Anti-dumping and Countervailing Program

Decision on Remand - Iodinated Radiographic Contrast Media

OTTAWA, July 10, 2003

4240-21
AD/1234

STATEMENT OF REASONS

IN THE MATTER concerning the confirmation of the final determination of dumping with respect to certain iodinated contrast media used for radiographic imaging, originating in or exported from the United States of America (including the Commonwealth of Puerto Rico)

DECISION ON REMAND

Pursuant to paragraph 41.1(2)(a) of the Special Import Measures Act, the Commissioner of Customs and Revenue has, on June 25, 2003, confirmed the final determination of dumping made on March 30, 2000, respecting certain iodinated contrast media for radiographic imaging, in solutions of osmolality less than 900 mOsm/kg H2O, originating in or exported from the United States of America (including the Commonwealth of Puerto Rico).

On June 25, 2003, pursuant to paragraph 41.1(2)(a) of the Special Import Measures Act , (SIMA), the Commissioner of Customs and Revenue (Commissioner) confirmed the final determination of dumping made on March 30, 2000, respecting certain iodinated contrast media used for radiographic imaging, originating in or exported from the United States of America (including the Commonwealth of Puerto Rico).

This action results from a decision of an Article 1904 Binational Panel (Panel) on May 26, 2003, whereby certain issues were remanded for reconsideration by the Canada Customs and Revenue Agency (CCRA).

PRODUCT DEFINITION

The subject goods are defined as:

"Iodinated contrast media used for radiographic imaging, in solutions of osmolality less than 900 mOsm/kg H2O, originating in or exported from the United States of America (including the Commonwealth of Puerto Rico)."

Additional Product Information

For clarity, the subject goods include non-ionic monomers and dimers in solutions less than 900 mOsm/kg H2O. They are commonly referred to in the industry as low osmolality contrast media (LOCM) products. LOCM products sold in Canada must be approved for specific indications (i.e., use) by the Therapeutic Products Programme (formerly the Health Protection Branch) of Health Canada.

BACKGROUND

As a result of a complaint filed by Mallinckrodt Canada Inc. (now known as Tyco Healthcare Canada Inc.), a dumping investigation was initiated on August 20, 1999. On March 30, 2000, the Commissioner made a final determination of dumping respecting the subject goods, pursuant to paragraph 41(1)(a) of SIMA.

On May 1, 2000, the Canadian International Trade Tribunal (CITT) issued a finding of injury respecting the subject goods.

Following the final determination of dumping, five companies, Bracco Diagnostics Inc. and Bracco Diagnostics Canada Inc. (the Bracco group), Nycomed Amersham Canada Ltd., Nycomed Inc. and Nycomed Imaging AS (the Nycomed group) requested a review of the final determination by a Panel established pursuant to Article 1904 of the North American Free Trade Agreement.

After the CITT issued its injury finding, several interested parties requested that a public interest investigation be conducted. On August 29, 2000, the CITT reported to the Minister of Finance (Finance) that it was of the opinion that the imposition of anti-dumping duties in the full amount in respect of the subject goods is not in the public interest. It recommended that the Finance reduce the anti-dumping duties on shipments of the subject goods to Canada.

On May 2, 2001, the Iodinated Contrast Media Remission Order came into effect. This Order allows remission of anti-dumping duties that were paid or payable on or after December 31, 1999, in the amount calculated in accordance with the Order. an interest in the Commissioner's expiry review investigation were contacted in writing regarding this amendment and change in schedule. In addition, the revised expiry review schedule was posted on the CCRA website. The amended schedule was felt to be the most expeditious and reasonable manner to resolve the issue. No parties expressed any concerns regarding the amended schedule during the course of the Commissioner's expiry review investigation.

On January 8, 2003, the Panel issued its decision. While the Panel upheld the CCRA's decision with respect to Bracco, it remanded certain issues for consideration by the CCRA with respect to Nycomed and the exporter, Searle Ltd., a Puerto Rican company that manufactures the subject goods on behalf of Nycomed.

The CCRA reconsidered the final determination in accordance with the remand and found no reason to rescind or vary it. Therefore, on February 24, 2003, the CCRA confirmed the final determination of dumping of the subject goods made on March 30, 2000.

