Japan Machinery Center for Trade and Investment
401, Kikaishinkou Building
3-5-8 Shibakoen,
Minato-ku,Tokyo105-0011
JAPAN

Telephone: +81-3-3431-9507
Facsimile: +81-3-3436-6455

June 9, 2008
The Honorable David Spooner
Assistant Secretary for Import Administration
U.S. Department of Commerce
Central Record Unit, Room 1870
14th Street and Constitution Avenue, NW
Washington, DC 20230

Dear Mr. Assistant Secretary:
On behalf of the Board of Directors of the Japan Machinery Center for Trade and Investment(“JMC”) and its 278 member corporations, I write to express our views on the Department’s
proposed methodology for analyzing targeted dumping allegations.1
JMC is a non-profit organization that represents Japan’s major electronics and machinery
manufacturers, trading companies and engineering companies. JMC’s activities emphasize
multilateral trade and investment rules, bilateral free trade agreements, environmental protection
regulations, national industrial policies, trade related security measures, and trade insurance.
The Japanese machinery sector accounted for over 80 percent ($116.4 billion) of total Japanese
exports in 2007 to the United States.
JMC appreciates the Department’s efforts to develop a standard methodology for analyzingtargeted dumping allegations. In particular, JMC agrees with the Department’s decision toabandon the 2% deviation test applied in Coated Free Sheet Paper from the Republic of Korea(“CFS Paper”). 2 That said, although an improvement over the CFS Paper test, theDepartment’s proposed methodology remains flawed in several respects. Thus, JMC
respectfully requests that the Department modify the proposed methodology in accordance withthe following comments.
1

See Proposed Methodology for Identifying and Analyzing Targeted Dumping in Antidumping Investigations;

Request for Comment, 73 Fed. Reg. 26371 (May 9, 2008).
2

See Notice of Final Determination of Sales at Less Than Fair Value: Coated Free Sheet Paper from the Republicof Korea, 72 Fed. Reg. 60630 (Oct. 25, 2007).

Japan Machinery Center for Trade and Investment

The Department’s proposed targeted dumping methodology is a two-part test. The first stage ofthe test examines whether there is a “pattern” of price differences, and the second stage
examines whether the export prices in the pattern differ “significantly” from prices to
non-targets. JMC discusses proposed modifications to the first-stage test in Section I andproposed modifications to the second-stage test in Section II. JMC makes comments on otherissues in Sections III and IV.

I.

PROPOSED MODIFICATIONS TO THE FIRST-STAGE TEST (“PATTERNREQUIREMENT”)

The first-stage test examines whether there is a pattern of price differences between the alleged
target and non-targets. The Department examines, on an exporter-specific basis, whether the
price of each CONNUM to the alleged target is more than one standard deviation below theweighted-average price of the identical CONNUM to all customers. The Department will findthat the pattern requirement is met if the value of sales meeting the standard deviation test
exceeds 33% of the total value of the exporter’s sales of subject merchandise to the alleged
target. JMC proposes that the Department modify the first-stage test as follows.
A. The 33% Benchmark Should Be Changed
As noted above, the Department will find that the pattern requirement is met if the value of sales
meeting the one standard deviation test exceeds 33% of the total value of the exporter’s sales ofsubject merchandise to the alleged target. The use of a 33% benchmark is inconsistent withsection 777A(d)(1)(B) of the Act and Article 2.4.2 of the WTO Antidumping Agreement, which
mandate that targeted dumping be found only where there is a “pattern” of export prices to thealleged target that differ significantly from prices to non-targets. The 33% test is insufficient to
identify a “pattern” of such prices.
Both the U.S. statute and the WTO Antidumping Agreement require the Department to find a“pattern” of export prices for comparable merchandise that differ significantly amongpurchasers, regions, or time periods. In accordance with U.S. canons of statutory construction
and WTO jurisprudence, the term “pattern” in these provisions must be accorded its common
meaning: an “arrangement or sequence regularly found in comparable objects.”3 Thus, to findtargeted dumping, the Department must find that significantly lower prices to the alleged target
occur regularly.

3

Concise Oxford English Dictionary (10th edition) at 1047.

