[Federal Register Volume 71, Number 248 (Wednesday, December 27, 2006)]
[Notices]
[Pages 77722-77725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22178]


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DEPARTMENT OF COMMERCE

International Trade Administration


Antidumping Proceedings: Calculation of the Weighted-Average 
Dumping Margin During an Antidumping Investigation; Final Modification

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

ACTION: Final Modification; Calculation of the Weighted-Average Dumping 
Margin During an Antidumping Investigation.

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SUMMARY: The Department of Commerce is modifying its methodology in 
antidumping investigations with respect to the calculation of the 
weighted-average dumping margin. This final modification is necessary 
to implement the recommendations of the World Trade Organization 
Dispute Settlement Body. Under this final modification, the Department 
will no longer make average-to-average comparisons in investigations 
without providing offsets for non-dumped comparisons. The schedule for 
implementing this change is set forth in the ``Timetable'' section, 
below.

DATES: The effective date of this final modification is January 16, 
2007.

FOR FURTHER INFORMATION CONTACT: Mark Barnett (202) 482-2866, William 
Kovatch (202) 482-5052, or Michael Rill at (202) 482-3058.

SUPPLEMENTARY INFORMATION:

Background

    This change in methodology concerns the calculation of the 
weighted-average dumping margin in investigations using the average-to-
average comparison methodology.
    Article 2.4.2 of the Agreement on Implementation of Article VI of 
the General Agreement on Tariffs and Trade 1994 (Antidumping Agreement) 
provides:
    Subject to the provisions governing fair comparison in paragraph 4, 
the existence of margins of dumping during the investigation phase 
shall normally be established on the basis of a comparison of a 
weighted average normal value with a weighted average of prices of all 
comparable export transactions or by a comparison of normal value and 
export prices on a transaction to transaction basis.
    Section 777A(d)(1)(A) of the Tariff Act of 1930, as amended (the 
Act), implements this provision of the Antidumping Agreement, providing 
that normally in an antidumping investigation, the Department may 
determine whether the subject merchandise is being sold at less than 
fair value through one of two options. The Department may compare a 
weighted-average of normal value to a weighted-average of the export or 
constructed export prices of comparable merchandise, known as the 
average-to-average comparison methodology. The Department also may 
compare normal values of individual transactions to the export prices 
or constructed export prices of individual transactions for comparable 
merchandise, known as the transaction-to-transaction comparison 
methodology.\1\ The Statement of Administrative Action accompanying the 
Uruguay Round Agreements Act (URAA), H.R. Doc. No. 103-316, Vol. 1 at 
842-43 (1994), reprinted in U.S.C.C.A.N. 3773 (SAA), and the 
Department's regulations state that the Department normally will use 
the average-to-average comparison methodology in an investigation. 19 
CFR 351.414(c)(1).
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    \1\ Section 777A(d)(1)(B) of the Act also provides for an 
exceptional methodology to be used in antidumping investigations. 
The Department may compare a weighted-average normal value to the 
export prices or constructed export prices of individual 
transactions if there is a pattern of export prices or constructed 
export prices that differs significantly among purchasers, regions 
or periods of time, and the Department explains why such differences 
cannot be taken into account using one of the methods described in 
section 777A(d)(1)(A). This is known as the targeted dumping or 
average-to-transaction methodology.
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    When the Department applies the average-to-average methodology 
during an investigation, the Department usually divides the export 
transactions into groups by model and level of trade (``averaging 
groups''). 19 CFR 351.414(d)(2). The Department then compares an 
average of the export prices or constructed export price of the 
transactions within one averaging group to the weighted-average of 
normal values of such sales. 19 CFR 351.414(d)(1).
    Prior to this modification, when aggregating the results of the 
averaging groups in order to determine the weighted-average dumping 
margin, the Department did not permit the results of averaging groups 
for which the weighted-average export price or constructed export price 
exceeds the normal value to offset the results of averaging groups for 
which the weighted-average export price or constructed export price is 
less than the weighted-average normal value.
    In October 2005, a World Trade Organization (WTO) dispute 
settlement panel issued a report in United States - Laws, Regulations 
and Methodology for Calculating Dumping Margins (``Zeroing'') (WT/
DS294) (``US Zeroing (EC)''). The panel found, among other things, that 
the Department's denial of offsets when using the average-to-average 
comparison methodology in certain antidumping investigations challenged 
by the European Communities (``EC'') was inconsistent with Article 
2.4.2 of the Antidumping Agreement.\2\ The United States did not appeal 
this aspect of the panel's report.
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    \2\ Panel Report, United States - Laws, Regulations and 
Methodology for Calculating Dumping Margins (``Zeroing''), WT/DS294/
R, para. 7.32, circulated October 31, 2005.
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    On March 6, 2006, the Department published a notice in the Federal 
Register (71 FR 11189) proposing that it would no longer make average-
to-average comparisons in investigations without providing offsets for 
non-dumped comparisons. In that notice, the Department solicited 
comments and rebuttal comments on its proposal and appropriate 
methodologies to be applied in future antidumping investigations in 
light of the panel's report in US - Zeroing (EC). On April 25, 2006, 
the Department extended the period of time for the submission of 
rebuttal comments (71 FR 23898). The Department received numerous 
comments and rebuttal comments submitted pursuant to these notices, as 
discussed below.

