Notice: Change in Policy Regarding Currency Conversions

DEPARTMENT OF COMMERCE

Notice: Change in Policy Regarding Currency Conversions

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

SUMMARY: The Department of Commerce (``the Department'') has revised

its policy regarding currency conversions to conform to changes

resulting from the Uruguay Round Agreements Act (``the URAA''). We are

now announcing this change in methodology and the accompanying computer

code and

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requesting comments on this new methodology. At the end of a one-year

test period, the Department will reexamine the methodology, make any

needed changes, and prepare regulations.

DATES: Effective Date: The proposed policy is effective March 8, 1996

with respect to all investigations and reviews requested since January

1, 1995. The Department will consider all written comments concerning

this methodology and the accompanying computer code received before

December 31, 1996.

ADDRESSES: Comments: Address all written comments to Susan G. Esserman,

Assistant Secretary for Import Administration, Central Records Unit,

Room B-099, U.S. Department of Commerce, Pennsylvania Avenue and 14th

Street, NW., Washington DC 20230.

Computer Code: The computer code is available to the public as of

March 8, 1996 on Internet at the following address: HTTP://

WWW.ITA.DOC.GOV/IMPORT____ADMIN/RECORDS/. In addition, the computer

code is available on 3.5'' diskettes in SAS 6.11 format and paper

copies are available for reading and photocopying at Room B-099 of the

Central Records Unit, Room B-099, U.S. Department of Commerce,

Pennsylvania Avenue and 14th Street, NW., Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: Penelope Naas, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, N.W., Washington D.C. 20230; telephone:

(202) 482-3534.

SUPPLEMENTARY INFORMATION: The URAA amended the Tariff Act of 1930

(``the Act'') to provide explicit guidance regarding the exchange rate

to be used when converting currencies in antidumping proceedings

(section 773A). In the Statement of Administrative Action accompanying

the URAA, the Administration set out its intention that the Department

would ``* * * promulgate regulations implementing the requirements of

section 773A.'' In the ``Notice of Proposed Rulemaking and Request for

Public Comments'' dealing with proposed antidumping and countervailing

duty regulations, the Department announced its intention to implement

the requirements of section 773A ``through an exchange rate model

announced in a policy bulletin * * *'' (61 FR 7308; February 27, 1996.)

Policy Bulletin 96-1, which follows, is a description of the exchange

rate model.

As stated in the proposed regulations, we plan to use this model

for one year and then evaluate its performance based on public comment.

We will then alter the model as necessary and expand the regulations to

provide more extensive guidance. The public is invited to comment on

the model at any time prior to December 31, 1996. The computer code,

through which the exchange rates will be selected is available on

Internet and on disks from the Department. The Department also will

make available on Internet lists of exchange rates for all currencies

required in antidumping proceedings under the Act, as amended by the

URAA.

Policy Bulletin 96-1: Import Administration Exchange Rate

Methodology

Introduction

For the first time, the Uruguay Round Agreements Act (the ``URAA'')

provides explicit guidelines for the selection of exchange rates that

Import Administration (``IA'') will use in converting foreign

currencies to U.S. dollars. Our past practice, specified in 19 CFR

353.60, has been to use the same exchange rates as the Customs Service.

Section 773A of the Tariff Act of 1930, as amended, (the ``Act'')

provides that IA will convert foreign currencies at the exchange rates

on the date of the U.S. sale, subject to certain exceptions. Those

exceptions require IA to ignore ``fluctuations'' in the exchange rate

and to provide respondents in an investigation at least 60 days to

adjust prices after a ``sustained movement'' in the exchange

rate.1 Neither the Act nor the Antidumping Agreement (Agreement on

Implementation of Article VI, GATT 1994) provide guidance on defining

fluctuations or sustained movements.

\1\ Section 773A of the Act also specifies that, if it is

established that a forward currency transaction (``hedging'') is

linked to an export sale, IA may use the exchange rate specified in

the forward contract to convert currency for that sale. The model

described in this bulletin does not encompass this exception. When

it is appropriate to employ the forward rate provision, it is a

simple matter to substitute the forward rate for the results of the

model.

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The Statement of Administrative Action accompanying the URAA (the

``SAA'') provides that IA is to promulgate regulations implementing the

currency conversion provisions of section 773A of the Act. (SAA at

841.) The proposed regulations do not provide the kind of detail

necessary to define fluctuations and sustained movement. Instead, we

intend to implement and test the model described in this bulletin for

one year. We will then make any necessary revisions to the model based

on our experience and public comment. Once that process is complete, we

will promulgate regulations fully defining our practice.

We have designed the exchange rate model described below to define

fluctuations and sustained movements with three goals in mind:

1. To implement the statutory requirements as simply as possible.

2. To ensure that all exporters, when they set their U.S. prices

and whether under order or not, can know with certainty the daily

exchange rate the Department will use in a dumping analysis.

3. To capture the model in simple computer code to reduce the

administrative burdens on IA and other parties that wish to monitor

exchange rates.

In brief, the model has been designed to convert a file of actual

daily exchange rates to a file of ``official'' daily exchange rates. In

this process, each actual daily exchange rate is classified as

``normal'' or ``fluctuating.'' An extended pattern of appreciating

rates defines a ``sustained movement.'' Based on these classifications,

the model assigns the appropriate official exchange rate for each

day.2

\2\ We are continuing to examine the application of the model in

situations where the foreign currency depreciates substantially

against the dollar over the period of investigation or the period of

review. In those situations, it may be appropriate to rely on daily

rates.

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Summary of the Model.

