We want to be objective about what we do. Our whole purpose in this whole proceeding is to try to make the law work better, more effectively with more equity.

Mr. KENNEDY. And I think that purpose is very much appreciated,

sir.

Mr. VANIK. Do you think much needs to be changed from the 1921 Act?

Mr. KENNEDY. Well, 205 (b).

Mr. VANIK. 205 (b), all right.

Thank you, very much. I am not concurring in that, I am just merely acknowledging your statement on it.

Thank you, very much, Mr. Kennedy.

Mr. KENNEDY. Thank you, sir.

Mr. VANIK. Is there any further business before the committee. did anyone else have anything they wanted to say for the good of the order even though you are not scheduled?

Apparently not, so there being no further questions before the committee, this meeting of the committee will be adjourned until the call of the Chair.

[Whereupon, at 3:17 p.m., the hearing was adjourned.] [The following were submitted for the record:]

Hon. CHARLES A. VANIK,

AMERICAN CHAIN ASSOCIATION, Englewood, Fla., November 18, 1977.

Chairman, Subcommittee on Trade, Ways and Means Committee, Washington, D.C.

DEAR MR. CHAIRMAN: Reference is made to the Subcommittee's press release of October 31, inviting written comments on the administration of the Antidumping Act of 1921, as amended.

As chairman of the American Chain Association's International Trade Committee, I am pleased to have this opportunity to describe to the Subcommittee our experiences with the antidumping laws.

The American roller chain industry is familiar-all too familiar-with the unfair dumping practices of foreign manufacturers. In 1973, after lengthy legal proceedings, the Treasury Department found that Japanese producers were dumping roller chain in the United States. However, we in the U.S. industry do not feel that our success in the dumping case has been effective in stopping unfair practices by Japanese producers.

1. A major problem is the long delay between entry of Japanese roller chain into the U.S. market place and the ultimate assessment of dumping duties. Since 1973 our Association has periodically contacted the Customs Service to keep abreast of the assessment situation. However, as late as September of this year we were told that assessments were generally only up to the third quarter of 1975-two full years behind.

These delays simply encourage foreign manufacturers to continue their unfair practices. With the payment of a small bonding fee, a foreign manufacturerone found guilty of dumping- can postpone for years any concern about payment of dumping duties.

2. A second concern is that dumping duties on roller chain imports from Japan, once assessed, have been minimal. Thus we have been informed that only approximately $364,000 in duties had been assessed in the entire period from 1971, when the dumping complaint was filed, through the third quarter of 1975. Based on the dumping margins found in 1973, current levels of imports from Japan and extraordinarily low current U.S. selling prices, very serious questions are raised in our minds as to the accuracy of Customs' assessments.

We know that markets change and that, at least in theory, Japanese roller chain producers may not still be dumping. But the Customs Service has kept us essentially in the dark about the current situation. The Chain Association has asked for information about assessments and the compilation of master lists on which they are based. In fairness, we recognize that Customs has some confi

dential business information, but even our requests for nonconfidential summaries of the data used in preparation of master lists have not been honored.

Since dumping assessments are a complicated area full of opportunities for evasion and mistakes, we think that an American industry should be given at least a chance to comment about the adjustments and calculations made. Of course, we cannot comment-or provide information potentially helpful to the Customs Service in enforcing the dumping finding-without some disclosure on the part of Customs.

It is truly a frustrating experience for an American industry to succeed in establishing unfair dumping and then to find little benefit in the market placewhile not know what the Government is doing about the dumping situation.

3. A third matter of concern to the American roller chain industry is the length of time and the truly burdensome effort needed to persuade the Treasury Department to open a dumping investigation. This summer members of our Association obtained reports from reliable sources that Japanese roller chain manufacturers were selling their products at below their cost of production in the Japanese home market.

The President of the Association wrote to the Acting Commissioner of Customs to request that Customs investigate these reports. However, Customs declined to investigate the matter, saying that we must collect "quite detailed allegations" about the sales below cost.

