RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/Q1/USA/8
G/SCM/Q1/USA/8
6 July 1998
(98-2654)
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 of the UNITED STATES1
to Questions Posed by JAPAN2 and VENEZUELA3
The following communication, dated 29 June 1998, has been received from the Permanent
Mission of the United States.
_______________
CONTENTS
Page
Replies to Questions Posed by Japan............................................................................................ ......2
Replies to Questions Posed by Venezuela ........................................................................................ 10
                                                     
1 G/ADP/N/1/USA/1/Suppl.2-G/SCM/N/1/USA/1/Suppl.2
2 G/ADP/Q1/USA/5-G/SCM/Q1/USA/5.
3 G/ADP/Q1/USA/6-G/SCM/Q1/USA/6.G/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 2
REPLIES TO QUESTIONS POSED BY JAPAN
1. General - Reserved Sections
The US Department of Commerce regulations notified as G/ADP/N/1/USA/1/Suppl.2-
G/SCM/N/1/USA/1/Supp.2 (hereinafter "the regulations") contain several parts identified as
"Reserved", namely items 351.304,351.305, 351.306 (regarding business proprietary treatment)
and Subpart E.
Q.1.1 Please explain when the US intends to clarify these "Reserved" parts or to issue
regulations under them?
A.1. The United States published final regulations on several parts previously identified as
"Reserved", namely items 351.304 , 351.305 and 351.306 (regarding business proprietary
treatment) on 4 May 1998, effective 3 June 1998.
Q.1.2 Please clarify the proposed regulations and subject matter for Subpart E.
A.1.2. The proposed regulations and subject matter for Subpart E consist of substantive
regulations governing the conduct of US countervailing duty investigations.  These proposed
regulations have been published for public comment and will be issued in final form in thenear future.
Q.1.3 Please clarify whether the "Reserved" matters relating to business proprietary
information constitute to be governed by the prior regulations governing these matters.
A.1.3. The "reserved" matters relating to business proprietary information were governed by
the prior regulations up until 3 June 1998, the effective date of the new regulations.
2. Affiliated Parties - 351.102(b)
The regulations provide a very broad definition of "affiliated" parties, particularly in
determining whether parties are affiliated based upon "control".  It appears that the Secretaryhas discretion to conclude that one party exercises control over the other based on vague or
minimal contacts or relationship between them, such as "franchise or joint venture
agreements", "debt financing", and "close supplier relationships".
Q.2.1 What does it mean by a "close" supplier relationship?  What factors will the
Secretary use to distinguish a "close" supp lier from any other supplier relationship?
A.2.1. Section 771(33)(G) of US law defines affiliated persons on the basis of control.
Consistent with Article 4 of the WTO Anti-Dumping Agreement, section 771(33) states that
"a person shall be considered to control another person if the person is legally or operationallyin a position to exercise restraint or direction over the other."  Section 351.102 of US
antidumping regulations states that, in determining control over another within the meaning of
Section 771(33), the Secretary may determine control between parties  based on consideration
of certain concrete factors including, among others, corporate or family groupings, franchise
or joint venture agreements, debt financing and close supplier relationships.  The Secretarywill not find that control exists on the basis of these factors unless the relationship has the
potential to impact decisions concerning the production, pricing or cost of the subject
merchandise or foreign like product.  In addition, the Statement of Administrative Action
accompanying Section 771(33)(G) at 838 states that a company may be in a position toG/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 3
exercise restraint or direction through close supplier agreements in which the supplier or
buyer becomes reliant upon the other.  As applied,  the Department requires that a situation
exist where the buyer has, in fact, become reliant on the seller, or vice-versa.  When the
Department makes such a finding, it can then address the issue of whether one of the parties isin a position to exercise restraint or direction over the other.  Certain Cold-Rolled and
Corrosion-Resistant Carbon Steel Flat Products From Korea:  Final Results of Anti-Dumping
Duty Administrative Reviews, 62 Fed . Reg . 18404, 18417 (15 April 1997).
Q.2.2 Under what circumstances would the Secretary conclude that parties exercise
control over one another based on "debt financing" or "franchise or joint venture"
agreements?  What factors will the Secretary  consider in making this determination?
