WORLD TRADE  
ORGANIZATION  TN/RL/W/146 
11 March 2004 
 
 (04-1067) 
Negotiating Group on Rules Original:   English 
  
 
PROPOSAL ON ISSUES RELATED TO AFFILIATED PARTIES 
 
Paper from Brazil;  Colombia;  Costa Rica;  Hong Kong, China;
 
Japan;  Korea;  Norway;  Singapore;  Switzerland;  the Separate  
Customs Territory of Taiwan, Penghu, Kinmen and Matsu;  and Thailand  
  
This proposal concerns the issues related to affiliated parties.  These issues have been 
identified in document TN/RL/W/10.  Other Members have also referred to this issue in documents 
TN/RL/W/66, TN/RL/W/81, TN/RL/W/86 and TN/RL/W/130. 
 
 This proposal indicates one way to overcome and resolve the problems resulting from the lack of clear definitions of affiliated parties and th e problems resulting from the absence of rules in the 
treatment of affiliated transactions.  The discussions  in the Negotiating Group may assist in improving 
this proposal.  Consequently, we reserve our ri ght 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. 
 
Issues:   Definition of “Affiliated Party” Transactions  and Their Relevance in  Determining Normal 
Value and Constructed Export Price; “Collapsing” of Multiple Entities. 
 Relevant Provisions:   Articles 2.2 and 2.3. 
 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 The issue of affiliation in relation to the definition of domestic industr y is not within the scope of this 
proposal. TN/RL/W/146 
Page 2  
 
 1. Problems Resulting from the Lack of Clear Definitions of Affiliated Parties  
Authorities often conduct substantial investig ations on transactions between a responding 
party and what are variously termed “related”, “a ssociated” or “affiliated” parties in determining 
margins of dumping.  For example,  
 
• Authorities often request that a responding party s ubmit all data related to sales in the exporting 
country by both the responding party and its associated purchasers, alleging that sales by the responding party to its associated purchasers might no t be at arm’s length, or not “in the ordinary 
course of trade” within the meaning of Article 2.   
• In other cases, the authorities allege that pur chases of raw materials or services from affiliated 
suppliers do not “reasonably reflect the costs a ssociated with the production and sales of the 
product under consideration”.  Th e authorities request affiliated s uppliers’ costs of production or 
services, in addition to prices of the responding party’s individual purchases from both affiliated 
and unaffiliated suppliers.   
• In other cases, the authorities request the respondi ng party to submit resale and cost data of a 
purchaser in the importing country to use CEP only on the grounds that the responding party has some equity stakes in the purchaser in the importing country. 
• The authorities sometimes demand that the res ponding party combine or “collapse” the data of 
production and sales by “affiliated” parties with  those by the responding party in order to 
establish a single margin of dumping for these entities.   
 In many of these cases, the authorities expa nd these inquiries far beyond what they need to 
determine the margin of dumping for the responding party.  The authorities often request information 
on an “affiliated” party, over which the responding part y has, in fact, no control at all.  In other cases, 
the authorities request unnecessarily extensive data maintained by such “affiliated” parties in a 
prescribed format.  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, resulting in application of “adverse” facts available.  
 
2. 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.   TN/RL/W/146 
 Page 3 
 
 
 • 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.   
 
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.   TN/RL/W/146 
Page 4  
 
 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 
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. 
 
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 percent
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. 
                                                      
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/W/146 
 Page 5 
 
 
 • 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 sales prices to its affiliated parties shall be replaced by the weighted  average price of sales of the same product by 
other responding parties which are regarded as re liable. In case there are no other responding 
parties, the authorities shall use all the sales prices into the calculation of the normal value. 
• 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. 
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 purchaser, but such practice should be explicitly prohibited because it is 
too burdensome for both the authorities and responde nts and is considerably unfortunate for both 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 TN/RL/W/146 
Page 6  
 
 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 the actual sales expense charged by the 
affiliated supplier, only if the actual sales expense by the affiliated supplier varies by 
more than Y percent from the comparable price charged by the unaffiliated supplier for providing the same service; otherwise, the actual price 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.   
   (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 sales expense by the affiliated supplier, only 
if the actual sales expense by the aff iliated supplier varies by more than Y 
percent 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 sales expense by the affiliated supp lier, only if the actual sales expense 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. 
 
