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Anti-dumping and Countervailing Program
OTTAWA, December 30, 2005
4214-10
AD 1347
4218-20
CVD 115
STATEMENT OF REASONS
Concerning the making of a preliminary determination with respect to the dumping and subsidizing of
UNPROCESSED GRAIN CORN ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA
and the termination of the investigation with respect to the dumping and subsidizing of
PROCESSED GRAIN CORN ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA
DECISION
On December 15, 2005, in accordance with subsection 38(1) of the Special Import Measures Act, the President of the Canada Border Services Agency made a preliminary determination of dumping and subsidizing respecting unprocessed grain corn, excluding seed corn (used for reproductive purposes), sweet corn and popping corn, originating in or exported from the United States of America. On the same date, pursuant to paragraph 35(2)(a) of the Special Import Measures Act, the President terminated the dumping and subsidy investigation with respect to processed grain corn originating in or exported from the United States of America.
Cet énoncé des motifs est également disponible en français.
This Statement of Reasons is also available in French.
Table of Contents
Summary of Events
Period of Investigation (POI)
Interested Parties
Product Definition
Additional Product Information
Classification of Imports
Canadian Industry
The Canadian Market
Dumping Investigation
Results of the Dumping Investigation
Subsidy Investigation
Results of the Subsidy Investigation
- Government of the United States
- CBSA Preliminary Findings
- Estimated Amount of Subsidy
- Summary of Results - Subsidy
- New Information
Representations Concerning the Investigation
Decision
Provisional Duty to be Imposed
Future Action
Retroactive Duty on Massive Importations
Undertakings
Publication
Information
Appendix I
[1] On August 12, 2005, the Ontario Corn Producers’ Association, the Manitoba Corn Growers Association, Inc. and La Fédération des producteurs de cultures commerciales du Québec, collectively referred to as the Canadian Corn Growers (CCG), filed a complaint alleging the injurious dumping and subsidizing of grain corn in all forms excluding seed corn (used for reproductive purposes), sweet corn and popping corn, originating in or exported from the United States of America (United States), on behalf of their members. On August 17, 2005, the Canada Border Services Agency (CBSA) informed the CCG that the complaint was properly documented and concurrently notified the government of the United States (USGov) that a properly documented complaint had been filed with the CBSA.
[2] On September 12, 2005, consultations were held between Canadian government officials and representatives of the USGov, in accordance with Article 13.1 of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (Subsidies Agreement).
[3] On September 16, 2005, the President of the CBSA (President) initiated an investigation respecting the dumping and subsidizing of the goods pursuant to subsection 31(1) of the Special Import Measures Act (SIMA).
[4] Upon receiving notice of the investigation, the Canadian International Trade Tribunal (CITT) started its preliminary injury inquiry. On November 15, 2005, the CITT concluded its preliminary inquiry and found that unprocessed grain corn constitutes a class of goods separate from processed grain corn. The CITT concluded that the evidence does not disclose a reasonable indication that the dumping and subsidizing of processed grain corn have caused injury or retardation or are threatening to cause injury to the domestic industry. The CITT also determined that there is evidence that discloses a reasonable indication that the dumping and subsidizing of unprocessed grain corn have caused injury to the domestic industry.
[5] On December 15, 2005, in accordance with subsection 38(1) of the Special Import Measures Act, the President of the CBSA made a preliminary determination of dumping and subsidizing respecting unprocessed grain corn, excluding seed corn (used for reproductive purposes), sweet corn and popping corn, originating in or exported from the United States of America.
[6] On the same date, pursuant to paragraph 35(2)(a) of the Special Import Measures Act, the President terminated the dumping and subsidy investigation with respect to processed grain corn from the United States of America.
[7] The investigation covers all subject goods released into Canada during the period from September 1, 2003 to August 31, 2005 inclusive.
[8] In the agricultural sector, crop yield is largely dependent on nature; thus, it is appropriate to use a period of investigation that spans at least two crop years. Given the nature of trade, it is necessary to take into account the sales of similar goods made by exporters during the 2003 and 2004 crop years.
[9] Furthermore, production costs vary in accordance with crop yields. For example, in a year in which crop yields are high, production costs per bushel are low, conversely, in a year in which the crop yields are much lower; production costs per bushel are much higher. As such, the selection of a two-year POI has the effect of mitigating the extremes in yields and costs.
Complainant
[10] The complaint was filed on behalf of a collective of Canadian corn grower associations known as the Canadian Corn Growers. The collective is comprised of the members of the following organizations.