A.2.2. The Department applies its definition of "affiliated parties" on a case-by-case basis,
considering all relevant factors, including th e indicia included in the regulatory definition.
The presence of one or more of these or other indicia of control is not sufficient to determine
control under US law;  instead, the Department wi ll examine these indicia, in light of business
and economic reality, to determine whether they are, in fact, evidence of control.  As
explained in the preamble to the proposed regulations, business and economic reality suggest
that these relationships must be significant and not easily replaced.  Anti-Dumping Duties;
Countervailing Duties;  Proposed Rule, 61 Fed . Reg . 7308, 7310 (27 February 1996).
Q.2.3 The regulations also indicate that this  list of factors is not exclusive.  What
"other" undefined factors might the Secretary consider in determining "control" by one
party over another?
A.2.3. The WTO Anti-Dumping Agreement states, "one should be deemed to control
another when the former is legally or operationally in a position to exercise restraint or
direction over the other."  As this definition indicates, the realities of the marketplace are that
factors other than those specifically listed in the US regulations may play a substantial role in
the determination of control.  Decisions regarding control will depend on the facts of each
case and will be fully consistent with Article 4 of the WTO Anti-Dumping Agreement.  See
G/ADP/W/60, at 14-15 (16 November 1995) (US replies to questions regarding US
antidumping laws and regulations).
Q.2.4 How would the United States distinguish between a situation where a party has
limited "direction" over another party and one where it exercises "control"?
A.2.4. It is not clear what is meant by the question’s reference to "limited 'direction'".  As
stated previously, consistent with Article 4 of the WTO Anti-Dumping Agreement,
section 771(33) states, "a person shall be considered to control another person if the former
person is legally or operationally in a position to exercise restraint or direction over the
other."   Therefore, both Article 4 and US law focus on whether one entity exercises restraint
or direction over another in determining whethe r control exists.  Under US law, we examine
factors in the statute, the Statement of Admi nistrative Action, and the regulations in reaching
this determination.
Unions - 351.203(e)(5)
Q.3.1 Why does the Secretary intend to include unions and other workers in
conducting a poll of the "industry" when unions and workers are not "producers"
within the meaning of the term "industry" as defined at Article 4.1(i) of the A-D
Agreement?G/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 4
A.3.1. Section 732(c)(4) of US law provides the Department will determine that a petition
has been filed by or on behalf of the domestic industry if the domestic producers or workers
who support the petition account for at least 25 per cent of the total production of thedomestic like product and at least 50 per cent of the production of the domestic like product
produced by that portion of the industry expressing support for or opposition to the petition.
Under Note 14 of the WTO Anti-Dumping Agreement, unions are representatives of
the "employees of domestic producers of the like product" and "may make or support an
application for an investigation."  Accordingly, the Department will include unions and other
workers that make or support an application for an investigation in the calculation made todetermine if the petition has been made "by or on behalf of the domestic industry" under
Article 5.4 of the WTO Anti-Dumping Agreement.
Q.3.2 If the Secretary nevertheless insists on  including unions in an industry poll, how
will the Secretary resolve a conflict with management or silence from management?
A.3.2. Section 351.203(e)(3) of US antidumping regulations provides:
The Secretary will consider the positions of workers and management
regarding the petition to be of equal weight.  The Secretary will assign asingle weight to the positions of bo th workers and management according to
the production of the domestic like product of the firm in which the workers
and management are employed.  If the management of a firm expresses a
position in direct opposition to the position of the workers in that firm, the
Secretary will treat the production of that firm as representing neither supportfor, nor opposition to, the petition.
Under this regulation, the conflicting positions which are expressed by management
and the union will cancel each other out, and "the Secretary will treat the production of that
firm as representing neither support for, nor opposition to, the petition."  In the event that a
union representing the workers of a firm expressed a position regarding the petition while the
management of that firm was silent, for purposes of determining whether the petition has beenmade by or on behalf of the domestic i ndustry under Article 5.4, the Department would
consider the position of the union.
