of the Antidumping Act to see whether the Canadian sulphur producers were selling below cost in their home market. The following month, in June 1976, the Customs Service sent out questionnaires to the Canadian sulphur producers requesting information on their production costs. The Canadian producers, however, generally refused for almost a year to supply any substantive cost information to the Customs Service. It was only under the threat of immediate appraise-ments on the basis of "the best information available" that the Canadian producers provided any substantial responses one year later in June 1977. Further, although we have not been able to obtain substantial information on many of the responses, what non-confidential summaries we have reviewed indicate serious deficiencies and inadequacies in these late responses. After the opening of this Section 205 (b) investigation, Freeport participated actively in the proceeding. In January 1977 we supplied to the Treasury Department a detailed sulphur costing methodology developed by Coopers & Lybrand. In May 1977 we supplied detailed cost of production studies prepared by Coopers & Lybrand for eleven major Canadian sulphur plants for both 1975 and 1976. More recently, in May 1978, after receiving on May 1, 1978, the cost methodology developed by the Customs Service, we supplied detailed cost calculations for these eleven major sulphur facilities using this methodology. Recently, however, Freeport has learned that the Treasury Department has concluded its Section 205(b) investigation and has proceeded to issue "master lists" for 1975 and 1976 entries. In fact, these master lists were apparently issued in August 1977 and February 1978 although we were never advised of this fact and submitted the material in May 1978 on the assumption that the investigation was still a current one.1 Since learning the Treasury Department decision, Freeport has attempted to obtain some information on the results. However, we have been provided no detailed information on the results, but have been told that: 1. The current Treasury Department policy is that during the assessment phase of an antidumping investigation the foreign producers have no responsibility at all to provide the sort of non-confidential summaries that are routine and expressly required by the Treasury Department in the investigation phase. This means as a practical matter that domestic industries have no reasonable · access to the facts upon which the Treasury Department and the Customs Service are asked to rely. 2. The current Treasury Department policy is that domestic producers such as Freeport have "no legal standing" to participate at all in the assessment phase and are, apparently, not entitled to any significant information on the Treasury Department's final determination in such assessment proceedings. Freeport believes that the Treasury Department's current position on these issues is wholly inconsistent with fundamental principles of fairness and dueprocess and with the proper interpretation of the Antidumping Act. First, this is a new interpretation of the Antidumping Act. In 1976 and 1977.. when Freeport was actively involved in the Section 205 (b) cost of production phase of the sulphur assessment proceeding, the Customs Service actively required that the Canadian sulphur producers provide non-confidential summaries of all submissions. As far as we are aware this new Treasury Department policy was made without any general public notice, much less any opportunity for general public comment. It seems to us that proper administrative procedure and general notions of due process require at least some notice and opportunity for comment on such a significant change in Treasury Department policy. More fundamentally, we believe this attitude is wholly inconsistent with the purpose of the Antidumping Act. As we understand the Act, it is to protect domestic industries from unfair foreign competition in violation of United States laws. In the case of the assessment phase, the foreign producers involved have already been found to have violated our Antidumping Act. President Carter, Secretary Blumenthal and other administration spokesmen have repeatedly assured domestic industries that although there may have been derelictions in enforcing the Antidumping Act in the past, this administration would assume 1 In this connection we note that in his November 7. 1977. letter to you (copy enclosed), Acting Commissioner Dickerson included a table indicating that the sulphur master lists had been issued for the period through October 1974. Although this was our understanding at the time, we have since learned that the Customs Service may have sent out master lists through 1975 in August 1977. We respectively request that your staff determine which set of facts is correct. its responsibility to enforce the law. We cannot see how the positions (1) that the foreign producers have no responsibility to provide non-confidential summaries of their submissions and (2) that domestic industry representatives have no right to participate at all in the assessment phase of the proceeding are consistent with that assurance. We appreciate the opportunity to comment in this very important matter. WILLIAM J. BYRNE, JR., Hon. CHARLES VANIK, WASHINGTON, D.C., October 5, 1978. Chairman, Subcommittee on Trade, House Ways and Means Committee, Washington, D.C. DEAR MR. VANIK: It is requested that, in connection with its September 21 hearing