Separate-Rates Practice in Antidumping Proceedings Involving Non-Market Economy Countries

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Announcement of change in practice and request for comments.

SUMMARY:

On May 3 and September 20, 2004, the Department of Commerce published notices in the Federal Register requesting comments on its separate rates practice (69 FR 24119 and 69 FR 56188). This practice refers to the Department's long-standing policy in antidumping proceedings of presuming that all firms within a non-market economy (“NME”) country are subject to government control and thus should all be assigned a single, country-wide rate unless a respondent can demonstrate an absence of both de jure and de facto control over its export activities. In that case, the Department assigns the respondent its own individually calculated rate or, in the case of a non-investigated or non-reviewed firm, a weighted-average of the rates of the investigated companies, excluding any rates that were zero, de minimis, or based entirely on facts available. In the Department's previous NME antidumping investigations, exporters seeking a separate rate have had to respond to section A of the NME questionnaire for purposes of providing the Department evidence of the exporters' independence of government control over their export activities.

Taking into account the comments it has received and without ruling out any additional changes in the future, the Department has provisionally decided to adopt an application process for evaluating separate rate requests by non-investigated firms, and to consider instituting combination rates (also known as “chain” or “channel” rates) for all firms receiving a separate rate in NME cases. Because several of the interested parties requested an opportunity to comment on the application before a final decision is made, the draft application has been posted on the Import Administration Web site at the following address: http://ia.ita.doc.gov/. This model application is based on a PRC investigation. We expect it would be modified on a case-by-case basis, depending on the NME under investigation. This notice will also describe how the application process will function in greater detail and serve as an opportunity to provide additional comments on both the shift from a section A response to an application process as well as on specific fields in the application itself. In particular, the Department welcomes comments on whether the fields in the application and the supporting documents it requires are sufficient for a firm to demonstrate its eligibility for a separate rate without being unnecessarily burdensome for the Department or for importers.

The second part of this notice, drawing on interested parties' comments, describes the Department's proposal to introduce combination rates in all of its NME antidumping cases in more detail, and clarifies how combination rates would work in practice. Because the Department recognizes that assigning combination rates in all of its NME cases would be a change in practice, and because parties have raised questions about the implementation and administration of this method of assigning antidumping margins, the Department is giving the public an additional opportunity to comment on this proposed change in practice. The Department is particularly interested in comments addressing how combination rates might work in practice, on whether there are obstacles to its effective implementation, and what the implications of combination rates might be for the Department or for respondents.

The Department is not ruling out additional changes to its separate rates practice, and will consider changes to its policy and practice in other areas. For this notice, however, the Department is most interested in comments on the application process and on its draft application, as well as on the proposal to institute combination rates for all NME exporters. The proposed application and application process are not yet finalized and are subject to modification. Furthermore, the Department has not made a final decision with respect to the draft application on the Import Administration Web site or on combination rates for all NME exporters. The Department's position with respect to both of these issues will be finalized after it has analyzed the comments it will receive in response to this notice.

DATES:

Comments must be submitted by January 24, 2005.

ADDRESSES:

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

FOR FURTHER INFORMATION CONTACT:

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

SUPPLEMENTARY INFORMATION:

Background

In an NME antidumping proceeding, the Department presumes that all companies within the country are subject to governmental control and should be assigned a single antidumping duty rate unless an exporter demonstrates the absence of both de jure and de facto governmental control over its export activities. See Final Determination of Sales at Less Than Fair Value: Bicycles from the People's Republic of China, 61 FR 19026, 19027 (April 30, 1996). If an exporter demonstrates this independence in its export activities, it is eligible for a rate that is separate from the NME-wide rate. This separate rate is usually an individually calculated rate or a weighted-average of the rates of the investigated companies, excluding any rates that were zero, de minimis, or based entirely on facts available. The Department's separate rates test is not concerned, in general, with macroeconomic border-type controls (e.g., export licenses, quotas, and minimum export prices), particularly if these controls are imposed to prevent the dumping of merchandise in the United States. Rather, the test focuses on controls over the decision-making process on export-related investment, pricing, and output decisions at the individual firm level. See, e.g., Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from Ukraine, 62 FR 61754, 61757 (November 19, 1997); and Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 62 FR 61276, 61279 (November 17, 1997).

