[Federal Register Volume 67, Number 158 (Thursday, August 15, 2002)]
[Notices]
[Pages 53339-53341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20771]


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DEPARTMENT OF COMMERCE

International Trade Administration


Antidumping Proceedings: Affiliated Party Sales in the Ordinary 
Course of Trade

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

ACTION: Request for public comment pursuant to section 123(g)(1)(C) of 
the Uruguay Round Agreements Act, Requirements for Agency Action.

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SUMMARY: The Department of Commerce is requesting comments on the 
proposed modification of its practice concerning the determination of 
whether sales to affiliated parties are made in the ordinary course of 
trade and thus may be considered for use in calculating normal value in 
antidumping proceedings.

DATES: To be assured of consideration, written comments must be 
received no later than August 30, 2002. Rebuttal comments must be 
received no later than September 6, 2002.

ADDRESSES: Submit comments to Faryar Shirzad, Assistant Secretary for 
Import Administration, U.S. Department of Commerce, Central Records 
Unit, Room 1870, Pennsylvania Avenue and 14th Street, NW., Washington, 
DC 20230; Attention: Affiliated Party Sales.

FOR FURTHER INFORMATION CONTACT: Kris Campbell (202) 482-1032, Linda 
Chang (202) 482-0835, or Mimi Steward (202) 482-1439.

SUPPLEMENTARY INFORMATION:

Background

    In July 2001, the World Trade Organization (``WTO'') Appellate Body 
issued a report in a dispute involving U.S. antidumping measures on 
certain hot-rolled steel products from Japan (``Japan Hot-Rolled''),\1\ 
concerning the Department's determination of whether sales made to 
affiliated parties in the comparison market were made in the ordinary 
course of trade and thus may be considered for use in calculating 
normal value.
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    \1\ Dispute Panel Report on Japan Complaint Concerning U.S. 
Anti-dumping Measures on Certain Hot-Rolled Steel Products from 
Japan, WT/DS184/R (Feb. 28, 2001) (the ``Panel Report''). Appellate 
Body Report on Japan Complaint Concerning U.S. Anti-dumping Measures 
on Certain Hot-Rolled Steel products from Japan, WT/DS184/AB/R (July 
24, 2001) (the ``AB Report'').
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    Section 773(a)(1) of the Tariff Act of 1930, as amended (``the 
Act''), requires that the Department first attempt to calculate normal 
value using sales of the foreign like product which are, among other 
criteria, made ``in the ordinary course of trade.'' This provision 
implements Article 2.1 of the Agreement on Implementation of Article VI 
of the General Agreement on Tariffs and Trade 1994 (the ``AD 
Agreement''), which requires that investigating authorities exclude 
sales not made in the ``ordinary course of trade'' from calculations of 
normal value.\2\
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    \2\ Article 2.1 states: ``For the purpose of this Agreement, a 
product is to be considered as being dumped, i.e., introduced into 
the commerce of another country at less than its normal value, if 
the export price of the product exported from one country to another 
is less than the comparable price, in the ordinary course of trade, 
for the like product when destined for consumption in the exporting 
country.''
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    Under current Department practice, comparison market sales by an 
exporter or producer to an affiliated customer are treated as having 
been made at arm's length, and may be considered to be within the 
ordinary course of trade \3\, if prices to that affiliated customer 
are, on average, at least 99.5 percent of the prices charged by that 
exporter or producer to unaffiliated comparison market customers. Under 
this 99.5 percent test, the Department determines the weighted-average 
selling price for each product for sales by the exporter or producer to 
each affiliated party. The Department also determines the weighted-
average selling price for each product to the group of nonaffiliated 
comparison market customers. For each affiliated customer, the 
Department compares the weighted-average price to that affiliate for 
each product to the weighted-average price of the same product to all 
unaffiliated customers. The Department then weight averages the ratios 
found for all products sold to the affiliated customer. If the result 
shows sales prices to an individual affiliated party are, on average, 
at least 99.5 percent of the sales prices to all unaffiliated 
comparison market customers (i.e., the overall ratio is at least 99.5 
percent), all of the sales to that affiliated party may be treated as 
being made in the ordinary course of trade and may be used in 
calculating normal value. Otherwise, if the prices to the affiliate 
are, on average, less than 99.5 percent of prices to nonaffiliates, it 
is the Department's practice to disregard