CONCLUSIONS OF THE PANEL REVIEW

On May 26, 2003, the Panel remanded certain issues related to the final determination back to the Commissioner for reconsideration and action within 30 days as follows:

• The CCRA is required to either deduct movement costs back to Puerto Rico in determining normal value under section 29 or provide an explanation why movement costs were not deducted when such costs were deducted in determining export price; and
• The CCRA is required to either deduct the profit on the first domestic sale of the goods in the United States or explain why a deduction for profit was not necessary to achieve a fair comparison of prices for the purposes of section 29.

Copies of the Panel's Decision (Secretariat File No. CDA-USA-2000-1904-01) may be obtained from:

NAFTA Secretariat
Canadian Section
Thomas D'Arcy McGee Building
90 Sparks Street, Suite 705
Ottawa, Ontario
K1P 5B4

Phone: (613) 992-9388
Fax: (613) 992-9392

RESPONSE TO THE PANEL REMAND

REMAND (A) - Either deduct the movement costs back to Puerto Rico in determining normal value or provide an explanation as to why movement costs were not deducted when such costs were deducted in determining export price.

CCRA'S RESPONSE TO REMAND (A)

Background

Following a detailed review of the applicable legislative provisions of SIMA, the circumstances of the case and the facts available, the CCRA has concluded that the movement cost from Memphis to Puerto Rico should not be deducted from the selling price [normal value] established at the Memphis warehouse location. If the movement cost was deducted, it would reduce the cost of goods sold from the Memphis warehouse and the resultant value would not permit a proper comparison to be made with the export price of the goods exported to Canada.

In order to address the Panel's concern and to understand the CCRA's approach in making a proper comparison between the normal value determined at Memphis and the export price determined at Puerto Rico, it is necessary to provide an explanation of the CCRA's position as to what constitutes "a proper comparison", in accordance with the provisions of SIMA and the WTO Anti-dumping Agreement. The particular circumstances of the case under review are explained in this Statement of Reasons, including the factors taken into consideration in reaching the conclusion that it would not be appropriate to deduct the movement cost from the normal value determined at the Memphis location.

Generally, to facilitate a proper comparison at the ex-factory level, the exporter under investigation has sales of subject goods to an importer in Canada and at the same time, sells like goods to its domestic customers, in the ordinary course of trade under competitive conditions.

The identified exporter, Searle Ltd., Puerto Rico, did not sell the subject goods to Nycomed Amersham Canada Ltd., the importer in Canada and it did not sell like goods domestically that met the terms and conditions provided for in sections 15 and 16 of SIMA, as confirmed in the Panel's decision and order of May 26, 2003. Further, the normal value could not be determined under paragraph 19(b) of SIMA using a cost plus approach, since it was not possible to determine a reasonable amount for selling, administrative and all other costs and a reasonable amount for profit. In such circumstances, it is not possible to make a comparison of the normal value with the export price at the exporter's ex-factory level.

While the CCRA strives to determine a normal value that permits a proper comparison with the export price of the goods exported to Canada, it is limited by the information available. In the opinion of the CCRA, the normal value in such circumstances may not always be determined at the ex-factory level where the export price was determined, either because the information was not available to permit such a determination or because it would not be appropriate to do so.

After reconsidering the facts, it is the CCRA's opinion that it is not appropriate to determine the normal value at the ex-factory Puerto Rico location. In reaching this conclusion the CCRA took a number of factors into consideration, including the different methodologies in determining the normal value and the export price, the meaning of "normal value" in the context of SIMA, the determination of normal value in the case under review and the concept of substitution in the case of a "deemed exporter".

Comparison of Normal Value and Export Price Methodologies

There are no requirements under SIMA or provisions in the WTO Anti-dumping Agreement that stipulate that the methodologies be the same for determining the normal value and the export price, or that the adjustments made for price comparability in determining the normal value must be parallel to the adjustments made in determining the export price of the goods.

Article 2.4 of the WTO Anti-dumping Agreement states, in part, that "A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect made as nearly as possible at the same time."

Although it is mandatory to compare the normal value with the export price in determining whether or not goods are being dumped, SIMA provides specific methodologies for determining the normal value of the like goods as well as for determining the export price of the exported goods. The legislation provides a hierarchy of methodologies by which both the normal value and the export price may be determined.

