1. LEGAL PROVISIONS

 

Section 9A (1) (c) of the Customs Tariff Act, 1975:

 

“(c) “normal value”, in relation to an article, means –

 

     (i) the comparable price, in the ordinary course of trade, for the like article when destined for consumption in the exporting country or territory as determined in accordance with the rules made under sub-section (6); or

 

     (ii) when there are no sales of the like article in the ordinary course of trade in the domestic market of the exporting country or territory, or when because of the particular market situation or low volume of the sales in the domestic market of the exporting country or territory, such sales do not permit a proper comparison, the normal value shall be either-

 

          (a) comparable representative price of the like article when exported from the exporting country or territory to an appropriate third country as determined in accordance with the rules made under sub-section (6); or

 

           (b) the cost of production of the said article in the country of origin along with reasonable addition for administrative, selling and general costs, and for profits, as determined in accordance with the rules made under sub-section(6)

 

          (c) Provided that in the case of import of the article from a country other than the country of origin and where the article has been merely transhipped through the country of export or such article is not produced in the country of export or there is no comparable price in the country of export, the normal value shall be determined with reference to its price in the country of origin1.

 

Annexure I of the AD Rules provides for detailed methodology for determination of normal value:

 

“ANNEXURE  I

 

Principles governing the determination of normal value, export price and margin of dumping

 

The designated authority while determining the normal value, export price and margin of dumping shall take into account inter alia, the following principles:

 

1. The elements of costs referred to in the context of determination of normal value shall normally be determined on the basis of records kept by the exporter or producer under investigation, provided such records are in accordance with the generally accepted accounting principles of the exporting country, and such records reasonably reflect the cost associated with production and sale of the article under consideration.

2. Sales of the like product in the domestic market of the exporting country or sales to a third country at prices below per unit (fixed and variable) costs of production plus administrative, selling and general costs may be treated as not being in the ordinary course of trade by reason of price. The designated authority may disregard these sales, in determining normal value, provided it has determined that:

 

     (i) such sales are made within a reasonable period of time (not less than six months) in substantial quantities, i.e. when the weighted average selling price of the article is below the weighted average per unit costs or when the volume of the       sales below per unit costs represents not less than twenty percent of the volume sold in transactions under consideration, and

     

     (ii)such sales are at prices which do not provide for the recovery of all costs within a reasonable period of time. The said prices will be considered to provide for recovery of costs within a reasonable period of time if they are above weighted average per unit costs for the period of investigation, even though they might have been below per unit costs at the time of sale.

 

3. (i) The said authority in the course of investigation shall consider all available evidence on the proper allocation of costs, including that which is made available by the exporter or producer provided that such allocation has been historically utilized by the exporter or producer, in relation to establishing appropriate amortization and depreciation periods and allowances for capital expenditure and other development costs.

 

(ii) unless already reflected in allocation of costs referred to in clause (1) and sub-clause (i) above, the designated authority, will also make appropriate adjustments for those non- recurring items of cost which benefits further and/or current production, or for circumstances in which costs during the period of investigation are affected by startup operation.

 

4. The amounts for administrative, selling and general costs and for profits as referred to in sub-section (1) of section 9A of the Act,   shall be based on actual data pertaining to production and sales     in the ordinary course of trade, of the like article by the exporter     or producer under investigation. When such amounts cannot be determined on this basis, the amounts may be determined on the basis of:

 

       (i) the actual amounts incurred and realised by the exporter or producer in question, in respect of production and sales in the domestic market of the country of origin of the same general category of article;

  the weighted  average  of  the  actual  amounts  incurred and  realized  by  other  exporters  or  producers  subject    to investigation in respect of production and sales of the like article in the domestic market of the country of origin; or

 

        (ii) any other reasonable method, provided that the amount for profit so established shall not exceed the profit normally realized by the exporters or producers on sales of products of the same general category in the domestic market of the country of origin.

 

5. The designated authority, while arriving at a constructed export price, shall give due allowance for costs including duties and taxes, incurred between importation and resale and for profits.

 

6. (i) While arriving at margin of dumping, the designated authority shall make a fair comparison between the export price and the normal value. The comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at as nearly as possible the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are demonstrated to affect price comparability.

 

(ii) In the cases where export price is a constructed price, the comparison shall be made only after establishing the normal value at equivalent level of trade.