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Japan Machinery Center for Trade and Investment

The Department’s proposed 33% benchmark fails to meet the statutory and WTO standard. The
33% benchmark allows the Department to find a “pattern” even where no patterns of pricedifferences were found in two-thirds of the sales to the alleged target. Such a result would beinsufficient to find that sales prices to the target are regularly different from prices to non-targets,and thus would provide an inappropriate basis to find a “pattern.”
The Department, therefore, should modify the first-stage test to make the finding of a “pattern”
required by the U.S. statute and WTO Antidumping Agreement, as discussed above..
B. The First-Stage Test Should Be Modified to Apply Standard and Appropriate
Statistical Techniques
The Department’s regulations require targeted dumping to be analyzed using “standard andappropriate statistical techniques . . . .”4 However, in the antidumping investigations of Steel
Nails from the United Arab Emirates and China – the only cases in which the Department hasapplied the proposed methodology thus far – the Department did not use commonly accepted
techniques for calculating one standard deviation.5 Instead, the Department used unorthodox
calculation methods, which did not fairly reflect actual sales transactions to customers, andarbitrarily caused more sales to pass the first-stage test. The Department should use common
and generally accepted methods to calculate standard deviations in applying the first-stage test.
First, in calculating the CONNUM-specific average price to each customer, the Department
used a simple average instead of an average weighted by volume. To calculate the simple
average price, the Department divided the sum of all transaction prices of a particular
CONNUM to the customer by the number of transactions. In doing so, the sales volume of thesetransactions was ignored. Because the “average” price resulting from this calculation was not aweighted-average price in an ordinary sense, it did not fairly reflect actual transactions.
Second, the Department used an unorthodox method to calculate the CONNUM-specificweighted-average price to all customers. For each customer, the Department first calculated theratio of the total sales value of a CONNUM to the customer over the total sales value of the
CONNUM to all customers. Next, the Department multiplied this ratio by the above-discussed
simple average price to the customer. Last, the Department added up the results for each4

19 C.F.R. § 351.414(f)(1)(i).

5

See TARGETED DUMPING PROTOTYPE PROGRAM, PETER KNAPP (A-570-909 & A-520-802) (MARCH

2008) (public version); Memorandum from Stephen J. Claeys to David M. Spooner, Post-Preliminary
Determinations on Targeted Dumping, Antidumping Duty Investigations of Certain Steel Nails from the Peoples
Republic of China (PRC) and the United Arab Emirates (UAE) (A-570-909 & A-520-802) (Apr. 21, 2008).

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Japan Machinery Center for Trade and Investment

customer to derive the weighed-average price (weighted by sales value) to all customers, which
the Department used to calculate one standard deviation. As a mathematical matter, this method
resulted in a higher weighted-average price than would be calculated using normal techniques(i.e., using actual sales prices and volumes) because more weight is given to higher average
prices. Consequently, this calculation method causes more sales to a particular customer to fall
more than one standard deviation below the weighted-average price to all customers.
As discussed above, the Department’s calculation methods would arbitrarily increase thenumber of sales that meet the standard deviation test. To apply the test fairly and satisfy theregulatory requirement to use “standard and appropriate statistical techniques,” the Department
should use ordinary weight-averaging methods based on actual sales prices and volumes.

II. PROPOSED MODIFICATIONS TO THE SECOND-STAGE TESTThe second-stage test examines the significant difference requirement. The Department
examines all of the sales for which the pattern requirement in the first-stage test is met, anddetermines the total sales value for which the difference between (1) the weighted-average priceto the alleged target and (2) the next higher weighted-average price to a non-target exceeds theaverage price gap for the non-targeted group (the “price gap test”). The Department will findthat the significant difference requirement is met if the sales meeting the price gap test exceed
5% of the total sales value to the alleged target. The second-stage test should be modified asfollows.
A. The Price Gap Test Should Be Modified so as to Take Differing Customer
Characteristics into Account and Use the Largest Individual Price Gap for
Non-Targets as a Benchmark
The Department’s proposed price gap test fails to identify export prices that “differ
significantly,” and therefore should be modified.
Under the price gap test, the Department uses the weighted-average price gap among
non-targets as the benchmark against which to measure the significance of the gap between the
average price to the alleged target and the next higher average price to a non-target. However,
because this test fails to take differing customer circumstances into account, it fails to provide
any meaningful basis to assess the price gap. For example, in calculating the non-target
benchmark for the price gap test in the antidumping investigations of Steel Nails from the United
Arab Emirates and China, the Department did not take into account different customer
characteristics, such as customer category (i.e., whether the customer is a distributor, retailer, or4

