WORLD TRADE  
ORGANIZATION  TN/RL/W/150 
16 April 2004 
 
 (04-1719) 
Negotiating Group on Rules  Original:   English 
  
 
PROPOSALS ON DETERMINATION OF NORMAL VALUE 
 
Paper from Chile; Colombia; Costa Rica; Hong Kong , China; Japan; Korea; Norway; Singapore; 
Switzerland; the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; and Thailand  
 
 
 The following communication, dated 15 April 2004,  is being circulated at the request of the 
above delegations.  
_______________ 
 
 This paper addresses four interrelated issues:  
1) Definition of “sufficient quantity of sales of the like product in the domestic market for 
the determination of normal value”  
2) Sales of the like product in the ordinary course of trade  
3) The investigating authorities’ discretion to request and use respondent’s data  
4) Constructed value  
 The Friends of the Antidumping Negotiations (“FAN s”) feel that it is useful to address these 
four issues in a single paper.  All four issues are fundamental to the calculation of normal value.  
Moreover, the interrelationship between the issues ma kes it worthwhile to address them together.  For 
example, the issue of whether domestic sales of the like product are “in the ordinary course of trade” 
is related to the issue of below-cost sales, be cause Article 2.2.1 of the Anti-Dumping Agreement 
(ADA) provides that sales “may be treated as not be ing in the ordinary course of trade by reason of 
price” when the sales are made below cost.  When there are no domestic sales “in the ordinary course 
of trade,” the issue arises as to the appropriate b asis for normal value – constructed value or third-
country prices.  Any change regarding one of the issues could affect the other issues.  Addressing the 
four issues together therefore facilitates such consideration.    This proposal indicates one way to overcome or resolve the problems relating to the four issues. The discussions in the Negotiating Group may assist in improving this proposal. Consequently, 
we reserve the right to modify or complement the proposal as appropriate. 
  In preparing and/or analyzing specific provisions , it is clear that amendment of the existing 
text may have an impact on other Articles of the AD Agreement, which have so  far not been explicitly 
addressed.  These links cannot be fully addressed until we have seen a comprehensive overview of 
proposed amendments.  Consequently, we also re serve the right to make proposals on provisions 
which may not have been explicitly addressed so far for clarification or improvement. 
 Relevant Provisions:  Articles 2.1, 2.2, 2.2.1, 2.2.1.1, 2.2.2, 2.4  TN/RL/W/150 
Page 2  
 
  
DESCRIPTION OF THE PROBLEMS
 
 
Issue 1:  Definition of “sufficient quantity of sales of the like product in the domestic market 
 for the determination of normal value” 
 
 Article 2, footnote 2, of the ADA establish es that when the sales of the like product in the 
domestic market of the exporting country amount to 5 per cent or more of the sales of the product under consideration to the importing Member, those sal es will normally be considered as being made 
in sufficient quantity for the purpose of determining the normal value. 
 
 However, Article 2.2 does not establish a clear basis for what kind of sales should be taken into account when the “sufficient quantity” test is applied.     The ADA also leaves unclear whether the test of  "sufficient quantity of sales" should apply to 
the product as a whole or to categories or models of  the product under consideration, in the event that 
the calculation of the dumping margin requires, for a fair comparison, the definition of such categories or models.  The ADA’s lack of clarity on these issues leads to frequent use of improper methods for the calculation of the normal value (exports to a third country or cost of production plus SG&A and profit).    
 ADA Article 2.2 provides that, when there are no sales of the like product in the ordinary 
course of trade in the domestic market of the e xporting country or when, because of the particular 
market situation or the low volume of the sales in the domestic market of the exporting country, such 
sales do not permit a proper comparison, “the margin of dumping shall be determined by comparison 
with a comparable price of the like product when exported to an appropriate third country” or by 
comparison with constructed value.
1 
  As discussed herein, the ADA does not current ly discipline key elements of authorities’ 
determinations regarding constructed value and third-country sales.  The lack of clear, concise and 
unambiguous guidance in these areas leads to un predictability and burdens on respondents. 
 Issue 2:
   Sales of the like products in the ordinary course of trade 
 
 Articles 2.1 and 2.2 of the ADA effectively permit authorities to exclude from normal value sales of the like product that are not “in the ordi nary course of trade.”  The ADA, however, does not 
provide any clear definition of this key term. 
 
