DO THE MATHS: HOW TO CALCULATE NORMAL VALUE AND DUMPING MARGINS - - PDF document

2017-07-13 1

Project Executed by: Partner:

Session 4:

DO THE MATHS: HOW TO CALCULATE NORMAL VALUE AND DUMPING MARGINS

Bogor, Indonesia, 17-19 July 2017 Wenguo Cai and Peter Clark President Grey, Clark, Shih and Associates, Limited

Definition of Dumping

ADA Article 2.1

“For the purpose of this Agreement, a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from

• ne country to another is less than the comparable

price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.”

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Terminology for Margin of Dumping

Normal value: The normal value is generally the selling price of the good in the country where it was produced or exported. In some situations, normal values are based on the costs of production plus a reasonable amount for administrative, selling, and all other costs plus a reasonable amount for profit. Export price: The export price is generally the exporter's selling price reduced by any export charges that are included in the price, such as freight and insurance. This export price is determined using the commercial invoice and subtracting any identified export charges.

Margin of Dumping

Normal Value Export Price Margin of Dumping

Or

Normal Value Export Price

1

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Sample Calculation of Dumping Margin

Price to Price Comparison

Export Price FOB $100/unit Less: Freight $2 Ex-factory $98 Domestic Price / Normal Value Delivered Price $115 Less: Freight $3 $112 Less: Allowances $2 Ex-factory $110

Margin of dumping: (110 ÷ 98) -1 = 12.25%

Normal Value Adjustments: Terms of Sale

Facts: Collection period of sales to retail stores in domestic market: 90 days Collection period of sales to distributors in Canada: 273 days Average interest rate of short-term borrowing: 10.5% annually = 0.02877% per day Calculation of credit expense: Export market: 273 days Domestic market: 90 days Difference: 183 days 183 days x 0.02877% = 5.2649%

Source: SIMA Handbook, pg. 359

Adjustment: Since the Canadian distributors take longer to pay than the domestic customers, the price of like goods must be increased by 5.264% when calculating normal values.

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Product Units Normal Value/Unit Total Normal Value Export Price/Unit Total Export Price Total (NV-EP) Exporter 1 A 25 15 375 13.50 337.50 37.50 A 35 16 560 14 490 70 B 50 17 850 15 750 100 B 40 17 680 14.50 580 100 C 60 16.50 990 15.80 948 42 C 30 15.60 468 16.20 486 (18) C 80 16.50 1320 17 1360 (40) Total 320 17.38 5563 15.47 4951.50 611.50 Exporter 2 50 15 750 15.50 775 (25) 50 15 750 16.50 825 (75) 50 15 750 14.50 725 25 Total 150 15 2250 15.50 2325 (75) Exporter 3 25 14 350 15 375 (25) 25 14.50 362.50 15 375 (12.50) 30 15.50 465 15 450 15 60 17 1020 15 900 120 65 18 1170 15 975 195 70 18 1260 16 1120 140 Total 275 16.83 4627.50 15.25 4195 432.50

Dumping Margin Calculation Example

Margin of Dumping

Units Weighted Average Normal Value Total Normal Value Weighted Average Export Price Total Export Price Margin of Dumping (NV-EP) Margin of Dumping (% of Export Price) Exporter 1 320 17.38 5563 15.47 4951.50 611.50 12.35 Exporter 2 150 15 2250 15.50 2325 (75) = 0 (3.23) = 0 Exporter 3 275 16.83 4627.50 15.25 4195 432.50 10.31

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Dumping Margin Calculation: Example 2 Dumping Margin Calculation: Example 3

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Price to Price Comparisons

• Domestic sales compared to export sales at

same point of sale ex-factory

• In ordinary course of trade
• in sufficient quantity – the 5% rule (flexible)
• Not 5% of total – but 5% of exports to

importing country

Price Comparability

GATT (1994) Article VI.1

“Due allowance shall be made in each case for differences in conditions and terms of sale, for differences in taxation, and for other differences affecting price comparability.”

