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Anti-dumping and Countervailing Program
OTTAWA, October 19, 2004
4214-4
4218-19
AD/1332
CVD/104
STATEMENT OF REASONS
Concerning the initiation on October 4, 2004, of an investigation pursuant to subsection 31(1) of the Special Import Measures Act
regarding the dumping of
LAMINATE FLOORING ORIGINATING IN OR EXPORTED FROM AUSTRIA, BELGIUM, THE PEOPLE'S REPUBLIC OF CHINA, FRANCE, THE FEDERAL REPUBLIC OF GERMANY, LUXEMBOURG AND THE REPUBLIC OF POLAND
and the subsidizing of
LAMINATE FLOORING ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA
DECISION
Pursuant to subsection 31(1) of the Special Import Measures Act, the President of the
Canada Border Services Agency initiated an investigation on October 4, 2004, respecting the alleged injurious dumping of laminate flooring in thickness ranging from 5.5mm to 13mm
(other than laminate hardwood flooring where the hardwood component exceeds 2mm in thickness) originating in or exported from Austria, Belgium, the People's Republic of China, France, the Federal Republic of Germany, Luxembourg and the Republic of Poland and the alleged injurious subsidization of laminate flooring in thickness ranging from 5.5mm to
13mm (other than laminate hardwood flooring where the hardwood component exceeds
2mm in thickness) originating in or exported from the People's Republic of China.
Cet énoncé des motifs est également disponible en français. Veuillez vous reporter à la section « Renseignements ».
This Statement of Reasons is also available in French. Please refer to the "Information" section.
TABLE OF CONTENTS
- Summary
- Interested Parties
- Product Information
- Canadian Industry
- Standing
- The Canadian Market
- Evidence of Dumping
- Volume of Dumped Goods
- Evidence of Subsidizing
- Estimated Amount of Subsidies
- Evidence of Injury
- Conclusion
- Consultations
- Scope of the Investigation
- Future Action
- Retroactive Duty on Massive Importations
- Undertakings
- Publication
- Information
- APPENDIX I
[1] On August 13, 2004, Uniboard Surfaces Inc. (Uniboard) filed a complaint with the Canada Border Services Agency (CBSA) alleging the injurious dumping of certain laminate flooring originating in or exported from Austria, Belgium, the People's Republic of China (China), France, the Federal Republic of Germany (Germany), Luxembourg, the Republic of Poland (Poland) and Spain and the injurious subsidizing of certain laminate flooring from China. The CBSA informed Uniboard on September 3, 2004, pursuant to subsection 32(1) of the Special Import Measures Act (SIMA)1, that the complaint was properly documented. On the same date the CBSA notified the governments of the exporting countries that a properly documented complaint concerning the subject goods had been received. As well, the government of China was provided with the non-confidential version of the subsidy portion of the complaint.
[2] The complainant provided evidence that these products have been dumped and that laminate flooring from China has been subsidized. The evidence also discloses a reasonable indication that the alleged dumping and subsidizing has caused injury or is threatening to cause injury to the Canadian industry producing these goods.
[3] On October 4, 2004, the President of the CBSA (President):
- initiated a dumping investigation pursuant to subsection 31(1) of SIMA, with respect to these products from Austria, Belgium, China, France, Germany, Luxembourg and Poland;
- initiated a subsidy investigation pursuant to subsection 31(1) of SIMA, with respect to these products from China; and
- did not initiate a dumping investigation with respect to these products from Spain.
[4] As China is listed under Part I of the DAC List of Aid Recipients2 maintained by the Organization for Economic Co-operation and Development, the CBSA will extend developing country status to China for purposes of this investigation. Therefore, China is eligible for the higher insignificance (amount of subsidy) and negligibility (volume of subsidized goods) thresholds for the termination of an investigation involving a developing country.
[5] The complainant, Uniboard, is the only known Canadian manufacturer of laminate flooring. The complainant's address is:
Uniboard Surfaces Inc.
5555 Ernest Cormier Street
Laval, Quebec
H7C 2S9
[6] The CBSA has identified 91 potential exporters of the subject goods from customs import documentation and from the complaint submitted by Uniboard.
[7] The CBSA has identified 133 potential importers of the subject goods from customs import documentation and from the complaint submitted by Uniboard.
[8] For the purpose of this investigation, the subject goods are defined as:
- Laminate flooring in thickness ranging from 5.5mm to 13mm (other than laminate hardwood flooring where the hardwood component exceeds 2mm in thickness) originating in or exported from Austria, Belgium, the People's Republic of China, France, the Federal Republic of Germany, Luxembourg and the Republic of Poland.
Additional Product Information
[9] Laminate flooring may be defined as a rigid floor covering with a surface layer consisting of one or more thin sheets of a fibrous material printed with the motif and colour that will show on the flooring, generally a wood grain or ceramic tile pattern (usually paper but can be printed on the raw board) and impregnated with aminoplastic resins (usually melamine). These sheets are either pressed as High Pressure Laminate and Compact Laminate or bonded on a substrate, which usually consists of High Density Fibreboard (HDF), or in the case of Direct Pressure Laminate directly pressed on a substrate, usually HDF. The product is normally finished with a backing, primarily used as a balancing material.
[10] In the market, laminate flooring may be described as "laminated wood flooring" or "floating flooring".
[11] Excluded from the foregoing definition is:
- Laminate hardwood flooring where the hardwood component exceeds 2mm in thickness.
[12] The complainant has indicated that all major manufacturers of laminate flooring produce these goods using the same raw materials, similar production equipment and the same manufacturing process.
Raw Materials:
[13] Laminate flooring is manufactured by bonding together four different layers of materials consisting of a wear layer, a decorative layer, a core of high-density fibreboard and a balancing layer. The four layers of materials are bonded together using heat and pressure.
