Anti-dumping and Countervailing Program

Preliminary Determination - Fresh, whole, Delicious, Red Delicious and Golden Delicious apples

OTTAWA, October 12, 1994

4237-79

AD/1094

STATEMENT OF REASONS

IN THE MATTER concerning a preliminary determination of dumping made pursuant to subsection 38(1) of the Special Import Measures Act regarding

Fresh, whole, Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America.

DECISION

Pursuant to subsection 38 (1) of the Special Import Measures Act, the Deputy Minister of National Revenue has today made a preliminary determination of dumping respecting certain fresh, whole, Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America.

This Statement of Reasons is also available in French.

Cet énoncé des motifs est également disponible en français.

SUMMARY

On July 14, 1994, the Deputy Minister of National Revenue initiated an investigation into the alleged injurious dumping of certain Delicious, Red Delicious and Golden Delicious apples originating in or exported from the United States of America. As a result of this investigation, the Department is satisfied that the subject goods have been and are being dumped and that the margin of dumping and the volume of dumped goods are not negligible. Accordingly, the Deputy Minister has, on this date, made a preliminary determination of dumping in accordance with subsection 38(1) of the Special Import Measures Act (SIMA).

INTERESTED PARTIES

Complainant

The complaint was filed by the Apple Committee of the Canadian Horticultural Council on behalf of the Canadian apple producers.

Exporters & Importers

The Department contacted 167 exporters in the United States at the time of initiation. They are located primarily in the state of Washington.

The Department also contacted 165 importers in Canada at the time of initiation.

A list of names and addresses of exporters and importers can be obtained upon request.

BACKGROUND

On June 30, 1994, the Apple Committee of the Canadian Horticultural Council ( CHC ) submitted a complaint alleging the injurious dumping of certain Delicious, Red Delicious and Golden Delicious apples. The CHC was notified on July 7, 1994, that the complaint was properly documented.

On July 14, 1994, the Department initiated an investigation into the alleged dumping of the subject apples.

On August 10, 1994, the Northwest Horticultural Council, on behalf of exporters in the state of Washington, referred to the Canadian International Trade Tribunal the question of whether there was sufficient evidence of material injury to the production in Canada of like goods. On September 9, 1994, the Tribunal advised that the evidence disclosed a reasonable indication of injury caused by the alleged dumping.

PRODUCT

Product Definition

For the purpose of this investigation, the subject goods are defined as:

"Fresh, whole, Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America, excluding fresh, whole, Delicious, Red Delicious and Golden Delicious apples imported under the authority of a ministerial exemption issued pursuant to the Canada Agricultural Products Act and the Fresh Fruit and Vegetable Regulations."

Product Information

The subject goods include three varieties of apples - Delicious, Red Delicious and Golden Delicious -which are grown and marketed for the fresh market. The Delicious variety is included with the Red Delicious variety for purposes of this investigation. Apples for the fresh market are sold for retail, as opposed to apples sold for further processing into juice and other products. The definition of the goods subject to the investigation excludes apples imported under a ministerial exemption pursuant to the Canada Agricultural Products Act and the Fresh Fruit and Vegetable Regulations. Such exemptions can be granted for apples imported for processing or re-packing, where necessary, in order to alleviate a shortage in Canada in the available supply from domestic production.

Apples are graded in Canada under the Canada Agricultural Products Act as Canada Extra Fancy, Canada Fancy and Canada Commercial. Some provinces also have their own grading standards, for example, B.C. Extra Fancy. In the United States, fresh apples are graded as U.S. Extra Fancy and U.S. Fancy. In addition, some states have their own grading standards, for example, Washington Extra Fancy and Washington Fancy. Canadian provincial and U.S. state standards are generally higher than national standards.

The grading standards in both countries are based on uniformity of size, shape, minimum and maximum diameters, colour, maturity, freedom from disease, defects, damage, and cleanliness. Apples are also pressure tested for firmness to establish internal quality.