To establish whether a firm is sufficiently independent from government control in its export activities to be eligible to be assigned a separate rate, the Department analyzes each exporting entity under a test arising from the Final Determination of Sales at Less Than Fair Value: Sparklers from the People's Republic of China, 56 FR 20588 (May 6, 1991), as modified in the Final Determination of Sales at Less Than Fair Value: Silicon Carbide from the People's Republic of China, 59 FR 22585, 22587 (May 2, 1994) (Silicon Carbide). Under this test, the Department assigns separate rates in NME cases only if an exporter can demonstrate the absence of both de jure and de facto governmental control over its export activities. See Silicon Carbide and Final Determination of Sales at Less Than Fair Value: Furfuryl Alcohol from the People's Republic of China, 60 FR 22544, 22545 (May 8, 1995). In order to request and qualify for a separate rate, a company must have exported the subject merchandise to the United States during the period of investigation or review, and it must provide information responsive to the following considerations:

1. Absence of De Jure Control: The Department considers the following de jure criteria in determining whether an individual company may be granted a separate rate: (1) An absence of restrictive stipulations associated with an individual exporter's business and export licenses; (2) any legislative enactments decentralizing control of companies; and (3) any other formal measures by the government decentralizing control of companies.

2. Absence of De Facto Control: Typically, the Department considers four factors in evaluating whether each respondent is subject to de facto governmental control of its export functions: (1) Whether the export prices are set by, or subject to the approval of, a governmental authority; (2) whether the respondent has authority to negotiate and sign contracts and other agreements; (3) whether the respondent has autonomy from the central, provincial, or local governments in making decisions regarding the selection of its management; and (4) whether the respondent retains the proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses.

In an antidumping investigation or review, the Department currently assigns a weighted-average of the individually calculated rates, excluding any rates that were zero, de minimis, or based entirely on facts available, to exporters who have not been selected as mandatory respondents if they fulfill two requirements. First, they must submit a request for separate rates treatment, along with a timely response to section A of the Department's questionnaire. Second, the Department must determine, after reviewing the requesting companies' submissions, that separate rates treatment is warranted. See, e.g., Final Determination of Sales at Less Than Fair Value: Certain Circular Welded Carbon-Quality Steel Pipe from the People's Republic of China, 67 FR 36570, 36571 (May 24, 2002).

As it announced in its September 20, 2004 and May 3, 2004, notices in the Federal Register (69 FR 56188, 69 FR 24119), the Department is considering changes to the practice detailed above in response to the growing administrative burden of analyzing requests for separate rates (especially inadequate submissions requesting separate rates treatment), and in response to concerns that the separate rates test could be made more effective in determining whether a company is eligible for a separate rate. The Department has faced a large number of separate rate requests in three recent investigations involving two NME countries. See Notice of Final Determination of Sales at Less Than Fair Value: Wooden Bedroom Furniture from the People's Republic of China, 69 FR 67313 (November 17, 2004) (PRC Furniture); Notice of Final Determination of Sales at Less Than Fair Value: Certain Frozen and Canned Warmwater Shrimp from the People's Republic of China, 69 FR 70997 (December 8, 2004) (PRC Shrimp); and Notice of 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) (Vietnam Shrimp).

While the Department analyzed the large number of separate rates requests in these three investigations, it has become clear that these requests consume an inordinate amount of the Department's resources. Various parties have also raised questions that the Department's separate rates test, as currently constructed, may not offer the most effective means of determining whether exporters act independently of the government. Some parties have argued that the current separate rates test does not go far enough in analyzing whether a firm acts both de jure and de facto independently of the government in its export activities, whereas others have argued that the test already goes beyond what is necessary and poses an unnecessary burden on respondents and on the Department.

