RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/Q1/USA/10
G/SCM/Q1/USA/10
13 October 1998
(98-3933)
Committee on Anti-Dumping Practices
Committee on Subsidies and Countervailing MeasuresOriginal:  English
NOTIFICATION OF LAWS AND REGULATIONS UNDER
ARTICLES 18.5 AND 32.6 OF THE AGREEMENTS
Replies to Questions Posed by MEXICO1
Regarding the Notification of the UNITED STATES2
The following communication, dated 10 October 1998, has been received from the Permanent
Mission of the United States.
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Q1. § 351.401 of the United States Regulations states that the Secretary will consider
warehousing expenses that are incurred after th e subject merchandise leaves the original place
of shipment as movement expenses, and theref ore adjustable.  Article 2.4 of the Anti-Dumping
Code stipulates that in constructing the export price, allowance should be made for costs
incurred between importation and resale.  Do  these costs incurred between importation and
resale include warehousing expenses?
A1. Yes, warehousing expenses incurred between importation and resale in the United States are
deducted from the resale price in the United States in determining the constructed export price.
Q2. Article 2.4 of the Anti-Dumping Code stipul ates that in constructing the export price,
allowance should be made for costs incurred between importation and resale.  However, §
351.402 of the United States Regulations states th at the Secretary will not make an adjustment
for any expense that is related solely to the sale to an affiliated importer in the exportingcountry.  What are these expenses for which no adjustment is made on the grounds that they
are related solely to the sale to an affiliated purchaser?  And why are these expenses not
adjusted when Article 2.4 of the Anti-Dumping Co de stipulates that "… allowances for costs …
incurred between importation and resale … should also be made"?
A2. Section 351.402(b) provides that, in calculating the constructed export price, "[t]he Secretary
will not make an adjustment for any expense that is re lated solely to the sale to an affiliated importer
in the United States …".  Such expenses are those that are not associated with economic activity in the
United States, which would be deducted, and that are typically incurred prior to exportation.  The
types of expenses for which no adjustment is made in constructing the export price would generallyinclude, for example, the salaries and office expenses of the foreign exporter's sales office involved in
handling sales to the US affiliate.
                                                     
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2 G/ADP/N/1/USA/1/Suppl.2-G/SCM/N/1/USA/1/Suppl.2G/ADP/Q1/USA/10
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Q3. § 351.402 of the United States Regulations states that in calculating total expenses and
total actual profit for determining the constructed export price, the Secretary normally will use
the aggregate of expenses and profit for all subjec t merchandise sold in the United States and all
like products sold in the exporting country.  Wh y is information on sales in the United States
and sales of all like products in the exporting country taken into consid eration when according
to Article 2.4 of the Anti-Dumping Code, the obje ct is to determine the expenses incurred and
the profits obtained through importation and resale?
A3. The referenced provision, section 351.402(d)(1) of the US anti-dumping regulations, pertains
to the calculation of the profit adjustment in determining the constructed export price.  Under that
provision, the Department must use sales in both the United States and the exporting country todetermine the company's normal profit rate.  By applying this profit rate to expenses incurred between
importation and resale, the Department reasonably measures the profit accruing.
Q4. § 351.402 of the United States Regulations states that for determining profit to be
deducted from the constructed export price, the Secretary may use information on costs ofproduction if such costs are reported voluntarily.  Why would information on costs of
production be used to determine profits when according to Article 2.4 of the Anti-Dumping
Code, the object is to determine the profits obtained through importation and resale?
A4. Article 2.4 of the Anti-Dumping Agreement states, "[I]n the cases referred to in paragraph 3
[CEP sales], allowances for costs including duties and taxes, incurred between importation and resale,
and for profits accruing, should also be made".
Therefore, the Department is required to determine the amount of the adjustment "for profits
accruing".  The profit deducted from the resale price in the United States is based on an allocation.The Department allocates total profit to the US resale based on a percentage that is computed as the
ratio of total US expenses to total expenses.  The allocation assigns to the US resale the same
proportion of total profit as the expenses relating to the resale in the United States comprise of total
expenses.  Information on total expenses and profit in both markets is necessary in order to determine
this allocation.  The Department therefore takes sales values and all costs into account when
calculating total profit.  To illustrate further, in determining the amount of profit accruing between
importation and resale in the US (i.e. the amount of the adjustment), the Department allocates the totalactual profit to individual CEP sales transactions based on the ratio of total US expenses (i.e. selling,
distribution and further-manufacturing) to tota l expenses (i.e. US and export markets).
Q5. What is the justification for using offers for sale in determining normal value when this
is not one of the methods mentioned in Articles 2.1 and 2.2 of the Anti-Dumping Code?
A5. The use of offers for sale in determining normal value is justified in situations where there are
no sales, but there is an offer.  The use of such offers for sale is consistent with Articles 2.1 and 2.2 of
the Anti-Dumping Agreement.  Under section 351.403(b) of the US anti-dumping regulations, the
Department normally considers offers for sale only in the absence of sales and only if it concludes thatacceptance of the offer can be reasonably expected.
Q6. According to § 351.403 of the United States Regulations, if an exporter or producer sells
the foreign product through an affiliated party, the Secretary may calculate normal value based
on the sale by such affiliated party.  How is it possible to ensure a fair comparison in the termsof Article 2.4 of the Anti-Dumping Code when normal value is calculated on the basis of sales by
an affiliated party?G/ADP/Q1/USA/10
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A6. When normal value is calculated on the basis of sales by an affiliated party, the Department
ensures a fair comparison in the same manner it does in all cases.  The Department calculates normal
value on the basis of home market sales of identical merchandise or other merchandise that can
reasonably be compared.  The Department also make s basic adjustments to normal value as required
by Article 2.4 of the Anti-Dumping Agreement and section 773 of the US anti-dumping law (packing
costs, movement expenses, etc.), and adjusts normal value to account for other differences (or lack
thereof) between the 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, the Department ensures there is no overlap or double-counting of adjustments.
Consistent with the Anti-Dumping Agreement, where the Department establishes normal value at alevel of trade that is different from that of the export price or constructed export price, the Department
will make a level of trade adjustment if there is a demonstration that price comparability has been
affected.
Q7. Article 2.2 of the Anti-Dumping Code states  that domestic market transactions may be
disregarded in calculating the normal value for th e following reasons:  (i) because they are not
conducted in the ordinary course of trade (which includes those conducted at prices below cost
of production, provided they fulfil the condition s set forth in Article 2.2.1);  (ii) because of a
particular market situation;  and (iii) because of the low volume of sales (representativeness).
§ 351.405 of the United States Regulations, however, contains no reference to "particularmarket situation", and separates the terms "ordin ary course of trade" and "sales below cost of
production".
(a) In practice, what types of transactions are included under the definition
"ordinary course of trade"?  What treatment do you give such sales?
A7(a) Section 771(15) of the US anti-dumping law describes sales within the ordinary course of
trade as being sales for which conditions and practices, for a reasonable time prior to the exportation
of the subject merchandise, have been normal in the trade under consideration with respect to such
merchandise.  Sales considered to be in the ordinary course of trade are included in the calculation of
normal value;  sales deemed to be outside the ordinary course of trade are excluded from the
calculation.
Section 351.102 of the US anti-dumping regulations specifies that sales or transactions may
be considered to be outside the ordinary course of trade when "… based on an evaluation of all the
circumstances particular to the sales in question, su ch sales or transactions have characteristics that
are extraordinary for the market in question."  Examples of such sales include those which fail the"cost test" of section 773(b)(1) of the US anti-dumping law, meaning they were (1) sold at prices
below the cost of production;  (2) were made within an extended period of time in substantial
quantities;  and (3) were not at prices permitting recovery of all costs within a reasonable period of
time.  Other sales normally not included in the ordinary course of trade include transactions described
in section 773(f)(2) of the US anti-dumping law.  Under that provision, if, in calculating cost ofproduction or constructed value, input  transactions between affiliated parties do not fairly reflect
usual fair value, they will be considered outside the ordinary course of trade.  Such sales also include
sales of off-quality merchandise or merchandise produced according to unusual product
specifications, merchandise sold at aberrational prices or with abnormally high profits, merchandise
sold pursuant to unusual terms of sale, or merchandise sold to an affiliated party at a non-arm's lengthprice.G/ADP/Q1/USA/10
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(b) How do you interpret the term  "particular market situation"?
A7(b) While the Anti-Dumping Agreement does not de fine the term "particular market situation",
section 773(a)(1)(C)(iii) of the US law provides that home market sales may be determined to beinappropriate as a basis for determining normal value if the particular market situation would not
permit a proper comparison.  The Statement of Administration Action ("SAA") accompanying the US
legislation implementing the Uruguay Round Agreements , states that a particular market situation
might exist, for example, where a single sale in th e home market constitutes 5 per cent 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 in the United States.
Q8. § 351.405 of the United States Regulations states that when neither the home market nor
the export market to a third country is represe ntative, the constructed value in the country of
origin may be used.  The said Regulations do not mention, however, whether the evidence of
representativeness either for the home market or  the export market to a third country varies
when sales are excluded as having been made at a loss under Article 2.2 of the Anti-Dumping
Code.  In the case of investigations involving exclusions under Article 2.2.1 of the Anti-DumpingCode, at what point is representativeness to be established?  Before or after the exclusion?
A8. The Department first determines whether the home market or a third country market is viable,
meaning whether the foreign like product sold by the exporter or producer in a country is 5 per cent or
more of the aggregate quantity (or value) of its sales of the subject merchandise to the United States.Generally, once the Department determines whether the market is viable, it does not revisit its
decision.  The issue of exclusion of below-cost sales normally does not arise, if at all, until later in the
proceeding.  The Department in its normal practice rarely confronts the issue of "representativeness"
as it is described in the question.  Consequently, based on its experience to date, the Department can
provide no further elaboration.
Q9. According to Section 773(B)(ii)(II) of th e United States Tariff Act of 1930, where the
quantity is not sufficient, the representativeness mentioned in Article 2.2, paragraph 1 of the
Anti-Dumping Code may be established using the transaction value.  When is the volume
considered not to be viable for establishing representativeness?
A9. The Department has adopted the standard that sales in the home market or a third country
market "normally" will be considered of sufficient quantity to render the home market viable if there
are 5 per cent or more of sales to the United States.  Therefore, the 5 per cent test normally is applied
by comparing the quantity of merchandise sold in the home or third country market to the quantity of
merchandise sold in the US market.  In measuring the quantity of sales, the Department may consider
the number of items, weight, or other measures it considers appropriate.  Occasionally, however, suchas 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 those situations, the Department may measure
viability on the basis of the value of merchandise sold.
Q10 § 351.406 of the United States Regulations refers to "extended period of time" as a first
condition for disregarding sales of the product under investigation if they are made at less than
the cost of production.  According to both Section 773(b)(1)(A) of the United States Tariff Act
and Article 2.2, paragraph 3 of the Anti-Dumping Code, this period should normally be one
year, but in no case less than six months.  How do you interpret the "extended period of time"G/ADP/Q1/USA/10
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mentioned in the Anti-Dumping Code: (i) as a peri od of consecutive months, or (ii) as a period
of months "scattered" throughout the investigation?
A10. The duration of the interval which the administering authority normally will consider as being
"an extended period of time" normally will coincide with the period in which the sales under
consideration for the determination of normal value were made.  The administering authority may
disregard below-cost sales if they occur "within" th is "extended period of time".  For example, where
a particular model is sold at prices below the cost of production during one month of the period of
investigation or review (and where such sales are not at prices that would permit cost recovery), the
administering authority may disregard these sales in  its determination of normal value.  See the
Preamble to the Department of Commerce's Fi nal Anti-Dumping Regulations, 62 Fed. Reg. 27296,
27360-61 (19 May 1997) for further discussion of this issue.
Q11. § 351.405 of the United States Regulations mentions that the constructed value may be
used as the basis for normal value where, inter alia , sales below the cost of production are
disregarded.  This could be interpreted to mean  that for a given type of merchandise (product
code) both domestic prices and constructed value may be used as a basis for determining
normal value.  In practice, do you substitute domestic prices that have been disregarded in the
determination of normal value with constructed values?  If you do not replace the disregarded
domestic prices, is it possible, in your experience, to make a transaction-to-transaction
comparison between the normal value and the expo rt price in accordance with Article 2.4 of the
Anti-Dumping Code even when all domestic sales for a given month or months within the period
of investigation have been disregarded?
A11. It is correct that, for a given model, both domestic prices and constructed value may be used
as a basis for determining normal value.  If we have  initiated a cost investigation (in response to a
proper allegation or pursuant to our automatic initiation provision), we first determine whether to
disregard any home market (domestic) sales pursuant to the cost test analysis.  Once we have
disregarded specific home market sales that failed the cost test, we will attempt to match the US sales
(export sales) to any remaining contemporaneous home market sales of that model or a similar model.
US sales that do not have a contemporaneous match in the home market will be compared to
constructed value.
Q12. The United States Regulations have laid down the following conditions for meeting the
requirement under Article 2.4 to make allowance for differences in quantity: (i) during the
period examined, or during a more representative period, the producer must have granted
discounts, and (ii) the exporter or producer must demonstrate that the discounts reflect savings
attributable to the production of different quant ities.  In practice, do you produce additional
evidence to demonstrate that the discounts were gi ven throughout the period, or in other words,
that they were usual?
A12. This question appears to be asking whether, when a party seeks a quantity discount
adjustment pursuant to section 773(a)(6)(C)(i) of  US anti-dumping law or section 351.409 of the US
anti-dumping regulations, it is the Department's practice to satisfy itself, as one condition for granting
such an adjustment, that such discounts were "usual" in the sense of being given  throughout the
period.  Section 351.409(b)(1) provides that the De partment "normally" will deduct quantity discounts
from the prices used to calculate normal value only if the producer or exporter meets either of two
criteria beyond the general criteria listed in section 351.409(a).  One way is to demonstrate that "the
discounts reflect savings specifically attributable to the production of the different quantities."  The
other way is to demonstrate that "during the period examined, or during a more representative period,
the exporter or producer granted quantity discounts of at least the same magnitude on 20 per cent or
more of sales of the foreign like product for the relevant country."  Thus, a foreign producer need notG/ADP/Q1/USA/10
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show that its quantity discounts were "usual" if it can show that they reflect savings specifically
attributable to the production of different quantities.  See, e.g. Brass Sheet and Strip from Canada:
final Results of Anti-Dumping Duty Administrative Review, 55 Fed. Reg. 31414, 31416 (granting a
quantity discount adjustment when respondent demonstrated it had different production costs for non-comparable quantities, without also requiring a demonstration that such discounts were usual).
Q13. Article 2.4 of the Anti-Dumping Code establishes that the comparison between the
export price and the normal value must be fair.  In particular, it stipulates that allowance
should be made for differences in the condit ions of sale.  § 351.411 of the United States
Regulations takes up this provision of the Anti-Dumping Code and defines the concept of
"reasonable allowance".  It states, in particular, that "the Secretary will consider onlydifferences in variable costs associated with the physical differences".  How does the Secretary
determine the percentage of variable costs asso ciated with physical differences in the product?
Is there a maximum percentage of variation in var iable costs for deciding whether or not the
product is a like product?
A13. The difference in merchandise adjustment is based on actual physical differences in the
products being compared, and is calculated on the basis of direct manufacturing costs submitted by
the respondent parties.  The submitted per-model direct manufacturing costs include the cost of
materials, labour, and variable factory overhead.  (It should be understood that "physical" differences,
for purposes of this adjustment, is broadly read;  it would include, for example, chemical differences
that are relevant but not readily visible.  The purpose of the limitation is to  assure that physically
identical products are not deemed of different value because, for example, they were produced in
plants with different efficiencies or different profit margins.)  If the difference in merchandise value
thus calculated exceeds 20 per cent of the total average cost of manufacture, on a model-specific
basis, of the product exported to the United States, the Department considers that the two products areinsufficiently similar to compare them for purposes of determining a dumping margin.  If the most
similar home market model is eliminated as a possible match for this reason, the Department will
normally calculate the margin of dumping by comparing the price of the next most similar model sold
to the United States or, if there is none, the constructed value of that model.
Q14. Article 2.4 states that the normal value an d the export price must be comparable, while
§ 351.414 of the United States Regulations sets forth the way in which the United Statescompares normal value and export prices when the export price is constructed, specifically
describing various methods of comparison.  Wh at circumstances determine the application of
each one of these measures?
A14. The average-to-average method normally is used in an investigation.  The transaction-to-
transaction method is used in an investigation only in unusual situations, such as when there are very
few sales of subject merchandise and the merchandise sold in each market is identical or very similar
or is custom-made.  The average-to-transaction method normally is used in administrative reviews.
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