2014 Court of International Trade reviews of post-sale price adjustments, targeted dumping, and zeroing in antidumping duty cases.

Author:Caryl, Benjamin Blase
  1. Introduction II. Post-Sale Price Adjustments A. Papierfabrik August Koehler AG. v. United States and the Department's Proposed Fix B. Subsequent Proposals for Clarification III. Targeted Dumping A. Historic Overview of Zeroing and Targeted Dumping B. Review of 2014 CIT Targeted Dumping Cases 1. Department's Authority to Apply the Targeted Dumping Statute and Zeroing in Administrative Reviews 2. Lack of an "Intent" Requirement in the Department's Targeted Dumping Analysis 3. Application of the A-T Methodology with Zeroing to All Sales if Targeted Dumping is Found 4. Clarification of the Sufficiency Test in the Department's Targeted Dumping Analysis 5. Department's Meaningful Difference Explanation in its Targeted Dumping Analysis C. Lessons Going Forward IV. Conclusion I. Introduction

    The fundamental purpose of U.S. antidumping ("AD") law is to remedy injury caused to a domestic industry by dumped imports--imports sold at prices below their "normal value," which is their home or third-country market price, cost of production, or constructed value. (1) The ultimate means by which AD law achieves such remedy is the assessment and collection of AD duties on imports covered by a relevant AD order. If accurately calculated by the U.S. Department of Commerce ("Commerce" or "the Department"), such duties should offset the dumping, making subject imports priced "fairly" and the U.S. market playing field "level." (2) Antidumping law is not designed to block subject imports or punish subject foreign producers or exporters, which could create an unfair advantage for a domestic industry. (3) Thus, the calculation of accurate AD margins is key to ensuring that the application of the law is as remedial as possible without being punitive or counterproductive.

    Foreign producers and exporters who want to maintain their presence in the U.S. market and U.S. importers who want to avoid AD liability must attempt to understand how Commerce will likely treat certain pricing practices in AD calculations. The existence and treatment of these pricing practices can determine whether imports are covered by an AD order at all, in the case of an investigation, or whether the AD assessment rate is zero or much higher. (4) In 2014, the U.S. Court of International Trade (CIT) issued roughly thirty slip opinions relating to the Department's calculation methodologies for AD margins. Most importantly, the CIT reviewed a group of cases concerning the Department's calculation methodologies for two broad types of pricing practices: post-sale price adjustments and targeted dumping. Post-sale price adjustments are any change in the net price charged for subject merchandise of the foreign like product, such as rebates or discounts." Targeted dumping is a pattern of export prices for "comparable merchandise that differ significantly among purchasers, regions, or periods of time." (6) Both types of pricing practices have the potential to reduce dumping margins, whether legitimately or otherwise. Thus, these cases merit review of their implications for future Commerce AD calculations.

    By summarizing important 2014 CIT reviews of the Department's analysis and calculation of these two types of pricing practices, this Article provides some useful lessons for industries involved or potentially involved in U.S. AD proceedings, as well as guidance for practitioners on the developments and evolution of the Department's practices related to targeted dumping and post-sale price adjustments. Part II of this Article analyzes the Papierfabrik case that led Commerce to announce that it will revise its regulations concerning its treatment of post-sale price adjustments, which could have a significant impact on certain parties' pricing adjustments and resulting AD margins. After providing a brief historic overview of the Department's practice of "zeroing" and the targeted dumping statute, Part III analyzes several 2014 CIT cases that provide useful guidance on the Department's treatment of targeted dumping, including under what circumstances the Department will apply its targeted dumping analysis, what factors the Department will (or will not) consider in its targeted dumping analysis, and what sales the Department may apply its zeroing methodology to once targeted dumping is found.