(i) Ontario Corn Producers’ Association (OCPA)
100 Stone Road West
Suit 201
Guelph, Ontario
N1G 5L3
(ii) La Fédération des producteurs de cultures commerciales du Québec (FPCCQ)
Maison de l’UPA
555, boul. Roland-Therrien
Longueuil, Québec
J4H 4G4
(iii) Manitoba Corn Growers Association, Inc. (MCGA)
38 4th Ave NE,
Carman, Manitoba
R0G 0J0
[11] On October 24, 2005, legal counsel for the CCG notified the CBSA that the Canadian Corn Growers would henceforth be referred to as the Canadian Corn Producers (CCP).
[12] At the time the investigation was initiated, 523 potential exporters of the subject goods had been identified. Information obtained during the preliminary investigation as well as the CITT decision respecting processed grain corn, have resulted in the number of potential exporters being reduced to 383.
[13] At the time the investigation was initiated, 369 potential importers of the subject goods had been identified. Information obtained during the preliminary investigation as well as the CITT’s decision respecting processed grain corn, have resulted in the number of potential importers being reduced to 144.
[14] At the initiation of the investigation the subject goods were defined as:
- Grain corn in all forms excluding seed corn (used for reproductive purposes), sweet corn, and popping corn, originating in or exported from the United States.
[15] On November 15, 2005, the CITT concluded its preliminary inquiry and found that unprocessed grain corn constitutes a class of goods separate from processed grain corn. Unprocessed grain corn includes whole kernel grain corn and grain corn that has been milled to a limited degree such that the milled grain corn, regardless of its physical form, preserves all the constituent parts of whole kernel grain corn and is chemically identical to whole kernel grain corn. Processed grain corn, in contrast, results from dry milling operations that separate or remove constituent parts of the whole kernel grain corn, such as the bran layer or pericarp, germ, tip cap or endosperm.
[16] The CITT concluded that the evidence does not disclose a reasonable indication that the dumping and subsidizing of processed grain corn have caused injury or retardation or are threatening to cause injury to the domestic industry. As a result of the CITT’s decision, the CBSA’s investigation with respect to processed grain corn was terminated.
[17] The CITT determined that there is evidence that discloses a reasonable indication that the dumping and subsidizing of unprocessed grain corn have caused injury to the domestic industry.
[18] Based on the above, the subject goods are now defined as: unprocessed grain corn, excluding seed corn (for reproductive purposes), sweet corn, and popping corn, originating in or exported from the United States of America. For further clarity, unprocessed grain corn includes whole kernel grain corn and grain corn that has been milled to a limited degree such that the milled grain corn preserves all the constituent parts of whole kernel corn. Furthermore, grain corn mixed with other grains and oilseed (such as millet), which can be separated from the grain corn after importation is also considered subject goods. Further details regarding the products that remain subject and products that are excluded from this investigation are contained in Appendix I.
Additional Product Information
[19] The majority of corn grown in North America is grain corn. Its main use is for animal feed. Grain corn is also used to make a wide variety of products, such as alcohol (including spirits and fuel ethanol), corn syrup and sweeteners, cornstarch, human and pet food and industrial products.
[20] Grain corn is harvested when kernels are dry and hard, usually in September through November. The corn kernels are separated from the husk at harvest, putting them into a marketable and transportable condition.
[21] The most common variety of grain corn in North America is known as dent corn. It is also called field corn. Dent corn is a variety with a kernel that contains both hard and soft starches which is indented at maturity. A less common corn variety is flint corn, a grain corn having hard, rounded or short and flat kernels. It is used for the same purposes as dent corn.
[22] For the purpose of this investigation, production is defined as the growth, harvest and drying of grain corn to approximately 15.5% moisture content. As such, the subject goods do not include high moisture, silage or forage corn. High moisture corn is harvested with a moisture content around 24 to 26% and is stored in oxygen-limiting silos or bins without being dried. Silage/forage corn does not have the kernel separated from the husk. The plant is chopped in its entirety, including the stalk, the leaves, and the husk. Silage/forage and high moisture corn are used for animal feed almost exclusively on the farm where they are grown and are not normally traded or used for industrial purposes.
[23] The subject goods are normally classified under the following Harmonized System classifications numbers of the Canadian Customs Tariff:
1005.90.00.11 |
US No. 1 yellow dent corn |
1005.90.00.12 |
US No. 2 yellow dent corn |
1005.90.00.13 |
US No. 3 yellow dent corn |
1005.90.00.14 |
US No. 4 yellow dent corn |
1005.90.00.19 |
Other |
1005.90.00.99 |
Other (including white dent corn) |
1104.23.00.00 |
Corn which is sliced (corn which is hulled or kibbled is not subject, but also falls within this tariff number) |
[24] The OCPA, FPCCQ and MCGA are producer organizations representing virtually all of the grain corn producers in their respective provinces. In the 2004 crop-year, the last crop-year for which complete data is available, 364 million bushels of grain corn were produced in Canada.1 Over 98 % of this production took place in Ontario, Quebec and Manitoba. The remaining 2% took place in Nova Scotia and Alberta.2 The production for the 2005 crop-year is estimated to be 346 million bushels with Ontario, Quebec and Manitoba, still representing the vast majority of production.3
[25] The CCG provided market information regarding unprocessed grain corn in the complaint. The sources of information regarding Canadian production are the OCPA, FPCCQ, and Statistics Canada. With respect to import and export information, the complainants used data obtained from Statistics Canada. A comparison of the Customs Commercial System (CCS) import information with Statistics Canada data indicated a correlation in value for duty amount for 2002 and 2003 crop-years. However, there were discrepancies in the quantities reported. The CBSA analysis of the CCS information revealed that the information regarding volume was flawed in many cases. Therefore, for the purpose of estimating the apparent Canadian market, the CBSA has used the Statistics Canada data.
[26] The following table represents the apparent Canadian market for the 2002, 2003 and 2004 crop-years:
Apparent Canadian Market – Grain Corn
(Crop-Years)
Crop-Year |
2002 |
2002 |
2003 |
2003 |
2004 estimate |
2004 estimate |
Volume |
Value |
Volume |
Value |
Volume |
Value | |
Unprocessed Grain Corn |
||||||
Carry-In |
50.4 |
$204.6 |
60.3 |
$205.0 |
66.5 |
$248.0 |
Total Production |
352.5 |
$1,413.5 |
364.0 |
$1,368.6 |
346.8 |
$991.9 |
Imports |
158.5 |
$567.4 |
79.2 |
$262.2 |
85.0 |
$229.5 |
Total Available |
561.4 |
$2,185.5 |
503.5 |
$1,835.8 |
498.3 |
$1,469.4 |
Exports |
12.1 |
$48.5 |
14.0 |
$52.6 |
15.0 |
$42.9 |
Carry out |
60.3 |
$205.0 |
66.5 |
$248.0 |
53.9 |
$148.2 |
Total Canadian Market |
489.0 |
$1,960.9 |
423.0 |
$1,590.5 |
429.4 |
$1,228.1 |
Data relating to imports from countries other than the United States, as well as import and export data relating to sliced corn is not included in this table as they represent minimal amounts.
[27] The information relating to import and export volumes have not been refined since initiation as there was a limited number of responses from exporters and importers.
[28] Paragraph 30.3(1)(a) of SIMA, provides that margins of dumping may be determined in relation to the largest percentage of goods that can reasonably be investigated if it is determined that it would be impracticable to determine a margin of dumping in relation to all goods because of the number of exporters, producers or importers. Given the large number of exporters, the CBSA chose to examine 35 exporters and 25 importers (“selected exporters and importers”) representing 75% of the value of imports into Canada, respectively, during the period of investigation.
[29] A dumping Request for Information (RFI) was sent to those 35 selected exporters and 25 selected importers at the initiation of the investigation. The selected exporters were given instructions that, if the recipient was not the producer of the subject goods, the RFI should be forwarded to the producer.
[30] As well, all other exporters and importers of subject goods were notified of the initiation of the investigation and were advised that they could ask for an RFI from the CBSA and participate in the dumping investigation. However, these other exporters and importers were also advised that due to the number of selected importers and exporters and the time constraints, the CBSA could not guarantee that a voluntary response to the RFI would be taken into consideration for the preliminary phase of the investigation.
Results of the Dumping Investigation
[31] Dumping occurs when goods are sold to importers in Canada at prices that are lower than the selling price of comparable goods in the country of export or when goods are sold to Canada at unprofitable prices. The estimated margin of dumping for all of the selected exporters was calculated by subtracting the total export price from the total normal value for all of the goods shipped to Canada during the period of investigation, including all of the individual sales that were made at undumped prices. Consequently, any individual sale made at an undumped price reduced the overall margin of dumping. In general, normal values are determined based on the domestic selling price of the goods in the country of export or on the total cost of the goods, including overhead, sales and administrative costs, plus a reasonable amount for profit. The export price of imported goods is generally established as the lesser of the importer’s purchase price or the exporter’s selling price to Canada, less all of the costs and expenses related to exporting the goods. These calculations must be based on the location from which the goods were shipped directly to Canada.
[32] For the purpose of the preliminary determination, the information provided in the exporters’ and importers’ submissions was insufficient to estimate the margin of dumping; therefore, publicly available information available from the United States Department of Agriculture (USDA) Economic Research Service (ERS) was used to estimate normal values, and the information from the CBSA’s Customs Commercial System (CCS) was used to estimate export prices.
