[Federal Register Volume 71, Number 54 (Tuesday, March 21, 2006)]
[Notices]
[Pages 14176-14179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-4069]


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DEPARTMENT OF COMMERCE

International Trade Administration


Market Economy Inputs Practice in Antidumping Proceedings 
involving Non-Market Economy Countries

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

ACTION: Request for Comments

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SUMMARY: The Department of Commerce (``the Department'') is considering 
amending its regulations with respect to the use of market economy 
inputs in the calculation of normal value in antidumping proceedings 
involving non-market economy (``NME'') countries. Specifically, in 
cases where an NME producer sources an input from both market-economy 
suppliers and from within the NME, this regulatory change would 
increase the Department's flexibility to value the input by weight-
averaging the market economy purchase price with an appropriate 
surrogate value. The Department also intends to introduce an interim 
change in its practice that is consistent with the Department's 
regulations. Interested

[[Page 14177]]

parties are invited to comment on these proposals.

DATES: Comments must be submitted by April 19, 2006.

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

FOR FURTHER INFORMATION CONTACT: Lawrence Norton, Economist, or Anthony 
Hill, Senior International Economist, Office of Policy, Import 
Administration, U.S. Department of Commerce, 14\th\ Street and 
Constitution Avenue, NW, Washington DC, 20230, 202-482-1579 or 202-482-
1843, respectively.

SUPPLEMENTARY INFORMATION:

Background

    In antidumping proceedings involving NME countries, the Department 
calculates normal value by valuing the NME producers' factors of 
production, to the extent possible, using prices from a market economy 
that is at a comparable level of economic development and that is also 
a significant producer of comparable merchandise. The goal of this 
surrogate factor valuation is to use the ``best available information'' 
to determine normal value. See section 773(c)(1) of the Tariff Act of 
1930 (``the Act''); Shangdong Huraong General Corp. v. United States, 
159 F. Supp.2d 714, 719 (CIT 2001). Where an NME producer purchases 
inputs from market economy suppliers and pays in a market economy 
currency, however, the Department normally uses the average actual 
price paid by the NME producer for these inputs to value the input in 
question, where possible. See 19 CFR 351.408(c)(1); see also Final 
Determination of Sales at Less Than Fair Value: Oscillating Fans and 
Ceiling Fans from the People's Republic of China, 56 FR 55271, 55274-75 
(October 25, 1991). Where a portion of the input is purchased from a 
market economy supplier and the remainder from a non-market economy 
supplier, the Department will normally use the price paid for the 
inputs sourced from market economy suppliers to value all of the 
input\1\, provided the volume of the market economy inputs as a share 
of total purchases from all sources is ``meaningful,'' a term used in 
the Preamble to the Regulations but which is interpreted by the 
Department on a case-by-case basis. See Antidumping Duties; 
Countervailing Duties; Final Rule, 62 FR 27296, 27366 (May 19, 1997) 
(Preamble). See also Shakeproof v. United States, 268 F.3d 1376, 1382 
(Fed. Cir. 2001) (Shakeproof). This market economy input price must 
also reflect arms-length, bona fide sales. See Shakeproof, 268 F.3d at 
1382-83.
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    \1\ See 19 CFR 351.408(c)(1)
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    Additionally, the Department disregards market economy input 
purchases when the prices for such inputs may be distorted or when the 
facts of a particular case otherwise demonstrate that market economy 
input purchase prices are not the best available information. For 
example, the Department disregards all input values it has reason to 
believe or suspect might be dumped or subsidized. See China National 
Machinery Import & Export Corporation v, United States, 293 F. Supp. 2d 
1334 (CIT 2003), as aff'd by 104 Fed. Appx. 183 (Federal Circuit, July 
9, 2004). The Department has also disregarded the prices of inputs that 
could not possibly have been used in the production of subject 
merchandise during the period of investigation or review. See, e.g., 
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). The Department further does not accept 
market economy input purchase prices when the input in question was 
produced within an NME. See Final Determination of Sales at Less Than 
Fair Value: Polyethylene Retail Carrier Bags from the People's Republic 
of China, 69 FR 34125 and the accompanying issues and decision 
memorandum at Comment 20 (June 18, 2004).
    The Department published on May 26 and on August 11 two notices in 
the Federal Register requesting comment on its market economy inputs 
practice in NME cases (70 FR 30418 and 70 FR 46816, respectively). 
Drawing on the many submissions the Department has received in response 
to these notices, the Department is currently considering revised 
proposals. Under the first of these revised proposals, the Department 
would amend its regulations to give it greater discretion to weight 
average market economy input purchase prices with standard surrogate 
values when NME producers source an input both domestically and from 
market economy suppliers based upon the facts of a given case. This 
change would remove the regulatory requirement that the Department 
``normally'' use market economy input prices to value an entire input 
and allow the Department more flexibility to consider whether the 
standard surrogate value is the best available information to value the 
domestically purchased input. Under the second of these revised 
proposals, the Department would institute a rebuttable presumption that 
market economy input prices are the best available information for 
valuing an entire input when the portion of the input purchased from 
market economy sources exceeds 33[percnt] of the total volume of the 
input. This would be consistent with our current regulations directing 
the Department to ``normally'' use market economy input prices to value 
an entire input.
    These two proposals would affect the Department's practice in cases 
where NME firms purchase a portion of a given input from a market 
economy and source the remainder domestically. In such cases, the 
Department must determine what the best available information is for 
valuing the NME-produced portion of the input, i.e., the Department 
must continue to find an appropriate surrogate value. Whether the best 
available information to value the NME-produced portion of the input is 
the price of the firm's market economy input purchases or another 
surrogate value is a decision that should be made by the Department on 
a case-by-case basis.
    While market economy purchase prices do constitute the best 
available information for the portion of an input sourced from a market 
economy, these prices may not always provide the most accurate 
valuation for the portion of an input that is produced from within the 
NME. While it may be unduly rigid to rule out using market economy 
purchase prices to value an entire input if the portion involved were 
lower than a particular threshold, neither can the Department 
automatically assume market economy purchases constitute the best 
available information to value the portion of the input produced in the 
NME. In some cases, the best available information is indeed the market 
economy purchase price. In other cases it may not be, and a standard 
surrogate value would constitute the best available information for the 
NME-produced portion of the input. For example, if the market economy 
price for an input varied dramatically over the period of investigation 
or review, and the NME firm only purchased from market economy sources 
when the market price was very low (and otherwise purchased from NME 
suppliers), the Department might determine that a specific, period-wide 
surrogate value would constitute a better surrogate value for the 
portion of the input that was produced from within the NME. While 
market economy