Apples are also sized for marketing in the fresh market. In general, these apples must meet a minimum diameter of 5.7 cm (2.2 inches). The size will determine the number of apples that can be layered into a carton. A size "113" means that there are 113 apples in a tray pack or cell pack carton weighing approximately 42 lbs. The most common apple size counts are 72, 80, 88, 100, 113, 125 and 138.

Furthermore, apples are categorized on the basis of their method of storage, as either regular storage or controlled atmosphere storage. Apples for regular storage can be kept for three to seven months. Controlled atmosphere storage ( C.A.) slows the maturing process and apples can be stored for up to 12 months.

CLASSIFICATION OF IMPORTS

The subject goods are classified under the following Harmonized System numbers:

0808.10.10.20 Golden Delicious

0808.10.10.60 Red Delicious & Delicious

CANADIAN INDUSTRY

The apple industry in Canada is represented by the CHC and various provincial producer organizations representing approximately 4,500 apple growers in the five producing provinces - British Columbia, Ontario, Quebec, Nova Scotia and New Brunswick. The subject goods are grown primarily in British Columbia and Ontario, with British Columbia accounting for about 65% and Ontario for 30% of Canadian production.

The British Columbia Fruit Growers' Association represents the interests of approximately 85% of the growers in the province. British Columbia Tree Fruits Ltd. is responsible for marketing and setting prices through the five principal packers which are co-operatively owned and market 90% of the province's crop.

The Ontario Apple Marketing Commission has the authority to licence growers, promote product and establish minimum prices at which graded and packed apples from Ontario may be sold to wholesalers and retailers. The crop in Ontario is marketed by individual growers and a number of small packing houses.

CANADIAN MARKET

The levels of Canadian production, Canadian exports and imports from the United States have remained fairly constant in recent years. Over the past several years, the domestic producers' share of the Canadian market averaged approximately 65% and the U.S. imports share of the Canadian market was about 35%. The Canadian market for the 1993/94 crop year has been estimated at about 197,000,000 lbs. Imports of the subject goods from the United States are estimated at 83,000,000 lbs., mostly from the state of Washington.

U.S. INDUSTRY

Red and Golden Delicious apples are grown in a number of states in the United States and are the predominant variety, accounting for about 60% of total U.S. apple production. Washington state accounts for about 80% of total production of the subject goods. Washington state has several hundred packers both privately and co-operatively owned, ranging from grower packers, who pack only their own product to large organizations which pack for many growers.

RESULTS OF THE INVESTIGATION

At the time of the initiation of the investigation, notices and Requests for Information were sent to all known exporters and importers of the subject goods. The period of investigation covered importations into Canada during the period February 8 to May 31, 1994. This period was chosen as it corresponds to the period following the rescindment of the earlier injury finding on these goods, and is the period in which dumping and injury were alleged to have taken place.

Importers were requested to provide the names of exporters from whom the goods were imported, purchasing practices and the volume and value of imports. Forty-one importers provided submissions and information relating to their imports.

The exporters contacted included sales agents, produce brokers, packers and growers located in various U.S. states - Washington, Michigan, New York, Pennsylvania, Massachussetts and Minnesota. Exporters were requested to provide information relating to domestic and export sales, selling practices and growing, packing and selling costs, in order to allow normal values and export prices to be estimated.

The majority of notices were sent to exporters in Washington state (133 out of the 167) and in response, the Northwest Horticultural Council (NHC), Yakima, Washington, provided a submission on behalf of the Washington state apple industry. The submission included responses from nine sales agents/brokers, 15 packers and 82 growers of the subject goods. The submission contained information relating to sales to Canada, sales in the U.S. domestic market, and growing and packing cost data.

The costing information was accepted unverified for the purpose of the preliminary determination. However, it is expected that verification will be carried out in the next phase of the investigation.

The information contained in the NHC submission concerning U.S. domestic selling prices was incomplete and contained discrepancies. Attempts to obtain clarification were not successful and therefore the information was not considered acceptable for the purpose of the preliminary determination. If the necessary clarifications and satisfactory information is provided, it will be considered in the next phase of the investigation.

