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.

SUPPLEMENTARY INFORMATION:

Background

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). 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.

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. In October 2010, the Department modified this interim methodology to limit the averaging to industry-specific wage rates.

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, 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.

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

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 deadlines.

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 unsupported.

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 surrogate.

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. 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).

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 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”). 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. 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. 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 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 proceeding.

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.

Implementation

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