[Federal Register Volume 69, Number 248 (Tuesday, December 28, 2004)]
[Notices]
[Pages 77722-77726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28324]


-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

International Trade Administration


Separate-Rates Practice in Antidumping Proceedings Involving Non-
Market Economy Countries

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

ACTION: Announcement of change in practice and request for comments.

-----------------------------------------------------------------------

SUMMARY: On May 3 and September 20, 2004, the Department of Commerce 
published notices in the Federal Register requesting comments on its 
separate rates practice (69 FR 24119 and 69 FR 56188). This practice 
refers to the Department's long-standing policy in antidumping 
proceedings of presuming that all firms within a non-market economy 
(``NME'') country are subject to government control and thus should all 
be assigned a single, country-wide rate unless a respondent can 
demonstrate an absence of both de jure and de facto control over its 
export activities. In that case, the Department assigns the respondent 
its own individually calculated rate or, in the case of a non-
investigated or non-reviewed firm, a weighted-average of the rates of 
the investigated companies, excluding any rates that were zero, de 
minimis, or based entirely on facts available. In the Department's 
previous NME antidumping investigations, exporters seeking a separate 
rate have had to respond to section A of the NME questionnaire for 
purposes of providing the Department evidence of the exporters' 
independence of government control over their export activities.
    Taking into account the comments it has received and without ruling 
out any additional changes in the future, the Department has 
provisionally decided to adopt an application process for evaluating 
separate rate requests by non-investigated firms, and to consider 
instituting combination rates (also known as ``chain'' or ``channel'' 
rates) for all firms receiving a separate rate in NME cases. Because 
several of the interested parties requested an opportunity to comment 
on the application before a final decision is made, the draft 
application has been posted on the Import Administration Web site at 
the following address: http://ia.ita.doc.gov/. This model application 
is based on a PRC investigation. We expect it would be modified on a 
case-by-case basis, depending on the NME under investigation. This 
notice will also describe how the application process will function in 
greater detail and serve as an opportunity to provide additional 
comments on both the shift from a section A response to an application 
process as well as on specific fields in the application itself. In 
particular, the Department welcomes comments on whether the fields in 
the application and the supporting documents it requires are sufficient 
for a firm to demonstrate its eligibility for a separate rate without 
being unnecessarily burdensome for the Department or for importers.
    The second part of this notice, drawing on interested parties' 
comments, describes the Department's proposal to introduce combination 
rates in all of its NME antidumping cases in more detail, and clarifies 
how combination rates would work in practice. Because the Department 
recognizes that assigning combination rates in all of its NME cases 
would be a change in practice, and because parties have raised 
questions about the implementation and administration of this method of 
assigning antidumping margins, the Department is giving the public an 
additional opportunity to comment on this proposed change in practice. 
The Department is particularly interested in comments addressing how 
combination rates might work in practice, on whether there are 
obstacles to its effective implementation, and what the implications of 
combination rates might be for the Department or for respondents.
    The Department is not ruling out additional changes to its separate 
rates practice, and will consider changes to its policy and practice in 
other areas. For this notice, however, the Department is most 
interested in comments on the application process and on its draft 
application, as well as on the proposal to institute combination rates 
for all NME exporters. The proposed application and application process 
are not yet finalized and are subject to modification. Furthermore, the 
Department has not made a final decision with respect to the draft 
application on the Import Administration Web site or on combination 
rates for all NME exporters. The Department's position with respect to 
both of these issues will be finalized after it has analyzed the 
comments it will receive in response to this notice.

DATES: Comments must be submitted by January 24, 2005.

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

FOR FURTHER INFORMATION CONTACT: Lawrence Norton, Economist, or Anthony 
Hill, Senior International

[[Page 77723]]

Economist, Office of Policy, Import Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW., Washington DC, 
20230, 202-482-1579 or 202-482-1843.

SUPPLEMENTARY INFORMATION:

Background

    In an NME antidumping proceeding, the Department presumes that all 
companies within the country are subject to governmental control and 
should be assigned a single antidumping duty rate unless an exporter 
demonstrates the absence of both de jure and de facto governmental 
control over its export activities. See Final Determination of Sales at 
Less Than Fair Value: Bicycles from the People's Republic of China, 61 
FR 19026, 19027 (April 30, 1996). If an exporter demonstrates this 
independence in its export activities, it is eligible for a rate that 
is separate from the NME-wide rate. This separate rate is usually an 
individually calculated rate or a weighted-average of the rates of the 
investigated companies, excluding any rates that were zero, de minimis, 
or based entirely on facts available. The Department's separate rates 
test is not concerned, in general, with macroeconomic border-type 
controls (e.g., export licenses, quotas, and minimum export prices), 
particularly if these controls are imposed to prevent the dumping of 
merchandise in the United States. Rather, the test focuses on controls 
over the decision-making process on export-related investment, pricing, 
and output decisions at the individual firm level. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length 
Carbon Steel Plate from Ukraine, 62 FR 61754, 61757 (November 19, 
1997); and Tapered Roller Bearings and Parts Thereof, Finished and 
Unfinished, from the People's Republic of China: Final Results of 
Antidumping Duty Administrative Review, 62 FR 61276, 61279 (November 
17, 1997).
    To establish whether a firm is sufficiently independent from 
government control in its export activities to be eligible to be 
assigned a separate rate, the Department analyzes each exporting entity 
under a test arising from the Final Determination of Sales at Less Than 
Fair Value: Sparklers from the People's Republic of China, 56 FR 20588 
(May 6, 1991), as modified in the Final Determination of Sales at Less 
Than Fair Value: Silicon Carbide from the People's Republic of China, 
59 FR 22585, 22587 (May 2, 1994) (Silicon Carbide). Under this test, 
the Department assigns separate rates in NME cases only if an exporter 
can demonstrate the absence of both de jure and de facto governmental 
control over its export activities. See Silicon Carbide and Final 
Determination of Sales at Less Than Fair Value: Furfuryl Alcohol from 
the People's Republic of China, 60 FR 22544, 22545 (May 8, 1995). In 
order to request and qualify for a separate rate, a company must have 
exported the subject merchandise to the United States during the period 
of investigation or review, and it must provide information responsive 
to the following considerations:
    1. Absence of De Jure Control: The Department considers the 
following de jure criteria in determining whether an individual company 
may be granted a separate rate: (1) An absence of restrictive 
stipulations associated with an individual exporter's business and 
export licenses; (2) any legislative enactments decentralizing control 
of companies; and (3) any other formal measures by the government 
decentralizing control of companies.
    2. Absence of De Facto Control: Typically, the Department considers 
four factors in evaluating whether each respondent is subject to de 
facto governmental control of its export functions: (1) Whether the 
export prices are set by, or subject to the approval of, a governmental 
authority; (2) whether the respondent has authority to negotiate and 
sign contracts and other agreements; (3) whether the respondent has 
autonomy from the central, provincial, or local governments in making 
decisions regarding the selection of its management; and (4) whether 
the respondent retains the proceeds of its export sales and makes 
independent decisions regarding disposition of profits or financing of 
losses.
    In an antidumping investigation or review, the Department currently 
assigns a weighted-average of the individually calculated rates, 
excluding any rates that were zero, de minimis, or based entirely on 
facts available, to exporters who have not been selected as mandatory 
respondents if they fulfill two requirements. First, they must submit a 
request for separate rates treatment, along with a timely response to 
section A of the Department's questionnaire. Second, the Department 
must determine, after reviewing the requesting companies' submissions, 
that separate rates treatment is warranted. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Certain Circular Welded 
Carbon-Quality Steel Pipe from the People's Republic of China, 67 FR 
36570, 36571 (May 24, 2002).
    As it announced in its September 20, 2004 and May 3, 2004, notices 
in the Federal Register (69 FR 56188, 69 FR 24119), the Department is 
considering changes to the practice detailed above in response to the 
growing administrative burden of analyzing requests for separate rates 
(especially inadequate submissions requesting separate rates 
treatment), and in response to concerns that the separate rates test 
could be made more effective in determining whether a company is 
eligible for a separate rate. The Department has faced a large number 
of separate rate requests in three recent investigations involving two 
NME countries. See Notice of Final Determination of Sales at Less Than 
Fair Value: Wooden Bedroom Furniture from the People's Republic of 
China, 69 FR 67313 (November 17, 2004) (PRC Furniture); Notice of Final 
Determination of Sales at Less Than Fair Value: Certain Frozen and 
Canned Warmwater Shrimp from the People's Republic of China, 69 FR 
70997 (December 8, 2004) (PRC Shrimp); and Notice of 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) (Vietnam Shrimp).
    While the Department analyzed the large number of separate rates 
requests in these three investigations, it has become clear that these 
requests consume an inordinate amount of the Department's resources. 
Various parties have also raised questions that the Department's 
separate rates test, as currently constructed, may not offer the most 
effective means of determining whether exporters act independently of 
the government. Some parties have argued that the current separate 
rates test does not go far enough in analyzing whether a firm acts both 
de jure and de facto independently of the government in its export 
activities, whereas others have argued that the test already goes 
beyond what is necessary and poses an unnecessary burden on respondents 
and on the Department.
    Another issue that has been raised by parties concerns the 
potential evasion of duties. Under current practice, separate rates are 
assigned only to exporters, and this assigned rate applies to all of 
the firm's exports regardless of which entity produced the subject 
merchandise. Various interested parties argued that this practice is 
unfair, because while the margins the Department calculates are taken 
from a discrete set of suppliers, the cash deposit applies to any 
merchandise exported by the exporter in question, regardless of whether 
it was supplied by the same producers that

