Import Administration, International Trade Administration, Department of Commerce.
Request for comment.
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 Start Printed Page 26365periods (e.g., quarterly) are more appropriate.
Comments must be submitted within thirty days from the publication of this notice.
Written comments (original and six copies) should be sent to the Secretary of Commerce, Attn: Import Administration, APO/Dockets Unit, Room 1870, U.S. Department of Commerce, 14th Street & Constitution Ave., NW, Washington, DC 20230.Start Further Info
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) 482-2989 and (202) 482-3563, respectively.End Further Info End Preamble Start Supplemental Information
The Department's methodology for calculating the cost of manufacture (COM) of subject merchandise in less-than-fair-value 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, weighted-average 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 weighted-average 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.
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, weighted-average 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 weighted-average 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 per-unit costing over short periods of time. Relying on an annual average cost tends to smooth out these short-term per-unit 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 short-term 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 weighted-average 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 Start Printed Page 26366Review 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 pass-through to its customers in its normal books and records. See id. at 747-748. 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
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 annual-average COM and the shorter period average COMs.
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 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 cost-averaging period that does not extend throughout the entire POI/POR. In the above-mentioned 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.
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. 05-00613, Slip Op. 07-167 (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 annual-average 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:Start Printed 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 periods5 in reviews affect the overall analysis?
(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 cost-averaging 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 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 (202) 482-0866, email address: firstname.lastname@example.org.Start Signature
Dated: May 5, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
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.Back to Citation
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 18-month period. For purposes of calculating the dumping margin, the Department initially used the POR-wide weighted-average 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. 98-03-00487 (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.Back to Citation
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.Back to Citation
4. For example, factors such as: 1) the raw material inventory turnover period; 2) the inventory valuation method used by the company (e.g., last-in, first-out versus first-in, first-out versus weighted-average, etc.); 3) the extent to which raw materials are purchased pursuant to long-term contracts; 4) erratic production levels throughout the year; 5) sales made pursuant to long-term contracts; 6) the extent to which monthly accruals are made; and 7) year-end adjustments all affect the timing relationship between sales transactions and costs.Back to Citation
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 six-month 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.Back to Citation
[FR Doc. E8-10527 Filed 5-8-04; 8:45 am]
BILLING CODE 3510-DS-S