Laura Aboulhosn

On September 11, 2013, the Federal Circuit Court held in Atar S.r.l v. United States[1] that the Department of Commerce (Commerce) acted reasonably in excluding below cost sales dating from prior administrative review when calculating the constructed value profit cap applicable to Atar’s merchandise.  This case grants Commerce the ability to have a more hands on and less regulated approach to determining the constructed value for merchandise.

This appeal arrived to the Federal Circuit after a long complex history.  In 1996, Commerce determined that certain pasta products from Italy were being sold in the United States at less than fair value.  Commerce published an antidumping order in order to prevent any further price undercutting from imported Italian pastas.[2]

Nine years after the order was issued Commerce conducted its review of the antidumping order.  To calculate antidumping orders Commerce usually compares the export price of the subject merchandise with the “normal value” or price of like products sold in the exporter’s home market or a representative third country.[3]  For Atar, Commerce determined that it could not assess normal value by reference to Atar’s proffered home-market or third-country sales data, so it approximated the normal value of Atar’s subject goods using a constructed value approach.[4]

The constructed value for merchandise under antidumping review ordinarily equals the sum of (1) the cost of materials and fabrication needed to produce the merchandise in the ordinary course of trade; (2) the exporter’s actual selling, general, and administrative costs (SGA) incurred and actual profits realized in the production of a foreign like product in the ordinary course of trade; and (3) packing and container costs.[5]  Commerce has three options for how to go about determining the constructed value.  Option (i) uses the actual amounts incurred and realized by the specific exporter under review of foreign sales of merchandise that falls within the same general category as the subject merchandise.[6]  In this case, Commerce determined that it could not proceed under option (i) to calculate the constructed value of Atar’s products because Atar lacked data from a viable comparison market.[7]  Option (ii) relies on the weighed average of the actual costs incurred and profits realized by the other exporters under review in selling a foreign product in the ordinary course of trade.[8]  Option (ii) also proved unavailable because the review included only one other respondent and Commerce concluded that relying on that respondent’s reported profit and SGA cost data would expose confidential business information.[9]  Commerce invoked option (iii), which broadly authorizes the agency to derive the necessary profit and SGA values via “any other reasonable method.”[10]

The Federal Circuit Court held that Commerce is entitled to substantial deference in its choice of accounting methodology, and, as a reviewing court, they do not want to substitute one reasonable approach for another according to their preferences.  The court agreed with Commerce’s decision and did not advocate for a bright line rule to determine antidumping duty margins.  This may lead to exporters being less interested in importing to the United States if it is possible that its product could be seen as being sold at less than what is “fair value.”  Although this decision does not create a new rule for how Commerce will set its constructed value it does present the importer with a few issues to consider before sending products to the United States.

This type of protectionist tariff is utilized by Commerce to make sure that importers are not undercutting the US market.  The tariffs can lead to higher prices for domestic consumers and a reduction of competitiveness of domestic companies producing similar goods.  Either scenario does not bode well for companies or consumers in the United States.

By invoking option (iii) to determine the constructed value, Commerce was allowed a broad spectrum of accounting possibilities based on its discretion.  The other two options look to a constructed value based on comparison markets and products that have been assessed by Commerce.  Instead of using the specified rules through option (i) or (ii) which require the agency to create a comparison between the market and the company’s product. Commerce developed its own determination based on a calculus of its choosing. While the court does state that this is not outside the purview of Commerce to do this, importers may heed this decision as a warning.

Whether this means that future companies will be diverted from exporting their items to the United States will be determined in future months and subsequent decisions but this decision does set a precedent for Commerce to use the broader language of option iii to determine the constructed valued and therefore the duty margin for products imported to the United States.