WORLD TRADE  
ORGANIZATION  TN/RL/GEN/19 
15 September 2004 
 (04-3857) 
Negotiating Group on Rules Original:   English 
  
 
PROPOSALS ON ISSUES RELATED TO AFFILIATED PARTIES 
 
Communication from Brazil;  Colombia;  Co sta Rica;  Hong Kong, China;  Japan;
 
Korea, Republic of;  Norway;  Singapore;  Switzerland;  
the Separate Customs Territory of Taiwan , Penghu, Kinmen and Matsu;  and Thailand  
 
  The following communication, dated 13 September 2004, is being circulated at the request of the Delegations of Brazil;  Colombia;  Costa Rica;  Hong Kong, China;  Japan;  Korea, Republic of;  
Norway;  Singapore;  Switzerland;  the Separate  Customs Territory of Taiwan, Penghu, Kinmen and 
Matsu;  and Thailand. 
  The submitting delegations have requested that this paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(04)/ 125), also be circulated as a formal document. 
 
_______________ 
 
 
I. DESCRIPTION OF THE PROBLEMS 
 
 The issue of “affiliation” arises in various  places in the Anti-Dumping Agreement (“AD 
Agreement”), i.e., the calculation of normal value and the use of constructed export price (CEP), and 
plays a crucial role in the determination of dumping margins.
1  Yet the AD Agreement does not 
provide a clear and concrete set of criteria for determining when parties should be considered 
“affiliated” and does not adequately address those situations in which the existence of possibly 
affiliated parties affects the calculation of dumping ma rgins.  Given the importa nce of these issues, it 
is important to rethink the issue of affiliati on and ensure that the AD Agreement clearly and 
appropriately defines these various issues.  
 
1. Problems Resulting from the Lack of Clear Definitions of Affiliated Parties  
 
 Authorities often conduct substantial inves tigations related to transactions between a 
responding party and what are variously termed “rel ated”, “associated” or “affiliated” parties in 
determining margins of dumping, alleging that sales by the responding party to its associated purchasers might not be at arm’s length, or not “in th e ordinary course of trade” within the meaning of 
Article 2, or that purchases of raw materials or services from affiliated suppliers do not “reasonably reflect the costs associated with the production a nd sales of the product under consideration”.  For 
example, authorities often request that a responding  party submit all data related to sales in the 
exporting country by affiliated parties to unaffilia ted purchasers.  In other cases, the authorities 
request affiliated suppliers’ costs of production or services, in addition to prices of the responding 
                                                     
 
1 The definition of “affiliated parties” in this paper addresses Articles 2.2 and 2.3 of the AD 
Agreement. The FANs will address the term “related” in  footnote 11 (cf. definition of domestic industry) and 
Article 9.5 (cf. new shipper review) at a later stage. 
 TN/RL/GEN/19 
Page 2  
 
 party’s individual purchases from both affiliated an d unaffiliated suppliers.  In other cases, the 
authorities request the responding party to submit resa le and cost data of a purchaser in the importing 
country to use CEP.   In many of these cases, the authorities expa nd these inquiries far beyond what they need to 
determine the appropriate margin of dumping for the responding party.  The authorities often request 
information on an “affiliated” party, over which th e responding party has only small amount of equity 
stake and, in fact, has no control at all.  Some  authorities deem respondents to be affiliated with 
suppliers or purchasers based on an ownership in terest of as little as 5%.  In other cases, the 
authorities request unnecessarily extensive data maintain ed by such “affiliated” parties.  In other 
cases, the respondent cannot judge whether its purch asers/providers will be regarded as affiliated 
parties because the definition of affiliated parties set  by the authorities is unclear.  These inquiries put 
excessive and unnecessary burdens on the responding party.  In many cases, the responding party is simply unable to respond to all these inquiries, resu lting in application of “adverse” facts available.  
 
