[Federal Register Volume 76, Number 119 (Tuesday, June 21, 2011)]
[Pages 36092-36094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-15464]



International Trade Administration

Antidumping Methodologies in Proceedings Involving Non-Market 
Economies: Valuing the Factor of Production: Labor

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

ACTION: Announcement for change in methodology.


SUMMARY: This notice addresses the methodology used by the Department 
of Commerce (``the Department'') to value the cost of labor in non-
market economy (``NME'') countries. After reviewing all comments 
received on the Department's interim, industry-specific wage 
calculation methodology that is currently applied in NME antidumping 
proceedings, the Department has determined that the single surrogate-
country approach is best. In addition, the Department has decided to 
use International Labor Organization (``ILO'') Yearbook Chapter 6A as 
its primary source of labor cost data in NME antidumping proceedings.

FOR FURTHER INFORMATION CONTACT: Christopher Mutz, (202) 482-0235, 
Office of Policy, Import Administration, Julia Hancock, (202) 482-1394, 
Office of Antidumping and Countervailing Duty Operations, Import 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230.



    Section 733(c) of the Tariff Act of 1930, as amended (``the Act''), 
provides that the Department will value the factors of production 
(``FOP'') in NME cases using the best available information regarding 
the value of such factors in a market economy (``ME'') country or 
countries considered to be appropriate by the administering authority. 
The Act requires that when valuing FOP, the Department utilize, to the 
extent possible, the prices or costs of factors of production in one or 
more ME countries that are (1) At a comparable level of economic 
development, and (2) significant producers of comparable merchandise. 
See section 773(c)(4) of the Act.
    Previously, the Department used regression-based wages that 
captured the worldwide relationship between per capita Gross National 
Income (``GNI'') and hourly manufacturing wages pursuant to 19 CFR 
351.408(c)(3).\1\ However, on May 14, 2010, the Court of Appeals for 
the Federal Circuit (``CAFC''), in Dorbest Ltd. v. United States, 604 
F.3d 1363, 1372 (Fed. Cir. 2010) (``Dorbest''), invalidated 19 CFR 
351.408(c)(3). As a consequence of the CAFC's ruling in Dorbest, the 
Department no longer relies on the wage rate methodology described in 
its regulations.

    \1\ The Department's regulations at 19 CFR 351.408(c)(3) 
provided that: For labor, the Secretary will use regression-based 
rates reflective of the observed relationship between wages and 
national income in market economy countries. The Secretary will 
calculate the wage rate to be applied in nonmarket economy 
proceedings each year. The calculation will be based on current 
data, and will be made available to the public.

    In July 2010, the Department adopted an interim wage calculation 
methodology that averages wages across countries that are both 
economically comparable and significant producers of merchandise 
comparable to the subject merchandise.\2\ In October 2010, the 
Department modified this interim methodology to limit the averaging to 
industry-specific wage rates.\3\

    \2\ See Certain Woven Electric Blankets From the People's 
Republic of China: Final Determination of Sales at Less Than Fair 
Value, 75 FR 38459 (July 2, 2010) (``Blankets From the PRC '') and 
accompanying Issues and Decision Memorandum at Comment 13.
    \3\ Between July 2010 and October 2010, the Department 
implemented an interim wage rate methodology that reflected a simple 
average of national wage rates from countries found to meet both 
criteria under section 733(c)(4) of the Act. Industry-specific data, 
if available, are now the presumptive surrogate data used in the 
Department's calculations. See Certain New Pneumatic Off-the-Road-
Tires From the People's Republic of China: Preliminary Results of 
Antidumping Duty Administrative Review, 75 FR 64259 (October 19, 
2010) (``Tires From the PRC ''); See also Certain Activated Carbon 
From the People's Republic of China: Final Results and Partial 
Rescission of Second Antidumping Duty Administrative Review, 75 FR 
70208 (November 18, 2010) (``Activated Carbon Final'') and 
accompanying Issues and Decision Memorandum at Comment 4f.


[[Page 36093]]

    On February 18, 2011, the Department published a notice in the 
Federal Register requesting comment on the means by which it can best 
capture all relevant costs in its wage rate calculation in NME 
antidumping proceedings,\4\ in response to concerns about labor cost 
undercounting and the interim methodology. As part of this request, the 
Department invited comments on (1) The labor cost calculation 
methodology and (2) labor cost data sources.

    \4\ See Antidumping Methodologies in Proceedings Involving Non-
Market Economies: Valuing the Factor of Production: Labor; Request 
for Comment, 76 FR 9544 (February 18, 2011).

    The Department subsequently received comment from the following 
parties: (1) Armstrong World Industries (``Armstrong''); \5\ (2) 
Southern Shrimp Alliance; (3) Domestic Producers; \6\ (4) Domestic 
Interested Parties; \7\ (5) Ministry of Commerce of the People's 
Republic of China (``MOFCOM''); and (6) Vietnam Association of Seafood 
Exporters and Producers (``VASEP'').

