WORLD TRADE  
ORGANIZATION  TN/RL/GEN/9 
14 July 2004 
 (04-3029) 
Negotiating Group on Rules Original:   English 
 
 
 
DETERMINATION OF NORMAL VALUE1 
 
Communication from Chile;  Colombia;  Costa Rica;  Hong Kong, China;  Japan;  Korea;   
Norway;  Singapore;  Switzerland;  Separa te Customs Territory of Taiwan, Penghu,  
Kinmen and Matsu;  and Thailand  
  The following communication, dated 24 May 2004, is being circulated at the request of the 
Delegations of Chile;  Colombia;  Costa Rica;  Hong Kong, China;  Japan;  Korea;  Norway;  
Singapore;  Switzerland;  Separate Customs Territ ory 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)/58), also be circulated as a formal document. 
 
_______________ 
  
I.  BASIC PRINCIPLE 
 
• The calculation of normal value should reflect business reality
 in which companies typically 
do not determine or manage profitability on a transaction-specific basis but rather on a 
product-line basis . The recovery of the full costs shall be measured with respec t to sales of the 
like product as a whole, and not a part of these sales.  
 
• The calculation should also reflect business reality that firms sometimes operate at a loss or 
no profit . 
 
• The finding of dumping should be based on data within the actual knowledge and control of 
the exporter or producer and normal business practice in pricing . The costs used in the 
calculation should not depart from the cost accounting known to and relied upon by the 
exporter in the normal course of business. 
 II.  PROBLEM OF THE CURRENT AD AGREEMENT  
• The lack of clarity in the ADA leads to unpredictability
 and burdens  on respondents, allows 
the calculation of normal value that does not reflect business reality , and allows authorities to 
manipulate normal value . 
 
                                                      
 1 This issue has been referred to by Members in documents TN/RL/W/6, 7, 10, 26, 28, 29, 34, 45, 47, 
54, 56, 59, 66, 72, 79 and 86. TN/RL/GEN/9 
Page 2  
 
 
III.  AMENDMENT  
Issue 1:  Definition of “sufficient quantity of sales of the like product in the domestic market
 
for the determination of normal value ” 
 
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, includin g 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: 
 
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 respondent knew at the time of his sale that 
the product would be exported to another country. 
Explanation
 
 
 The sufficient quantity test is a benchmar k 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 suffic ient 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 de termine whether the domestic market is sufficiently 
large to enable domestic sales pr ices to serve as a legitimate measure of normal value.  Markets 
typically consist of various channels  and types of sales, including th ose that might not qualify as sales 
in the ordinary course of trade.  Thus, all sales, no t 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 these sales for the ca lculation 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 sufficie nt, the authorities may examine whether those sales 
are made in the ordinary course of trade.   
 
 Furthermore, the ADA should provide a clear defi nition of the term “sales of the like product 
destined for consumption in the domestic market” in f ootnote 2.  If a respondent knew, at the time of 
sale, that the product sold  to domestic purchasers would 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 subs equently exported into the investigating country.  
Such determination of knowledge of a respondent  should be based 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
  TN/RL/GEN/9 
 Page 3 
 
 
 
 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 ex porting country or when, be cause 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 situation” is undefined, and might be interpreted to 
apply to almost any set of circumstances.  This cr eates an uncertain situation 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 disregarding 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 proposal regarding sales of the like product in the ordinary course of trade (issue 2 below) provides an  exhaustive list of all situations in which domestic 
sales of the like product could be disregarded as “outside 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 delete d from Article 2.2.   
 
Issue 2:   Sales of the like produc ts in the ordinary course of trade
 
 
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 th ird country; provided that sales falling in any of 
the following categories shall not be considered to be made in the ordinary course of trade:  
 
(a) sales of samples;  
(b) sales to employees; 
(c) barter sales;  
 (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;  
(e)  all home market sales of the like pro duct, in the circumstan ces described in the 
second proposal below, “Proposal: Sales below cost”; and 
(f) certain sales to affiliated parties.2 
Explanation  
  This proposal clarifies that sales by a respondi ng party of the like product are “in the ordinary 
course of trade,” unless these sale s fall into any one of several sp ecifically 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 busin ess understanding would not be “in the ordinary 
course of trade.”
3 
 2.2   Proposal:  Sales below cost 
                                                     
 
2 Detailed proposals on “Sales to affiliated parties” 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/GEN/9 
Page 4  
 
 
• To clarify that sales at prices that are below costs 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 aggr egate 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 co untry may be treated as not being in the 
ordinary course of trade and may be disregarded 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 produc tion plus selling costs 
corresponding to these sales.  Otherwise, sales of the like product in the domestic 
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 clar ify 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 pe rmitted 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 substantial 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 au thorities must perform the below-cost test with 
respect to the aggregate costs for all sales of the like product in the exporting country or to a third country.  This test reflects the basic principl e 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 dumped, while companies typically do not determine 
or manage profitability on a transact ion-specific basis but rather on a product-line basis.  This basic 
principle tells us that the recovery of the full costs 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 te st, the two principle elements of which are 
(1) whether prices allow for the recovery of costs within a “reasonable period of time”; and (2) 
whether 20 per cent of the volume is sold below cost within 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 profitabilit y within a certain period of time by the amount 
of profit as a whole, and not by the volume of pr ofitable 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 cost 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  TN/RL/GEN/9 
 Page 5 
 
 
limited to the extent necessary.  Unnecessary inqui ries work only to increase the burdens on a 
responding party.   
 