In these circumstances-where our Association has already carried the heavy burden of a successful dumping case-we think that the Government should investigate our reports. Since these producers have already been found guilty of unfair dumping once, responsible enforcement of the current laws calls for particular vigilance in this case. However, to persuade Treasury to investigate new dumping practices, we are being required to develop information on the cost of producing roller chain in Japan. That closely guarded information is almost impossible to find.

Indeed, even if we can determine the Japanese production costs, we may be forced to repeat the task of collecting Japanese home market sales prices to show that prices are below costs. That price data, however, should have already been collected by the Customs Service and, as mentioned above, should be supplied to us in some nonconfidential form. These simple reforms of requiring prompt assessments and providing nonconfidential data to the U.S. industry would eliminate at least a part of the burden.

In closing, I should observe that the Customs officials working in this have been individually cooperative. As we see the problem, there is just too much work for too few men. Congress could help to relieve some of the bottlenecks by providing additional manpower.

Respectfully submitted.

FRANK E. BAUCHIERO.

STATEMENT OF THE AMERICAN IMPORTERS ASSOCIATION

The American Importers Association is a non-profit organization formed in 1921 to foster and protect the importing business of the United States. As the only Association of national scope representing American companies engaged in import trade. AIA is the recognized spokesman for importers throughout the nation. At present, AIA is composed of more than 1,150 American firms directly or indirectly involved in the importation and distribution of goods produced outside of the United States.

SUMMARY OF COMMENTS

The American Importers Association is in strong disagreement with the Treasury Department and the International Trade Commission on the following practices and provisions of the Antidumping Act as amended.

1. The Treasury Department practice of comparing each export transaction with average home market prices creates artificial dumping margins.

2. Application of section 205 (b) of the Act results in antidumping duties based on assumptions which do not reflect economic realities and penalize the importer's position in the market rather than equalizing it vis-a-vis the American producer. 3. The regulations do not make a fair comparison between the home market price and the price for export to the United States because not all differences in circumstances of sale are allowed as adjustments.

4. The regulations prohibiting reimbursement to the importer of dumping duties by the exporter unfairly penalize the importer.

1. Comparison of individual export transactions with average home market prices.-Under section 153.16 of the Customs Regulations the Treasury Department looks for "sales at less than fair value" by calculating an average home market price and then comparing this artificial price with the price of each export sale. An average price implies that there are sales in the home market both above and below that price. Even if export sales were made with exactly the same volume sold at each price point within the same price spread as sales in the home market, such averaging would necessarily result in a finding of dumping on half the export sales. Sales at less than fair value would therefore be found where there is no dumping because an artificial standard has been created to calculate the dumping margin.

The act does not require this practice. In fact, Treasury does not follow this techniques in calculating the margin on actual entries once a dumping finding has been issued. Nevertheless, this short cut has the pernicious effect of establishing a basis for a dumping finding and requiring all imports of the subject product to post a bond until Treasury decides whether to impose a dumping duty on each entry.

Less than fair value sales should not be found if there are corresponding export and home market sales within comparable ranges of export and home market sales. Treasury's investigation would not be greatly complicated if it compared weighted averages of both home market and export sales prices.

2. Section 205(b): Disregarding sales in the home market below cost of production.-Section 205(b), which was added to the Antidumping Act by the Trade Act of 1974, provides that if sales in the home market or in third countries (the usual basis of comparison) are below the cost of producing the articles, then such sales are to be disregarded in the dumping comparison, and if the remaining sales are not adequate for comparison, resort is to be made to "constructed value." ("Constructed value" means direct cost of manufacture plus an arbitrary minimum of 10 percent for general expenses and 8 percent for profit.)

The result of the new rule is that if most sales in the home market and third countries are found to be even one percent or more below cost of production, then sales can be made for export only if prices reflect a profit of 8 percent and general expenses of 10 percent. This would deny the product to the U.S. market at a time when it may badly need it. If, on the other hand, there are found to be adequate above cost sales in the home market for comparison, the result is to ignore those below cost and thus arbitrarily to raise the home market standard for comparison and to create or enlarge dumping margins. This compounds the inequity resulting from the usual comparison of each export price (some of which are bound to be below average) with average home market price. Thus, a below average export price is compared with above average home market prices. The addition of an arbitrary 8 percent profit margin plus 10 percent general expense factor can create inequities for the importer. The most recent application of this section was on importations of steel products. For this industry, as well as for many other low profit industries, an 8 percent profit margin is a dream, not a reality. If most major United States steel manufacturers were subject to this test, they would also be determined to be selling below constructed value.