- Wear Layer (Overlay): The top sheet of laminate flooring consists of a paper impregnated with a melamine resin and aluminium oxide. The weight of the paper varies depending on the flooring's requirements and performance conditions.
- Decorative Layer: The decorative layer consists of a sheet of Décor Paper weighing between 70 to 80 grams/m2 and is printed with the motif and colour that will show on the flooring, usually a wood grain or ceramic tile pattern. The Décor Paper is impregnated with a melamine and resin solution.
- High-Density Fibreboard: HDF is the core of laminate flooring. The HDF varies in thickness from 6mm to 12mm and normally has a density of 850 to 900 kg/m3.
- Balancing Layer (Backer): This bottom sheet of the flooring consists of a thicker paper than the decorative layer. The backer paper usually weighs from 80 to 105 grams/m2. The backer is impregnated as well with melamine and resin.
[14] The machinery and equipment used in the production of laminate flooring is generally manufactured in Germany, the prime source of production machinery for laminate flooring manufacturers worldwide.
[15] Given the sophisticated nature of the production equipment and the need for absolute accuracy in calibration, the installation and repair of the equipment is almost always performed by experts dispatched from the supplier to the manufacturer's factory. This is indicative of the advanced technology of the production equipment requiring trained expert attention. The complainant contends that the same situation prevails with equipment used by manufacturers of the subject goods in Europe and likely in China. The production equipment is highly automated, requiring a minimum number of trained staff to operate.
Production:
[16] There are four major stages of production of laminate flooring: pressing, cooling, cutting and milling.
- Pressing: Panels of the four layers of raw materials are placed one on top of the other on a conveyor belt and rolled into a press where the layers are bonded together using heat and pressure. The top plate of the press usually has a textured surface to emboss the top of the flooring with a wood grain or other decorative characteristic that the final product requires.
- Cooling: Once the panels are formed, they are cooled on a racking system before being stacked together. The cooling process is necessary to stabilize the panels. Cooling generally takes three to four days. The panels are then moved to the cutting line.
- Cutting: The cooled panels are placed on the cutting line to trim them down to the final product dimensions. The trimmed product is referred to as planks, tiles or squares. For ease of reference in this paper, the finished product referred to as "planks" will include tiles and squares. Each panel makes multiple planks of laminate flooring in the cutting stage.
- Milling: Once the panels have been cut to size, each plank is milled on all four edges with a locking tongue and groove system. The milling operation is very precise, to within hundredths of a millimetre. This level of precision is necessary to allow the laminate flooring planks to be easily installed without glue and preventing their coming apart.
[17] Laminate flooring is properly classified in Section IX of the Customs Tariff3 under the Harmonized System (HS) Heading 44.11, under the following classification number:
4411.19.90.90
[18] Like goods, in relation to any other goods, are goods that are identical in all respects or, in the absence of identical goods, are goods of which the uses and other characteristics closely resemble those of the other goods.
[19] Laminate flooring produced by the domestic industry competes directly with and has the same end use as the subject goods imported from the named countries. The goods produced in Canada and the subject goods are completely substitutable. Therefore, the CBSA has concluded that laminate flooring produced by the Canadian industry constitutes like goods to the subject goods.
[20] While the subject goods include a range of thicknesses, they are all manufactured in the same way, with the same or very similar materials, all share the same decorative and functional uses, and all compete for consumers in the same markets. The CBSA is of the opinion that there is a single class of goods based on use, characteristics and other factors.
[21] Uniboard is the sole Canadian manufacturer of laminate flooring, producing for both the domestic and export markets. Founded in 1995 in Ville St. Laurent, Uniboard opened its manufacturing facility in Laval, Quebec in 2001.
[22] In order to verify that Uniboard is the sole laminate flooring manufacturer in Canada, the CBSA did extensive research, referring to a number of industry and trade association sources for Canada and North America. The research did not disclose any other Canadian manufacturer of laminate flooring.
[23] SIMA requires that the following conditions be met in order to initiate an investigation:
- the complaint is supported by domestic manufacturers whose production represents more than 50% of the total production of like goods by those domestic manufacturers who express either support for or opposition to the complaint; and
- the production of the domestic manufacturers who support the complaint represents 25% or more of the total production of like goods by the domestic industry.
[24] The results of the CBSA's industry research confirmed that Uniboard is the sole manufacturer in Canada. The CBSA is satisfied that the standing requirements of SIMA have been met.
[25] Uniboard provided confidential production data for its own production of laminate flooring from 1999 to the first quarter of 2004. The complainant also submitted import data for the same period from Industry Canada's Strategis - Trade Data Online4 for the HS tariff item 4411.19.90, explaining its adjustments made to eliminate data for other possible products included in the tariff item. The CBSA also reviewed import statistics obtained from Statistics Canada for the period from 1999 to the first half of 2004, actual import data for laminate flooring obtained from the CBSA Customs Commercial System database, through the Facility for Information Retrieval Management (FIRM) and from a sampling of Customs entry documentation from the first seven months of 2004.
[26] Strategis publishes data only on the value of imports under the HS tariff item 4411.19.90. The CBSA reviewed Statistics Canada kilogram volume and Canadian dollar value import data for classification number 4411.19.90.90 and CBSA import volume and values data for the period 1999 to June 2004, for comparison with the Strategis information provided by the complainant.
[27] The volume data within the FIRM results was found to be unreliable in this instance, as the unit of measure required for this classification number is kilograms and the FIRM data shows other units of measure being used in many instances, such as square and cubic metres. As for the volume data from Statistics Canada, an analysis of value per kilogram figures demonstrated that the data has no consistency and hence no reliability. Therefore, values are deemed to be more reliable and have been used in doing the required analysis of imports, domestic shipments and for estimating the apparent Canadian market.
