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Anti-dumping and Countervailing Program
Certain Steel Fuel Tanks
4264-62
AD/1298
STATEMENT OF REASONS
Concerning the initiation of an investigation into the dumping of
CERTAIN STEEL FUEL TANKS ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA AND CHINESE TAIPEI
DECISION
Pursuant to subsection 31(1) of the Special Import Measures Act, the President, Canada Border Services Agency, initiated an investigation on December 19, 2003, with respect to the alleged injurious dumping of certain steel fuel tanks originating in or exported from the People's Republic of China and Chinese Taipei.
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[1] On October 31, 2003, the Canada Customs and Revenue Agency (CCRA) received a written complaint from Spectra Premium Industries Inc. (SPI), concerning the alleged injurious dumping of certain steel fuel tanks originating in or exported from the People's Republic of China (China) and Chinese Taipei. On November 21, 2003, pursuant to subsection 32(1) of the Special Import Measures Act (SIMA), the CCRA informed the complainant in writing that its complaint was properly documented. At the same time, the CCRA also notified the governments of China, Chinese Taipei, and the United States of America. The government of United States of America was notified because a company located in the United States had been identified as a party to the exportation to Canada of subject goods originating in one of the named countries.
[2] On December 12, 2003, the responsibility for the customs program of the CCRA was transferred to the Canada Border Services Agency (CBSA), which was created on the same date. The CBSA is now responsible for dealing with dumping complaints submitted by Canadian industry.
[3] In its complaint, SPI provided evidence that these products have been dumped. Further, the evidence discloses a reasonable indication that the dumping has caused injury or is threatening to cause injury to the Canadian industry producing these goods. As a result, on December 19, 2003, the President of the CBSA initiated an investigation pursuant to subsection 31(1) of SIMA.
[4] Spectra Premium Industries Inc.
1421 Ampère Street
Boucherville, Quebec
J4B 5Z5
[5] The CBSA has identified six possible exporters who may be exporting the subject goods to Canada.
[6] The CBSA has identified fifteen possible importers who may be importing the subject goods into Canada.
[7] For the purpose of this investigation, the subject goods are defined as:
New steel fuel tanks, gasoline or diesel, for passenger cars and light trucks, for the replacement market, originating in or exported from the People's Republic of China and Chinese Taipei.
[8] For purposes of this investigation, passenger cars and light trucks include such vehicles as sport utility vehicles, minivans and pick-up trucks.
[9] For purposes of this investigation, "replacement market" excludes fuel tanks for the original equipment manufacturer (OEM) market, which in this case refers to automobile manufacturers.
[10] Fuel tanks for the replacement market and the OEM market are manufactured using different processes and standards. For example, manufacturing steel fuel tanks for OEMs requires QS9000 certification, special welding equipment, and a very low defect rate. Steel fuel tanks made for the replacement market are not subject to those standards. In addition, OEM fuel tanks are usually manufactured for the current model year. Fuel tanks for the replacement market are made for earlier model years (the average age of replacement for a fuel tank is 10 years) and may not fit and function on the same make and model of car for more current model years.
[11] New steel fuel tanks for the replacement market are used to replace damaged fuel tanks on used vehicles, and are available in many different models. The complainant produces more than 500 models of fuel tanks for the replacement market. Each model of fuel tank is designed to fit inside a specific make and model of car or light truck.
[12] In addition to a steel fuel container, a steel fuel tank usually includes the following components: filler neck, baffle, bowl and vent. For the North American market, the steel used in fuel tanks may have a corrosion-resistant characteristic.
[13] The production of fuel tanks for the replacement market begins with the development of product specifications. For the vast majority of these fuel tanks, the producer does not have the original vehicle manufacturer's specifications. The Canadian producer, SPI, must develop specifications for a replacement fuel tank based on its analysis of the original fuel tank that was installed in a new vehicle.
[14] The steel sheets used in production of fuel tanks for the replacement market are ordered as pre-cut sheets according to the specifications of each model. The manufacturing process begins with the pressing of a half-tank pre-cut sheet (upper and bottom) using specially designed molds for each model in the presser. Holes are then punched in the steel, which permits components to be inserted. The two half-tanks are assembled together using a manual spot welding process, and certain components are soldered to the fuel tanks. Finally, a bending machine is used to give the fuel tanks a final shape. Afterward, each tank is tested, boxed and placed in the warehouse ready for distribution.
