Constructed Normal Value

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CONSTRUCTED NORMAL VALUE – DO’S AND DONT’S

INTRODUCTION
Constructed value method provides a method to achieve a remedy when there are no other ways to reach it, but the problem arises from the fact that it becomes a discretionary practice and that results in distorted conclusions. More often than not it is considered to be a method biased in favour of the applicants. Another factor is that when data is derived from another producer to construct the normal value for an exporter, and the producer has a comparative advantage over the exporter under consideration this factor is not reflected in the constructed normal value. However, it does not hold true for the country of export. There are practices which if followed can minimize or completely remove such errors and the distorted conclusions reached thereof. These practices can be derived from tracing the history of disputes, observations and panel reports. The provision of Anti-Dumping Agreement provide for a “Constructed Normal Value” in case one of the following conditions are satisfied: 1. No sales in the exporting country of the like product. 2. No sales in the exporting country of the like product in the ordinary course of trade. 3. Sales in the exporting country do not ‘permit a proper comparison’ because of ‘the particular market situation’. 4. Sales in the exporting country do not ‘permit a proper comparison’ because of their low volume.

CONSTRUCTED VALUE/COST OF PRODUCTION
In a situation where a particular claim falls under any of these conditions, it is in the power of the investigating authority to set aside the price in the exporter’s domestic market and pick one of the two alternative methods for the calculation of normal value, as per Article 2.2 of the Agreement. One of which is that of “constructed” price, that is the investigating authority can calculate a normal value from the beginning ‘de novo’, which is calculated by an arithmetic addition of the following elements: I. The cost of production in the country of origin;

II. A reasonable amount of Selling General and Administrative expenses; and III. A reasonable amount of profits.
The agreement does not allow full discretion to investigating authorities when constructing the normal value. Essentially, they must (a) with respect to cost of production, follow the discipline laid down in Art. 2.2.1.1 of the Agreement; and (b) with respect to Selling, General , Administrative and Profits, follow the disciplines laid down in Art. 2.2.2 of the Agreement. Under Article 2.2.1.1 three types of obligations relating to an investigating authority’s cost calculations for the purpose of determining whether home market sales are in the ordinary course of trade and for calculating a constructed normal value. Firstly, Art. 2.2.1.1 of the Agreement, first sentence obliges investigating authorities to base their calculation on actual cost data of the examined producer or exporter, provided that (i) such records are in accordance with the generally accepted accounting principles of the exporting country, and (ii) reasonably reflect the costs associated with the production and sale of the product under consideration. Secondly, the second sentence of Article 2.2.1.1 requires that investigating authorities consider all available evidence on the proper allocation of costs including that which is made available by the exporter or producer in the context of an anti-dumping investigation, provided that such allocation have been historically utilized by the exporter or producer. Thirdly, the final sentence then provides for the appropriate adjustment of costs for non-recurring items of cost which benefit future and/or current production or for circumstances in which costs during the period of investigation are affected by start-up operations.

In principle, the cost data to be used as a basis are those of the exporter or producer in question. The importing Member cannot impose its own domestic...
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