Section 773(c)(1)(B) of the Act states that . . . the valuation of the factors of production shall be based on the best available information regarding the values of such factors in a market economy country or countries considered to be appropriate by the administering authority. Section 773(c)(4) of the Act adds that the Department shall utilize to the extent possible . . . prices . . . in one or more market economy countries that are (A) at a level of economic development comparable to that of the nonmarket economy country, and (B) a significant producer of comparable merchandise. The terms comparable level of economic development, comparable merchandise, and significant producer are not defined in the statute. The Department’s regulations at 19 CFR 351.408, however, do provide some guidance. Furthermore, pursuant to 19 CFR 351.408(c)(2), the Department normally will value all factors of production in a single surrogate country if possible.
If more than one country has survived the selection process to this point, the country with the best factors data is selected as the primary surrogate country. A country that perfectly meets the requirements of economic comparability and significant production is of little use as a primary surrogate if crucial factor price data from that country are inadequate or unavailable. In assessing data and data sources, it is the Department’s practice to use period-wide price averages, prices specific to the input in question, prices that are net of taxes and import duties, prices that are contemporaneous with the period of investigation or review, and publicly available data. In addition, the source of the data must be insulated from conflicts of interest.24
Data collected or produced by an interested party, or on behalf of an interested party, should be avoided.
If an analyst is unable to find a significant producer of comparable merchandise in one of the countries deemed to be economically comparable to the NME country, the analyst should consult with the assigned program manager, and the Office of Policy, to consider other possible surrogate countries.
For further information, see
Import Administration Policy Bulletin 04.1
, March 1, 2004.
C. Calculation of NV Based on FOP
Overview of Surrogate Valuation
19 CFR 351.408(c)(1) provides that the Department will normally use publicly available information to value the factors of production. The Department’s regulations further instruct the Department to normally value all factors in a single surrogate country. See 19 CFR 351.408(c)(2). Thus, the Department relies, to the extent possible, on publicly available information from the first choice, or primary, surrogate country to value all factors of production (with the exception of labor). See the Surrogate Country Selection section, above.
If there is no reliable information from the primary surrogate country for a particular factor, the Department will attempt to use publicly available data from another surrogate country. See e.g.
, Certain Cased Pencils from the People’s Republic of China: Final Results and Partial Rescission of Antidumping Duty Administrative Review
, 67 FR 48612 (July 25, 2002), and accompanying Issues and Decision Memorandum
, where the Department had to use a financial statement from a secondary surrogate country because it had no usable financial statement from the primary surrogate country.
There are two notable exceptions to the application of surrogate values to an NME producer’s factors of production. First, where the NME producer purchases a particular input from a market economy producer during the POI or period of review (“POR”), and the purchase is paid for in a market economy currency, the Department normally will use the price paid by the NME producer to value that input. See
19 CFR 351.408(c)(1) and the Market-Economy Inputs section, below. Where a portion of the input is purchased from a market economy supplier and the remainder from an NME supplier, the Department normally will value the factor using the price paid to the market economy supplier. Id
. Second, the Department values the NME producer’s labor input by reference to a regression-based wage rate that effectively reflects data from a number of countries, rather than a single country. See
19 CFR 351.408(c)(3)
When selecting possible surrogate values for use in an NME proceeding, the Department’s preference is to use, where possible, a publicly available value which is: (1) an average non-export value; (2) representative of a range of prices within the POI/POR or most contemporaneous with the POI/POR; (3) product-specific; and (4) duty and tax-exclusive.25 Accordingly, the Department has articulated a preference for using official import prices rather than domestic prices to value the respondent’s reported inputs because import prices, unlike domestic prices, do not include domestic taxes.26 In general, import prices also have the advantage of representing a large number of transactions, although some of them may not be of the exact same factor reported by the respondent. This potential drawback of import prices, whereby the surrogate import price encompasses a broader range of goods than the specific factor of the respondent is commonly known as the basket problem. As long as the use of the average price for the HTS category does not result in significant distortion to the calculation of NV, import prices are often more appropriate than individual company- or transaction-specific prices. Commerce explained in its final determination that it chose Indian import statistics because they were more reliable,’ as they were based on the sum of all imports into India during the POI.’27
In its calculation of the overall import price into a surrogate country, however, the Department excludes prices of imports from NME countries and from countries that provide general export subsidies, as well as prices which it deems to be aberrational. Moreover, the Department prefers, whenever possible, to use country-wide data and only to resort to company-specific information when country-wide data are not available.28
Factors of production include, but are not limited to, hours of labor required
, quantities of raw materials used, amounts of energy and other utilities consumed. See
section 773(c)(3) of the Act. Material inputs are measured in the number of physical units used in the production of one unit of the subject merchandise, e.g.