[15] The following are the specific 10-digit HS classification numbers under which the subject goods are properly classified:
8708.29.99.90 8708.99.93.90
[16] Like goods, in relation to any other goods, are goods that are identical in all respects to the other goods, or in the absence of identical goods, goods for which the uses and other characteristics closely resemble those of the like goods.
[17]The subject goods made in China and Chinese Taipei are in direct competition with, have the same use as, and may be used as a substitute product for the fuel tanks made by the complainant in Canada, SPI. The CBSA has concluded that the fuel tanks for the replacement market produced by SPI are like goods to the subject goods as defined in this Statement of Reasons.
[18] SPI is the only known Canadian producer of new steel fuel tanks, gasoline or diesel, for passenger cars and light trucks, for the replacement market.
[19] Since the complainant is the only manufacturer of the like goods in Canada, the standing requirements of subsection 31(2) of SIMA are met.
[20] With respect to specific market figures for sales of like goods in Canada, the CBSA is unable to release these figures since there is only one Canadian producer and this would result in the release of confidential information. The estimate of the apparent Canadian market is based on this information as well as information from customs records on imports.
[21] The complainant alleges that the fuel tanks from China and Chinese Taipei have been injuriously dumped into Canada. Dumping occurs when the normal value of the goods exceeds the export price of the goods sold to an importer in Canada. The complainant's allegations of dumping are based on its comparison of the estimated normal values of the subject goods and the estimated export prices to Canada. The complainant estimates that the dumping began in April 2002.
[22] The CBSA has also estimated normal values and export prices of the subject goods for purposes of initiating this investigation.
[23] Estimates of normal values, export prices, and margins of dumping are discussed below.
[24] Normal values are generally based on the domestic selling prices of the goods in the country of export or on the full cost of the goods plus a reasonable amount for profit.
[25] The complainant believes that the exporters in China and Chinese Taipei do not sell like goods in their domestic markets because the conditions for the corrosion of fuel tanks (use of salt on roads in winter) are not as prevalent in those countries. In addition, the complainant indicates that the models of cars, and therefore the fuel tanks, sold in the domestic market in China and Chinese Taipei are significantly different than those sold in Canada. Consequently, the complainant estimated normal values on the basis of the full cost of the goods plus a reasonable amount for profit.
[26] In constructing normal values, SPI began with its own cost of materials. This is a conservative estimate because SPI purchases large volumes of steel and has negotiated what it describes as a favorable price from its steel supplier. As a result, the CBSA accepts this estimate as reasonable.
[27] SPI provided detailed materials costs on 23 of the most popular models of fuel tanks offered in the Canadian market by the exporters of subject goods. SPI used the weighted average materials cost of these 23 models in its estimate of normal value. Using Customs documents available to the CBSA on actual imports of subject goods, the CBSA was able to identify the model numbers of almost all of the subject imports. As a result, the CBSA was able to use specific materials costs in its estimate of normal values for each of the 23 imported models for which individual cost information had been provided by the complainant. The CBSA used the weighted average materials cost in estimating normal values for all other imports.
[28] For direct labour cost, SPI estimated costs in line with lower labour costs available in China and Chinese Taipei. Based information publicly available from the Import Trade Administration of the United States at http://ia.ita.doc.gov/wages/index.html, the CBSA finds that the direct labour costs estimated by SPI are reasonable. As a result, the CBSA used these costs in its estimates of normal values.
[29] In its estimates of normal values, the CBSA made downward adjustments to the following cost estimates of SPI: indirect labour, overhead, and selling and administration. The CBSA made a downward adjustment to indirect labour to provide the exporters in China and Chinese Taipei the full benefit of the lower labour costs that the complainant had estimated for direct labour cost. The CBSA made downward adjustments to overhead and selling and administrative costs to reflect the traditional method of cost allocation used in dumping investigations, i.e. allocating such costs based on percentage of cost of production.
[30] In estimating a reasonable amount for profit, SPI used its historical profit level on its fuel tanks operation before the alleged dumping began. Using publicly available information for the auto parts industry in China, the CBSA found the complainant's estimate of the amount for profit to be reasonable.
[31] The CBSA also considered whether, in the case of China, there were grounds to apply section 20 of SIMA. At this time, there is no evidence to suggest that domestic prices of like goods are substantially determined by the government of China and that they are not substantially the same as they would be if they were determined in a competitive market. The CBSA therefore does not expect to use section 20.
[32] Export price is generally the lesser of the importer's purchase price or the exporter's selling price to Canada less all costs, charges, and expenses resulting from the exportation of the goods.
