Dumping refers to a type of international price discrimination wherein a foreign company sells merchandise in a given export market (for example, the United States) at prices that are lower than the prices that the company charges in its home market or other export markets. When this occurs, and when the imports have been found to materially injure, or threaten to materially injure, U.S. producers, U.S. law permits application of antidumping duties to offset the price advantage enjoyed by the imported product. Any domestic industry that believes it is suffering material injury, or is threatened with material injury, as a result of dumping by foreign companies may file a petition requesting imposition of AD duties. Interested domestic industries file petitions simultaneously with Commerce and ITC. If Commerce determines that the petitioning parties meet certain eligibility requirements, ITC determines whether the domestic industry has suffered material injury as a result of the alleged dumping (or is threatened with material injury). While ITC is completing its work, Commerce conducts an investigation to establish the duty rates, if any, that should be applied. To determine the duty rates to apply in an antidumping investigation, Commerce identifies (1) the foreign product’s export price entering the U.S. market and (2) its “normal value.” Commerce then compares these prices to determine whether—and by how much—the product’s export price is less than its normal value. AD duty rates are based on these differences, which are called dumping margins. To establish a product’s export price, Commerce generally refers to the prices charged in actual sales of that product to purchasers in the United States. To establish its normal value, Commerce generally refers to the prices charged for the product in the exporting company’s home market. In the event that the product is not sold in the exporter’s home market, Commerce may refer to prices charged for the product in another export market or construct a normal value based on costs of production in the exporting country, together with selling, general and administrative expenses, and profit. The two agencies make preliminary and, after additional investigation, final determinations as to whether injury has occurred (ITC) and the size of the duty, if any, that should be imposed (Commerce). When warranted, Commerce issues “duty orders” instructing Customs and Border Protection to apply duties against imported products from the countries under investigation. Both ITC and Commerce publish their decisions in the Federal Register. Since AD duties address unfair pricing practices, and pricing decisions are generally made by individual companies, Commerce generally calculates and assigns AD duty rates on an individual company basis. As a result, AD investigations generally produce a number of individually determined, company-specific rates, reflecting differences in the extent to which companies have dumped their products—that is, exported them at less than their normal value. In addition, AD duty orders also generally specify a duty rate for other companies that have not been assigned an individually determined rate. In principle, Commerce bases its AD duty determinations on information obtained from interested parties—including foreign producers and exporters. Commerce obtains needed information from foreign companies by sending them questionnaires and following up with additional questions, as needed, and with on-site visits. However, both U.S. law and WTO rules recognize that, in some cases, officials charged with completing these investigations will be unable to obtain sufficient information. In such cases, Commerce officials apply facts available to complete their duty determinations. This may include secondary information, subject to corroboration from independent sources. Moreover, if Commerce finds that an interested party, such as a foreign company under investigation, “has failed to cooperate by not acting to the best of its ability to comply with a request for information” then, in selecting among the facts available, Commerce may apply an inference that is adverse to the interests of that party. In applying adverse inferences, Commerce can use (among other things) information contained in the petition filed by the domestic industry seeking imposition of AD duties, the results of a prior review or determination in the case, or any other information placed on the record. This authority provides an incentive for foreign companies to provide the information that Commerce needs to complete its work. For example, in a 1993 case that involved two Brazilian companies, one company attempted to cooperate in the investigation but nonetheless was unable to provide the information that Commerce needed, while the other declined to provide any information at all. Commerce used facts available to determine that the first company should be subject to a duty rate of 42 percent. For the second company, Commerce selected adverse inferences from among the facts available and applied these to calculate a duty rate of 109 percent. The methodology that Commerce employs in NME cases differs from Commerce’s usual (market economy) approach in two key ways. First, rather than rely entirely on information from the exporting country itself to establish a product’s normal value, Commerce uses price information from surrogate countries to construct these values. Second, rather than consider all companies eligible for individually determined duty rates, Commerce requires NME companies to meet certain criteria to be considered eligible