Japan Machinery Center for Trade and Investment

end user) or the channel of distribution used to supply to the customer.6 Nor did the Department
consider such differences in applying the benchmark to the gap between the price to the target
and the next higher price to a non-target.7 Absent consideration of customer differences that
affect price, the proposed price gap test cannot provide meaningful results.
Moreover, the Department’s price gap test fails to detect export prices that differ “significantly.”
As applied in statistics, the term “significance” means “the extent to which a result deviates fromthat expected to arise simply from random variation or errors in sampling.”8 Applying thisdefinition, the price gap could be considered “significant” when the gap between the price to thetarget and the next higher price to a non-target is larger than any individual price gap between
non-targets. The Department’s price gap test, however, uses the weighted-average price gap for
non-targets as the benchmark. This is unreasonable because there will always be individual
price gaps among non-targets that are larger than the benchmark, which is an average. As aresult, the price gap test would be satisfied even though the gap between the price to the target
and the next higher price to a non-target is less than individual price gaps between non-targets.
Therefore, the price gap test cannot be the basis to find that the price difference between thetarget and non-target is significant, i.e., “deviate[d] from that expected to arise.”
For these reasons, the Department’s price gap test fails to provide meaningful results andidentify “significant” price differences. JMC submits that the Department should modify theprice gap test to take differing customer characteristics into account and use the largest
individual price gap between non-targets as a benchmark.
B. The Second-Stage Test Should Be Modified to Require that All Sales Meeting thePattern Requirement Also Satisfy the Price Gap Test
As noted above, the Department will find that the significant difference requirement is met if thesales meeting the price gap test exceed 5% of the total sales value to the alleged target. As withthe 33% benchmark in the first-stage test, the 5% test in the second stage is inconsistent withsection 777A(d)(1)(B) of the Act and Article 2.4.2 of the WTO Antidumping Agreement, which
mandate that targeted dumping be found only where there is a pattern of export prices to thealleged target that differ “significantly” from prices to non-targets. Under the Department’s
proposed test, only 5% of sales satisfying the pattern requirement in the first stage would need to

6

TARGETED DUMPING PROTOTYPE PROGRAM, PETER KNAPP (A-570-909 & A-520-802) (MARCH

2008) (public version).
7

See id.

8

Concise Oxford English Dictionary (10th edition) at 1335.

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Japan Machinery Center for Trade and Investment

satisfy the price gap test in the second test – contrary to the statute’s requirement that the entire
pattern of export prices differ significantly.
Under section 777A(d)(1)(B)(i) and Article 2.4.2 of the Antidumping Agreement, targeted
dumping may be found only if there is a “pattern of export prices . . . for comparable
merchandise that differ significantly among purchasers, regions, or periods of time.”9 Under aplain reading of this provision, all prices found in the pattern of export prices must differ
significantly from the prices of comparable merchandise to non-targets. The WTO Appellate
Body has confirmed this interpretation, stating that “the prices of transactions that fall within thispattern must be found to differ significantly from other export prices.”10
Applying this requirement to the Department’s proposed methodology, all of the sales that meetthe pattern requirement in the first-stage test (standard deviation) would also need to meet theprice gap test for significant difference in the second-stage test. The Department’s proposed
methodology, however, finds targeted dumping even when only 5% of sales to the alleged target
satisfy the price gap test. Thus, the Department’s proposed 5% test is contrary to the express
terms of the U.S. statute and the WTO Antidumping Agreement.
For these reasons, the Department should abandon use of the 5% test, and modify thesecond-stage test to require that all prices meeting the pattern requirement in the first-stage test
also satisfy the price gap test in the second stage.