 

(iii) When the comparison under this para requires a conversion of currencies, such conversion should be made by using the rate of exchange on the date of sale, provided that when      a sale on foreign currency on forward markets is directly linked to the export sale involved the rate of exchange in   the forward sale shall be used. Fluctuations in exchange rates shall be ignored and in an investigation the exporters shall be given at least sixty days to have adjusted their export prices to reflect sustained movements in exchange rates during the period of investigation.

Subject to the provisions governing comparison in this paragraph, the existence of margin of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value and export prices on a transaction-to-transaction basis. A normal value established on a weighted average basis may be compared to prices of individual export transactions if it is found that a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.

 

(7) In case of imports from non-market economy countries, normal value shall be determined on the basis of the price or constructed value in a market economy third country, or the price from such a third country to other countries, including India, or where it is not possible, on any other reasonable basis, including the price actually paid or payable in India for the like product, duly adjusted if necessary, to include    a reasonable profit margin. An appropriate market economy third country shall be selected by the designated authority in a reasonable manner keeping in view the level of development of the country concerned and the product in question and due account shall be taken of any reliable information made available at the time of the selection. Account shall also be taken within time limits; where appropriate, of the investigation if any made in similar matter in respect of any other market economy third country. The parties to the investigation shall be informed without unreasonable delay the aforesaid selection of the market economy third country and shall be given a reasonable period of time to offer their comments.

 

8. (1) The term “non-market economy country” means any country which the designated authority determines as not operating on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise, in accordance with the criteria specified in sub- paragraph (3).
There shall be a presumption that any country that has been determined to be, or has been treated as, a non-market economy country for purposes of an anti-dumping investigation by the designated authority or by the competent authority of any WTO member country during the three year period preceding the investigation is a non-market economy country.

 

(2) Provided, however, that the non-market economy country or the concerned firms from such country may rebut such a presumption by providing information and evidence to the designated authority that establishes that such country is not a non-market economy country on the basis of the criteria specified in sub-paragraph

 

(3).The designated authority shall consider in each case the following criteria as to whether:

 

(a) the decisions of concerned firms in such country regarding prices, costs and inputs, including raw materials, cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand and without significant State interference in this regard, and whether costs of major inputs, substantially reflect market values;

 

(b) the production costs and financial situation of such firms   are subject to significant distortions carried over from the former non-market economy system, in particular in relation to depreciation of assets other write-offs, barter trade and payment via compensation of debts;

 

(c) such firms are subject to bankruptcy and property laws which guarantee legal certainty and stability for the operation of the firms, and

 

(d) the exchange rate conversions are carried out at the market rate:

Provided, however, that where it is shown by sufficient evidence in writing on the basis of the criteria specified in this paragraph that market conditions prevail for one or more such firms subject to anti-dumping investigations, the designated authority may apply the principles set out in paragraphs 1 to 6 instead of the principles set out in paragraph 7 and in this paragraph.

 

(4) Notwithstanding anything contained in sub-paragraph (2), the designated authority may treat such country as market economy country  which,  on  the  basis  of the latest detailed evaluation of relevant criteria, which includes the criteria specified in sub- paragraph  (3),  has  been,  by  publication of such evaluation in a public document, treated or determined to be treated as  a market economy country for the purposes of anti-dumping investigations, by a country which is a Member of the World Trade Organisation.

 

2. OPERATING PRACTICES

 

Annexure- I of the Rules provide the principles governing the determination of normal value, export price and margin of dumping which is required to be determined for each of the responding and co-operative producer exporter who have exported to India during the POI.

 

The consideration of normal value depends, in large part, on the availability of a “comparable price in the ordinary course of trade”3.However, this requires application of ordinary course of trade test. To apply the test of ordinary course of trade, the determination of Cost of Production is essential. This test is normally called 80: 20 test, the details of which are mentioned in subsequent paragraphs.

 

The normal value is required for initiation of investigation, which is based on the information provided in the application by the DI. However, subsequently after initiation of investigation, the normal value is determined on the basis of the responses of the co-operating producer exporter from the subject country(ies) received during the course of investigation.

 

Pre-Initiation

 

A petition seeking initiation of investigation should be accompanied with complete information in the prescribed formats duly signed and certified. This information forms the basis for computation of normal value for the purpose of initiation of investigation.