[[Page 53340]]

them. Additionally, for affiliates that pass this test (i.e., those 
whose weighted-average prices are above 99.5 percent), the exporter or 
producer may request the exclusion of individual sales to such an 
affiliate upon a showing that such sales are for other reasons outside 
the ordinary course of trade, e.g., the prices are ``aberrationally'' 
or ``artificially'' high.
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    \3\ Such sales may be outside the ordinary course of trade for 
other reasons, e.g., they are below cost.
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    In its report in Japan Hot-Rolled, the WTO Appellate Body found 
that the Department's ``99.5%'' arm's-length test is inconsistent with 
the obligations of the United States under Article 2.1 of the AD 
Agreement. In the view of the Appellate Body, ``[i]f a Member elects to 
adopt general rules to prevent distortion of normal value through sales 
between affiliates, those rules must reflect, even-handedly, the fact 
that both high and low-priced sales between affiliates might not be `in 
the ordinary course of trade.' '' United States--Antidumping Measures 
on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 
August 23, 2001 (``AB Report''), para. 148. Furthermore, ``the duties 
of investigating authorities, under Article 2.1 of the Anti-Dumping 
Agreement, are precisely the same, whether the sales price is higher or 
lower than the `ordinary course' price, and irrespective of the reason 
why the transaction is not in the ordinary course of trade. 
Investigating authorities must exclude, from the calculation of normal 
value, all sales which are not made in the ordinary course of trade.'' 
AB Report, para. 145. However, investigating authorities do not need to 
utilize identical rules to scrutinize each category of sales that is 
potentially not in the ordinary course of trade. AB Report, para. 146. 
WTO Members are afforded discretion in this determination, but such 
discretion must be exercised in an ``even-handed'' manner. AB Report, 
para. 148.
    The United States and Japan entered into arbitration over the 
period of time in which to implement the Appellate Body's findings in 
the Japan Hot-Rolled dispute. The arbitrator found that the United 
States has until November 23, 2002, for implementation.
    Pursuant to section 123(g)(1) of the Uruguay Round Agreements Act 
(``the URAA''), the Department must meet certain requirements before 
modifying or rescinding a practice that is found to be inconsistent 
with any of the Uruguay Round Agreements. Section 123(g)(1)(C) requires 
that the Department provide opportunity for public comment by 
publishing the proposed modifications in the Federal Register. The 
Department is soliciting comments pertaining to the following proposed 
modifications to the current policy for determining whether comparison 
market sales to affiliated parties are made at ``arm's length,'' and 
thus in the ordinary course of trade absent other factors such as 
below-cost sales, in light of the Appellate Body's report in the Japan 
Hot-Rolled dispute.

Proposed Arm's-Length Methodology

    The Department proposes to alter its current test by requiring 
that, in order for sales by the exporter or producer to an affiliate to 
be included in the normal value calculation, those sales prices must 
fall, on average, within a defined range, or band, around sales prices 
of the same merchandise sold by that exporter or producer to all 
unaffiliated customers. The new test would require that the overall 
ratio calculated for an affiliate (as currently calculated) be between 
98 percent and 102 percent, inclusive, in order for sales to that 
affiliate to be considered ``in the ordinary course of trade'' and used 
in the normal value calculation. Therefore, this new test is consistent 
with the view, expressed by the WTO Appellate Body, that rules aimed at 
preventing the distortion of normal value through sales between 
affiliates should reflect, ``even-handedly'', that ``both high and low-
priced sales between affiliates might not be ``in the ordinary course 
of trade.'''
    We will continue our present practices with regard to the use of 
so-called ``downstream'' sales (sales made by an affiliated buyer to 
that buyer's subsequent customer). Specifically:
    1. If sales to all affiliates account for less than five percent of 
all comparison market sales, we normally will disregard downstream 
sales.
    2. If sales to an affiliate fail the arm's-length test, and (1) 
does not apply, we normally will request the affiliate's downstream 
sales and use these instead of the sales which failed that test.
    3. If a respondent has cooperated to the best of its ability and is 
unable to obtain downstream sales, we will not use adverse facts 
available.

