A. SUMMARY OF PROVISIONS

The Agreement on Implementation of Article VI (Antidumping Agreement or Agreement) provides substantive and procedural rules for the conduct of antidumping investigations. Substantively, the Agreement preserves the ability of U.S. industries to obtain meaningful relief from dumped imports into the U.S. market and ensures U.S. exporters fair treatment in foreign antidumping investigations. Procedurally, the Agreement closely parallels existing U.S. law and practice. Unlike the 1979 Tokyo Round Antidumping Code (the 1979 Code), all countries which become members of the World Trade Organization (WTO) will be subject to the same antidumping rules.

Application of the WTO dispute settlement procedures in antidumping cases will greatly improve the ability of the United States to contest foreign antidumping actions against U.S. exporters that are inconsistent with the Agreement. The Antidumping Agreement also contains a special standard of review to be applied by WTO panels in resolving antidumping disputes. This standard will preclude panels from second-guessing U.S. antidumping determinations and from rewriting the terms of the Antidumping Agreement under the guise of legal interpretation.

The Agreement significantly improves on the 1979 Code in a number of ways. It incorporates many fundamental aspects of U.S. antidumping practice, including the right of workers to file and support petitions, the use of cumulative analysis in injury determinations, and the exclusion of below-cost sales in determining the fair price of imports. A Ministerial Decision accompanying the Agreement effectively acknowledges the legitimacy of anticircumvention measures, and, thus, does not inhibit the application of such measures by the United States. In addition, the Agreement adopts U.S. standards of transparency and procedural fairness, thereby ensuring that U.S. exporters will have the opportunity to defend their interests in foreign antidumping proceedings. In these and many other respects, the more detailed rules of the Agreement reflect existing U.S. law and practice.

The Agreement does require a number of changes in U.S. law, such as new standards for determining whether dumping margins are de minimis or import volumes are negligible and a new five-year "sunset" review provision. These changes do not diminish in any meaningful way the level of protection afforded U.S. industries from dumped imports.

1. Determination of Dumping

Article 1 sets forth the general principle that antidumping measures must be applied only under the circumstances provided for in Article VI of GATT 1994 and consistently with the procedures set forth in the Antidumping Agreement. Article VI, like U.S. law, permits action to be taken against dumped imports causing or threatening material injury to an established domestic industry or materially retarding the establishment of a domestic industry.

Article 2 provides, in much greater detail than the 1979 Code, specific rules for determining whether and to what extent dumping exists. It adopts the standard definition of dumping, i.e., a product is dumped within the meaning of the Agreement if its export price is less than its normal value. "Normal value" is defined as the comparable price for a product "like" the imported product when sold, in the ordinary course of trade, for consumption in the exporting country.

The Agreement recognizes that foreign home market prices may not always be available or usable as a basis for normal value. There may be no, or low volumes of, home market sales, or home market sales may be unusable because of a particular market situation. In the absence of usable home market prices, Article 2 provides that national authorities may establish normal value on the basis of either: (1) a representative price of the like product to an appropriate third country; or (2) the cost of producing the product plus a reasonable amount for administrative, selling and any other costs, and for profit, i.e., constructed value.

Footnote 2 clarifies the standard for determining when the volume of home market sales is viable. The home market normally is viable if home market sales constitute at least five percent of the volume of sales of the product to the country conducting the investigation. The five percent benchmark reflects existing Department of Commerce (Commerce) regulations and practice, but the use of sales to the country conducting the investigation as the basis for calculating the benchmark is a departure from existing U.S. law, which refers to export sales to countries other than the United States.

Article 2 reflects, for the first time, the U.S. practice of disregarding, for purposes of determining normal value, home or third country sales that are below the cost of production. Under Article 2.2.1, below-cost sales may be disregarded as not being in the ordinary course of trade if the sales are made:

in substantial quantities within an extended period of time (normally one year, but not less than six months); and

at prices which do not provide for the recovery of all costs within a reasonable period of time.

Footnote 5 provides that below-cost sales are in substantial quantities when either: (1) the weighted-average price of the merchandise in the period of investigation is lower than the weighted-average cost of that merchandise; or (2) below-cost sales constitute at least twenty percent of the volume sold in the home (or third country) market. Under Article 2.2.1, prices which are below cost at the time of sale but above the weighted-average unit cost of the merchandise over the period of the investigation provide for the recovery of costs within a reasonable time.

Again reflecting current U.S. practice and improving on the 1979 Code, Article 2.2 provides that national authorities should calculate costs on the basis of exporter's and producer's records, provided that such records are in accordance with generally accepted accounting principles in the exporting country and reasonably reflect the costs associated with producing and selling the merchandise. The Agreement provides more detailed rules regarding adjustments for non-recurring items of cost that benefit future and/or current production. It also includes the new requirement that cost calculations (for both constructed value and cost of production purposes) be adjusted "appropriately" for startup operations. Pursuant to footnote 6, this startup adjustment reflects costs at the end of the startup period or the most recent costs which reasonably can be taken into account if the startup period continues after the period of investigation.

Article 2.2.2 requires the national authorities to base profit and general selling and administrative costs on actual data pertaining to the exporter's or producer's production and sales in the ordinary course of trade (i.e., data pertaining to above-cost sales) of the foreign like product. When profits and costs cannot be determined this way, Article 2.2.2 sets forth three alternative methods of calculation, with no prescribed hierarchy:

costs and profits incurred by the producer or exporter in question on production and sales in its home market for the same general category of products;

the weighted-average of costs and profits incurred by other producers or exporters on production and sales of the same like product in the same market; and

any other reasonable method, as long as the amount calculated for profit does not exceed the amount generally realized by other producers or exporters on sales of the same general category of products in the same market.

Under current U.S. law, Commerce uses specified minimum percentages rather than actual data to calculate profit and general selling and administrative costs.

Article 2.4 establishes guidelines for comparing normal value and export price to calculate the margin of dumping. It includes a general requirement that comparisons be fair and provides specific requirements to achieve this, including requirements that comparisons be made at the same level of trade, normally at the ex-factory level, and between sales made as nearly as possible at the same time. As under existing U.S. law, Article 2.4 instructs national authorities to adjust for differences that affect price comparability, such as differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and other differences that are also demonstrated to affect price comparability. Footnote 7 recognizes that some of these elements may overlap, and admonishes national authorities not to double count adjustments.

If the importer is related to the exporter, Article 2.3 permits the use of the first sale to an independent buyer as the basis for constructed export price. Article 2.4 provides for additional adjustments to the constructed export price for costs, including duties and taxes, incurred between importation and resale, and for profits. National authorities also may make a level of trade adjustment to normal value if it is at a different level of trade than the constructed export price and this difference affects price comparability.

Finally, Article 2.4 requires the authorities to: (1) inform exporters of the information they must submit to ensure a fair comparison; and (2) not impose an unreasonable burden of proof on exporters.

Article 2.4.1 establishes rules for currency conversions. In a typical antidumping proceeding, prices or costs are denominated in a foreign currency and must be converted into U.S. dollars. Article 2.4.1 specifies that currency conversions should be made using the rate of exchange on the date of sale, which is defined as a date when the material terms of sale are established. Where a sale of foreign currency on forward markets is directly linked to the export sale, national authorities shall use the rate of exchange on the forward sale. Authorities are to ignore fluctuations in exchange rates, and, for purposes of investigations (not reviews) exporters are given at least sixty days to adjust their prices to reflect sustained changes in exchange rates which occurred during the period of investigation.

In a departure from current U.S. law, Article 2.4.2 provides that in investigations (not reviews), national authorities normally will establish dumping margins by comparing either:

a weighted-average of normal values to a weighted-average of export prices of comparable merchandise; or

normal value and export price on a transaction-to-transaction basis.

Where such comparisons are inappropriate, however, the United States' current methodology is authorized. Authorities may compare a weighted-average normal value to individual export transactions, provided that there is a pattern of prices that differs significantly and that they explain why a weighted-average- to-weighted-average or transaction-to-transaction comparison is not appropriate.

2. Determination of Injury

Article 3 prescribes standards for injury determinations that, with limited exceptions, are little changed from those in the 1979 Code and current U.S. law.

Article 3.3 expressly authorizes the longstanding U.S. practice of cumulating the impact of imports from multiple countries simultaneously subject to investigations. National authorities may cumulate imports if: (1) the dumping margin for each country is more than de minimis; (2) the volume of imports from each country is not negligible; and (3) a cumulative assessment is appropriate in light of the conditions of competition between the imported products and between the imports and the domestic like product.

In addition to the factors listed in the 1979 Code that national authorities must examine in determining the impact of dumped imports on the domestic industry, Article 3.4 adds a requirement to consider the magnitude of the margin of dumping. As with the 1979 Code, however, the list of factors is not exhaustive, and no one or several of the factors necessarily gives decisive guidance.

Like the 1979 Code and U.S. law, Article 3.5 requires that national authorities examine all the information presented and determine whether there is a sufficient causal link between unfairly traded imports and the injury to the domestic industry. The Agreement also requires that national authorities examine factors other than unfairly traded imports which may be injuring the domestic industry. Article 3.5 cautions authorities not to attribute injury from such other factors to the dumped imports.

Consistent with the 1979 Code and current U.S. law, Article 3.7 requires that a determination of threat of material injury be based on facts, and not merely on allegation, conjecture, or remote possibility. The Agreement adds a non-exhaustive list of factors that national authorities must examine in considering the existence of threat of material injury. The list is similar to, but less extensive than, the one in current U.S. law. As in U.S. law, no one of these factors can necessarily give decisive guidance. Instead, the totality of the factors considered must lead to the conclusion that further dumped imports are imminent and that material injury would occur unless action is taken. Article 3.8 provides that national authorities shall consider and decide threat of material injury with special care.

3. Definition of Domestic Industry

The definition of domestic industry in Article 4 is virtually identical to that in the 1979 Code and current U.S. law. The domestic industry consists of domestic producers as a whole of products that are like the merchandise under investigation, or those producers whose collective output constitutes a major proportion of the total domestic production of such products. Producers who are related to the exporters or importers, or who are themselves importers of the allegedly dumped product, may be excluded from the industry. Footnote 11 defines "related" in terms of one entity's ability to control another.

Consistent with the 1979 Code and U.S. law, Article 4 also permits national authorities to define the domestic industry to include regional industries. If the constitution of a WTO member, such as the U.S. Constitution, does not permit the levying of duties only on imported merchandise consigned for final consumption to the region in question, duties may be levied on a nation-wide basis only if: (1) the national authorities give exporters to the region an opportunity to enter into suspension agreements; and (2) the duties cannot be levied only on the products of those specific foreign producers that supply the region in question.