[[Page 77724]]

were investigated. The separate rate presumes that the exporters' 
activities are free from government control, but in allowing other 
``non-investigated'' firms to benefit from this rate, these interested 
parties claim the Department undermines the effectiveness of its test. 
They argue further that the Department's current practice of accounting 
for changes in suppliers during administrative reviews is unsuited to 
industries with rapid shifts in sourcing and where suppliers can appear 
and disappear frequently. Finally, under the current practice, because 
the rates the Department assigns often vary widely from exporter to 
exporter (due partly to the NME- or country-wide rate), exporters 
assigned either the country-wide rate or a high calculated rate, can 
easily shift their shipments of subject merchandise to another exporter 
assigned a lower rate. Such diversion arguably undermines the effect of 
other antidumping duty margins the Department calculates.
    As discussed above, the Department has provisionally decided to 
introduce an application process for evaluating separate-rate requests 
by companies that have not been selected as mandatory respondents. The 
appendix to this notice describes the rationale behind the separate-
rate application, and the draft application itself is posted on the 
Import Administration Web site at the following address: http://ia.ita.doc.gov/. The appendix to this notice also describes the 
proposal to institute combination rates in all of its NME cases in more 
detail and offers the public another chance to comment on whether 
combination rates would be an effective remedy for the problems 
described above, and whether they would be consistent with the statute 
and regulations.

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. Consideration of comments received after the end of the 
comment period 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 development of any changes to its practice. All comments 
responding to this notice will be a matter of public record and will be 
available for public inspection and copying at Import Administration's 
Central Records Unit, Room B-099, between the hours of 8:30 a.m. and 5 
p.m. on business days. 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 Web site 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, e-mail address: [email protected].

    Dated: December 16, 2004.
James J. Jochum,
Assistant Secretary for Import Administration.

Appendix

    (1) The Department has provisionally decided to change its 
separate rates procedure for non-investigated firms that request a 
separate rate from a process in which an exporter fills out a 
Section A questionnaire to an application process. Exporters that 
the Department selects as mandatory respondents will continue to 
respond to the entire questionnaire, including Section A, but 
Section A will be updated to conform with what is included in the 
application. The draft application can be found at the following 
address: http://ia.ita.doc.gov/. The draft application was designed 
to take into account concerns that the separate rates test could be 
improved to be a better measure of the export independence of firms, 
as well as concerns that the current test is too time-consuming and 
burdensome on the Department and on respondents. The application 
does not alter the standard laid out in Sparklers and Silicon 
Carbide for evaluating whether an applicant is subject to de jure or 
de facto government control. Rather, by drawing on the experiences 
of the recent NME investigations and interested parties' comments, 
the application process should be more straightforward and thorough 
while saving both the Department and applicants time and resources. 
In particular, by explicitly detailing which documents the 
Department will accept to substantiate a separate rates claim, the 
application should minimize the need for the extensive supplemental 
questionnaires that have proven to be burdensome and time-consuming. 
Since firms will have clear notice of what is required to document a 
separate rates claim, firms submitting incomplete applications will 
be rejected for separate rates status without supplementary 
questionnaires. Because adequate substantiation of a separate rates 
claim will be required and subject to verification, the application 
will be a meaningful test of a firm's eligibility for a separate 
rate.
    The introduction of the application will be a dynamic process, 
where the Department would be ready to update the application as 
circumstances or experience warrants. In addition, the application 
would be tailored to some extent to each case. For example, the 
draft application's de jure section asks about various PRC 
government laws, which would obviously be changed in cases involving 
other NME countries. As discussed above, the application is intended 
to remedy problems that parties have identified with the current 
separate rates process. In the recent PRC Furniture, PRC Shrimp and 
Vietnam Shrimp cases, the Department often required several rounds 
of questionnaires to ascertain whether firms operated de jure and de 
facto independently of the government in their export activities. In 
these cases, several firms the Department had rejected for separate 
rates status at the preliminary determination returned, post-
preliminary determination, with more evidence of their eligibility 
for a separate rate and then were granted a separate rate at the 
final determination. To the extent that such situations can be 
avoided in the future, both the Department and applicants will save 
time and resources, without undermining the Department's ability to 
enforce the antidumping law and without denying respondents the full 
opportunity to demonstrate their eligibility for a separate rate.
    A primary goal of the separate rates application is to make it 
completely clear what documentation applicants must provide to 
demonstrate their eligibility for a separate rate, so as to avoid 
the need for the Department to issue supplemental questionnaires and 
avoid unnecessary rejections of applicants. Having drawn on the 
experiences of its recent investigations, as well as on comments 
from interested parties, the Department considers the application 
process to be both an effective analytical tool and one which does 
not place on applicants an unfair burden.
    The application is streamlined to focus on those issues most 
relevant to separate rate eligibility; it requires firms to certify 
their eligibility for a separate rate, and it lists documents that 
respondents must submit in order to substantiate these 
certifications. Furthermore, the Department has incorporated 
questions not addressed currently in its standard NME Section A 
questionnaire that are pertinent to separate rates eligibility, and 
welcomes further suggestions in this area. While the Department 
reserves the right to issue supplemental questionnaires and verify 
applicants, such questionnaires and verifications function as 
further confirmation of firms' export independence, rather than as 
repetitions of what is expressly required by