 Article 2.2.1 provides that sales “may be treate d as not being in the ordinary course of trade 
by reason of price,” and therefore disregarded,  when the sales are made below cost.  The 
methodologies to identify sales below cost, however, are ill defined.  Some authorities exclude some 
domestic sales from the calculation of normal value even if the total sales revenue would permit the 
responding party eventually to recover all of its costs, depending on how “reasonable period of time” 
is interpreted.  The test in Article 2.2.1 thus l eads to anomalous determinations of normal value in 
which only above-cost sales – those sales that have  the highest prices – are used to create an 
arbitrarily high normal value that no or dinary businessperson could expect.   
 
                                                     
 
1 Where domestic sales fail the “sufficient quantity” test, Article 2.2 does not address the circumstances 
in which authorities shall choose third-co untry sales as the basis for normal value, and those in which authorities 
shall choose constructed value.  Nor does Article 2.2 address the choice of the “app ropriate” third country.  
These issues will be discussed in future negotiations.  TN/RL/W/150 
 Page 3 
 
 
 Issue 3:    The investigating authorities’ discretion to request and use cost data 
 
 Article 2.2.1.1 of the ADA provi des that production costs shall normally be calculated on the 
basis of the producer’s own accounting records, if these records are in accordance with GAAP of the 
exporting country.  This principle, however, is rest ricted by the condition that  such cost information 
must reasonably reflect the costs associated with the production and sale of the product under 
consideration.     Investigating authorities, however, have freque ntly applied this condition in a manner that 
requires respondents to reinvent their costs.  I ndeed, a typical practice appears to be that the 
authorities require respondents to recalculate thei r per-unit costs of production based on completely 
different assumptions from those on which th eir normal accounting records are based.   
  Many respondents have been unable to accommodate  requests for cost data at a level of detail 
not used in their normal accounting.   The inability to provide such de tailed information has frequently 
resulted in application of adverse facts available, and prohibitively high dumping margins.  In other 
cases, the authorities’ cost calculation methodologies  increase the cost of production for the product 
under consideration, which artificially creates or increases dumping margins.  
Issue 4:
  Constructed value 
  The chapeau of Article 2.2.2 provides that th e amounts for administrative, selling and general 
costs and for profits shall be based on actual da ta pertaining to production and sales of the like 
products by the exporter or producer under considera tion.  It underlines the object and purpose of this 
Article, which is to base the calculation on actual data  of the exporter or producer in question.   
 
 However, the existing Article 2.2.2 allows i nvestigating authorities substantial discretion to 
resort to the three alternative methodologies for calculating constructed value, two of which would 
involve the use of data that are outside the actua l experience and control of the exporter or producer 
under consideration.  Also, owing to the lack of guidance in various aspects of this article, 
investigating authorities could "construct" arbitr arily high dumping margins to the detriment of 
exporters and domestic users.  Moreover, the ADA’s l ack of clarity with regard to profits allows 
authorities to ignore the business reality that firms do, in the ordinary course of their operations, 
sometimes operate at a loss or no profit.  Tighter disciplines in this article would deter abuses and enhance the legitimate trade interests of all parties concerned.   
ELEMENTS OF A SOLUTION
 
 
Issue 1:   Definition of “sufficient quantity of sales of the like product in the domestic market 
 for the determination of normal value” 
 
Relevant Provisions:   Article 2.2 and footnote 2 
 1-1. Proposal:  The “sufficient quantity” test
 
 
• Amend footnote 2 to clarify that the sufficient quantity test is conducted for the volume of sales of each respondent, based on all sales, including sales later determined to be outside the ordinary 
course of trade, for the entire period of the investigation. 
 