 

As per application proforma prescribed for DI and Trade Notice 15/2018 dated 22.11.2018, each application seeking initiation of anti-dumping investigations should inter-alia be accompanied with the following information/documents:

 

1. Soft Copy of the application

 

2. Direct evidence of domestic selling price in the exporting country, if available

 

3. In case direct evidence is not available, reasonable other evidence of the prevailing selling price in the exporting country

 

4. In case of non-availability of the domestic selling price in the country of export, then Constructed Normal Value be provided along with the methodology for the calculations

 

5. The detailed reasons in case of the claim that any of the exporting country is alleged to be operating in non-market conditions

 

The investigation team is required to prima facie confirm the adequacy and accuracy of information in terms of Rule 5 of the AD Rules.

 

Post-Initiation:

 

The determination of normal value is solely based on the fact of responding producer exporter submitting complete response and satisfying the eligibility tests.

 

After notification of initiation of investigation, the producer exporters are required to submit the EQ Ralong with the certified formats as notified vide Trade Notice No. 05/2018 dated 28.02.2018 within the stipulated time. The responding producers/exporters are inter-alia required to submit the following information/ documents for workings of the normal value:

 

 

1. Listing of domestic sales transactions for the PUC along with adjustments – Appendix 4A, 4B and 4C

 

2. Listing of exports to India for the PUC along with adjustments and supporting evidences/ justification - Appendix-3A, 3B and 3C

 

3. In case of PCNs, the sale listing should be as per PCNs.

 

4. Details of complete sales of the entity as per Appendix 4A, 4B, 4C

 

5. Details of all channels of sales

 

6. Detailed listing of sales transactions of PUC with related party along with evi- dence of arm’s length pricing – Appendix 11.

 

7. Sample sales invoices for POI

8. Detailed information for computation of COP

 

Generally, one normal value is determined for each of the co-operative producer exporter for the POI as whole. However, in some cases monthly or quarterly normal value may also be determined especially in case of volatile market for the product. Normal Value in such cases should be determined month wise or quarter wise based on the relevant information submitted by the co-operative producer exporter for computation of accurate dumping margins. However, for quantification of duties to be recommended as per the Rules, the result of analysis done on transaction wise, weekly, monthly, quarterly or yearly should be converted into one weighted average dumping margin.

 

3. NORMAL VALUE DETERMINATION

 

The first step in normal value determination is examination of the questionnaire response filed by the producers and exporters. If the response is complete and accepted by the Authority then the mandatory eligibility tests are applied as detailed below:

 

Eligibility Tests

 

There are three basic tests to be applied for qualification of a response to be accepted for determination of normal value:

 

i. Low Volume of Sales or Sufficiency Test (5% test);

ii. Sales in the Ordinary Course of Trade (80-20 test); and

iii. Particular Market Situation.

Low Volume of Sales or Sufficiency Test

 

The test of low volume of sales, is conducted by calculating the total sales made by the exporter in question to India during the POI4.

 

For the purpose of assessing “low volume of sales”, the team is required to consider the total volume of domestic sales by the relevant producer exporter and if these domestic sales constitute 5% or more, of the sales to India in volume terms for all the PCNs/grades/models taken together, then the same can be accepted for the purpose of normal value determination. If the overall PUC sales in domestic market are 5% or more of the total exports to India, it is assumed to have passed the test.

 

In case there is low volume or insufficient (less than 5%) sales volume, the eligibility test is “failed” and the Authority would be constrained to determine the normal value based on comparable representative appropriate third country export price or on cost to make and sell and reasonable profits. In such a case, the principles discussed under the heading of Constructed Normal Value must be considered.

 

Sales in the Ordinary Course of Trade

 

Once sufficiency test is passed, the team should carry out OCT test. The subject goods or like articles are considered to be sold in ordinary course of trade if they are sold at a price which is not less than the cost of those goods such that costs are recoverable within a reasonable period.

 

(i) For assessing whether transactions are made in the “ordinary course of trade”, the following is to be examined for determination whether the sales are made at a loss:

 

     (a) Determination of the domestic cost to make and sell the subject goods (see subsequent paragraphs for determination of cost to make and sell (COP))

 

     (b) Comparison of COP with the transaction wise domestic sales to determine the volume of sales at loss,

 

(ii) Application of Ordinary Course of Trade Test (OCT Test): the steps mentioned below are to be followed for application of OCT test:

 

     (a) The basic documents for this test are Appendices 4A, 4B and 4C in producer exporter’s QR pertaining to the Domestic Sales in the Exporting Country and the COP of the producer exporter.

 

     (b) All the workings should be done in the Excel Sheet and preserved for records.

 

     (c) At the first instant, the team should compare the transaction wise per unit selling price (SP) with per unit COP of the subject goods for the POI.