[33] The complainant based its estimates of export prices on a price list from August 2002 sent by an exporter of subject goods to a prospective importer in Canada.
[34] The CBSA estimated export prices using customs records on actual imports of subject goods during the period of investigation. The actual import data was used by the CBSA because it provided the actual selling prices to importers of subject goods in Canada. In its estimates of export prices, the CBSA used the invoice prices on the customs documents, assuming the prices to be F.O.B. factory prices. No adjustments were made for any costs, charges or expenses that may have resulted from the exportation of the goods.
[35] The CBSA estimated margins of dumping by comparing the CBSA's estimated normal values with the export prices from customs entry documentation. The calculations are based on imports of subject goods that entered Canada during the period of September 1, 2002 to August 31, 2003.
[36] Based on this analysis, it appears that 97 per cent of the shipments from China and 99 per cent of the shipments from Chinese Taipei were dumped. The estimated weighted average margins of dumping by country are as follows: China 53 per cent and Chinese Taipei 93 per cent, expressed as a per cent of export price.
[37] Under section 35 of SIMA, if, before the President of the CBSA makes a preliminary determination, the actual and potential volume of dumped goods from a designated country is considered negligible, i.e., less than 3% of total imports of like goods, the President of the CBSA must terminate the investigation with respect to that country. The estimated volume of dumped goods expressed as a percentage of total imports for the period is 48.2 per cent for China and 49.9 per cent for Chinese Taipei.
[38] The complainant has alleged that the subject goods have been dumped into Canada and that the dumping has caused or is threatening to cause material injury to the Canadian industry. In support of these allegations, the complainant provided evidence of price erosion, lost sales, and reduced profitability.
[39] In the following analysis of injury, the CBSA cannot release quantitative data for each injury factor as it relates to only one Canadian company and its release could lead to the disclosure of confidential information.
[40] Price erosion occurs when selling prices of the Canadian product are reduced to meet dumped import prices.
[41] The complainant provided evidence in the form of price lists and price offerings of an exporter and an importer re-selling the goods in Canada to demonstrate a trend of low-priced offerings in Canada of subject goods since the alleged dumping began. This trend corresponded with an increase in both the volume and market share of low-priced imports from China and Chinese Taipei. The complainant provided evidence in the form of its own price lists and invoices to customers to demonstrate that it experienced significant price erosion on sales of like goods in Canada coincident with the decline in import prices that began in 2002, and that this price erosion continued into 2003.
[42] The CBSA performed an import price analysis on actual imports of subject goods using internal customs records. The CBSA identified a trend of decreasing import prices during the period of investigation.
[43] According to SPI, while its cost of raw materials and labour increased in 2003, the company has been unable to recover the cost increases by increasing prices. Due to the downward price pressure from dumped imports since 2002, the company has been continuously reducing its selling prices of steel fuel tanks to retain its customers in the face of competition from dumped imports.
[44] Based on the CBSA's analysis of actual imports and the complainant's information on its sales in the Canadian market for like goods, there was a decline in the size of the Canadian market in 2002.
[45] At the same time the overall market was declining, the complainant alleges injury in the form of lost sales caused by increased volumes of dumped imports. Data generated by the CBSA, including an analysis of customs entry documents, support the complainant's claim that the imports of steel fuel tanks from China and Chinese Taipei have increased since the alleged dumping began in early 2002. This demonstrates a decrease in the market share of Canadian industry at the same time as an increase in the market share of allegedly dumping imports from China and Chinese Taipei.
[46] The complainant provided financial results demonstrating that the presence of allegedly dumped goods and the willingness of the exporters to sell to Canada at dumped prices have negatively affected its profitability. For example, in the fiscal quarter ended January 31, 2003, the complainant incurred an operating loss in its manufacturing division due to losses in its fuel tank operation. This compares to an operating profit in the same period a year earlier, before the alleged dumping began.
[47] Based on information provided in the complaint, other available information, and the CBSA's internal data on imports, there is evidence that the subject goods have been dumped and there is a reasonable indication that such dumping has caused or is threatening to cause injury to the Canadian industry.
[48] The CBSA will conduct an investigation to determine whether the subject goods have been dumped. Information relating to the subject goods imported into Canada during the period of September 1, 2002 to August 31, 2003, the selected period of investigation, will be requested from exporters and importers.
[49] All parties will be clearly advised of the CBSA's information requirements and the time frames for providing their responses.