Final Modification Concerning the Calculation of the Weighted-Average 
Dumping Margin During an Antidumping Investigation

    After considering all of the comments submitted, the Department is 
adopting this final modification concerning the calculation of the 
weighted-average dumping margin. The Department will no longer make 
average-to-average comparisons in investigations without providing 
offsets for non-dumped comparisons.

Analysis of Public Comments

    Numerous comments and rebuttal comments were submitted in response 
to the Proposed Modification. We have carefully considered each of the 
comments submitted. We have grouped and summarized the comments below 
according to common themes and responded accordingly.

[[Page 77723]]

Whether to Adopt the Department's Proposal

    Some commentors welcomed the Department's proposal to permit 
offsets when making average-to-average comparisons, which would bring 
the Department's methodology into conformity with U.S. international 
obligations.
    Other commentors argue that the denial of offsets creates more 
accurate results, because it combats the phenomenon of masked dumping. 
According to these commentors, masked dumping occurs when import 
transactions which are sold at less than normal value are masked by 
those sold at prices greater than normal value. The U.S. Court of 
Appeals for the Federal Circuit, these commentors note, has upheld the 
denial of offsets on these grounds. These commentors argue that if the 
Department is to grant offsets, it should do so on the narrowest 
grounds possible.
    A few commentors argue that the Department cannot provide offsets 
without a statutory change. These commentors contend that the denial of 
offsets is required by the statute, because otherwise one of the 
permitted comparison methodologies would become redundant. According to 
these commentors, the statute permits the use of the average-to-average 
comparison methodology, the transaction-to-transaction comparison 
methodology, and, in some circumstances, the average-to-transaction 
comparison methodology. If offsets were for non-dumped sales are 
provided, the results of the average-to-average and the average-to-
transaction comparison methodologies would be mathematically 
equivalent. To avoid this outcome, the Department must interpret the 
statute to require the denial of offsets.
    Other commentors rebut this argument, contending that the use of 
the average-to-transaction comparison methodology will not necessarily 
be mathematically equivalent to the use of the average-to-average 
comparison methodology.
    Department's Position: The Department is adopting as its final 
modification its proposal that it will no longer make average-to-
average comparisons in investigations without providing offsets for 
non-dumped comparisons. The Department is doing so in response to the 
panel's report in US - Zeroing (EC), following the procedures set forth 
in section 123 of the URAA.
    While some commentors argue that this modification requires a 
change in statute, the Department disagrees. Specifically, the courts 
have consistently held that the denial of offsets is not required by 
statute, but rather is a result of an interpretation of the statute. 
See Corus Staal BV v. Department of Commerce, 395 F.3d 1343, 1347 (Fed. 
Cir. 2005), cert. denied, 126 S. Ct. 1023 (2006); Timken Co. v. United 
States, 354 F.3d 1334, 1341-42 (Fed. Cir.), cert. denied sub nom., Koyo 
Seiko Co. v. United States, 543 U.S. 976 (2004). See also Paul Muller 
Industrie GmbH v. United States, 435 F. Supp. 2d 1241, 1245 (CIT 2006) 
(stating new argument alone does not defeat binding precedent).
    While we recognize that the Department may not interpret or apply 
the statute in a way so as to nullify a statutory provision, the 
Department is not making such an interpretation. This final 
modification is addressing only the calculation of the weighted-average 
dumping margin in an investigation using the average-to-average 
comparison methodology and not the average-to-transaction comparison 
methodology. The argument that the targeted dumping methodology would 
be nullified presumes that offsets would be provided under that 
methodology and that certain other methodological choices would be 
made. To date, the Department has not used the targeted dumping 
comparison methodology, nor made any determination as to the issue of 
offsets pursuant to that methodology. Consequently, to the extent 
appropriate, the Department will consider the nullification argument 
when it applies the targeted dumping methodology.