    \5\ Armstrong is a domestic manufacturer of floors, ceilings, 
and cabinets.
    \6\ American Honey Producers Association, American Spring Wire 
Corp., Christopher Ranch, LLC, Council Tool Company, Inc., DAK 
Americas, LLC, East Jordan Iron Works, Inc., The Garlic Company, 
Insteel Wire Products Company, Neenah Foundry Company, Nashville 
Wire Products, Inc., Norit Americas Inc., SGL Carbon LLC, Sioux 
Honey Association, Superior SSW Holding Co., Inc., Sumiden Wire 
Products Corp., U.S. Foundry & Manufacturing Co., Valley Garlic, and 
Vessey and Company.
    \7\ American Furniture Manufacturers Committee for Legal Trade 
and its individual members; the Polyethylene Retail Carrier Bag 
Committee and its individual members; the Laminated Woven Sacks 
Committee and its individual members; U.S. Magnesium LLC; and 
Bridgestone Americas, Inc. and Bridgestone Americas Tire Operations, 

Statement of Policy

    Based on the submissions the Department received in response to its 
request for comment, the Department has revised its labor cost 
calculation methodology in NME antidumping proceedings. In NME 
antidumping proceedings initiated on or after the date of publication 
of this Federal Register notice, the Department will base labor cost on 
ILO Chapter 6A data applicable to the primary surrogate country, rather 
than the Chapter 5B it currently uses. For ongoing NME proceedings, the 
Department expects to consider on a case-by-case basis whether it is 
feasible to implement the new labor methodology within statutory 

A. Single Surrogate Country Wage Rate

    Due to the variability in wage rates among economically comparable 
MEs, the Department has tried to include wage data from as many 
countries as possible that were also economically comparable to the NME 
and significant producers of comparable merchandise, within the meaning 
of section 773(c)(4) of the Act. Following the Federal Circuit's 
decision in Dorbest, the Department attempted to balance its desire for 
multiple data points with the statutory requirements that FOP data be 
from countries that are both economically comparable and significant 
producers. See section 773(c)(4)(A) and (B) of the Act. While the 
amount of available data was more constrained as a result of the 
Dorbest decision, the Department determined that the industry-specific 
interim methodology still provided the best available wage rate because 
it allowed for multiple data points, and adhered to the constraints set 
forth in the statute. Under this methodology, the Department considered 
countries that exported comparable merchandise to be ``significant 
producers.'' However, in Shandong Rongxin, the U.S. Court of 
International Trade (``CIT'') found the Department's sole reliance on 
exports alone to define ``significant producers'' impermissible and 

    \8\ See Shandong Rongxin Import & Export Co., Ltd. v. United 
States, Slip Op. 11-45 (April 21, 2011) (``Shandong Rongxin'').

    The Department has carefully considered the ``significant 
producer'' prong of the statute (section 773(c)(4)(B) of the Act) in 
light of the CIT's decision in Shandong Rongxin, where the court 
imposed an even further restriction on the ``significant producer'' 
definition. Upon careful examination of our options in light of 
Shandong Rongxin, we consider that any alternative definition for 
``significant producer'' that would also be compliant with the court's 
decision would unduly restrict the number of countries from which the 
Department could source wage data. We therefore find that the base for 
an average wage calculation would be so limited that there would be 
little, if any, benefit to relying on an average of wages from multiple 
countries for purposes of minimizing the variability that occurs in 
wages across countries. Therefore, in light of both the Federal 
Circuit's decision in Dorbest, and the CIT's recent decision in 
Shandong Rongxin, we find that relying on multiple countries to 
calculate the wage rate is no longer the best approach for calculating 
the labor value.
    Accordingly, the Department finds that using the data on industry-
specific wages from the primary surrogate country is the best approach 
for valuing the labor input in NME antidumping duty proceedings. It is 
fully consistent with how the Department values all other FOPs, and it 
results in the use of a uniform basis for FOP valuation--a single 

B. ILO Chapter 6A Data Source

    The Department currently uses ILO Chapter 5B data in its NME labor 
input cost calculations. Unlike Chapter 6A data that reflects all costs 
related to labor including wages, benefits, housing, training, etc., 
Chapter 5B data reflects only direct compensation and bonuses. The 
Department also adjusts, when possible, the calculated factory overhead 
ratio to reflect all indirect labor costs (e.g., employee pension 
benefits, worker training) itemized in the company's financial 
statement.\9\ While the Department's ability to identify and adjust for 
indirect labor costs depends on the information available on the record 
of the specific proceeding, when the Department is able to make the 
necessary adjustments, both direct and indirect labor costs are 
accounted for. See Antidumping Methodologies: Market Economy Inputs, 
Expected Non-Market Economy Wages, Duty Drawback; and Request for 
Comments, 71 FR 61716, 61721 (October 19, 2006).

    \9\ See Folding Metal Tables and Chairs From the People's 
Republic of China: Final Results of Antidumping Duty Administrative 
Review, 71 FR 2905 (January 18, 2006) and accompanying Issues and 
Decision Memorandum, at Comment 1.