[[Page 77725]]

the application. As noted above, because the application is clear 
about what is required, the Department will reject incomplete 
applications without issuing supplemental questionnaires.
    To streamline the process further, the application will be 
available for printing on the Import Administration Web site, so 
that firms that have not received paper copies of the application 
will be aware of the application, its requirements, and deadline for 
submission. The Department may consider in the future requiring 
firms to submit the application electronically, but this is not the 
case at the current time, and firms will be expected to submit their 
separate rates application in the same way they currently file any 
documents with the Department. The Department has determined that 
this application represents an improvement over current practice and 
is fair to all parties. Nonetheless, the Department welcomes 
comments on the application and on particular fields therein by the 
deadline listed above.
    (2) The Department is seriously considering adopting 
``combination rates'' (alternatively referred to as ``chain'' or 
``channel'' rates) in all of its NME cases, as first proposed in the 
previous requests for comments in (69 FR 24119) and (69 FR 56188). 
In response to these requests for comments, some parties have made 
powerful arguments that combination rates are necessary for a more 
effective enforcement of the dumping margins the Department 
calculates. In particular, parties have argued that since the 
Department margin calculations are based on the factors of 
production of the producer that supplied the exporter during the 
period of investigation or review, the rates the Department assigns 
should only apply to those producers. In addition, these parties 
argue, NME exporters assigned either a high margin or denied a 
separate rate are free to export their merchandise through exporters 
assigned a lower rate, leading to a ``funneling'' of all the subject 
merchandise through the exporters with the lowest rates.
    Other parties, however, have questioned the usefulness of 
combination rates, and have raised concerns that combination rates 
would place a difficult burden on the Department, on U.S. Customs 
and Border Protection, and on respondents. These parties argue that 
it is counterproductive to propose making separate rates supplier-
specific at a time when the Department is seeking to expedite the 
handling of the increasing number of separate rate requests it 
receives. These parties also argue that it would be a step back for 
the Department to limit the application of the separate rates it 
grants to subject merchandise produced by particular suppliers, 
particularly when in many industries it is common for exporters to 
source their merchandise from whichever producer is currently 
offering the lowest price. Finally, these parties argue that 
whatever change in the margin that may result from a shift in 
supplier will be accounted for in the next administrative review.
    The Department understands the concerns of both sides on this 
issue and recognizes that issuing combination rates in NME 
investigations and administrative reviews would constitute a 
significant change in practice. Accordingly, the Department will 
make a final decision only after it has conducted a full analysis of 
the advantages and disadvantages of this change in practice, with an 
opportunity for public participation. For this reason, and to 
clarify exactly how the Department proposes to implement combination 
rates, the Department is offering another opportunity for comment on 
this proposed change in practice.
    Under current NME practice, the Department assigns exporter-
specific separate rates, and not exporter-producer combination 
rates, with three exceptions. The first exception concerns 
exclusions, in which case the exporter that is excluded receives an 
exporter-producer combination rate so that the exclusion from the 
antidumping order only applies when the exporter sources from the 
same supplier(s) as in the original investigation. See sections 
733(b)(3) and 735(a)(4) of the Tariff Act of 1930, as amended, and 
19 CFR 351.107(b)(1). The second exception involves the Department's 
enforcement of the law as it relates to middleman dumping. When a 
producer/exporter sells to an unaffiliated middleman with the 
knowledge of the ultimate destination of the merchandise, and that 
middleman subsequently sells merchandise to the United States at 
less than fair value, the Department will calculate a combination 
antidumping duty rate for the producer/exporter and middleman in 
many cases. The third exception concerns the Department's policy on 
new shipper reviews, where the rate is assigned to the exporter-