• Further clarify the phrase, “sales of the like product destined for consumption in the domestic 
market,” by defining the term “domestic sales” as follows:  TN/RL/W/150 
Page 4  
 
 Domestic sales are all sales of the like product as a whole by a respondent to 
domestic purchasers in the exporting country, except sales where objective and concrete evidence demonstrates that the res pondent knew at the time  of his sale that 
the product would be expor ted to another country. 
Explanation
 
 
 The sufficient quantity test is a benchmark or litmus test at the very beginning of investigation.  The test enables a respondent to know in advance the kind of data it will be required to 
submit in the subsequent stages of the investigation.  
 The ADA should clearly establish that the suffici ent quantity test will be applied to sales of 
the like product as a whole in the domestic market of the exporting country.  The test should not be 
applied only to sales that are made in the ordinary  course of trade.  The purpose of the sufficient 
quantity test, or so called “viability test,” is to determine whether the domestic market is sufficiently 
large to enable domestic sales prices to serve as a legitimate measure of normal value.  Markets 
typically consist of various channels and types of sales, including those that might not qualify as sales 
in the ordinary course of trade.  Thus, all sales, not just those deemed to be in the ordinary course of 
trade, contribute to the “viability” of the domestic market.     The fact that home market sales are “viable” in terms of quantity does not, by itself, constitute 
a sufficient condition to use all th ese sales for the calculation of normal value.  The authorities thus 
should first conduct the test of sufficient quantity with regard to all sales of the like product; then, if 
domestic market sales quantities are found sufficient, the authorities may examine whether those sales 
are made in the ordinary course of trade.     Furthermore, the ADA should provide a clear definition of the term “sales of the like product 
destined for consumption in the domestic market” in  footnote 2.  If a respondent knew, at the time of 
sale, that the product sold to domestic purchasers w ould be exported to another country, such sales 
should be treated as export sales to that country.  Otherwise, the sales to domestic purchasers should 
be treated as domestic sales even if  they are subsequently exported into the investigating country.  
Such determination of knowledge  of a respondent should be b ased on objective and concrete 
evidence. 
 
1-2. Proposal:  “Particular market situation”
 
 
 Delete the clause regarding the “particul ar market situation” from Article 2.2. 
 Explanation
 
 
 Article 2.2 states in relevant part:  “When ther e are no sales of the like product in the ordinary 
course of trade in the domestic market of the e xporting country or when, because of the particular 
market situation or the low volume of the sales in th e domestic market of the exporting country. . .”  
(emphasis added.)   The term “particular market si tuation” is undefined, and might be interpreted to 
apply to almost any set of circumstances.  This creates an uncertain situa tion for exporters and for 
authorities.  It is impossible for exporters to predic t how authorities will interpret and apply this term.  
Authorities who invoke the term to justify disreg arding home market sales could not be certain 
whether their decision would be upheld in the event of a challenge before the WTO dispute settlement 
body.  Moreover, the term is unnecessary.  Our pr oposal regarding sales of the like product in the 
ordinary course of trade (issue 2 below) provides an  exhaustive list of all situ ations in which domestic 
sales of the like product could be disregarded as “out side the ordinary course of trade.”  This list 
obviates the need for Article 2.2’s reference to a “p articular market situation.”  We therefore propose 
that the clause be deleted from Article 2.2.    TN/RL/W/150 
 Page 5 
 
 
  
Issue 2:    Sales of the like products in the ordinary course of trade 
 
Relevant Provisions:   Articles 2.1, 2.2,  2.2.1 and 2.2.2. 
 2-1.  Proposal:  Definition of sales of the like product in the ordinary course of trade
 
 
• Clarify that sales of the like product “in the ordi nary course of trade” means all sales made by 
a responding party in the exporting country or to a third country; provided that sales falling in any of 
the following categories shall not be considered to be made in the ordinary course of trade:  
 
sales of samples  
sales to employees barter sales;  sales of the like products to a toller or subcontr actor for further-manufacture, upon the condition that 
the further-manufactured product will be returned to the responding party;  
all home market sales of the like product, in the circumstances described in the second proposal 
below, “Proposal: Sales below cost”; and 
certain sales to affiliated parties.
2 
Explanation  
  This proposal clarifies that sales by a responding party of the like product are “in the ordinary 
course of trade,” unless these sales fall into any on e of several specifically identified exceptions.  
These specific exceptions provide clear guidance to all exporters and the investigating authorities 
whether a sale would be excluded from normal value.   Our experience tells us that these exceptions 
sufficiently cover all sales that in common bus iness understanding would not be “in the ordinary 
course of trade.”
3 
 
