Commentary on developments in section 1581(c) NME cases.

Author:Trendl, Thomas J.
Position:Non-market economy

TABLE OF CONTENTS I. INTRODUCTION II. SURROGATE COUNTRY III. RESPONDENT SELECTION IV. SEPARATE RATES V. SURROGATE VALUES A. Raw Materials 1. CIT Granting Significant Deference to Commerce 2. Cases Where the CIT More Thoroughly Analyzed the Record and Commerce's Decision-Making B. Financial Ratios 1. Completeness and Public Availability Over Contemporaneity of the Surrogate Financial 2. Use of Zero Profit Surrogate Financial Statements 3. Use of Intermediate Product Producers' Surrogate Financial Statements 4. Calculation of Surrogate Financial and Overhead Ratios--Comparison to Respondents' Financial Statements C. Overhead Ratio D. Labor Rate VI. "FACTS OTHERWISE AVAILABLE" AND "ADVERSE INFERENCES" VII. AFFILIATION VII. CONCLUDING THOUGHTS I. INTRODUCTION

The Court of International Trade ("CIT") issued 19 decisions regarding non-market economy ("NME") antidumping cases during 2009. (1) These decisions covered a wide range of issues. While many of them were very fact-specific to the administrative proceeding below, several have broader applicability and stand out as worthy of notice and commentary. This article focuses on the CIT's decisions addressing the following issues: choice of surrogate country, respondent selection, separate rates, surrogate values, adverse facts available, and affiliation.

This article does not attempt to provide a comprehensive overview of antidumping law and practice nor does it attempt to explain the intricacies of antidumping margin calculations or the NME methodologies utilized therein. Nevertheless, following is a basic description of the issues addressed by this article.

In an NME administrative proceeding, the Department does not calculate a comparison market price utilizing home-market or third-country sales nor does it utilize the cost of manufacture as incurred by the respondent company at issue--as the Department would in a market economy proceeding. Rather, the Department looks to a surrogate (market) country in which to value the inputs used by the NME respondent but does utilize the quantity of the actual inputs consumed by the particular investigated NME company. These "surrogate values" are necessary for every input used to manufacture the subject merchandise, including raw materials, labor, overhead, utilities, profit, etc. As such, selection of the surrogate country and the associated surrogate values for the specific inputs used to manufacture the merchandise involved can have a significant impact on the outcome of the proceeding.

The process by which specific companies are identified as mandatory respondents in a proceeding requiring them to participate in the Department's investigation is also a fundamental and threshold issue in every NME antidumping investigation and administrative review. Antidumping investigations and administrative reviews involving China can involve hundreds of potential respondents. The Department, constrained by personnel and budgetary limitations, does not have the ability to investigate every company involved. Accordingly, the Department will select a relatively small number of companies (usually the largest based on import volumes) to be "mandatory respondents," while other participating companies will be "separate rate companies." The mandatory respondents will receive their own, company-specific dumping margin. The separate rate companies will receive a weighted-average margin of the mandatory respondents' rates, provided they can establish their eligibility for a separate rate. Companies which do not participate or fail to adequately participate in the proceeding (as discussed below) are given margins which can be based on "facts otherwise available" and, in some instances, with "adverse inferences" applied. All other companies receive a China wide rate, which is the weighted-average margin of all respondents.

As discussed in detail below, the Court dealt with these fundamental issues as well as other concepts in a number of NME cases decided in 2009, though providing varying levels of clarity in its decisions.


    In an NME proceeding, the U.S. Department of Commerce ("Commerce" or "the Department") values the factors of production based on the best available information regarding the values of such factors in a market economy country or other countries considered to be appropriate (i.e., a "surrogate country"). (2) Two cases decided by the CIT in 2009 suggest that, going forward, Commerce will have to provide some justification for its practice of treating countries with drastically different levels of per capita income as economically comparable. However, the type of justification required by the CIT in these cases is unlikely to constrain Commerce in its choice of surrogate countries.

