[Federal Register Volume 77, Number 118 (Tuesday, June 19, 2012)]
[Notices]
[Pages 36481-36485]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14964]


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DEPARTMENT OF COMMERCE

International Trade Administration


Methodological Change for Implementation of Section 772(c)(2)(B) 
of the Tariff Act of 1930, as Amended, In Certain Non-Market Economy 
Antidumping Proceedings

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

ACTION: Announcement of change in methodology.

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SUMMARY: After consideration of public comments, the Department of 
Commerce (``the Department'') will implement a methodological change to 
reduce export price or constructed export price in certain non-market 
economy (``NME'') antidumping proceedings by the amount of export

[[Page 36482]]

tax, duty, or other charge, pursuant to section 772(c)(2)(B) of the 
Tariff Act of 1930, as amended (``the Act'').

FOR FURTHER INFORMATION CONTACT: Albert Hsu, Senior Economist, Office 
of Policy, Import Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue NW., Washington, DC 20230; telephone: 
(202) 482-4491.

SUPPLEMENTARY INFORMATION: 

Background

    Pursuant to section 772(c)(2)(B) of the Act, the Department is 
instructed to reduce the export price or constructed export price used 
in the antidumping margin calculation by ``the amount, if included in 
such price, of any export tax, duty, or other charge imposed by the 
exporting country on the exportation of the subject merchandise to the 
United States, other than an export tax, duty, or other charge 
described in section 771(6)(C) {of the Act{time} .'' However, the 
Department's past administrative practice has been not to apply section 
772(c)(2)(B) of the Act in NME antidumping proceedings because 
pervasive government intervention in NMEs precluded proper valuation of 
taxes paid by NME respondents to NME governments. This practice 
originated in the less-than-fair-value investigations of pure magnesium 
and magnesium alloy from the Russian Federation, which the Department 
then considered to be an NME country. See Notice of Final 
Determinations of Sales at Less Than Fair Value: Pure Magnesium and 
Alloy Magnesium From the Russian Federation, 60 FR 16440 (March 30, 
1995) (``Russian Magnesium''), at Comment 10. In those investigations, 
the Department determined not to reduce the NME respondents' U.S. 
prices for an export tax paid to the NME government, the Russian 
Federation. Id.
    In subsequent litigation challenging that determination, the 
Department explained its reasoning as follows:

    The {NME{time}  is governed by a presumption of widespread 
intervention and influence in the economic activities of 
enterprises. An export tax charged for one purpose may be offset by 
government transfers provided for another purpose.
* * * * *
    To make a deduction for export taxes imposed by a NME government 
would unreasonably isolate one part of the web of transactions 
between government and producer. The Department's uniform approach 
to intra-NME transfers can be seen in its policy regarding transfers 
(or ``subsidies'') paid by a NME government to a NME producer. The 
Department--with the approval of the Court of Appeals--has declined 
to find such transfers to be subsidies given the nature of a 
{NME{time} . Such an economy is riddled with distortions, with the 
government influencing prices and cost structures, regulating 
investment, wages and private ownership, and allocating credit. 
Attempts to isolate individual government interventions in this 
setting--whether they be transfers from the government or from 
exporters to the government--make no sense.