III. EVEN IF IT FINDS A PATTERN OF EXPORT PRICES THAT DIFFERSIGNIFICANTLY AMONG PURCHASERS, REGIONS, OR PERIODS OF TIME,
THE DEPARTMENT MUST CONDUCT A MARKET-SPECIFIC ANALYSIS TOCONFIRM THAT SUCH SALES WERE NOT MADE IN THE ORDINARY
COURSE OF TRADE; THE PETITIONER SHOULD BE REQUIRED TO MAKEA PRIMA FACIE SHOWING THEREOF IN ITS REQUEST FOR A TARGETEDDUMPING INVESTIGATION
Under the statute and the WTO Antidumping Agreement, the Department cannot make anaffirmative finding of targeted dumping, unless it conducts a market-specific analysis to confirm
that export sales found to be made at significantly lower prices were not made in the ordinary
course of trade. In order to accept a targeted dumping allegation, the Department should require
the party alleging targeted dumping to establish a prima facie case that the allegedly targeted
919 U.S.C. § 1677f-1(d)(1)(B); see also Article 2.4.2 of the WTO Antidumping Agreement.

10

Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R,

para. 135, adopted by the WTO Dispute Settlement Body on 23 January 2007.

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Japan Machinery Center for Trade and Investment

sales were not made in the ordinary course of trade. Furthermore, the Department should
consider explanation by responding parties in analyzing targeted dumping.
As JMC explained in its November 23, 2007 submission, targeted dumping may be found only
in exceptional cases.11 If sales to an alleged target were in fact made in accordance with normal
pricing behavior, they cannot be identified as targeted under the relevant provisions of the U.S.
statute and WTO Antidumping Agreement. Section 351.414(c)(1) of the Department’s
regulations states that the Department “normally” applies the average-to-average method, anduses the transaction-to-transaction method only in “unusual situations.” Thus, targeted dumping,
for which the average-to-transaction applies, should be found only under exceptional
circumstances. The WTO Appellate Body confirmed that use of the average-to-transaction
method upon a finding of targeted dumping is “an exception to the two normal
methodologies.”12 Applying this requirement, targeted dumping may not be found where theprice difference between the alleged target and non-targets results from normal pricing practices
in the ordinary course of business. Unfortunately, through the use of a one-standard deviation
test, the first-stage test of the Department’s proposed methodology would improperly identify
sales that were made in the ordinary course of business as targeted.
As noted in Section I, the Department proposes to examine prices to the alleged target that are
more than one standard deviation below the weighted-average price of the identical CONNUM
to all customers. As a statistical matter, however, 31.7% of all sales prices to the alleged target
would automatically fall outside of one standard deviation of the average price in the normal
distribution situation. Consequently, the one-standard deviation method would identify sales aspotentially targeted, even though such sales were made in the ordinary course of business. For
example, in the ordinary course of business, sellers often provide larger discounts or rebates tocustomers that purchase larger quantities. The net sales prices to such customers could fall
below one standard deviation of the average price, even though such prices were offered to all
customers in accordance with normal business practices – not due to targeted dumping. The one
standard deviation test would also mask price fluctuations resulting from changes in raw
material costs, supply and demand, and other common economic factors. As a result, acustomer could be identified as targeted simply because it happened to buy subject merchandise
during a month when market prices were low. Even if sales by an exporter to an alleged target
would appear to be in a pattern of significant price differences when examined transactions

11

See Letter from JMC to the Department (Nov. 23, 2007) at 2-3.

12Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R,

para. 118, adopted by the WTO Dispute Settlement Body on 23 January 2007.