4. Procedural Rules for Investigations and Collection of Evidence

Articles 5 and 6 significantly improve the procedural rules governing the initiation and conduct of antidumping investigations, making them more transparent and objective. Article 5.2 contains new requirements for applications to initiate antidumping investigations (i.e., petitions) which closely parallel current U.S. practice. Article 5.2 also requires that an application contain evidence reasonably available to the applicant regarding dumping, injury, and causation and that simple assertion, unsubstantiated by relevant evidence, is not sufficient. Article 5.3 adds a new requirement that national authorities examine the accuracy and adequacy of the information in an application to determine whether the evidence is sufficient to justify initiation of an investigation.

Article 5.4 establishes a predictable standard for determining whether an application is supported by the domestic industry. Current U.S. law presumes that a petition is filed on behalf of the domestic industry unless producers accounting for a majority of U.S. production of the like product object. In contrast, Article 5.4 requires that domestic producers accounting for more than twenty-five percent of total domestic production of the like product expressly support a petition, and requires more support than opposition from those members of the domestic industry expressing a view on the application. National authorities may use statistically valid samples to determine industry support for fragmented industries involving an exceptionally large number of producers. In addition, in an important recognition of the role of labor, footnote 14 acknowledges that both management and labor may file and support applications for the initiation of an investigation.

Article 5.5 prohibits publicizing an application prior to the decision to initiate an investigation, and requires that the government of the exporting country be notified of the receipt of a properly documented application prior to initiation.

Article 5.8 establishes a new requirement that the national authorities must terminate an investigation if the authorities satisfy themselves that the margin of dumping is de minimis, which is defined as less than two percent of the export price, or the volume of imports is negligible, which is defined as normally less than three percent of the volume of total imports of the like product into the importing country. The negligibility rule does not apply if those countries whose imports are simultaneously subject to investigation and who individually account for less than three percent of imports collectively account for more than seven percent of such imports. Margins are de minimis if less than 0.5 percent under current Commerce standards. The U.S. International Trade Commission (Commission) currently does not have any specified numerical thresholds for negligible imports.

Article 6 establishes more detailed rules than the 1979 Code regarding the gathering of evidence and the general procedures for antidumping investigations. These rules generally parallel existing U.S. rules and practices, and should result in a substantial improvement in the transparency and procedural fairness of antidumping proceedings conducted by foreign authorities.

In addition to the existing procedures in the 1979 Code, Article 6 specifies that foreign exporters or producers will be given at least 30 days to respond to questionnaires, and encourages national authorities to grant extensions whenever practicable. Interested parties may present information orally, provided that the information is reduced to writing and made available to other interested parties. To promote transparency, Article 6 requires the national authorities to provide the full text of the application to known exporters and written evidence submitted by one interested party to other interested parties, subject to confidentiality requirements.

All interested parties must be given timely opportunities to: (1) see all non-confidential information that is relevant to their cases and that is used by the authorities; and (2) present their views on the basis of such information. The term "interested parties" includes, but is not limited to, exporters, foreign producers, importers, the government of the exporting country, producers of like products in the importing country, and trade associations.

Article 6 requires an interested party supplying confidential information to provide a meaningful non-confidential summary of the information, unless that party explains why the information cannot be summarized. This requirement is derived from current U.S. practice. The definition of confidential information continues to be the same as that in the United States for "business proprietary information."

In an addition to the 1979 Code, Article 6.6 requires that national authorities check the accuracy of the information supplied by interested parties if the authorities rely on such information, unless the authorities use the information as "facts available" (i.e., "best information available" under current U.S. law). Annex I to the Agreement provides detailed procedural rules for "on-the-spot investigations" (i.e., "verifications" under U.S. law) which balance the investigating country's need for information, the exporting country's sovereignty, and the investigated parties' need for reasonable advance notice of verification and protection of confidential information. Annex I recognizes the use of non-governmental experts in verifications. Article 6.7 requires the authorities to provide the results of verification in a foreign country to the firms concerned and to persons who filed the application for an investigation, subject to confidentiality requirements.

Like the 1979 Code and U.S. law, the Agreement permits national authorities to base preliminary and final determinations on the "facts available" whenever an interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period, or significantly impedes the investigation. Annex II sets the standards for using "facts available," including: (1) how national authorities should gather and use information; (2) what weight should be given to information not submitted in the form requested; (3) use of secondary sources; and (4) the consequences of failure to cooperate in an investigation.

Article 6.9 requires national authorities, before making a final determination, to inform all interested parties of the essential facts under consideration which form the basis for the determination, in sufficient time for the parties to defend their interests.

Consistent with existing U.S. practice, Article 6.10 establishes as a general rule that national authorities calculate an individual margin of dumping for each known exporter or producer. If there is a large number of parties or types of products involved which makes the calculation of individual dumping margins for all companies impracticable, the authorities may limit their examination either: (1) to a reasonable number of interested parties or products by using statistically valid samples; or (2) to the largest percentage of the export volume which reasonably can be investigated. Article 6.10 expresses a preference that, in limiting an investigation, national authorities consult with concerned exporters, producers, or importers and obtain their consent.

Article 6.10.2 specifically allows national authorities to use an "all-others" rate for firms that are not individually investigated. The authorities, however, should calculate individual rates for firms who voluntarily provide information, except where the number of such voluntary respondents is so large that the calculation of individual dumping margins for all such respondents would be unduly burdensome to the authorities and would prevent the timely completion of the investigation. Article 9.4 defines the "all others" rate as the weighted-average margin of dumping for the exporters examined, excluding zero or de minimis margins and margins based on facts available.

Article 6.12 ensures that industrial users of the product under investigation and representative consumer organizations, if the product is commonly sold at retail, have adequate opportunities to submit relevant information regarding dumping, injury, and causality. This provision is fully consistent with existing U.S. practice which permits any party to submit comments to Commerce and the Commission. Article 6.13 requires that authorities take due account of difficulties experienced by interested persons, particularly small companies, in supplying requested information and provide any assistance practicable, given the statutory deadlines authorities must meet. Commerce and the Commission currently provide such assistance.

Article 6.14 provides that the procedures set forth in Article 6 are not intended to prevent national authorities from expeditiously initiating, conducting, or concluding an investigation in accordance with the provisions of the Agreement.

5. Provisional Measures

Article 7 specifies rules for the application of provisional measures (i.e., under U.S. law, the suspension of liquidation of entries of merchandise subject to an antidumping proceeding and the imposition of a security requirement for potential antidumping duties). Article 7 allows national authorities to apply provisional measures if: (1) an investigation, with public notice, has been properly initiated and interested parties have been given adequate opportunities to submit information and make comments; (2) there is a preliminary affirmative determination of dumping and injury; (3) provisional measures are judged necessary to prevent injury during the investigation; and (4) at least sixty days have passed from the date of initiation of the investigation. The sixty-day rule was added because some countries imposed provisional measures only a few days after initiating an investigation, thereby depriving exporters of any opportunity to defend their interests. Other rules regarding the application of provisional measures generally follow the 1979 Code.

6. Price Undertakings

Article 8, is little changed from the 1979 Code and sets forth the rules applicable to price undertakings (i.e., suspension agreements under U.S. law). During the Uruguay Round, some countries proposed that national authorities be required to provide detailed, case-specific justifications for declining to enter into suspension agreements. The United States successfully resisted these proposals, and the relevant provisions of the Agreement expressly recognize that authorities may decline to enter into undertakings where acceptance would be impractical, (e.g., if the number of actual or potential exporters is too great) or for other reasons, including reasons of general policy. Article 8 also provides that the authorities must issue affirmative preliminary determinations of dumping and injury before seeking or accepting price undertakings. To the extent practicable, authorities should provide exporters with the reasons for rejecting an undertaking, and, to the extent possible, provide exporters an opportunity to comment on the rejection.

7. Imposition and Collection of Antidumping Duties

Repeating the basic provisions of the 1979 Code, Article 9 sets forth rules regarding the imposition and collection of antidumping duties once a definitive duty (i.e., an "antidumping duty order" under U.S. law) is imposed. National authorities must collect duties, if imposed, in appropriate amounts on a non-discriminatory basis not exceeding the dumping margin. National authorities have discretion to decide whether to impose antidumping duties and whether to make such duties equal to the full dumping margin.

Article 9.3 establishes new rules regarding the assessment of antidumping duties on a retrospective basis, as in the United States, and on a prospective basis, as in some other countries and the European Union. If the antidumping duties are assessed retrospectively, the determination of final liability for antidumping duties normally will be made within twelve months, and in no case more than eighteen months, after the request for a final assessment is made. The national authorities must promptly pay any refunds due, normally within ninety days after the determination of final assessment, and provide an explanation, if requested, for any delay. These deadlines may be delayed if the duty order is challenged in court.

Article 9.3 also establishes a standard for making refunds when authorities use a constructed export price. Article 9.4 adopts new rules for applying antidumping duties to non-investigated firms, expressly authorizing the application of an "all others" rate to such firms. Finally, Article 9.5 establishes special procedures for imposing antidumping duties on exporters or producers who did not export the product to the importing country during the original period of investigation (so-called "new shippers"). National authorities must initiate and conduct new shipper reviews on an accelerated basis, as compared to normal assessment and review proceedings. Authorities may not levy final antidumping duties on exports from new shippers while the review is pending, but may apply provisional measures to ensure that final duties, if any, can be levied retroactively on entries of subject merchandise covered by the review.

8. Retroactivity

Article 10 sets forth rules regarding the retroactive application of antidumping duties, making few changes to the 1979 Code on which current U.S. law is based. It establishes the general principle that provisional measures, in the case of a preliminary determination, and antidumping duties, in the case of a final determination, will apply to imports entered for consumption after the respective determinations are made.

Article 10 provides several exceptions to this general principle that permit the national authorities to apply final duties to imports entered at an earlier stage of an investigation. First, as under current U.S. law, national authorities may apply definitive antidumping duties from the date of application of provisional measures if the final injury determination is based on present material injury. Second, as under current law, national authorities may apply definitive antidumping duties from the date of application of provisional measures if the final injury determination is based on threat of material injury if the authorities determine that but for the application of provisional measures injury would have occurred. Third, as under current law, national authorities may apply final antidumping duties up to ninety days prior to the application of provisional measures if the authorities determine that "critical circumstances" exist.

Article 10.7 permits national authorities to apply measures such as withholding of appraisement to make it possible to collect final duties retroactively. In no case, however, may authorities levy duties on products imported before the date of initiation of the investigation.

