[Federal Register Volume 72, Number 54 (Wednesday, March 21, 2007)]
[Notices]
[Pages 13246-13249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-5169]


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DEPARTMENT OF COMMERCE

International Trade Administration


Antidumping Methodologies in Proceedings Involving Non-Market 
Economy Countries: Surrogate Country Selection and Separate Rates

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

ACTION: Request for Comment.

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SUMMARY: The Department of Commerce (``the Department'') requests 
public comment on two aspects of its non-market economy (``NME'') 
methodology in antidumping proceedings. First, the Department seeks 
comment on certain aspects of the methodology by which it selects an 
economically comparable surrogate market economy country for the NME 
country under investigation or review. Second, the Department is 
requesting comment on the methodology under which individual NME 
exporters can demonstrate independence from government control of their 
export activities and thereby qualify for separate rate status.

DATES: Comments must be submitted by thirty days from the publication 
of this notice.

ADDRESSES: Written comments (original and six copies) should be sent to 
David Spooner, Assistant Secretary for Import Administration, U.S. 
Department of Commerce, Central Records Unit, Room 1870, Pennsylvania 
Avenue and 14th Street NW, Washington, DC, 20230.

FOR FURTHER INFORMATION CONTACT: Lawrence Norton, Economist, or Anthony 
Hill, Senior International Economist, Office of Policy, Import 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington DC, 20230, 202-482-1579 or 202-482-
1843, respectively.

Issue One: Surrogate Country Selection

Background

    In antidumping proceedings involving NME countries, the Department 
calculates normal value by valuing the NME producer's factors of 
production, to the extent possible, using prices from a market economy 
that is at a comparable level of economic development and that is also 
a significant producer of comparable merchandise. The Tariff Act of 
1930, as amended (``the Act''), provides broad discretion in the 
selection of surrogate market economy countries to value NME factors of 
production. In particular, section 773(c)(1)(B) of the Act reads:
    ...the valuation of the factors of production shall be based on the 
best available information regarding the values of such factors in a 
market economy country or countries considered to be appropriate by the 
administering authority.
    Section 773(c)(4) of the Act adds:
    The administering authority, in valuing factors of production under 
paragraph (1), shall utilize, to the extent possible, the prices or 
costs of factors of production in one or more market economy countries 
that are
    A. at a level of economic development comparable to that of the 
nonmarket economy country, and
    B. a significant producer of comparable merchandise.
    The Act does not provide a definition of ``comparable level of 
economic development,'' ``comparable merchandise,'' or ``significant 
producer.'' However, the Department's regulations do provide guidelines 
for comparing levels of economic development. 19 CFR 351.408(b) reads:
    Economic Comparability. In determining whether a country is at a 
level of economic development comparable to the nonmarket economy 
country under section 773(c)(2)(B) or section 773(c)(4)(A) of the Act, 
the Secretary will place primary emphasis on per capita GDP as the 
measure of economic comparability.
    Finally, the Department provided further guidance on economic 
comparability in a 2004 Policy Bulletin, establishing a sequential 
procedure for selecting a surrogate country, with economic 
comparability being the first factor considered. Import Administration 
Policy Bulletin 04.1 states\1\:
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    \1\ The full text of the policy bulletin can be found at http://ia.ita.doc.gov/policy/bull04-1.html.
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    First, early in a proceeding, the Operations team sends the Office 
of Policy (``OP'') a written request for a list of potential surrogate 
countries. In response, OP provides a list of potential surrogate 
countries that are at a comparable level of economic development to the 
NME country. OP determines economic comparability on the basis of per 
capita gross national income, as reported in the most current annual 
issue of the World Development Report (The World Bank). The surrogate 
countries on the list are not ranked and should be considered 
equivalent in terms of economic comparability. Both the team's written 
request and OP's response should be made available to interested 
parties by being placed on the record of the proceeding.
    As noted above, in each proceeding, the Department generates a list 
of potential surrogate countries. In constructing this list, the 
Department orders the per capita gross national income (``GNI'') 
figures as reported in the latest available published edition of the 
World Bank's World Development Report, disregarding countries 
designated as NMEs during the period of review.\2\ From among the 
remaining group of countries, the Department selects approximately five 
with similar levels of economic development to the NME that have 
offered, in the

[[Page 13247]]