See Remand Redetermination: Magnesium Corp. of America, et al. v. 
United States, at 6-8, dated Oct. 28, 1996 (``Remand Redetermination'') 
(available at: http://ia.ita.doc.gov/tlei/index.html). The U.S. Court 
of International Trade (``CIT'') upheld the Department's remand 
results. See Magnesium Corp. of America v. United States, 20 CIT 1464, 
1466 (1996). The U.S. Court of Appeals for the Federal Circuit 
(``Federal Circuit'') then affirmed the CIT's decision, stating that it 
agreed with the reasoning put forward in the Department's Remand 
Redetermination. See Magnesium Corp. of America v. United States, 166 
F.3d 1364, 1370-71 (Fed. Cir. 1999) (``Mag. Corp. III'').
    However, since Mag. Corp. III, the Department has changed its 
practice with respect to application of the countervailing duty 
(``CVD'') law to subsidized imports from the People's Republic of China 
(``the PRC'') and the Socialist Republic of Vietnam (``Vietnam''), 
which the Department continues to designate as NME countries for 
antidumping purposes. As explained in the CVD investigations of coated 
free sheet paper from the PRC and polyethylene retail carrier bags from 
Vietnam, the present-day Chinese and Vietnamese economies are 
sufficiently dissimilar from Soviet-style economies that the Department 
can determine whether the Chinese or Vietnamese governments have 
bestowed an identifiable and measurable benefit upon a producer, and 
whether the benefit is specific, including certain measures related to 
taxation. See Coated Free Sheet Paper from the People's Republic of 
China: Final Affirmative Countervailing Duty Determination, 72 FR 60645 
(October 25, 2007) (``CFS Paper''); ``Whether the Analytical Elements 
of the Georgetown Steel Opinion are Applicable to China's Present-Day 
Economy,'' dated March 29, 2007 (available at: http://ia.ita.doc.gov/download/prc-cfsp/CFS%20China.Georgetown%20applicability.pdf); 
Polyethylene Retail Carrier Bags from the Socialist Republic of 
Vietnam: Preliminary Affirmative Countervailing Duty Determination and 
Alignment of Final Countervailing Duty Determination with Final 
Antidumping Duty Determination, 74 FR 45811, 45813-14 (September 4, 
2009), unchanged in Polyethylene Retail Carrier Bags from the Socialist 
Republic of Vietnam: Final Affirmative Countervailing Duty 
Determination, 75 FR 16428 (April 1, 2010) (``PRCBs''), and 
accompanying Issues and Decision Memorandum at III (``Applicability of 
the CVD Law to Vietnam'').
    Pursuant to its determination that subsidies from certain NME 
governments to NME companies can be identified and measured, the 
Department has reconsidered its administrative practice that taxes paid 
by NME companies to these NME governments cannot be identified and 
measured. Specifically, the Department has proposed a change to the 
administrative practice explained in Russian Magnesium, as upheld in 
the Mag. Corp. cases, with respect to the PRC and Vietnam. See Proposed 
Methodology for Implementation of Section 772(c)(2)(B) of the Tariff 
Act of 1930, as Amended, In Certain Non-Market Economy Antidumping 
Proceedings; Request for Comment, 76 FR 4866 (January 27, 2011) 
(``Proposed Methodology''). Under that proposal, the Department, 
pursuant to section 772(c)(2)(B) of the Act, would reduce export price 
and constructed export price used in NME dumping margin calculations by 
the amount of export taxes and similar charges, including value added 
taxes (``VAT'') not rebated upon export, in less-than-fair-value 
investigations and administrative reviews of antidumping duty orders. 
Id. This methodology may later be applied to other NMEs, pursuant to a 
determination that the NME at issue is sufficiently dissimilar from 
Soviet-style economies.
    After consideration of public comments, the Department is hereby 
adopting the following methodology to implement section 772(c)(2)(B) in 
antidumping duty investigations and administrative reviews involving 
merchandise from the PRC and Vietnam.

Methodological Change

    In antidumping duty investigations and administrative reviews 
involving merchandise from the PRC and Vietnam, the Department will 
determine whether, as a matter of law, regulation, or other official 
action, the NME government has imposed ``an export tax, duty, or other 
charge'' upon export of the subject merchandise during the period of 
investigation or the period of review (e.g., an export tax or VAT that 
is not fully refunded upon exportation). The Department anticipates 
that parties would place upon the record copies of laws, regulations, 
other official

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documents, or similar publicly available information that identify the 
particular tax imposed on certain exports by the PRC or Vietnamese 
government. The Department will also consider evidence as to whether 
the particular respondent(s) was, in some manner, exempted from the 
requirement to pay the export tax, duty, or other charge. The 
Department anticipates that such evidence would include official 
documentation of the respondent's exemption.
    Provided that the NME government imposed an export tax, duty, or 
other charge on subject merchandise as contemplated by section 
772(c)(2)(B) of the Act, from which the respondent was not exempted, 
the Department will reduce the respondent's export price and 
constructed export price accordingly, by the amount of the tax, duty or 
charge paid, but not rebated. The Department anticipates that, in many 
instances, the export tax, VAT, duty, or other charge will be a fixed 
percentage of the price. In such cases, the Department will adjust the 
export price or constructed export price downward by the same 
percentage. In other instances where the tax or charge is a flat fee or 
nominal sum denominated in NME country currency, the Department will 
determine the ratio of the flat fee to the respondent's export price or 
constructed export price as denominated in its domestic currency, and 
then adjust the export price or constructed export price downward by 
the same ratio.