Section 205 (b) requires that exporters cover their full fixed costs as well as variable costs of production. Simple economics demonstrates that when demand falls it is a sound practice to sell at a loss as long as the sales price covers variable costs of production. If an exporter were to follow that practice while the American producer were to choose not to compete with that price but to continue covering both fixed and variable costs, a margin of dumping would be found in circumstances of healthy, competitive pricing. The American producer would maintain an economically artificial price level at the expense of the American

consumer.

This provision appears to be contrary to the rules of the General Agreement on Tariff & Trade. It is not clear that the effects of this provision were contemplated by the Congress at the time the Trade Act was considered. Treasury regulations therefore, should provide for a higher threshold of evidence in complaints from domestic industry before cost of production investigations are initiated. Furthermore, the section should be repealed as soon as possible since it ignores commercial realities. A thorough analysis of the defects in section

205(b) is contained in the statement of attorneys Hemmendinger, Whitaker & Kennedy before this subcommittee. AIA concurs in that statement.

3. Circumstances of Sale.-No aspect of the administration of the Antidumping Act is more crucial than that of making appropriate adjustments for differences in circumstances of sale in comparing the home market and the import price.

In comments to the Treasury Department on July 29, 1971, on June 16, 1972, October 22, 1975, and October 11, 1976, the American Importers Association proposed a revision of 19 C.F.R. 153.10 to provide that ". . . such differences can be quantified in accordance with generally accepted accounting principles." This was a substitute for the language" reasonable allowances will be made for bona fide differences in circumstances of sale if it is established to the satisfaction of the Secretary that the amount of any price differential is wholly or partly due to such circumstances." The AIA proposed to omit altogether the sentence: "Differences in circumstances of sales for which such allowanes will be made are limited, in general, to those circumstances which bear a direct relationship to the sales which are under consideration."

The AIA also submitted that the expression "if it is established to the satisfaction of the Secretary . . ." should be omitted, and instead there should be no implication in the Regulations with respect to burden of proof. The past comments of AIA are still valid and must be made again because the section remains unchanged.

The basic reasoning behind the position taken by the AIA is that the objective of the price comparisons required by the Act is to make a fair comparion between the home market price (or third country or constructed value) and the price for export to the United States. It has been long understood that he way to make such fair comparison is to work back to an ex-factory price by making appropriate deductions from the selected transactions. At present there is a serious element of unfairness in the administration of the Act because expenses for advertising, for promotion, for selling costs, for costs of warehousing, for bad debts, and similar expenditures are treated as invariably allocable pro rata to domestic and foreign sales. This is an assumption which is often wide of the truth. The Regulations appear to be based upon a model which may sometimes exist, but which is not invariable and not even typical-that is, a model in which the factory makes the goods, employs its staff, its facilities and its general sales expenditures equally for all its customers, and makes no special efforts or expenditures in the home market which it does not make for its export sales. The pattern which is much more prevalent is that a foreign company will incur expenses for its sales, advertising, and promotion expenses etc. in selling in the home market and that such expenses are not fairly allocable to its export sales because the comparable efforts are made by either the unrelated purchaser in the foreign country or the exporter's branch or subsidiary. Thus, frequently the unadjusted home market price is considerably higher than the export price for the genuine business reason that it bears expenses which are not related to the export operation.

Treasury spokesmen take public credit for strict enforcement of the Antidumping Act in the name of "fair trade." The refusal to grant adjustments for genuine differences in circumstances of sale is an unfair application of the Act which goes to its very heart.