Department's experience, the statistical sources and breadth of 
information that might make them suitable surrogate countries in the 
specific proceeding. The Department places this list on the record and 
invites comment from the interested parties, who may suggest that the 
Department consider other economically comparable surrogate countries. 
However, absent comment from parties, the Department normally will 
determine, from among the countries on this list, which country 
produces merchandise comparable to the subject merchandise in 
significant quantities and offers adequate data upon which to base the 
review.
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    \2\ The Department now uses per capita GNI, rather than per 
capita GDP, because while the two measures are very similar, per 
capita GNI is reported across almost all countries by an 
authoritative source (the World Bank), and because the Department 
believes that the per capita GNI represents the single best measure 
of a country's level of total income and thus level of economic 
development.
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    The process of selecting an appropriate surrogate country for the 
NME is a crucial element of an NME antidumping proceeding, particularly 
since the regulations direct the Department to normally value all of 
the NME factors of production with data from the primary surrogate 
country. See 19 CFR 351.408(c)(2). Because of the importance of finding 
a suitable surrogate country, the Department does not consider a 
country's level of economic comparability in isolation, but considers 
whether the potential surrogate country is a significant producer of 
comparable merchandise and offers the data necessary to conduct the 
proceeding. See Policy Bulletin 04.01. Accordingly, as the footnotes to 
the Policy Bulletin cited above clarify, the statute and regulations do 
not restrict the Department's analysis simply to a review of per capita 
GNI, as such an analysis would unreasonably limit the Department from 
choosing the most appropriate surrogate country. As the footnotes 
state, the Department ``excludes countries that are technically 
presumed to be market economies, but which in OP's judgment are 
unsuitable sources for factor values'' and ``current practice reflects 
in large part that the statute does not require the Department to use a 
surrogate country that is at a level of economic development most 
comparable to the NME country.'' Indeed, the Department often 
disregards certain countries that it deems to be unsuitable sources for 
factor values based on factors other than per capita GNI. For example, 
using the current 2005 GNI data, the closest country to Vietnam's level 
of economic development (at $620 per capita) is Sudan, with $640 per 
capita. Sudan, however, with its ongoing internal conflicts, would be 
unlikely to offer adequate data on which to base the dumping 
calculation, so the Department turns instead to other countries as 
potential surrogates.

Request for Comment

    The selection of an appropriate surrogate country is, in large 
part, necessarily a case-specific issue, since the range of available 
data and production of comparable merchandise vary with the product 
under investigation or review. The specific question of economic 
comparability does remain largely constant from case to case, however, 
and it is on this aspect of the surrogate country selection process 
that the Department is now requesting comment. Specifically, the 
Department seeks comment on (1) how, given the requirement to base the 
determination on per capita income, the Department should determine 
which countries are economically comparable to a given NME country, and 
(2) whether and on what basis the Department should disregard certain 
economically comparable countries as lacking data suitable for valuing 
the factors of production.
    Regarding the first question, on how the Department determines 
economic comparability, the Department uses per capita income to 
measure comparability, but even if a country is the most economically 
comparable to the NME, this does not mean that the Department is 
obliged to use that country as the primary surrogate. Often, there is a 
range of countries from which the Department could select the most 
appropriate potential surrogate based on their relative production of 
comparable merchandise, and on data considerations. See, e.g., 
Memorandum from Ron Lorentzen to Howard Smith Antidumping Duty 
Investigation of Coated Free Sheet Paper from the People's Republic of 
China: Request for a List of Surrogate Countries (January 22, 2007). 
The Department is now soliciting comment on the extent to which, if 
any, there are limitations as to this range. For example, at what point 
should differences in per capita GNI of a potential surrogate and the 
NME be ``too large'' for the two to be considered ``economically 
comparable?
    Furthermore, should the Department develop a standard for deciding 
which countries to include on the initial list of potential surrogate 
countries? What could be an appropriate standard for determining which 
countries are likely to offer the necessary data for conducting an 
antidumping proceeding? As noted above, interested parties will 
continue to have the opportunity to suggest the use of economically 
comparable countries that do not appear on the initial list of 
potential surrogates. Nevertheless, the Department first examines 
(absent any submission from parties) this initial list of countries to 
determine whether any of the included countries are appropriate 
surrogate countries. Accordingly, the Department welcomes comment on 
how this list should be constructed. Should this list be comprehensive 
(which may require that the Department and interested parties examine 
the extent of production of comparable merchandise in every 
economically comparable country), or could the list be limited in some 
way? Is there a broad measure of countries' data quality (for example, 
the availability, reliability, and accuracy of import statistics) that 
the Department could use to determine at the outset of the proceeding a 
subset of the economically comparable countries for consideration as a 
primary surrogate? Should the Department consider whatever countries 
remain after applying these data screens, or should the Department 
ensure that the final list includes a balance of countries both above 
and below the NME's per capita income?