  2. Post-Sale Price Adjustments

    When Commerce calculates a respondent's AD duty, it makes certain adjustments to normal value and export price, such as brokerage, packing, shipping costs, level of trade differences, and taxes. (7) The Department's regulations provide for the use of normal values and export prices that are net of price adjustments reasonably attributable to the subject merchandise or foreign like product. (8) The regulations define "price adjustment" as "any change in the price charged for subject merchandise of the foreign like product, such as discounts, rebates and post-sale price adjustments, that are [sic] reflected in the purchaser's net outlay." (9) The Department's general practice was to only grant legitimate price adjustments-adjustments where the terms and conditions were established and known to the customer at the time of sale--due to the potential for manipulation of dumping margins through so-called "after-the-fact" adjustments for which the customer was unaware at the time of sale. (10)

    1. Papierfabrik August Koehler AG. v. United States and the Department's Proposed Fix

      In Papierfabrik August Koehler AG v. United States, the CIT remanded Commerce's determination that the Department's regulations permitted the agency to disregard post-sale adjustments not known to the customer at the time of sale. (11) The CIT based its interpretation on the regulation's definition of price adjustment as "any change in the price charged for ... the foreign like product" that "are reflected in the purchaser's net outlay." (12) According to the CIT, it was irrelevant whether the customer was aware of the terms and conditions of the post-sale rebates prior to the sales as long as the rebate payments were in fact made:

      Under the regulations, the question is not whether the rebates were made according to a "program" that satisfied the various prerequisites Commerce identified ... but whether the monthly rebates actually were made, i.e., whether there were downward adjustments in the prices charged for the foreign like product that were reflected in purchasers' net outlays. (13) On remand, and under protest, the Department granted an adjustment for the monthly rebate at issue in the case, which changed the respondent's calculated AD margin from 3.77% to 0.03% (de minimis). (14) Commerce explained that, though it believed the rebate at issue was not legitimate for purposes of price adjustments in this proceeding, the CIT found that the regulations require Commerce to treat the rebate as a post-sale price adjustment and that "the Department does not have the discretion to consider the legitimacy of, and therefore the possible manipulation of the dumping margin through, such rebates." (15) The Department further found that the respondent's allocation method for its monthly rebates was on as a specific basis as feasible and did not cause "inaccuracies or distortions." (16)

      On December 31, 2014, the CIT affirmed the Department's remand results in Papierfabrik August Koehler AG. v. United States ("Papierfabrik II"). (17) On that same day, the Department published a notice of proposed changes to the two regulations on price adjustments at issue in Papierfabrik, (18) Specifically, the Department proposed changes "to clarify that the Department generally will not consider a price adjustment that reduces or eliminates a dumping margin unless the party claiming such price adjustment demonstrates, to the satisfaction of the Department, through documentation that the terms and conditions of the adjustment were established and known to the customer at the time of the sale." (19)

    2. Subsequent Proposals for Clarification

      Several law firms, domestic industries, foreign manufacturers, and exporters submitted comments in response to the Department's proposed changes raising several interesting issues. (20)

      Curtis, Mallet-Prevost, Colt & Mosle LLP noted that there were certain post-sale price adjustments that the Department accepted under its pre-Papierfabrik practice, such as "price protections," post-sale consumer rebates, and quality-upon-receipt discounts, in which the exact terms and amounts of the adjustments were not fixed until after the sale. (21) Curtis proposed a slight modification to Commerce's proposed regulatory changes--to permit the Department to consider standard business practices regarding post-sale adjustments in a particular industry-so that the Department could continue to allow such post-sale adjustments. (22)

      Kelley Drye & Warren LLP noted that post-sale price adjustments may take forms other than "discounts and rebates," such as billing adjustments and post-sale decreases to home market prices or increases to U.S. prices. (23) Thus, Kelley Drye proposed that the Department make clear that its final rule changes do not limit the agency's ability to either grant or deny other forms of prices adjustments, depending on the circumstances of the case. (24)

      Morris, Manning & Martin, LLP noted that, even when a company's policies regarding discounts and rebates are known to the customer prior to sale, a company may grant a request for a discount or rebate by a buyer after a sale or over the course of multiple day-to-day transactions to maintain good customer relationships, rather than manipulate dumping margins. (25)

      Commerce's final rulemaking regarding post-sale price adjustments will hopefully be promulgated in 2016, but there is no official deadline. As the above comments indicate, it is likely that the Department's final regulations regarding price adjustments will give the Department more discretion and flexibility to determine how certain types of post-sale...

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