2-2.   Proposal:  Sales below cost  
 
• To clarify that sales at prices that are below co sts at the time of sales shall still be in the 
ordinary course of trade if the aggregate value of  sales of the like product, including sales at such 
prices, is not less than the aggregate cost of  production for the period of  investigation, amend 
Article 2.2.1 as follows:  
“All sales of the like product for the period of  investigation in the domestic market of 
the exporting country or sales to a third country may be treated as not being in the 
ordinary course of trade and may be disreg arded as a whole from the determination of 
normal value, only if the aggregate value of all sales of the like product during the 
period of investigation is less than the a ggregate costs of production plus selling costs 
corresponding to these sales.  Otherwise, sal es of the like product in the domestic 
                                                     
 
2 Detailed proposals on “Sales to affiliated pa rties” are presented in document TN/RL/W/146. 
3 For the same reason as the calculation of normal value, all of the following categories of sales should 
be excluded from the calculation of export  price:  (a) Sales of samples, (b) sales of employees, (c) barter sales, 
and (d) sales of the like products to a toller or subcontractor for further-manufacture, upon the condition that the 
further-manufactured product will be returned to the responding party. TN/RL/W/150 
Page 6  
 
 market of the exporting country or sales to  a third country may not be disregarded by 
reason of price from the determination of normal value.” 
• Delete footnotes 4 and 5. 
 • Furthermore, add a provision or footnote to clarify that the below-cost test must be performed 
for all sales of the like product as a whole, and not any sub-group of these sales. 
 • Further clarify that the authorities shall be permitted to seek from respondent’s information on costs of production for purposes of the below-cost test only if sufficient evidence at the time of 
initiation of an investigation demonstrates that the respondent made a substant ial portion of its sales 
below cost.  A “substantial portion” shall mean th at more than [Y] per cent of sales in volume. 
 
Explanation
 
 
 This proposal clarifies that the investigating authorities must perform the below-cost test with 
respect to the aggregate costs fo r all sales of the like product in the exporting country or to a third 
country.  This test reflects the basic principle of the ADA.  The objective of an anti-dumping investigation is to determine whether one kind of pr oduct, as compared to the like product sold in the 
domestic market of the exporting country, was dum ped, while companies typically do not determine 
or manage profitability on a transaction-specific basi s but rather on a product-line basis.  This basic 
principle tells us that the recovery of the full cost s shall be measured with respect to sales of the like 
product as a whole, and not a part of these sales.  
  We are also proposing that the current 20 per cent volume test of footnote 5 be repealed.  The 
current Article 2.2.1 provides a multi-pronged test, the two principle elements of which are (1) 
whether prices allow for the recovery of costs with in a “reasonable period of time”; and (2) whether 
20 per cent of the volume is sold below cost with in an extended period of time.  Our experience 
shows that responding parties recover the full costs of production of all sales even when more than 
20 per cent of the total sales in volume within the period of investigation were below cost.  
Furthermore, the interaction of these criteria has created wide variation of Members’ practice in application of the below-cost test, making the AD regime complicated and less predictable.  In 
addition, a company normally measures its profitab ility within a certain period of time by the amount 
of profit as a whole, and not by the volume of profitable sales.  These facts and our past experience 
under the current ADA lead us to conclude that th e 20 per cent volume test in Article 2.2.1 is 
inappropriate.     Finally, to avoid unnecessary cost investigati ons, the ADA should be amended to require that 
the authorities may initiate a co st investigation only when the domestic industry has made 
substantiated claims that responding parties have sold the like product below cost.  An anti-dumping 
investigation imposes heavy burdens on responding parties.  Inquiries by the authorities thus must be limited to the extent necessary.  Unnecessary inquiries work only to increase the burdens on a 
responding party.    
 Issues regarding the calculation of produc tion costs are discussed at issue 3 below. 
  TN/RL/W/150 
 Page 7 
 