[28] The import data highlights the dramatic increase in imports of laminate flooring from the named countries. As Uniboard is the sole manufacturer in Canada it is not possible to provide figures for the total estimated Canadian market in this public document without divulging confidential information. The complainant accounted for some of the imports of laminate flooring from two of the subject countries in the estimated import values table below. However, the imports made by Uniboard do not significantly alter the results of the total imports by other importers.
[29] The following table presents subject goods import value data over the past five years, which includes importations made by Uniboard:
Estimated Import Values from Named Countries (C$)5
|
1999 |
2000 |
2001 |
2002 |
2003 |
Imports from Subject Countries |
|||||
Austria |
6,173,795 |
9,379,630 |
13,328,346 |
32,513,940 |
35,920,784 |
Belgium |
375,453 |
3,943,808 |
12,340,979 |
25,376,277 |
39,636,168 |
China |
- |
56,577 |
61,643 |
973,792 |
7,813,718 |
France |
889,733 |
4,920,999 |
10,103,251 |
8,136,350 |
6,523,381 |
Germany |
3,310,926 |
16,198,129 |
26,505,187 |
61,194,024 |
64,835,390 |
Luxembourg |
- |
219,670 |
2,214,797 |
9,141,924 |
6,158,439 |
Poland6 |
14,523 |
43,102 |
- |
73,709 |
18,772,496 |
Total Imports from Subject Countries |
10,764,430 |
34,761,915 |
64,554,203 |
137,410,016 |
179,660,376 |
Spain |
26,630 |
181 |
101,461 |
1,124,051 |
1,481,098 |
Total Imports from Non-subject Countries, including Spain |
2,951,630 |
2,437,281 |
4,265,070 |
5,144,575 |
6,382,802 |
[30] Based on the CBSA analysis of import data, Uniboard's estimates of import data from the named countries were found to be conservative and reasonable. The data supports the complainant's claims that imports of subject goods from the named countries have been increasing and are substantial in nature. Importations from Spain are the exception, as these account for approximately 1% by value of all subject goods imported in 2003, and during the period July 2003 to June 2004, as analysed by the CBSA.
[31] The complainant alleges that laminate flooring from the named countries has been injuriously dumped into Canada. Dumping occurs when the export price of the goods is below the normal value of the goods sold to importers in Canada.
[32] Normal values are generally based on the domestic selling price of the goods in the country of export, or on the full cost of the goods including general, selling and administrative expenses, plus a reasonable amount for profits. The export price of imported goods is generally determined as being 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.
[33] The complainant's allegations of dumping are based on a comparison of estimated normal values of the subject goods and estimated export prices to Canada.
[34] The complainant was unable to obtain information on domestic selling prices of the subject goods in the named countries. In the absence of such information, normal values could not be estimated on the basis of domestic sales, in accordance with section 15 of SIMA.
[35] The complainant selected a range of thicknesses of the subject goods, representative of a range of popular imports, for purposes of estimating normal values. While the 7mm and 8mm thicknesses are the most common sizes sold in the Canadian market at the present time, the volume of imports of the 6mm and 12mm thicknesses are significant. Therefore, the complainant estimated normal values for these four thicknesses of laminate flooring, sold at various price points by Canadian retailers.
[36] Uniboard estimated normal values in accordance with paragraph 19(b) of SIMA. Estimates of normal values were based on the complainant's 2003 cost of production, amounts for general, selling and administrative expenses, and profit based on its sales in the United States of America (U.S.). Uniboard used its profits earned in the U.S. market because they contend that price levels in the Canadian market have been distorted by the allegedly dumped imports. The complainant considers there to be a variety of reasons that the U.S. market is more representative for determining an appropriate profit level for the purposes of estimating normal values. The complainant considered that given the capital-intensive nature of the production process and its similarity throughout the world, no adjustments to its production costs were necessary to take into account local market factors in the exporting countries.
[37] While the CBSA agreed with the complainant using its own costs in the estimation of normal values, it was considered that the most recent 2004 data should be utilized. The CBSA also used Uniboard's year-to-date 2004 profit on its sales in the U.S. Using the 2004 cost and profit information in estimating normal values allowed for a proper comparison with the estimated export prices that were based on 2004 Canadian sales data.
[38] As well, while the CBSA agreed with the complainant using its own costs in the estimation of normal values for the European Union subject countries, this approach was not considered appropriate for estimating normal values for China. The CBSA used available information that indicated revisions were required to be made to the normal value estimates for China. The CBSA again used the most recent 2004 data in the complaint as a cost base, with downward adjustments made to labour costs, overhead, general, selling and administrative expenses, and profit7.
[39] The export price of imported goods is generally determined in accordance with section 24 of SIMA as being 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.
[40] Uniboard was unable to determine the actual export prices charged by the exporters of the subject goods. Export prices were therefore estimated by using Canadian retail sales information to calculate 10 export price estimates, for a variety of thicknesses and countries or regions of export.
[41] To estimate the export price, the complainant used a deductive method, where the retail price in Canada was reduced by deducting estimated amounts, representing the retailer's gross profit margin, a wholesaler profit where appropriate, Customs duty where applicable, broker's fees, as well as estimated shipping, handling, ocean freight and other export charges.
[42] The CBSA used its own internal import data in reviewing the complainant's calculations and for comparison with the complainant's estimates of the export prices. Based on this comparison, the CBSA considers Uniboard's estimates of export prices to be reasonable.
[43] The complainant provided the calculations for estimated margins of dumping for 7mm and 8mm thicknesses of laminate flooring from each of the named countries. The CBSA used the data provided in the complaint to estimate margins of dumping for 6mm and 12mm thicknesses. The estimated margins of dumping, calculated from the complainant's data for the 10 products for which export prices were estimated, ranged from 61% to 140%, when expressed as a percentage of export price.