Another issue that has been raised by parties concerns the potential evasion of duties. Under current practice, separate rates are assigned only to exporters, and this assigned rate applies to all of the firm's exports regardless of which entity produced the subject merchandise. Various interested parties argued that this practice is unfair, because while the margins the Department calculates are taken from a discrete set of suppliers, the cash deposit applies to any merchandise exported by the exporter in question, regardless of whether it was supplied by the same producers that were investigated. The separate rate presumes that the exporters' activities are free from government control, but in allowing other “non-investigated” firms to benefit from this rate, these interested parties claim the Department undermines the effectiveness of its test. They argue further that the Department's current practice of accounting for changes in suppliers during administrative reviews is unsuited to industries with rapid shifts in sourcing and where suppliers can appear and disappear frequently. Finally, under the current practice, because the rates the Department assigns often vary widely from exporter to exporter (due partly to the NME- or country-wide rate), exporters assigned either the country-wide rate or a high calculated rate, can easily shift their shipments of subject merchandise to another exporter assigned a lower rate. Such diversion arguably undermines the effect of other antidumping duty margins the Department calculates.

As discussed above, the Department has provisionally decided to introduce an application process for evaluating separate-rate requests by companies that have not been selected as mandatory respondents. The appendix to this notice describes the rationale behind the separate-rate application, and the draft application itself is posted on the Import Administration Web site at the following address: http://ia.ita.doc.gov/. The appendix to this notice also describes the proposal to institute combination rates in all of its NME cases in more detail and offers the public another chance to comment on whether combination rates would be an effective remedy for the problems described above, and whether they would be consistent with the statute and regulations.

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. Consideration of comments received after the end of the comment period 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 development of any changes to its practice. All comments responding to this notice will be a matter of public record and will be available for public inspection and copying at Import Administration's Central Records Unit, Room B-099, between the hours of 8:30 a.m. and 5 p.m. on business days. 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 Web site 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, e-mail address: webmaster-support@ita.doc.gov.

Appendix

(1) The Department has provisionally decided to change its separate rates procedure for non-investigated firms that request a separate rate from a process in which an exporter fills out a Section A questionnaire to an application process. Exporters that the Department selects as mandatory respondents will continue to respond to the entire questionnaire, including Section A, but Section A will be updated to conform with what is included in the application. The draft application can be found at the following address: http://ia.ita.doc.gov/ . The draft application was designed to take into account concerns that the separate rates test could be improved to be a better measure of the export independence of firms, as well as concerns that the current test is too time-consuming and burdensome on the Department and on respondents. The application does not alter the standard laid out in Sparklers and Silicon Carbide for evaluating whether an applicant is subject to de jure or de facto government control. Rather, by drawing on the experiences of the recent NME investigations and interested parties' comments, the application process should be more straightforward and thorough while saving both the Department and applicants time and resources. In particular, by explicitly detailing which documents the Department will accept to substantiate a separate rates claim, the application should minimize the need for the extensive supplemental questionnaires that have proven to be burdensome and time-consuming. Since firms will have clear notice of what is required to document a separate rates claim, firms submitting incomplete applications will be rejected for separate rates status without supplementary questionnaires. Because adequate substantiation of a separate rates claim will be required and subject to verification, the application will be a meaningful test of a firm's eligibility for a separate rate.

The introduction of the application will be a dynamic process, where the Department would be ready to update the application as circumstances or experience warrants. In addition, the application would be tailored to some extent to each case. For example, the draft application's de jure section asks about various PRC government laws, which would obviously be changed in cases involving other NME countries. As discussed above, the application is intended to remedy problems that parties have identified with the current separate rates process. In the recent PRC Furniture, PRC Shrimp and Vietnam Shrimp cases, the Department often required several rounds of questionnaires to ascertain whether firms operated de jure and de facto independently of the government in their export activities. In these cases, several firms the Department had rejected for separate rates status at the preliminary determination returned, post-preliminary determination, with more evidence of their eligibility for a separate rate and then were granted a separate rate at the final determination. To the extent that such situations can be avoided in the future, both the Department and applicants will save time and resources, without undermining the Department's ability to enforce the antidumping law and without denying respondents the full opportunity to demonstrate their eligibility for a separate rate.