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Fair Comparison Requirements

ADA Article 2.4 – Fair Comparison

– Level of Trade – Ex-factory Basis – Sales Made at the Same Time – Differences affecting price comparability

• Terms and conditions of sale
• Taxation
• Level of Trade
• Quantities
• Physical Characteristics

– Allowances for costs – duty and tax

Adjustments and Allowances

Allowances should be made *(plus or minus) for the following factors affecting price comparability:

• Terms of sale
• Taxation
• Trade levels
• Quantities
• Physical characteristics
• Any other differences
• Discounts
• Rebates and allowances
• Delivery Costs
• Credit terms

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Like Product

ADA Article 2.6 – Like Goods

“Throughout this Agreement the term “like product” (“produit similaire”) shall be interpreted to mean a product which is identical, i.e. alike in all respects to the product under consideration, or in the absence

• f such a product, another product which, although

not alike in all respects, has characteristics closely resembling those of the product under consideration.”

Constructed Cost Methodology

ADA Article 2.2

“When there are no sales of the like product in the

• rdinary course of trade in the domestic market of the

exporting country or when, because of the particular market situation or the low volume of the sales in the domestic market of the exporting country, such sales do not permit a proper comparison, the margin of dumping shall be determined by comparison with a comparable price of the like product when exported to an appropriate third country, provided that this price is representative,

• r with the cost of production in the country of origin plus

a reasonable amount for administrative, selling and general costs and for profits.”

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Sample Calculation for Constructed Normal Value

COM: Materials

2.50

Labour

1.50

Variable Manufacturing Overhead

1.25

Fixed Manufacturing Overhead

1.00

Total COM:

6.25

SG&A Expenses: G&A (e.g., using the rate of 20%, 6.25*0.20)

1.25

Direct Selling Expenses (e.g., credit, warranty, and advertising)

0.50

Indirect Selling Expenses (e.g., telephone, fax, and postal charges)

0.45

Total SG&A Expenses:

2.20

Financial Expenses

0.63

Total Cost Before Profit

9.08

Profit

0.42

Constructed Normal Value:

9.50

Anti-dumping Margin Calculation: Zeroing

Sale Home Market (Indonesia) Export Market (US) Difference (dumping) 1. $100 $90 $10 2. $100 $110

• $10

3. $100 $100 $0 Sale Home Market (Indonesia) Export Market (US) Difference (dumping) 1. $100 $90 $10 2. $100 $110 $0 3. $100 $100 $0

With Zeroing Methodology: Correct Methodology:

$10 = 3.3%

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Particular Market Situation

• Where does it come from?
• Not Article VI – GATT (1994)
• AD Agreement – Tokyo Round

1967 – If there were no comparable home market sales 1979 – Modifications – to remove price to price comparison 1994 – Agreement adds concept of low sales

U.S. Particular Market Situation

General Factors:

• The foreign government controls or heavily regulates the

market for an input used to produce the subject merchandise.

• The DOC, in a separate CVD proceeding, has found the

existence of countervailable subsidies as to inputs used in the production of the subject merchandise. DOUBLE COUNTING

• Evidence exists that large quantities of an input used in the

production of the subject merchandise have been imported into the exporting country and that the exporting country has not attempted to restrain those imports through the application

• f its own AD disciplines.
• The foreign producers benefit from strategic alliances with

input providers, even if those relationships fall short of the U.S. standard for treating the companies as affiliated.

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Proposed Canada SIMA Changes

(2) What factors should be adopted for determining the presence of a particular market situation? For example, (a) government influence and distortion of the price of inputs; (b) the presence of government-owned enterprises in the market; or (c) other conditions in the market that render sales in that market not suitable for use in price calculations. (3) What alternative approaches or benchmarks should be used to calculate normal values where a particular market situation has been found in respect of the product under investigation? For example, (a) domestic sales of other sellers or producers in the exporter’s home market; (b) export sales to third-country markets; or (c) the constructed price based on the cost of producing and selling the good in the exporter’s home market, plus a reasonable amount for profits.