Q.3.3 Section 351.203(e)(3) indicates that a conflict between union and management
nullifies the position of management.  If that is the case for responses to a polling, whyshould the position of the union nullify the position of management, particularly in light
of the industry definition as discussed above?
A.3.3. The opposing positions of the union and the management cancel each other out.  This
avoids the double counting of the positions expressed "by and on behalf of" the firm.  See
G/ADP/W/60, at 10 (16 November 1995) (US replies to questions regarding US antidumping
laws and regulations).
Q.4. Commercial Quantities  - 351.222(d)(1)
The regulations make no attempt to define the term "commercial quantities" for
purposes of determining whether to revoke an A-D order or to terminate an investigation.
Given that the definition of this term is likely to vary depending on the type of merchandiseG/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 5
involved, it appears that the Secretary will seek to define this term on a case-by-case basis.
Please explain what factors might be used to make such a determination.
A.4. It is correct that what constitutes "commercial quantities" may vary from case-to-case and,
therefore, must be determined on a case-by-case basis.  The Department has provided guidance on
what factors it will consider in making this determination.  As explained in the preamble to the
proposed regulations, the Department "will establish whether sales were made in commercial
quantities based upon examination of the normal sizes of sales by the producer/exporter and other
producers of the subject merchandise."  Anti-Dumping Duties;  Countervailing Duties;  Proposed
Rule, 61 Fed . Reg . 7308, 7320 (27 February 1996).  The Department also stated that, in this analysis,
it will consider natural disasters and other unusual events that might affect potential production orexportation.  Id.  Thus, "commercial quantities" will be based on the characteristics of the particular
company or industry.
5. Revocation or Termination based on Absence of Dumping - 351.222(b)(1)(i)
Q.5.1 In deciding whether to revoke an A-D order or to terminate an investigation
based on absence of dumping, please clarify what is meant by "it is not likely" that
covered exporters and producers will sell th e subject merchandise in the future at less
than normal value?
A.5.1. Section 751(d)(1) of the US antidumping law provides the Department "may revoke"
an antidumping order, in whole or in part, after conducting an appropriate review.  The
Department’s antidumping regulations elaborate upon this standard.
Sections 351.222(b)(1)(ii) and (b)(2)(ii) provide, respectively, that the Department may
revoke an order or terminate a suspended investigation, or merely revoke an order in part, ifthe Secretary concludes, inter alia , "it is not likely that those persons will in the future sell the
subject merchandise at less than normal value."
In evaluating the "not likely" issue in most cases, the Department has considered
three years of no dumping margins, plus a respondent’s certification that it will not dump in
the future, plus its agreeing to immediate reinstatement of the order to be indicative of future
behaviour.  In most instances, that is the only information contained in the record regardingthe likelihood issue.  The Department examines relevant economic factors and other
information on the record in those cases where parties dispute the issue of whether it is "not
likely" that dumping will occur in the future.  When additional evidence is on the record
concerning the likelihood of future dumping, the Department is obligated to consider that
evidence.
In evaluating record evidence to determine whether future dumping is not likely, the
Department has consistently examined all relevant economic factors and other information on
the record in a particular case.  Depending upon the facts of the case, the Department will
consider such factors as:  conditions and trends in the domestic and home market industries;currency movements;  the ability of the fore ign entity to compete in the US marketplace
without sales at less than normal value;  pricing trends in the relevant industry;  inventory
levels;  potential margins if dumping were to recur;  and others.  None of these individual
factors is dispositive, and other  factors may also be considered where appropriate.  See
G/ADP/Q1/USA/4, at  3 (17 October 1997) (US replies to questions regarding US
antidumping laws and regulations.)G/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 6
Q.5.2 In responding to the question above, pl ease specify in detail the criteria or
factors that  will be considered by the Secreta ry in making this determination, as well as
the conditions necessary for such a finding.
A.5.2. See above.
Q.6. Scope Rulings, Importing Country Circumvention, The Third Country Circumvention,
Minor Alterations of Merchandise, Later-Developed Merchandise - 351.225
The A-D Agreement does not include any pr ovision authorizing anti-circumvention
measures.  Indeed, such a provision was considered during the negotiations, but ultimatelyrejected.  Nevertheless, the regulations contain provisions on "scope rulings" which appear to
provide for anti-circumvention measures and which provide for anti-circumvention measures.