NORMAL VALUE

Normal values are generally determined on the basis of selling prices of like goods by the exporter to purchasers in the country of export. However, when domestic selling prices are below the total costs of the goods, normal values can be determined on the basis of the total costs plus an amount for profit.

As noted above, the selling price information provided by the NHC was not acceptable. Therefore, the Department determined weighted average selling prices from publicly available information in the Washington Growers Clearing House Bulletin for the period from early September, 1993 to the end of May, 1994. This publication lists weekly selling prices for apples in the U.S. domestic market. During the 1993/94 crop year, selling prices for all grades and sizes of Red Delicious apples averaged US$11.93 for regular storage and US$10.91 for C.A. storage, with an overall average of US$11.36. Golden Delicious apples averaged US$16.63 for regular storage and US$16.49 for C.A. storage with an overall average of US$16.53. During the period of investigation sales to Canada of the subject goods were mostly C.A. storage apples.

In order to determine the profitability of domestic market sales, the Department determined costs on the basis of information provided by the NHC on behalf of the Washington state apple industry. However, the cost information was based on a limited sample of growers, and their crop yields were not found to be representative of the yield for the state as a whole. Therefore, an adjustment was made to reflect the estimated Washington state average 1993/94 yields for Red Delicious and Golden Delicious apples. The average yield was determined with reference to the total fresh crop of each variety, obtained from the Washington Growers Clearing House Bulletin, and the total acreage of each variety, as published in the Washington Fruit Survey 1993. As well, as information was not provided for C.A. costs, these have been estimated from various public sources as approximating an extra US$0.50 per carton.

The cost to grow, pack and sell Red Delicious apples is estimated at US$12.00 for regular storage and US$12.50 for C.A. storage. A comparison of these costs with average domestic selling prices indicates that overall sales were at a loss during the 1993/94 crop year and were not suitable as a basis for estimating normal values. Therefore, normal values for Red Delicious apples have been determined pursuant to paragraph 19(b) of SIMA on the basis of the total cost to grow, pack and sell the goods plus an amount for profit of 8% pursuant to SIMA regulation 11. Normal values for Red Delicious are, accordingly, estimated as follows: Regular Storage US$12.96 and C.A. Storage US$13.50.

The cost to grow, pack and sell Golden Delicious apples is estimated at US$11.64 for regular storage and US$12.14 for C.A. storage. A comparison of these costs with average domestic selling prices indicates that these goods were generally sold at a profit during the 1993/94 crop year. Hence, for determining whether imports were dumped during the period of investigation, normal values of Golden Delicious apples were established pursuant to section 15 of SIMA on the basis of the weighted average selling prices in the U.S. domestic market from February 8, 1994 to May 31, 1994. The normal values that were determined for purposes of reviewing imports during the investigation period were US$16.63 for Regular storage and US$16.49 for C.A. storage. During this period, most apples sold in the domestic market and to importers in Canada were from C.A. storage.

For the purpose of the preliminary determination, separate normal values were not established for different grades of apples. However, this question will be re-examined as the investigation continues.

It is recognized that selling prices for apples, as for other agricultural commodities, can vary considerably from one year to another and that the selling prices for regular storage and C.A. storage also differ. The selling prices for Golden Delicious apples in the 1993/94 crop year were substantially higher than during the previous several years and are not representative of expected market conditions for the 1994/95 crop year. Therefore, the normal values based on 1993/94 selling prices will not be used for the purpose of assessing provisional duty. While it is too early to determine this year's selling price trends with certainty, it is reasonable to expect that normal values for the period should not be below the costs of production and an amount for profit. Accordingly, for provisional duty purposes, the normal values of Golden Delicious apples have also been estimated on the basis of the total cost to grow, pack and sell the goods plus an amount for profit of 8% pursuant to SIMA regulation 11.