SIMA Changes – Finance Canada

(4) Where a particular market situation is found to exist for an input good, what alternative approaches or benchmarks should be used to determine a fair market price for that input? For example, (a) the price of the input supplied by a non-government-owned enterprise in the country of export to the exporter, to other exporters in that country, or to an appropriate third country; (b) the price of goods that are like the input, manufactured and sold in Canada or in a surrogate country; or (c) the price of the input based on international price lists or markets.

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Bill C-44: SIMA Changes

75 (1) Subsection 16(2) of the Act is amended by striking out “and” at the end of paragraph (a), by adding “and” at the end of paragraph (b) and by adding the following after paragraph (b): (c) any sale of like goods for use in the country of export by the exporter to a purchaser if, in the opinion of the President, a particular market situation exists which does not permit a proper comparison with the sale of the goods to the importer in Canada. (2) Section 16 of the Act is amended by adding the following after subsection (2): Paragraph (2) (c) (2. 1) For the purposes of paragraph (2) (c), a particular market situation may be found to exist in respect of any goods of a particular exporter or of a particular country, as is appropriate in the circumstances.

Particular Mnarket Situation

– Australia – Copy Paper from Indonesia – E.U. – Biodiesel – Canada – Softwood Lumber – U.S. – OCTG from Korea

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Factors Determining Particular Market Situation

U.S.A. – OCTG from Korea

Factors:

• Subsidies from the Republic of Korea (ROK) that benefit

Korean producers of hot-rolled steel (HRS), the primary input in the production of OCTG.

• Intervention by the ROK in the electricity market that distorts

the cost of this energy input

• An influx of low-priced HRS imports into Korea from China
• “Strategic alliances” between the Korean producers of OCTG

and their Korean suppliers of HRS

Source: U.S. Dept. of Commerce, OCTG from Korea, Final Determination, Docket # A-580-870

Factors Determining Particular Market Situation

Australia – Copy Paper from Indonesia

Factors:

• Control and support for the development of

timber plantations

• Prohibition on the export of timber logs
• Domestic price of Indonesian A4 copy paper

was significantly below comparable regional benchmarks

Source: Australian Anti-Dumping Commission, EPR 341

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WTO Dispute Settlement

E.U. – Biodiesel (Argentina)

• E.U. departed from Argentina’s recorded costs

because of Argentina’s imposition of an export tax

• n soya, a biodiesel input, which artificially lowered

the domestic price of soya.

• Argentina challenged E.U.’s interpretation of Article

2.2.1.1 of the Anti-Dumping Agreement. Argentina won.

WTO Dispute Settlement

Paragraph 6.37 of the Appellate Body Report

• “We fail to see any textual support in Article 2.2.1.1 of the Anti-

Dumping Agreement for the argument made by the European Union.”

• “In our view, the plain meaning of the terms used in the condition at

issue, as well as the structure of the first sentence of Article 2.2.1.1, do not support the European Union's reading of the term "costs" in the second condition of this provision.”

• “To the extent that costs are genuinely related to the production

and sale of the product under consideration in a particular anti- dumping investigation, we do not consider that there is an additional or abstract standard of "reasonableness" that governs the meaning of "costs" in the second condition in the first sentence of Article 2.2.1.1.”

Source: Appellate Body Report, European Union – Anti-Dumping Measures on Biodiesel from Argentina, WT/DS473/AB/R

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Injury Factors – Article 3.1

• Volume of dumped imports
• Effect on prices
• Impact on domestic producers

Injury Checklist

Has increase been significant? No fixed benchmark. Significant price undercutting Significant price depression

• Sales
• Magnitude of MOD
• Profit
• Cash Flow
• Output
• Inventories
• Market Share
• Employment
• Productivity
• Wages
• Return on investment
• Growth
• Capacity Utilization
• Ability to Raise Capital

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Other Factors – Article 3.5

• Volume and prices of undumped imports
• Contraction in demand
• Changes in pattern of consumption
• Trade restriction practices and competition between domestic and

foreign producers

• Technological developments
• Export performance
• Productivity of domestic industry