Discussion

    This test would require no change in the mathematical calculations 
the Department performs to determine which sales are made at arm's 
length. It only alters the standard applied to the numerical outcome of 
those calculations. Instead of using sales to an affiliate for normal 
value purposes when the prices to the affiliate are, on average, at or 
above a threshold of 99.5 percent of prices to unaffiliated parties, 
the Department would normally use sales to an affiliate when that 
overall ratio is within a band ranging from 98 percent to 102 percent, 
inclusive, of the prices for sales to unaffiliated parties. Because 
this band is symmetrical in its treatment of higher and lower priced 
sales, it meets the concern of the Appellate Body that any arm's-length 
test be ``even-handed.''
    Because it adds a price ceiling to our current definition of 
``normal'' sales, this test would likely result in using sales to 
affiliates less frequently than under the current methodology. 
Moreover, the narrower the band, the fewer sales to affiliates would be 
used, potentially resulting in fewer price-to-price comparisons and 
more use of constructed value in determining normal value. These 
considerations have influenced the choice of the size of the band used 
for this test.
    Narrowing the band significantly (such as using a 99.5 percent--
100.5 percent test) would reduce the utility of such a test, as few 
affiliates would pass. Thus the test would serve little purpose. For 
this reason, the Department is concerned that the band not be overly 
narrow. Yet the Department must balance these concerns against the fact 
that widening the band significantly could increase the potential for 
manipulating normal value through clustering of sales prices to 
affiliates at the lower end of the band.
    Finally, we note that, in reaching this proposal, the Department 
examined a wide range of approaches. The more prominent among these are 
listed below, together with a brief indication of the primary reasons 
why we have not selected these options.
     Automatic exclusion of all affiliated party sales in 
determining normal value.
    This would constitute a much more drastic change in policy than is 
necessary to implement the AB Report. Such a practice would not accord 
with the assumptions of 19 CFR 351.403(c) that sales to an affiliated 
party could be used under certain circumstances. Second, the automatic 
elimination of sales to affiliated parties from use in determining 
normal value would likely lead to significantly fewer instances where 
dumping is determined on the preferred basis: comparison of pricing in 
the home market with pricing in the U.S. market.
     Statistical testing (e.g., standard deviation, difference 
in means, nonparametric tests).
    The primary problems with such tests are that they do not 
adequately screen sales for antidumping purposes and would be difficult 
to apply in many situations we encounter. Such tests, properly applied, 
would allow certain affiliated party sales to be deemed to be in the 
ordinary course of trade, including affiliated party sales with

[[Page 53341]]