Indeed, the introduction states that scope issues may arise in the situations where "changes to
an imported product or the place where th e imported product is assembled constitute
circumvention".
In light of the fact that the A-D Agreem ent does not authorize anti-circumvention
measures, and that the A-D Agreement contemplates that the scope of an A-D order may note
be expanded without new injury and dumping investigations, please explain the justification for
this new regulation.
A.6. The Ministerial Decision on Anti-Circumven tion, which resulted from the  Uruguay Round
negotiations,  reinforces the validity of anti-circumvention measures under Article VI.  It recognizes
the existence of the problem of circumvention and the desirability of uniform circumvention rules.
The Ministers’ view that harmonization of international practices on circumvention is desirable makesclear that it is legitimate for Members to take action to address the problem of circumvention.  See
G/ADP/IG/W/2 (8 October 1997) and G/ADP/IG/W/7 (22 April 1998),  papers submitted by theUnited States to the Committee on Anti-Dumping Practices - Informal Group on Anticircumvention.
Q.7. Questionnaire Time Limits - 351.301(c)(2)
Please clarify why the stated time limit fo r responding to individual sections of a
questionnaire may be less than 30 days, despite the fact that Article 6.1.1 of the A-D Agreement
states that exporters or foreign producers "shall be given at least 30 days" for replying to
questionnaires?
A.7. The Department generally issues a questionnaire in three or more sections using a standard
format.  Exporters and foreign producers are always given at least 30 days to reply to the full
questionnaire, although, as noted in the question, the Department may request that individual sections
of the questionnaire be completed in less than 30 days.  The Department generally analyses the
response to the first section of the questionnaire ("Section A") in order to determine such threshold
questions as the normal value market to be  reported, and other questions which can limit the reporting
required.  Unless expressly precluded by statute, the Department may, for good cause, extend the
deadline for a section of the questionnaire, upon request, where warranted.
8. Secondary Information - 351.308(d)
Section 351.308(a) and (c) state that the Secretary may draw an adverse inference in
selecting from "facts available" and that this adverse inference may be drawn from
"secondary" information such as the petition, or a final determination in an investigation, or a
final determination in an investigation or review.  Section 351.308(d) further indicates that theG/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 7
Secretary should seek to corroborate "second ary" information used by the Department as
"facts available".  Nevertheless, the regulations do not require that secondary information
always be corroborated, nor do they specify when it is appropriate to resort to such
"secondary" information as opposed to "[a]ny other information" that may be placed on therecord or otherwise available.
Q.8.1 Please clarify under what circumstances the Secretary will rely on "secondary
information", such as petition, prior review, as opposed to "any other information" on
the record?
A.8.1. Under 351.308(c), both "secondary information" and  "any other information placed
on the record" may be used in a manner which is adverse to a party that fails to provide
necessary information.  The selection of facts otherwise available depends upon the
circumstances of each particular case.  The Department considers "any other information on
the record" to be information that has been supp lied by another party to the proceeding, rather
than by the party in question, while "secondary information" is derived from the sourcesidentified in Section 351.308(c)(1).  In a particular situation, the Department may determine
that using "secondary information" is appropriate because, for example, an alternative source
of suitable information is not available on the record.
Q.8.2 Given the requirements of item 7 of Annex II of the A-D Agreement that
information from a "secondary" source should be used only with "special
circumspection", please address whether the Secretary should first seek to use "other
information "and resort to the use of "secondary" information only as a final means of
obtaining information?
A.8.2. In accordance with the requirement of "special circumspection", the Department
seeks to make its determination regarding a party based upon the information supplied by that
party and only resorts to the use of secondary information when the questionnaire responses
and other data submitted by the party do not  provide timely, sufficient, and reliable data on
which to base a determination.
Q.8.3 In those instances where the Secretary does resort to use of "secondary"
information and where the Secretary is unabl e to corroborate such information, please
explain why it would ever be appropriate to draw an adverse inference from
uncorroborated information?