[[Page 14178]]

input purchase prices present a valid price for the market economy 
purchases that an NME firm actually made, and the Department should use 
this data whenever possible to value the portion of the input purchased 
from market economy sources, these prices may not always be the best 
available information for valuing the portion of the input produced 
within the NME.
    From the foregoing discussion, there is reason to believe that the 
most accurate approach would be to make case-by-case determinations 
concerning whether a market economy input purchase price or an 
alternative surrogate value constitutes the best available information 
for valuing the portion of an input that is produced within the NME. 
The regulations prescribe a preference, however, for the use of market 
economy input purchase prices, when they are available, over the use of 
traditional surrogate values. Under the regulations, the Department 
``normally'' uses market economy input purchase prices to value an 
entire input when they are available, which has the effect of favoring 
market economy purchase prices over surrogate values and in some cases 
unnecessarily excludes surrogate values, even when a surrogate value 
might provide a more accurate valuation for the portion of the input 
that is produced within the NME. Therefore, the Department is 
considering beginning the formal procedures for amending its 
regulations to increase the Department's discretion to use surrogate 
values to value the NME-produced portion of an input. This regulatory 
change would increase the Department's flexibility to weight average 
the market economy input purchase price with an appropriate surrogate 
value for the NME-produced portion of the input to determine the 
overall value to be used for the input.
    Because amending the regulation will be a lengthy process, the 
Department also intends to introduce an interim change in its practice 
that is consistent with the Department's regulations. Under this 
interim change, the Department would clarify that the term 
``meaningful,'' as discussed in the Preamble, will be interpreted by 
the Department as being 33 percent or more of the total volume of the 
input used in production of the subject merchandise, unless there are 
case-specific reasons to conclude otherwise. In other words, the 
Department would institute a flexible, rebuttable presumption that when 
market economy input purchases are 33 percent or more of the total 
volume of an input, the market economy input purchase prices represent 
the ``best available information'' to value the entire input. Where 
market economy input purchases constitute less than 33 percent of the 
total volume of the input in question, the Department's rebuttable 
presumption is that the market economy input purchases do not represent 
the ``best available information'' to value the input. Instead, the 
Department would weight average the market economy purchase prices with 
an appropriate surrogate value, unless parties present evidence that 
the market economy purchase value constitutes the best available 
information to value the NME-produced portion of the input. Introducing 
such a flexible percentage threshold for accepting market economy 
purchase prices to value an entire input would improve the accuracy and 
predictability of the Department's current practice. The higher the 
ratio of the market economy-sourced portion to that produced in the 
NME, the more confident the Department can be that the market economy 
purchase prices are indeed representative of the value of the entire 
input.
    The flexibility of the standard would allow the Department to 
continue to meet its statutory obligation to use the best available 
information while providing guidance to the public as to how normal 
value will be determined in such circumstances. In addition, the 
proposed standard of 33 percent is consistent with a threshold that the 
Department has defended, and the Court has upheld, as constituting a 
``meaningful'' quantity in a prior case. See Shakeproof, 268 F.3d at 
1382-83. A standard of 33 percent also balances two competing concerns. 
First, this standard would reduce the likelihood that special 
arrangements or short-term price fluctuations might seriously distort 
the valuation of the input in that the Department will only accept 
these prices to value the entire input when they constitute such a 
meaningful share of the total volume of the input. Second, a flexible 
33-percent standard is consistent with our regulatory standard to 
``normally'' use these prices. We believe there is merit in 
establishing general guidance on when the Department will use market 
economy input purchases to value an entire input and when it will rely 
instead on surrogate values. As discussed above, the only existing 
guidance on this point (beyond that developed through the Department's 
practice, e.g., the requirement that the input purchased from a market 
economy not be dumped or subsidized) is mentioned in the Preamble to 
the regulations, which indicates that the quantity involved should be 
``meaningful.'' Such vague guidance may create an unnecessary level of 
uncertainty for both the Department and parties about how the 
Department will value a given input that an NME firm purchases both 
domestically and from market economy suppliers.
    The Department welcomes comments on both pursuing a change in the 
Department's regulations and on adopting, on an interim basis, a 
flexible, percentage-based rebuttable presumption with respect to the 
use of market economy purchase prices to value a factor of production 
for an NME firm that purchases the input both domestically and from 
market economy sources. If the Department adopts such an interim 
approach, is 33 percent of the total volume of the input used in the 
production of the subject merchandise an appropriate level for this 
standard?

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. 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 
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 the development 
of any changes to its practice. 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 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: [email protected].


[[Page 14179]]


    Dated: March 15, 2006.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E6-4069 Filed 3-20-06; 8:45 am]
BILLING CODE 3510-DS-S