Significant Changes Proposed To US Department Of Commerce's Methodology On Market-Economy Purchases In NME Cases

Originally published July 5, 2012

Keywords: Department of Commerce, market-economy purchases, non-market economy, NME

On June 28, 2012, the US Department of Commerce (Commerce) published a notice in the Federal Register proposing to dramatically modify its regulation on the treatment of market-economy purchases in antidumping proceedings involving non-market economy countries (NME cases). Commerce invited public comments on the proposed change (the June 28 Notice).1

In NME cases, as a general rule, surrogate values are used to determine the antidumping margin, irrespective of the foreign NME producer's actual commercial practice. The regulation at issue, 19 C.F.R. § 351.408(c)(1), allows, under certain conditions, an exception to the general rule for the use of NME foreign producers' market-economy purchase prices usually to the subject foreign producer's advantage. However, in the June 28 Notice, Commerce proposes to significantly limit the availability of this exception to producers located in NME countries, by greatly raising the threshold for its application from market economy purchases accounting for 33 percent of total purchases by quantity to 85 percent.

In US antidumping cases, dumping margins are determined by comparing the weighted-average price for US sales charged by the individually examined foreign producer with the "normal value" of the subject merchandise. Because China and Vietnam are considered NME countries by the United States,2 in cases involving these two countries, normal value is calculated by valuing the subject foreign producer's factors of production3 in a "surrogate country," unless Commerce considers an exception to the surrogate value methodology appropriate under the circumstances.

In practice, the use of surrogate values often results in inflated dumping margins for foreign NME producers, sometimes well over 100 percent,4 which renders their continued exports to the United States virtually impossible.

This is because surrogate value suffers from the inherent deficiencies of not being specific to the input at issue and ignoring the business realities of the particular NME producer examined. For the same reason, the market-economy purchase price rule generally confers an opportunity for foreign NME producers to partially mitigate the damages that the application of surrogate values would cause and, therefore, should be closely monitored by those communities dealing with NME exports in the course of their...