Issue Two: Separate Rates In Nme Antidumping Proceedings

Background

    In an NME antidumping proceeding, the Department presumes that all 
companies within the country are subject to governmental control and 
should be assigned a single antidumping duty rate unless an exporter 
demonstrates the absence of both de jure and de facto governmental 
control over its export activities through a ``separate rates'' test. 
See Final Determination of Sales at Less Than Fair Value: Bicycles from 
the People's Republic of China, 61 FR 19026, 19027 (April 30, 1996). 
The Department's separate rates test is not concerned, in general, with 
macroeconomic border-type controls (e.g., export licenses, quotas, and 
minimum export prices), particularly if these controls are imposed to 
prevent the dumping of merchandise in the United States. Rather, the 
test focuses on controls over the decision-making process on export-
related investment, pricing, and output decisions at the individual 
firm level. See Final Determination of Sales at Less Than Fair Value: 
Certain Cut-to-Length Carbon Steel Plate from Ukraine, 62 FR 61754, 
61757 (November 19, 1997); Tapered Roller Bearings and Parts Thereof, 
Finished and Unfinished, from the People's Republic of China: Final 
Results of Antidumping Duty Administrative Review, 62 FR 61276, 61279 
(November 17, 1997); and Preliminary Determination of Sales at Less 
Than Fair Value: Honey from the

[[Page 13248]]

People's Republic of China, 60 FR 14725, 14727 (March 20, 1995).
    To establish whether a firm is sufficiently independent from 
government control in its export activities to be entitled to a 
separate rate, the Department analyzes each exporting entity under a 
test arising from the Final Determination of Sales at Less Than Fair 
Value: Sparklers from the People's Republic of China, 56 FR 20588 (May 
6, 1991), as modified in the Final Determination of Sales at Less Than 
Fair Value: Silicon Carbide from the People's Republic of China, 59 FR 
22585, 22587 (May 2, 1994) (Silicon Carbide). Under this test, the 
Department assigns separate rates in NME cases only if an exporter can 
demonstrate the absence of both de jure and de facto governmental 
control over its export activities. See Silicon Carbide and Final 
Determination of Sales at Less Than Fair Value: Furfuryl Alcohol from 
the People's Republic of China, 60 FR 22544, 22545 (May 8, 1995). In 
order to request and qualify for a separate rate, it is the 
Department's practice that a company must have exported subject 
merchandise to the United States during the period of investigation or 
review, and it must provide information responsive to the following 
considerations:
    1. Absence of De Jure Control: The Department considers the 
following de jure criteria in determining whether an individual company 
may be granted a separate rate: (1) an absence of restrictive 
stipulations associated with an individual exporter's business and 
export licenses; (2) any legislative enactments decentralizing control 
of companies; and (3) any other formal measures by the government 
decentralizing control of companies.
    2. Absence of De Facto Control: Typically, the Department considers 
four factors in evaluating whether each respondent is subject to de 
facto governmental control over its export activities: (1) whether the 
export prices are set by, or subject to the approval of, a governmental 
authority; (2) whether the respondent has authority to negotiate and 
sign contracts and other agreements; (3) whether the respondent has 
autonomy from the central, provincial, or local governments in making 
decisions regarding the selection of its management; and (4) whether 
the respondent retains the proceeds of its export sales and makes 
independent decisions regarding disposition of profits or financing of 
losses.
    The Department last invited public comment on its separate rates 
methodology in a process that culminated in April 2005, when it 
announced a change in practice in the Federal Register (70 FR 17233) 
and posted a concurrent Policy Bulletin on the Import Administration 
website (Import Administration Policy Bulletin 05.1, available at 
http://ia.ita.doc.gov/policy/bull05-1.pdf). Prior to that, the 
Department published three notices in the Federal Register soliciting 
comment on its separate rates practice (69 FR 24119, 69 FR 56188, and 
69 FR 77722). The Department was prompted to request public comment on 
this issue because of the large and increasing numbers of requests for 
separate rates status the Department had received in recent years, 
which led to two concerns. The first is that it proved increasingly 
difficult to evaluate the large number of separate rate requests made 
by respondents. The second concern was whether the implementation of 
the separate rates test could be improved to more effectively determine 
whether respondents act, de facto, independently of the government in 
their export activities.
    Taking into account comments submitted by the public, the 
Department adopted an application process for evaluating separate rate 
requests by non-investigated firms. This application process, which in 
subsequent cases was extended from initial investigations to 
administrative reviews, streamlined the process of evaluating separate 
rates requests but did not alter the threshold of eligibility for a 
separate rate, which remained an absence of de jure and de facto 
government control over a firm's export activities. Despite the 
introduction of the application process for evaluating requests for 
separate rates status, however, the administrative burden on the 
Department of evaluating separate rates requests continued to increase. 
As a result, the Department began to employ a separate rates 
``certification'' process in certain recent reviews involving numerous 
potential respondents, in which firms that had already obtained a 
separate rate in a previous segment were able to submit a certification 
form in lieu of the full application. See Notice of Initiation of 
Administrative Review of the Antidumping Duty Order on Wooden Bedroom 
Furniture from the People's Republic of China 71 FR 11394, (March 7, 
2006), and Notice of Initiation of Administrative Reviews of the 
Antidumping Duty Orders on Frozen Warmwater Shrimp from the Socialist 
Republic of Vietnam and the People's Republic of China 71 FR 17813, 
(April 7, 2006).