Whether the Average-to-Average Comparison Methodology Should Continue 
to be the Department's Preferred Methodology in Investigations

    Some commentors argue that the average-to-average comparison 
methodology should continue to be the preferred methodology for use in 
an antidumping investigation. This would be consistent with the SAA and 
the Department's own regulations. The use of the average-to-average 
comparison methodology simplifies the calculation of the weighted-
average dumping margin, because it involves much simpler matching of 
export prices and normal values than would be involved if the 
transaction-to-transaction comparison methodology were used. According 
to these commentors, the average-to-average comparison methodology 
yields more predictable results because it is less sensitive to 
aberrational sales and price fluctuations due to market forces. The 
average-to-average comparison methodology is appropriate to use when 
there are a large number of sales, whereas 19 CFR 351.414(c)(1) states 
that the transaction-to-transaction comparison methodology is more 
appropriate for investigations involving few sales and the merchandise 
sold in both markets is identical, very similar, or custom-made.
    Some of these commentors argued that even if the Department were to 
use the transaction-to-transaction comparison methodology, the 
application of that methodology should include the provisions of 
offsets. According to these commentors, the denial of offsets when 
using transaction-to-transaction comparison methodology results in an 
even more unbalanced calculation than the denial of offsets when using 
the average-to-average comparison methodology because the transaction-
to-transaction comparisons would eliminate any impact of non-dumped 
sales.
    Other commentors argue that the transaction-to-transaction 
comparison methodology with the denial of offsets should become the 
Department's standard methodology in antidumping investigations. These 
commentors note that the use of the transaction-to-transaction 
comparison methodology is permitted by statute. The Department has used 
this methodology recently in the Section 129 determination in Certain 
Softwood Lumber Products from Canada, and a WTO panel upheld its 
application. Any concerns over the complexity of applying the 
transaction-to-transaction comparison methodology are alleviated by 
technological advances that ease the burden of matching a single normal 
value transaction to a single export transaction.
    Some commentors argue that the Department itself has not proposed 
any change in methodology other than providing for offsets when 
engaging in average-to-average comparisons. According to these 
commentors, the Department cannot adopt a new comparison methodology 
without fulfilling the applicable notice and comment requirements of 
both section 123(g) of the URAA and the Administrative Procedures Act.
    Department's Position: While the statute itself does not provide 
for a preference between the use of the average-to-average and 
transaction-to-transaction comparison methodologies in an antidumping 
investigation, the Department is mindful of the preference expressed in 
the SAA and in the Department's regulations for the use of average-to-
average comparisons in investigations. See SAA at 842-43; 19 CFR 
351.414(c)(1). Thus, we agree with those commentors that indicated that 
altering this preference would, at a

[[Page 77724]]

minimum, require a change in regulation. Although the Department is not 
proposing a change of regulation at this time, the transaction-to-
transaction methodology remains available to be used in appropriate 
situations.

Providing Offsets in All Types of Proceedings

    Several commentors argue that the Department should provide 
offsets, not only when using the average-to-average comparison 
methodology in an antidumping investigation, but in all types of 
antidumping proceedings. These commentors contend that the denial of 
offsets violates overarching principles of fairness embodied in the WTO 
agreements. The distortion and inherent bias stemming from the denial 
of offsets apply equally to administrative reviews as they do to 
investigations. Moreover, this change would be simple to execute, as it 
would only require the deletion of a single line from the Department's 
standard computer programs.
    Other commentors note that the finding of the WTO panel was narrow. 
The panel did not find that the denial of offsets in administrative 
reviews was inconsistent with the Antidumping Agreement, only that the 
Department's denial of offsets in certain investigations, when using 
the average-to-average comparison methodology, was inconsistent with 
the Antidumping Agreement. Moreover, if the Department were to provide 
offsets in other proceedings, it would need to provide a specific 
proposal and solicit further comments.
    One commentor urges the Department to propose regulations to 
implement the targeted dumping provision of the Act. These regulations 
should specify that the Department will act whenever an interested 
party has demonstrated that targeted dumping is occurring, and should 
establish a threshold of when the price differences are significant 
enough to trigger the targeted dumping analysis.
    Department's Position: In its March 6, 2006 Federal Register 
notice, the Department proposed only that it would no longer make 
average-to-average comparisons in investigations without providing 
offsets for non-dumped comparisons. The Department made no proposals 
with respect to any other comparison methodology or any other segment 
of an antidumping proceeding, and thus declines to adopt any such 
modifications concerning those other methodologies in this proceeding.