prices below unaffiliated sales prices, that we believe would distort 
dumping calculations. This is because such tests typically are much 
more conservative about what constitutes an outlier than is appropriate 
in an antidumping context. While we might use more restrictive versions 
of such tests than are normally applied in other contexts, this would 
likely reduce the statistical credibility of the tests. In addition, 
applying such tests in situations involving multiple products would 
significantly complicate the Department's analysis.
     Broader-band test with an additional requirement for 
overall affiliated party sales.
    This test would allow for a broader band of sales to individual 
affiliates to pass the arm's-length test provided the Department finds 
that, in the aggregate, the respondent sells to affiliated and 
unaffiliated parties at comparable price levels. Under this two-part 
test, sales to an individual affiliate priced on average at, for 
instance, 95 percent of prices to unaffiliated parties might be found 
to be within the ordinary course of trade if we determine that the 
company's overall sales to affiliates are not systematically lower than 
prices to nonaffiliates. This would address manipulation concerns 
regarding companies that price to affiliates generally at the low end 
of the band. In essence, a company that sells to some affiliates at 95 
percent of unaffiliated prices would have to sell to other affiliates 
at prices higher than unaffiliated prices in order to demonstrate that 
its overall sales prices to affiliated and unaffiliated parties are 
comparable. In order to adhere to the WTO's ``even-handedness'' 
requirement, the test would include higher-priced sales to an 
individual affiliate (e.g., prices at 105 percent of unaffiliated 
prices) only if it is found that the company does not systematically 
price to affiliates at levels higher than nonaffiliates.
    Problems with such an approach would include determining how the 
second part of the test should be structured to demonstrate whether 
overall sales to affiliates were ``comparable'' to those to 
unaffiliated parties. This would likely involve a second, narrower-band 
test applied to affiliated party sales in the aggregate.
     ``Quantity-cushion'' test.
    Unlike the previous tests, this one would include or exclude sales 
to affiliates on the basis of a comparison of the quantity of 
merchandise sold to an affiliate to the quantity sold to unaffiliated 
customers at prices at or below the price to the affiliate and to the 
quantity sold to unaffiliated customers at prices at or above the price 
to the affiliate. Thus, sales to an affiliate could be considered ``in 
the ordinary course of trade'' and used in the normal value calculation 
only if there were a sufficient ``cushion'' of sales to unaffiliated 
parties priced below the average price to the affiliate, and a similar 
``cushion'' of sales to unaffiliated parties priced above the average 
price to the affiliate. The primary concerns with this test were its 
complexity, calibrating the appropriate ``cushion'' size, determining 
how to apply the test by affiliate and whether it would be better 
applied to all affiliates combined by product, and questions as to 
whether this might not be an overly narrow definition of the ``normal'' 
price range of sales to affiliated parties.

Timetable

    After considering all comments received, the Department intends to 
publish in the Federal Register a final notice of the new arm's-length 
methodology. See section 123(g)(1)(F) of the URAA (19 U.S.C. 
3533(g)(1)(F)). This new methodology will address the objectives 
described above. In accordance with section 129(b) of the URAA (19 
U.S.C. 3538(b)), this methodology will be utilized to prepare an 
amended final determination in the Japan Hot-Rolled investigation. In 
accordance with section 129(c)(1) of the URAA (19 U.S.C. 3538(c)(1)), 
this amended final determination will establish new cash deposit rates 
for all producers for whom the investigation rates are still applicable 
and will apply with respect to unliquidated entries of the subject 
merchandise which are entered, or withdrawn from warehouse, for 
consumption on or after the date on which the United States Trade 
Representative directs the Department to implement the amended final 
determination. With respect to other proceedings and other segments of 
the Japan hot-rolled proceeding, the new methodology will be applied in 
all reviews initiated on the basis of requests received on or after the 
first day of the month following the date of publication of the 
Department's final notice of the new arm's-length methodology, all 
investigations and other segments of proceedings initiated on the basis 
of petitions filed or requests made on or after such publication date, 
and all segments of proceedings self-initiated on or after such 
publication date.

Comments--Format

    Parties wishing to comment should submit a signed original and six 
copies of each set of comments, including reasons for any 
recommendations, along with a cover letter identifying the commenter's 
name and address. To help simplify the processing and distribution of 
comments and rebuttals, the Department requests that a submission in 
electronic form accompany the required paper copies. Comments filed in 
electronic form should be on a DOS formatted 3.5" diskette in either 
WordPerfect format or a format that the WordPerfect program can convert 
into WordPerfect.
    Comments received on diskette will be made available to the public 
on the Web at the following address: http://ia.ita.doc.gov/. In 
addition, upon request, the Department will make comments filed in 
electronic form available to the public on 3.5" diskettes (at cost) 
with specific instructions for accessing compressed data (if 
necessary). Any questions concerning file formatting, document 
conversion, access on the Web, or other electronic filing issues should 
be addressed to Andrew Lee Beller, IA Webmaster, at (202) 482-0866 or 
via e-mail at [email protected].

    Dated: August 8, 2002.
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-20771 Filed 8-14-02; 8:45 am]
BILLING CODE 3510-DS-P