Request for Comment

    The Department is now requesting public comment on the separate 
rates test as a whole and how its implementation could be further 
improved. As noted above, while the Department has revised its 
administration of the separate rates test over the past ten years, it 
has not modified the test itself during this time. The Department has 
also received comments from certain parties alleging that testing firms 
for independence over their export activities is no longer necessary in 
light of economic reforms that have occurred in particular NME 
countries. The Department is therefore issuing this notice to invite 
comments concerning whether alternatives to its current separate rates 
test should be considered, i.e., on whether a reconsideration of the 
test as outlined in Sparklers and Silicon Carbide is warranted. The 
Department is also interested in comments on whether the Department 
should consider revisions in the implementation of the current test, 
particularly on the proper balance between efficiency and enforcement 
in the implementation of the separates rates test, i.e., on whether the 
Department can reduce the administrative burden on both the Department 
and on interested parties in operationalizing the test. In providing 
comment, however, the Department requests that parties address the real 
possibility that streamlining the test might impact the enforcement 
goal of the test, that only firms operating independently of government 
control over their export activities become eligible for an 
individually calculated rate.

Submission of Comments

    Persons wishing to comment should file a signed original and six 
copies of each set of comments by the date specified above. The 
Department will consider all comments received before the close of the 
comment period. Comments received after the end of the comment period 
will be considered, if possible, but their consideration cannot be 
assured. The Department will not accept comments accompanied by a 
request that a part or all of the material be treated confidentially 
because of its business proprietary nature or for any other reason. The 
Department will return such comments and materials to the persons 
submitting the comments and will not consider them in the development 
of any changes to its practice. The Department requires that comments 
be submitted in written form. The Department recommends

[[Page 13249]]

submission of comments in electronic form to accompany the required 
paper copies. Comments filed in electronic form should be submitted 
either by e-mail to the webmaster below, or on CD-ROM, as comments 
submitted on diskettes are likely to be damaged by postal radiation 
treatment.
    Comments received in electronic form will be made available to the 
public in Portable Document Format (PDF) on the Internet at the Import 
Administration website at the following address: http://ia.ita.doc.gov/
.
    Any questions concerning file formatting, document conversion, 
access on the Internet, or other electronic filing issues should be 
addressed to Andrew Lee Beller, Import Administration Webmaster, at 
(202) 482-0866, email address: <a href="/cdn-cgi/l/email-protection#2a5d4f48474b595e4f5807595f5a5a45585e6a435e4b044e4549044d455c"><span class="__cf_email__" data-cfemail="6413010609051710011649171114140b1610240d10054a000b074a030b12">[email protected]</span></a>.

    Dated: March 9, 2007.
David Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E7-5169 Filed 3-20-07; 8:45 am]
BILLING CODE 3510-DS-S


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