Adopting a Change During the Negotiation of the Doha Round

    Several commentors argue that the Department should not adopt a 
change with respect to offsets while the Doha Round of negotiations is 
still underway. According to these commentors, Congress gave explicit 
negotiation instructions to defend the denial of offsets. Thus, the 
Department should not adopt a change and provide for offsets while the 
issue is still being negotiated.
    Department's Position: The Department is conducting this exercise 
pursuant to the procedures specifically established by section 123 of 
the URAA. This exercise is necessary to implement the panel report in 
US - Zeroing (EC) within the reasonable period of time negotiated by 
the United States. Notwithstanding this determination, the Department 
will continue to work closely with United States Trade Representative 
to pursue the negotiating objectives of the United States in the Doha 
Round.

Whether the Department Should Change Its Methodology as it Applies to 
Constructed Value and Non-Market Economies

    One commentor argues that the WTO panel report did not address the 
denial of offsets when the Department compares constructed value to 
export price, or when the Department engages in a non-market economy 
analysis. Accordingly, the Department should continue to deny offsets 
in these two situations.
    Department's Position: The Department has declined to adopt this 
suggestion. As stated above, when the Department engages in an average-
to-average comparison, it divides the sales of the subject merchandise 
into ``averaging groups.'' These averaging groups usually consist of 
identical or virtually identical merchandise sold at the same level of 
trade. 19 CFR 351.414(d)(2). The Department then calculates a weighted-
average of the export prices or constructed export prices of the sales 
included in the averaging group, and compares that to the weighted-
average of the normal values of such sales. 19 CFR 351.414(d)(1).
    The use of constructed value and the factors of production 
methodology concerns the manner by which the Department calculates the 
average normal value in the average-to-average comparisons.
    For example, the Department bases its calculation of normal value 
on constructed value ``where home market sales of the merchandise in 
question are either nonexistent, in inadequate numbers, or 
inappropriate to serve as a benchmark for a fair price, such as where 
sales are disregarded because they are sold at below-cost prices.'' SAA 
at 839. Constructed value is calculated on a control number-specific 
basis, and compared to the average export price of the corresponding 
averaging group.
    Similarly, pursuant to section 773(c) of the Act, when an 
investigation involves a non-market economy country, the Department 
calculates normal value based on the factors of production methodology. 
Under this methodology, in an investigation the Department calculates a 
control number-specific normal value and compares it to the average 
export price for the corresponding averaging group.
    Whether normal value is based on home market sales, third country 
sales, constructed value, or the factors of production methodology does 
not alter the manner in which the comparison is made between the 
weighted-average export price and the weighted-average normal value or 
the manner in which those results are aggregated in an investigation. 
Thus, if the Department is to provide offsets for non-dumped sales when 
utilizing the average-to-average comparison methodology in an 
antidumping investigation, there is no basis for treating 
investigations involving constructed value or the factors of production 
methodology that also utilize the average-to-average comparison 
methodology in a different manner.

Whether Implementation Should Apply to On-Going Investigations

    Some commentors argue that if the Department provides offsets when 
using the average-to-average comparison methodology during an 
antidumping investigation, this change should apply to all pending 
proceedings. These commentors argue that when a U.S. court announces a 
new interpretation of a statute it would apply to all pending cases. 
Failing to do so would create unequal justice, and, according to these 
commentors, would be a deliberate and purposeful violation of the WTO 
Antidumping Agreement.
    Other commentors note that there is no precedent for a retroactive 
implementation of a WTO dispute settlement report. Rather, sections 123 
and 129 of the URAA, which govern implementation, set forth a specific 
effective date.
    Department's Position: In the March 6, 2006 Federal Register 
notice, the Department stated:

[[Page 77725]]