• All of such examinations shall be conducted at a level of cost classification maintained in the 
respondent’s accounting system and shall not be done cumulatively, provided that such accounting system is in accordance with the generally accepted accounting principles of the 
exporting country. 
 
 Further add a provision to clarify that the rules that we are proposing in connection with the costs data shall apply to sales expense data of  affiliated suppliers of the major expense. 
  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:   
 
 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  TN/RL/W/146 
 Page 7 
 
 
 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 sales expenses 
significantly differ from the comparable ones enough to  be deemed unreliable.  This proposal also 
clarifies that the authorities should not force a resp ondent to submit additional data pertaining to the 
affiliated party as long as there is a comparable ex pense to examine the reliability of the recorded 
expenses. 
 
(3) Costs by Affiliated Suppliers   
Proposal:  
 With respect to costs (costs of production, a nd administrative, selling, and general costs as 
provided in Article 2.2.1), amend Article 2.2.1.1 to clarify that a responding party’s costs for inputs 
provided by affiliated suppliers shall be based on th e actual prices charged to the responding party by 
the affiliated suppliers, unless the input is a “major  input” and the evidence on the record shows that 
the price of the major input significantly differs from the comparable price charged by unaffiliated 
suppliers for the same input or from the comparable  price charged by the affiliated supplier for the 
same input to unaffiliated parties, and that the differe nce materially affects the costs calculation.  Even 
in case there exist no comparable prices, the price ch arged by affiliated supplie rs shall be based on the 
actual price charged to the responding party by the a ffiliated 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:  
• 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 
percent 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 TN/RL/W/146 
Page 8  
 
 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. 
 
• All of such examinations shall be conducted at a level of cost classification maintained in the 
respondent’s accounting system and shall not be done cumulatively, provided that such accounting system is in accordance with the generally accepted accounting principles of the 
exporting country. 
  Further amend Article 2.2.1.1 to clarify that  the rules that we are proposing in connection 
with the costs data shall apply to cost data  of affiliated suppliers of the major inputs. 
  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.   Such examination should not be done by the 
authorities arbitrarily categorizing the cost items, but should be done in accordance with the cost 
accounting system adopted by the responding party, which is supposed to be in accordance with the 
GAAP.  This proposal also provides the responding pa rty with the alternative of using another cost 
data which the affiliated party charges to unaffi liated parties for the same supply, should the 
responding party choose not to submit the relevant co st information.  The goal should be to find a 
reliable but easier way to obtain an alternative,  and not to maximize the burdens on respondents. 
 
(4) Export to Affiliated Parties (CEP)
3 
 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 percent 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 
                                                     
 
3 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.  TN/RL/W/146 
 Page 9 
 
 
 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 make the above-mentioned comparisons, the export sales prices to its affiliated parties shall be re placed by the weighted average price of export 
sales of the same product by other responding pa rties which are regarded as reliable. In case 
there are no other responding parties, the authorities shall use all the export prices for a fair 
comparison with the normal value. 
 
• 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. 
 
(5) Treatment of Two Affiliated Parties in to a Single Responding Party (So-Called 
“Collapsing”) 
 Proposal: 
 
 Add a provision to prohibit the establishment of a single margin of dumping for two or more affiliated parties by treating such parties as if they were a single responding party. 
 Explanation:  
 
 There are circumstances in which affiliated companies produce the same product to export to 
the importing Member.  In such a case, certain author ities treat these affiliated entities as if they were 
a single responding party.  In other words, the aut horities “collapse” them to establish a single margin 
of dumping for these entities.  In many cases, howev er, the two entities have independent operations 
with independent decision-making with respect to production, pricing and exporting.  The entities 
sometimes actually compete with each other.  In such cases, there is no reason to investigate these 
entities collectively and establish a single margin of  dumping for them.  As such, collapsing is not 
appropriate and shall be prohibited. 
__________