 
 Issue 3:   The investigating authorities’ discretion to request and use respondent’s data  
 
Relevant Provisions:   Articles 2.2.1.1, 2.2.2, and 2.4 
 
3-1. Proposal:  Period of data collection and period of investigation  
 
• Clarify that the period for which the investigating authorities may request production and sales data (i.e., sales, sales expenses and costs data) shall be the respondent’s fiscal year that most 
closely corresponds to the period of investigation fo r which the authorities have requested information 
to determine normal value and export price.  Where the fiscal year does not coincide with the period 
of investigation for which information to calculate  normal value and export price has been requested, 
such data may be requested for fiscal periods (e .g., semi-annual reporting periods) that more closely 
correspond to the period for which normal value a nd export price information has been requested. 
 • Further clarify that the period of investigation shall be one year. 
 
• Further clarify that, at the respondent’s option, the respondent may submit production and 
sales data regarding an entire cycle of the product under consideration in case of cyclical markets.   
Should the respondent choose this option, the authorities must use these data to calculate the aggregate cost of production for the like produc ts under the proposal 2-2 above and conduct the 
below-cost test based on such aggr egate cost as well as use such da ta in case it constructs the normal 
value.  
 
Explanation
 
 
 This proposal is intended to reduce the burde n on respondents while also ensuring that the 
most accurate data are provided.  It is extr emely burdensome for respondents to provide cost 
information that does not correspond to their fiscal y ear or other fiscal periods.  Reporting information 
that does not correspond to fiscal periods requir es, for example, that the respondents provide 
adjustments of interim costs that are not normally adjusted until the end of a fiscal period, and that 
would be made only for the purposes of meeting an aut hority’s request in an investigation or review.  
Such adjustments made outside of the normal accounting system often do not accurately reflect actual 
costs.   
  In order to minimize the burdens on respondents and ensure that the most reliable data are 
used for determinations by authorities, the inform ation requested should correspond to the fiscal year 
of the respondent or, in limited instances, with a nother fiscal period that coincides most closely with 
the period of investigation for determ ining normal value and export price. 
In cases of cyclical markets, it may be appropriate for the period of data collection to be longer than 
one year.  The rationale for this proposal is that companies often make their decisions about the sales 
price of the like products in such a way as to rec over the total costs over a period that extends beyond 
the current fiscal year.  We therefore suggest that  respondents be given the option of demonstrating 
that they recovered costs over a longer period of  time upon the request of the respondent.  This does 
not mean that the authorities can request sales in formation beyond the period of investigation.   
 
3-2. Proposal:  Acceptance of responde nt’s data in accordance with GAAP
 
 
• Clarify that the authorities must accept a respondent’s production and sales information, 
including per-unit costs, for the product under cons ideration, as maintained in the respondent’s 
accounting system in accordance with GAAP in the e xporting country.  In this case, a certificate of 
audit as issued by a certified public accountant or  the auditors’ letter accompanying the financial 
statement shall be conclusive evidence that the accounting system is consistent with GAAP in the 
exporting country.  With respect to unaudited r espondents, their production and sales information TN/RL/W/150 
Page 8  
 
 shall be treated in the same manner as audited comp anies unless it is demonstrated that the unaudited 
company’s accounts are not consistent with GAAP in the exporting country. 
 • Further clarify that the authorities may not require a respondent to submit per-unit cost 
information at a level of specificity for product typ es different from the level of specificity, which the 
respondent maintains in its cost accounting system, and may not penalize respondents for failure to do 
so.  However, respondents may, at their option, su bmit per-unit cost information at a more specific 
level.   
Explanation
 