A.8.3. If it were not practicable to corroborate the secondary information and there was no
alternative source of suitable information which could be corroborated, it would be
appropriate to use uncorroborated secondary information in a manner adverse to a party if that
party did not cooperate or otherwise failed to provide the information needed to make a
dumping determination.
This is consistent with Article 6.8 of the WTO Anti-Dumping Agreement, which
authorizes determinations made on the basis of "facts available", and paragraph VII of
Annex II which requires  that corroboration be done only "where practicable" and states:   "It
is clear, however, that if an interested party does not co-operate and thus relevant information
is being withheld from the authorities, this situation could lead to a result which is lessfavourable to the party than if the party did cooperate."G/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 8
Q.9. "Tolling" Operations - 351.401(h)
The regulations do not define what types of activities might qualify as "'tolling'
operations".  Please clarify the definition of th em and whether there are any limits on the types
of manufacturing, processing, or finishing activities that might qualify as "'tolling' operations".
A.9. In general, merchandise is "tolled" when a seller contracts to have merchandise further
manufactured, processed or finished by another company (the "toller") in another country.  The
Department will not consider a toller or subcontractor  to be a manufacturer or producer where the
toller or subcontractor does not acquire ownership of the finished product and does not control the
relevant sale of the subject merchandise and the foreign like product.  Anti-Dumping Duties;
Countervailing Duties;  Final Rule, 62 Fed. Reg. 27296, 27411 (19 May 1997).  The types of
activities that might qualify as "'tolling' operations" must be determined on a case-by-case basisdepending on the specific facts of each case.  Limits on the types of activities that might qualify as
"tolling" operations, if any, would also be unique to the specific facts of each case.
10. Start-up Costs - 351.407(d)(4)
Article 2.2.1.1 of the A-D Agreement requires th at costs be adjusted for "non-recurring
items" or other circumstances affected by "start-up operations".  The regulations define very
narrowly those situations to qualify for this "s tart-up" adjustment.  Moreover, the regulations
fail to take into account the fact that, in some circumstances, certain marketing and sales
expenses associated with "start-up" operat ions (such as advertising or research and
development costs) should qualify as "start-up" costs for purposes of this adjustment.
Q.10.1 Please explain why the Secretary wi ll never consider certain sales expenses
commonly associated with start-up operations such as research and development costs
or advertising costs as "start-up" costs for purposes of this adjustment?
A.10.1 Article 2.2.1 of the WTO Anti-Dumping Agreement addresses the use of cost of
production in anti-dumping proceedings, and Article 2.2.1.1 in particular provides for specific
adjustments permitted in calculating the cost of production.
With respect to start-up operations and th e adjustment of costs, the WTO Agreement
addresses those situations where manufacturing costs are impacted by technical factors
associated with the initial phases of operation.  Therefore, the adjustment focuses solely on
the actual costs incurred to produce the merchandise during the start-up period, not such
non-manufacturing costs as selling, general and administrative expenses, includingadvertising expenses.  In the case of pre-production research and development costs, such
costs are generally incurred prior to the actual start-up phases of operations and, thus, are not
included as part of the start-up cost adjustment.  However, as noted below, the Department
may treat pre-production research and development costs as non-recurring costs and allocate
the amounts incurred over current and future periods where they can clearly be demonstratedto benefit those periods.
Q.10.2 In the event the Secretary adheres to it s position that such expenses may never
be included in the "start-up" adjustment, please explain how such expenses should be
accounted for in an anti-dumping proceeding?
A.10.2 Generally, under US law, advertising costs incurred prior to commercial sales of the
merchandise in question are not included as part of  the selling expenses in adjusting the
export price and normal value.  However, the Department recognizes advertising expenses asG/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 9
part of selling, general and administrative expenses in calculating the cost of the merchandise
under investigation.  This treatment is consistent with generally accepted accounting
principles wherein advertising and other selling expenses are accounted for as period costs
and recognized when incurred.