9. Duration and Review of Antidumping Duties and Price Undertakings

Article 11 addresses the duration and review of antidumping duties and price undertakings. As in the 1979 Code, it requires that antidumping measures remain in force only as long as they are necessary to counteract injurious dumping. It also gives interested parties the right to request authorities to review whether the continued imposition of dumping duties is necessary to offset dumping or whether injury would be likely to continue or recur if the duty were removed or varied.

For the first time, the Agreement sets a time limit on the imposition of antidumping measures. Article 11.3 requires that duties or price undertakings terminate (or "sunset") not later than five years from the date of: (1) their imposition; (2) the most recent review that covered both dumping and injury; or (3) the most recent "sunset" review. During the negotiations, some countries proposed that antidumping and countervailing duty orders and suspended investigations should be revoked or terminated immediately if they had been in effect for more than five years as of the date of entry into force of the WTO Agreement. The United States resisted these efforts, and the transition rules in Article 18.3 provide that existing antidumping and countervailing duty measures shall be deemed to be issued as of the date of entry into force of the WTO Agreement for the particular member imposing the measure.

Either as a result of a request from the domestic industry or on their own initiative, national authorities may conduct a "five-year" review to determine whether termination of the antidumping measure would be likely to lead to the continuation or recurrence of dumping and injury. The duty may remain in force pending the outcome of such a review, and may continue for another five years if the authorities make affirmative findings of likely continuation or recurrence of dumping and injury. A zero or de minimis dumping margin at the time of the five-year review does not mean there is no likelihood of the continuation or recurrence of dumping and injury.

10. Requirement for Public Notice and Explanation of

Determinations

In a significant improvement over the 1979 Code, the Agreement establishes detailed rules regarding public notice and explanation of determinations. To make national antidumping systems more transparent, Article 12, consistent with U.S. law, requires public notice of all significant determinations during the course of an antidumping proceeding with sufficiently detailed explanations of material issues at each stage of the antidumping proceeding. Footnote 23 permits authorities to publish abbreviated public notices, provided that the details of the determination are included in a separate report that is readily available to the public. This preserves the Commission's existing practice of publishing a notice of its determinations in the Federal Register and its full determinations in a separate publication.

11. Judicial Review

In another improvement over the 1979 Code, Article 13 requires that each WTO member with an antidumping law maintain judicial, arbitral, or administrative tribunals or procedures for the prompt review of final antidumping determinations in investigations and reviews. Such tribunals or procedures must be independent of the authorities responsible for the determination or review in question. The current U.S. system of judicial and binational panel review (in the case of antidumping proceedings involving Canada or Mexico) satisfies the requirements of Article 13.

12. Consultation and Dispute Settlement

Article 17 acknowledges the application of the Dispute Settlement Understanding (DSU) to disputes arising under the Antidumping Agreement. The provisions set forth in Articles 17.4 through 17.7 are special and additional dispute settlement rules within the meaning of Article 1.2 of the DSU. As such, they supersede the DSU rules to the extent of any difference.

Article 17.5(ii) provides that in reviewing antidumping actions taken by national authorities, the "scope" of WTO panel review will be based upon "the facts made available in conformity with appropriate domestic procedures to the authorities of the importing Member." Thus, as is the case in domestic judicial review, WTO panel review should be limited to the facts made available to the agency in conformity with the agency's procedures. Further, panel review should not constitute a reconsideration of the administrative proceedings, but should determine whether the agency's investigation of facts was properly conducted and its evaluation was unbiased and objective.

Article 17.6 contains a special standard of review, which is analogous to the deferential standard applied by U.S. courts in reviewing actions by Commerce and the Commission. It provides that:

a WTO panel may not reevaluate the factual findings of the national authorities if the national authorities' determination was objective and unbiased, even though the panel might have reached a different conclusion; and

where the language of the Agreement may be interpreted in more than one way, a panel must confirm a determination by national authorities that conforms to one of the permissible interpretations of the Agreement.

Article 17.6 ensures that WTO panels will not second-guess the factual conclusions of the agencies, even in situations where the panel might have reached a conclusion different from that of the agency. In addition, Article 17.6 ensures that panels will not be able to rewrite, under the guise of legal interpretation, the provisions of the Agreement, many of which were deliberately drafted to accommodate a variety of methodologies.

A Ministerial Declaration accompanying the Uruguay Round Agreements provides for the "consistent resolution" of disputes arising from the imposition of antidumping and countervailing duty measures through the application of the Article 17.6 standard of review to both types of disputes. A separate Ministerial Decision provides that Article 17.6 will be reviewed three years after entry into force of the WTO to consider whether it should be applied to other agreements.

13. Miscellaneous Provisions

Articles 14, 15, and 16 incorporate provisions from the 1979 Code regarding antidumping actions on behalf of a third country, application of the rules to developing country members, and the establishment of a Committee on Antidumping Practices. Article 18 contains miscellaneous provisions, including transition rules regarding the application of the Agreement to outstanding antidumping measures. Article 18.3 makes clear that the Agreement applies only to investigations or reviews initiated pursuant to applications made on or after the date the WTO Agreement enters into force for a member. Thus, for example, the United States need not apply the provisions of the Agreement to investigations or reviews that are pending as of the date the WTO Agreement enters into force for the United States. Article 18.3 does not require or suggest that the rules contained in the Agreement apply equally to investigations and administrative reviews.

There are two express exceptions to the general transition rule in Article 18.3. In the case of refund procedures under Article 9.3, national authorities will use the rules in effect at the time of the most recent determination or review applicable to the calculation of dumping margins. In addition, the five-year period for sunset reviews of existing antidumping measures will commence on the date the WTO Agreement enters into force for a Member. Therefore, the five-year period for U.S. antidumping duty orders, findings, and suspension agreements in existence on the date of entry into force of the WTO Agreement for the United States will begin on that date.

14. Decision on Anticircumvention

The draft Antidumping Agreement of the December 1991 Draft Final Act (referred to as the "Dunkel Draft") contained very weak anticircumvention provisions. The Administration succeeded in deleting these provisions from the final Antidumping Agreement and in obtaining a Ministerial Decision that recognizes the "problem" of circumvention and the desirability of having uniform rules on anticircumvention as soon as possible. The Decision refers the matter to the Committee on Anti-Dumping Practices for resolution. The Ministerial Decision constitutes a recognition of the legitimacy of anti-circumvention measures and does not preclude members from maintaining, modifying, or enacting anticircumvention measures at this time.

B. ACTION REQUIRED OR APPROPRIATE TO IMPLEMENT THE AGREEMENT

Amendments to the antidumping statute are either necessary or appropriate to implement Article 2 of the Antidumping Agreement, which establishes rules regarding the identification and measurement of dumping, and Article 14 of the Antidumping Agreement, which addresses antidumping investigations initiated on behalf of a third country. Amendments necessary or appropriate to implement both the Antidumping Agreement and the Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) are discussed in Part C below. The following discussion includes not only a description of the legislation itself, but also a description of how the Department of Commerce (Commerce) will apply the law. The Administration intends that Commerce will amend the applicable regulations, 19 CFR 353, to reflect the changes described below. Except where otherwise noted, these amendments are made to provisions of title VII of the Tariff Act of 1930, as amended (the Act) (19 USC 1671 et seq.).

Various sections of the bill change the nomenclature of the existing statute to conform to the terminology used in the Agreement. The term "export price" replaces the term "purchase price," and "constructed export price" replaces the term "exporters sales price." "Normal value" replaces the term "foreign market value." Because the Agreement uses the term "like product" to refer to both foreign and domestic merchandise, the term "foreign like product" is substituted for "such or similar merchandise," and the term "domestic like product" is substituted for the term "like product." What formerly was referred to as the "class or kind" of merchandise subject to investigation or covered by an order is now referred to simply as the "subject merchandise."

The substitution of terms from the Agreement is not, in itself, intended to affect the meaning ascribed by administrative and judicial interpretation to the replaced terms. Also, the bill is not intended to codify or overturn various benchmarks or rules of thumb that Commerce has developed for purposes of administering the antidumping law, except where such benchmarks or rules would be inconsistent with the Agreement.

1. Definition of Dumping

Sections 223 and 224 of the bill amend sections 772 and 773 of the Act, establishing new rules regarding the determination of export price or constructed export price and normal value. Under new section 773(a), as under existing law, the preferred method for identifying and measuring dumping is to compare home market sales of the foreign like product to export sales to the United States. Consistent with the Agreement, if home market sales of a foreign like product do not exist or are not useable as a basis for determining normal value, Commerce may identify and measure dumping by comparing the export price or constructed export price to normal value based on either: (1) sales of the foreign like product to a country other than the United States; or (2) constructed value. The requirement of Article 2.4 of the Agreement that a fair comparison be made between the export price or constructed export price and normal value is stated in and implemented by section 773. To achieve such a fair comparison, section 773 provides for the selection and adjustment of normal value to avoid or adjust for differences between sales which affect price comparability.

2. Price-to-Price Comparisons

Amended sections 773(a) (which defines, in part, normal value) and 772 (which defines export price) provide for the identification and measurement of dumping on the basis of price-to-price comparisons.

a. Market Viability and Third Country Sales

(1) Market Viability

New section 773(a)(1)(C) establishes general rules for determining when Commerce may base normal value on home market sales in the exporting country. (In Commerce practice, this is referred to as determining the "viability" of the home market.) The volume of sales in the home market normally will be deemed insufficient, i.e., the home market will not be considered usable if the quantity of sales by the exporter in the home market is less than five percent of the quantity of sales by the exporter to the U.S. market. This is a change from current law, under which the volume of home market sales is compared to the volume of sales to countries other than the United States.

The Administration has adopted the standard in the Antidumping Agreement that sales in the home market "normally" will be considered of sufficient quantity to render the home market viable if they are five percent or more of sales to the United States. The Administration intends that Commerce will normally use the five percent threshold except where some unusual situation renders its application inappropriate. A clear standard governing most cases is necessary because Commerce must determine whether the home market is viable at an early stage in each proceeding to inform exporters which sales to report. In unusual situations, however, home market sales constituting less than five percent of sales to the United States could be considered viable and home market sales constituting more than five percent of sales to the United States could be considered not viable.

The five percent test normally will be applied by comparing the quantity of merchandise sold in the home market to the quantity of merchandise sold in the U.S. market. In measuring the quantity of sales, Commerce may consider the number of items, weight, or other measures it considers appropriate. Occasionally, however, (such as when the merchandise in question is composed of both finished products and parts), the quantity sold will not be a reliable indicator of volume. In such cases, Commerce may measure viability on the basis of the value of merchandise sold.

The five percent benchmark is derived from current U.S. regulations. However, the use of sales to the United States as the benchmark for determining the viability of the home market is a change from the current statute, which requires that the quantity of goods sold in the home market be compared to quantities sold to countries other than the United States. This change will prevent the use of "thin" home markets as the basis for identifying dumping. The viability of a market will be assessed based on sales of all merchandise subject to an antidumping proceeding, not on a product-by-product or model-by-model basis.