Analysis of Public Comments

    The Department received and carefully considered seventeen comments 
on the Proposed Methodology. Summaries of the comments, grouped by 
theme, and the Department's responses are provided below.

Selective Treatment of Internal NME Tax Transactions

    Opponents of the Proposed Methodology contend that the Department 
cannot engage in selective use of certain NME transactions for dumping 
margin calculation purposes. Those commenters argue that, if there is a 
basis to use internal NME tax transactions for antidumping margin 
calculation purposes, then there is a basis for using other internal 
NME transactions as well. Opponents of the change further suggest that 
the proposal also does not consider other cost elements that are 
presumed to be reflected in a price from a market economy country, but 
not from an NME country.
    Interests favoring the Proposed Methodology assert that, because of 
the tax-free normal values used in NME antidumping methodology 
proceedings, the proposed modification would result in a preferred tax-
neutral dumping margin calculation. Other commenters suggest that the 
Department should expand its methodological change and adjust for all 
NME taxes and charges that impact margin calculation, not just export 
taxes and VAT.
    Department's Position: In adopting this methodological change, the 
Department considers taxes levied by the Chinese and Vietnamese 
governments to be different from other internal transactions between 
companies in an NME context. Although we do not know how individual 
companies in those NME countries set prices, we do know that the 
government taxes a portion of companies' sales receipts. Consistent 
with our CVD determinations in CFS Paper and PRCBs, we can measure a 
transfer of funds between certain NMEs and companies therein, 
regardless of the direction the money flows. Given that, and given that 
we know how much respondent companies receive for the U.S. sale, we 
have determined it appropriate to take taxes into account, as directed 
by the statute. See section 772(c)(2)(B) of the Act.
    Specifically, the statute defines an NME as ``any foreign country 
that the administering authority determines does not operate on market 
principles of cost or pricing structures, so that sales of merchandise 
in such country do not reflect the fair value of the merchandise.'' See 
section 771(18) of the Act. As a result, when the Department evaluates 
whether a tax is included in the price of an NME export sale, it cannot 
take into consideration the same assumptions as those taken into 
account when performing a similar type of evaluation for a market 
economy sale, which does operate in accordance with market principles 
of cost or pricing structures. Accordingly, it is not an issue of price 
formation (i.e., whether the seller considers tax when forming price) 
because that is a market economy concept which is inapplicable by the 
very definition of an NME.
    Additionally, because these are taxes affirmatively imposed by the 
Chinese and Vietnamese governments, we presume that they are also 
collected.\1\ The unrefunded VAT or affirmatively imposed export tax 
only arises through the fact that there were export sales.
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    \1\ As stated above, the Department's methodological change 
allows individual companies the opportunity to demonstrate that the 
particular respondent(s) was, in some manner, exempted from the 
requirement to pay the export tax, duty, or other charge.
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    As a result, because the liability arises as a result of export 
sales, this is where payment originates. Therefore, to achieve what is 
called for in the statute, the gross price charged to the customer must 
be reduced to a net price received. In cases involving imports from the 
PRC or Vietnam, ``included in the price'' means whether the respondent 
has reported a price which is gross (i.e., inclusive) or net (i.e., 
exclusive) of tax. As such, if a gross price has been reported, a 
deduction must be made for those taxes imposed on the sale, and if a 
net price has been reported, deductions are not required. We note that, 
in prior cases involving imports from the PRC or Vietnam where the 
Department was aware that such a tax was imposed, it has typically been 
expressed as a percentage of the export selling price. Therefore, any 
such deduction to export price would also be performed on a percentage 
basis.
    We further note that deducting internal NME tax transactions from 
export price or constructed export price is consistent with the 
Department's longstanding policy, which is consistent with the intent 
of the statute, that dumping comparisons be tax-neutral. See 
Antidumping Duties; Countervailing Duties, 62 FR 27296, 27369 (May 19, 
1997) (citing Statement of Administrative Action accompanying the 
Uruguay Round Agreements Act, H.R. Doc. No. 103-316, vol. 1, 827, 
reprinted in 1994 U.S.C.C.A.N. 3773, 4172).
    In response to comments that the methodological change does not 
consider other cost elements that are presumed to be reflected in a 
price from a market economy country, but not from an NME country, we 
note that the new methodology does not consider other elements of cost 
or price because, pursuant to section 773(c)(1)(B) of the Act and 
consistent with the PRC's and Vietnam's Protocols of Accession to the 
World Trade Organization (``WTO''), the Department can reject internal 
costs and prices in an NME country for antidumping and countervailing 
duty purposes. What is relevant for margin calculation purposes is the 
net revenue the company ultimately receives on sales made to its U.S. 
customers, after adjusting for taxes, as provided for by the statute.