on the administration of the Antidumping Act of 1921, as amended, the Subcommittee give consideration to the statements submitted by the law firm of Hemmendinger, Whitaker & Kennedy in connection with its November 1977 oversight hearings (Serial 95-46, pages 124-27), and the statement of Noel Hemmendinger, Esq., submitted in connection with the February 9, 1978 request of the subcommittee for views on how U.S. laws providing relief from unfair trade practices should be amended. It is further requested that the following comments be made part of the record of the September 21 hearing. These comments are made by the undersigned in his personal capacity and not on behalf of any client or law firm.1 The statement of Robert Mundheim, General Counsel, Department of the Treasury, at the September 21 hearing explains the increasing complexity of the problems arising under the Antidumping Act and focuses on measures to simplify administration after a dumping finding. Until such measures are further elaborated it is difficult to evaluate them, but there is no doubting the reality of the problem with which such measures are intended to deal. There is ground for concern, however, that the broadbrush treatment of adjustments that Mr. Mundheim has suggested may perpetuate at the duty assessment phase the types of inequities in the less-than-fair-value phase that we have cited in the statements referred to above, notably, the anti-import bias of the technique of comparing each export transaction with averages of home market prices, and the failure to allow justified and justifiable differences in circumstances of sale. At the bottom of Page 7 of his prepared statement, Mr. Mundheim indicates that some claims for adjustment might be disallowed if they did not reach some threshold size, and further suggested that there may be increased reliance upon techniques of sampling and averaging to avoid processing all or certain classes of data. A parenthetical comment is: "There is no reason that a manufacturer's efforts to differentiate its products from others: in order to appeal to consumer preferences should inexorably require further investigation and computation by the Customs Service." For the purpose of achieving efficiency and economy of time in the administration of the Antidumping Act, it may well be desirable to arrive at simplified ways of dealing with computations. However, it should not be forgotten that the determination of claims for adjustments is the statutorily mandated procedure for calculating the presence and quantum of less than fair value sales. Under the statute, these involve sales of two types. Some sales for export to the United States are made at the water's edge to an unrelated American buyer in large quantities while the manufacturer maintains substantial selling and administrative staffs in the home market and none in the United States. Other sales are made to a related company in the United States, in which cases the distribution system of the home market may well involve greater expenses per unit before the product reaches the dealer than does the distribution system in the United States. Comparing unadjusted prices would frequently lead to findings of dumping where there is no dumping. To balance Mr. Mundheim's 1 The undersigned is senior partner of the Washington law firm of Arter Hadden & Hemmendinger. formerly Hemmendinger. Whitaker & Kennedy. The law firm is registered with the Department of Justice as the agent of a number of foreign principals, and has frequently represented U.S. import and foreign export interests in proceedings under the Antidumping Act. parenthetical remark, there is no reason that the American public should have to pay a high price for an imported product because of the high cost of distribution in the home country. It is earnestly suggested that the Subcommittee give attention not only to shortcomings in the collection of dumping duties, but also to the manifest bias against imports which the Treasury regulations themselves promote in the lessthan-fair value investigation. Mr. Mundheim correctly observed that, if the Antidumping Act is adminis tered quickly and effectively, foreign manufacturers will usually adjust their prices and few dumping duties will be collected. However, the complexity inherent in, and the uncertainty of, antidumping calculations tends to discourage competitively priced imports at a time when the U.S. economy is suffering from inflation. As in antitrust litigation-another form of trade regulation through legal proceedings-speed, accuracy and fair hearings may be incompatible goals. Treasury faced the dilemma in the case of steel and devised an imaginative solution in the Trigger Price mechanism, using the standards of the Antidumping Act to monitor imports, thereby avoiding a multiplicity of full investigations. This technique may not be transferable to other products, but there are other means to attack the problems. The most promising would appear to be the development of a settlement procedure, applicable both before and after the filing of a formal complaint. Many times the foreign manufacturer, faced with a complaint, will adjust his price or withdraw from the market rather than face an onerous legal proceeding. Scrutiny is of course required to prevent collusion, but since the Antidumping Act is inherently anticompetitive, this risk does not outweigh the interest in avoiding protracted and expensive proceedings. Termination of