 FR 742 (Jan. 6, 2000) (Brass
Sheet and Strip from Netherlands), the Department was able to make a
contemporaneous comparison of metal values and sales prices which
resulted in a more accurate calculation of the dumping margin in that
instance because the respondent treated the cost of the input metals as
a passthrough to its customers in its normal books and records. See
id. at 747748. Accordingly, in Brass Sheet and Strip from Netherlands,
the Department determined it appropriate to deviate from calculating
cost on an annual average basis over the entire cost reporting period
because record evidence showed that the cost of metal inputs
represented a significant percentage of the total cost of producing
brass sheet and strip, the cost of the metal inputs dropped
consistently and significantly throughout the POR, and prices and costs for the shorter periods could be accurately matched.\2\
\2\ The Department also deviated from its practice of using POR
average costs in Notice of Final Results of Antidumping Duty
Administrative Review: Canned Pineapple Fruit From Thailand, 63 FR
7392 (Feb. 13, 1998). In this case the POR covered an 18month
period. For purposes of calculating the dumping margin, the
Department initially used the PORwide weightedaverage cost.
However, the Department later matched the sales and costs by
segregating the POR into two fiscal years for purposes of its
dumping analysis. See Final Results of Redetermination Pursuant to
United States Court of International Trade Remand Order Thai
Pineapple Canning Industry Corp. Ltd. And Mitsubishi International
Corp. Ltd. v. United States, Court No. 980300487 (CIT Feb. 5,
2002) , dated May 31, 2002, at 3 found at http:// ia.ita.doc.gov.
Although the Department matched sales prices to average costs for
periods of time that were shorter than the span of the entire POR,
it is important to note that the shorter averaging periods used were fiscal years, and not quarters or months.
Issues of Concern
In several recent proceedings, we have received requests from
respondents to report costs using averaging periods of less than one
year. See Certain Steel Concrete Reinforcing Bars from Turkey; Final
Results, Rescission of Antidumping Duty Administrative Review in Part,
and Determination To Revoke in Part, 70 FR 67665 (November 8, 2005)
(Rebar from Turkey), and accompanying Issues and Decision memorandum at
Comment 1; Final Results of Antidumping Duty Administrative Review:
Carbon and Certain Alloy Steel Wire Rod from Canada, 71 FR 3822 (January 24, 2006); and Final Results of Antidumping Duty
Administrative Review: Stainless Steel Sheet and Strip in Coils From
France, 71 FR 6269 (February 7, 2006). In these cases, we primarily
relied on two factors in determining whether it was appropriate to
deviate from our normal practice of using an annual average cost
method: (1) whether the cost changes throughout the POI/POR were
significant, and (2) whether sales during the shorter averaging periods
could be accurately linked with the COP/CV during the same shorter averaging periods.
In these recent proceedings, we analyzed the significance of the
cost changes throughout the POI/POR by conducting a comparative COM
analysis between the annual average cost method and the suggested
shorter period average cost method (e.g., quarterly cost averaging
period). See, e.g., Rebar from Turkey. In comparing the costs under the
two methods, the Department examined the five most frequently sold
models of the foreign like product (i.e., control numbers or
``CONNUMs'') in the comparison market. For each of the five models, the
Department compared the difference between the annualaverage COM and the shorter period average COMs.\3\
\3\ In each case, the analysis was conducted using the total COM and not the cost of an input or one element of the COM.
In considering whether a shorter cost averaging period reflects a
more accurate measure of dumping, we also explained in those
proceedings that sales during the shorter averaging period must be
closely linked with the COP of the shorter period. In certain cases
there are various factors\4\ which may affect the timing relationship
between the purchase of the raw materials, the production of a product,
and its subsequent sale. Therefore, arbitrarily relying on a shorter
cost reporting period can create uncertainty as to how accurately the
average costs during the shorter period relate to the sales that
occurred during that same shorter period. Thus, we believe it is
necessary for a respondent to provide evidence on the administrative
record of a direct linkage between resulting costs and sales prices
before we consider using a costaveraging period that does not extend
throughout the entire POI/POR. In the abovementioned recent
proceedings, in assessing whether sales can be accurately linked with
the concurrent quarterly average costs, we analyzed the relationship of the cost and price trends throughout the POI/POR.
\4\ For example, factors such as: 1) the raw material inventory
turnover period; 2) the inventory valuation method used by the
company (e.g., lastin, firstout versus firstin, firstout versus
weightedaverage, etc.); 3) the extent to which raw materials are
purchased pursuant to longterm contracts; 4) erratic production
levels throughout the year; 5) sales made pursuant to longterm
contracts; 6) the extent to which monthly accruals are made; and 7)
yearend adjustments all affect the timing relationship between sales transactions and costs.
