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CAFC Decision on Labor Rates in China and Other Non-Market Economies Could Result in Lower Antidumping Margins
May 20, 2010


In a recent ruling, the Court of Appeals for the Federal Circuit (CAFC) invalidated a method used by the Department of Commerce (“Commerce”) that often resulted in inflated labor rates for non-market economy (NME) countries in antidumping duty proceedings.

The ruling, issued in Dorbest Limited et al v. U.S. et al, concerns the process by which Commerce calculates the normal value of dumped merchandise. Normal value is usually determined as the price at which the merchandise is sold in the exporting country. Commerce then calculates the dumping margin as the amount by which the normal value exceeds the export price.

However for non-market economy countries, such as China, normal value is determined by calculating the total value of all the factors of production (e.g. raw materials, labor consumption, energy costs, etc.) used in producing the merchandise. To determine the value of these factors, Commerce is required to use, to the extent possible, the prices of factors in one or more market economy countries that are comparable to the NME in terms of economic development and significant producers of comparable merchandise.  

For most factors of production, Commerce uses the values that prevail in a single economy country meeting the above criteria, (commonly referred to as a “surrogate country”). But to determine the prevailing labor wage-rate in an NME, Commerce frequently uses a regression-based analysis that includes data 61 market economies with variable levels of income, as permitted by its own regulation at 19 CFR 351.408(c)(3).

During an administrative review of the antidumping order on wooden bedroom furniture from China (A-570-890), Commerce used the regression method described above for determining labor costs of Dorbest, rather than using a surrogate country’s wage rate, yielding a wage-rate for China that was 300% higher than the prevailing rate in the surrogate country.  

On appeal, CAFC found that by using the regression method, Commerce violated the statutory requirements by using data from many market economy countries that are not economically comparable to China and not significant producers of the subject merchandise in its regression analysis, (thereby invalidating 19 CFR 351.408(c)(3)).

Since the labor wage rate is a key factor of production in constructing the normal value, in practice the regression analysis yields inflated dumping margins by artificially increasing the subject merchandise’s normal value.

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