[33] Only one exporter and its related importer submitted a response to the CBSA’s RFI prior to the October 24, 2005, due date. In instances in which an exporter is related to an importer, section 25 of SIMA provides a calculation methodology to determine the reliability of export prices. Because this methodology cannot be applied without an on-site verification of the data provided by the importer, the CBSA estimated the normal values and export prices for transactions for these related parties in the same manner as for all the other importers, based on the information available from the CBSA’s CCS system. A complete calculation pursuant to sections 24 and 25 of SIMA is planned for the final determination.
[34] Two additional submissions were received after the due date. The responses, from an exporter and its related importer, related to processed grain corn. As the President terminated the investigation with respect to processed grain corn, these two submissions were not considered for the preliminary determination.
[35] The USDA produces a wealth of public information about the agricultural sector in the United States. This information includes the full operating costs, fixed costs and crop yields for most of the agricultural products grown in the United States, including grain corn.
[36] The USDA’s ERS publishes the total average costs and the monthly average selling prices of grain corn at the farm-gate level, by farm resource region. This information shows that, for most of the months in the POI, the total cost of grain corn per bushel exceeded the average monthly selling price in most of the farm resource regions identified. Generally, grain corn producers in the Heartland region were the only ones to sell their product at a profit during the POI, with the exception of the months of February and August 2005. For example, the most recent analysis published by the ERS shows that, for the United States overall, the average selling price for the 2004 crop year was US$1.95 per bushel, whereas the average cost was US$2.20 per bushel.
[37] Taking into account the data available, the CBSA was able to use a portion of U.S. selling prices to estimate normal values in accordance with the methodology set out in section 15 of SIMA.
[38] Where the monthly selling prices were determined to have been made at a loss, the methodology set out in paragraph 19(b) of SIMA was used to determine normal values, based on the total cost of production of the goods, plus an amount for all general, selling, administrative and other costs, plus a reasonable amount for profit.
[39] In order to estimate the total the costs, the CBSA used the most recent ERS data. This data provided the total cost of grain corn for the 2003 and 2004 crop years for six farm resource regions as well as an average for the United States. During the POI, 97.5% of grain corn exports from the United States to Canada came from three farm resource regions: Heartland (27.9%), Northern Crescent (54.9%), and Northern Great Plains (14.6%). The balance of the exports (2.5%) came from the Prairie Gateway, Eastern Uplands and Southern Seaboard farm resource regions. The CBSA used the total cost of grain corn for each of these six regions as part of its estimated normal values. The total cost for these regions are reflected in the following table:
Table 1 Total Costs of Production
Total production cost per bushel4 for the 2003 and 2004 crop years | ||
Farm Resource Region |
2003 |
2004 |
Heartland |
US$2.20 |
US$2.08 |
Northern Crescent |
US$2.56 |
US$2.50 |
Northern Great Plains |
US$2.65 |
US$2.72 |
Prairie Gateway |
US$2.72 |
US$2.44 |
Eastern Uplands |
US$3.17 |
US$2.92 |
Southern Seaboard |
US$2.78 |
US$2.71 |
[40] These production costs, however, also include expenses related to the opportunity cost of land, which are not cash expenses.
[41] This factor was also an issue during the CBSA’s previous investigation involving grain corn from the United States in 2000. At that time, after consultations with USGov officials, the CBSA agreed to adjust this cost component relating to the opportunity cost of land.5 These costs represent an opportunity cost of the land if the farmer were to rent the land to someone else for agricultural purposes. Moreover, at that time it was noted that this cost was not a genuine “cash” cost that normally appears in a grower’s accounts. However, it was also noted that these opportunity costs also include mortgage costs and leasing costs that need to be taken into account appropriately in the total cost of the goods.
[42] The USGov subsequently provided information on the percentage of wholly owned land versus leased land. Based on this information, the opportunity costs of land were reduced to take into account the percentage of the total number of wholly owned acres, with no mortgage debt and no lease, developed for corn production.
[43] At that time, the CBSA had calculated an adjustment factor for 1998 and 1999, allowing for a downward adjustment to the opportunity cost of land. The factors used at that time were as follows for the then concerned Farm Resource Regions:
Table 2 Adjustment Factors
Farm Resource Region |
1998 |
1999 |
Heartland |
.191 |
.191 |
Northern Crescent |
.305 |
.305 |
Northern Great Plains |
.238 |
.212 |
Average |
.245 |
.236 |
[44] The CBSA was unable to determine an adjustment factor for the opportunity cost of land for the 2003 and 2004 crop-years. As such, it opted to use the 1999 reduction factors and apply them to the corresponding 2003 and 2004 crop year production costs.
[45] The resulting revised production costs per bushel, which were used in the estimate of normal values, are set out in the following table.