Consistent with the Agreement, new section 773(a)(1)(C)(iii) provides that Commerce may determine that home market sales are inappropriate as a basis for determining normal value if the particular market situation would not permit a proper comparison. The Agreement does not define "particular market situation," but such a situation might exist where a single sale in the home market constitutes five percent of sales to the United States or where there is government control over pricing to such an extent that home market prices cannot be considered to be competitively set. It also may be the case that a particular market situation could arise from differing patterns of demand in the United States and in the foreign market. For example, if significant price changes are closely correlated with holidays which occur at different times of the year in the two markets, the prices in the foreign market may not be suitable for comparison to prices to the United States.

Finally, the legislation makes conforming changes to section 773(d) of the Act, which addresses the viability of the home market in situations involving multinational enterprises.

(2) Third Country Sales

New section 773(a)(1)(B)(ii) establishes rules for using third country sales. Unlike the existing law, which permits the use of sales to multiple third countries, this section permits only the use of sales to a single third country. As with home market sales, the third country market must be "viable" (i.e., sales to the third country must not be less than five percent of sales to the United States), and the particular market situation in the third country must not prevent a proper comparison. In addition, consistent with the Agreement, the price to the third country must be representative.

b. Export Price and Constructed Export Price

(1) Identification of the Starting Price

New section 772 retains the distinction in existing law between "purchase price" (now called the "export price") and "exporters sales price" (now called "constructed export price"). If the first sale to an unaffiliated purchaser in the United States, or to an unaffiliated purchaser for export to the United States, is made by the producer or exporter in the home market prior to the date of importation, then Commerce will base its calculation on export price. If, before or after the time of importation, the first sale to an unaffiliated person is made by (or for the account of) the producer or exporter or by a seller in the United States who is affiliated with the producer or exporter, then Commerce will base its calculation on constructed export price. Notwithstanding the change in terminology, no change is intended in the circumstances under which export price (formerly "purchase price") versus constructed export price (formerly "exporters sales price") are used. The bill adds a new definition of "affiliated person" at section 771(33) which is described below. The use of this definition renders obsolete existing section 771(13), which defines "exporter," and that section is eliminated by section 222(i)(2) of the bill.

(2) Adjustments to Export Price and Constructed Export Price

Under new section 772(c)(1), Commerce will calculate export price and constructed export price by adding to the starting prices: (1) packing costs for shipment to the United States, if not included in the price; (2) import duties that are rebated or not collected due to the exportation of the merchandise (duty drawback); and (3) countervailing duties attributable to export subsidies. Section 772(c)(2) requires that Commerce reduce export price to account for: (1) transportation and other expenses, including warehousing expenses, incurred in bringing the subject merchandise from the original place of shipment in the exporting country to the place of delivery in the United States; and (2) if included in the price, export taxes or other charges imposed by the exporting country. These adjustments have not changed from current law.

Additionally, under new section 772(d), constructed export price will be calculated by reducing the price of the first sale to an unaffiliated customer in the United States by the amount of the following expenses (and profit) associated with economic activities occurring in the United States: (1) any commissions paid in selling the subject merchandise; (2) any expenses which result from, and bear a direct relationship to, selling activities in the United States; (3) any selling expenses which the seller pays on behalf of the purchaser (assumptions); (4) any "indirect selling expenses" (defined as selling expenses not deducted under any of the first three categories of deductions); (5) any expenses resulting from a manufacturing process or assembly performed on the merchandise after its importation into the United States (except in the limited circumstances discussed below); and (6) an allowance, as explained below, for profit allocable to the selling, distribution, and further manufacturing expenses incurred in the United States. The deduction of profit is a new adjustment in U.S. law, consistent with the language of the Agreement, which reflects that constructed export price is now calculated to be, as closely as possible, a price corresponding to an export price between non-affiliated exporters and importers.

As under current law, Commerce is directed by section 772(d)(1)(A) to deduct commissions from constructed export price, but only to the extent that they are incurred in the United States on sales of the subject merchandise.

Direct selling expenses are defined as expenses which result from and bear a direct relationship to the particular sale in question. Section 772(d)(1)(B) provides a non-exhaustive list of examples of expenses that Commerce typically will consider as direct selling expenses when reported on an appropriate transaction-specific basis, and will deduct from constructed export price to the extent they are incurred after importation. The Administration does not intend to change Commerce's current practice, sustained by the courts, of allowing companies to allocate these expenses when transaction-specific reporting is not feasible, provided that the allocation method used does not cause inaccuracies or distortions.

Section 772(d)(1)(C) provides for the deduction of selling expenses which are assumed by the seller on behalf of the buyer. In practice, Commerce has treated these expenses in the same manner as the direct selling expenses in section 772(d)(1)(B). Their separate treatment in the statute is intended merely to provide a more precise definition, and not to change the calculation of export price or constructed export price.

Section 772(d)(1)(D) provides for the deduction of indirect selling expenses from constructed export price. Indirect selling expenses are expenses which do not meet the criteria of "resulting from and bearing a direct relationship to" the sale of the subject merchandise, do not qualify as assumptions, and are not commissions. Such expenses would be incurred by the seller regardless of whether the particular sales in question are made, but reasonably may be attributed (at least in part) to such sales.

Section 772(d)(2) is not intended to effect any substantive change in the deduction made under the current statute for value added from processing or assembly in the United States, with two exceptions. First, Commerce's current calculation of profit on value added from processing or assembly will be discontinued because the deduction for profit is now made under section 772(d)(3). Second, new section 772(e) establishes a special rule that allows Commerce to calculate constructed export price where a substantial amount of value is added after importation, as discussed below.

Section 772(d)(3) requires Commerce, in determining the constructed export price, to identify and deduct from the starting price in the U.S. market an amount for profit allocable to selling, distribution and further manufacturing activities in the United States. The profit to be deducted from the starting price in the U.S. market is that proportion of the total profit equal to the proportion which the U.S. manufacturing and selling expenses constitute of the total manufacturing and selling expenses. Thus, the profit to be deducted from the starting price in the U.S. market will be calculated by multiplying the total profit by the percentage obtained by dividing total U.S. expenses by total expenses. The total U.S. expenses are all of the expenses deducted under Section 772(d)(1) and (2) in determining the constructed export price. The total expenses are all expenses incurred by or on behalf of the foreign producer and exporter and the affiliated seller in the United States with respect to the production and sale of the first of the following alternatives which applies: (1) the subject merchandise sold in the United States and the foreign like product sold in the exporting country (if Commerce requested this information in order to determine the normal value and the constructed export price); (2) if Commerce did not request the information required to determine total expenses under (1), the narrowest category of merchandise sold in the United States and the exporting country which includes the subject merchandise; or (3) if the data necessary to determine total expenses under (1) and (2) is not available, the narrowest category of merchandise sold in all countries which includes the subject merchandise. The total profit is calculated on the same basis as the total expenses.

Commerce will request the information necessary to determine total expenses under the first alternative if Commerce is conducting a cost of production investigation. If Commerce is not conducting a cost of production investigation, the respondent may submit the necessary information on a voluntary basis. In such cases, Commerce will use the information if it is practicable to do so and the information can be verified. Under the second two alternatives, the information is obtained from financial reports. Whether alternative (2) or (3) is used will depend on the detail in which such reports break down total production and selling expenses and profits.

This same formula applies regardless of which of the three methods is used to determine total expenses. No distortion in the profit allocable to U.S. sales is created if total profit is determined on the basis of a broader product-line than the subject merchandise, because the total expenses are also determined on the basis of the same expanded product line. Thus, the larger profit pool is multiplied by a commensurately smaller percentage.

If there is no profit to be allocated (because the affiliated entity is operating at a loss in the United States and foreign markets) Commerce will make no adjustment under section 772(d)(3). This calculation of profit has no relationship to, nor effect upon, the calculation of transfer pricing under section 482 of the Internal Revenue Code. The transfer price between exporters or producers and the affiliated importer is irrelevant in determining the amount of profit to be deducted from constructed export price.

(3) Special Rule for Merchandise With Value Added After Importation

New section 772(e) establishes a simpler and more effective method for determining export price in situations where an affiliated importer adds value to subject merchandise after importation. For example, if roller chain subject to an antidumping order is imported by an affiliated importer for incorporation into a motorcycle which then is sold to an independent party, there would be an enormous burden on Commerce if it were required to "back out" from the price of the motorcycle all of the value added in the United States to work back to the constructed export price of the roller chain. For this reason, the legislative history of the Trade Act of 1974 indicates that Congress did not intend that Commerce engage in such an exercise. S. Rep. No. 1298, 93rd Cong., 2nd Sess. 173 (1974); H.R. Rep. No. 571, 93rd Cong., 1st Sess. 70 (1973). However, under existing law, in some situations, Commerce has been left with no choice but to exempt imported components from the assessment of antidumping duties.

To avoid imposing an unnecessary burden on Commerce, section 772(e) authorizes Commerce to determine export price based on alternative methods when it appears that the value added after importation is likely to "exceed substantially" the value of the imported product. While Commerce is not required to calculate precisely the level of value added after importation into the United States, "exceed substantially" means that the value added in the United States is estimated to be substantially more than half of the price of the merchandise as sold in the United States.

The alternative methods for establishing export price are: (1) the price of identical subject merchandise sold by the exporter or producer to an unaffiliated person; or (2) the price of other subject merchandise sold by the exporter or producer to an unaffiliated person. There is no hierarchy between these alternative methods of establishing the export price. If there is not a sufficient quantity of sales under either of these alternatives to provide a reasonable basis for comparison, or if Commerce determines that neither of these alternatives is appropriate, Commerce may use any other reasonable method to determine constructed export price, provided that it provides to interested parties a description of the method chosen and an explanation of the basis for its selection. Such a method may be based upon the price paid to the exporter or producer by the affiliated person for the subject merchandise, if Commerce determines that such a price is appropriate. Unlike the practice under current law, the imported components will not be exempt from antidumping duties.

In addition, for purposes of estimating whether the value added in the United States is likely to substantially exceed the value of the imported product, it is the Administration's intent that Commerce not be required to perform a precise calculation of the value added. Requiring such a precise calculation would defeat the purpose of the new rule of saving Commerce the considerable effort of measuring precisely the U.S. value added. Commerce will provide interested parties, normally as part of the preliminary determination, with a description of the method chosen and an explanation regarding the selection of such method.

c. Normal Value

New section 773(a) establishes rules for determining normal value in situations where Commerce relies on home market prices or prices to a third country.