EXPORT PRICE

The export prices for the subject goods were estimated pursuant to section 24 of SIMA on the basis of the exporters' selling prices to importers in Canada less any applicable costs, charges and expenses incurred for the exportation and shipment of the goods to Canada.

For some of the subject goods, the selling prices to importers, primarily from produce brokers in the eastern United States, were inclusive of freight in the United States, distributor/wholesaler mark-up and brokerage fees. In order to compare the export prices of these subject goods on the same basis as for normal values, that is, FOB Washington, it was necessary to deduct estimated amounts for freight, mark-up and brokerage from selling prices on Customs import documentation.

MARGINS OF DUMPING

The Department reviewed imports of 500,000 cartons of subject goods during the period of investigation. This represents 86% of total imports of subject goods in this period. A comparison between the estimated normal values and the export prices of the subject goods during the period revealed that 61% were dumped and that the average margin of dumping of the dumped imports was 22%.

By variety, imports of Red Delicious totalled 307,000 cartons. Of these, 63% were found to be dumped and the average margin of dumping of those shipments was 30%. Imports of Golden Delicious totalled 193,000 cartons. Of these, 58% were found to be dumped and the average margin of dumping of those shipments was 12%.

STATUS OF THE ALLEGED MATERIAL INJURY

As previously stated, on August 10, 1994, the Northwest Horticultural Council referred the question of injury to the Canadian International Trade Tribunal (CITT), under paragraph 34(b) of SIMA. On September 9, 1994, in accordance with section 37 of SIMA, the CITT advised that the evidence disclosed a reasonable indication that the dumping has caused, is causing or is likely to cause material injury. Accordingly, the Department is precluded from further examination of the injury question.

CONCLUSION

The investigation revealed that the margins of dumping of the subject goods and the actual and potential volumes of dumped goods are not negligible. Accordingly, on this date, a preliminary determination of dumping was made, pursuant to subsection 38(1) of SIMA, with respect to fresh, whole Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America.

FUTURE ACTION

The CITT will now hold an inquiry into the question of whether the dumping has caused, is causing, or is likely to cause material injury to the production of like goods in Canada. The CITT is required to issue its decision on the question of injury with respect to the subject goods no later than 120 days after the receipt of notice of this preliminary determination. Pursuant to section 8 of SIMA, subject goods released from Customs during the period commencing on the day the preliminary determination was made and ending on the earlier of the day the investigation is terminated or the day on which the CITT makes an order or finding, are subject to provisional duty not greater than the estimated margin of dumping. Payment of such duty is hereby demanded.

While the CITT's inquiry is in progress, the Department will continue its investigation in order to obtain further information relating to the dumping of the goods. Within 90 days of the preliminary determination, a final determination will be made, specifying the margin of dumping, on the basis of all information available at that time, or if the margin of dumping or the volume of dumped goods is negligible, proceedings will be terminated and any provisional duty paid or security posted will be returned to the importer.

PROVISIONAL NORMAL VALUES

Normal values for use in assessing provisional duty on imports of subject goods are as follows:

Red Delicious

Regular Storage US$12.96

C.A. Storage US$13.50

Golden Delicious

Regular Storage US$12.57

C.A. Storage US$13.11

Importers of the subject goods should use these to determine the amount of provisional duties payable during the provisional period. If export prices are lower than the estimated normal values, the differences will be collected as provisional duties or securities will be required to cover the amounts by which normal values exceed the export prices.

PUBLICATION

Notice of this preliminary determination is being published in the Canada Gazette, pursuant to subparagraph 38(3)(a) of SIMA.

For further information, please contact Elizabeth White or Edith Trottier-Lawson, Senior Program Officers, by telephone at (613) 954-7180 or (613) 954-7353, respectively, by telefax at (613) 954-2510, or at the following address:

Department of National Revenue

Anti-dumping and Countervailing Division

191 Laurier Avenue West

Ottawa, Ontario

K1A 0L5

B. Brimble

Director General

Anti-dumping and Countervailing Division