[44] The CBSA estimated margins of dumping for the same 6mm, 7mm, 8mm and 12mm thicknesses of laminate flooring. By using the CBSA estimated normal values with the complainant's estimated export prices, the CBSA estimated margins of dumping ranging from 23% to 108%, when expressed as a percentage of export price.
[45] The CBSA also used the export price data from its review of a sample of actual entry documentation and the CBSA estimated normal values. Estimated margins of dumping ranged from 11.9% to 151.7%. One importation had an estimated margin of dumping of 413.9%. The estimated overall weighted average margin of dumping of the subject goods reviewed, from the actual import documentation for all countries, was 47.5%, expressed as a percentage of export price.
[46] Based on the complainant's information and the CBSA's analysis of normal values and import data, there is reasonable evidence that the subject imported goods have been dumped from each of the named countries.
[47] Based on its review of a sample of actual entry documentation from the first seven months of 2004, the CBSA estimates that 95% of the laminate flooring exported to Canada from the named countries was dumped.
[48] If, at any time before the making of a preliminary determination, the CBSA's investigation in respect of any of the named countries 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 with respect to those countries.
[49] In accordance with SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex 1A to the World Trade Organization (WTO) Agreement, that confers a benefit.
[50] Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists where:
· practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
· amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;
· the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
· the government permits or directs a non-governmental body to do any thing referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.
[51] If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidy. An "enterprise" is defined under SIMA as also including a "group of enterprises, an industry and a group of industries". Any subsidy which is contingent, in whole or in part, on export performance or on the use of goods that are produced or that originate in the country of export is considered to be a prohibited subsidy, and is, therefore, automatically considered to be specific for the purposes of a subsidy investigation.
[52] Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether:
· there is exclusive use of the subsidy by a limited number of enterprises;
· there is predominant use of the subsidy by a particular enterprise;
· disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
· the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.
[53] For purposes of a countervailing duty investigation, the CBSA refers to a subsidy that has been found to be specific as an "actionable subsidy" meaning that it is subject to countervailing measures if the imported goods under investigation have benefited from the subsidy
[54] In support of its allegations, the complainant has provided a number of documents detailing support offered by the government of China, primarily to exporting enterprises, enterprises operating in special economic zones and wood processing enterprises. The complainant was unable to provide specific information with regard to all potential subsidies granted by the government of China, as there is a lack of publicly available information.
[55] This lack of available information is largely due to the fact that China has not provided a full notification to the WTO Committee on Subsidies and Countervailing Measures, as required under Article 25 of the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) and under Article XVI of the General Agreement on Tariffs and Trade 1994. The Chair's Report to Council for Trade in Goods in the Transitional Review of China8,
November 2003, notes that updated versions of this information have not been provided. Similarly, public reports from both the U.S. Trade Representative (USTR) and the
U.S. Department of Commerce indicate that information regarding potential subsidies in China has not been provided and is difficult to obtain.9
Programs Being Investigated in China
[56] In reviewing the information found in the reports and articles that were provided by the complainant, or obtained by the CBSA through its own research, the CBSA has developed the following list of programs and incentives that may be provided to manufacturers of laminate flooring in China:
- 1. Special Economic Zone (SEZ) Incentives;
- 2. Grants Provided for Export Performance;
- 3. Preferential Loans;
- 4. Loan Guarantees by the Government of China;
- 5. Income Tax Credits, Refunds and Exemptions:
- a) Reduced Corporate Tax Rate for Export-Oriented Enterprises; and
- b) Exemption/Reduction of Corporate Income Tax during Designated Start-up Period.
- a) Reduced Corporate Tax Rate for Export-Oriented Enterprises; and
- 6. Relief from Duties and Taxes on Inputs;
- 7. Reductions in Land Use Fees; and
- 8. Provision of Goods and Services by State-owned Enterprises.
[57] Appendix I provides a further description of the programs listed above.
[58] There is sufficient reason to believe that the programs and incentives listed above may constitute actionable subsidies provided by the government of China. In the case of programs where an enterprise's eligibility or degree of benefit is contingent upon export performance, these may constitute export subsidies that are deemed as specific under SIMA.
[59] For those programs where incentives are provided to enterprises operating in specified areas (for example, SEZs such as Export Development Technology Zones and Export Processing Zones), the CBSA considers that these may constitute actionable subsidies if they are provided to enterprises operating in a specific region or zone within the jurisdiction of the granting authority. The same caveat applies for domestic subsidies such as land use and employment provisions, both of which would be considered actionable if limited to certain enterprises. The evidence provided suggests that there is sufficient reason to believe that this may be the case.
Programs Not Being Investigated in China
Preferential Benchmarking of Currency Conversion
[60] The complainant alleges that China's fixed exchange rate system is a prohibited de facto export subsidy. In respect of a financial contribution, the complainant indicates that the provision or the conversion of foreign currency at a fixed rate should be perceived as equivalent to a service given by the Chinese government or by bodies entrusted to it. The complaint suggests that because of the fixed exchange system, the Yuan is "by most reasonable estimates" undervalued by 40% because of the level at which the Chinese government has fixed their value vis-à-vis the U.S. dollar. The complainant further indicates that because the Yuan is undervalued by reason of state policy, it confers a benefit to Chinese exporters. Since the complainant is suggesting that this practice constitutes an export subsidy, it would be specific by virtue of the fact that export subsidies are deemed specific under the law.
[61] The CBSA has never addressed the issue of fixed exchange rates in a countervailing duty investigation nor, to the knowledge of the CBSA, has any WTO Member. Therefore, there is no existing case law or WTO dispute settlement jurisprudence to offer any guidance in this regard. Given the complexity of this matter and the broader policy and legal implications associated with a determination that a fixed exchange rate system may give rise to a countervailable subsidy, the CBSA believes it is necessary to approach this allegation with particular caution.