Step 1: Exchange Rate Used

The model classifies each daily rate as ``normal'' or

``fluctuating'' based on a ``benchmark'' rate. The benchmark is a

moving average of the actual daily exchange rates for the eight weeks

immediately prior to the date of the actual daily exchange rate to be

classified.3 Whenever the actual daily rate varies from the

benchmark rate by more than two-and-a-quarter percent, the actual daily

rate is classified as fluctuating. If within two-and-a-quarter percent,

the actual daily rate is classified as normal.

\3\ The New York Federal Reserve Bank publishes exchange rates

for Monday through Friday only, excluding holidays. We refer to

these as the actual daily rate or reported days.

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Actual daily rates classified as normal are the official exchange rate

for that day. However, when an actual daily rate is classified as

fluctuating, the benchmark rate is the official rate for that day.

Step 2: Recognition Period

Whenever the weekly average of actual daily rates exceeds the

weekly average of benchmark rates by more than five percent for eight

consecutive

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weeks (the recognition period), the model classifies the exchange rate

change as a sustained movement. During the eight week recognition

period, the model continues to classify each daily rate as normal or

fluctuating and to substitute the benchmark rate for the actual daily

rate when the daily rate is fluctuating.

Step 3: Adjustment for Sustained Movement

When there has been a sustained movement increasing the value of a

foreign currency in relation to the dollar, respondents under

investigation, but not review, are given 60 calendar days to correct

their prices. The 60-calendar-day grace period begins on the first day

after the recognition period. During that period, the official rate in

effect on the last day of the recognition period will be the official

rate in investigations. For reviews, the model continues to apply the

eight-week average to determine whether daily rates are normal or

fluctuating.

When a foreign currency has decreased in value in relation to the

dollar, there is no adjustment required for a sustained movement, and

the official rate generated by the model will normally apply to

currencies depreciating against the dollar. However, in both

investigations and reviews, whenever the decline in the value of a

foreign currency is so precipitous and large as to reasonably preclude

the possibility that it is only fluctuating, the lower actual daily

rates will be employed from the time of the large decline.

The Starting Point

In order to provide certainty for all parties, we will start the

model for all currencies as of January 1, 1992. We have chosen this

date because the new law is effective for all reviews requested in

January 1995 and thereafter. Generally, the earliest possible U.S. sale

is 18 to 22 months prior to the anniversary month (18-month review

period (first review) with U.S. sales generally made not earlier than 4

months before entry). By starting the model more than a full year prior

to the earliest probable U.S. sale date, any distortion caused by the

pattern of rates included in the initial benchmark will be eliminated

before it can influence the exchange rate on the date of an actual U.S.

sale.

Currently, a list of official rates starting with January 1, 1992,

for the 30 exchange rates collected by the New York Federal Reserve

Bank 4 is available on Internet and through the Central Records

Unit. Shortly, all currencies for which there is a product under a

dumping order will be posted and distributed. We will maintain these

rates and update them quarterly using the Federal Reserve and other

reliable sources.

\4\ The 30 exchange rates are collected by the New York Federal

Reserve Bank from a sample of market participants. They are the noon

buying rates in New York for cable transfers payable in foreign

currencies. These rates are certified by the New York Federal

Reserve Bank for customs purposes, as required by section 522 of the

Act. The daily rates are published weekly by the Federal Reserve

Bank Board of Governors in form H-10. In addition, the Chicago

Federal Reserve Bank maintains an electronic file on a bulletin

board (which any party can access by modem) of 30 of the currencies.

When the need for a currency other than one of the 32 arises, we

will identify another reliable source.

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Decision Rules in Greater Detail

The decision rules which follow have been programmed in SAS to

convert a list of actual daily exchange rates to a list of official

exchange rates for use in dumping investigations and reviews. We will

use the file of official daily rates to select the exchange rate for

each U.S. sale in our calculations. The following rules will apply:

1. Use the actual daily exchange rate 5 unless the actual

daily rate varies by more than two and a quarter percent from the

benchmark rate (``fluctuates''). The benchmark rate is defined as the

moving average exchange rate of the 40 reported days immediately

preceding the date of the exchange rate being tested and

classified.6

\5\ The exchange rate on Saturday, Sunday, or holidays is the

rate used for the previous reported day.

\6\ The model is based on reported days. For example, the

benchmark rate used is 40 reported days or approximately eight

calendar weeks. Likewise, the exchange rate recognition period is 40

reported days or approximately eight weeks.

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2. When the actual daily rate fluctuates from the benchmark rate,

use the benchmark rate until the daily rate fluctuates by more than

five percent in the same direction from the benchmark rate for a period

of 40 reported days, or approximately eight weeks.7 In other

words, the weekly average of the actual daily rates will be compared to

the average benchmark rate for the same week. If the actual exchange

rate average exceeds the benchmark average by five percent or more for

eight consecutive weeks, a sustained movement in the value of the

currency is deemed to have occurred.

\7\ To eliminate ``noise'' in the daily rates, when testing

whether there has been a sustained movement, the model compares the

eight average weekly rates for the recognition period to the

benchmark rate. Daily rates are too volatile. (By using an average

weekly rate, a single day's dip back into the normal range will not

mask a sustained movement.) A sustained movement is deemed to have

occurred when the average rate for each of the eight weeks of the

recognition period deviates from the benchmark by more than five

percent.

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3. In investigations, if a sustained movement has occurred, and the

foreign currency has increased in value in relation to the U.S. dollar,

continue to use the official rate from the last day of the recognition

period for 60 days following the end of the recognition period. On the

61st day, we would return to comparing the actual daily rate to the

benchmark rate.

Whenever the decline in the value of a foreign currency is so

precipitous and large as to reasonably preclude the possibility that it

is only fluctuating, use actual daily rates from the start of the

recognition period.

Dated: March 4, 1996.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 96-5424 Filed 3-7-96; 8:45 am]

BILLING CODE 3510-DS-P