[Federal Register Volume 73, Number 91 (Friday, May 9, 2008)]
[Notices]
[Pages 26364-26367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-10527]


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

DEPARTMENT OF COMMERCE

International Trade Administration


Antidumping Methodologies for Proceedings that Involve 
Significant Cost Changes Throughout the Period of Investigation (POI)/
Period of Review (POR) that May Require Using Shorter Cost Averaging 
Periods; Request for Comment

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

ACTION: Request for comment.

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

SUMMARY: The Department of Commerce (Department) seeks public comment 
on its development of a predictable methodology for determining when 
the use of shorter cost averaging periods is more appropriate than the 
established practice of using annual cost averages due to the 
occurrence of significant cost changes throughout the POI/POR. Although 
the Department maintains that the established practice of using annual 
cost averages is the most appropriate methodology to use in a majority 
of proceedings, it may be preferable to use an alternative methodology 
in certain cases. The Department now seeks comments from the public on 
the factors to consider, the tests to apply, and the thresholds to 
adhere to in determining whether or not shorter cost averaging

[[Page 26365]]

periods (e.g., quarterly) are more appropriate.

DATES: Comments must be submitted within thirty days from the 
publication of this notice.

ADDRESSES: Written comments (original and six copies) should be sent to 
the Secretary of Commerce, Attn: Import Administration, APO/Dockets 
Unit, Room 1870, U.S. Department of Commerce, 14th Street & 
Constitution Ave., NW, Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: Neal M. Halper, Director, Office of 
Accounting, or Taija A. Slaughter, Lead Accountant, Office of 
Accounting, Import Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW., Washington, DC 20230; telephone: 
(202) 482-2989 and (202) 482-3563, respectively.

SUPPLEMENTARY INFORMATION:

Background

    The Department's methodology for calculating the cost of 
manufacture (COM) of subject merchandise in less-than-fair-value 
investigations and antidumping administrative reviews is based on the 
cost over the entire POI or POR (i.e., on an annual basis). This yearly 
based methodology results in a normalized, weighted-average production 
cost that can then be compared to sales prices covering the same 
extended period of time. Therefore, the Department's questionnaire 
requests that all respondents report their costs of producing 
merchandise on an annual average basis over the entire POI or POR. See, 
e.g., Certain Pasta from Italy: Final Results of Antidumping Duty 
Administrative Review, 65 FR 77852 (Dec. 13, 2000) (Pasta from Italy), 
and accompanying Issues and Decision Memorandum at Comment 18 and 
Notice of Final Results of Antidumping Duty Administrative Review of 
Carbon and Certain Alloy Steel Wire Rod from Canada, 71 FR 3822 (Jan. 
24, 2006) (Wire Rod from Canada), and accompanying Issues and Decision 
Memorandum at Comment 5 (explaining the Department's practice of 
computing a single weighted-average cost for the entire period). This 
methodology is predictable and generally applied consistently in all 
proceedings.
    The Tariff Act of 1930, as amended (the Act), and the Department's 
regulations describe the role of the cost of production (COP) in the 
Department's antidumping analysis. ``Dumping'' is defined in section 
771(34) of the Act as the sale or likely sale of goods at less than 
normal value (NV) in the United States. A ``dumping margin,'' as 
defined by section 771(35)(A) of the Act, is the amount by which the NV 
exceeds the export price (EP) or constructed export price (CEP) of the 
subject merchandise. In calculating NV, section 773(a)(1)(B) of the Act 
states that the Department will consider only those sales in the 
comparison market that are made in the ``ordinary course of trade.'' 
Section 771(15) of the Act and 19 CFR 351.102 explain that sales are 
generally made ``in the ordinary course of trade'' if they are sold 
under ``conditions and practices which, for a reasonable period of time 
prior to the exportation of the subject merchandise, have been normal'' 
for sales of the foreign like product.\1\ None of these provisions 
provides guidance on the methodology which the Department should use in 
calculating a respondent's COP.
---------------------------------------------------------------------------

    \1\ Section 773(b)(1) of the Act states that if no sales made in 
the ordinary course of trade remain, the normal value shall be based 
on the constructed value (CV) of the merchandise. See also 19 CFR 
351.405(a). CV is defined at section 773(e) of the Act as the cost 
of materials, plus fabrication expenses, selling, general and 
administrative expenses, profit and packing expenses.
---------------------------------------------------------------------------

