IMPORT ADMINISTRATION POLICY BULLETIN


Number 94.5

Date:      3/25/94

Topic:     Differences in merchandise calculations in
           hyperinflationary economies

Author:    Paulo F. Mendes


Approved:  (Signed 3-25-94)
           Joseph A. Spetrini
           Acting Assistant Secretary
            for Import Administration


Issue

What methodology should the Department use to calculate differences
in merchandise ("difmers") in hyperinflationary economies?


Background

Over the years, the Department has considered various approaches to
deal with hyperinflationary economies in the context of
antidumping investigations and administrative reviews.  In
hyperinflationary economies prices are adjusted upwards very
rapidly.  However, such price changes do not necessarily mean that
"real" price increases have occurred.  Rather, it simply reflects
the decline of the currency's purchasing power.  Because production
costs are also affected by hyperinflation, in order to examine them
over a certain period of time, it becomes necessary to use a
methodology that neutralizes hyperinflationary effects in the cost
of production.  For example, we currently calculate the cost of
production based on a replacement cost methodology.  For price
comparison purposes in investigations, rather than calculating a
single FMV, we calculate distinct FMVs for each month of the period
of investigation.  In addition, we have required that both sale and
production of merchandise being compared take place in the same
month for purposes of price-to-price comparisons.  This approach
does not require any adjustments for hyperinflation because all
figures used for comparison purposes are expressed in comparable
monetary value.  By requiring that production also take place in
the month of sale, we are able to neutralize hyperinflationary
effects when calculating difmers for merchandise produced in
different months.  

However, because of the lack of coincident production for home
market sales and U.S. sales, the current practice described above
precipitates the use of constructed value more often in
hyperinflationary economies than in non-hyperinflationary
economies.  In order to eliminate this difference, it is necessary
to develop a new methodology to adjust difmers in hyperinflationary
economies.


Discussion

An alternate solution is to require that only sales in home market
and U.S. occur in the same month for purposes of price-to-price
comparisons.  This approach increases the likelihood of price-to-price 
comparisons for which section 773(a) of the Tariff Act of 1930, as 
amended, expresses a clear preference.  A methodology which allows 
appropriate cost of production comparisons across months makes it 
possible to calculate difmers for all similar merchandise sold within 
a given month (even if produced in different months).  Such a 
methodology would eliminate the need to resort to constructed value, 
and therefore, would be more desirable than the current one because 
it would allow the Department to make more price-to-price comparisons. 

The question then becomes how to calculate difmers for merchandise
produced in different months.  Applying the Department's normal
methodology for difmer adjustments in hyperinflationary economies
would yield inaccurate results because nominal manufacturing costs
are different from one month to the next because of hyperinflation. 
A possible solution to eliminating the aberrations caused by
hyperinflation in difmer calculations is to index the figures used
in difmer calculations.  Indexed figures reflect the real monetary
value of any prices or costs being analyzed.  Thus, indexing should
not be viewed as an adjustment, but rather as a way to express
prices and costs in constant monetary units which are comparable
over the periods of time used in investigations and administrative
reviews.

Indexing is a method that may be used to account for (1) a
persistent rise in the level of prices, or (2) a persistent fall in
a currency's purchasing power.  Its use in hyperinflationary
economies provides a method which takes into account the effects of
persistent and rapid rises in prices.  Therefore, during the course
of antidumping proceedings involving hyperinflationary economies,
which require the Department to gather monthly production costs,
indexing may be performed by using the index value in effect on the
date costs are calculated.

Indices commonly used for commercial or financial matters should be
considered in the selection of an appropriate index. 
Alternatively, indexing could be based on the country's exchange
rate fluctuation against the U.S. dollar.  Because countries
usually maintain several indices which may change over time, or
maintain multiple exchange rate systems, it would be very difficult
to develop a list of indices/exchange rates to be used for each
country.  Thus, selection of an index/exchange rate should be made
on a case-by-case basis.

    
Statement of Policy

For purposes of any antidumping proceeding involving
hyperinflationary economies where production of the most similar
domestic and export merchandise sold in the same month occurs in
different months, costs used to calculate difmers in the currency
of a hyperinflationary economy should be indexed.


Implementation

This policy will be implemented for difmer adjustments on all
antidumping investigations and administrative reviews where we
determine that hyperinflation is present in the country involved in
the proceeding.