[50] The Canadian International Trade Tribunal (Tribunal) will conduct a preliminary inquiry into whether the evidence discloses a reasonable indication that the dumping of the goods has caused or is threatening to cause injury to the Canadian industry. The Tribunal must make its decision within 60 days after the date of initiation of the investigation. If the Tribunal concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigation will be terminated.
[51] If the CBSA's investigation reveals that imports of the subject goods have not been dumped, that the margin of dumping is insignificant, or that the actual and potential volume of dumped goods is negligible, the investigation will be terminated.
[52] If the evidence reveals that the goods have been dumped and the Tribunal finds that there is a reasonable indication that the dumping of the goods has caused injury or is threatening to cause injury, the President of the CBSA will make a preliminary determination of dumping 90 days from the date of the initiation of the investigation. Where circumstances warrant, this period may be extended to 135 days.
[53] Imports of subject goods released from CBSA's possession on and after the date of a preliminary determination of dumping may be subject to provisional duty equal to the estimated margin of dumping.
[54] Should the CBSA make a preliminary determination of dumping, the investigation will be continued for the purpose of making a final determination or terminating the investigation within 90 days of the date of the preliminary determination.
[55] If a final determination of dumping is made, the Tribunal will continue its inquiry and hold public hearings into the question of material injury to the Canadian industry resulting from the dumped imports. The Tribunal is required to make a finding, with respect to the goods to which the final determination of dumping applies, not later than 120 days after the CBSA notice of a preliminary determination.
[56] In the event of an injury finding by the Tribunal, imports into Canada of subject goods would be subject to an anti-dumping duty equal to the margin of dumping.
Retroactive Duty on Massive Importations
[57] Under certain circumstances, anti-dumping duty can be imposed retroactively on subject goods imported into Canada in the period starting on the day the investigation was initiated and ending on the day of the preliminary determination of dumping.
[58] When the Tribunal conducts an inquiry on material injury to the Canadian industry, it may consider if dumped goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry.
[59] Should the Tribunal issue a finding that there were recent massive importations of dumped goods that caused injury, importations of subject goods released by the CBSA on or after the initiation of this investigation could be subject to an anti-dumping duty.
[60] After a preliminary determination of dumping, the exporter may submit a written undertaking to revise its selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. An acceptable undertaking must account for all or substantially all of the exports to Canada of the dumped goods.
[61] Interested parties may provide comments regarding the acceptability of undertakings within nine days of the receipt of an undertaking by the CBSA. The CBSA will maintain a list of parties who wish to be notified should an undertaking proposal be received. Those who are interested in being notified should provide their name, telephone and fax numbers, mailing address and email address, if available, to one of the officers identified in the "Information" section.
[62] If an undertaking were to be accepted, the required payment of provisional duty on the goods would be suspended. However, notwithstanding the acceptance of an undertaking, an exporter may request that the investigation be completed and that the Tribunal completes its injury inquiry.
[63] Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.
[64] Interested parties are invited to file written submissions presenting facts, arguments and evidence that they feel are relevant to the alleged dumping. Written submissions should be forwarded to the attention of one of the officers identified below.
[65] To be given consideration in this phase of the investigation, all information should be received by the CBSA by January 26, 2004.
[66] Any information submitted to the CBSA by interested parties concerning this investigation is deemed to be public information unless clearly marked "confidential." Where the submission by an interested party is confidential, a non-confidential version of the submission must also be provided at the same time. This non-confidential version will be made available to other interested parties upon request.
[67] Confidential information submitted to the President of the CBSA will be disclosed on written request to independent counsel for parties to these proceedings, subject to conditions to protect the confidentiality of the information. Confidential information may also be released to the Tribunal, any court in Canada, or a World Trade Organization (WTO) dispute settlement panel. If you require additional information respecting the policy on the disclosure of information under SIMA, please contact one of the officers or visit the web site identified below.
[68] This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the Directorate's Web site at the address below. For further information, please contact Jody Grantham or Flora Chow as follows:
Mail
Canada Border Services Agency
Anti-Dumping and Countervailing Directorate
191 Laurier Avenue West, 10th Floor
Ottawa, Ontario K1A 0L5
Canada
Telephone
Jody Grantham (613) 954-7405
Flora Chow (613) 954-7261
Fax
(613) 948-4844
Email
Jody.Grantham@ccra-adrc.gc.ca
Flora.Chow@ccra-adrc.gc.ca
Web site
http://www.cbsa-asfc.gc.ca/sima-lmsi/menu-eng.html
Suzanne Parent
Director General
Anti-dumping and Countervailing Directorate