(1) Identification of the Starting Price

Like the existing statute, new section 773(a)(1)(B) permits (but does not require) Commerce to base normal value on sales to related (now affiliated) parties in the home market. However, Commerce will continue to ignore sales to affiliated parties which cannot be demonstrated to be at arm's length prices for purposes of calculating normal value. See Section 773(a)(5). In addition, section 773(a)(1)(B)(i) codifies Commerce's current practice of calculating normal value, to the extent practicable, on the basis of home market sales that are made at the same level of trade as the constructed export price or the starting price for the export price. Under section 773(a)(1)(B)(ii), these same rules would apply to the calculation of normal value based on third country sales.

New section 773(a)(2) retains the requirement of section 773(a)(5) in existing law that Commerce not base normal value on home market sales which were made to establish a fictitious market. Section 773(a)(2) clarifies that Commerce will not determine normal value on the basis of pretended sales or offers, or sales or offers intended to establish a fictitious market. The changes in terminology and relocation of this provision are not intended to alter current law.

(2) Basic Adjustments to Normal Value

New section 773(a)(6) provides for adjustments to normal value. Section 773(a)(6)(A) requires that Commerce increase normal value for U.S. packing costs. Section 773(a)(6)(B) requires that Commerce reduce normal value to account for: (1) the cost of packing for shipment in the exporting country or to a third country; (2) if included in the price, transportation and other expenses, including warehousing expenses, incurred in bringing the merchandise from the original place of shipment in the exporting country to the place of delivery in the exporting country or a third country; and (3) the amount of any indirect taxes imposed on the foreign like product or components thereof that have been rebated or not collected, but only to the extent that such taxes are added to or included in the price of the foreign like product.

The existing statute requires the deduction of transportation and other movement-related expenses from export price, but is silent regarding similar costs in foreign markets. New section 773(a)(6)(B) explicitly provides for the deduction of movement charges from normal value. Failure to deduct all movement charges from the foreign price would result in a distorted comparison. This change reflects Article 2.4 of the Agreement, which requires that prices normally be compared at the ex-factory level.

The deduction from normal value for indirect taxes constitutes a change from the existing statute. The change is intended to ensure that dumping margins will be tax-neutral. The requirement that the home-market consumption taxes in question be "added to or included in the price" of the foreign like product is intended to insure that such taxes actually have been charged and paid on the home market sales used to calculate normal value, rather than charged on sales of such merchandise in the home market generally. It would be inappropriate to reduce a foreign price by the amount of the tax, unless a tax liability had actually been incurred on that sale.

(3) Additional Adjustments to Normal Value

Section 773(a)(6)(C) also authorizes Commerce to adjust normal value to account for other differences (or the lack thereof) between export price (or constructed export price) and normal value that are wholly or partly due to differences in quantities, physical characteristics, or other differences in the circumstances of sale. With respect to each of these adjustments, as well as with all other adjustments, Commerce will ensure that there is no overlap or double-counting of adjustments.

Section 773(a)(6)(C)(i) provides that Commerce may adjust normal value to account for the fact that the transactions involving the subject merchandise may involve greater or lesser quantities of merchandise than the transactions involving the foreign like product.

Section 773(a)(6)(C)(ii) provides for adjustments to account for any differences in costs attributable to physical differences between the merchandise exported to the United States and the merchandise sold in the home or third country market. The Administration intends that Commerce will continue its current practice of limiting this adjustment to differences in variable costs associated with the physical differences. Thus, for example, Commerce will not make an adjustment under this section for cost differences attributable to: (1) the fact that the exporter is charged different prices for its inputs depending on the destination of the finished product; or (2) the fact that the domestic and exported products are produced in different facilities with differing production efficiencies.

Section 773(a)(6)(C)(iii) retains Commerce's authority to make adjustments for differences in the circumstances of sales used to establish normal value, and those used to establish export price and constructed export price. The Administration intends Commerce's current practice with respect to this adjustment to remain unchanged, except with respect to the "constructed export price offset" (discussed below). Thus, Commerce will continue to employ the circumstance-of-sale adjustment to adjust for differences in direct expenses and differences in selling expenses of the purchaser assumed by the foreign seller, between normal value and both export price and constructed export price. In constructed export price situations Commerce will deduct direct expenses incurred in the United States from the starting price in calculating the constructed export price. However, direct expenses and assumptions of expenses incurred in the foreign country on sales to the affiliated importer will form a part of the circumstances of sale adjustment. Moreover, Commerce's practice with respect to assumptions by the seller of the buyer's selling expenses and commissions will remain the same.

(4) Level of Trade Adjustments

The Agreement provides that, where authorities use a constructed export price and the use of such a price results in the comparison of sales at different levels of trade, authorities shall either: (1) establish the normal value at a level of trade equivalent to the level of trade of the constructed export price; or (2) make due allowance as warranted. The statutory scheme, which provides for comparison at the same level of trade or, when levels of trade are different, consideration of a level of trade adjustment or constructed export price offset, is designed to ensure that a proper comparison is made. The bill implements this provision in two different ways.

First, as noted above, new section 773(a)(1)(B) requires that Commerce, to the extent practicable, establish normal value based on home market (or third country) sales at the same level of trade as the constructed export price or the starting price for the export price. If Commerce is able to compare sales at the same level of trade, it will not make any level of trade adjustment or constructed export price offset in lieu of a level of trade adjustment.

Second, when sales in the U.S. and foreign markets cannot be compared at the same level of trade, an adjustment to normal value may be appropriate. New section 773(a)(7)(A) provides that, after making all appropriate adjustments to export price or constructed export price and normal value, Commerce shall adjust normal value to account for any differences in these prices that are demonstrated to be attributable to differences in the level of trade of the comparison sales in each market. This adjustment may either increase or decrease normal value. Commerce will grant such adjustments only where: (1) there is a difference in the level of trade (i.e., there is a difference between the actual functions performed by the sellers at the different levels of trade in the two markets); and (2) the difference affects price comparability.

Commerce will carefully investigate whether a level of trade adjustment should be made to increase or decrease normal value. However, if a respondent claims an adjustment to decrease normal value, as with all adjustments which benefit a responding firm, the respondent must demonstrate the appropriateness of such adjustment.

Commerce will require evidence from the foreign producers that the functions performed by the sellers at the same level of trade in the U.S. and foreign markets are similar, and that different selling activities are actually performed at the allegedly different levels of trade. Nominal reference to a company as a "wholesaler," for example, will not be sufficient. On the other hand, Commerce need not find that the two levels involve no common selling activities to determine that there are two levels of trade. Because level of trade adjustments may be susceptible to manipulation, Commerce will closely scrutinize claims for such adjustments. For example, a sales subsidiary created merely to perform the role of a de facto sales department is not an appropriate basis for adjustment.

The effect on price comparability is measured by examining price differences between goods sold to different levels of trade in the foreign market where normal value is being established. Commerce will measure any effect on price comparability by determining if there is a pattern of price differences between sales at the different levels of trade in the foreign market. While the pattern of pricing at the two levels of trade under section 773(a)(7)(A) must be different, the prices at the levels need not be mutually exclusive; there may be some overlap between prices at the different levels of trade.

Any adjustment under section 773(a)(7)(A) will be calculated as the percentage by which the weighted-average prices at each of the two levels of trade differ in the market used to establish normal value. The Administration intends that Commerce normally will base the calculation of the adjustment on sales of the same product by the same company; however, if information on the same product and company is not available, the adjustment may also be based on sales of other products by the same company. In the absence of any sales, including those in recent time periods, to different levels of trade by the exporter or producer under investigation, Commerce may consider the selling experience of other producers in the foreign market for the same product or other products. Where different products, company experiences, or time periods are used, Commerce will ensure that price differences reflect differences in levels of trade that are relevant to the product under consideration rather than differences in the nature of the products, companies or time periods.

Commerce will not make an adjustment based on the fact that expenses or costs differ between the two levels of trade. An effect on price comparability must be identified and measured by observed differences between prices at different levels of trade. Commerce will isolate the price effect, if any, attributable to the sale at different levels of trade, and will ensure that expenses previously deducted from normal value are not deducted a second time through a level of trade adjustment. For example, Commerce will ensure that a percentage difference in price is not more appropriately attributable to differences in the quantities purchased in individual sales.

Where it is established that there are different levels of trade based on the performance of different selling activities, but the data establish that there is a pattern of no price differences, the level of trade adjustment will be zero. No further adjustment is necessary.

Only where different functions at different levels of trade are established under section 773(a)(7)(A)(i), but the data available do not form an appropriate basis for determining a level of trade adjustment under section 773(a)(7)(A)(ii), will Commerce make a constructed export price offset adjustment under section 773(a)(7)(B). The adjustment will be "capped" by the amount of indirect expenses deducted from constructed export price under new section 772(d)(1)(D). In some circumstances, the data may not permit Commerce to determine the amount of the level of trade adjustment. For example, there may be no, or very few sales of a sufficiently similar product by a seller to independent customers at different levels of trade. This could be the case where there is only one foreign respondent and all sales are to affiliated purchasers. Also, there could be restrictive business practices which result in too few appropriate sales to determine a price effect. Similarly, the data could indicate a clearly contradictory result, for example contradictory patterns during different periods. In such situations, although an adjustment might have been warranted, Commerce may be unable to determine whether there is an effect on price comparability. In such situations, although there is a difference in levels of trade, Commerce may be unable to quantify the adjustment. Where this occurs, Commerce will make a capped "constructed export price offset" adjustment under section 773(a)(7)(B), in lieu of the level of trade adjustment that would be warranted under section 773(a)(7)(A).

The constructed export price offset adjustment will be made only where normal value is established at a level of trade more remote from the factory than the level of trade of the constructed export price; i.e. where the adjustment under 773(a)(7)(A), if it could have been quantified, would likely have resulted in a reduction of the normal value. The capped constructed export price offset adjustment will not be available to parties that refuse to provide necessary level of trade data.

(5) Adjustments to Constructed Value

New section 773(a)(8) ensures continuation of the ability to make appropriate adjustments to constructed value when amended section 773(e) serves as the basis for normal value. Such adjustments will be made under the same conditions as under current law.

3. Exclusion of Sales Below Cost from Determination of Normal Value

Since 1974, U.S. law has provided for the exclusion of below-cost foreign market sales as a basis for determining foreign market (normal) value. Section 773(b) of the Act currently provides that Commerce will determine whether foreign market sales are at prices below cost when it has "reasonable grounds to believe or suspect" that such sales have occurred. Such sales must be excluded from the determination of foreign market value if such sales occurred: (1) in substantial quantities; (2) over an extended period of time; and (3) at prices that do not permit the recovery of all costs within a reasonable period of time. If remaining above-cost sales are inadequate, Commerce is directed to base foreign market value on constructed value.