antidumping cases upon assurances was once a familiar procedure, but in recent years such dispositions have been narrowly restricted to cover cases where, for all practical purposes, there really was no dumping. It is time to revivify this procedure in the form of agreed settlements with participation by the United States government, and, if appropriate, the government of the exporting country. It is not realistic to expect effective trade regulation through extensive litigation. The most effective lawsuit is the one that is never brought. The same philosophy should be applied in the antidumping field. Yours very truly, NOEL HEMMENDINGER. INDUSTRIAL UNION DEPARTMENT, AFL-CIO, Hon. CHARLES A. VANIK, DEAR CHAIRMAN VANIK: Your subcommittee is to be congratulated for choosing to investigate the efficacy of our anti-dumping laws and their administration. American workers have a direct and immediate stake in the timely and efficient enforcement of the Anti-Dumping Act of 1921. Items that are sold in our markets by foreign competitors at less than their value inevitably mean lost jobs for American workers. In recent years, American workers bave lost thousands upon thousands of job opportunities as the American market becomes the dumping ground for excess production throughout the rest of the world. In no small part, this situation has developed because our government is unwilling or unable to effectively enforce those statutes which protect our markets against unfair foreign competition. The case with which we are most familiar-that of television receivers from Japan-is indicative of the overall problem. In 1971, after extensive investigation, the government decided that Japanese television producers were dumping in our market. No penalties were actually assessed until early this year. Incredibly, the Treasury Department limited its collection effort to those shipments which entered the country between 1971 and 1973. This delay is not only unconscionable, it represents treatment far different from that which the Treasury Department applies to U.S. citizens when they owe money to the government. One effect of delaying collection for as long as Treasury has done, is to allow the offenders to pay their debts with dollars worth roughly half of what they were worth when the penalties were incurred. We are witnessing a de facto halfprice sale for lawbreakers who are simultaneously dumping TV sets and ruining the domestic industry. According to a recent study by the General Accounting Office, over 50 percent of all the dumping penalties currently outstanding, are attributable to television recievers from Japan. This year our nation is expected to have a trade deficit in excess of $30 billiona major portion of that amount in manufactured goods. How can we be expected to embark on a major program of trade liberalization following the current multilateral trade negotiations when we can't even enforce our unfair trade practices statutes. In view of the tremendous importance which the Anti-Dumping Act of 1921 has for the American workers, it is discouraging to note that labor organizations have no expressed standing under the law to seek its proper enforcement. If the procedural safeguards needed by American manufacturers to encourage proper enforcement of this statute are as inadequate as they claim they are, then what chance does the American worker have to obtain proper enforcement when he is not even mentioned in the law. The Industrial Union Department, AFL-CIO, strongly urges this committee to consider, along with the other items raised in its oversight hearings, remedial legislation which will enable American workers and their representatives to file, prosecute and seek judicial review of all phases of anti-dumping proceedings. With every best wish, I am, Sincerely, JACOB CLAYMAN, President-Secretary-Treasurer. STATEMENT OF IVM, INC., PHILIP E. SCHNEIDER, PRESIDENT I was asked to prepare some questions for inquiry of the U.S. Treasury Department concerning discrepancies between documented and accounted Japanese production costs and the U.S. Treasury estimate of Japanese production costs used to establish trigger price. As a participant in the Gilmore Steel Antidumping Action against Japanese steel producers, the same type of discrepancies between accounting facts and economic theories were encountered as were experienced with trigger price. Your committee has received testimony pointing to the weaknesses of the Antidumping Act of 1921, as amended THE TIME CONSUMING LITIGATION The only certain definition of injury to an industry or company is death. (U.S. Treasury has extra-legally attempted to usurp the injury judgement function from the International Trade Commission with the trigger price mechanism.) The lack of penalty for dumping, etc. The evidence submitted will tend to show the vagueness of 19 U.S. Code 322 (and its extra-legal trigger price extension) in the calculation of "fair value" or "constructed cost". Almost any interpretation of the cost items involved can be justified by treasury (within the limits of the code). Numerous detailed and documented studies have been published on the subject of Japanese costs. To recite these would fill several congressional records. We will try to show major types of discrepancies (underlined) with typical illustrations. Treasury was given an impossible charge when asked to establish a trigger price in the Solomon Report to President Carter. Trigger price was to be based on