Table 3 Total Adjusted Costs of Production
Adjusted total costs of production per bushel for the 2003 and 2004 crop years | ||
Farm Resource Region6 |
2003 |
2004 |
Heartland |
US$2.08 |
US$1.97 |
Northern Crescent |
US$2.41 |
US$2.35 |
Northern Great Plains |
US$2.54 |
US$2.60 |
Prairie Gateway |
US$2.60 |
US$2.34 |
Eastern Uplands |
US$3.05 |
US$2.81 |
Southern Seaboard |
US$2.68 |
US$2.61 |
[46] For the purpose of the preliminary determination, the normal values were estimated based on profitable domestic sales or based on the total cost of production of the goods, plus an amount for all general, selling, administrative and other costs, plus a reasonable amount for profit.
[47] As the data available from the ERS relates solely to farms, the CBSA had to conduct additional research that would enable the estimation of normal values based on the location from which the goods were shipped directly to Canada, namely, from the grain elevators. Given that the exports to Canada are made from grain elevators and that none of these parties provided a response to the RFI in a timely manner, that is, by October 24, 2005, the CBSA had no other alternative but to estimate normal values based on the farm-gate, and add the estimated cost of shipping these goods from the farms to the grain elevators, the handling, storage, insurance, shipping, administrative and sales expenses incurred in the operation of grain elevators, plus a reasonable amount for profit.
[48] Complete responses to the RFI by grain elevator operators could have resulted in the calculation of normal values using the method set out in section 15 of SIMA, based on profitable domestic sales. As explained above, due to the lack of data relating to the costs incurred by grain elevator operators, the CBSA estimated these costs based on the following assumptions:
- According to the ERS-published data, the average price paid, net of freight, to U.S. grain corn growers at the farm is the same, regardless of the final destination of their product. Given that grain corn is commodity product and therefore fungible, the CBSA is of the opinion that it is not possible to determine its exact origin, unless it has been shipped directly from the farm to the end user, through a grain elevator operator or a broker.
- The exporters (sellers) of grain corn sell their product for the same price in the
United States and in Canada. The North American market for commodities includes the three NAFTA countries. North American users of grain corn pay the same price from the farm, regardless of their geographic location. - Grain elevator operators incur approximately the same operating costs, regardless of their geographic location.
- Export prices are assumed to be F.O.B. - grain elevator for the purpose of this exercise. A more detailed review is planned for purposes of the final determination, in order to establish an average cost of transportation and insurance in instances in which sales are made C.I.F.
- The CBSA estimated the average cost of transportation from the farm to the grain elevators at $0.138 per bushel, for an average distance of 100 miles between the farm and the grain elevators, to determine if a shipment was made at a profit. A more detailed review is planned for the purpose of the final determination for the other expenses normally incurred by grain elevator operators.
[49] Based on these assumptions, the CBSA estimated the net profit margin of grain elevator operators by comparing the US dollar export price for each shipment as indicated in the CBSA’s CCS system with the average monthly price in US dollars received by the growers, as estimated by the ERS. Where the average monthly price received by the grower was less than the price reported, net of transportation expenses between the farm and the grain elevators, the transaction was included for the purpose of calculating the profit margin. The resulting margins for each CCS transaction for the two crop years were then weighted by the quantities shipped to Canada.
[50] It should be noted that the transactions deemed to be made at a loss, as mentioned above, were determined based on the methodology set out in paragraph 16(2)(b) of SIMA. Given that more than 57% and 76% of grain corn export sales to Canada (in bushels) were made at a loss for the 2003 and 2004 crop years respectively, the CBSA excluded these sales in the calculation of a profit margin for grain elevator operators to be used for calculating normal values.
[51] In conducting its research for data on grain elevator operators, which would provide more reliable data for the calculation of normal values, the CBSA located a document entitled “United States Dumping on World Agricultural Markets” produced by the Institute for Agriculture and Trade Policy in Minneapolis, Minnesota.7
[52] This document explains the methodology used to estimate the cost of transportation from the farm to the grain elevators, and the costs generated by grain elevator operations.
[53] The Institute’s methodology is generally the same as that used by the CBSA, with the exception that the Institute based its figures on a broader time period, from 1990 to 2001, which, in their view, provides a better indicator for estimating this component. The Institute estimated this amount to be US$0.54 per bushel for the entire period.
[54] In comparison, the CBSA used a slightly different approach in which it estimated this component for each of the years covered by the POI, which results in a figure of US$0.42 per bushel for the 2003 crop year and US$0.54 per bushel for the 2004 crop year.
[55] Given the preceding information, the following weighted normal values were estimated for each of the Farm Resource Regions from which the subject goods were shipped to Canada.
Table 4 Normal Values by Farm Resource Regions
Farm Resource Regions |
Normal Value |
Normal Value |
Heartland |
2.92 |
2.61 |
Northern Crescent |
3.16 |
3.01 |
Northern Great Plains |
3.20 |
3.27 |
Prairie Gateway |
3.20 |
3.00 |
Eastern Uplands |
3.85 |
3.49 |
Southern Seaboard |
3.03 |
2.69 |
Export price
[56] Generally, the export price of goods shipped to Canada is the lesser of the exporter’s selling price or the importer’s purchase price, as set out in section 24 of SIMA.
[57] Given that the CBSA received sufficient information in a timely manner from only one exporter, and that this exporter is related to its Canadian importer, it is necessary to verify this information before it can be used to determine the export price. As such, for purposes of the preliminary determination the export prices for this company were determined using the same methodology as that for all other exporters, namely, the export price data extracted from the CBSA’s CCS system.
[58] Some of information contained in the CBSA’s CCS data also contained reporting errors, particularly with respect to the quantity shipped to Canada. Where such errors were made and corrections were not possible, the information was deemed to be unreliable and was not used to estimate export prices. These shipments represent less than 1% of the cash value of the subject goods imported during the POI.
[59] For all of the other shipments, the export prices were estimated in accordance with the methodology set out in section 24 of SIMA, based on the selling price to importers and allowing for deductions for freight and brokerage, where applicable.
Margin of Dumping
[60] At the initiation stage of the investigation, the CBSA estimated the weighted average margin of dumping for the subject goods to be 4.4%, expressed as a percentage of the export price. This assessment was made based on the information provided by the complainant and information available through the CBSA’s CCS system.
[61] For the preliminary determination, a single margin of dumping was estimated for all of the selected exporters of unprocessed grain corn. This margin of dumping was also applied to those exporters that were not selected.
[62] In order to determine the total margin of dumping for each of the selected exporters, the CBSA subtracted the total export price from the total normal value of all of the subject goods shipped to Canada during the POI. This included all of the individual sales made at undumped prices. Consequently, all of the individual sales at undumped prices reduced the overall margin of dumping determined for each exporter.
[63] Where the total normal value exceeds the total export price, the difference between the two is the margin of dumping, which is usually expressed as a percentage of the total export price. Where the margin of dumping for a particular exporter is negative, the dumping margin for that exporter is zero, pursuant to subsection 30.2(1) of SIMA.
[64] The margins of dumping for shipments to Canada between September 1, 2003, and August 31, 2004, were estimated by comparing the estimated normal values for the 2003 crop year with the estimated export prices to Canada during this period. The margins of dumping for shipments to Canada between September 1, 2004, and August 31, 2005, were estimated by comparing the estimated normal values for the 2004 crop year with the estimated export prices to Canada during the same period.
[65] In calculating the estimated weighted average margin of dumping in accordance with section 30.1 of SIMA, the margin of dumping for the selected exporters were weighted on the basis of the quantity of goods shipped to Canada during the POI.
[66] Slightly more than 73% of the goods shipped from the United States to Canada during the POI, were reviewed, and the results show that 100% were dumped. The margins of dumping ranged from 0.1% to 110%, expressed as a percentage of the export price. The weighted average margin of dumping was estimated to be 24.4% for the entire POI. This is equal to an estimated margin of dumping of US$0.583 per bushel.
[67] These margins of dumping differ somewhat from those estimated at the time of the initiation of the investigation. At that time, the normal values were estimated based on the farm gate price. For purposes of the preliminary determination, normal values were estimated based on the point of direct shipment to Canada, as set out in SIMA, which results in a significant increase in normal values for each of the farm resource regions. The following table contains a summary of the findings.
Table 5 Margins of Dumping
Period |
Range of margin of dumping (% of export price) |
Average margin of dumping (% of export price) |
Sept. 2003–Aug. 2004 |
0.1–110 |
23.5 |
Sept. 2004–Aug. 2005 |
0.1–67 |
25.4 |
Sept. 2003–Aug. 2005 |
0.1–110 |
24.4 |
Summary of Results - Dumping
[68] Pursuant to subsection 35(1) of SIMA, the President is required to terminate the investigation with respect to the goods prior to the preliminary determination if the President is satisfied that the volume of dumped goods of a country is negligible or the margin of dumping of the goods of that country is insignificant. Pursuant to subsection 2(1) of SIMA, a margin of dumping equal to less than 2% is defined as insignificant, whereas a volume of dumped goods from a country that is equal to less than 3% of the total imports is deemed to be negligible.
[69] The volume of dumped goods represents 100% of all of the subject goods shipped from the United States during the POI. Furthermore, 99% of the grain corn imported into Canada comes from the United States.