The normal value methodologies are based on domestic market considerations while the export price methodologies are based on the conditions surrounding the sale of the subject goods to Canada. Each methodology is unique in its determination. In this regard, the adjustments made in determining the normal values of the like goods are different from the adjustments made in determining the export price of the goods exported to Canada under section 24 or 25 of SIMA.

Normal Value

Normal value is usually the selling price of like goods that meets the conditions of sections 15 and 16 of SIMA, to unrelated domestic customers who are at the same or approximately the same trade level as the importer in Canada, sold in the same or substantially the same quantities, in the ordinary course of trade for use in the country of export under competitive conditions, during a selected period specified by the CCRA, from the place of direct shipment from where the goods were shipped to Canada or would normally be shipped to Canada.

The selling prices are adjusted by the Special Import Measures Regulations (SIMR) to reflect the differences in the terms and conditions of sale, in taxation and other differences relating to price comparability between the goods sold to the importer in Canada and the like goods sold by the exporter in its domestic market. The normal value of the like goods is normally determined at the place of direct shipment from where the goods were shipped to both the exporter's domestic customers and to the importers in Canada. In other words, the selling price at the place of direct shipment would normally be the ex-factory or ex-warehouse selling price, in accordance with the provisions of paragraph 15(e) of SIMA.

If there were insufficient domestic sales at the place of direct shipment to Canada, then the selling price at another place from where the exporter has other sales of like goods would be used in determining the normal value of the goods. Therefore, the legislation recognizes that in certain instances the export price may be compared to a normal value determined at a place other than the place of direct shipment of the goods to Canada.

In the case under review, Searle Ltd., the exporter in Puerto Rico, had no sales of like goods that met the conditions of sections 15 and 16 of SIMA and, in the absence of sufficient information to use a constructed cost plus approach under paragraph 19(b) of SIMA, the normal value of the goods was determined pursuant to section 29 of SIMA. Notwithstanding the fact that the normal value of the goods was determined under section 29 of SIMA, the CCRA strived to follow, as closely as possible, the provisions governing the determination of normal value as contained in sections 15 through 19 of SIMA.

In proceeding under section 29 of SIMA to determine the normal value of the goods, the approach used by the CCRA is similar to the approach provided for in paragraph 16(1)(c) of SIMA, where one or more vendors could be deemed to be the exporter for the purposes of determining the normal value of the goods sold to the importer in Canada. The use of sales by other vendors in determining the normal value of the goods is permitted under paragraph 16(1)(c) of SIMA, where the goods are sold primarily for export or primarily to related parties. However, in the case under review the conditions as set out in paragraph 16(1)(c) were not met.

While the provisions of paragraph 16(1)(c) of SIMA could not be applied, section 29 of SIMA gives the Minister the authority to specify the method to be used to determine the normal value of the goods. In the case under review, the ministerial specification employed an approach where the normal value would be based on the domestic sales of another vendor or vendors as selected by the CCRA. The vendor who was substituted in place of the exporter for the purposes of determining the normal value of the goods exported by Searle Ltd, was Nycomed Inc., selling out of a warehouse in Memphis. The purpose of the substitution is to determine the normal value of the goods exported to Canada, based on the selling price of like goods that met the terms and conditions of sections 15 and 16 of SIMA, and sold in the country of export in the ordinary course of trade, under competitive conditions by the vendor, Nycomed Inc.

Once this substitution is made, several important factors must be recognized in order to understand the approach used by the CCRA to determine the normal value of the goods exported to Canada, using a substitute exporter. The factors are:

