Another significant change to the United States anti-dumping law from the legislation implementing the Uruguay Round is the requirement that the Commerce Department deduct from the United States price an amount for profit (attributable to United States operations) in all situations in which United States sales are made through an affiliated company. There is no corresponding profit deduction for home market sales made through an affiliated company in the home market. This is just another example of the asymmetrical comparisons under the United States anti-dumping law. Given the manner in which the Commerce Department undertakes the calculation, this new deduction from the United States price could play an important part in the calculation of the anti-dumping margin.

 

In September 1997 the Commerce Department published fairly detailed guidelines on how the profit deduction is to be calculated for United States CEP transactions. Essentially, the Commerce Department undertakes a two-step process. First, the Commerce Department calculates the 'total actual profit' for all sales of the subject merchandise in both the United States and the comparison market. This example illustrates the Commerce Department methodology:

 

Net home market sales revenue	$7,250,000
Net United States market sales revenue (converted to home market currency)	$6,750,000
Total revenue for both markets	$14,000,000
Cost of manufacturing for home market products	-$4,000,000
Cost of manufacturing for United States market products	-$5,000,000
Home market selling expenses (both direct and indirect)	-$350,000
United States market selling expenses incurred in country of manufacture	-$300,000
United States selling expenses incurred in United States (both direct and indirect)	- $1,750,000
Home market movement/distribution	-$50,000
United States movement expenses incurred prior to entry into United States (e.g. freight, brokerage etc.)	-$75,000
United States movement expenses incurred in United States	-$90,000
Total costs and expenses for both markets	-$11,615,000
Total profit for both markets used in profit deduction calculation	$2,385,000

 

Second, the Department then allocates the total profit derived in step one to individual United States transactions based on the ratio of total expenses incurred in the United States to total costs and expenses incurred in both markets.

 

Note that 'total home market sales revenue' is equivalent to invoice prices to all customers minus discounts and rebates. In this regard, all home market sales of subject merchandise should be included, except sales to affiliated customers that do not pass the arm's-length test. In particular, unlike the calculation of the profit for constructed value purposes, the law explicitly allows inclusion of sales below cost price in the calculation of CEP profit deduction. Also note that the total cost of production should equal a fully allocated cost — including fixed overhead, general, selling and administrative, and financing expenses.

 

As indicated, the actual amount of the profit deduction is based on a factor equal to total expenses incurred in the United States divided by total costs and expenses of all products in both markets. This factor applied against total profit yields the total amount of profit to be allocated across all United States sales. The allocation should be based on the relative value of each United States model.

 

To illustrate, in the example above those expenses associated with the United States market total $7,215,000 (the sum of $5,000,000 plus $300,000 plus $1,750,000 plus $75,000 plus $90,000). This United States total is 62.1% of the total ($7,215,000 divided by $11,615,000). Therefore, the Commerce Department would attribute 62.1% of the total profit to the United States transactions. The allocation to each particular model would be based on the total value of sales of that particular model relative to total sales value in the United States market.

 

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