The accounting for the research and development expenses in an anti-dumping
proceeding may vary depending, for example, on the nature of the research and development
expenditures, the stage of the product life when such costs were incurred, and the general
development of the product and the product line.  With respect to pre-production research and
development, consistent with Article 2.2.1.1 of the Agreement, US law recognizes that such
costs may be accounted for as non-recurring costs and be allocated over current and futureperiods, where they are shown to benefit those periods.
11. Average-to-Average Method - 351.414(c)(2)
Q.11.1 Please clarify why the US intends to use the "average-to-transaction"
methodology to calculate dumping margins in re views, particularly in light of Articles 2
and 9.3 of the A-D Agreement which require the use of "average-to-average" or
"transaction-to-transaction" comparisons in all proceedings.
A.11.1 Section 351.414 of US antidumping regulations  is fully consistent with Articles 2.4.2
and 9.3 of the WTO Anti-Dumping Agreement.  With respect to the comparison between
export price and normal value, Article 2.4.2 states that "the existence of margins of dumping
during the investigation phase  [emphasis added] shall normally be established on the basis
of a comparison of a weighted average normal value with a weighted average of prices of all
comparable export transactions or by a comparison of normal value and export prices on atransaction to transaction basis".  Thus, section 351.414(c)(1) of the regulations is consistent
with Article 2.4.2 in providing for the comparison of export price to normal value in that
fashion in investigations.  Since Article 2.4.2 specifically addresses the comparison
methodology for investigations, not reviews, section 351.414(c)(2) is also consistent with the
requirements of that Article.  This regulation also is consistent with Article 9.3 of the WTO
Anti-Dumping Agreement.  Article 9.3 states that the amount of antidumping duty should not
exceed the margin of dumping established under Article 2.  As noted, the methodologiesutilized under the regulations are consistent with Article 2 requirements.  See G/ADP/W/60,
at 16 (16 November 1995) (US replies to questions regarding US antidumping laws andregulations.)
Q.11.2 This provision states that the Secretary "normally" will use the
"average-to-transaction" methodology.  Please explain under what circumstances the
US will deviate from this methodology.
A.11.2 While it is believed that the "average-to-transaction" methodology will be utilized in
most reviews, there may be circumstances in which that methodology is not appropriate.  As
noted in the preamble to the Department’s fina l regulations:  "[C]ircumstances may exist that
warrant application of the average-to-average method and the final rule reflects the
Department’s authority to apply this method where necessary."  Anti-Dumping Duties;
Countervailing Duties;  Final Rule, 62 Fed . Reg . 27,295, 27,373 (19 May 1997).  The
preamble also notes that in unusual circumstances it may be appropriate to apply thetransaction-to-transaction methodology in re views.  The Department will address
circumstances warranting departure from the average-to-average transaction approach within
the context of each case.G/ADP/Q1/USA/8
G/SCM/Q1/USA/8
Page 10
REPLIES TO QUESTIONS POSED BY VENEZUELA
Q.1. Self-initiation
Could the United States indicate in what circumstances a self-initiated investigation
could be carried out in conformity with section 351.201 of the Regulations?
A.1. Article 5.6 of the Anti-Dumping Agreement provides:
"If, in special circumstances, the authorities concerned decide to initiate an
investigation without having received a written application by or on behalf of adomestic industry for the initiation of such investigation, they shall proceed only if
they have sufficient evidence of dumping, injury and a causal link, as described in
paragraph 2, to justify the initiation of an investigation."
Section 351.201 of US regulations describes actions to be taken by the Secretary when
self-initiating an antidumping investigation.  The United States has rarely self-initiated antidumping
investigations and, consistent with WTO Article 5.6 , would do so only in situations  involving special
circumstances.  The circumstances warranting self-initiation of an investigation must be determined in
the context of a specific case.
Q.2. Distribution of the complete petition to the exporters and producers accused
Could the United States explain the significance of the words "will provide" in
paragraph (c), subparagraph (2) of Section 351.203 of the Regulations so as to make it clear
whether the authority will send the complete text of the petition to the exporters or producers or
will make it available to them?
A.2. After initiation, the Department makes a public version of the complete text of the petition,
and all accompanying attachments, available to any producer or exporter.
__________