General considerations

The foreign company and its advisers should develop factual information. showing whether the domestic industry is suffering 'material injury'. Obviously, the degree of detail varies for the preliminary injury determination and the final injury determination. Some information comes from the questionnaire responses themselves, which the Commission now releases to the lawyers for the foreign company. Other information comes from independent sources, such as 10K reports submitted to the United States Securities and Exchange Commission, and newspaper articles. The Commission staff will also often make telephone calls to members of the industry in search of information.

To determine whether the industry has been materially injured, the Commission normally looks at industry trends over a three-year period ending with the initiation of the investigation. The Commission considers a wide variety of economic factors including:

- Domestic market share;

- Domestic production;

- Capacity and capacity utilization; Shipments and inventories; Employment levels;

Profitability;

- Ability to raise capital; and

- Expenditures on research and development.

No single factor is determinative, so it is difficult to predict the Commission's decision in any particular case.

Most of this information is drawn from the questionnaire responses prepared by the domestic industry. Note that while the Commission tries to collect this information for the particular product under investigation, sometimes it is not possible to do so. The Commission is authorized to collect this data on a broader product-line basis, including the particular product under investigation, if that is the only information maintained by the United States companies.

Factors to consider

Domestic market share

If domestic consumption is rising while the domestic industry's market share is deteriorating, there is a strong possibility that imports are replacing sales by the United States industry. The Commission will probably find that the domestic industry is suffering material injury. A decrease in domestic consumption of the like product, however, could mean that there is an independent cause for the domestic industry's difficulties - obsolescence, changing taste, or shifting demand. In such a case, the Commission is less likely to find material injury. Whether consumption is rising or falling, the key factor is the domestic industry's market share. Falling market share is a strong indication of material injury.

Domestic production

The Commission examines domestic production figures to understand the industry trends over the period of investigation. The Commission also relates the production figures to other factors. For example, if the domestic industry decreased production without a tangible, market-based reason, this unilateral action would explain a decrease in capacity utilization, shipments, and employment and the Commission would be less likely to find material injury. If the domestic industry cuts production because of surging imports, the Commission is more likely to find material injury.

Capacity and capacity utilization

The Commission examines capacity and capacity utilization to determine the rate at which the industry is operating. If capacity remains unchanged while capacity utilization drops dramatically, this factor indicates deterioration in the condition of the domestic industry. If the domestic industry has overexpanded its capacity, however, the Commission may interpret low-capacity utilization differently. The problems would result from the industry's own actions, not from material injury caused by imports.

Shipments and inventories

Shipment levels and inventory levels are related. When a company stops shipping, and begins to build up inventory, the Commission considers this shift to be evidence of material injury. The number of shipments made by the domestic industry, and especially the trend in shipments, is a sign of an industry's health. Conversely, a build-up of inventory would show that the industry is suffering.

Employment levels

A decrease in employment, like a drop in capacity utilization, shows the Commission that the domestic industry is not operating at full strength. Unemployment - measured both in number of workers employed and total number of hours worked - is considered by the Commission as strong evidence of material injury. Given the protectionist nature of the dumping law, and political significance of employment levels, it is not surprising that the United States law and the Commission's practice place a great deal of emphasis on this factor.

Profitability

The Commission examines the effects of any price suppression on the profitability of the domestic industry. A drop in profitability is a sign of material injury. Profitability also affects many of the other factors that the Commission considers. Falling profitability (especially losses) often causes domestic companies to lay off workers, and to reduce R&D expenditures. Historically, profitability has been one of the most important factors the Commission considers.

Ability to raise capital

If an industry is suffering, lenders usually are more reluctant to make funds available to it. The Commission thus looks to the judgement of these lenders in assessing the condition of the domestic industry. Companies that have trouble borrowing money are more likely to be considered materially injured.

Expenditures on research and development

The Commission must also examine the domestic industry's expenditures on R&D in assessing the condition of the domestic industry. Although this is not a central factor of the analysis, a need to decrease R&D spending is an indication that the domestic industry is suffering injury. In investigations of high-tech products, this factor takes on more importance.

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