 
 The primary objective of this proposal is to prevent investigating authorities from substituting their judgment as to how costs should be maintained , valued or allocated for that of the exporting 
country’s GAAP.  A particular concern is the mani pulation of a respondent’s costs by authorities.  
Authorities sometimes reject  the methods of allocating or valuing certain costs that a respondent 
maintains in its cost accounting system, and instead  use another method preferred by the authorities.  
As a result, the authorities use calculation methods , which depart from the cost accounting known to 
and relied upon by the exporter in the normal course of business.     This proposal also seeks to prevent au thorities from placing unreasonable burdens on 
respondents in the guise of requesting detailed info rmation.  Authorities’ current practice, for 
example, often requires respondents to create complex cost allocations for an investigation or review, 
based on product distinctions or methodologies dictated by the authorities, which are not used by the respondent in its normal accounting system.  This  proposal would put a stop to such burdensome 
practices.  Even with some unaudited companies, such  as privately held companies, the fact that such 
respondents do not have audited fi nancial statements should not pe rmit the authorities to request 
special information on a basis that would not be permitted if the respondent s had audited financial 
statements.      To balance the burdens and the necessity to c onduct a precise investigation, we also propose 
that it be a respondent’s option to submit cost inform ation at a level of specificity more detailed than 
is maintained in its cost accounting system.  A respondent may do so for any purpose – e.g., in 
support of requests for due allowance for differe nces in product characteristics, for purposes of 
responding to a below-cost questionnair e, and for constructed value.   
 
Issue 4:  Constructed value
 
 Relevant Provisions:   Article 2.2.2 
 
4-1. Proposal: Use of actual data for de termining constructed value and alternative 
 methodologies  
 
• Clarify that the methodology as set out under the chapeau of Article 2.2.2 (i.e., actual data pertaining to production and sales of the like product by the exporter or producer under investigation) 
should be used for determining the amounts for se lling costs and profits.  When such amounts cannot 
be determined on this basis, the amounts may be determined only on the basis of the alternative 
methodology provided for under Article 2.2.2 (i).  In addition, to ensure that only actual data 
pertaining to the production and sales of the exporte r or producer concerned will be used, the two 
alternative methodologies as provided under Artic les 2.2.2 (ii) & (iii) should be deleted. 
 • Further clarify that the term "same general cate gory of products" in Article 2.2.2(i) refers to 
the narrowest category of products for which data  can be obtained from the records kept by the 
respondent in the ordinary course of business.  TN/RL/W/150 
 Page 9 
 
 
  
• Add a new Article 2.2.2(ii), which would apply when the respondent has no sales of any product in its domestic market.  In such a case, the authorities must use the selling costs and profit from the respondent's unconsolidated financial stat ement.  Where the respondent maintains in the 
ordinary course of business internal financial stat ements that cover the "same general category of 
products" as the like product, the authorities shoul d use those internal financial statements.   
 
Explanation
 
 
 A finding of dumping should require knowledge on the part of the exporter or producer.  The 
knowledge criterion is implicit in GATT Article VI:1, which states th at injurious dumping "is to be 
condemned."  This normative judgment about "dumpi ng" would be inappropriate if the exporter were 
merely an unknowing conduit of market forces.  Thus, a finding of dumping based on anything 
outside the exporter's knowledge – i.e., its actual data and experience – is inappropriate.  This is also 
consistent with the principle that procedural fa irness should be enshrined in all WTO agreements, 
including the Agreement on Implementation of Artic le VI of the General Agreement on Tariffs and 
Trade 1994.  This principle leads to the conclusi on that in determining constructed value, the 
investigating authorities, in all circumstances, shoul d use actual data pertaining to the production and 
sales of the exporter or producer under investiga tion.  The current ADA already establishes that 
priority should be given to actual data pertaini ng to production and sales in the ordinary course of 
trade of the like product by such exporter or producer .  In line with the above-mentioned principle, in 
a case in which such data cannot be a basis, the primary option in order to make the best 
approximation of the “reasonable” amount for sellin g costs and profits should be actual amounts of 
the such exporter or producer pertaining to th e same general category of products.  The two 
alternative methodologies as provided for under the existing Articles 2.2.2 (ii) & (iii) should be 
deleted as they involve the use of data that ar e outside the actual knowledge and control of the 
exporter or producer under investigation. 
  Due to the lack of precise guidelines, investiga ting authorities have considerable discretion to 
define "same general category of products."  This high degree of discretion makes it possible for the 
authorities to define the term in a way that leads to arbitrary constructed values.  It is therefore 
necessary to establish a more precise definition for "same general category of products."  
 