    Any changes in methodology will be applied in all investigations 
initiated on the basis of petitions received on or after the first day 
of the month following the date of publication of the Department's 
final notice of the new weighted average dumping margin calculation 
methodology.
71 FR at 11189.
    Section 123(g)(2) of the URAA provides that a final modification 
may not go into effect before the end of the 60-day period after the 
consultations described in section 123(g)(1)(E) begin, unless the 
President determines that an earlier effective date is in the national 
interest. While the statute establishes the manner of determining the 
effective date of any final modification adopted pursuant to section 
123, the statute does not specify whether the final modification must 
apply only to new segments of proceedings initiated after the effective 
date, or may apply to any segments pending as of the effective date.
    The SAA does not provide any more specific guidance regarding the 
application of any final modification adopted pursuant to section 123. 
The SAA states that section 129 determinations will apply only with 
respect to entries occurring on or after the effective date. SAA at 
1026. However, the SAA makes no such statement with respect to section 
123 modifications. The SAA merely states, ``A final rule may not go 
into effect before the end of the 60-day consultation period unless the 
President determines that an earlier date is in the national 
interest.'' SAA at 1021.
    In the prior four section 123 proceedings, the Department has 
applied the final modification or final rule to segments initiated 
after the effective date. See, e.g., Procedures for Conducting Five-
year (``Sunset'') Reviews of Antidumping and Countervailing Duty 
Orders, 70 FR 62061 (October 28, 2005) (applying amended regulations to 
sunset reviews initiated on or after the effective date); Notice of 
Final Modification of Agency Practice Under Section 123 of the Uruguay 
Round Agreements Act, 68 FR 37125, 37138 (June 23, 2003) (applying new 
privatization methodology to investigations and reviews initiated on or 
after the effective date); Antidumping Proceedings: Affiliated Party 
Sales in the Ordinary Course of Trade, 67 FR 69186, 69197 (November 15, 
2002) (``Arm's Length Test'') (applying new methodology to 
investigations and reviews initiated on or after the effective date); 
Amended Regulation Concerning the Revocation of Antidumping and 
Countervailing Duty Orders, 64 FR 51236 (September 22, 1999). However, 
on occasion the Department has adopted and applied a change in policy 
involving a statutory interpretation to all segments pending as of the 
date of the change. See, e.g., Basis for Normal Value When Foreign 
Market Sales Are Below Cost, Policy Bulletin 98.1 (February 23, 1998); 
Treatment of Inventory Carrying Cost in Constructed Value, Policy 
Bulletin 94.1 (March 25, 1994).
    In the section 123 proceeding concerning the Arm's Length Test, the 
Department found it significant that section 123 uses the term ``go 
into effect.'' 67 FR at 69196. Thus, the Department noted that section 
123 does not preclude applying the change so as to affect entries made 
prior to the announcement of the change. Id.
    After careful consideration of the arguments presented by the 
commentors and of the information needed to implement this change, and 
weighing the administrative burdens, the Department has determined to 
apply the final modification adopted through this proceeding to all 
investigations pending before the Department as of the effective date.
    First, in this particular instance, applying this final 
modification to all investigations pending before the Department will 
not create any undue administrative burden on the Department. The 
number of pending antidumping investigations is few (i.e. there are 
seven ongoing antidumping investigations).
    Second, applying this change will not require the Department to 
gather any new information in those investigations.
    Third, this announcement of the Department's intention to apply 
this modification to all pending investigations will not prejudice any 
of the parties to those proceedings. All of the currently pending 
investigations were initiated as a result of petitions filed after the 
date of publication of the Department's proposed modification. Thus, 
all of the interested parties in each of these investigations had 
notice of the Department's intention to modify the manner in which it 
calculates the weighted-average dumping margin when using the average-
to-average comparison methodology in investigations. Moreover, even in 
the most advanced of the on-going investigations, there is sufficient 
time to permit the parties to comment on the application of this 
approach prior to the final determination in the investigation. In 
those investigations in which the Department will have reached a 
preliminary determination prior to the effective date of this notice, 
the Department will provide parties with notice and an opportunity to 
comment on the application of this methodology on the record of the 
investigation.

Timetable

    The effective date of this notice is January 16, 2007, which is 
sixty days after the date on which the United States Trade 
Representative and the Department began consultations with the 
appropriate congressional committees, consistent with section 
123(g)(1)(E) of the URAA. This methodology will be used in implementing 
the findings of the WTO panel in US - Zeroing (EC) pursuant to section 
129 of the URAA concerning the specific antidumping investigations 
challenged by the EC in that dispute. The Department will apply this 
final modification in all current and future antidumping investigations 
as of the effective date.

    Dated: December 20, 2006.
David Spooner,
Assistant Secretaryfor Import Administration.
[FR Doc. E6-22178 Filed 12-26-06; 8:45 am]
BILLING CODE 3510-DS-S