for such rates. Commerce generally employs different approaches to calculate duty rates for companies that do and do not meet these criteria. In AD investigations involving products from NME countries, U.S. law requires Commerce to use a special methodology to calculate duty rates in view of the absence of meaningful home market prices and information on production costs. When a product from China or another NME country is the target of an AD investigation, Commerce officials use price information and financial data from an appropriate market economy country to construct a normal value for the product under investigation. India is the most commonly used surrogate for China. To apply this methodology, Commerce (1) identifies and quantifies the factors of production (e.g., various raw materials) used by the NME producers, (2) identifies market prices for each factor in a surrogate country; (3) multiplies volume times cost for each factor; and (4) adds the results, together with a reasonable margin for selling, general and administrative expenses, and profit (based on surrogate country financial data), to produce a constructed normal value. The dumping margin—and consequently the AD duty rate—is then determined by comparing this normal value with the NME company’s export price to the United States. While all companies from market economy countries are eligible for individually determined or weighted average AD duty rates, companies from China and other NME countries must pass a separate rates test to be eligible for such rates. This test requires NME companies to meet two closely related criteria: they must demonstrate that their export activities are free from government control both in law and in fact. To provide a basis for deciding whether companies meet these criteria, Commerce requires these companies to submit information regarding whether there are restrictive stipulations associated with an individual exporter’s business and export licenses, any legislative enactments decentralizing control of companies, any other formal measures decentralizing government control of whether export prices are set by or subject to approval by the government, whether the company has authority to negotiate and sign contracts, whether the company has autonomy in selecting its management, and whether the company retains the proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses. As shown in figure 1, Commerce uses fundamentally different approaches to calculate duty rates to be applied against companies that do and do not pass the separate rates test. As shown in figure 1, Commerce treats companies from China and other NME countries that pass Commerce’s separate rates test like market economy countries when assigning duty rates. When practical, Commerce fully investigates and establishes individually determined duty rates for each eligible NME company, just as it does for each market economy company. To the extent that fully investigated NME companies cooperate with Commerce, they receive rates based on the information that they provide. As explained in the background section of this report, Commerce uses facts available, and may use adverse inferences, to calculate duty rates when the companies under investigation cannot or will not provide the information that Commerce needs. In both NME and market economy cases, Commerce may limit the number of companies it fully investigates when it is faced with a large number of companies. In such situations, Commerce generally calculates individual rates for the companies that account for the largest volume of the subject merchandise. In market economy cases, Commerce then calculates a weighted average of these rates and applies the resulting “all others” rate to companies that it has not fully investigated. Commerce does not routinely calculate weighted average duty rates in NME cases. However, when the number of NME companies eligible for individually determined rates exceeds the number that Commerce can fully investigate, Commerce calculates a weighted average rate and informs Customs of the companies entitled to this rate. In cases involving China or other NME countries, Commerce calculates a country-wide duty rate for companies that could not (or did not attempt to) pass Commerce’s separate rates test. In NME cases, Commerce assumes that all exporters and producers of a given product are subject to common government control and that all of these companies should, therefore, be subject to a single country-wide duty rate. Commerce begins its NME antidumping investigations by requesting information from the government of the country in question and from known producers and exporters. If Commerce cannot identify all relevant producers and exporters, or if one or more of the identified companies refuses to cooperate in the investigation, Commerce relies on adverse inferences to calculate a country-wide rate. Commerce then instructs Customs to apply the country- wide rate against shipments from any company other than those specifically listed as eligible for an individually determined or weighted average rate. Over the last 25 years, the United States has applied AD duties against Chinese products more often than against products from any other country. While AD duty rates have varied widely, on average the rates assigned to Chinese products have been higher than the rates assigned to the same products from market economy countries. We found that this is attributable primarily to the comparatively high country-wide rates applied to Chinese companies not eligible for individually determined or weighted average rates.