In addition, in a recent remand redetermination, filed with the Court of International Trade, we assessed how closely sales prices and costs tracked each other during the shorter cost calculation periods by analyzing the consistency of the shorter cost averaging period profit percentages on comparison market sales. See Final Results of Redetermination Pursuant to Court Remand, Habas Sinai ve Tibbi Gazlar Istihsal ve Endustrisi A.S. v. United States, Court No. 0500613, Slip Op. 07167 (CIT Nov. 15, 2007), dated March 3, 2008 found at http:// ia.ita.doc.gov. In that remand redetermination, to calculate the shorter cost averaging period profit percentages, we subtracted the shorter average cost of producing such sales from the shorter averaging period comparison market net sales revenue, and divided this figure by the same shorter average cost of producing such sales. Using this analysis, we concluded that the required linkage between sales and costs did not exist in that case such as to warrant using shorter time periods.
Request for Comments
We continue to regard our practice of using annual cost averages in proceedings as generally the most appropriate methodology, and we intend to deviate from this practice only under limited circumstances. The use of annual cost averages results in an approach that normally evens out swings in production costs that a respondent may have experienced over short periods (i.e., months or quarters) of time, and reasonably reflects the COP for sales made throughout the year.
However, in certain cases, possible distortions may result when an annualaverage cost method is used during a period of significant cost changes. Conversely, many factors, as noted above, may result in distortions when using shorter period average costs. Consequently, relying on a shorter cost reporting period can create uncertainty as to how accurately the average costs during the shorter period relate to the sales that occurred during that same shorter period. In light of these competing considerations, the Department requests comments and suggestions on the factors to consider, tests to apply, and thresholds to adhere to when deciding to rely on cost averaging periods of less than a year.
Below is a list of specific questions we would like parties to comment on:
[[Page 26367]]
(i) Are there other factors relevant to the consideration of
whether and when to rely on shorter cost averaging periods besides
significant cost changes and the linking of sales and costs during the
same shorter period? If so, identify the factor(s) and explain in detail why such factor(s) should be considered.
(ii) How should the significant cost changes factor be analyzed and
what numeric threshold should we rely upon as a basis for resorting to
shorter cost averaging periods? Provide the basis for your suggested
threshold number. Should the nature of the industry (e.g., steel,
consumer electronics, perishable products, etc.) affect the analysis?
If so, explain in detail how the analysis would be affected.
(iii) How should the correlation between prices and shorter cost
averaging periods be analyzed to reasonably assess that the prices and shorter period average costs are accurately linked?
(iv) Should it matter whether costs are trending consistently up,
consistently down, or up and down throughout the POI/POR in the
decision to use shorter cost averaging periods? Explain in detail why or why not.
(v) If shorter cost averaging periods are used based on the
argument that it is distortive to rely on a single average cost when
costs have changed significantly throughout the year, should the
recovery of cost test be modified in any way? That is, should sales
that are below the shorter cost averaging period still be considered to
provide for the recovery of costs within a reasonable period time if
they are above the annual average cost? See section 773(b)(2)(D) of the Act.
(vi) To what extent should the costs from the window periods\5\ in reviews affect the overall analysis?
\5\ In administrative reviews of existing antidumping orders,
the Department normally compares the export price (or constructed
export price) of an individual U.S. sale to an average normal value
for a contemporaneous month. The preferred month is the month in
which the particular U.S. sale was made. If, during the preferred
month, there are no sales in the foreign market of a foreign like
product that is identical to the subject merchandise, the Department
will then employ a sixmonth window period for the selection of
contemporaneous sales. For each U.S. sale, the Department will
calculate an average price for sales of identical merchandise in the
most recent of the three months (90 days) prior to the month of the
U.S. sale. If there are no such sales, the Department will use sales
of identical merchandise in the earlier of the two months (60 days) following the month of the U.S. sale.
(vii) If we were to gather information at the outset of every
segment of a proceeding in order to determine early on whether a
respondent needed to provide cost information for shorter cost
averaging periods, what information should we request? Provide specific
questions that could be incorporated into the section A questionnaire.
(viii) Should shortening the cost averaging period affect price
comparisons? For sales comparison purposes, should prices be compared across costaveraging periods?
(ix) Are there other points you deem relevant to the issue at hand? Submission of 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 by 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 due to business proprietary concerns 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 its development of a methodology for when it is appropriate to deviate from the annual average cost reporting method to shorter cost averaging periods. The Department requires that comments be submitted in written form. The Department also requests submission of comments in electronic form to accompany the required paper copies. Comments filed in electronic form should be submitted either by email 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 (202) 4820866, email address: webmastersupport@ita.doc.gov.
Dated: May 5, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E810527 Filed 5804; 8:45 am]
BILLING CODE 3510DSS
FOR FURTHER INFORMATION CONTACT
Neal M. Halper, Director, Office of Accounting, or Taija A. Slaughter, Lead Accountant, Office of Accounting, Import Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 4822989 and (202) 4823563, respectively.