That allocation of expenses imposes no theoretical or practical problem is indicated by the fact that the Treasury does this in deducting expenses in applying "exporter's sales price." That the expense must be directly related to the sale under consideration is a spurious concept which has no place in the Act. Jacob Viner, one of the authors of the 1921 Act, said in his classic treatise "Dumping: A Problem in International Trade" (1966 reprint, pages 281–282): "The methods whereby dumping may be concealed so that a mere comparison of foreign market values and export prices will not reveal its occurrence, and the ways in which such a comparison may appear to disclose the existence of dumping whereas in reality dumping is not being practiced, are so numerous as to make it impracticable to attempt to define in an antidumping law with precision and certainty the circumstances which shall make imports subject to the dumping-duties, if it is desired to prevent evasion of the law through concealment of dumping and likewise to leave free from penalization imports which are only in appearance but not in reality being sold at dumping prices. The most satisfactory method of handling the problem is unquestionably to leave to the administrative officials a considerable measure of discretion in determining

in each case whether dumping is being practiced, and if so to what extent, but subject to the general rule that dumping shall be interpreted to mean the sale for export at prices lower than foreign market values, and that in comparing prices proper allowance shall be made for differences in prices which make a reasonable adjustment for differences in conditions and terms surrounding export as compared to domestic sales,."

As indicated in Viner's last sentence just quoted, the correct concept is that a reasonable adjustment should be made, not a reasonably direct one. The word "direct" has no place in the Regulations.

This is borne out by the statutory history of Section 202 of the anti-dumping Act of 1921. When Congress amended Section 202 in 1958 to provide for allowances for differences in quantities and circumstances of sale, it did so to bring the law into conformity with the fair value regulations promulgated in 1955 (Section 14.7 (b)). Such regulations did not have any "direct" or "reasonably direct" requirement-on the contrary, they provided merely for reasonable allowances for any differences in quantities and circumstances of sale; and Treasury officials, in urging Congress to amend the law, made it clear that such allowances included advertising and selling costs granted in one market, but not in the other.

The correct test, it is submitted, is whether the amount of such differences can be determined under accepted accounting principles which are used constantly in business analyses, from tax returns to rate cases. In such analyses, it is often necessary to allocate costs and income, and reasonable formulas to do so can be found. The present practice has not permitted such an allocation to be made in arriving at "foreign market value."

It also needs to be emphasized that no specific items or classes of examples can be excluded per se from consideration in any case. That an item, such as research and development costs, is not expressly enumerated in the examples should not bar its consideration when it is found to be an appropriate allowance under generally accepted accounting principles.

The unfairness is compounded by placing a great burden on the foreign producer, the exporter, or the importer to prove "to the satisfaction of the Secretary" that the adjustment is justified. This language, which is derived from the statute, is appropriately interpreted to place a burden upon the producer, exporter, or importer, who is possessed of the trade information, to come forward with data and explanations. It is inappropriate to construe this language as meaning that when the available data is in, any doubts shall be resolved against the importer-but this is the actual construction. A dumping investigation is an investigation by the United States Government and not a proceeding in which the Government is an adversary. It is the responsibility of the Secretary to find the facts as impartially as possible. That an allocation of expenses may have to be made by some formula, rather than taken directly from the books of the company, does not permit a genuine difference to be disregarded. Furthermore, it is inappropriate to place a burden on the importer to trace precisely the circumstances of sale adjustments for each transaction at the risk of disallowance of the adjustments. Particularly in continuous sales situations, if the activity is appropriate for allowance, i.e., accepted by Customs and Treasury in the specific case, the costs corresponding to such activity should be allowed if the exporter is able to establish a connection between the aggregate expense figure and the approved activity, even if the connection cannot be established in a one-to-one manner.

Lastly, it remains unfair to consider all selling expenses in the U.S. market but only part of the selling expenses in the home market. It would seem elementary that in comparing such prices at the same level of trade, the same types of deductions would be made in the one market as in the other to work back to fairly comparable factory prices. The present practice and the new regulation require that if deductions for selling expenses are made from exporter's sales price (as required by the statute), then deductions in the same categories will be allowed from home market price, but not exceeding the amount per unit deducted from exporter's sales price. The rationale for the limit is that otherwise greater adjustments would be made in the exporter's sales price situation than in the purchase price situation. The conclusion is wrong because the premise is wrong-what this really shows is the inequity of the practice in the purchase price situation. There is no justification in principle for the limit. The Regulations and the practice depart from the statutory mandate to give due allowances to differences in circumstances of sale.