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Anti-dumping and Countervailing Program
Frozen Self-Rising Pizza
4237-94
AD/1315
STATEMENT OF REASONS
concerning the initiation of an investigation into the dumping of
FROZEN SELF-RISING PIZZA ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA
DECISION
Pursuant to subsection 31(1) of the Special Import Measures Act, the President, Canada Border Services Agency (formerly the Commissioner of Customs and Revenue) initiated an investigation on January 2, 2004, respecting the alleged injurious dumping into Canada of prepared uncooked frozen pizza products containing uncooked self-rising dough and cooked and/or uncooked toppings which typically may include processed vegetables and/or meats and/or poultry and/or cheeses and/or a prepared sauce, put up for retail sale, originating in or exported from the United States of America.
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TABLE OF CONTENTS
RETROACTIVE DUTY ON MASSIVE IMPORTATIONS
Summary
[1] On November 12, 2003, the Canada Customs and Revenue Agency (CCRA) received a written complaint from McCain Foods Limited (McCain) concerning the alleged injurious dumping of frozen self-rising pizza originating in or exported from the United States of America. On December 3, 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. The CCRA also notified the government of the United States of America.
[2] The complainant 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.
[3] On December 12, 2003, the responsibility for the Customs program of the CCRA, including the administration of SIMA, was transferred to the Canada Border Services Agency (CBSA), which was created on the same date. The President of the CBSA is now responsible for dealing with dumping complaints from Canadian industry.
[4] On January 2, 2004, the President, Canada Border Services Agency (formerly the Commissioner of Customs and Revenue) initiated an investigation respecting the dumping of the goods pursuant to subsection 31(1) of SIMA.
Interested Parties
[5] The complainant, McCain Foods Limited, is the largest Canadian manufacturer of frozen self-rising pizza, as well as the sole Canadian producer of branded frozen self-rising pizza. The complainant's address is:
McCain Foods Limited
107 Main Street, P.O. Box 97
Florenceville, NB E7L 1B2
[6] The CBSA has identified 2 potential exporters of the subject goods from customs import documentation and the complaint submitted by McCain.
[7] The CBSA has identified 4 potential importers of the subject goods from customs import documentation and the complaint submitted by McCain.
Product Information
[8] For the purpose of this investigation, the subject goods are defined as:
Prepared uncooked frozen pizza products containing uncooked self-rising dough and cooked and/or uncooked toppings which typically may include processed vegetables and/or meats and/or poultry and/or cheeses and/or a prepared sauce, put up for retail sale, originating in or exported from the United States of America.
Additional Product Information
[9] Frozen self-rising pizza consists of uncooked dough forming a crust, toppings, protective packaging, and a display carton. Frozen self-rising pizza generally differs from other frozen pizza in the following ways:
- Frozen self-rising pizza dough is uncooked, while in regular frozen pizza the dough is pre-cooked; and
- Frozen self-rising pizza is sold in vacuum-sealed packaging, while regular frozen pizza is usually sold in a carton with a simple polyethylene over-wrap.
[10] Frozen self-rising pizza is generally produced in "family size" (9 inches in diameter or larger), and sold as single pizzas ("1-packs") or as a set of two pizzas ("2-packs"). Smaller pizzas, known as "personal" size pizza are also produced.
[11] The dough is mixed in batches, separated into individual dough balls, proofed (left in a controlled atmosphere for the appropriate time for the dough to rise), pressed with a hot press ("thermoformed") into individual pizza shapes, and placed on cardboard disks. Each crust then goes through the first of two continuous freezers, where the dough is frozen, after which toppings are applied according to the variety in question. The pizzas then go through the second of the continuous freezers to freeze the toppings. Next, the pizzas go through the packaging line, where a plastic pouch is formed, filled with the frozen pizza and sealed. In the sealing process, the air is removed and inert gasses are inserted in order to keep oxygen away from the fresh-frozen product. The plastic-wrapped pizzas are then placed in cartons; the cartons are sealed and stacked in cases. The cases are taped and placed on pallets for distribution.