[62] In the complaint, the financial contribution is identified as the provision or the conversion of foreign currency at a fixed rate and this should be considered as the provision of a service provided by the government of China or by bodies entrusted to it.
[63] In accordance with SIMA, the provision of a service by a government would constitute a benefit to the extent that the service is provided for less than the fair market value of the service in the territory of the government providing the service. In this regard, the CBSA is not convinced that the value of the conversion service as provided by the government of China, or by bodies entrusted to it, would include the underlying value of the currencies being traded. In other words, it is not the rate of exchange per se that would be considered as conferring a benefit but, rather, the price charged by the government in providing the actual currency conversion service.
[64] Furthermore, under paragraph 2(1.6)(c) of SIMA, a financial contribution does not include the provision of goods or services that constitute general governmental infrastructure. The CBSA believes that it would be incumbent upon the complainant to address the question as to why the maintenance of China's fixed rate exchange system would not constitute "general governmental infrastructure". This would be a necessary precondition for accepting that China's fixed rate exchange system may constitute a financial contribution under this particular provision.
[65] Finally, the complainant indicates that China's fixed rate exchange system constitutes a de facto export subsidy, as it is contingent on export performance in accordance with the Subsidies Agreement, Article 3. The complainant further states that the de facto standard is met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance is, in fact, tied to actual or anticipated exportation or export earnings. In this respect, if the fixed rate exchange system did constitute a subsidy for the sake of argument, the CBSA remains unsure how the system constitutes a subsidy that is contingent, in fact, on export performance. The complainant has not provided sufficient information to demonstrate how the granting of the subsidy is contingent, in whole or in part, on export performance. More substantive information is required to clearly demonstrate the link between the granting of the subsidy and export performance. The mere fact that foreign currencies earned on export sales are convertible at China's fixed exchange rate does not in and of itself demonstrate contingency on export performance.
[66] Therefore, for the reasons indicated above, the CBSA believes that the available information does not justify the initiation of a countervailing duty investigation in respect of China's fixed exchange rate system to determine if it constitutes a countervailable subsidy.
Conclusion
[67] Based on the above, it is reasonable to conclude that the named subsidy programs outlined in the section titled "Programs Being Investigated in China" above are available to the exporters of laminate flooring in China. In examining these programs, the CBSA will request information from the various levels of government in China and from exporters of the subject goods to determine whether these programs confer countervailable benefits on the subject goods.
[68] In the absence of available information, the complainant has not been able to determine the value of the alleged subsidies on a per unit basis, although these programs are believed to significantly lower the price of the subject goods exported to Canada.
[69] The CBSA has estimated an average amount of subsidy by comparing the CBSA estimated cost of production in China (direct material, labour and overhead) with the complainant's estimates of export prices for Chinese laminate flooring. In cases where goods are imported into Canada at prices lower than the estimated cost of production of the goods, the difference is considered to be attributable to subsidy programs. The CBSA estimates the average amount of subsidies in this instance to be 31.3%, expressed as a percentage of export price.
[70] If, at any time before the making of a preliminary determination, the CBSA's investigation in respect of China reveals that imports of the subject goods have not been subsidized, that the amount of subsidy is insignificant, or that the actual and potential volume of subsidized goods is negligible, the investigation will be terminated.
[71] The estimated average amount of subsidy is 31.3%, expressed as a percentage of export price.
[72] Using data derived from the import documentation of laminate flooring from China, 100% of the subject goods are considered to have benefited from subsidizing.
[73] The complainant has alleged that the subject goods have been or are being dumped and subsidized, and that such dumping and subsidizing has caused injury or is threatening to cause injury to the production of laminate flooring in Canada. In support of its allegations, Uniboard has provided evidence of lost market share, lost sales, the impact on investment, erosion of selling prices and deterioration of financial performance.
[74] In the following analysis of injury the CBSA cannot release specific quantitative data, as it relates to the complainant which is the sole Canadian manufacturer and would result in the disclosure of confidential information. The information is, therefore, presented without reference to specific numbers.
Lost Market Share
[75] The import values provided by the complainant, as obtained from Industry Canada's Strategis Web site, are included in "The Canadian Market" section, above. The import data highlights the dramatic increase in imports of laminate flooring from the named countries, increasing by 1,569% from 1999 to 2003, from C$10.8 million to C$179.7 million. During the same period of time, the complainant's share of the Canadian market decreased.
Lost Sales
[76] Uniboard contends that the increase in import penetration into the Canadian laminate flooring market has resulted in lost business at major retail accounts since 2001. Information has been provided in the complaint to illustrate the decline in sales volume seen by Uniboard during this period, on a per-customer basis. The complainant submitted documentation (faxes, emails and letters) evidencing instances where it lost sales to low-priced imports.
[77] Uniboard provided specific instances of customers advising them that its price quotes were too high compared to subject country price offerings, where such sales were lost to competitors offering substantially lower-priced imported laminate flooring. In some cases, Uniboard could not secure sales even at much reduced prices.
Impact on Investment
[78] The complainant's new state of the art production facility commenced operations in 2001, with specific lamination, cutting and milling capacities having been originally planned for the facility and included in the plant construction.
[79] Given the current market pressure and the inability to achieve a profitable sales volume in the domestic market, the complainant has decided to alter its original plans until they are assured they can achieve a reasonable return on its investment.
Erosion of Selling Prices
[80] The complainant states that the huge influx of dumped and subsidized goods has pushed prices in the Canadian market to unrealistically low levels. The complainant alleges that sales of low-priced imports to Canadian retailers have undercut its prices of like goods offered to the same vendors. Examples of price undercutting by subject imports are provided in the complaint.
Deterioration of Financial Performance
[81] The income summary provided by the complainant illustrates that the company's financial position was depressed in 2002 and 2003. The complainant attributes this depressed financial position to the decline in sales volume due to the increased market share of imports from the subject countries and the erosion of selling prices. This trend has continued into the current fiscal year.
[82] The CBSA analyzed the information obtained through its own review of import entry documents, CBSA, Statistics Canada and Strategis import statistics, other supplemental data and the information presented by Uniboard in its complaint alleging the dumping and subsidizing of the subject goods. As well, the complainant has linked the injury it has suffered to the alleged dumping and subsidizing of laminate flooring exported from the named countries.
[83] Based on the above, there is evidence that certain laminate flooring originating in or exported from Austria, Belgium, China, France, Germany, Luxembourg and Poland has been dumped and that certain laminate flooring originating in or exported from China has been subsidized. There is a reasonable indication that such dumping and/or subsidizing has caused or is threatening to cause injury to the Canadian industry. Consequently, an investigation was initiated on October 4, 2004.
[84] As well, the CBSA has concluded that the low value of importations from Spain are not sufficient to have caused injury and are not threatening to cause injury to the Canadian industry.
[85] On September 24, 2004, consultations were conducted with respect to the complaint lodged by Uniboard, between Canadian government officials and representatives of the government of China, in accordance with Article 13.1 of the WTO Subsidies Agreement.
[86] The CBSA will conduct an investigation to determine whether the subject goods have been dumped and/or subsidized.
[87] All parties have been clearly advised of the CBSA's information requirements and the time frames for providing their responses.
[88] Information related to export sales has been requested from exporters and importers, concerning all subject goods shipped to Canada during the period of investigation of July 1, 2003 to June 30, 2004. This data will be used to estimate export prices and ultimately to determine whether the subject goods have been dumped.
[89] Information related to domestic sales and cost data in the countries of export has been requested from manufacturers and exporters for the profitability analysis period of January 1, 2003 to June 30, 2004. This data will be used to estimate normal values and ultimately to determine whether the subject goods have been dumped.
[90] The CBSA has identified 91 potential exporters of subject goods from the named countries during the period July 1, 2003 to June 30, 2004. A majority of the exporters shipped small quantities. Ten exporters from the named countries accounted for over 70% of the value of all laminate flooring imports into Canada in this period. These exporters also accounted for over 60% of the total exports of subject goods from their own individual country.
[91] In view of the large number of exporters, the CBSA used the above sampling criteria to send an exporter/manufacturer dumping Request for Information (RFI) at the initiation of the investigation to those 10 exporters. However, any exporter of subject goods can request an RFI from the CBSA and choose to participate in the investigation.
[92] The CBSA has identified 133 potential importers of subject goods from the named countries during the period July 1, 2003 to June 30, 2004. All importers were sent either a long form or short form importer dumping RFI at the initiation of the investigation. The short form of the importer dumping RFI requests limited data concerning the identity of the importer, confirmation of their address, a contact for future advice notices, who they purchased the subject goods from, and the volume and value totals of their imports for the period of investigation. The long form of the importer RFI, that requests more detailed information, was sent to the 20 importers that accounted for over 90% of the imports of subject goods.
[93] With respect to subsidies, the CBSA sent subsidy RFIs to the government of China and all identified exporters in China, referring to the period of investigation of July 1, 2003 to June 30, 2004, to determine whether or not the laminate flooring manufacturers have benefited from actionable subsidies.
[94] The Canadian International Trade Tribunal (Tribunal) will conduct a preliminary inquiry to determine whether the evidence discloses a reasonable indication that the dumping and subsidizing 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 the investigation initiation, by December 3, 2004. If the Tribunal concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigation will be terminated.
[95] If the Tribunal finds that the evidence discloses a reasonable indication of injury to the Canadian industry and the ongoing CBSA investigation reveals that the goods have been dumped and/or subsidized, the President of the CBSA will make a preliminary determination of dumping and/or subsidizing within 90 days after the date of the investigation initiation, by January 4, 2005. Where circumstances warrant, this period may be extended to 135 days from the date of the investigation initiation.
[96] If, in respect of any of the named countries, the CBSA's investigation reveals that imports of the subject goods have not been dumped or in the case of China, subsidized, that the margin of dumping or amount of subsidy is insignificant, or that the actual and potential volume of dumped or subsidized goods is negligible, the investigation will be terminated with respect to those countries.
[97] Imports of subject goods released by Customs on and after the date of a preliminary determination of dumping and/or subsidizing, on or before January 4, 2005, may be subject to provisional duty in an amount not greater than the estimated margin of dumping, or the estimated amount of subsidy, on the imported goods.
[98] Should the CBSA make a preliminary determination of dumping and/or subsidizing, the investigation will be continued for the purpose of making a final determination within 90 days after the date of the preliminary determination.
[99] If a final determination of dumping and/or subsidizing is made, the Tribunal will continue its inquiry and hold public hearings into the question of material injury to the Canadian industry. The Tribunal is required to make a finding, with respect to the goods to which the final determination of dumping and/or subsidizing applies, not later than 120 days after the CBSA preliminary determination.
[100] In the event of an injury finding by the Tribunal, imports of subject goods released by Customs after that date will be subject to anti-dumping duty equal to the applicable margin of dumping, and a countervailing duty in an amount equal to the amount of any actionable subsidy on the imported goods. Should both anti-dumping and countervailing duty be applicable to subject goods, the amount of any anti-dumping duty may be reduced by the amount that is attributable to an export subsidy.
Retroactive Duty on Massive Importations
[101] When the Tribunal conducts an inquiry concerning material injury to the Canadian industry, it may consider if dumped and/or subsidized 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.