1. Problems Resulting from the Absence of Ru les in the Treatment of Affiliated Party 
Transactions 
 Some authorities have applied special rules increasing or lowering the sales prices and costs 
recorded in a responding party’s normal financial and cost accounting system because of alleged 
affiliation between parties.  For example,   
• Upon finding a relation of affiliation between a responding party and a purchaser, the responding 
party is requested to submit resale data by the purchaser to independent parties, indifferent to 
whether the price of the responding party’s sales is reliable or not.  Such practice of negating the 
reliability of actual data has no rationale but just  creates opportunities for the authorities to resort 
to facts available and calculate artificially high dumping margins. 
• Sales expenses for transportation services provided by an affiliated party, which are to be 
deducted from invoice prices in calculating normal valu e at ex-factory level, are rejected even if 
that affiliated service provider is providing sim ilar services at the same price to independent 
parties.  Such rejection also results in increase of the normal value and creation and increase of 
the dumping margin.  
• Similarly, the responding party’s cost of production is increased to the highest
 of the costs of the 
affiliated supplier, the purchase price from its unaffiliated suppliers, or the actual purchase price 
from the affiliated supplier.  Such methodology  has no rationale other than to increase the 
responding party’s costs of production to the hi ghest possible level that one can imagine, 
resulting in creation and increase of the dumping margin.   
• In other cases, the authorities disregard export pr ices when such prices are higher than the export 
prices to independent importers, but take them wh en such prices to an associated importer are 
lower than the export prices to an independent buyer .  Such practice is just a misuse or abuse of 
the discretion pertaining to the use of CEP. 
 The combination of an overly expansive defin ition of associated, affiliated or related parties 
(some authorities deem respondents to be affiliate d with suppliers or purchasers based on an 
ownership interest of as little as 5%) and the ab sence of rules on the treatment of transactions 
between such parties, has led to excessive burdens and distorted results.  Th e definition of affiliated 
parties should be applied consisten tly in all situations, and specifi c rules should be applied both in 
determining affiliation and in the proper tr eatment of affiliated party transactions.   
  TN/RL/GEN/19 
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 II. ELEMENTS OF THE SOLUTION 
 
1. Definition of “Affiliated Party” 
 Proposal: 
 
 Add a provision (or separate annex) defining  “affiliated parties” to be applied in all 
determinations of dumping where parties are related,  associated or affiliated, and where the prices in 
transactions between such parties could be unre liable.  The proposed definition is as follows: 
 
 An “affiliated party” shall be any party, which is  considered to, directly or indirectly, control 
or be controlled by another party or which is under the common control of a third party.  For 
the purposes of this definition, control is th e power to govern the financial and operating 
policies of an enterprise by having: 
 
 (a) more than one half of the voting power of an enterprise; 
  (b) power over more than one half of the vo ting rights by virtue of an agreement with 
other investors; 
  (c) such power under a statute or an agreement; 
 
 (d) power to appoint or remove the majority of the members of the board of directors or 
equivalent governing body;  or 
  (e) power to cast the majority of votes at meetings of the board of directors or equivalent 
governing body. 
  The term “association” in Ar ticle 2.3 should be replaced by “affiliated parties” and should 
follow the single unified definition.   
Explanation: 
 
 Article 2.2 of the AD Agreement provides no specific reference to association or relationship between parties in connection with the determin ation of normal value.  Article 2.3 of the AD 
Agreement establishes that when there is no expo rt price or where it appears to the authorities 
concerned that the export price is unreliable becau se of an association or compensatory arrangement 
between the exporter and the importer or a third pa rty, the export price may be constructed, but 
provides no clear guidance on what kinds of affiliati on require this use of constructed export price 
(“CEP”).     The concern in relation to affiliated parties is that one party may make transactions with 
another party on other than commercial terms.  In  market economies, one assumes that one party does 
not confer a gift on another party in the form  of non-commercially priced sales.  Indeed, the 
assumption must be that unless there is a substan tial identity of economic interests between the 
entities involved, the price of the transaction will be an  arm’s length price.  This , in turn, implies that 
the identity of economic interests is dependent on the degree of common ownership and the ability of 
the owners of one party to control the actions of the other party.  
 
The issue of the extent of the relationship necessary to constitute an identity of economic 
interests and confer control has been extensivel y analyzed in the context of corporate accounting 
practices and incorporated into Internationa l Accounting Standard 27 (IAS 27), “Consolidated 
Financial Statements and Accounting for Investments Subsidiaries”.  We believe that the criteria in TN/RL/GEN/19 
Page 4  
 
 IAS 27, which we hereby adopted into this pro posal, are well established and accepted, and thus, 
provide the most reliable basis to address the issue of affiliation between two entities.  In addition, 
adopting these criteria into the AD Agreement  has the benefit of enhancing the transparency and 
predictability of the AD regime and ensuring cons istency among Members in applying antidumping 
rules.  Practically, this proposal defines affiliated pa rties to be similar to t hose that are consolidated 
into a consolidated financial statement, into whic h a responding party also would be consolidated, in 
accordance with the accounting standards in many countries. 
 