 

     (d) If all the sales transactions are in profit or the profit making transactions are more than 80% of the total volume sold in the domestic market, then all the transactions are considered for determination of Normal Value by computing a per unit weighted average of all the domestic sales.

 

     (e)If the volume of loss making transactions in 20% or more of the total volumes old in the domestic market, then the team should discard all the loss-making transactions from the sales listing given in Appendix- 4A, 4B and 4C leading to determination of the normal value.

 

(iii) In those cases where PCNs have been notified, 80:20 test is to be applied again at PCN level.

 

(iv) As a matter of practice, all those sales which are not in the ordinary course of trade for reasons other than price should also be removed even before carrying out the OCT test.

 

(v) The team should assess the OCT keeping both figures – unit SP and unit COP of the subject goods,at the same level of trade. This means the comparison should at ex-factory to ex-factory cost or total cost to total selling price.

 

(vi) Sales at a loss is not the only factor for deciding whether sales are in the ordinary course of trade or not. There may be sales transactions which are not in the ordinary course of trade on account of factors such as:

 

(a) sales to affiliated parties that are not at arm’s length;

 

(b) sales where there is any consideration payable for or in respect of the goods other than price; or

 

(c) sales where the price is influenced by other than commercial relationship between the buyer, or an associate of the buyer, and the seller, or an associate of the seller; or

 

(d) sales where there is a direct or indirect compensatory arrangement whereby some part of the consideration shall be reimbursed or adjusted; or

 

(e) sales where the merchandise is custom-produced according to unusual product specifications;

 

(f) sales where the merchandise is sold at aberrational prices; or

 

(g) sales where the merchandise is sold pursuant to unusual terms of sale.

 

(h) Sale price is artificially low.

 

Particular Market Situation

 

The term “particular market situation” as used in Rule 9A(1)(c)(ii) has not been defined or explained in the Act or in the Rules. Therefore, the term should be understood with reference to the given market situation only and not any other factor. Such market situation can only be considered which are unique and do not permit proper comparison. There could be conditions in the market which render sales in that market not suitable for use in determining prices such a government control over the prices, different price pattern, etc.

 

Normal Value  for Cooperative Producer  Exporter

 

Once the eligibility tests have been passed, the normal value of the cooperative producer exporters may be determined based on the eligible domestic sales transactions.

 

The invoice prices are duly adjusted to arrive at ex-factory works price. The producer exporters may claim adjustments relevant for fair comparison. The onus of claiming and proving the validity of the additional claims of adjustments lies with the producer exporter making such a claim.

 

In a case where Producer sells through a related trader to Unrelated Customer, then the price paid by the Unrelated Customer should be considered as selling price after due adjustments for SG&A and profits of the Trader to arrive at the ex-factory price.

 

In case the producer(s) is a part of a group separate normal value for each producer is to be determined and a weighted average of NV for the entire group is then determined. There can be several scenarios as detailed below:

 

i. In a case where all goods are being sold through a group entity, the normal value shall be based on sale price to un-related customer by such related trader.

 

ii. If a producer(s) in the group sell directly in the domestic market and also exports directly as well as sells through a related trader(group entity), in such a case, the normal value shall be determined based on his direct domestic sales to unrelated parties (as given in Appendix 4A) and also domestic sales to unrelated parties by the related trader (Appendix 4C read with Appendix 4B). The sales are to be duly adjusted for profits & direct & indirect SG&A expenses as per the evidence provided and verified.

 

iii. In a case where a Group of Producers/producer exporter sells in the domestic market through a related trader/group entity, who is like an extended arm of the producer, then profit & indirect SGA expenses of the related trader should not be reduced while arriving at the normal value provided it can be demonstrated that the related trader is acting as a sales department for the producer i.e. if producer is selling the product in domestic market solely through said trader and the said trader also deals solely with the products of the group entity. The logic behind this is that if producer would have set up a separate export sales department within its own producing company, then no such adjustment of profit and indirect SGA expenses would have been made.

 

An exhaustive listof various adjustments which are to be made in Normal Value for arriving at ex- factory selling price is mentioned as below. All the elements may or may not be present in each case. Hence, adjustments will also be made after examining the actual facts pertaining to the subject goods for each transaction. The various kinds of adjustments are:

 

Any and all figures correlating to the indirect taxes and duties, such as sales tax, turnover tax, service tax, etc.;

 

- Level of Trade Adjustments;

- Credit Cost;

- Bank Charges

- Quantity Discounts,

- Other Discounts and Rebates;

- Inland freight

- Insurance charges

- charges directly associated with movement of the goods to the purchaser

- logistics and handling charges ,

- documentation fees

- Packing Charges;

- Commissions;

- Warehousing  expenses;

- Royalties; and

- Advertising and Sales Promotion expenses.

 

In addition to the foregoing, there may be other adjustments claimed on account of any other factor that may be allowed if it affects the price comparability. One of the prerequisites for allowing such an adjustment is that the difference should be quantifiable.

 

Appendix 2 indicates the details of purchase and sale of PUC (traded goods). These details should not be used for normal value determination as these PUC are not manufactured by the said producer exporter and the cost to make and sell will not cover these quantities. Traded goods exported by any producer are also required to be disclosed in Appendix 3A, 3B and 3C.

 

COP for Cooperative Producer Exporter

 

COP is determined for domestic sales of PUC by each of the co-operative producers in the country of export. If a company has domestic sales as well as export sales and the cost is different in both kinds of sales, it may be preferable to allocate costs to domestic sales of PUC and export sales of PUC separately. Income from the export sales shall not be considered for COP workings.

 

COP should reasonably reflect the costs of production associated with the like articles appearing in the books of account maintained by the producer / exporter

 

COP has to be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.

 

The team should consider all available evidence on the consistency and reasonability of allocation of costs, particularly in relation to R&D Costs, amortisation and depreciation and allowances for capital expenditures. The COP also includes indirect selling, general and administrative expenses. No profit margin is added in costs.

 

COP is worked out for domestic sales during POI and no optimization is generally done. However, necessary adjustments may be required in case of extraordinary situations.

 

The aim of the determination of COP is not to be a reflection of an “ideal cost” or “suitable” cost. Rather, the COP should be such that it reflects the actual cost of production for a specific producer exporter during POI. The cost cannot be increased to notionally compensate for the subsidies provided by the exporting country;

 

Where transactions with related parties have been reported with regard to consumption of inputs/utilities/services etc., the team must examine if such transactions are carried out at arms-length. Where it is determined that the transactions are not at arms-length, the same may need to be adjusted to ensure that they reflect market values. It may be clarified that the related party transactions of both types; namely purchase and sale are to be reflected in Appendix 11. Sales of by-products, scrap, PUC etc. may also be relevant for the investigations;

 

In case of single economic entities, indirect SGA expenses of related trading entity shall be added to COP for OCT Test because COP would be compared with the SP of the related trading entity;

 

Cost of procurement of traded goods, if any must be compared with the cost of self-manufactured products. In case of variations, reasons must be looked into for such variations;

 

In case of multiple product companies, the expenses to the extent identified to each of the products are to be directly allocated to the respective product cost;

 

Common expenses or overheads, which are not directly related to any specific product are to be apportioned on a reasonable or scientific basis (see para below);

 

The team will collect a copy of the audited accounts including balance sheet etc. along with information as indicated in point 7 and 8 of the Part-IV of Trade Notice 05/2018 dated 28th February 2018 and confirm that the figures of COP are broadly in conformity with the Records;

 

All certifications, wherever required, must be done by the practicing accountant of the subject country, who is having the certificate of practice in that country and is conversant with accounting laws, rules and standards applicable in that country;

 

The cost of Raw Materials, Packing Materials and Utilities etc. as indicated in Appendix 6 shows the total quantity and value of each major raw material, packing material, utilities consumed in the production of PUC. It also indicates per unit consumption of all major raw materials/packing materials/utilities during the period along with weighted average rates of consumption during POI and the previous accounting period. The major points to be noted here are:

 

i. Opening and Closing Stock of raw materials ideally should also include the quantity and value of work-in-progress stock lying on shop floor. However, this information is sometimes not available with the producer exporter especially when POI is different from the normal financial/ accounting year of the company. Therefore, there may be no alternative but to ignore the same based on assumptions that (i) quantity/amount involved may not be high; or (ii) there may not be substantial difference between opening stock and closing stock lying at production floor;

 

ii. The total value of actual consumption of raw material and utilities for PUC during POI and previous year should generally reconcile with the total raw material/ utility consumption in Appendix-7/Appendix-8 for PUC. The corresponding figures should reconcile with Appendix-5 also, in case, these costs are separately shown in Appendix-5;

 

iii. The actual year wise per unit consumption of raw materials/inputs during POI be compared with the previous year. Any wide variation in figures must be examined;