[102] Should the Tribunal issue such a finding, anti-dumping and countervailing duties may be imposed retroactively on subject goods imported into Canada and released by Customs during the period 90 days preceding the day of the CBSA making a preliminary determination of dumping and/or subsidizing.
[103] In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the President of the CBSA has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy, as explained in the section "Evidence of Subsidizing", above. In such a case, the amount of countervailing duty applied on a retroactive basis will equal the amount of subsidy on the goods that is a prohibited subsidy.
[104] After a preliminary determination of dumping by the CBSA, an exporter may submit a written undertaking to revise their 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.
[105] Similarly, after a preliminary determination of subsidizing by the CBSA, foreign governments may submit written undertakings to eliminate the subsidy on the goods exported or to eliminate the injurious effect of the subsidy, by limiting the amount of the subsidy or the quantity of goods exported to Canada. Alternatively, exporters with the written consent of their government may undertake to revise their selling prices, so that the amount of the subsidy or the injurious effect of the subsidy is eliminated.
[106] 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 of this document, below.
[107] If an undertaking were to be accepted, the investigation and the collection of provisional duties would be suspended. Notwithstanding the acceptance of an undertaking, an exporter may request that the CBSA's investigation be completed and that the Tribunal complete its injury inquiry.
[108] Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.
[109] Interested parties are invited to file written submissions presenting facts, arguments, and evidence that they feel are relevant to the alleged dumping and/or subsidizing. Written submissions should be forwarded to the attention of one of the officers identified below.
[110] To be given consideration in this initial phase of the investigation, all information should be received by the CBSA by November 10, 2004.
[111] 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 be provided at the same time. This non-confidential version will be made available to other interested parties upon request.
[112] Confidential information submitted to 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 WTO dispute settlement 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 at the address below.
[113] The investigation schedule and a complete listing of all exhibits and information will be available at http://www.cbsa-asfc.gc.ca/sima-lmsi/i-e/menu-eng.html. The exhibits listing will be updated as new exhibits and information is made available.
[114] 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 the following at:
Telephone: |
Roger Lyons (613) 954-7342 |
Fax: |
(613) 948-4844 |
Email: |
|
Mail: |
Canada Border Services Agency |
Web site: |
Suzanne Parent
Director General
Anti-Dumping and Countervailing Directorate
Description of Identified Programs and Incentives
Evidence provided by the complainant suggests that the government of China may have provided support to manufacturers of subject goods in the following manner. For purposes of this investigation, "government of China" refers to all levels of government, i.e. federal, central, provincial/state, regional municipal, city, township, village, local, legislative, administrative or judicial. Benefits provided by state-owned enterprises operating under the direct or indirect control or influence of the government of China may also be considered to be provided by the government of China for purposes of this investigation.
1. Special Economic Zone (SEZ) Incentives
There is information that the government of China may provide various benefits and incentives to enterprises in China located within SEZs. The various benefits and incentives are outlined below:
- Tariff exemptions on imported materials;
- Reduction of corporate income tax;
- Value Added Tax (VAT) exemptions;
- Special land tax and land use exemptions;
- Preferential costs of services and infrastructure provided by government bodies or state-owned enterprises;
- Exemption/Reduction in Local Income tax for SEZ Enterprises; and
- Income Tax Refund of Amounts Further Invested in SEZs.
The exemption of tariff on imported material by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been exempted would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the exemption of tariffs on the imported materials.
The reduction of corporate income tax by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been reduced would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the reduction in the amount of tax payable by the recipient.
The exemption of VAT by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been exempted would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the exemption of VAT.
In respect of special land tax and land use exemptions, the provision of land by government constitutes a financial contribution under paragraph 2(1.6)(c) of SIMA being the provision of goods or services by the government. A benefit is conferred to the recipient when the land is provided at rates that are less than the fair market value of the goods or services.
In respect of the preferential costs of services and infrastructures provided by government, the provision of goods or services, including infrastructure other than general infrastructure, by government bodies or state-owned enterprises constitute a financial contribution under paragraph 2(1.6)(c) of SIMA. A benefit is conferred to the recipient when the goods or services are provided for less than the fair market value of the goods or services.
The exemption or reduction in local income tax fees by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been reduced would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the exemption or reduction of local income tax payable by the recipient.
The income tax refund for amounts further invested into the SEZ by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been refunded would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of local income tax refunded to the recipient.
The SEZ incentives may be specific as the available information suggests that the reduction in corporate income tax is only available to enterprises located within the SEZ. Under SIMA, a subsidy that is limited to a particular enterprise within the jurisdiction of the authority granting the subsidy is deemed specific under paragraph 2(7.2)(b) of SIMA.
2. Grants Provided for Export Performance and Employing Common Workers
There is information that the government of China may be providing grants to enterprises in China based upon export performance and the employment of common workers.
The provision of grants based by a government constitutes a financial contribution under paragraph 2(1.6)(a) of SIMA. A benefit is conferred to the recipient equal to the amount of the grant.
This alleged subsidy may be prohibited, as the available information suggests that these grants are only available to enterprises satisfying specified export-contingent criteria. Under SIMA, a subsidy that is contingent, in whole or in part, on export performance constitutes an export subsidy that is deemed specific under paragraph 2(7.2)(b) of SIMA.
3. Preferential Loans
There is information that the government of China may be providing loans to enterprises in China at preferential interest rates and financing terms. These loans may be being made directly by the government of China or indirectly via financial institutions in China.
The provision of loans by a government constitutes a financial contribution under paragraph 2(1.6)(a) of SIMA. A benefit is conferred to the recipient when the loan is provided at interest rates that are less than those that the recipient could receive on a non-guaranteed commercial loan.