New section 773(b) incorporates the requirements of the Agreement, which, but for a few changes, are based on the existing U.S. law. Overall, these changes provide improved criteria for determining when to exclude below-cost sales as a basis for normal value.

The current statutory requirement that below-cost sales occur over an extended period of time is replaced by the requirement that such sales occur within an extended period of time. As in the Agreement, the term "extended period of time" is defined in new section 773(b)(2)(B) as being normally one year, but not less than six months. This is a change from current Commerce practice, under which the below-cost inquiry is confined to the normal six-month period of the initial antidumping investigation. By providing that below-cost sales need occur only within (rather than over) an extended period of time, Commerce no longer must find that below-cost sales occurred in a minimum number of months before excluding such sales from its analysis. In addition, the use of the term "within" means that for purposes of calculating the quantity of below-cost sales, Commerce will examine below-cost sales occurring during the entire period of investigation or review, as opposed to a shorter time period.

Another change concerns the definition of "substantial quantities." Under existing practice, Commerce considers below-cost sales to be in substantial quantities if they account for ten percent of total sales. Under new section 773(b)(2)(C), the benchmark is twenty percent. Commerce also may consider below-cost sales to be in substantial quantities if the weighted-average per unit price of the sales under consideration is less than the weighted-average per unit cost of production for such sales. This latter rule closely corresponds to the current Commerce practice of determining substantial quantities of sales below cost for highly perishable agricultural products, and will be the measurement of substantial quantities for such products in the future.

In addition, new section 773(b)(2)(D) specifies when particular prices provide for cost recovery within a reasonable period of time. Under current law, there is no clear definition of cost recovery -- the measure of cost recovery could have been based on speculative estimates of future production costs. Under the amended law, if prices which are below costs at the time of sale are above weighted-average costs for the period of investigation or review, such prices shall be considered to provide for recovery of costs within a reasonable period of time.

The determination of cost recovery is based on an analysis of actual weighted-average prices and costs during the period of investigation or review, except that, before testing for cost recovery, such costs incurred during the period of investigation or review may be adjusted as appropriate to take account of variations in unit costs caused by periodic temporary disruptions to production that occur on a less frequent than annual basis. For example, major maintenance may be scheduled every three years. While this maintenance is performed, output is suspended or reduced. This results in unit costs being artificially increased in years when the maintenance is performed and depressed in other years. To account for this, Commerce will spread out the effect of such disruptions over the appropriate period of time so that a proportional effect is recognized. The party claiming the adjustment must demonstrate that the disruptions have recurred at regular and predictable intervals. Although not a matter of cost recovery, when an unforeseen disruption in production occurs which is beyond management's control (e.g., destruction of production facilities by fire), Commerce will continue its current practice such as using the costs incurred for production prior to such unforeseen event. As under current practice, the cost test generally will be performed on no wider than a model-specific basis.

If home market (or third country) sales are below-cost and all of the criteria of section 773(b) are satisfied, Commerce may exclude such sales for purposes of determining normal value. The Administration intends that Commerce will disregard sales when the conditions in the law are met. However, in some cases, below-cost sales may be used to determine normal value if those sales are of obsolete or end-of-model-year merchandise. Such merchandise is often sold at less than cost as was recognized in the legislative history of the Trade Act of 1974. H. Rep. No. 571, 93rd Cong., 1st Sess. 70-71 (1973); S. Rep. No. 1298, 93rd Cong., 2nd Sess., 173 (1974). It is appropriate to use these sales as the basis of normal value when the merchandise exported to the United States is similarly obsolete or end-of-model year.

The existing statute provides that where below-cost sales are disregarded, Commerce shall use the remaining above-cost sales as the basis for determining foreign market (normal) value if such sales are "adequate." As a matter of practice, Commerce has used above-cost sales where they account for ten percent or more of total sales. New section 773(b)(1) changes this practice by requiring Commerce to use above-cost sales if they exist, and if such sales are otherwise in the ordinary course of trade. Only if there are no above-cost sales in the ordinary course of trade in the foreign market under consideration will Commerce resort to constructed value.

New section 773(b)(2)(A) retains the current requirement that Commerce have "reasonable grounds to believe or suspect" that below-cost sales have occurred before initiating such an investigation. "Reasonable grounds" will exist when an interested party provides specific factual information on costs and prices, observed or constructed, indicating that sales in the foreign market in question are at below-cost prices. In addition, new section 773(b)(2)(A)(ii), which codifies existing Commerce practice, provides that in the context of administrative reviews of antidumping orders, reasonable grounds exist if Commerce has excluded below-cost sales of a particular exporter or producer from the determination of normal value in the most recently completed segment of the antidumping proceeding.

The Administration intends that an allegation of sales below cost need not be specific to a particular exporter or producer, although a petitioner would be free to limit a below-cost allegation to a particular exporter or producer. Commerce will consider allegations of below-cost sales in the aggregate for a foreign country, just as Commerce currently considers allegations of sales at less than fair value on a country-wide basis for purposes of initiating an antidumping investigation. It is the Administration's intent that the standard for initiation of a sales below-cost investigation should be the same as the current standard for initiating an antidumping investigation based on a comparison of prices.

The changes described above are intended to permit Commerce to initiate below-cost inquiries at the outset of a case, thereby enhancing Commerce's ability to complete investigations and reviews in a timely, transparent, and effective manner. The ability to substantiate a below-cost allegation on the basis of observed or constructed prices and costs will enable Commerce to address the allegation of below-cost sales at an earlier stage of a proceeding than possible under current practice, thereby providing all parties with a greater opportunity to comment on Commerce's analysis.

4. Ordinary Course of Trade

Section 222(h) of the bill amends section 771(15) to specify additional types of transactions that Commerce may consider to be outside the ordinary course of trade, including: (1) sales disregarded as being below-cost under new section 773(b)(1); and (2) transactions disregarded under new section 773(f)(2), i.e., transactions between affiliated persons that are disregarded for purposes of calculating cost. Commerce may consider other types of sales or transactions to be outside the ordinary course of trade when such sales or transactions have characteristics that are not ordinary as compared to sales or transactions generally made in the same market. Examples of such sales or transactions include merchandise produced according to unusual product specifications, merchandise sold at aberrational prices, or merchandise sold pursuant to unusual terms of sale. As under existing law, amended section 771(15) does not establish an exhaustive list, but the Administration intends that Commerce will interpret section 771(15) in a manner which will avoid basing normal value on sales which are extraordinary for the market in question, particularly when the use of such sales would lead to irrational or unrepresentative results.

5. Calculation of Costs

Section 224 of the bill adds new section 773(f) to incorporate the provisions of the Agreement regarding the calculation of costs. In addition, section 773(f) harmonizes the methods of calculating cost for purposes of examining sales below cost and determining constructed value.

a. Calculation of Costs in General

Consistent with existing practice, new section 773(f)(1)(A) provides that Commerce normally will calculate costs on the basis of records kept by the exporter or producer of the merchandise, provided such records are kept in accordance with generally accepted accounting principles of the exporting (or producing) country and reasonably reflect the costs associated with the production and sale of the merchandise. Commerce will consider all available evidence submitted by the exporter or producer on a timely basis regarding the proper allocation of costs. The exporter or producer will be expected to demonstrate that it has historically utilized such allocations, particularly with regard to the establishment of appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs.

In determining whether a company's records reasonably reflect costs, Commerce will consider U.S. generally accepted accounting principles employed by the industry in question. For example, a company's records might not fairly allocate the cost of an asset if a firm's financial statements reflect an extremely large amount of depreciation for the first year of an asset's life, or if there is no depreciation expense reflected for assets that have been idle. In such a situation, it would be appropriate for Commerce to adjust depreciation expenses. Costs shall be allocated using a method that reasonably reflects and accurately captures all of the actual costs incurred in producing and selling the product under investigation or review. In determining whether to accept the cost allocation methods proposed by a specific producer, Commerce will consider the production cost information available to the producer and whether such information could reasonably be used to compute a representative measure of the materials, labor and other costs, including financing costs, incurred to produce the subject merchandise, or the foreign like product. Commerce also will consider whether the producer historically used its submitted cost allocation methods to compute the cost of the subject merchandise prior to the investigation or review and in the normal course of its business operation. Also, if Commerce determines that costs, including financing costs, have been shifted away from production of the subject merchandise, or the foreign like product, it will adjust costs appropriately, to ensure they are not artificially reduced.

b. Identification of Costs To Be Calculated

Section 222(i)(1) of the bill adds section 771(28) to the Act which defines the term "exporter or producer" to include, where appropriate, both the exporter and producer of merchandise subject to an antidumping proceeding. The purpose of section 771(28), which is consistent with current Commerce practice, is to clarify that where different firms perform the production and selling functions, Commerce may include the costs, expenses, and profits of each firm in calculating cost of production and constructed value.

c. Non-recurring Costs

Section 224 of the bill adds section 773(f)(1)(B) to the Act to incorporate the provisions of the Agreement regarding the treatment of non-recurring costs. This section is consistent with current practice, under which Commerce associates expenditures with all production benefitting from the expenditure. For example, in the case of pre-production expenses, such as research and development costs, Commerce typically allocates such expenses over current and future production.

d. Startup Costs

Section 224 of the bill also adds section 773(f)(1)(C) to the Act to incorporate the provisions of the Agreement regarding the treatment of startup costs. In calculating cost of production and constructed value, it is appropriate to take into account that a firm may experience unusually high costs when it is "starting up" a new product or new production facilities. However, any adjustment for such startup costs must be carefully limited to ensure that such an adjustment is not transformed into a license to dump. Section 773(f)(1)(C) accomplishes these objectives.

(1) Defining Startup

Under section 773(f)(1)(C)(ii), Commerce may make an adjustment for startup costs only if the following two conditions are satisfied: (1) a company is using new production facilities or producing a new product that requires substantial additional investment, and (2) production levels are limited by technical factors associated with the initial phase of commercial production. Mere improvements to existing products or ongoing improvements to existing facilities will not qualify for a startup adjustment. Commerce also will not consider an expansion of the capacity of an existing production line to be a startup operation unless the expansion constitutes such a major undertaking that it requires the construction of a new facility and results in a depression of production levels due to technical factors associated with the initial phase of commer

cial production of the expanded facilities.

"New production facilities" includes the substantially complete retooling of an existing plant. Substantially complete retooling involves the replacement of nearly all production machinery or the equivalent rebuilding of existing machinery. A "new product" is one requiring substantial additional investment, including products which, though sold under an existing nameplate, involve the complete revamping or redesign of the product. This would not include routine model year changes. For example, a new model year automobile with incremental changes would not be considered a new product, but a completely redesigned model with a new structure would be so considered. Similarly, a 16 megabyte Dynamic Random Access Memory (DRAM) chip, for example, would be considered a new product if the latest version of the product had been a 4 megabyte chip. However, an improved version of a 16 megabyte chip (e.g., a physically smaller version) would not be considered a new product.

(2) Duration of the Startup Period

Under new section 773(f)(1)(C)(ii), startup will be considered to end at the time the level of commercial production characteristic of the merchandise, producer, or industry concerned is achieved. The attainment of peak production levels will not be the standard for identifying the end of the startup period, because the startup period may end well before a company achieves optimum capacity utilization. In addition, consistent with the basic definition of a startup situation, Commerce will not extend the startup period so as to cover improvements and cost reductions that may occur over the entire life cycle of a product.

To determine when a company reaches commercial production levels, Commerce will consider first the actual production experience of the merchandise in question. Production levels will be measured based on units processed. To the extent necessary, Commerce also will examine other factors, including historical data reflecting the same producer's or other producers' experiences in producing the same or similar products. A producer's projections of future volume or cost will be accorded little weight, as actual data regarding production are much more reliable than a producer's expectations.

In determining whether commercial production levels have been achieved and that the startup period is measured appropriately, Commerce will consider factors unrelated to startup operations that may have affected the volume of production processed, such as demand, seasonality, or business cycles. For example, commercial production levels may be low not because a company is in a startup situation, but because the industry in question is in the trough of its business cycle.

The Administration recognizes that the nature and timing of startup operations will vary from industry to industry and from product to product, and that any determination of the appropriate startup period involves a fact-intensive inquiry. In some industries, the startup period could be as short as one or two months; in others it could be much longer. For this reason, the Administration intends that Commerce determine the duration of the startup period on a case-by-case basis.

(3) Startup Adjustment Methodology

New section 773(f)(1)(C)(iii) sets out the basic methodology for making startup adjustments. If the criteria for making a startup adjustment are satisfied, Commerce will replace unit production costs incurred during the startup period with unit production costs incurred at the end of the startup period. An adjustment for startup may result in the exclusion from the cost calculation of actual costs incurred by a company during the startup period. As the startup adjustment results in some actual costs not being counted during the startup phase, the difference between actual costs and the costs of production calculated for startup costs will be amortized over a reasonable period of time subsequent to the startup phase over the life of the product or machinery, as appropriate.

In certain situations, the startup period may extend beyond the period of the investigation or administrative review, possibly even beyond the deadline for Commerce's final determination. In such cases, Commerce must cut off the submission of additional information to allow itself time to analyze and verify the data, as well as to provide interested parties with an opportunity to comment on the data. Consistent with the Agreement, Commerce will use as startup costs the most recent costs incurred prior to the end of the startup period that Commerce reasonably can take into account without delaying the timely completion of the investigation or administrative review.

Commerce will consider unit production costs to be items such as depreciation of equipment and plant, labor costs, insurance, rent and lease expenses, material costs, and overhead. However, sales expenses, such as advertising costs, or other non-production costs, will not be considered startup costs because they are not directly tied to the manufacturing of the product.

The Administration intends that the burden will be on companies to demonstrate their entitlement to a startup adjustment. Specifically, companies must demonstrate that, for the period under investigation or review, production levels were limited by technical factors associated with the initial phase of commercial production and not by factors unrelated to startup, such as marketing difficulties or chronic production problems. In addition, to receive a startup adjustment, companies will be required to explain their production situation and identify those technical difficulties associated with startup that resulted in the underutilization of facilities. This is consistent with the general rule in antidumping practice that a party seeking an adjustment has the burden of establishing entitlement to that adjustment as both a legal and factual matter.

e. Affiliated Party Transactions

Current law contains two definitions of persons who may be considered to be related, sections 773(e)(4) and 771(13). Section 222(i)(1) of the bill amends section 773(e)(4) by redesignating it as section 771(33), retitling it "Affiliated Persons," and adding new subparagraph (G), which provides that any person who controls any other person and that other person will be considered affiliated persons. Consistent with the Agreement, "control" exists if one person is legally or operationally in a position to exercise restraint or direction over another person. The Administration believes that including control in the definition of "affiliated" will permit a more sophisticated analysis which better reflects the realities of the marketplace.

The traditional focus on control through stock ownership fails to address adequately modern business arrangements, which often find one firm "operationally in a position to exercise restraint or direction" over another even in the absence of an equity relationship. A company may be in a position to exercise restraint or direction, for example, through corporate or family groupings, franchises or joint venture agreements, debt financing, or close supplier relationships in which the supplier or buyer becomes reliant upon the other.

The question of affiliation is relevant to a number of price and cost issues in an antidumping investigation or review. One example is the special rule for major inputs in existing section 773(e)(3), a provision added to the law in 1988 to address diversionary input dumping by authorizing Commerce to inquire whether the transfer between "related" persons (i.e., "affiliated" persons under section 773(f)(3)) of such an input is at a price below the input's production cost. H. Rep. 576, 100th Cong., 2d Sess. 595 (1988). Under the amended definition of "affiliated persons," Commerce may examine such transactions when the purchaser of the major input is in a position to exercise restraint or direction over the input supplier (or vice versa).

Paragraphs (2) and (3) of new section 773(f) address the treatment of transactions between affiliated parties for purposes of calculating cost. Under the existing statute, these provisions literally apply only to the calculation of constructed value, and the legislation relocates these paragraphs to section 773(f) to clarify that they apply for purposes of analyzing sales below cost of production and constructed value.

Under existing law, Commerce applies the definition of "exporter" in existing section 771(13) primarily to determine when an importer is "connected" to the exporter so as to warrant the use of "exporters sales price" as the basis for U.S. price. Section 222(i)(2) of the bill repeals section 771(13) of the Act because the new term "affiliated" is used for the purpose of determining export price and constructed export price in new sections 772(a) and (b).

6. Profit and Selling, General, and Administrative Expenses for Constructed Value

Section 224 of the bill adds section 773(e)(2) to implement the provisions of the Agreement regarding constructed value and the calculation of amounts for profits and selling, general, and administrative expenses (SG&A). Constructed value is used as the basis for normal value where home market sales of the merchandise in question are either nonexistent, in inadequate numbers, or inappropriate to serve as a benchmark for a fair price, such as where sales are disregarded because they are sold at below-cost prices. Because constructed value serves as a proxy for a sales price, and because a fair sales price would recover SG&A expenses and would include an element of profit, constructed value must include an amount for SG&A expenses and for profit.

Existing section 773(e)(1)(B) provides that Commerce calculate these amounts based on the average experience of producers in the country of exportation in selling merchandise of the same general class or kind as the merchandise under investigation. The statute also establishes minimum amounts for SG&A expenses and profit. As a matter of administrative practice, Commerce has calculated these amounts based on the experience of individual producers in selling the particular merchandise under investigation. Moreover, Commerce has used an average profit rate, which includes below-cost sales for which the profit is zero.

New section 773(e)(2) establishes new methods of calculating SG&A expenses and profits consistent with the methods provided for in the Agreement. Although section 773(e)(2) does not retain the current statutory minimums for profit and SG&A expenses, the Administration does not believe that this will diminish the ability of domestic industries to obtain relief under the antidumping law.

First, consistent with the Agreement, new section 773(e)(2)(A) establishes as a general rule that Commerce will base amounts for SG&A expenses and profit only on amounts incurred and realized in connection with sales in the ordinary course of trade of the particular merchandise in question (foreign like product). Commerce may ignore sales that it disregards as a basis for normal value, such as those disregarded because they are made at below-cost prices. Other examples of sales that Commerce could consider to be outside the ordinary course of trade include sales of off-quality merchandise, sales to related parties at non-arm's length prices, and sales with abnormally high profits. Unlike current practice, under section 773(e)(2)(A), in most cases Commerce would use profitable sales as the basis for calculating profit for purposes of constructed value.

Second, new section 773(e)(2)(B) establishes alternative methods for calculating amounts for SG&A expenses and profit in those instances where the method described in section 773(e)(2)(A) cannot be used, either because there are no home market sales of the foreign like product or because all such sales are at below-cost prices. These methods are: (1) actual amounts incurred or realized by the same producer on home market sales of the same general category of products; (2) the weighted-average of actual amounts incurred or realized by other investigated companies on home market sales in the ordinary course of trade (i.e., profitable sales) of the foreign like product; or (3) any other reasonable method, provided that the amount for profit does not exceed the profit normally realized by other companies on home market sales of the same general category of products (the so-called profit cap).

At the outset, it should be emphasized that, consistent with the Antidumping Agreement, new section 773(e)(2)(B) does not establish a hierarchy or preference among these alternative methods. Further, no one approach is necessarily appropriate for use in all cases. While, as discussed below, Commerce has had some experience with certain aspects of these alternatives, its experience is insufficient to warrant any sort of ranking of the three alternatives. The Administration intends that the selection of an alternative will be made on a case-by-case basis, and will depend, to an extent, on available data. Commerce will explain the basis for the selection of a particular methodology in a given case. If alternative (3) is selected, Commerce will provide to interested parties a description of the method chosen and an explanation of why it was selected.

With respect to alternative (1), this methodology is consistent with the existing practice of relying on a producer's sales of products in the same "general class or kind of merchandise." The term "general category of merchandise" encompasses a category of merchandise broader than the "foreign like product." As under existing practice, the Administration intends that, if Commerce uses alternative (1), it will establish appropriate categories on a case-by-case basis. In addition, profits used by Commerce must be from reliable independent sources (e.g., financial reports), prepared in accordance with generally accepted accounting principles, and capable of verification.

With respect to alternative (2), although it relies on the sales experience of other companies, this alternative requires the use of sales in the ordinary course of trade, i.e., profitable sales. Absent this requirement, if Commerce could not calculate profit for a particular foreign producer under the general rule because all of that producer's sales were at below-cost prices, that producer would benefit perversely from its own unfair pricing, because its profit figure would be based on an average of other producers' profitable and unprofitable sales.

With respect to alternative (3), which provides for the use of "any other reasonable method," given the absence of a comparable standard in existing law, the Administration does not believe that it is appropriate at this time to establish particular methods and benchmarks for applying this alternative. Instead, the Administration intends that Commerce will develop this alternative through practice, and that Commerce will determine on a case-by-case basis the profits "normally realized" by other companies on merchandise of the same general category.

The Administration does not intend Commerce to require companies to submit all data necessary to apply each alternative. For example, Commerce will not require a company which has provided profit information on its own sales of the particular foreign like product also to submit profit information on its sales of the same general category of products solely to enable Commerce to use the latter information to calculate profit for a different company. Likewise, the Administration does not intend that Commerce would engage in an analysis of whether sales in the same general category are above-cost or otherwise in the ordinary course of trade.