, tons, pounds, gallons. Labor is measured in terms of hours. Energy is measured in terms of quantities used, e.g.
, BTUs (gas), kilowatt hours (electricity), and gallons (fuel oil).
The NME questionnaire requires information on the quantity of inputs actually used to produce the subject merchandise in the NME. If the NME exporter did not produce the subject merchandise (e.g.
the exporter is a trading company), the Department will normally require factors information from each of the producers supplying that trading company with exports of the subject merchandise to the United States. For each of those models or product types of the subject merchandise that were exported to the United States, the producer must supply aggregate factor data, including information on any portion of the production that was destined for other markets. Where there is more than one producer of a model or product type, the Department will calculate NV for each producer, and then calculate a weighted-average exporter-specific NV to compare with U.S. price. Where there are a large number of producers involved in the production of the merchandise, the Department may limit the questionnaire to only the largest producers.
Valuation of Materials, Labor, and Energy
Interested parties have the opportunity to submit factor values in each segment of a proceeding. The Department may conduct its own research to find appropriate surrogate values. Where the Department has several surrogate values from which to choose, it makes its selection based on the quality and contemporaneity of the data.
A primary consideration is the extent to which the surrogate factor price corresponds to the NME factor of production. In many cases, an exact match is not possible, e.g.,
the Department must match no. 2 fuel oil to the price of no. 4 fuel oil, or the Department must use the price of a basket of goods that includes, but is not limited to, the NME factor. Another consideration is that the Department generally values factors of production using prices contemporaneous with the POI/POR, regardless of when the subject merchandise was actually produced.29
If the values are not contemporaneous with the POI/POR, the Department must adjust them using wholesale price indices from publicly available sources. Moreover, to the extent possible, the Department uses tax- and duty-exclusive factor prices.
The Department has a strong preference for using publicly available prices to value factors.30
Further, factor values should be prices that are broadly available in the surrogate economy.31
For example, if the Department has information on what a particular producer pays for an input and also has information on what producers economy-wide pay for the same input
, the Department would choose the latter (all other things being equal). The Department generally does not use price quotes because they are usually not publicly available and are often not contemporaneous with the POI/POR.32
As a result, the criteria or history that led to those quotes is unknown and easily subject to manipulation. Furthermore, the market price might fluctuate significantly over time.
Where the Department cannot develop publicly available data in the surrogate country
, the Department uses data from other sources, including sources in other appropriate surrogate countries.
To obtain a material cost figure, the Department multiplies the surrogate value by the factor input quantity. If a by product or a co product is generated in the manufacturing process, the Department allows a credit for it in accordance with generally accepted accounting principles. See the “By-Product Offsets” section, below. When the by-product can be recycled into the production process of the subject merchandise as a factor of production, the respondent may have already reflected the recycling in the usage rate of that factor of production. The Department must ensure that the by-products credit is not counted twice.
Total materials cost is calculated on a delivered-to-producer basis. Thus, the Department’s questionnaire requests that producers report the distance and mode of transportation from the materials supplier to the producer. Moreover, when the surrogate value for the material is based on import prices, the Department uses the shorter of (a) this reported distance or (b) the distance from the nearest port to the producer to value the materials transportation in the surrogate country, and include this materials transportation value in the total materials value. Because of the litigation from which this practice arose, this materials transportation value is sometimes referred to as the Sigma
The Department values labor hours using regression-based wage rates (see 19 CFR 351.408(c)(3)) that are posted on the IA web page and updated annually. The Department calculates direct labor costs by multiplying the labor hour input by the regression-based wage rate.
If indirect labor is included in the surrogate value for factory overhead (see
below), it need not be valued separately. If, however, it is not included in the surrogate value for factory overhead, it should be valued as part of labor.
Energy and Utilities
Most production processes use a variety of energy sources. These may include electricity, natural gas, oil or water. The Department values these inputs by determining the amount of each energy source or utility used in the production process and applying the appropriate per-unit surrogate values.
If energy is not an important production factor it may not be necessary to quantify this input separately. In this situation, energy may be included in the surrogate value for factory overhead (see
below). If it is included in overhead, the analyst should be aware so as not to double count energy and utilities.
For information on particular situations regarding intermediate inputs and inputs supplied free of charge by the U.S. customer, see
the Intermediate Inputs and Free-of-Charge Inputs sections
4. Factory Overhead; SG&A Expenses; and Profit
Factory overhead, SG&A expenses, and profit are included in the NV. The Department uses publicly available financial statements of producers of comparable merchandise from the primary surrogate country, when available. 34 See
19 CFR 351.408(c)(4). It is important to use, to the extent possible, information from surrogate producers of the identical (or similar) merchandise. For further details, see the Financial Ratios section
The most important component of factory overhead is depreciation. It can also include supervisory and indirect labor,35 maintenance, and energy that is not significant enough to be valued separately. Normally, factory overhead is expressed as a percentage of materials, labor, and energy of the surrogate producer, and is applied to the materials, labor, and energy costs of the exporter.