[70] As shown in the preceding Table, the weighed average margin of dumping exceeds the 2% threshold, and it is, therefore, considered to be significant. Given that 100% of the volume of grain corn imported from the United States is sold at dumped prices and that this volume represents 99% of all of the grain corn imported by Canada, this volume of dumped grain corn exceeds the 3% threshold for all of the imports reviewed and is not considered to be negligible.
[71] A summary of the estimated margins of dumping and provisional duties payable can be found in Appendix II.
[72] 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 WTO Agreement, that confers a benefit.
[73] Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists where:
(a) practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
(b) 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;
(c) the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
(d) 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.
[74] 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. A “prohibited subsidy” includes an export subsidy which is contingent, in whole or in part, on export performance or a subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.
[75] Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether:
(a) there is exclusive use of the subsidy by a limited number of enterprises;
(b) there is predominant use of the subsidy by a particular enterprise;
(c) disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
(d) the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.
[76] 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
[77] In reviewing the information provided in the complainant’s submission, the CBSA developed the following list of programs and incentives that may be provided to producers of grain corn in the United States:
1. Direct and Counter-Cyclical Payments
2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
3. Federal Crop Insurance Program
[78] Appendix III provides further details regarding the subsidy programs that were identified upon initiation of the investigation.
[79] The CBSA forwarded a questionnaire relating to the named programs to the USGov in order to establish whether there had been financial contributions made by any level of government and, if so, to establish if a benefit has been conferred on persons engaged in the production, manufacture, processing, purchase, distribution, transportation, sale, export or import of the subject goods; and whether any resulting subsidy was specific in nature.
[80] In subsidy investigations, it is generally the CBSA’s policy to determine if a subsidy is specific in relation to all economic sectors within the jurisdiction of the granting authority. However, as an administrative policy, we will determine if an agricultural subsidy is specific in relation to the agricultural sector as a whole, based on the criteria and conditions for non-specificity and the determination of specificity, which are provided for in subsections 2(7.1) to (7.4) of SIMA.
Results of the Subsidy Investigation
Government of the United States
[81] The USGov provided a response to the subsidy questionnaire that was issued by the CBSA at the initiation of the investigation. The information submitted by the USGov was deemed to be substantially complete and usable for the purposes of a preliminary determination.
[82] The CBSA considers that the following programs constitute actionable subsidies:
1. Direct and Counter-Cyclical Payments
2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
3. Federal Crop Insurance Program
[83] Appendix IV contains the rationale applied by the CBSA in reaching this decision.
[84] Estimated amounts of subsidy for the above programs were calculated for both the 2003 and 2004 crop-years. The programs, in aggregate, provided an estimated subsidy of US$0.43 per bushel in the 2003 crop-year and US$0.96 per bushel in the 2004 crop-year. Appendix II contains a summary of the estimated amounts of subsidy.
[85] Pursuant to subsection 35(1) of SIMA, the President is required to terminate an investigation prior to the preliminary determination if the President is satisfied that the amount of subsidy on the goods of a country is insignificant or that the volume of subsidized goods of a country is negligible. A volume of subsidized goods from a country equal to less than 3% of total imports from all sources is considered negligible. An amount of subsidy less than 2% of the export price is defined as insignificant
[86] The estimated amounts of subsidy are equal to 17.1% and 42.7% of the average export price of the goods shipped to Canada in the 2003 (US$2.50) and 2004 (US$2.25) crop-years, respectively. The amounts of subsidy for the entire POI (2003 and 2004 crop-years) are estimated to be 28.5% of the export price of the goods shipped to Canada or US$0.71 per bushel. It should be noted that the subsidy portion of the investigation was conducted on an aggregate basis with a resulting single countrywide estimate of the amount of subsidy.
[87] In the absence of evidence to the contrary, the CBSA assumes that 100% of subject goods imported into Canada have benefited from the actionable subsidies.
[88] The total amount of subsidy applying to all exports has been estimated at 28.5% of the value of the goods during the POI, and imports from the United States account for in excess of 99 per cent of total imports, thus, the estimated amount of subsidy is not insignificant, and the volume of subsidized goods is not negligible.
[89] It is noteworthy that on October 4, 2005, the USGov announced that the amount of the Counter-cyclical Payment for the 2005 crop-year would be US$0.40 per bushel. According to US legislation, this is the maximum payment available under this program. As these payments relate to the 2005 crop-year, i.e. the goods currently being imported into Canada, this newly announced rate will be incorporated into the total amount of provisional duties to be assessed on imports of subject goods, which results in an amount of subsidy of US$1.07 per bushel. Further details regarding the imposition of provisional duties are contained in the Future Action section below.