    Furthermore, section 773(b)(1) of the Act and 19 C.F.R. 351. 406 
provide that sales may be disregarded if they have been made at prices 
which represent less than the COP of that product. Section 773(b)(3) of 
the Act defines the COP as:
     an amount equal to the sum of-
     (A) the cost of materials and of fabrication or other 
processing of any kind employed in producing the foreign like 
product, during a period which would ordinarily permit the 
production of that foreign like product in the ordinary course of 
business;
     (B) an amount for selling, general, and administrative expenses 
based on actual data pertaining to production and sales of the 
foreign like product by the exporter in question; and
     (C) the cost of all containers and coverings of whatever 
nature, and all other expenses incidental to placing the foreign 
like product in condition packed ready for shipment.
    Thus, although the Act states that the COP is calculated using a 
``period which would ordinarily permit the production'' of the foreign 
like product, no guidance is given with regard to whether or not the 
Department should use only a single, weighted-average period of time, 
or multiple time periods within that ``production period'' for purposes 
of making comparisons and calculating a dumping margin.
    The Department has established a practice of using a single 
weighted-average COP that applies to the entire POI/POR, which it has 
applied in the vast majority of its investigations and reviews. Factors 
such as erratic production levels, the extent to which and how 
accurately monthly accruals are made, periodic maintenance, inventory 
valuation methods, etc. all impact the timing and accuracy of per-unit 
costing over short periods of time. Relying on an annual average cost 
tends to smooth out these short-term per-unit cost fluctuations 
resulting in a normalized average production cost to be compared to 
sales prices over the same extended period of time. See Color 
Television Receivers from the Republic of Korea; Final Results of 
Antidumping Duty Administrative Review, 55 FR 26225, 26228 (June 27, 
1990) (where the Department stated that the use of quarterly data would 
cause aberrations due to short-term cost fluctuations) and Grey 
Portland Cement and Clinker From Mexico; Final Results of Antidumping 
Duty Administrative Review, 58 FR 47253, 47257 (September 8, 1993) 
(where the Department explained that the annual period used for 
calculating costs accounts for any seasonal fluctuation which may occur 
as it accounts for a full operation cycle).
    The Department has, however, in a limited number of cases, deviated 
from its normal methodology of calculating costs on an annual average 
basis over the entire POI/POR and resorted to shorter cost averaging 
periods. Examples of instances where the Department departed from its 
standard cost averaging period include high technology products that 
experienced significant and consistent cost and price changes over a 
short period of time. See Notice of Final Determination of Sales at 
Less Than Fair Value: Static Random Access Memory Semiconductors from 
Taiwan, 63 FR 8909, 8926 (Feb. 23, 1998) (SRAMS from Taiwan) (where the 
Department determined that quarterly, rather than annual, averages 
resulted in a more accurate comparison of pricing behavior during the 
period of investigation (POI) given the significant decrease in the 
price and cost of static random access memory semiconductors throughout 
the POI) and Final Determination of Sales at Less Than Fair Value: 
Erasable Programmable Read Only Memories from Japan, 51 FR 39680, 39685 
(Oct. 30, 1986) (EPROMS from Japan) (where the Department found that 
significant changes in the COP during a short period of time due to 
technological advancements and changes in the production process 
justified the use of quarterly weighted-average costs).
    The Department also found that shorter period averages resulted in 
a more accurate comparison of pricing behavior where the respondent's 
COM changed significantly throughout the cost reporting period. In 
Final Results of Antidumping Duty Administrative

[[Page 26366]]

Review and Determination Not to Revoke the Antidumping Duty Order: 
Brass Sheet and Strip from Netherlands, 65 FR 742 (Jan. 6, 2000) (Brass 
Sheet and Strip from Netherlands), the Department was able to make a 
contemporaneous comparison of metal values and sales prices which 
resulted in a more accurate calculation of the dumping margin in that 
instance because the respondent treated the cost of the input metals as 
a pass-through to its customers in its normal books and records. See 
id. at 747-748. Accordingly, in Brass Sheet and Strip from Netherlands, 
the Department determined it appropriate to deviate from calculating 
cost on an annual average basis over the entire cost reporting period 
because record evidence showed that the cost of metal inputs 
represented a significant percentage of the total cost of producing 
brass sheet and strip, the cost of the metal inputs dropped 
consistently and significantly throughout the POR, and prices and costs 
for the shorter periods could be accurately matched.\2\
---------------------------------------------------------------------------

    \2\ The Department also deviated from its practice of using POR 
average costs in Notice of Final Results of Antidumping Duty 
Administrative Review: Canned Pineapple Fruit From Thailand, 63 FR 
7392 (Feb. 13, 1998). In this case the POR covered an 18-month 
period. For purposes of calculating the dumping margin, the 
Department initially used the POR-wide weighted-average cost. 
However, the Department later matched the sales and costs by 
segregating the POR into two fiscal years for purposes of its 
dumping analysis. See Final Results of Redetermination Pursuant to 
United States Court of International Trade Remand Order Thai 
Pineapple Canning Industry Corp. Ltd. And Mitsubishi International 
Corp. Ltd. v. United States, Court No. 98-03-00487 (CIT Feb. 5, 
2002) , dated May 31, 2002, at 3 found at http://ia.ita.doc.gov. 
Although the Department matched sales prices to average costs for 
periods of time that were shorter than the span of the entire POR, 
it is important to note that the shorter averaging periods used were 
fiscal years, and not quarters or months.
---------------------------------------------------------------------------

Issues of Concern

    In several recent proceedings, we have received requests from 
respondents to report costs using averaging periods of less than one 
year. See Certain Steel Concrete Reinforcing Bars from Turkey; Final 
Results, Rescission of Antidumping Duty Administrative Review in Part, 
and Determination To Revoke in Part, 70 FR 67665 (November 8, 2005) 
(Rebar from Turkey), and accompanying Issues and Decision memorandum at 
Comment 1; Final Results of Antidumping Duty Administrative Review: 
Carbon and Certain Alloy Steel Wire Rod from Canada, 71 FR 3822 
(January 24, 2006); and Final Results of Antidumping Duty 
Administrative Review: Stainless Steel Sheet and Strip in Coils From 
France, 71 FR 6269 (February 7, 2006). In these cases, we primarily 
relied on two factors in determining whether it was appropriate to 
deviate from our normal practice of using an annual average cost 
method: (1) whether the cost changes throughout the POI/POR were 
significant, and (2) whether sales during the shorter averaging periods 
could be accurately linked with the COP/CV during the same shorter 
averaging periods.
    In these recent proceedings, we analyzed the significance of the 
cost changes throughout the POI/POR by conducting a comparative COM 
analysis between the annual average cost method and the suggested 
shorter period average cost method (e.g., quarterly cost averaging 
period). See, e.g., Rebar from Turkey. In comparing the costs under the 
two methods, the Department examined the five most frequently sold 
models of the foreign like product (i.e., control numbers or 
``CONNUMs'') in the comparison market. For each of the five models, the 
Department compared the difference between the annual-average COM and 
the shorter period average COMs.\3\
---------------------------------------------------------------------------

    \3\ In each case, the analysis was conducted using the total COM 
and not the cost of an input or one element of the COM.
---------------------------------------------------------------------------

    In considering whether a shorter cost averaging period reflects a 
more accurate measure of dumping, we also explained in those 
proceedings that sales during the shorter averaging period must be 
closely linked with the COP of the shorter period. In certain cases 
there are various factors\4\ which may affect the timing relationship 
between the purchase of the raw materials, the production of a product, 
and its subsequent sale. Therefore, arbitrarily relying on a shorter 
cost reporting period can create uncertainty as to how accurately the 
average costs during the shorter period relate to the sales that 
occurred during that same shorter period. Thus, we believe it is 
necessary for a respondent to provide evidence on the administrative 
record of a direct linkage between resulting costs and sales prices 
before we consider using a cost-averaging period that does not extend 
throughout the entire POI/POR. In the above-mentioned recent 
proceedings, in assessing whether sales can be accurately linked with 
the concurrent quarterly average costs, we analyzed the relationship of 
the cost and price trends throughout the POI/POR.
---------------------------------------------------------------------------

    \4\ For example, factors such as: 1) the raw material inventory 
turnover period; 2) the inventory valuation method used by the 
company (e.g., last-in, first-out versus first-in, first-out versus 
weighted-average, etc.); 3) the extent to which raw materials are 
purchased pursuant to long-term contracts; 4) erratic production 
levels throughout the year; 5) sales made pursuant to long-term 
contracts; 6) the extent to which monthly accruals are made; and 7) 
year-end adjustments all affect the timing relationship between 
sales transactions and costs.
---------------------------------------------------------------------------

    In addition, in a recent remand redetermination, filed with the 
Court of International Trade, we assessed how closely sales prices and 
costs tracked each other during the shorter cost calculation periods by 
analyzing the consistency of the shorter cost averaging period profit 
percentages on comparison market sales. See Final Results of 
Redetermination Pursuant to Court Remand, Habas Sinai ve Tibbi Gazlar 
Istihsal ve Endustrisi A.S. v. United States, Court No. 05-00613, Slip 
Op. 07-167 (CIT Nov. 15, 2007), dated March 3, 2008 found at http://ia.ita.doc.gov. In that remand redetermination, to calculate the 
shorter cost averaging period profit percentages, we subtracted the 
shorter average cost of producing such sales from the shorter averaging 
period comparison market net sales revenue, and divided this figure by 
the same shorter average cost of producing such sales. Using this 
analysis, we concluded that the required linkage between sales and 
costs did not exist in that case such as to warrant using shorter time 
periods.

Request for Comments

    We continue to regard our practice of using annual cost averages in 
proceedings as generally the most appropriate methodology, and we 
intend to deviate from this practice only under limited circumstances. 
The use of annual cost averages results in an approach that normally 
evens out swings in production costs that a respondent may have 
experienced over short periods (i.e., months or quarters) of time, and 
reasonably reflects the COP for sales made throughout the year.
    However, in certain cases, possible distortions may result when an 
annual-average cost method is used during a period of significant cost 
changes. Conversely, many factors, as noted above, may result in 
distortions when using shorter period average costs. Consequently, 
relying on a shorter cost reporting period can create uncertainty as to 
how accurately the average costs during the shorter period relate to 
the sales that occurred during that same shorter period. In light of 
these competing considerations, the Department requests comments and 
suggestions on the factors to consider, tests to apply, and thresholds 
to adhere to when deciding to rely on cost averaging periods of less 
than a year.
    Below is a list of specific questions we would like parties to 
comment on:

[[Page 26367]]

    (i) Are there other factors relevant to the consideration of 
whether and when to rely on shorter cost averaging periods besides 
significant cost changes and the linking of sales and costs during the 
same shorter period? If so, identify the factor(s) and explain in 
detail why such factor(s) should be considered.
    (ii) How should the significant cost changes factor be analyzed and 
what numeric threshold should we rely upon as a basis for resorting to 
shorter cost averaging periods? Provide the basis for your suggested 
threshold number. Should the nature of the industry (e.g., steel, 
consumer electronics, perishable products, etc.) affect the analysis? 
If so, explain in detail how the analysis would be affected.
    (iii) How should the correlation between prices and shorter cost 
averaging periods be analyzed to reasonably assess that the prices and 
shorter period average costs are accurately linked?
    (iv) Should it matter whether costs are trending consistently up, 
consistently down, or up and down throughout the POI/POR in the 
decision to use shorter cost averaging periods? Explain in detail why 
or why not.
    (v) If shorter cost averaging periods are used based on the 
argument that it is distortive to rely on a single average cost when 
costs have changed significantly throughout the year, should the 
recovery of cost test be modified in any way? That is, should sales 
that are below the shorter cost averaging period still be considered to 
provide for the recovery of costs within a reasonable period time if 
they are above the annual average cost? See section 773(b)(2)(D) of the 
Act.
    (vi) To what extent should the costs from the window periods\5\ in 
reviews affect the overall analysis?
---------------------------------------------------------------------------

    \5\ In administrative reviews of existing antidumping orders, 
the Department normally compares the export price (or constructed 
export price) of an individual U.S. sale to an average normal value 
for a contemporaneous month. The preferred month is the month in 
which the particular U.S. sale was made. If, during the preferred 
month, there are no sales in the foreign market of a foreign like 
product that is identical to the subject merchandise, the Department 
will then employ a six-month window period for the selection of 
contemporaneous sales. For each U.S. sale, the Department will 
calculate an average price for sales of identical merchandise in the 
most recent of the three months (90 days) prior to the month of the 
U.S. sale. If there are no such sales, the Department will use sales 
of identical merchandise in the earlier of the two months (60 days) 
following the month of the U.S. sale.
---------------------------------------------------------------------------

    (vii) If we were to gather information at the outset of every 
segment of a proceeding in order to determine early on whether a 
respondent needed to provide cost information for shorter cost 
averaging periods, what information should we request? Provide specific 
questions that could be incorporated into the section A questionnaire.
    (viii) Should shortening the cost averaging period affect price 
comparisons? For sales comparison purposes, should prices be compared 
across cost-averaging periods?
    (ix) Are there other points you deem relevant to the issue at hand?

Submission of Comments

    Persons wishing to comment should file a signed original and six 
copies of each set of comments by the date specified above. The 
Department will consider all comments received by the close of the 
comment period. Comments received after the end of the comment period 
will be considered, if possible, but their consideration cannot be 
assured. The Department will not accept comments accompanied by a 
request that a part or all of the material be treated confidentially 
due to business proprietary concerns or for any other reason. The 
Department will return such comments and materials to the persons 
submitting the comments and will not consider them in its development 
of a methodology for when it is appropriate to deviate from the annual 
average cost reporting method to shorter cost averaging periods. The 
Department requires that comments be submitted in written form. The 
Department also requests submission of comments in electronic form to 
accompany the required paper copies. Comments filed in electronic form 
should be submitted either by e-mail to the webmaster below, or on CD-
ROM, as comments submitted on diskettes are likely to be damaged by 
postal radiation treatment
    Comments received in electronic form will be made available to the 
public in Portable Document Format (PDF) on the Internet at the Import 
Administration website at the following address: http:/ia.ita.doc.gov.
    Any questions concerning file formatting, document conversion, 
access on the Internet, or other electronic filing issues should be 
addressed to Andrew Lee Beller, Import Administration Webmaster, at 
(202) 482-0866, email address: [email protected].

    Dated: May 5, 2008.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E8-10527 Filed 5-8-04; 8:45 am]
BILLING CODE 3510-DS-S