    When indirect labor costs items are not itemized and not (by 
definition) reflected in Chapter 5B data, a concern with under-counting 
arises. While there are some cases in which available information 
permits the Department to make adjustments that ensure a full and 
complete accounting of all direct and indirect labor costs, there are 
many other cases in which data constraints preclude such adjustments. 
For this reason, the Department has decided to change to the use of 
Chapter 6A data, on the rebuttable presumption that Chapter 6A data 
better accounts for all direct and indirect labor costs. In their 
comments, MOFCOM and VASEP argue that use of ILO Chapter 6A would 
result in overstating labor costs. To address this concern, the 
Department will adjust

[[Page 36094]]

the surrogate financial ratios when the available record information--
in the form of itemized indirect labor costs--demonstrates that labor 
costs are overstated. The Department notes that the use of a single 
surrogate country for labor input valuation purposes renders moot 
concerns expressed by MOFCOM and VASEP that ILO Chapter 6A data is only 
available for a limited number of countries.

Calculation of Labor Surrogate Value

    Pursuant to the comments received and the Department's analysis 
thereof, the Department will value the NME respondent's labor input 
using industry-specific labor costs prevailing in the primary surrogate 
country, as reported in Chapter 6A of the ILO Yearbook of Labor 
Statistics. The following explains this single country wage rate 
methodology in more detail.
    The ILO collects labor cost data by country and industry, which is 
reported on the basis of the United Nations' International Standard 
Classification of All Economic Activities (``ISIC'').\10\ The industry-
specific data is revised periodically, and not all revisions report 
data for all industries. The Department will make every attempt to 
identify and review relevant industry-specific wages in the primary 
surrogate country that are as contemporaneous as possible with the 
period of investigation. To determine the most appropriate labor cost 
data to use, the Department applies a number of filters.\11\ The 
Department inflates the selected earnings data to the year that covers 
the majority of the period of the proceeding using the relevant 
Consumer Price Index.\12\ Next, the Department converts the inflation-
adjusted hourly wage rate data for the surrogate country, which is 
denominated in that country's national currency, to U.S. dollars using 
annual exchange rates \13\ as reported by the International Monetary 
Fund (``IMF'')'s International Financial Statistics (``IFS'') for the 
year that covers the majority of the period of investigation or review. 
The Department will then use this hourly earnings rate, denominated in 
U.S. dollars, to value the NME respondent's cost of labor for that 

    \10\ The ISIC identifies different industry classifications. The 
ISIC provides industry classifications by section (i.e., A--
Agriculture, hunting, and forestry), then at the two-digit division 
level (i.e., 01A--Agriculture, hunting, and related service 
activities), then further sub-detail at the three-digit major group 
level (i.e., 011--Growing of crops; market gardening; horticulture), 
and sometimes a four-digit group level (i.e., 0111--Growing of 
cereals and other crops, nec.). There are explanatory notes at the 
two-digit division level, three-digit major group level, and four-
digit group level that provide a detailed list of the industries 
covered in and excluded from each classification. The ISIC also has 
different revisions of this classification system: Rev. 2 (1968); 
Rev. 3 (1989); Rev. 3.1 (2002); and Rev. 4 (2008).
    \11\ The Department sorts the ILO data based on data parameters 
in the following order:
    1. ``Sub-classification,'' i.e., If there is no industry-
specific data available for the surrogate country within the primary 
data source, i.e., ILO Chapter 6A data, the Department will then 
look to national data for the surrogate country for calculating the 
wage rate;
    2. ``Type of Data,'' i.e., reported under categories 
compensation of employees and labor cost. We use labor cost data if 
available and compensation of employees where labor cost data are 
not available;
    3. ``Contemporaneity,'' i.e., the Department uses the most 
recent earnings/wage rate data point available;
    4. The unit of time for which the wage is reported. The 
Department selects from the following categories in the following 
hierarchy: (1) per hour; (2) per day; (3) per week; or (4) per 
month. Where data is not available on a per-hour basis, the 
Department converts that data to an hourly basis based on the 
premise that there are 8 working hours per day, 5.5 working days a 
week and 24 working days per month.
    \12\ See http://www.imfstatistics.org/imf.
    \13\ The exchange rate for each country is obtained from the 
IMF's IFS database by selecting: (1) ``Economic Concept View''; (2) 
``Country Exchange Rates''; (3) ``National Currency per US$ (Per 
Avg)''; and (4) ``RF.ZF NC/US$, Period Average.''

    Finally, the Department will determine whether the facts and 
information available on the record warrant and permit an adjustment to 
the surrogate financial statements on a case-by-case basis. If there is 
evidence submitted on the record by interested parties demonstrating 
that the NME respondent's cost of labor is overstated, the Department 
will make the appropriate adjustments to the surrogate financial 
statements subject to the available information on the record. 
Specifically, when the surrogate financial statements include 
disaggregated overhead and selling, general and administrative expense 
items that are already included in the ILO's definition of Chapter 6A 
data, the Department will remove these identifiable costs items.


    The approach detailed above will be applied to ongoing 
administrative NME proceedings where the statutory deadlines permit.

    Dated: June 10, 2011.
Ronald K. Lorentzen,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 2011-15464 Filed 6-20-11; 8:45 am]