Magnesium Corp

    Certain commenters argue that the Proposed Methodology is 
inconsistent with the Federal Circuit decision in Mag. Corp. III, which 
sustained the Department's rationale for not deducting

[[Page 36484]]

export taxes from U.S. price in the Russian Magnesium investigation. 
Proponents of the proposed methodological change contend that the 
deduction for VAT, export tax, and other charges from export price or 
constructed export price is mandatory under the plain language of 
section 772(c)(2)(B) of the Act. Those parties further note that the 
Federal Circuit in Mag. Corp. III found it within the Department's 
discretion to determine whether VAT and export taxes should be deducted 
from USP. To the extent the Department's prior practice had its origins 
in the Russian Magnesium investigation, interests favoring the proposal 
assert that the current Chinese and Vietnamese economies are different 
from the Russian economy of that era in that the Department, having 
found that it can apply the CVD law to the PRC and Vietnam, is able to 
identify certain other transfers between governments and companies in 
those countries.
    Department's Position: The Federal Circuit did not find that the 
Department could not apply the relevant statutory provision in an NME 
context. It simply agreed with the Department's stated rationale at the 
time for not doing so, which the Department applied in a context 
different from the economies of the present-day PRC and Vietnam. Given 
the realities of those two economies today, the Department's 
understanding of the phrase ``if included in such price'' in section 
772(c)(2)(B) of the Act has evolved accordingly in the manner described 
above. Thus, the change in methodology is the consequence of the 
inapplicability of the reasoning of Russian Magnesium to the PRC and 
Vietnam today.

Application of CVD Law to the PRC and Vietnam

    Parties opposing the methodological change contend that the 
Department's proposal relies heavily upon the Department's analysis in 
the CFS Paper CVD investigation, which is at odds with the Department's 
previous insistence upon the distinctiveness of the antidumping and CVD 
regimes as well as the recent CIT decision in GPX Int'l Tire Corp. v. 
United States, 715 F. Supp. 2d 1337 (Ct. Int'l Trade 2010) (``GPX''), 
that calls into question the legality of applying the CVD law to the 
PRC.
    Department's Position: As discussed above, the methodological 
change does rely in part upon the Department's analysis in the CFS 
Paper investigation. Whether or not the proposal is at odds with any 
previous insistence upon the distinctiveness of the antidumping duty 
and CVD regimes, the statute requires a deduction for certain taxes 
from U.S. price. In CFS Paper and PRCBs, the Department found that it 
could identify and take into account a government-supplied subsidy in 
certain NME contexts. Given that a government imposed tax is also a 
transfer of funds between the government and a company, we have relied 
upon CFS Paper and PRCBs solely to recognize this government-imposed 
tax.
    With respect to the CIT decision in GPX cited by certain parties, 
the Department continues to apply the CVD law to the PRC and Vietnam. 
In that regard, the President on March 13, 2012, signed into law H.R. 
4105, ``To apply the countervailing duty provisions of the Tariff Act 
of 1930 to nonmarket economy countries, and for other purposes.'' H.R. 
4105 amended the Act, among other purposes, to confirm that the 
Department must apply the CVD law to subsidized imports from certain 
countries designated as NMEs under the AD laws. See section 701(f)(1) 
of the Act. The Federal Circuit has acknowledged that H.R. 4105 
overturns its earlier ruling affirming the CIT's judgment in GPX. See 
GPX Int'l Tire Corp. v. United States, 2012 U.S. App. LEXIS 9444 (Fed. 
Cir. May 9, 2012).