This alleged subsidy may be specific as the available information suggests that these preferential loans are only available to enterprises satisfying specified export-contingent criteria. Under SIMA, a subsidy that is contingent, in whole or in part, on export performance constitutes an export subsidy that is deemed specific under paragraph 2(7.2)(b) of SIMA.
4. Loan Guarantees by the Government of China
There is information that the government of China may be providing loan guarantees to enterprises in China. These loan guarantees may be made directly by the government of China or indirectly via financial institutions in China.
The provision of a loan guarantee by a government constitutes a financial contribution under paragraph 2(1.6)(a) of SIMA. A benefit is conferred to the recipient when the loan is provided at interest rates that are less than those that the recipient could receive on a non-guaranteed commercial loan.
This alleged subsidy may be specific, as the available information suggests that these preferential loans are only available to enterprises satisfying specified export-contingent criteria. Under SIMA, a subsidy that is contingent, in whole or in part, on export performance constitutes an export subsidy that is deemed specific under paragraph 2(7.2)(b) of SIMA.
5. Income Tax Credits, Refunds and Exemptions:
- a) Reduced Corporate Tax Rate for Foreign Invested Enterprises
There is information that the government of China may be providing a reduced corporate income tax rate to foreign invested enterprises in China.
The reduction of corporate income tax by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been reduced would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the reduction in the amount of tax payable by the recipient.
This alleged subsidy may be specific, as the available information suggests that the reduction in corporate income tax is only available to foreign invested enterprises. Under SIMA, a subsidy that is limited to a particular enterprise within the jurisdiction of the authority granting the subsidy is deemed specific under paragraph 2(7.2)(b) of SIMA.
- b) Exemption/Reduction of Corporate Income Tax during Designated Start-up Periods
There is information that the government of China may be providing an exemption or reduction in corporate income tax payable by foreign invested enterprises in China during a designated start-up period.
The reduction of corporate income tax by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been reduced would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the reduction in the amount of tax payable by the recipient.
This alleged subsidy may be specific, as the available information suggests that the reduction in corporate income tax is only available to foreign invested enterprises. Under SIMA, a subsidy that is limited to a particular enterprise within the jurisdiction of the authority granting the subsidy is deemed specific under paragraph 2(7.2)(b) of SIMA.
6. Relief from Duties and Taxes on Inputs
There is information that the government of China may be providing relief from duties and taxes on inputs.
The relief from duties and taxes on inputs by a government constitutes a financial contribution under paragraph 2(1.6)(b) of SIMA if the amount that has been relieved would otherwise be owing and due to government. In such a case, the benefit conferred to the recipient is equal to the amount of the relieved duties and taxes.
This alleged subsidy may be specific, as the available information suggests that the relief from duties and taxes on inputs is only available to certain enterprises. Under SIMA, a subsidy that is limited to a particular enterprise within the jurisdiction of the authority granting the subsidy is deemed specific under paragraph 2(7.2)(b) of SIMA.
7. Reductions in Land Use Fees
There is information that the government of China may be providing a reduction in land use fees to enterprises in China.
The reduction in land use fees by a government constitutes a financial contribution under paragraph 2(1.6)(c) of SIMA. In such a case, the benefit conferred to the recipient is equal to the amount of the reduction in land use fees.
This alleged subsidy may be specific, as the available information suggests that the reduction in land use fees is only available to solely foreign invested enterprises. Under SIMA, a subsidy that is limited to a particular enterprise within the jurisdiction of the authority granting the subsidy is deemed specific under paragraph 2(7.2)(b) of SIMA.
8. Provision of Goods and/or Services by State-owned Enterprises
There is information that the government of China may be providing goods and/or services to enterprises in China. These goods and/or services may be being provided directly by the government of China or indirectly via state-owned enterprises.
The provision of goods and/or services by a government constitutes a financial contribution under paragraph 2(1.6)(c) of SIMA. In such a case, the benefit conferred to the recipient is equal to the amount of the reduction in fees payable for the provision of goods and/or services by state-owned enterprises.
This alleged subsidy may be specific, as the available information suggests that these goods and/or services are only available to certain enterprises. Under SIMA, a subsidy that is limited to a particular enterprise within the jurisdiction of the authority granting the subsidy is deemed specific under paragraph 2(7.2)(b) of SIMA.
2 OECD, DAC List of Aid Recipients - As at 1 January 2003, online: http://www.oecd.org/dataoecd/35/9/2488552.pdf
3 S.C. 1997, c. 36, as amended by 1998, c. 19; 1999, c. 17; 2001, c. 16; 2001, c. 25; 2001, c. 28; 2002, c. 19; 2002, c. 22.
4 http://strategis.ic.gc.ca/sc_mrkti/tdst/engdoc/tr_homep.html [Strategis]
5 Non-confidential complaint, adapted from Exhibit AD7.
6 The amount shown in the table for 2003 import data for Poland is from Statistics Canada classification data obtained by the CBSA. The Strategis import data obtained by Uniboard was not correct. Data for 1999 to 2002 in Strategis and Statistics Canada data do not differ significantly.
7 LABORSTA, International Labour Organization, online: http://laborsta.ilo.org for labour costs. Index of Factor Values for Use in Anti-dumping Duty Investigations Involving Products from the People's Republic of China (PRC), Import Administration, U.S. Department of Commerce. Memorandum to All Reviewers, (April 1997), online: http://ia.ita.doc.gov/factorv/prc/ for overhead, general, selling and administrative expenses, and profit.
8 WTO, Committee on Subsidies and Countervailing Measures, Chair's Report to Council for Trade in Goods on Transitional Review of China, Doc. G/SCM/111 (4 November 2003) at 3.
9 Subsidies Enforcement, Annual Report to the Congress. USTR and US Commerce Department Joint Report to the Congress, February 2004. 2003 Report to Congress on China's WTO Compliance, USTR, 11 December 2003.