[12] Frozen self-rising pizza is properly classified under the following Harmonized System classification numbers:
1901.20.13.20
1901.20.15.20
[13] 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, are goods of which the uses and other characteristics closely resemble those of the other goods. Frozen self-rising pizza produced by the domestic industry has the same physical characteristics as, competes directly with, and can be substituted for the subject goods imported from the United States of America. The CBSA is of the opinion that the like goods and the allegedly dumped goods are not separate classes of goods based on their use, characteristics, or other factors.
[14] The CBSA has concluded that frozen self-rising pizza produced by the Canadian industry constitutes like goods to the subject goods.
Canadian Industry
[15] McCain Foods Limited is a Canadian manufacturer and distributor of processed food products, with 11 processing facilities across Canada and has approximately 3,300 employees. The company is the largest Canadian manufacturer of frozen self-rising pizza, as well as the sole Canadian producer of branded frozen self-rising pizza. McCain also manufactures frozen
self-rising pizzas on a private label basis.
[16] Other Canadian manufacturers of frozen self-rising pizza include Les Aliments T&N of Dorval, Quebec and Les Aliments Da Vinci Ltée of Montreal, Quebec. Both of these manufacturers produce self-rising pizzas on a private label basis. One additional manufacturer, Multi-Do Inc. of Saint Georges, Quebec has been identified by the CBSA.
Standing
[17] SIMA requires that the following conditions be met in order to initiate an investigation:
- the complaint is supported by domestic producers whose production represents more than 50% of the total production of like goods by those domestic producers who express either support for or opposition to the complaint; and
- the production of the domestic producers who support the complaint represents 25% or more of the total production of like goods by the domestic industry.
[18] For the application of standing under SIMA, domestic industry means the domestic producers as a whole of the like goods except that, if a domestic producer is related to an exporter or importer of allegedly dumped goods, or is an importer of such goods, "domestic industry" may be interpreted as meaning the rest of those domestic producers.
[19] Based on an analysis of information provided in the complaint, the CBSA has estimated that the complainant represents more than 60 per cent of Canadian production of the like goods. The CBSA is satisfied that the standing requirements of SIMA have been met.
The Canadian Market
[201] The market for frozen self-rising pizza has grown considerably since the product's introduction in Canada by McCain in 1997. Imports of the subject goods commenced in late 1999.
[21] The Canadian frozen self-rising pizza market consists of three trade levels: manufacturer, wholesaler and retailer. A manufacturer can sell its product either directly to a retailer or to a wholesaler/buying group who in turn sells to a variety of retail accounts. The sales and marketing function is often shared among the three levels. Wholesalers and retailers may provide distribution, advertising, shelf management, pricing analysis and promotional support. In the Canadian retail grocery industry, large retailers perform essentially the same functions as wholesalers, as they have their own large internal distribution operations.
[22] CBSA's analysis of the size and value of the Canadian market is based on confidential retail sales data for a small number of producers of frozen self-rising pizza. Accordingly, specific values cannot be published.
Evidence of Dumping
[23] The complainant alleges that frozen self-rising pizza from the United States of America is being injuriously dumped into Canada. Dumping occurs when the normal value of the goods exceeds the export price of the goods sold to importers in Canada. The complainant's allegations of dumping are based on a comparison of estimated normal values of the subject goods and the estimated export prices to Canada.
[24] Estimates of normal values, export prices, and margins of dumping are discussed below.
[25] Normal values are generally based on the domestic selling price of the goods in the country of export, or on the full cost of production of the goods, including general, selling and administrative expenses, plus a reasonable amount for profits.
[26] The complainant provided estimates of normal values based on the retail prices in the exporters' domestic market.1 The U.S. retail prices were obtained from Information Resources Inc. (IRI) data. IRI collects market data that is relied upon by many industry participants in the analysis of their businesses. Using the complainant's knowledge of the U.S. and Canadian markets, the retail prices were adjusted to account for the wholesale mark-up, differences in trade level, freight and shipping costs, and qualitative differences in order to reach ex-factory selling prices. In estimating the margins of dumping, the complainant used these ex-factory selling prices.
[27] The CBSA considers the complainant's estimated normal values to be reasonable and acceptable.
[28] The export price is generally the lesser of the importer's purchase price or the exporter's selling price to Canada less all charges and expenses resulting from the exportation of the goods.
[29] To estimate the export prices of frozen self-rising pizza, the complainant relied on ACNielsen national grocery banner data. ACNielsen is a marketing information company that provides continuous tracking of consumer purchases at the point of sale in major grocery product outlets through scanning technology and in-store audits.
[30] To estimate the export price, the complainant reduced the retail price in Canada by an amount to represent the retail mark-up. The complainant's estimates of the Canadian importer's profit and selling, general and administrative expenses were deducted from the retail price as well as an amount for shipping.
[31] The CBSA reviewed the complainant's calculation and compared the complainant's estimates of the export prices with its own internal import data. The CBSA found that the use of the actual import data resulted in estimations of export prices that were generally higher than the export prices estimated by the complainant, but nonetheless were considered to be representative of the exporter's selling prices. For this reason, the export prices estimated by the CBSA were used to estimate the margins of dumping.
[32] In estimating the margins of dumping, the CBSA compared the complainant's estimates of the normal values with the CBSA's estimates of export prices. The exchange rates used were those in effect at the time of importation. The estimated margins of dumping range from 14% to 69% when expressed as a percentage of the export price. The overall weighted average margin of dumping is 50%, when expressed as a percentage of export price.
[33] Based on the complainant's information and the CBSA's import data, there is reasonable evidence that the imported goods have been dumped.
Volume of Dumped Goods
[34] Before making a preliminary determination of dumping, the President of the CBSA must be satisfied that the actual and potential volumes of dumped goods are not negligible. Subsection 2(1) of SIMA defines negligible, in respect of the volume of dumped goods of a country, as being less than 3% of the total imports of goods of the same description as the subject goods.
[35] On the basis of the estimated margins of dumping and the actual import data for all countries for the 6-month period of January 1 to June 30, 2003, the volume of dumped goods has been estimated to be well above the threshold of 3%.
Evidence of Injury
[36] The complainant has alleged that the subject goods from the United States of America 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 its allegations, the complainant has provided evidence of lost sales, price suppression and price erosion.
[37] In the following analysis of injury, the CBSA cannot release specific quantitative data, as it relates to only one Canadian company and would result in the disclosure of confidential information. The information is therefore presented without reference to specific numbers.
[38] In order to assess its past and future injury, the complainant commissioned an econometric study to determine the impact of the allegedly dumped frozen self-rising pizza on the Canadian market. It is the complainant's contention that it would have significantly higher sales volumes of frozen self-rising pizza at higher prices, if not for the dumping of the subject goods. The CBSA is satisfied that the complainant would have had the capacity to produce the higher volumes of frozen self-rising pizza.
[39] The econometric evidence indicates that goods produced in Canada and the allegedly dumped goods are highly substitutable. Using an estimated margin of dumping of 40 per cent as the starting point for calculations, the report quantifies the number of sales that McCain has lost as a result of the alleged dumping.
[40] The total market for frozen self-rising pizza in Canada has been expanding rapidly throughout the period of alleged dumping, consistent with the early development phase of the market. Nonetheless, while the volume sold by the domestic industry has grown, the CBSA is satisfied that the evidence discloses a reasonable indication that the dumping of the goods has caused injury by depressing sales of the Canadian-made product well below the levels that would have prevailed, had the subject goods been sold at or above the estimated normal values.
Price Erosion and Price Suppression
[41] The complainant has demonstrated price suppression and erosion through an analysis of its average wholesale prices and of the retail price gaps between McCain rising crust pizza and the imported frozen self-rising pizza.
[42] Selling price is one factor upon which frozen self-rising pizza competes. There are differences in price levels between competing brands. The prices generally move in close correlation and consequently price-based competition between the products is direct and intense.