 It should be noted that the ability of one party to influence  the prices of another is not an 
appropriate standard for determin ing the “affiliated party.”  For example, a buyer with a long-term 
commercial relationship or which buys in large qua ntities may use its buying power to influence the 
seller to provide a better price.  Such influence is  the very essence of the ordinary course of business, 
and is not evidence of “control” over the other party.   Family relationship could also be one form of 
“influencing” the operation of a company but does no t demonstrate power to “control” the other party 
per se, and hence it should not be regarded as a d ecisive factor for the sales price to be presumed 
unreliable. 
 
2. Calculation of Dumping Margins where Affiliated Parties are Involved 
 (1) Sales to Affiliated Parties for Determining Normal Value  
 
Proposal: 
 
• Amend Article 2.2 to clarify that the authorities shall exclude all sales by the responding party to 
its affiliated parties from the sales in the exporting country (or to the third country) for 
determining the normal value, only if the weighted  average price of sales by the responding party 
to the affiliated party varies by more than W per cent
2 from the weighted average price of sales to 
all the unaffiliated parties (average-to-average co mparison) and the weighted average price of 
sales by the responding party to the affiliated part y is more than the highest of the weighted 
average price of sales to each unaffiliated party or  less than the lowest of the weighted average 
price of sales to each unaffiliated party based on a company-by-company comparison. 
• Furthermore, clarify that such comparison shall be done for the same products sold at the same 
level of trade, taking into account differences in product mix. 
• Furthermore, clarify that when the authoriti es exclude such sales under the condition mentioned 
above, the excluded data shall not  be replaced with any data. 
• Furthermore, clarify that in case there are no or too few unaffiliated parties with respect to sales 
by the responding party to make the above -mentioned comparisons, the authorities shall 
disregard all the sales in the exporting country a nd base the determination of the normal value on 
the constructed value under Article 2.2. 
• Amend Article 2.2 to clarify that in no event sh all the authorities request that a responding party 
submit information in connection with sales by  the affiliated parties to third parties. 
• Furthermore, clarify that the authorities do not have any discretion whether or not to follow the 
above-mentioned procedures on a case-by-case basis. 
                                                      
2 The appropriate level of the percentage figures in  this document (“W”, “Y”, “T” and “V”) will be 
discussed at a later stage in the negotiation.  TN/RL/GEN/19 
 Page 5 
 
 
 Explanation: 
 
 This proposal is intended to clarify and si mplify the rules on the treatment of sales by a 
responding party to its affiliated parties for dete rmining normal value.  Article 2.2 of the AD 
Agreement provides no specific reference to the trea tment of sales between association or affiliated 
parties in connection with the determ ination of normal value.  In such absence of explicit rules in the 
AD Agreement, Members have developed various test s to examine whether sales to affiliated parties 
were reliable or not.  Members also have devel oped rules on the treatments of sales to affiliated 
parties, where these sales were found not to be at arm’s length.  As the AD regime has developed, 
these tests and rules also have become so complicat ed that they have made the results unpredictable 
and at the same time, have created excessive burde ns on responding parties.  To solve such problems, 
clarifying the basic concept that affiliation by itself is not a sufficient condition to deem unreliable the 
price of such transactions, our proposal is intend ed to streamline the rule s so that they can be 
implemented by all Members without any difficulti es, to reduce the burden on both the authorities and 
responding parties, and to increase the predictabilit y of the AD regime for all international business 
participants.  For example, certain authorities request a responding party to submit detailed data 
pertaining to the resale by the affiliated purchaser, but such practice should be explicitly prohibited because it is too burdensome for both the authorities a nd respondents and is c onsiderably unfortunate 
to resort to facts available.  
(2) Sales Expenses by Affiliated Service Providers 
 
Proposal: 
 
 Add provisions to clarify that a responding part y’s sales expenses (i.e., sales expenses that are 
the subject of due allowance made in the comparis on between the export price and the normal value at 
the same level of trade) for services that are provide d by affiliated parties shall be based on the actual 
price charged to the responding party by the aff iliated supplier, unless the sales expense is a major 
expense and the evidence on the record shows that charges by the affiliated supplier for the service 
significantly differ from the comparable charges by unaffiliated service providers for the same service 
or from the comparable charges by the affiliated su pplier for the same service to unaffiliated parties, 
and that the difference materially affects the price comparison.  Even in case there exist no 
comparable charges, the sales expense by affilia ted suppliers shall be based on the actual price 
charged to the responding party by the affiliated s upplier, unless the major expense is below the cost 
incurred at the affiliated supplier for prov iding that service.  More specifically: 
 
• The actual price charged by the affiliated supplier shall be used, unless the sales expense is a 
major expense; 
• In case the sales expenses is a major expense and: 
 (i)  when the responding party is sourcing th e same service from both an affiliated supplier 
and an unaffiliated supplier, the authoriti es shall substitute the comparable price 
charged by the unaffiliated supplier for th e actual price charged by the affiliated 
supplier, only if the actual price charged by  the affiliated supplier varies by more than 
Y per cent from the comparable price charged by the unaffiliated supplier for providing the same service; otherwise, the actual pri ce charged by the affiliated supplier shall be 
used. 
 
