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

2017-07-13 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 Partner: Grey, Clark, Shih and Associates, Limited Project Executed by: 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 one 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.” 1

2017-07-13 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 1 Export Price 2

2017-07-13 Sample Calculation of Dumping Margin Price to Price Comparison Export Price Domestic Price / Normal Value Delivered Price $115 FOB $100/unit Less: Freight $2 Less: Freight $3 $112 Ex-factory $98 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% 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. Source: SIMA Handbook, pg. 359 3

2017-07-13 Dumping Margin Calculation Example Product Units Normal Total Export Total Export Total Value/Unit Normal Price/Unit Price (NV-EP) Value A 25 15 375 13.50 337.50 37.50 A 35 16 560 14 490 70 B 50 17 850 15 750 100 Exporter 1 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 50 15 750 15.50 775 (25) Exporter 2 50 15 750 16.50 825 (75) 50 15 750 14.50 725 25 Total 150 15 2250 15.50 2325 (75) 25 14 350 15 375 (25) 25 14.50 362.50 15 375 (12.50) Exporter 3 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 Margin of Dumping Units Weighted Total Normal Weighted Total Export Margin of Margin of Average Value Average Price Dumping Dumping Normal Value Export Price (NV-EP) (% 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 4

2017-07-13 Dumping Margin Calculation: Example 2 Dumping Margin Calculation: Example 3 5

2017-07-13 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.” 6

2017-07-13 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 7

2017-07-13 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 of 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 ordinary 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, or with the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits.” 8

2017-07-13 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 0.50 advertising) Indirect Selling Expenses (e.g., telephone, fax, and 0.45 postal charges) 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 Correct Methodology: Sale Home Market (Indonesia) Export Market (US) Difference (dumping) 1. $100 $90 $10 2. $100 $110 -$10 3. $100 $100 $0 With Zeroing Methodology: Sale Home Market (Indonesia) Export Market (US) Difference (dumping) 1. $100 $90 $10 2. $100 $110 $0 3. $100 $100 $0 $10 = 3.3% 9

2017-07-13 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 of 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. 10

2017-07-13 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. 11