 Issues regarding the calculation of produc tion costs are discussed at issue 3 below. 
 
Issue 3:   The investigating authorities’ di scretion to request and use respondent’s data  
 
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 for 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 and 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 unde r 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 products under the proposal 2.2 above and conduct the 
below-cost test based on such aggregate cost as well  as use such data in case it constructs the normal 
value.  
 
Explanation
 
  This proposal is intended to reduce the burd en on respondents while also ensuring that the 
most accurate data are provided.  It is ex tremely burdensome for respondents to provide cost 
information that does not correspond to their fiscal year or other fiscal periods.  Reporting information 
that does not correspond to fiscal periods requ ires, 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 authority’s request in an investigation or review.  
Such adjustments made outside of the normal acc ounting 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 information requested should correspond to the fiscal year 
of the respondent or, in limited instances, with anot her 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 appr opriate 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 wa y as to recover 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 authoritie s can request sales information beyond the period 
of investigation.    
3.2 Proposal:  Acceptance of respondent ’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 TN/RL/GEN/9 
Page 6  
 
accounting system in accordance with GAAP in the ex porting country.  In this case, a certificate of 
audit as issued by a certified pub lic accountant or the auditors’ le tter accompanying the financial 
statement shall be conclusive evidence that the ac counting system is consistent with GAAP in the 
exporting country.  With respect to unaudited respondents, their production and sales information 
shall be treated in the same manner as audited companies 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 type s 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 maintain ed, 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 authorities from placing unreasonable burdens on 
respondents in the guise of requesting detailed in formation.  Authorities’ current practice, for 
example, often requires respondents to create comple x 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 financial statem ents should not permit the authorities to request 
special information on a basis that would not be  permitted if the respondents 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 info rmation 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 differen ces in product characteristics, for purposes of 
responding to a below-cost questionnaire, and for constructed value.   
 Issue 4:  Constructed value
 
 
4.1 Proposal: Use of actual data for determining 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 produc t by the exporter or producer under investigation) 
should be used for determining the amounts for sel ling 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 Arti cle 2.2.2 (i).  In addition, to ensure that only actual data 
pertaining to the production and sales of the ex porter or producer concerned will be used, the two 
alternative methodologies as provided under Ar ticles 2.2.2 (ii) & (iii) should be deleted. 
  TN/RL/GEN/9 
 Page 7 
 
 
• Further clarify that the term "same general categ ory 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. 
 
• Add a new Article 2.2.2(ii), which would appl y 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 st atements that cover the "same general category of 
products" as the like product, the authorities should 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 that 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 fairness 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, should use actual data pertaining to the production and 
sales of the exporter or producer under investigat ion.  The current ADA already establishes that 
priority should be given to actual data pertaining 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 selling costs and profits should be actual amounts of 
the such exporter or producer pertaining to the 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 are outside the actual knowledge and control of the 
exporter or producer under investigation. 
 
 Due to the lack of precise guidelines, investig ating 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 defin ition for "same general category of products."  
 4.2 Proposal:  Inclusion of below-cost sa les; 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 costs for the corresponding sales, the profit applied in 
constructed value shall be zero.   
 
Explanation
 
 
 Both GATT Article VI and ADA Article 2.2 re quire a “reasonable” adjustment to cost of 
production, selling costs and profits.  It is not “r easonable” to add a profit that is contrary to the 
exporter’s actual sales experience.  Nor is it reas onable to base profit only on a limited number of 
sales that are found to be above cost.  Although accounting and economic usage distinguish among 
many formulations of “profit” (gross profit, net prof it, operating profit and so forth), we are not aware 
of any definition of profit that is not based on the 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 rea lity that firms sometimes operate at a loss or no TN/RL/GEN/9 
Page 8  
 
profit.  For example, during economic recessions companies may show losses for a full fiscal year.  
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 market.  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 should 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 rega rding 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 profit  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 us e 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,” be yond what normal business practice takes into 
account in pricing export products.  Specifically, th e term “selling” cost refers to expenses that are 
related to sales, whether directly or indirectly rela ting to sales of the like pr oduct.  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 related to expenses for sales of the like product.  For 
example, when a multinational comp any introduces a product to a fo reign 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 added 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 administ rative, selling and general costs and for profits".  
It includes two elements - “general” and “adminis trative” expenses - whic h do not appear in GATT 
Article VI. 
 
__________ 
 
 
                                                     
 
4 Some may argue that negative profits should be a “reasonable” profit within the meaning of GATT 
Article VI.  However, this argument is not consistent with the generally accepted definition of “profit,” which 
does not include negative figures (normally called a “loss.”)