A primary goal of the separate rates application is to make it completely clear what documentation applicants must provide to demonstrate their eligibility for a separate rate, so as to avoid the need for the Department to issue supplemental questionnaires and avoid unnecessary rejections of applicants. Having drawn on the experiences of its recent investigations, as well as on comments from interested parties, the Department considers the application process to be both an effective analytical tool and one which does not place on applicants an unfair burden.

The application is streamlined to focus on those issues most relevant to separate rate eligibility; it requires firms to certify their eligibility for a separate rate, and it lists documents that respondents must submit in order to substantiate these certifications. Furthermore, the Department has incorporated questions not addressed currently in its standard NME Section A questionnaire that are pertinent to separate rates eligibility, and welcomes further suggestions in this area. While the Department reserves the right to issue supplemental questionnaires and verify applicants, such questionnaires and verifications function as further confirmation of firms' export independence, rather than as repetitions of what is expressly required by the application. As noted above, because the application is clear about what is required, the Department will reject incomplete applications without issuing supplemental questionnaires.

To streamline the process further, the application will be available for printing on the Import Administration Web site, so that firms that have not received paper copies of the application will be aware of the application, its requirements, and deadline for submission. The Department may consider in the future requiring firms to submit the application electronically, but this is not the case at the current time, and firms will be expected to submit their separate rates application in the same way they currently file any documents with the Department. The Department has determined that this application represents an improvement over current practice and is fair to all parties. Nonetheless, the Department welcomes comments on the application and on particular fields therein by the deadline listed above.

(2) The Department is seriously considering adopting “combination rates” (alternatively referred to as “chain” or “channel” rates) in all of its NME cases, as first proposed in the previous requests for comments in (69 FR 24119) and (69 FR 56188). In response to these requests for comments, some parties have made powerful arguments that combination rates are necessary for a more effective enforcement of the dumping margins the Department calculates. In particular, parties have argued that since the Department margin calculations are based on the factors of production of the producer that supplied the exporter during the period of investigation or review, the rates the Department assigns should only apply to those producers. In addition, these parties argue, NME exporters assigned either a high margin or denied a separate rate are free to export their merchandise through exporters assigned a lower rate, leading to a “funneling” of all the subject merchandise through the exporters with the lowest rates.

Other parties, however, have questioned the usefulness of combination rates, and have raised concerns that combination rates would place a difficult burden on the Department, on U.S. Customs and Border Protection, and on respondents. These parties argue that it is counterproductive to propose making separate rates supplier-specific at a time when the Department is seeking to expedite the handling of the increasing number of separate rate requests it receives. These parties also argue that it would be a step back for the Department to limit the application of the separate rates it grants to subject merchandise produced by particular suppliers, particularly when in many industries it is common for exporters to source their merchandise from whichever producer is currently offering the lowest price. Finally, these parties argue that whatever change in the margin that may result from a shift in supplier will be accounted for in the next administrative review.

The Department understands the concerns of both sides on this issue and recognizes that issuing combination rates in NME investigations and administrative reviews would constitute a significant change in practice. Accordingly, the Department will make a final decision only after it has conducted a full analysis of the advantages and disadvantages of this change in practice, with an opportunity for public participation. For this reason, and to clarify exactly how the Department proposes to implement combination rates, the Department is offering another opportunity for comment on this proposed change in practice.

