Chapter 5

Cost-Based Market Value

In cases where the price-based definition cannot be applied, a cost-based definition of foreign market value is permitted. Under this approach, the Commerce Department "constructs" a foreign market value equal to the sum of 1. the cost of manufacturing the merchandise, 2. general expenses, 3. profit on home market sales, and 4. the cost of packaging the merchandise for shipment to the United States. The amount for general expenses must equal at least 10 percent of the cost of manufacturing, and the amount for profit must equal at least 8.0 percent of the manufacturing cost plus general expenses.

Margin of Dumping

calculated as the amount that the foreign market value exceeds the U.S. price

Foreign Market Value

defined in one of two ways: price-based or cost-based

Price-Based Market Value

dumping occurs whenever a foreign company sells a product in the U.S. market at a price below that for which the same product sells in the home market

"Fair Value"

equated with average total cost plus an eight percent allowance for profit

Persistent Dumping

goes on indefinitely; in an effort to maximize economic profits, a producer may consistently sell abroad at lower prices than at home

U.S. Antidumping Duty

levied when the U.S. Department of Commerce determines a class or kind of foreign merchandise is being sold at less than fair value (LTFV) and the U.S. International Trade Commission (ITC) determines that LTFV imports are causing or threatening material injury (such as unemployment and lost sales and profits) to a U.S. industry. Such antidumping duties are imposed in addition to the normal tariff in order to neutralize the effects of price discrimination or below cost sales.

Predatory Dumping

occurs when a producer temporarily reduces the prices charged abroad to drive foreign competitors out of business

Sporadic Dumping

(distress dumping) occurs when a firm disposes of excess inventories on foreign markets by selling abroad at lower prices than at home

Dumping

Dumping is recognized as a form of international price discrimination. Dumping occurs when foreign buyers are charged lower prices than domestic buyers for an identical product, after allowing for transportation costs and tariff duties. Selling in foreign markets at a price below the cost of production is also considered dumping.