    According to the statute, an appropriate surrogate country is one (A) at a level of economic development comparable to that of the nonmarket economy country, and (B) a significant producer of comparable merchandise. (3) In addition, Commerce's regulations specify that the same single country should normally be used to value all factors of production, except for labor. (4) In selecting this surrogate country, Commerce employs a four-step process. First, Commerce compiles a list of countries that are at a level of economic development comparable to the country being investigated, based on each country's GDP per capita. (5) Commerce then ascertains which, if any, of those cited countries produce comparable merchandise. (6) Next, from the resulting list of countries, Commerce determines, which, if any, of the countries are significant producers of comparable merchandise. (7) Finally, if more than one country remains after the selection process to this point, Commerce chooses the country, for which the highest quality data is publicly available. (8)

    In Amanda Foods (Vietnam) Ltd. v. United States, (9) the CIT dealt with a challenge to Commerce's standard practice of treating all of the countries selected in the first step of this process as "equally comparable" to the NME country regardless of differences in levels of development and not providing justification or explanation. After Commerce compiles a short list of countries that are at a comparable level of economic development as the country being investigated, Commerce follows an established policy of treating all of the countries on the list of economically comparable countries as equally comparable in terms of economic development (i.e., the differences in per capita income between countries on the short list is not considered relevant in choosing a surrogate country). (10) Following this policy in the proceeding at issue in Amanda Foods, Commerce stated that it would treat all five of the countries it identified as economically comparable to Vietnam as "equally economically comparable" to Vietnam. (11) At the end of the process the Department chose Bangladesh as the surrogate country despite the fact that India was closer to Vietnam in terms of economic development. (12)

    In its arguments to the CIT, Commerce attempted to support its choice of Bangladesh by noting that it is permitted to give substantial weight to data quality in selecting a surrogate country. (13) However, because Commerce provided no evidence or explanation regarding why the difference between Bangladesh and Vietnam in terms of per capita income was not relevant in this case or why the difference between Bangladesh and India in terms of economic comparability to Vietnam was outweighed by the differences in quality of data between Bangladesh and India, the Court determined that Commerce's decision was not supported by substantial evidence. (14) Therefore, the Court remanded for Commerce to (1) explain why it was justified in treating all the countries on the surrogate country list as equally comparable to Vietnam, despite their differences in per capita income; (2) provide a reasoned basis for why the difference in comparability to Vietnam in per capita GDP between India and Bangladesh is small enough that it may be outweighed by the superior quality of the Bangladeshi data; or (3) otherwise reconsider its determination in accordance with the Court's opinion. (15)

    This opinion arguably could require some degree of change to Commerce's policy of ignoring differences in levels of development without justification or explanation. The extent of that change remains to be seen, but the Court suggested that Commerce may be able to avoid any meaningful change by providing a reasoned analysis as to why differences in development levels can be ignored or are outweighed by other factors.

    In particular, the Court pointed to another case decided in 2009, Fujian Lianfu Forestry Co. v. United States, (16) in which the CIT had found Commerce's justification for treating countries at different levels of economic development as "equally comparable" to be sufficient. (17) A close reading of that case, however, reveals that the CIT made no holding with respect to treating different countries as "equally comparable" to the NME country. Rather, the holding focused on whether Commerce had provided sufficient justification for treating India as economically comparable to China, which was the NME at issue, despite the fact that India's per capita income was significantly lower than China's. (18) In other words, the case was not about whether India and other countries on Commerce's list of economically comparable countries could be treated as equally comparable to China but whether it was even appropriate for India to be included on the list in the first place. Nonetheless, the Court in Amanda Foods indicated that the explanation provided by Commerce in Fujian Lianfu Forestry regarding why it was appropriate to treat India as economically comparable to China would be sufficient to justify treating countries at different levels of economic development as equally comparable to a given NME country. (19) The explanation provided by Commerce in...

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