Cost as a basis for normal value

 

Normal value is based on cost (or more precisely 'constructed value', which is discussed in more detail below) in two situations. First, prices cannot serve as the basis for normal value unless those prices are above the cost of producing and selling the merchandise. If the Commerce Department finds that home market prices or third country prices are below cost, then the Commerce Department must reject those prices and instead use constructed value as the basis for normal value.

 

For sales in other markets, the United States law requires the Commerce Department to look first to the prices of those sales in determining normal value. When there are no appropriate home market or third country prices to use — either because there are no sales or because the merchandise sold is too dissimilar — the Commerce Department turns to constructed value as the only remaining alternative for determining normal value.

 

Allegations by the petitioner

 

Allegations that the foreign market prices are below cost can arise in two ways. First, the petition itself may be based on cost of production data. It is increasingly common for petitioners to allege dumping based on a comparison of export prices to the United States market and the petitioner's estimate of cost. Often petitioners do not have access to information about home market prices or third country prices when they prepare their petition. It is sometimes easier for the petitioner to examine its own costs of production, adapt those costs to estimate the costs that should exist in the home market of the targeted country, and use the adjusted costs to calculate constructed value and estimated dumping margins. If the petitioner can obtain home market prices, it can make the 'below cost' allegation in the petition: Otherwise, the petitioner makes a specific allegation when the home market or third country prices are submitted in the initial questionnaire response by respondents.

 

Cost allegations can also arise later in the investigation. Even if the petition is not based on the United States domestic industry's costs, it is possible that the petitioner will develop such costs later in the investigation. It is common for petitioners to wait for the foreign company's responses and then use the information in those responses, especially information submitted to support a claimed difference-in-merchandise adjustment, to document an allegation of sales below cost. As a practical matter, the requirements for difference-in-merchandise adjustments (see 'Differences in physical characteristics' in chapter 3) now essentially require respondents to develop quite detailed cost information.

 

Timing of cost allegations

 

Legal standards concerning the timing of cost allegations have changed over the years. Initially, neither the statute nor the Commerce Department regulations imposed any specific requirements. In recent revisions to its regulations, the Commerce Department has finally set forth more precise deadlines concerning cost allegations. The basic rule for original investigations and administrative reviews is that a cost allegation must be filed 20 days after the foreign respondent has submitted its questionnaire responses.

 

The new regulation also provides that if there is some delay in the release of important information to the petitioner's lawyers, these deadlines may be extended. This provision seeks to prevent foreign companies from intentionally withholding certain critical information until late in the investigation so that the petitioner does not have time to analyse the information and file an allegation of sales below cost based on it.

 

In most cases, this new regulation means that foreign companies know when they face the risk of a cost investigation. In the early stages of the investigation, before the preliminary determination, there is a significant risk that the petitioner may make an allegation of sales below cost. After the new deadline, and especially after the preliminary determination, the foreign company can be reasonably certain that the investigation will not involve cost.

 

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