 

iv. Purchase rates of related party procurements should be confirmed based on arm’s length pricing. Detailed data (for determining price base) and supporting documents should be collected along with rates of similar products procured from non-related parties. The comments of the Statutory Auditors and requirements of Accounting Standard should be seen from the Audited Annual Accounts regarding the arm’s length pricing;

 

v. Records of relevant related companies/parties may also be seen to confirm that the purchase price of items purchased from such related parties during POI and during the injury period is comparable to the corresponding sale price charged by the said Related Parties from the non-related customers during the said period. In the case of utilities, the sale price is generally published and is reflected on the web site also. The comments of the Statutory Auditors are to be seen from the Audited Annual Accounts regarding the arm’s length pricing of the related party transactions, which are furnished by the applicant in Appendix-11;

 

vi. Similarly, if the inputs are captively produced as well as purchased from non- related parties, the rates must be compared to arrive at the reasonability of the prices charged for captive consumption;

 

vii. Appendix-6 is also required to be verified from the source documents maintained by the producer exporter. Some of the purchase invoices of various raw materials/utilities are also required to be collected and compared with the annual weighted average price reflected in Appendix-6 to ensure that the weighted average price does not vary widely from the purchase price as per sample invoice. If it varies widely, reasons of such variations may be ascertained;

 

viii. Sometimes, the procurement rates vary widely from day to day or month to month. The monthly consumption rate may need to be worked out in such a case with scope for monthly/quarterly COP;

 

ix. Allocation and Apportionment of expenses as indicated in Appendix-7 is one of the most critical tasks for costing. The same methodology needs to be applied in case of Appendix-5 also. There is one format for one PUC for the entire company in any investigation. Different units are reflected by way of creating multiple columns in the same format. In other words, if a company has three units manufacturing the PUC, separate column shall be created in this Format for each such entity. This facilitates separate COP for each of the units based on its own efficiency and performance. The expense heads are indicative and can be changed/modified based on the uniqueness of any investigations. It may be added that separate columns need to be added for each major utility and captively consumed product to ensure verification and availability of complete details. This also ensures that the pricing of all inputs is at arm’s length pricing. The following are the major points to be seen:

 

a. The revenue and expenditure of the company as a whole as per audited accounts/certified records is reconciled with expenses for the company as a whole. The expenses are then allocated/apportioned to various plants producing PUC, common utilities and non-PUC etc. There will preferably be a separate column for each major common utility. Major captive inputs/utilities should have separate columns to help verification of their costs. These common utilities and captive consumptions are then apportioned to PUC/Non-PUC through secondary allocation. The basis of allocation should be as direct as possible, and a reasonable one, which is consistently followed by the company;

 

b. The basis of allocation adopted for allocation or apportionment of common expenses or joint expenses is very critical for the COP computations. The basis of allocation should be as direct as possible and a reasonable one;

 

c. The basis of allocation adopted for allocation or apportionment of common expenses or joint expenses should be as direct as possible and a reasonable one;

 

d. If more than one products are coming out of any manufacturing process, where costs can’t be identified, it may be more prudent to allocate costs on the basis of:

 

- production value (sales value of the production) basis;

- any other reasonable basis. For example, if all the products emerging out of any such process have almost similar volume and value, production quantity method could also be adopted;

 

e. If direct costs constitute a significant portion of overall costs, the common expenses/overheads not linked to any specific product can also be allocated in the ratio of product wise direct costs;

 

f. Expenses in the nature of Selling Expenses should preferably be allocated on the basis of turnover of each product of the company;

 

g. In case the Books of Accounts of the producer reflects interest free loans, due adjustments need to be made in such cases to reflect the fair cost;

 

h. If the entity has done some trading activity or job work during POI, a proportionate amount of overheads or share of other common expenses must be allocated to this activity. Similarly, if the corporate office deals with all organizations within a group, reasonable expenses must be allocated to all the constituents of the group including income/investments in group companies. The reasonability of the basis adopted for allocation must be verified by the investigation team;

 

i. Total costs under respective heads for Allocation of Selling, General and Administration Overheads as indicated in Appendix-9  should reconcile with other Appendixes also like Appendix-5, Appendix-7 and Appendix-8;

 

j.Performance Parameters of Co-operative producer as indicated in Appendix-1 indicate the performance parameters of the respective producer exporter for PUC only. The information furnished in this Format forms the basis for analysis. It is the duty of the investigation team to ensure that all the information is as per the audited/certified records of the company;

 

k. PCN wise summarized statement of expenses is indicated in Appendix-10. This information is furnished with respect to POI only for PCN wise production quantity, sales quantity, total raw material cost, the total cost of utilities, total direct labor cost, other expenses, and total cost. The team should look into the basis of cost allocation to different PCNs along with confirmation as to whether there is different bill of materials for each PCN or not?