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Japan Machinery Center for Trade and Investment

made by the exporter alone, analysis on all transactions in the relevant market would show thatsales to the alleged target were made in the ordinary course of trade.
As written, the Department’s proposed methodology for determining targeted dumping ismechanical and fails to account for possible market-specific explanations for why certain sales
were made to certain purchasers or regions at significantly lower prices. Accordingly, in
selecting a final methodology, the Department should make clear that its targeted dumping
analysis will not rest on the application of mechanical, statistical tests alone; rather, theDepartment will also conduct the necessary market-specific inquiry to confirm that sales
identified as targeted were not made in the ordinary course of trade, and, in doing so, will afford
respondents a meaningful opportunity to present information and argument.
A market-specific analysis is required by section 777A(d)(1)(B)(ii) of the Act and Article 2.4.2of the WTO Antidumping Agreement. These provisions mandate that the Department explain
why the pattern of significant price differences cannot be taken into account in the
average-to-average method or the transaction-to-transaction method. As noted above,significant price differences may result from ordinary market forces or business practices, suchas fluctuations in raw material costs or the provision of volume discounts. Such ordinary pricing
factors can be taken into account in either the average-to-average method or thetransaction-to-transaction method. Thus, in order to find targeted dumping and apply theaverage-to-transaction method, the Department must explain why a particular pattern ofsignificant price differences is exceptional in light of the specific characteristics of the market.
Consistent with this reading of the statute and the WTO Antidumping Agreement, the preamble
to the Department’s targeted dumping regulation specifies that an analysis of targeted dumping
requires “insight as to how the market truly functions . . . .”13
JMC also submits that the party alleging targeted dumping must submit sufficient evidence
establishing a prima facie case that the pricing pattern alleged to result from targeted dumping
did not result from sales made in the ordinary course of trade. It would be inappropriate for the
Department to initiate a targeted dumping investigation without a sufficient evidentiary basis.
Moreover, in examining the particular characteristics of the market, due process principles
require the Department to consider comments, evidence, and explanation from respondents that
allegedly targeted sales were made in the ordinary course of business, and thus that the
respondents did not engage in targeted dumping.
In sum, in examining targeted dumping, the Department must not rely solely upon mechanicaltests, but must also conduct a case-specific analysis in light of the particular characteristics of the13

Antidumping Duties; Countervailing Duties, 62 Fed. Reg. 27296, 27374 (May 19, 1997).

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Japan Machinery Center for Trade and Investment

market. Moreover, as a precondition to the initiation of a targeted dumping inquiry, theDepartment should require the party alleging targeted dumping to establish a prima facie casethat the allegedly targeted sales were not made in the ordinary course of trade. Finally,
principles of due process dictate that the Department should consider comments andinformation from responding parties, and reach an objective conclusion with reasoned andadequate explanation of its targeted dumping analysis.

IV. THEDEPARTMENTSHOULD
NOT
APPLY
THE
AVERAGE-TO-TRANSACTION METHOD TO NON-TARGETS, AND
SHOULD NOT USE TARGETED DUMPING TO EVADE THE NON-ZEROINGRULES
The Department must limit application of the average-to-transaction method to sales found to betargeted. Because the application of the average-to-transaction method is intended to unmask
targeted dumping, there is no reason to apply the average-to-transaction method to non-targeted
sales.
This interpretation is supported by the WTO Appellate Body, which stated,
We therefore read the phrase "individual export transactions" in that
sentence as referring to the transactions that fall within the relevant pricing
pattern.
This universe of export transactions {to which theaverage-to-transaction method applies} would necessarily be more limited
than the universe of export transactions to which the symmetricalcomparison methodologies in the first sentence of Article 2.4.2 would
apply.14
As suggested by the WTO Appellate Body, non-targeted sales are outside the scope of targeted
dumping, and therefore cannot be used in average-to-transaction comparisons.
Finally, the targeted dumping methodology should not be utilized in any way to circumvent the
WTO Appellate Body’s express proscription of “zeroing” for calculation of margins ofdumping.

14

Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R,

para. 135, adopted by the WTO Dispute Settlement Body on 23 January 2007.

9Japan Machinery Center for Trade and Investment

V.

CONCLUSION

Although the Department’s proposed methodology is an improvement over the CFS Paper test,
JMC respectfully requests that the Department adopt the suggestions discussed above so as toensure that its standard targeted dumping analysis is consistent with U.S. statutory andregulatory provisions, U.S. international obligations under the WTO Antidumping Agreement,
and principles of due process.
We would be happy to answer any questions that the Department may have.
Sincerely yours,

Haruhiko Kuramochi
Executive Managing Director
Japan Machinery Center for
Trade and Investment (JMC)
See attached member list10