[43] The complainant does not have access to information on wholesale prices of the subject goods, however it believes that the change in retail prices of these goods, as demonstrated by the ACNielsen data, is linked to a corresponding change in the net wholesale prices to retailers. Generally, the average retail prices of the allegedly dumped goods on an annual basis have been declining since the year 2000 and McCain has been forced to adjust its selling prices accordingly.
[44] The evidence indicates that McCain's prices would have been higher, if not for the dumping of the subject goods. The CBSA is satisfied that the evidence discloses a reasonable indication that the dumping has caused injury by way of lost revenues on McCain's sales of frozen self-rising pizza, due to price suppression and price erosion.
Conclusion
[45] Based on the complainant's information, other available information and the CBSA's data on imports, there is evidence that prepared uncooked frozen pizza products containing uncooked self-rising dough and cooked and/or uncooked toppings which typically may include processed vegetables and/or meats and/or poultry and/or cheeses and/or a prepared sauce, put up for retail sale, originating in or exported from the United States of America, have been dumped and there is a reasonable indication that such dumping has caused or is threatening to cause injury to the Canadian industry.
Scope of the Investigation
[46] The CBSA will conduct an investigation to determine whether the subject goods have been dumped.
[47] The period of investigation is the time frame selected, during which imports into Canada from the United States of America will be reviewed to determine whether the subject goods have been dumped. The period of investigation is January 1, 2003, to December 31, 2003, and includes all subject goods shipped to Canada during this period. Information, including sales and costs, will be requested from exporters to estimate the margins of dumping.
Future Action
[48] 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.
[49] 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.
[50] 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 within 90 days from the date of the initiation of the investigation, that is, by April 1, 2004. Where circumstances warrant, this period may be extended to 135 days.
[51] Imports of subject goods released from Customs' 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.
[52] 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.
[53] 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.
[54] In the event of an injury finding by the Tribunal, subject goods would be subject to an anti-dumping duty equal to the margin of dumping.
Retroactive Duty on Massive Importations
[55] Under certain circumstances, anti-dumping duty may be imposed retroactively on subject goods imported into Canada during the period starting on the day the investigation was initiated and ending on the day of the preliminary determination of dumping.
[56] 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.
[57] Should the Tribunal issue a finding that there were recent massive importations of dumped goods that caused injury, importations of subject goods released from Customs on or after the initiation of this investigation could be subject to an anti-dumping duty.
Undertakings
[58] 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.
[59] 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.
[60] If an undertaking were to be accepted, the investigation and the collection of provisional duties would be suspended. However, notwithstanding the acceptance of an undertaking, an exporter may request that the CBSA's investigation be completed and that the Tribunal completes its injury inquiry.
Publication
[61] Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.
Information
[62] 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.
[63] To be given consideration in this phase of the investigation, all information should be received by the CBSA by February 9, 2004.
[64] 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.
[65] 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) panel. Additional information respecting the Directorate's policy on the disclosure of information under SIMA may be obtained by contacting one of the officers identified below, or by visiting the Directorate's Web site.
[66] 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 Karen Humphries, Rand McNally or Tara Ryan as follows:
Mail:
Canada Border Services Agency
Anti-Dumping and Countervailing Directorate
191 Laurier Avenue West, 10th Floor
Ottawa, Ontario K1A 0L5
Canada
Telephone:
Karen Humphries (613) 954-7176
Rand McNally (613) 954-1663
Tara Ryan (613) 954-7187
Fax:
(613) 948-4844
Email:
Karen.Humphries@cbsa-asfc.gc.ca
Rand.McNally@cbsa-asfc.gc.ca
Tara.Ryan@cbsa-asfc.gc.ca
Web site:
http://www.cbsa-asfc.gc.ca/sima-lmsi/menu-eng.html
Suzanne Parent
Director General
Anti-Dumping and Countervailing Directorate
1 It should be noted that the complainant also provided estimates of the normal values based on the full cost of production. These estimates were equal to the estimates that were based on the selling price method.