 (ii)  when the responding party is NOT s ourcing the same service from an unaffiliated 
supplier, the authorities shall request that the responding party submit the cost data 
incurred at the affiliated supplier for providing that service.   
 TN/RL/GEN/19 
Page 6  
 
   (a)  In this case, the responding party may submit a comparable price charged by the 
affiliated supplier for the same service to  unaffiliated parties.  In such case, the 
authorities shall substitute the comparable price charged by the affiliated supplier 
to unaffiliated parties for the actual price charged by the affiliated supplier, only if the actual price charged by the affiliated supplier varies by more than Y per 
cent from the comparable price charged by the affiliated supplier for the same 
service to unaffiliated parties; otherwi se, the actual price charged by the 
affiliated supplier shall be used. 
   (b)  If the responding party does not submit  the comparable price mentioned above, 
the authorities shall substitute the cost in curred at the affiliated supplier for the 
actual price charged by the affiliated supp lier, only if the actual price charged by 
the affiliated supplier is below the cost  incurred at the affiliated supplier for 
providing that service; otherwise, the actual price charged by the affiliated 
supplier shall be used. 
  
 Further clarify that the authorities do not have  any discretion whether or not to follow the 
above-mentioned procedures on a case-by-case basis.  
Explanation:   
 
 This proposal intends to avoid overly burden some calculations of sales expenses (i.e., sales 
expenses that are the subject of due allowance ma de in the comparison between the export price and 
the normal value at the same level of trade, normally at the ex-factory level).  Sales expenses, such as 
transportation expenses, charged by an affiliated party are sometimes put under an extensive scrutiny 
by the authorities but more often than not, they en d up with relatively minor adjustment to the prices 
in a respondent’s accounting record.  This proposal  clarifies that the authorities should not impose 
unnecessary burdens on a respondent when the detailed examination of such expenses is likely to 
result only in a minor adjustment and therefore does not materially affect the margin of dumping for 
the respondent, regardless of whether the sales expe nses is for the due allowance to the normal value 
or export prices.  Furthermore, the authorities sh ould respect the prices actually charged by an 
affiliated party and recorded in a respondent’s accounting statement, unless the prices significantly 
differ from the comparable prices charged to or by unaffiliated parties.  This proposal also clarifies 
that the authorities should not force a respondent to submit additional data pertaining to the affiliated 
party as long as there is a comparable price to ex amine the reliability of the recorded expenses. 
 
(3) Costs by Affiliated Suppliers  
 
Proposal: 
 
 With respect to costs (costs of produc tion, and selling costs as provided in GATT 
VI:1.(b)(ii)
3), amend Article 2.2.1.1 to clarify that a responding party’s costs for inputs provided by 
affiliated suppliers shall be based on the actual pric es charged to the responding party by the affiliated 
suppliers, unless the input is a “major input” and th e evidence on the record shows that the price of 
the major input significantly differs from the compar able price charged by unaffiliated suppliers for 
the same input or from the comparable price charge d by the affiliated supplier for the same input to 
unaffiliated parties, and that the difference materially  affects the costs calcula tion.  Even in case there 
exist no comparable prices, the price charged by af filiated suppliers shall be based on the actual price 
charged to the responding party by the affiliated suppliers, unless the major input is sold to the 
responding party at a price below the cost incurred at  the affiliated supplier for providing that input.  
More specifically: 
                                                      
3  See the proposal 4.3 of our paper regarding "determination of normal value" (TN/RL/W/150).  TN/RL/GEN/19 
 Page 7 
 
 
  
• The actual price charged by the affiliated supplier shall be used, unless the cost item at issue 
is a major input; 
 
• In case the cost item at issue is a major input and: 
 
 (i)  when the responding party is sourcing th e same input from both an affiliated supplier 
and an unaffiliated supplier, the authoriti es shall substitute the comparable price 
charged by the unaffiliated supplier for th e actual price charged by the affiliated 
supplier, only if the actual price charged by  the affiliated supplier varies by more than 
T per cent from the comparable price charged by the unaffiliated supplier for providing 
the same input; otherwise, the actual price charged by the affiliated supplier shall be 
used. 
  (ii)  when the responding party is NOT sourcing the same input from an unaffiliated 
supplier, the authorities shall request that  the responding party submit the cost data 
incurred at the affiliated supplier for providing that input.   
 