Japanese production costs, but trigger price level should not permit an inflationary price increase in imported steel. Treasury had already found the Japanese to be selling below cost in 1977 in the Gilmore Finding. The trigger price effective the second quarter of 1978 was equivalent to the 1977 price of Japanese imports which were sold below fair value-dumped. By establishing trigger price at this low level, it automatically nullified pending dumping suits. The "all steel products price" estimated by treasury, and used as a basis for trigger price, represented Japanese production costs for Japanese fiscal year 1977. The treasury estimate was $297.80/net ton. Recently official Japanese financial reports became available using these and U.S. Treasury guidelines for treating other income and their (inadequate) adjustment for overstatement of shipments, the accounted documented cost equivalent of "all steel products costs" was $323.74-$26.00/net ton higher than the treasury estimate. Treasury used economic theory rather than accounting principles to arrive at their costs. There are many choices of economic theories. Perhaps an equal number of theories, if applied to accounted cost data could result in a higher than accounted cost. Treasury choose those economic theories that resulted in a lower than actual cost. The principal treasury theories are the use of an average five-year operating rate to adjusted fix costs rather than actual operating rate; the incorrect allocation of costs to steel producing and other business activity of Japanese steel companies; and the inclusion of other income, such as selling company (Treasury) stock to offset costs. In the escalation of base cost to latter periods of applicable trigger price, U.S. Treasury choose theoretical economic procedures, rather than published Japanese cost, properly accounted. This resulted in major understatements in labor and materials cost escalation used for third and fourth quarter trigger price. With rapidly changing currency value, the choice of a value nearer the applicable price period would be more realistic. A most significant discrepancy in terms of total cost error is the controversial obvious overstatement of Japanese shipments. After calculation of total production costs in yen or dollars, these costs are divided by shipments to arrive at a cost per ton. An error of 1 percent in the estimate of shipments involves a $3/net ton error in cost/ton. The 5 major Japanese companies report the amount of steel produced at the first solid state, called crude or raw steel, and shipments. They claim to produce 86.5 tons of shipments from 100 tons of raw steel (JFY 1977). The Japanese government reports total industry raw steel and shipments. By subtraction, the remaining Japanese steel companies, including all "mini-mills", produce an unbelievable 48 tons of shipments from 100 tons of raw steel. Minimills normally have much higher yield than integrated mills. Western world integrated mills normally produce from 71 to 75 tons of shipments for 100 tons of raw steel (71 percent to 75 percent raw steel to ship yield). Treasury contends that the Jaanese government states that 86.5 tons of shipments per 100 tons of shipments is true Japanese "yield". Treasury cannot accuse the Japanese government of not telling the truth. Yet, in the calculation of trigger price, U.S. Treasury reduced yield to 82.5 percent. The problem, in part, is in difference between the Japanese and world definition of "raw or crude" steel and "shipments". In the Gilmore proceedings, the Japanese admitted that 90 percent of their domestic plate shipments were in the uncut (unfinished) condition. We recognize their superior facilities and practices in many areas, as well as the high utilization of better equipment, with their low operating rate. We believe Treasury is in error by at least 3 percent yield-Japanese production costs are $9/net ton too low from this error alone. A POSSIBLE SOLUTION TO THE USE OF ECONOMIC THEORIES VERSUS ACCOUNTING FACTS We have U.S. independent accounting firms that are experienced in auditing costs of both U.S. and foreign businesses. Provided the independent accountant has appropriate experience with a specific business, he could give an unbiased accounted estimate of "fair value" or "constructed cost", under temporary employ of Treasury. The accounting firm could hear and render judgment on controversy. The ITC now practices this procedure on trade/cost matters. U.S. Treasury interpretation of 19 U.S. Code 322, concerning the calculation of "constructed cost" or "fair value”, excludes adjustments in costs for advantages wrought by foreign business practices or for government "subsidies". In the case of the Japanese steel business, some of these caveats are: The value of government endorsed loans to the Japanese steel industry already at 85-percent + debt/equity ratio. (Comparable to the Lockheed “bailout”.) Oil subsidy to the Japanese steel industry, Mr. Crandel, formerly of COMPS, contends that there is an allowance for oil subsidy in the base year trigger price. Mr. Anawady, Treasury, says that there are no adjustments for subsidy in trigger price. Once establishing a customer, a Japanese steel company and its trading company partner obtain exclusive rights to this customer. There is no competition from any other Japanese steel or trading company. (Documented evidence in JATC files.) This reduces Japanese sales costs compared to a U.S. company. |