producer combination. See Import Administration Policy Bulletin 
03.2: Combination Rates in New Shipper Reviews, dated March 04, 
2003.
    The Department is considering extending this practice of 
assigning exporter-producer combination rates to NME exporters 
receiving a separate rate so that only the specific exporter-
producer combination that was specifically investigated or reviewed 
on the record by the Department receives the calculated rate for 
establishing the cash deposit rate for estimated antidumping duties. 
This would not mean that the separate rates analysis would be 
extended back to producers, or that producers would in any way be 
required to demonstrate their independence of government control. 
The separate rates test focuses exclusively on the independence of 
respondent's export activities from de jure and de facto government 
control.
    Under combination rates, firms qualifying for a separate rate, 
including both mandatory respondents and other exporters applying 
for a separate rate, would be required to list all the suppliers 
whose merchandise they exported to the United States during the 
period of investigation. The rate the Department would assign as a 
cash deposit to an NME exporter that had passed the separate rates 
test would only apply to merchandise produced by those suppliers 
that had supplied subject merchandise to the exporter for export to 
the United States during the period of investigation. The Department 
would then issue instructions to Customs that this calculated rate 
would only apply to subject merchandise that is exported by the firm 
that has received that separate rate, and has been produced by one 
of the producers the firm certified as having supplied it during the 
period of investigation. Merchandise produced by other suppliers but 
exported by the respondent would receive the NME-wide cash deposit 
rate until the administrative review, when factors on this new 
supplier can be collected and final dumping duties assessed. This 
would happen even if the producer(s) outside the combination had 
supplied a different respondent during the period of investigation.
    The following is an example of how combination rates would work 
in practice. Exporter A seeks a separate rate during the 
investigation and supplies the Department with the necessary 
certification and documentation to obtain separate rates status. 
Further, Exporter A certifies that it sourced 20 percent of its 
subject merchandise for export to the United States during the 
period of investigation from Producer B, 30 percent from Producer C, 
and 50 percent from Producer D. It makes no difference if Exporter A 
is affiliated with its producers or not. Exporter A demonstrates its 
independence from the government in its export activities, and 
receives a separate rate for cash deposit in the preliminary 
determination based on the firm's sales to the United States, and on 
the weighted factors of production of its three suppliers.
    After the preliminary and final determinations, this cash 
deposit rate would apply to all of the merchandise exported by 
Exporter A and supplied by Producers B, C, and D (if they supplied 
Exporter A during the period of review), in any proportion. That is, 
Exporter A would be free to source exclusively from Producer B, 
despite it having been a relatively minor supplier during the period 
of investigation. If Exporter A desired to introduce a new supplier, 
Producer E, it would have to make at least one sale of merchandise 
produced by Producer E to the United States at the NME-wide cash 
deposit rate. This is because the separate rate it was originally 
assigned was derived from the factors of production only from the 
three original suppliers and thus only applies to merchandise 
produced by the three original suppliers.
    For the administrative review, Exporter A would have the option 
to request that it be reviewed. During the review, the Department 
would again collect factors information from Producers B, C, and D, 
as well as from the new supplier, Producer E. Thus, the new cash 
deposit rate going forward would be based on information from all 
four suppliers, and the combination would then be expanded to 
include Producer E. Furthermore, since the final dumping duties 
would be assessed during the administrative review, any difference 
between the NME-wide cash deposit rate Exporter A paid for its 
exports from Producer E and its final dumping margin would be 
refunded to Exporter A.
    The Department welcomes comments on the legal and administrative 
advisability of introducing combination rates in all of its

[[Page 77726]]

NME cases. In addition, the Department welcomes comments on how 
combination rates might best be implemented.
[FR Doc. 04-28324 Filed 12-27-04; 8:45 am]
BILLING CODE 3510-DS-P