• The selected vendor, Nycomed Inc., is substituted for Searle Ltd. and is deemed to be the exporter for the purposes of determining the normal value of the goods;
• The normal value may be determined on the basis of domestic sales of like goods by Nycomed Inc. that met the terms and conditions of sections 15 and 16 of SIMA;
• Once a substitute exporter has been chosen, the original exporter, Searle Ltd., is no longer a factor in determining the normal value of the like goods. As such, the location of the exporter or the point of direct shipment of the goods to Canada is not a factor in determining the normal value of the goods. What is relevant is the point of direct shipment of the selected vendor to its domestic customers, which, in this case is Memphis;
• The normal value, using the domestic sales of like goods that met the conditions of sections 15 and 16 of SIMA, would be determined at the Memphis warehouse location, the place of direct shipment to Nycomed Inc.'s domestic customers. The ex-Memphis warehouse selling price would include all of Nycomed Inc.'s acquisition costs of the like goods, administrative selling and all other costs and an amount for profit;
• The ex-Memphis warehouse selling price reflects the normal value of the like goods when sold by Nycomed Inc., the deemed exporter, in the ordinary course of trade under competitive conditions in the country of export. This also applies to the Puerto Rican market, which is supplied by Nycomed Inc., out of the Memphis warehouse. It is at this pricing level that Nycomed Inc. would be competing for supply contracts with its two major competitors in the United States market; and
• Since Nycomed Inc. is the "deemed exporter" for the purposes of determining the normal value, and the normal value has been determined at its Memphis warehouse location, further deduction for the movement cost, including the freight-in costs, from Memphis to the place of direct shipment of the goods to the importer in Canada is not justifiable. The movement cost is part of Nycomed Inc.'s acquisition cost of the goods and is included in the cost of goods sold by the company in accounting for the goods. To deduct the movement cost would be to reduce the cost of goods sold. The resultant value would therefore reflect a value that is below cost and is not the normal value of the like goods sold in the domestic market. As such, it would not permit a proper comparison to be made with the export price of the goods.

Export Price

The export price of the goods sold to the importers in Canada is normally determined in an arms-length transaction under section 24 of SIMA on the basis of the lesser of the exporter's selling price or the importer's purchase price, less all costs, charges and expenses arising from the exportation of the goods.

In the case under review, Searle Ltd., the exporter in Puerto Rico, did not sell the subject goods to the importer in Canada and there was not an established importer's purchase price of the goods. The first time that a selling price was established was to the purchasing group representing the end-user in Canada. Since there was no exporter's selling price or no price at which the importer in Canada has purchased or agreed to purchase the goods, the export price of the goods was determined in accordance with the special rules under the provisions of section 25 of SIMA.

The provisions of paragraph 25(1)(c) set out the specific methodology of how the export price should be determined and the specific deductions that must be made from the selling price of the goods including the costs, charges and expenses arising from the exportation of the imported goods or arising from their shipment from the place of direct shipment, as well as an amount for profit.

The export price in the case under review was determined in accordance with the specific methodology set out in section 25 of SIMA.

Remand (A) Conclusion

In view of the foregoing, the CCRA holds the position that a proper comparison was made between the normal value and the export price. It is recognized that the normal value was determined at Nycomed Inc.'s Memphis warehouse location, from where the like goods were shipped to its domestic customers, and not at the Puerto Rico location, where the goods were produced and shipped to Canada. However, by selecting Nycomed Inc. for the purpose of determining the normal value of the goods, its point of direct shipment to its domestic customers is pivotal to the determination of the normal value. The normal value at Nycomed Inc.'s point of direct shipment in Memphis represents the normal value of like goods when sold in the United States in the ordinary course of trade under competitive conditions. In this case, the normal value of the goods was determined in accordance with a ministerial specification on the best information available and further, was based on objective and verifiable data.

The CCRA maintains its position that, in the circumstances where Nycomed Inc. has been substituted as the "deemed exporter" for the purposes of determining the normal value of the goods, a proper comparison was made between the normal value, established for Nycomed Inc. at the Memphis warehouse location, and the export price, determined separately at the location in Puerto Rico, in accordance with the provisions of section 25 of SIMA.

The margin of dumping is determined by making a fair comparison between the normal value of the goods with the export price of the goods. While the normal value and the export price are calculated independent of each other, once calculated, they are compared to determine whether or not the goods are dumped.

Therefore, an adjustment to the selling price at the Memphis location for the movement cost between Puerto Rico and Memphis is not warranted in determining normal value, since such costs, from an accounting and SIMA perspective, are part of the cost of goods sold [in Nycomed Inc.'s case, part of its acquisition cost] and impacts on the normal value and on the profitability of the goods sold under competitive conditions in the domestic market. To deduct the movement cost would result in an artificially low normal value and incorrect calculations of the margin of dumping.

