Once a cost allegation has been filed, the foreign company and its lawyers usually have some time to respond. Sometimes the Commerce Department acts on the allegation almost immediately, without waiting for any comments from the various parties. In most cases, however, the Commerce Department allows comments. There are several possible bases for attacking the cost allegation.

First, if the petitioner files the allegation late, this fact should be pointed out to the Commerce Department. The petitioner may attempt to file a late allegation and to rationalize the lateness. Where possible, the foreign company should rebut any excuses offered by the petitioner.

Second, when preparing a cost allegation, the petitioner must provide the Commerce Department with 'reasonable grounds' for believing that sales in the home market or in third countries are at prices below the cost of producing the merchandise. It is not enough to show that a few isolated sales (i.e. less than 20%) are below cost. Although there is a legal dispute over whether the petitioner must show that 'substantial' sales are below cost as a threshold matter, current practice requires a showing that many sales are below cost as part of its determination of whether there are 'reasonable grounds'.

Moreover, the evidence offered to support the allegation must be reasonably specific. The Commerce Department has rejected allegations based on general newspaper articles about rising costs, or allegations based on general information from a financial statement that is not specific to particular products. The allegation must be based on actual home market prices of the exporters under investigation. The Commerce Department has, however, accepted allegations based on the cost information of a single company and applied that evidence to other companies also involved in the investigation. It has also accepted allegations based entirely on the cost information of the domestic industry, modified to reflect the foreign industry's costs.

Foreign companies should make the strongest arguments possible against the Commerce Department initiating a cost investigation. They should argue about both the basis for the cost information and the number of sales that appear to be below cost. If the allegation is based on the petitioner's costs, it may be possible to persuade the Commerce Department to verify (or at least briefly investigate) the petitioner's costs, especially if there is some doubt about their reliability.

It is important to remember, however, that the Commerce Department's standard for initiation is not very high. Although the standard for initiating a cost investigation is higher than the standard for initiating an anti-dumping case in general, the evidence of sales below cost does not need to be compelling or convincing, only 'reasonable'. In most cases, the Commerce Department decides to initiate cost investigations. It may ultimately find that the evidence does not support the claim that substantial sales are below cost, but it will undertake the investigation.

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures