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ANTIDUMPING DUTIES

The Administrative Process

 Related Importer and Producer

A special report by RIGGLE & CRAVEN

Antidumping Duty issues need to be examined from 2 different perspectives - that of the foreign producer and that of the related U.S. importer.  The nature of any relationship between the U.S. importer and the foreign manufacturer determines which sales examined in the antidumping process.  If the two entities are determined to be related, then the sales transactions between the two entities are ignored.  In such case, the U.S. sales examined are those sales to the first unrelated purchaser in the United States .  While this price is normally higher than the transfer price, the selling expenses in the U.S. ,  including U.S. warehousing and transportation are normally deducted.

Related Producers and importers share a common interest in obtaining the lowest possible rate.  Both have responsibilities in the review, and while the responsibilities are not identical, the success is dependent upon mutual participation.  The financial exposure of the related producer and importer will depend, to a large extent, on the nature of the relationship.

How Does The United States Determine Who Is Related?

The determination as to whether two parties are related is specifically addressed by the statute and the regulations.  It is a test that examines control, both de facto and de jure, and ownership. It includes members of a family, including brothers, sisters, spouses, ancestors and lineal descendents; officers and directors, partners, employer and employee, any person owning, directing or controlling 5% of the voting stock, two or more organizations under common control or other means of control.  The key is whether the person alleging to control both entities is in a position to exercise restraint or direction.

In interpreting this portion of the statute and regulations, Commerce has on occasion found a lack of a relationship between two companies owned by blood relatives due to lack of control.  On other occasions, they have found control notwithstanding a lack of common ownership.  The determination is very fact specific, although if any indicia of control is present or if the ownership or blood relationship percentages are met, it is more likely than not that the entities will be found to be related.

The Foreign Producer       

Summary:    The foreign producer has the greatest control over the antidumping process and has a significant part of the burden of responding to the Department Questionnaires.  The direct financial exposure depends on the nature of the relationship between the producer and the related U.S. entity.  The primary risk is the loss of U.S. Customers and perhaps the entire U.S. market to the related subsidiary, but there are also some financial risks including the loss of any investment in the U.S. related party.  

The Review Process:      Antidumping duties are normally based on a comparison between actual sales prices in the home market or third country market and sale prices in the U.S. market.  Essentially the dumping margin is determined by measuring the amount by which adjusted prices in the U.S. market are below those adjusted prices in the comparison market.  The amount of the underselling is then placed over the total value of sales to the U.S. market to determine the relevant percentage. 

In the case of a related imported and foreign producer, the U.S. sale which is examined is that from the importer to its U.S. Customers.  This is the examination of the first unrelated sale.  This process can be complicated where the producer has more than one U.S. importer, one of which is related and one of which is not.  In such case, some sales examined will be the sales between the producer and the U.S. based unrelated importer and other sales examined will be the sale from the related U.S. importer to its customer. In these cases, two data bases may need to be prepared and then combined.

These amounts are calculated either in the internal investigation or in an Aannual review@ process.  An annual review is an administrative process in which the U.S. Department of Commerce issues a complex multipart questionnaire to the foreign producer and the related U.S. importer.  This questionnaire seeks a sale by sale reporting for all transactions in the comparison market and the U.S. market including various selling and transportation factors and adjustments.  The questionnaire also seeks detailed information about the structure and organization of the producer, its relationships with other entities and the cost of production of the goods.

This information submitted is subject to a process called verification. Verification is the equivalent of a tax audit and can be performed by the Department of Commerce to verify the accuracy of the information submitted.  Verifications are either passed or failed.  The Department is not required to conduct a verification, but such verifications often occur in both investigations and reviews.  A failure of verification is a serious matter with significant adverse consequences while passing a verification does not ensure a low rate. Notwithstanding Department claims to the contrary, verifications are never beneficial to foreign producers.  The determination that a verification has been failed can be based on any number of reasons, such as a failure to report certain sales, failure to identify a related supplier, failure to properly report a production cost, or other failure to fully cooperate.  In such case the Department assigns a Afacts available@ rate as a substitute for the calculated rate.  Depending on the nature of the failure, this rate is either a cooperative or uncooperative facts available rate.  The facts available rates are arbitrary rates based on results from prior reviews or investigations.  It is a substitute for the actual rate where the actual rate cannot be determined.  While normally high, it is not a penalty or fine and is an ordinary duty treated in same fashion as other ordinary customs duties.

Financial Impact: The Foreign producer faces no direct financial consequences from the result of any review.  Antidumping duties are the sole obligation of the importer of record and can only be paid by the importer of record.  The antidumping duty law expressly forbids the refunding or rebating of the antidumping duties, whether directly or indirectly, by the foreign producer and any such refunds or rebates must be turned over to the U.S. government by the importer of record as additional duties.  In the case of related importer and manufacturer the issues of absorption also may arise and additional investments or payments by the producer to the related importer should be examined before they are made. The foreign producer does face indirect financial consequences as a high antidumping duty rate could adversely impact its importer-customers, would make its product less appealing in the U.S. market and could raise into question its reputation as a reliable supplier.

The Related U.S. Importer

Summary :   The Related U.S. Importer has significant control over antidumping duties and also bears the most immediate and serious financial consequences for a high rate.

The Review Process:      The U.S. importer makes entry of its merchandise and deposits estimated antidumping duties based on the producer=s rate.   If no review is requested by the U.S. industry, the importer or the foreign manufacturer, then the entry will be liquidated and the duties previously deposited will be collected.  If a review is requested the U.S. importer and the foreign producer each receive a questionnaire and must provide a detailed and coordinated response as to sales of product to unrelated entities.  The expenses incurred in the importation and sale of the goods in the U.S. are also collected and provided.  After this information is collected and processed, the Department issues a preliminary determination listing the preliminary rates. After the preliminary determination, the Department receives comment from the parties on any corrections to the calculations errors in fact or law, and on any other errors and mistakes.  After considering these comments, the Department issues a final determination.  Upon publication in the Federal Register the new rate becomes the deposit rate until publication of the final results for the next period.  If the decision is not challenged in court, then the entries liquidate at the new rate.

Financial Impact:    The U.S. importer is exposed to the most recent direct financial consequences of any review.  The Customs Service will seek to collect any additional duties which may be due from the importer and the importer will also be responsible for depositing the estimated duties at the time of entry. Further, it is the importer that has to deal with the price and supply uncertainties and in satisfying the demands of its customer.

In sum, antidumping duty reviews significant burden on foreign producers and their related importers. Strategies need to be established to enable the smooth resolution of the issues created and to obtain the most economically efficient results.

RIGGLE & CRAVEN and its affiliates have experience in representing a wide range of foreign producers and related and unrelated U.S. importers  in antidumping proceedings and are ready to assist in developing a strategy to respond to Department Questionnaires and obtain the lowest possible rate from the Department.  The key to a low rate is advance preparation and the proper structuring of the import transactions.

The law firm of RIGGLE & CRAVEN is providing this as part of a commitment to advise of recent developments which are of importance to the international trade community.   Permission to reproduce, photocopy, reprint or excerpt this advertising material is granted provided the source is attributed to RIGGLE & CRAVEN.  The information provided is in summary form and we urge readers to confirm any conclusions reached before taking action based on it.