In the specific circumstances of the case under review, where the normal value was determined on the basis of a selected vendor who was not the exporter, it is the position of the CCRA that a proper comparison has been made between the normal value, established for like goods at the point of direct shipment when sold in the United States in the ordinary course of trade under competitive conditions and the export price, determined in accordance with the provisions of the legislation at the point of direct shipment in Puerto Rico.

REMAND (B) - Either deduct the profit on the first domestic sale of the goods in the United States or explain why a deduction for profit was not necessary to achieve a fair comparison of prices for the purposes of section 29.

CCRA'S RESPONSE TO REMAND (B)

Background

Before addressing the second issue remanded, it is necessary to clarify some of the statements made by the Panel with regards to this issue. The Panel states, "While recognizing that profit is a typical adjustment in margin calculation, the Panel also accepts that there may be a rational explanation for the CCRA not making that adjustment in this case. This might be inferred from the CCRA's other findings (especially those relating to whether the first domestic sale of the goods in the United States were in "the ordinary course of trade")."

The Panel is correct in its observation that profit is a typical adjustment in the margin calculation. However, the deduction of profit pertains to the deduction provided for in the determination of the export price under the special rules in subparagraph 25(1)(c)(ii) of SIMA. There are no such corresponding provisions in the legislation or in the SIMR for deducting an amount for profit in the determination of the normal value.

First Domestic Sale

In its remand, the Panel has ordered the CCRA to "either deduct the profit on the first domestic sale of the goods in the United States or explain why a deduction was not necessary." Some clarification is necessary with regard to the Panel's reference to "first domestic sale", and to whose profit the Panel is referring.

The CCRA considers domestic sales to be sales that meet the terms and conditions provided for in sections 15 and 16 of SIMA. In the CCRA's opinion, the sales by Nycomed Inc. in the United States to its domestic customers were the only sales that met the terms and conditions of sections 15 and 16 of SIMA.

However, in determining which sales were the first domestic sales the Panel was referring to, the CCRA took into consideration the Panel's reference to "whether the first domestic sale of the goods in the United States were [in the ordinary course of trade]." This leaves the CCRA with two possibilities to consider as the "first domestic sale": (1) the sales by the exporter, Searle Ltd., in Puerto Rico, to Nycomed Imaging AS, in Norway; or (2) the subsequent sale of the same goods by Nycomed Imaging AS as the vendor to its related company Nycomed Inc., in the United States, to whom the goods were shipped.

In the circumstances, the CCRA assumes that the "first domestic sale" refers to the sale of goods made by Searle Ltd., in Puerto Rico, to Nycomed Imaging AS, in Norway, that were destined for use in the United States and shipped to Nycomed Inc. In doing so, the CCRA assumes that the remand requires the deduction of Searle Ltd.'s profit from the selling price determined at the Memphis location, or an explanation of why it was not necessary to deduct the profit to achieve a fair comparison of prices.

Notwithstanding the foregoing, it is important to note that:

• an amount for profit is a mandatory component of normal value and should not be removed from the selling price of the goods in determining the normal value;
• the profit that was deducted in the export price determination under subparagraph 25(1)(c)(ii), was the importer's profit on the sale of the goods in Canada. There is no corresponding deduction for an amount for profit in determining the normal value of the goods under the legislation or in the SIMR; and
• the relief sought by the complainant was with respect to the removal of the ".profit components from Nycomed Inc.'s selling price to hospital buying groups in the U.S. in order to obtain the ex-factory normal value at Searle's point of shipment (i.e., the factory gate in Puerto Rico)."

In this regard, the following addresses the relief sought by the complainant and CCRA's reasons why an amount for profit should not be deducted from the selling price determined at Nycomed Inc.'s Memphis location in determining the normal value of the goods.

Deduction of Profit

The CCRA has reconsidered the issue remanded by the Panel and the relief sought by the complainant and maintains the position that it would not be appropriate to deduct the profit from the selling price of the goods in determining the normal value of the goods.

This position is supported by all of the arguments put forward in responding to Remand (A) with respect to the selection of Nycomed Inc., as the "deemed exporter" for the purposes of determining the normal value of the goods. To reiterate, the normal value of the goods was determined at the Memphis warehouse location, based on the sales of like goods by the selected vendor, Nycomed Inc., that met the conditions of sections 15 and 16 of SIMA. The normal value so determined includes all costs of acquiring the goods, selling and administrative and all other costs, and an amount for profit.