 

l. Sometimes, it is seen that the exports to India are in bulk quantities, whereas domestic sales are sold in small packing. The COP for bulk and retail sale is generally worked out separately, since packing cost can be a significant component of cost. Export quantities (not sold domestically) are generally not considered for COP workings;

 

m. In case there are more than one entity under any group producing the PUC which may be sold directly or indirectly, in such a case COP needs to be determined for each of the producing entity separately. This COP is to be used for applying 80/20 test for respective entity individually.

 

4. NV ON THE BASIS OF APPROPRIATE THIRD COUNTRY   EP

 

For application of the option of selection of appropriate third country in terms of section 9A(1)(c)(ii)(a) of the Act, a suitable surrogate country may be selected to the extent that data is available and considered reliable. However, it has inherent complexities with respect to selection of an “appropriate third country” for comparison. If this method is relied upon, efforts should be made to ensure that the country so selected is comparable in terms of volume, pricing, status of development, etc.

 

5 NORMAL VALUE  FOR NON-MARKET ECONOMY PRODUCERS /   EXPORTERS

 

Annexure I of the Rules provides guidance for determination of the normal value with respect to producers and exporters from non-market economy countries as well.

 

The relevant part of the Rules, Annexure I is reproduced below:

 

“7. In case of imports from non-market economy countries, normal value shall be determined on the basis of the price or constructed value in a market economy third country, or the price from such a third country to other countries, including India, or where it is not possible, on any other reasonable basis, including the price actually paid or payable in India for the like product, duly adjusted if necessary, to include a reasonable profit margin. An appropriate market economy third country shall be selected by the designated authority in a reasonable manner keeping in view the level of development of the country concerned and the product in question] and due account shall be taken of any reliable information made available at the time of the selection. Account shall also be taken within time limits; where appropriate, of the investigation if any made in similar matter in respect of any other market economy third country. The parties to the investigation shall be informed without unreasonable delay the aforesaid selection of the market economy third country and shall be given a reasonable period of time to offer their comments.

 

8. (1) The term “non-market economy country” means any country which the designated authority determines as not operating on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise, in accordance with the criteria specified in sub-paragraph (3).

 

(2) There shall be a presumption that any country that has been determined to be, or has been treated as, a non-market economy country for purposes of an anti-dumping investigation by the designated authority or by the competent authority of any WTO member country during the three year period preceding the investigation is a non-market economy country.

Provided, however, that the non-market economy country or the concerned firms from such country may rebut such a presumption by providing information and evidence to the designated authority that establishes that such country is not a non-market economy country on the basis of the criteria specified in sub-paragraph (3).

 

(3) The designated authority shall consider in each case the following criteria as to whether:

 

(a) the decisions of concerned firms in such country regarding prices, costs and inputs, including raw materials, cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand and without significant State interference in this regard, and whether costs of major inputs, substantially reflect market values;

 

(b) the production costs and financial situation of such firms are subject to significant distortions carried over from the former non-market economy system, in particular in relation to depreciation of assets other write-offs, barter trade and payment via compensation of debts;

 

(c). such firms are subject to bankruptcy and property laws which guarantee legal certainty and stability for the operation of the firms, and

 

(d) the exchange rate conversions are carried out at the market rate:

Provided, however, that where it is shown by sufficient evidence in writing on the basis of the criteria specified in this paragraph that market conditions prevail for one or more such firms subject to anti- dumping investigations, the designated authority may apply the principles set out in paragraphs 1 to 6 instead of the principles set out in paragraph 7 and in this paragraph.

 

4. Notwithstanding anything contained in sub-paragraph (2), the designated authority may treat such country as market economy country which, on the basis of the latest detailed evaluation of relevant criteria, which includes the criteria specified in sub-paragraph (3), has been, by publication of such evaluation in a public document, treated or determined to be treated as a market economy country for the purposes of anti-dumping investigations, by a country which is a Member of the World Trade Organisation.”

 

In the case of producers/exporters from countries considered to be non- market economy, the said producer exporter may claim that it functions under market conditions. For establishing the same, the producer / exporter has to file a separate supplementary Questionnaire Response seeking Market Economy Treatment (MET). The MET Response has to be assessed and if satisfied, the data can be accepted for determination of the Normal Value for that producer / exporter. However, where the response is not satisfactory with respect to the MET claims of the producer / exporter, the data of the said party may be discarded for NV determination.