The Administration also recognizes that where, due to the absence of data, Commerce cannot determine amounts for profit under alternatives (1) and (2) or a "profit cap" under alternative (3), it might have to apply alternative (3) on the basis of "the facts available." This ensures that Commerce can use alternative (3) when it cannot calculate the profit normally realized by other companies on sales of the same general category of products. In such a situation, the Administration intends that Commerce will not make an adverse inference in applying the facts available, unless the company in question withheld information requested by Commerce.

Finally, in situations where the producer and the exporter are separate companies, the Administration intends that Commerce may continue to calculate constructed value based on the total profit and total SG&A expenses realized and incurred by both companies. In such situations, failing to include the expenses and profits of both companies would understate the true cost of production and constructed value of the merchandise.

7. Currency Conversions

Section 225 of the bill adds new section 773A to implement the requirements of the Agreement regarding currency conversions. Typically in antidumping proceedings, the prices or costs used to determine normal value are denominated in a foreign currency. To determine whether dumping exists, these prices or costs must be converted to U.S. dollars. To a large extent, the Agreement tracks existing practice, the goal of which is to ensure that the process of currency conversion does not distort dumping margins. The Administration intends that Commerce will promulgate regulations implementing the requirements of section 773A. To the extent that the requirements of the Agreement apply only to investigations, as opposed to reviews, the regulations will reflect this distinction.

Under new section 773A, the general rule will be to convert foreign currencies based on the dollar exchange rate in effect on the date of sale. Under current practice, Commerce utilizes a quarterly rate, unless the daily rate varies by more than five percent from the rate in effect on the first day of the quarter. Some firms, including U.S. firms, commonly engage in hedging on forward currency markets to minimize their exposure to exchange rate losses. Therefore, as under existing practice, where a company demonstrates that a sale of foreign currency on forward markets is directly linked to a particular export sale, Commerce will use the rate of exchange in the forward currency sale agreement. Group sales of foreign currency on forward markets will be allowed, provided that sufficient documentation to establish the link between the currency purchase and the particular export sale is provided.

Section 773A also provides that Commerce will ignore fluctuations in exchange rates. In addition, in an investigation, Commerce will allow exporters at least sixty days in which to adjust their prices to reflect a sustained increase in the value of a foreign currency relative to the U.S. dollar.

8. Price Averaging

Section 229 of the bill adds new section 777A(d) to implement the provisions of the Agreement regarding the use of average normal values and export prices for purposes of calculating dumping margins. Although current U.S. law permits the use of averages on both sides of the dumping equation, Commerce's preferred practice has been to compare an average normal value to individual export prices in investigations and reviews. In part, the reluctance to use an average-to-average methodology has been based on a concern that such a methodology could conceal "targeted dumping." In such situations, an exporter may sell at a dumped price to particular customers or regions, while selling at higher prices to other customers or regions.

Consistent with the Agreement, new section 777A(d)(1)(A)(i) provides that in an investigation, Commerce normally will establish and measure dumping margins on the basis of a comparison of a weighted-average of normal values with a weighted-average of export prices or constructed export prices. To ensure that these averages are meaningful, Commerce will calculate averages for comparable sales of subject merchandise to the U.S. and sales of foreign like products. In determining the comparability of sales for purposes of inclusion in a particular average, Commerce will consider factors it deems appropriate, such as the physical characteristics of the merchandise, the region of the country in which the merchandise is sold, the time period, and the class of customer involved. For example, in the case of 13" and 21" televisions, average normal values would be calculated for each size of television, not a single average for sales of both sizes of televisions.

In addition to the use of averages, section 777A(d)(1)(A)(ii) also permits the calculation of dumping margins on a transaction-by-transaction basis. Such a methodology would be appropriate in situations where there are very few sales and the merchandise sold in each market is identical or very similar or is custom-made. However, given past experience with this methodology and the difficulty in selecting appropriate comparison transactions, the Administration expects that Commerce will use this methodology far less frequently than the average-to-average methodology.

New section 777A(d)(1)(B) provides for a comparison of average normal values to individual export prices or constructed export prices in situations where an average-to-average or transaction-to-transaction methodology cannot account for a pattern of prices that differ significantly among purchasers, regions, or time periods, i.e., where targeted dumping may be occurring. Before relying on this methodology, however, Commerce must establish and provide an explanation why it cannot account for such differences through the use of an average-to-average or transaction-to-transaction comparison. In addition, the Administration intends that in determining whether a pattern of significant price differences exist, Commerce will proceed on a case-by-case basis, because small differences may be significant for one industry or one type of product, but not for another.

In this regard, so that the exceptions are properly applied, the Administration intends that Commerce will continue to require that foreign companies report sales on a transaction-specific basis, and that Commerce will request information on sales to particular customers and regions. Transaction-specific information must be made available so Commerce may determine: (1) the appropriate product and/or transaction categories for which averages should be calculated; and (2) whether the exception for targeted dumping is applicable. The information submitted by interested parties for this purpose will be subject to disclosure to representatives of domestic interested parties under Administrative Protective Orders, except for the limited exceptions set out in existing section 777(c).

The Agreement reflects the express intent of the negotiators that the preference for the use of an average-to-average or transaction-to-transaction comparison be limited to the "investigation phase" of an antidumping proceeding. Therefore, as permitted by Article 2.4.2, the preferred methodology in reviews will be to compare average to individual export prices. New section 777A(d)(2) provides that, when comparing prices of individual export transactions to weighted-average foreign prices, Commerce will limit its averaging of prices to a period not exceeding the calendar month that corresponds most closely to the calendar month of the individual export sale. When constructed value is used for normal value, it is normally based on yearly data. However, when costs are rapidly changing, it may be appropriate to use shorter periods, such as quarters or months, which may allow a more appropriate association of costs with sales prices. However, where costs are incurred seasonally, such as in most agricultural products, costs are currently annualized, and the Administration intends that Commerce continue this practice.

9. Intermediate Country Sales

Article 2.5 of the Agreement continues to provide that, where products are exported from an intermediate country, rather than directly from the country of origin, national authorities generally will determine normal value based on sales or cost in the intermediate country. However, authorities may determine normal value in the country of origin in certain circumstances. While section 773(f) of the Act requires that normal value will be based on prices in the country of origin, it allows normal value to be based on sales in the intermediate country if a list of conditions is satisfied. In contrast, Article 2.5 of the Agreement requires that normal value ordinarily will be based on sales in the intermediate country, but provides an illustrative list of conditions that would justify finding normal value based on sales prices in the country of origin.

Section 224 of the bill redesignates and amends existing section 773(f) of the Act as new section 773(a)(3). New section 773(a)(3) paraphrases the requirement in current law that Commerce may use sales in the intermediate country as a basis for normal value only if the producer in the country of origin did not know that the merchandise sold to a reseller was intended to be exported to an intermediate country. The producer in the country of origin might sell at a lower price if it knows that the merchandise is to be exported than if the merchandise is intended for domestic consumption. This reflects the fact that dumping is primarily a matter of price discrimination between domestic and export markets. It would be inappropriate to determine fair value by reference to subsequent sales in or from the intermediate country if the sale to the intermediate country is dumped.

New section 773(a)(3) describes other situations in which it would be inappropriate to use the intermediate country as a basis for determining normal value, such as where goods are merely transshipped through the intermediate country, the foreign like product is not produced in the intermediate country, or the market in the intermediate country is not viable within the meaning of new section 773(a)(1)(C). New section 773(a)(3) eliminates the requirement of existing law that merchandise not be substantially transformed in the intermediate country. Outside of a situation involving circumvention of an antidumping duty order, a substantial transformation of a good in an intermediate country would render the resulting merchandise a product of the intermediate country rather than the original country of production.

e. De Minimis Dumping Margins

In conformity with Article 5.8 of the Antidumping Agreement, section 213 of the bill amends sections 733(b) and 735(a) of the Act to require that, in antidumping investigations, Commerce treat the weighted-average dumping margin of any producer or exporter which is below two percent ad valorem as de minimis. De minimis margins are regarded as zero margins. Exporters or producers with de minimis margins will be excluded from any affirmative determination. In practice this will have its major impact on final determinations, since it is only at that time that the margins are known with certainty. Margins calculated in preliminary determinations have not been subjected to full comment or verification and, as a result, are not suitable as a basis for final termination of a proceeding. This requirement applies only to investigations and not to reviews of orders or agreements.

The requirements of Article 5.8 apply only to investigations, not to reviews of antidumping duty orders or suspended investigations. The Administration intends that Commerce will continue its present practice in reviews of waiving the collection of estimated cash deposits if the deposit rate is below 0.5 percent ad valorem, the existing regulatory standard for de minimis. Section 229(b) of the bill adds section 771(35) which defines the terms "dumping margin" and "weighted-average dumping margin" in a manner consistent with existing Commerce regulations, 19 CFR 353.2(f).

10. Antidumping Investigations on Behalf of a Third Country

Section 232 of the bill adds section 783 to incorporate the provisions of Article 14 of the Antidumping Agreement, and establish a framework for taking antidumping actions on behalf of a third country. Current U.S. law authorizes the Trade Representative (Trade Representative) to request that other countries take action against dumping in their markets that injures U.S. exporters, but does not allow Commerce or the Commission to take action in response to similar requests by other governments.

New section 783(a) allows any WTO member to file a petition with the Trade Representative requesting an antidumping investigation based on allegations that a product is being dumped in the United States by exporters from another WTO member and thereby injuring the industry producing a like product in the requesting country. New section 783(b) requires the Trade Representative to consult with Commerce and the Commission prior to initiating a third-country action.

Subsection (b) also incorporates the provision of the Antidumping Agreement requiring the approval of the WTO Council for Trade in Goods prior to initiating such an investigation. In determining whether to initiate an investigation, the Trade Representative will take into account whether the petitioning country provides an equivalent opportunity for the United States to seek the initiation of antidumping investigation.

New section 783(c) authorizes the Trade Representative to request: (1) from Commerce a determination as to whether imports are being sold in the U.S. at less than fair value; and (2) from the Commission a determination as to whether there is material injury to an industry in the requesting country by reason of imports into the United States of the subject merchandise. The legislation does not itself establish the substantive and procedural standards that Commerce and the Commission will apply in third-country antidumping investigations. Instead, the Trade Representative will specify the substantive and procedural standards to be used by the agencies in such investigations.

New section 783(d) requires the Trade Representative to provide an opportunity for public comment in determining whether to initiate an investigation. Similarly, this section also requires Commerce and the Commission to provide an opportunity for public comment in making their respective determinations under section 783