4-2. Proposal:  Inclusion of below-cost sales; and the profit for constructed value
 
 
 Add a provision to clarify that in cases where the aggregate sales value of all sales in the 
exporting country is less than the aggregate cost s for the corresponding sales, the profit applied in 
constructed value shall be zero.   
 
Explanation  
 
 Both GATT Article VI and ADA Article 2.2 require a “reasonable” adjustment to cost of production, selling costs and profits.  It is not “reas onable” to add a profit that is contrary to the 
exporter’s actual sales experience.  Nor is it reasonable to base profit only on a limited number of 
sales that are found to be above cost.  Alt hough accounting and economic us age distinguish among 
many formulations of “profit” (gross profit, net pr ofit, operating profit and so forth), we are not aware 
of any definition of profit that is not based on th e aggregate of all sales, both above-cost and below-
cost sales, in the determination of profit.   
 
 It follows from the above that the calculation of constructed value should reflect domestic 
market conditions.  This includes the business reality that firms sometimes operate at a loss or no 
profit.  For example, during economic recessions companies may show losses for a full fiscal year.  TN/RL/W/150 
Page 10  
 
 Companies may introduce products that do not achieve  the market acceptance that the company had 
predicted, and therefore are not profitable.     The CV calculation seeks to construct the price at  which the product would have been sold, if 
the respondent sold the product in the domestic mark et.  Since the actual profit level, which is a 
negative figure in this case, cannot be taken as it  is in the calculation of the constructed value,
4 the 
authorities have to determine the “reasonable” prof it level as an approximation using the best source 
to base such approximation.  Unlike in a situation in which there are no sales in the domestic market 
of the like product, the authorities still can and s hould reflect the current domestic market condition 
that the respondent faces regarding for its sales of th e like product, which is the best source as a basis 
for such approximation.  Hence, a zero profit is th e best approximation regarding the profit at which 
the respondent would have sold the product – i.e ., the closest amount that is not a “loss.”  
  This approach is more appropriate as the best source of approximation than, as discussed in proposal 4-1 above, a finding of dumping based on anything outside the exporter's knowledge.  
Companies normally treat their detailed cost and prof it information as highly confidential.  Therefore, 
a respondent will not normally know the profits of its competitors in the domestic market.  For this 
reason, the ADA should not permit authorities to use other producers’ profits as CV profit for a respondent.  
4-3. Proposal:  General and administrative costs
 
 
 Clarify that "general" and "administrative"  costs should not be included in determining 
constructed value.   
Explanation
 
 
 The ADA creates the room to expand the scope of the elements of constructed value, by 
adding the terms “general” and “administrative,” beyond what normal business practice takes into account in pricing export products.  Specifically, the te rm “selling” cost refers to expenses that are 
related to sales, whether directly or indirectly rela ting to sales of the like product.  In contrast, the 
terms “general” and “administrative” costs have  specific and commonly understood meanings in 
accounting parlance.  They are distinct from and not a subset of selling costs.  They include general 
overhead and administrative costs that are not rela ted to expenses for sales of the like product.  For 
example, when a multinational company introduces a product to a foreign country, the company does 
not normally price its product to cover all of its global “general” and “administrative" costs.  The “general” and “administrative” costs thus should be deleted from the ADA to clarify that expenses 
related only to sales of the like products may be ad ded to the cost of production for the purposes of 
the below-cost test and the constructed value.   This basic principle is reflected in GATT Artic le VI.  Article VI provides that constructed 
value shall include “a reasonable addition for selling cost and profit.”  However, Article 2.2 of the 
ADA provides for “a reasonable amount for administrativ e, selling and general costs and for profits".  
It includes two elements - “general” and “admini strative” expenses - which do not appear in GATT 
Article VI.    
__________ 
  
                                                     
 
4 Some may argue that negative profits should be a “reasonable” profit with in the meaning of GATT 
Article VI.  However, this argument is not consistent with the generally accepted de finition of “profit,” which 
does not include negative figures (normally called a “loss.”)