Allegedly Distortive Elements of the Proposed Methodology

    Some commenters argue that the proposal does not account for how 
export taxes and VATs actually operate in the PRC, thereby resulting in 
distortions.
    Department's Position: It is correct that the proposal does not 
attempt to address every aspect of the PRC's and/or Vietnam's 
respective export tax and VAT systems. This methodological change 
simply reflects that the statute calls for the Department to adjust 
U.S. price for export taxes, irrespective of whether they are levied in 
a market economy or NME context. Indeed, subsequent to implementation, 
the PRC's and/or Vietnam's VAT and export tax systems may change. We 
simply are recognizing with this methodological change that the PRC and 
Vietnam are dissimilar from Soviet-style economies, which was the 
context in which we adopted the policy not to make the adjustment for 
VAT and export taxes. As a result, we are planning to apply the 
relevant statutory provision to merchandise from the PRC and Vietnam. 
If there is a peculiarity with respect to the system or how it is 
applied in a given case, parties are encouraged to discuss it, and we 
will address those comments on a case-by-case basis.

Competitiveness of U.S. Manufacturers

    Certain parties comment that the Proposed Methodology would 
negatively affect the competitiveness of U.S. manufacturers that rely 
upon imported raw materials through likely increases in antidumping 
margins on merchandise imported from the PRC and Vietnam, thus 
undermining the objectives of the National Export Initiative (``NEI''). 
To that end, one commenter suggested that the Proposed Methodology is 
inconsistent with the United States' position in the WTO dispute 
involving Chinese restrictions on the export of raw materials (China--
Measures Related to the Exportation of Various Raw Materials, WT/DS394) 
that PRC export taxes harm U.S. manufacturers that consume PRC-origin 
merchandise. In contrast, another commenter commends the methodological 
change for advancing the objectives of the NEI.
    Department's Position: The Department disagrees that the 
methodological change undermines the objectives of the NEI. Those 
objectives focus on facilitating increased U.S. exports. Moreover, the 
enforcement of U.S. trade remedy laws is an explicit component of the 
NEI, and toward that end, tax-neutral dumping margin calculations, 
i.e., those based on VAT- and export tax-exclusive U.S. price and 
normal values, result in antidumping duties that further level the 
playing field for domestic manufacturers and increase their potential 
export competitiveness. For that reason, we disagree that there is any 
inconsistency between the Department's proposal and the United States' 
position in the WTO dispute on Chinese export restrictions. Both 
represent necessary and appropriate responses to the market- and price-
distorting effects of export taxes.
    Furthermore, this methodological change is substantively distinct 
from the positions and arguments raised by the United States in the WTO 
dispute, which were informed by particular commercial policy concerns 
related to the availability of raw materials and involved certain WTO 
rules and obligations that are not at issue here. As noted above, 
section 772(c)(2)(B) of the Act is a statutory requirement. Given the 
changes in our practice with regard to the PRC and Vietnam (i.e., the 
application of the CVD law), we are simply acknowledging that we can 
now apply section 772(c)(2)(B) of the Act in proceedings involving 
merchandise from the PRC and Vietnam to ensure tax neutrality in our 
dumping margin calculations, and make the adjustments

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that we would otherwise ordinarily make under the statute.

Implementation

    The methodological change detailed above will be applied to future 
administrative NME proceedings involving merchandise from the PRC and 
Vietnam initiated after publication of this notice.

    Dated: June 12, 2012.
Paul Piquado,
Assistant Secretary for Import Administration.
[FR Doc. 2012-14964 Filed 6-18-12; 8:45 am]
BILLING CODE 3510-DS-P