 

The Authority may follow one of three methodologies prescribed under Rule 7 for determination of the normal value:

 

i. On the basis of the price or constructed value in a market economy third country;

 

ii. On the basis of the price from such a third country to other countries, including India;

 

iii. Where the options listed above are not feasible, on the basis of “any other reasonable basis”, including the price actually paid or payable in India for the like product, duly adjusted if necessary, to include a reasonable profit margin.

 

For application of first and second option mentioned above, a suitable surrogate country may be selected to the extent the data is available and considered reliable. However, it has inherent complexities with respect to selection of an “appropriate third country” for comparison. If this method is relied upon, efforts should be made to ensure that the country so selected is comparable in terms of volume, pricing, status of development, etc.

 

For application of the third option mentioned above, i.e., “any other reasonable basis”, the team should rely on the data of the DI for constructing the normal value as suitable, including certain adjustments pertaining to the raw material prices by taking the international raw material prices into consideration and the inclusion of 5% profit, as considered practical. Where more than one Indian domestic producers have submitted data, the constructed normal value, as a matter of practice, should be based on the data of the most efficient domestic producer (based on cost of production excluding returns) for calculation of cost of production.

 

6. CONSTRUCTED NORMAL VALUE (CNV)

 

Where the NV cannot be determined on the basis of QR of the co-operative producer exporter, then the Authority has to resort to CNV as discussed below:

 

The Authority may follow the methodology given under Section 9A(1) (c)(ii)(b) in which the cost of production, along with reasonable additions for administrative, selling and general costs and for profits for construction of NV. The construction of COP and SG&A is done on best available information at the disposal of the Authority.

 

In cases, where there is no response from any producer or exporter is filed, then normal value has to be calculated on the basis of the best information available. The key elements for Constructing Normal Value are:

 

i. DI’s cost of production of the like articles;

 

ii. Selling, general and administrative costs that would have been incurred had the goods sold in the domestic market of the exporting country; and

 

iii. An amount for profit that the exporter would have earned had the goods sold in the domestic market.

 

In the cases where the response is incomplete, or the responding producer is declared non co-operative or operating under non market conditions, then CNV is computed with norms of the DI or the norms of most efficient domestic producer. The various elements and steps for computation are:

 

i. Consumption norms of the most efficient applicant Indian domestic producer are considered;

 

ii. International prices of raw material are obtained from the World Trade Atlas or from other authentic sources of international repute, preferably published by the Government Authority of the exporting country. The raw materials prices could also be adopted from the records of the DI, if they are using imported raw materials, but adjustments with regard to freight, custom duty and other related expenses must be made to arrive at the cost of said raw material in the country of export;

 

iii. Conversion cost is taken from the most efficient producer in terms of weighted average cost excluding profits;

 

iv. A profit at the rate of 5% of the cost of production is also added as normative return;

 

 

v. Another adjustment, which may be considered is the cost of packing, to arrive at same level as is sold by the producer exporter in their domestic market and export market;

 

vi. In case exported product are at 50% concentration/strength/potency, the cost of production of the DI needs to be adjusted to be made comparable with the goods of the producer exporter. The same will be true if the PUC is of lesser concentration/strength and imports are comparatively of higher concentration/strength;

 

vii. Similarly, if there are differences in terms of sale like difference in credit terms etc, the CNV also will have to be adjusted accordingly. However, if credit cost has been adjusted in export price, no adjustment may be made in constructed normal value;

 

viii. It may be noted that CNV is worked out at ex-factory level. Therefore, other adjustments done in the NV like VAT refund etc. are not to be done in case of CNV.

 

7. DISCLOSURE OF NV TO THE RESPECTIVE PRODUCER

 

Rule 16 of the Rules provides that the designated authority shall, before giving its final findings, inform all interested parties of the essential facts under consideration which form the basis for its decision. Since the NV workings are one of the essential facts based on data furnished by the respective producer, also with workings, the finally computed NV should be disclosed to the respective co- operative producer. This provides them an opportunity to submit their comments/ views on the disallowances/adjustments or the facts considered by the Authority in determination of NV. Detailed procedure for disclosure is explained in the relevant Chapter of this manual.

 

In case the Normal value is constructed on the basis of cost of production of the DI (duly adjusted) and the DI is composed of single producer, then CNV will be treated as confidential and not to be disclosed to the producer.

 

Source: Manual Of Operating Practices For Trade Remedy Investigations