The Current "Factors of Production" Methodology Should Not Be
Adopted As The Exclusive Means of Determining Dumping in
Nonmarket Economy Cases______________________________
Occidental Chemical Corporation and Philipp Brothers
strongly oppose the use of the "factors of production"
methodology as the exclusive means of determining whether
nonmarket economy ("NME") imports are dumped into the United
States. First, of all of the methodologies available under
current law, application of this methodology potentially yields
the most arbitrary results. Second, it provides no guidance for
U.S. producers seeking to determine whether to file an
antidumping case or for exporters or importers seeking to
structure trade between the U.S. and an NME. Further, enactment
of this cost-based approach as the sole methodology is contrary
to the theory and law of antidumping.
Under the "factors of production" methodology in NME
cases, Commerce obtains verified factors of production (quantity
of inputs, such as labor hours, quantities of raw materials, and
energy consumed) incurred in producing the merchandise in the NME
under investigation and values the factors in a market economy
deemed reasonably comparable to the NME. This methodology
incorporates the worst aspects of the surrogate methodology as
well as the many problems with valuing inputs. As with the
surrogate methodology, results may vary dramatically simply based
on the country that Commerce determines to be reasonably
comparable to the NME. Commerce has virtually unfettered
discretion in selecting the comparable country, which can be
determinative of the outcome in a case. Moreover, selection of
the comparable country can be influenced by political and
diplomatic factors totally unrelated to the merits of the case.
Especially given the total discretion Commerce has in
valuing inputs, the "factors of production" approach often yields
wholly artificial results that bear no relation to the underlying
economic realities. Distortions can result because Commerce has
the discretion to use
(1)
a value for an input that broadly applies to all
industrial sectors (or to other industries that
are not under investigation), which differs
substantially from the actual value of the
input in the industry under investigation;
(2)
two different countries to value the inputs of a
product under investigation; and
(3)
values in a country that does not even produce the
merchandise under investigation.
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The recent urea case from the German Democratic Republic provides
a good example of the wildly disparate margins that can result
from the value that Commerce chooses to use for an input: The
preliminary margin of 144.11 percent was reduced to 44.8 percent
in the final determination principally due to the application of
a different value for a single input. Only if Commerce uses
actual, verified values of a market economy producer comparable
in size and technological efficiency to the NME producers under
investigation could the factors approach yield a rational and
fair result. Unfortunately, in past cases Commerce has instead
relied principally on broad economic data that has not reflected
the actual values of the industry under investigation.
Obviously, a methodology that permits Commerce to use a
wide range of values for inputs, most of which do not remotely
approximate the underlying economic realities of the industry
under investigation, cannot provide guidance to U.S. producers
seeking to determine whether to file an NME antidumping case or
importers or exporters trying to structure trade between the U.S.
and NMEs. These parties have no idea which country Commerce will
deem to be reasonably comparable and the types of values (e.g..
broadly applicable, published data or company or industryspecific data) Commerce will choose. While advocates of this
approach argue that the * factors of production*' is a more
reliable methodology because it utilizes the actual factors
incurred by the NME in producing the merchandise under
investigation, any potential benefit is more than offset by the
use of values for those inputs that do not remotely approximate
actual values in the industry under investigation. The need for
guidance and predictability is one of the major reasons why
reform of the antidumping law is needed, and yet the "tactors'*
approach does not provide any better predictability than current
law.
Further, the use of the cost-based " factors'* approach
as the exclusive methodology is contrary to the theory and law of
antidumping. Simply put, antidumping law is directed at price
discrimination between national markets. Consistent with this
theory, U.S. antidumping law is premised on a comparison of home
or third country ex-factory market prices with U.S. ex-factory
prices; cost of production is used only as a last resort if the
foreign producer is selling below cost in its home or third
country markets or home or third country prices are otherwise
unavailable. Further, costs are not necessarily indicative of,
and, indeed, may be unrelated to, prices because of the influence
of market or other forces. Thus, it is totally inappropriate to
use a cost-based approach as the initial and exclusive means of
ascertaining dumping in NME cases.
Given these serious deficiencies with the "factors"
methodology, it makes no sense whatsoever to amend the law to
provide it as the sole methodology in NME antidumping cases. If
this were the sole alternative to current law under
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consideration, then it would be far preferable not to amend the
law. Current law, with all of its weaknesses, at least gives
Commerce the discretion to choose among various methodologies
surrogate home market prices, surrogate third country prices,
surrogate cost-of-production, U.S. import prices, and factors of
to determine which of the methodologies would
production
produce the most rational results given the particular
circumstances of the case. Moreover, current law enables
Commerce, consistent with antidumping law, to consider prices as
an initial basis for determining whether there is dumping.