Under current NME practice, the Department assigns exporter-specific separate rates, and not exporter-producer combination rates, with three exceptions. The first exception concerns exclusions, in which case the exporter that is excluded receives an exporter-producer combination rate so that the exclusion from the antidumping order only applies when the exporter sources from the same supplier(s) as in the original investigation. See sections 733(b)(3) and 735(a)(4) of the Tariff Act of 1930, as amended, and 19 CFR 351.107(b)(1). The second exception involves the Department's enforcement of the law as it relates to middleman dumping. When a producer/exporter sells to an unaffiliated middleman with the knowledge of the ultimate destination of the merchandise, and that middleman subsequently sells merchandise to the United States at less than fair value, the Department will calculate a combination antidumping duty rate for the producer/exporter and middleman in many cases. The third exception concerns the Department's policy on new shipper reviews, where the rate is assigned to the exporter-producer combination. See Import Administration Policy Bulletin 03.2: Combination Rates in New Shipper Reviews, dated March 04, 2003.

The Department is considering extending this practice of assigning exporter-producer combination rates to NME exporters receiving a separate rate so that only the specific exporter-producer combination that was specifically investigated or reviewed on the record by the Department receives the calculated rate for establishing the cash deposit rate for estimated antidumping duties. This would not mean that the separate rates analysis would be extended back to producers, or that producers would in any way be required to demonstrate their independence of government control. The separate rates test focuses exclusively on the independence of respondent's export activities from de jure and de facto government control.

Under combination rates, firms qualifying for a separate rate, including both mandatory respondents and other exporters applying for a separate rate, would be required to list all the suppliers whose merchandise they exported to the United States during the period of investigation. The rate the Department would assign as a cash deposit to an NME exporter that had passed the separate rates test would only apply to merchandise produced by those suppliers that had supplied subject merchandise to the exporter for export to the United States during the period of investigation. The Department would then issue instructions to Customs that this calculated rate would only apply to subject merchandise that is exported by the firm that has received that separate rate, and has been produced by one of the producers the firm certified as having supplied it during the period of investigation. Merchandise produced by other suppliers but exported by the respondent would receive the NME-wide cash deposit rate until the administrative review, when factors on this new supplier can be collected and final dumping duties assessed. This would happen even if the producer(s) outside the combination had supplied a different respondent during the period of investigation.

The following is an example of how combination rates would work in practice. Exporter A seeks a separate rate during the investigation and supplies the Department with the necessary certification and documentation to obtain separate rates status. Further, Exporter A certifies that it sourced 20 percent of its subject merchandise for export to the United States during the period of investigation from Producer B, 30 percent from Producer C, and 50 percent from Producer D. It makes no difference if Exporter A is affiliated with its producers or not. Exporter A demonstrates its independence from the government in its export activities, and receives a separate rate for cash deposit in the preliminary determination based on the firm's sales to the United States, and on the weighted factors of production of its three suppliers.

After the preliminary and final determinations, this cash deposit rate would apply to all of the merchandise exported by Exporter A and supplied by Producers B, C, and D (if they supplied Exporter A during the period of review), in any proportion. That is, Exporter A would be free to source exclusively from Producer B, despite it having been a relatively minor supplier during the period of investigation. If Exporter A desired to introduce a new supplier, Producer E, it would have to make at least one sale of merchandise produced by Producer E to the United States at the NME-wide cash deposit rate. This is because the separate rate it was originally assigned was derived from the factors of production only from the three original suppliers and thus only applies to merchandise produced by the three original suppliers.

For the administrative review, Exporter A would have the option to request that it be reviewed. During the review, the Department would again collect factors information from Producers B, C, and D, as well as from the new supplier, Producer E. Thus, the new cash deposit rate going forward would be based on information from all four suppliers, and the combination would then be expanded to include Producer E. Furthermore, since the final dumping duties would be assessed during the administrative review, any difference between the NME-wide cash deposit rate Exporter A paid for its exports from Producer E and its final dumping margin would be refunded to Exporter A.

The Department welcomes comments on the legal and administrative advisability of introducing combination rates in all of its NME cases. In addition, the Department welcomes comments on how combination rates might best be implemented.