  (a)  In this case, the responding party may submit a comparable price charged by the 
affiliated supplier for the same input to unaffiliated parties.  In such case, the authorities shall substitute the comparable price charged by the affiliated supplier 
to unaffiliated parties for the actual price charged by the affiliated supplier, only if the actual price charged by the affilia ted supplier varies by more than T per 
cent from the comparable price charged by the affiliated supplier for the same 
input to unaffiliated parties; otherwise,  the actual price charged by the affiliated 
supplier shall be used. 
   (b)  If the responding party does not submit  the comparable price mentioned above, 
the authorities shall substitute the cost in curred at the affiliated supplier for the 
actual price charged by the affiliated supp lier, only if the actual price charged by 
the affiliated supplier is below the cost  incurred at the affiliated supplier for 
providing that input; otherwise, the actual price charged by the affiliated supplier 
shall be used. 
 
 Furthermore, clarify that the authorities do not have any discretion whether or not to follow the above-mentioned procedures on a case-by-case basis.   
Explanation: 
  Responding parties have bor ne heavy burdens to respond to the authorities’ unnecessarily 
extensive questions on their affiliated suppliers.  The burden on a responding party must be balanced 
with the need of the authorities for additional info rmation.  In the same way as sales expenses, in 
order to balance the burden on a responding part y with the authorities’ need for additional 
information, we are proposing that the AD Agreement shall clarify the conditions  for the authorities to 
request additional cost data; the major input accounts for at least a specified percentage of the total 
costs under consideration and the price charged for the major input significantly differs from a comparable price charged by unaffiliated parties.  This proposal also provides the responding party with the alternative of using another cost data wh ich the affiliated party char ges to unaffiliated parties 
for the same supply, should the responding party choose not to submit the relevant cost information.  
The goal should be to find a reliable but easier way to obtain an alternative, and not to maximize the 
burdens on respondents. 
 TN/RL/GEN/19 
Page 8  
 
 (4) Export to Affiliated Parties (CEP)
4 
 Proposal: 
 
• Amend Article 2.3 to further clarify that the authorities shall disregard the export price as 
unreliable and use CEP, only if the weighted average price of export sales by the responding 
party to the affiliated importers varies by more than V per cent from the weighted average price of export sales to all the unaffiliated impor ters (average-to-average comparison) and the 
weighted average price of export sales by th e responding party to the affiliated importer is 
more than the highest of the weighted average price of export sales to each unaffiliated importer or less than the lowest of the we ighted average price of export sales to each 
unaffiliated party based on a company-by-company comparison. 
 
• Furthermore, clarify that such comparison sha ll be done for the same products sold at the 
same level of trade, taking into account differences in product mix. 
 
• Furthermore, clarify that in case there are no or  too few unaffiliated parties with respect to 
export sales by the responding party to ma ke the above-mentioned comparisons, the 
authorities shall disregard all the export sales and construct the export price pursuant to 
Article 2.3 of ADA. 
 
• Furthermore, clarify that the authorities do not have any discretion whether or not to follow 
the above-mentioned procedures on a case-by-case basis.  
 
Explanation:  
 Under the current practice, the excessive use of CEP has led to greater burdens on 
respondents and more frequent abuses by authorities in making asymmetrical comparisons.  In order to clarify conditions where CEP should be used, this  proposal is intended to specify what examination 
should be conducted with respect to the export sales to an affiliated party.  The main idea of this 
proposal is similar to that for the home market sales to an affiliated party, and thus, export sales to an 
affiliated party should be under th e examination that we propose for the purpose of analyzing the 
reliability of the prices of affiliated party tran sactions, because the affiliation by itself is not a 
sufficient condition to deem unreliable the prices of  such transactions.  Since the export sales are the 
very subject of anti-dumping investigation, however,  they should not be excluded from the calculation 
of dumping margins, although they should be in th e case of home market sa les.  The export sales, 
instead, should be constructed based on the basis of the price at which the imported products are first 
resold to an independent buyer, as is set forth in Article 2.3.  Thus, this proposal clarifies the condition where CEP should be u sed, and is intended to avoid the excessive use of CEP. 
 
__________ 
  
 
                                                     
 
4 The existence of a “compensatory arrangement” between two parties is unrelated to whether such 
parties are “affiliated”. The issue of the calculation of the normal value and the export price in a case where 
there is a compensatory arrangement or other contractua l arrangements, which could affect the reliability of the 
price, whether between affiliated or unaffiliated parties, is not within the scope of this proposal and will be 
discussed in a separate paper.