Included in general expenses are SG&A expenses. The Department uses actual SG&A expense amounts obtained from publicly available, published data sources (e.g., the financial statements of a company or companies located in the surrogate country). The SG&A expense ratio is applied to total of materials, labor, energy, and factory overhead.
The Department relies on actual profit amounts from published data in the surrogate country (e.g.
, the financial statements of a company or companies located in the surrogate country).
Packing for shipment to the United States is valued in the surrogate country based on factor amounts for materials (including materials transportation) and labor supplied by the respondent. Packing for shipment is distinct from packaging of the product, which is included in the valuations outlined above.
D. Sample Calculation
Surrogate Factor Valuation
Factor Amount Used in Source Value in Surrogate ME Purchase Value
Production of One
Ton of Subject
steel 1.07 tons NME 12,000 Rs./ton N/A
plastic 2 lbs. ME N/A $2.00/lb.
labor 150 hours NME $0.97/hr. N/A
electricity 130 kwh. NME 4.13 Rs./kwh. N/A
factory 20% of materials +
overhead labor + energy (MLE)
SG&A 8% of MLE +
profit 5% of MLE +
factory overhead +
steel scrap 0.05 tons NME 1,000 Rs./ton N/A
by-product36 (per ton of
packing 15 kg. NME 100 Rs./kg. N/A
packing 10 hrs. NME $0.97/hr. N/A
Factor DistanceB DistanceB Transportation Surrogate Freight
Supplier to Nearest Port to Method Value
Materials Transportation Valuation37
steel 40 km. 25 km. truck 1.02 Rs./ton/km.
packing 5 km. 25 km. truck 1.02 Rs./ton/km.
Normal Value Calculation
Factor Calculation of Value Value Exchange Value in
Rate US $38
steel 1.07 tons x 12,000Rs./ton 12,840 Rs. 0.027 $346.68
transportation 1.07 tons x 25 km. x 1.02 Rs./ 27.285 Rs. 0.027 $ 0.74
for steel ton/km.
plastic 2 lbs. x $2.00/lb. $4.00 1.000 $ 4.00
labor 150 hrs. x $0.97/hr. $144.50 1.000 $144.50
electricity 130 kwh. x 4.13 Rs./kwh. 536.9 Rs. 0.027 $ 14.50
factory 20% x ($346.68 + 0.74 + 4.00 + 144.50 + 14.5) $102.08
overhead = 20% x $510.42
SG&A 8% x ($510.42 + 102.08) $ 49.00
= 8% x $612.5
profit 5% x ($612.50 + 49.00) $ 33.07
= 5% x $661.50
steel scrap 0.05 tons x 1,000 Rs./ton 50 Rs. 0.027 $ 1.35
packing 15 kg. x 100 Rs./kg. 1,500 Rs. 0.027 $ 40.50
transportation 15 kg. x 5 km. x .00102 Rs./ 0.0765 0.027 $ 0.003
for packing kg./km.
packing labor 10 hrs. x $0.97/hr. $9.70 1.00 $ 9.70
Normal Value: $346.68 + $0.74 + $4.00 + $144.50 + 14.50 + $102.08 + $49.00 + $33.07 -
$1.35 + $40.50 + $0.003 + $9.70 = $743.423
E. Market-Economy Inputs
19 CFR 351.408(c)(1) provides that where a factor is purchased from a market economy supplier and paid for in a market economy currency, the Department normally will use the price paid to the market economy supplier. Furthermore, where a portion of the factor is purchased from a market economy supplier and the remainder from a nonmarket economy supplier, the Department normally will value the factor using the price paid to the market economy supplier.40
The Department has established a threshold for using market economy purchases to form the basis for valuation of a respondent’s input.41
If a respondent purchases at least 33 percent of an input from market economy suppliers, the Department will use the weighted average purchase price to value the entire input used by the respondent
Alternatively, when the volume of an NME respondent’s purchases from market economy suppliers as a percentage of its total volume of purchases during the POI/POR is below 33 percent, but where these purchases are otherwise valid and meet the Department’s existing conditions
, the Department will weight average the weighted-average market economy purchase price with an appropriate surrogate value according to their respective shares of the total volume of purchases. The Department also established that the validity of any market economy purchases can be refuted by parties and if the Department determines that the prices are not valid, they will not be used to value the input.