The United States legislation implementing changes to the WTO Anti-Dumping Agreement has significantly increased attention by the Commerce Department in analysing 'level of trade' differences in anti-dumping calculations. Prior to the new law, the Commerce Department provided for a level of trade adjustment pursuant to the broad statutory requirement that it adjust normal value to take into account 'differences in circumstances of sale'. Exporters claiming this adjustment were required to demonstrate costs in selling the same merchandise to different levels of trade. In practice, this proved extremely difficult and the adjustment rarely was made.

 

Under the new law, the Commerce Department is now required to adjust for level of trade differences between the two markets. The Commerce Department's regulations specify when it will determine that different levels of trade exist. Basically, the Commerce Department will find that sales are made at different levels of trade if they are made at different marketing stages — different places in the distribution chain — and there are substantial differences in selling activities among the proposed levels.

Essentially, in order to convince the Commerce Department that different levels of trade exist in the home market, the respondent has to demonstrate both that sales are made to different classes of customers (e.g. distributors and retailers) and that the respondent in fact performs different selling functions depending on the class of customer. For example, the respondent performs more sales-related services for a retailer than a distributor.

 

When United States sales are made through an affiliated company in the United States (now called constructed export price, or CEP, sales), the level of trade analysis is performed after all selling expenses incurred in the United States are deducted. Essentially, for CEP sales, the activities of the respondent consist of those selling activities related to the plant selling the merchandise to the affiliated United States importer. Typically, these selling activities are few, and so for the anti-dumping level of trade analysis CEP sales are generally considered to be fitrther back in the distribution chain than sales from the plant to unrelated customers. Consequently, if home market sales are made to retailers, the Commerce Department will generally consider the home market and United States sales to be at different levels of trade, necessitating an adjustment.

 

The calculation of the appropriate adjustment depends on whether: (1) there are any home market sales of the subject merchandise to distributors; (2) the sales to those home market distributors are shown to be at a different level of trade from the home market sales to the retailers; and (3) the home market sales to distributors are considered to be at the same level of trade as the CEP sales to the affiliated company in the United States market. If all of these factors exist, then the level of trade adjustment will equal the percentage difference between the weighted average price of all home market sales to retailers and the weighted average price of all home market sales to distributors. The percentage difference would then be applied to the weighted average price of the home market model sold to retailers that is the match for the CEP sale.

 

If there is only one level of trade in the home market - if all home market sales are made to retailers - then the Commerce Department will use home market indirect selling expenses in lieu of a calculated level of trade adjustment. That is, in this situation, home market indirect selling expenses will be deducted from the weighted average home market price, but only up to the amount of the deduction for United States indirect selling expenses.

 

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures