Submitted by:

The Canadian Embassy

November 13, 1998

Introduction

The Department will recall the Embassy's letters of February 16, 1998 and May 22, 1998 that expressed serious concerns about a possible change in policy regarding the assessment by the Department of final anti-dumping duties. The Department should be aware that the Government of Canada regards the clarification of anti-dumping duty assessment policy, as proposed in the Federal Register Notice of October 15, 1998, as a profound change in policy and practice that will have significant and seriously adverse consequences for a great many Canadian exporters/resellers who handle merchandise that is produced in Canada and is subject or could be subject in the future to anti-dumping duties upon entry into the United States. Canadian authorities wish to emphasize that Canadian enterprises in particular will bear the preponderance of the impact of any such change in policy due to the integrated nature of the North American market and the consequent special nature of Canadian/U.S. trade.

In fact, it is highly likely that the great majority of direct exports to the United States that are made by non-manufacturers, whether they do minor processing or are resellers, distributors, exporters or trading houses, come from Canada. Further, given the magnitude of cross-border trade between the United States and Canada, particularly between related companies, such a change in policy could very well have an adverse impact on U.S. firms as well.

No Basis for Change

In its Notice of October 15, 1998, in which the Department proposes to clarify its interpretation of its liquidation regulations, no explanation is provided of the basis for this change in policy. The Department simply states that its practice of automatically liquidating the entries of resellers at the producers' cash deposit rates is inconsistent with the Department's assessment policy, suggesting that the Department was somehow acting inconsistently in the past. Section 351.212(c)(1) clearly states that if the Department receives no request and therefore does not conduct an administrative review of an order, anti-dumping or countervailing duties will be assessed at the rate at which the merchandise was entered.

Canadian authorities would therefore ask for the Department's explanation of the circumstances that gave rise to this proposed clarification. Is there evidence that the integrity of any anti-dumping duty order was harmed by any import from a reseller? If such evidence is not available, Canadian authorities submit that the Department has no reason to change its current policy. Further, if the Department has no such evidence, resellers will suffer the adverse consequences of a change in policy for which there are no grounds.

Knowledge of Producers

Presently, in order to pay the cash deposit rate of the producer of the merchandise they are exporting to or reselling in the United States, resellers declare the merchandise to have been produced by a Canadian entity to which a specific anti-dumping duty rate has been assigned. The Department is proposing that resellers be permitted to continue to pay a producer's cash deposit rate at the time of entry. However, it is also proposing that such entries be liquidated at the final assessment rate of the producer if, and only if, the Department determines, in the course of the administrative review, that the producer knew that merchandise sold to the reseller was destined for the United States. Otherwise, entries by resellers will be liquidated at the all-others rate. Since this is an unchanging trade-weighted average rate determined during the original investigation and not in any subsequent administrative review, it is a dumping rate that bears no relationship to the commercial circumstances of the current period of review. Consequently, many resellers can, and no doubt will be, liable for final assessment rates that will be at levels that are well above the cash deposit rate at the time of entry.

In addition to potentially applying a wholly unrealistic final anti-dumping duty rate on resellers, the Department's proposal could create a burden on producers with respect to whether they knew, or did not know, whether an unaffiliated reseller would resell certain merchandise to domestic customers or for export to the United States. When Canadian producers sell to domestic customers, they have no need and in fact no means of knowing where, to whom and at what price, the product is being resold. The fact that producers do not know that products are being shipped to the United States by the reseller is already addressed in the questionnaire and subsequent verification.

In the view of Canadian authorities, these are valid issues that must be considered more carefully by the Department before a change in policy in this area can be contemplated further.

Limitations of Resellers to Participate in Reviews

In its proposed clarification, the Department suggests that a reseller can request an administrative review and be assessed a specific anti-dumping duty rate which would then become the rate at which entries would be liquidated. It must be recognized by the Department that resellers, distributors, exporters and other intermediaries are simply unable to participate in administrative reviews to the same degree as producers. They do not operate sophisticated accounting systems which would enable them to participate in the kind of investigative process that the Department would normally impose on manufacturers. Resellers are, by definition, sellers rather than producers and, as such, sell products at many levels of trade, in large and small quantities, both domestically and in the export market, to a wide range of customers and in numerous shipments. Accordingly, the normal price comparison process may lead to invalid results.

In addition, resellers are almost invariably unable to provide certain other information that is necessary to an administrative review, such as, for example, costs of production. In this context, resellers could not participate in an administrative review without incurring a high risk of inviting the use of "facts otherwise available" to calculate a final anti-dumping duty rate.

Effective Date

If the Department decides to modify its policy in this regard, it should be prospective only and only made effective for review periods which have not yet started.

Alternative Approaches

Combination Rates (Section 351.107(c))

As far as Canadian authorities are concerned, the most equitable alternative to the current policy is use of Section 351.107(c) of the regulations. This provides the Secretary with the discretion to establish a combination rate for nonproducing exporters with multiple supplying producers. Such cash deposit rates, which would then be finalized in accordance with the appropriate producer's rate, would be based then on each combination of reseller and producer. Furthermore, although not specifically provided in regulations, the Department could also apply cash deposit and final duties based on the trade-weighed average rate assessed on each producer that supplied to the reseller. In other words, if a reseller is exporting merchandise that is produced by three different producers, then the cash deposit and final rate should be the weighted average of the specific rates found for all three producers.