The Memphis warehouse selling price, and the resulting profit earned by Nycomed Inc., the vendor selected as the deemed exporter, reflects the normal value of the like goods when sold to the buying groups representing a number of hospitals, in the ordinary course of trade under competitive conditions in the country of export. It is at this selling price [with profits included] that Nycomed Inc. would be competing with its major competitors in the United States.

That profits are a mandatory component of the normal value of any goods and are included in their selling price is supported by the fact that the domestic sales upon which normal values are determined must be profitable. Further, the determination of normal value under paragraph 19(b) of SIMA on a constructed cost basis, includes a "reasonable amount for profits". As such, the inclusion of an amount for profit in the normal value of the goods is fundamental to the concept of what constitutes their normal value.

To deduct the profit earned on Nycomed Inc.'s sales from the selling prices determined at the Memphis warehouse location would result in a value that is below the legislated normal value, culminating in erroneous margins of dumping. It is also contrary to the determination of normal values under SIMA, which does not provide for any adjustment to the selling price of like goods in the domestic market for an amount for profit.

Further, to deduct the profit from the selling price determined at the Memphis location in the case of Nycomed Inc., would give the company an unfair competitive advantage in selling the subject goods to Canada over other exporters whose normal value would include an amount for profit, whether determined on the basis of their sales to their domestic customers from their place of direct shipment or on a cost-plus approach under paragraph 19(b) of SIMA.

Conclusion Remand (B)

In view of the fact that the profit is an integral part of the normal value of any goods, the CCRA is of the view that it is not appropriate to deduct the profit earned by Nycomed Inc. from the selling price in determining the normal value of the goods under section 15 of SIMA.

Therefore, it is the CCRA's position that a proper comparison was made between the normal value and the export price for all of the reasons submitted above and in response to Remand (A).

It is the opinion of the CCRA, any further deduction from the selling price established at the Memphis warehouse location is not appropriate and is not provided for in SIMA or in the SIMR in determining the normal value. Deduction of an amount for profit would result in a value that is not the normal value of the goods, incorrect margins of dumping and would not facilitate a proper comparison to be made between the normal value and the export price of the goods.

Further, to do so would result in a value that reflects the selling price of Nycomed Imaging AS in Norway to its related company in the United States, Nycomed Inc. The selling price of the goods by Nycomed Imaging AS does not meet the conditions set out in sections 15 and 16 of SIMA for determining normal values and is not acceptable, since the sales were not made in the ordinary course of trade under competitive condition. As such, they do not permit a proper comparison to be made with the export price of the goods.

CONCLUSION

The CCRA has prepared these final results of determination pursuant to the remand order from the Article 1904 Binational Panel in the matter of certain iodinated contrast media used for radiographic imaging, originating in or exported from the United States of America (including the Commonwealth of Puerto Rico) (Secretariat File No.CDA-USA-2000-1904-01).

In accordance with the Article 1904 Binational Panel's instructions of May 26, 2003, the Commissioner has, on June 25, 2003, re-examined and confirmed the final determination of dumping made on March 30, 2000, with respect to iodinated contrast media for radiographic imaging, in solutions of osmolality less than 900 mOsm/kg H2O, originating in or exported from the United States of America (including the Commonwealth of Puerto Rico).

FUTURE ACTION

The Panel has 90 days from June 25, 2003, to review the Commissioner's Determination on Remand.

PUBLICATION

Notice of this determination on remand is being published in the Canada Gazette pursuant to paragraph 41.1 (2)(b) of SIMA.

INFORMATION

This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also available on the CCRA's Web site at: http://www.cbsa-asfc.gc.ca/sima-lmsi/.

A free copy may be obtained upon request.

For further information, please write to Richard Chung at the following address:

Canada Customs and Revenue Agency
Anti-dumping and Countervailing Directorate
191 Laurier Avenue West, 19^th Floor
Ottawa, Ontario K1A 0L5
Canada

This officer can also be reached by fax at (613) 954-2510, or by telephone at (613) 954-7253.

Suzanne Parent
Director General
Anti-dumping and Countervailing Directorate