[90] On October 24, 2005, during the meetings involving corn imports from the United States by the House of Commons Standing Committee on Agriculture and Agri-food, additional possible subsidy programs were mentioned. The programs involve foreign food assistance and the possibility that the USGov was subsidizing farmers by paying for food obtained for international food aid at a price that was in excess of the market price.
[91] As a result, the CBSA conducted additional research into these programs. The programs are administered by the USDA and the US Agency for International Development (AID). There are four programs as follows:
- Emergency and Private Assistance programs (donations to meet emergency food aid)
- Food for Development (grants to support long-term growth in agriculture in lesser developed countries)
- Section 416(b) (donations for humanitarian assistance overseas)
- Food for Progress (commodities to support countries that have made commitments to expand free enterprise in agricultural economies).
[92] When food is provided under one of these programs, the USGov obtains the commodity (grain, corn, rice, etc.), by way of an “invitation to bid” from interested parties. Sealed bids are made and opened at the close of bidding. As such, it is highly unlikely that the USGov is paying higher than market prices for the commodities it obtains for these programs. (Note: The prices are quoted on an f.a.s (free along side ship) basis, intermodal plant or intermodal bridge basis to various coastal ports. As such, these amounts would be higher than the Chicago Board of Trade (CBOT) price quotes, which may lead one to conclude that the USGov is paying higher prices than CBOT price quotes.
Representations Concerning the Investigation
[93] On October 19, 2005 the CBSA received a Submission from Nature’s Path Foods Inc. requesting that the CBSA exclude organic corn from its investigation.
[94] For the purposes of this investigation the subject goods are defined as unprocessed grain corn, excluding seed corn (used for reproductive purposes), sweet corn and popping corn, originating in or exported from the United States of America. As organic grain corn falls within the scope of this definition, it is subject to this investigation.
[95] On November 24, 2005, the CBSA received written representations from counsel on behalf of the CCP regarding the various aspects of the investigation proceedings. In its representations, counsel for the CCP argued that the CBSA should:
- Liberally interpret the product definition of unprocessed grain corn;
- Impose duties immediately following a preliminary determination;
- Direct the attention of the CITT to alleged massive importations of grain corn;
- Not extend the 90 day preliminary investigation phase
- Apply a previous “zeroing policy”, in which the overall margin of dumping is not fully offset by goods that have been found not to have been dumped.
[96] With respect to the issue of product definition of unprocessed grain corn, the CBSA has applied the criteria set by the CITT, such that it is investigating imports of grain corn in which all constituent parts of whole kernel corn are preserved and which are chemically identical to whole kernel corn.
[97] With respect to the imposition of provisional duty, the CBSA notes that subsection 8(1) of SIMA allows for the imposition of provisional duty where the President considers that the imposition of provisional duty is necessary to prevent injury, retardation of threat of injury. If considered necessary, provisional duty is collected on importations of goods that are of the same description as those goods to which the preliminary determination applies and that are released beginning on the day of the preliminary determination, i.e. as of December 15, 2005. For further information relating to the imposition of provisional duty, see the Provisional Duty to be Imposed section below.
[98] With respect to the CCP’s representations concerning massive importations, section 42 of SIMA requires the CITT to inquire with respect to specified matters, including massive importations, as is appropriate in the circumstances. Therefore, any concerned party should bring any allegation of massive importations to the attention of the CITT.
[99] With respect to the extension of the investigation section 39 of SIMA allows for the extension of the time limit set out in section 38 to 135 days under certain specific circumstances. The information currently before the President does not satisfy these criteria and therefore the investigation was not extended to 135 days.
[100] The issue of zeroing raised by the CCP relates to a previous administrative practice of the CBSA. The CBSA’s current practice in determining a margin of dumping for an exporter is to subtract the total export price from the total normal value of all goods shipped to Canada during the POI, including any individual sales that were made at undumped prices. The inclusion of such sales has the effect of reducing the overall margin of dumping. This practice is consistent with SIMA and with Canada’s obligations as a member of the WTO.
[101] The CBSA also received representations from the USGov on November 29, 2005. The USGov made representations concerning the scope of the products to be included in a potential preliminary determination, as well as the resulting amounts of subsidy and the margins of dumping. This was in regard to the CITT’s preliminary injury decision which effectively excluded processed grain corn from the investigation.
[102] As the CBSA’s preliminary determination is consistent with the CITT’s preliminary injury decision, the concerns raised by the USGov have been addressed in the preliminary determination of dumping and subsidizing.
[103] Based on the preliminary results of the investigation, the President made a preliminary determination of dumping and subsidizing on December 15, 2005, pursuant to subsection 38(1) of SIMA with respect to unprocessed grain corn originating in or exported from the United States.
[104] On the same date, as a result of the CITT’s decision on November 15, 2005 concerning processed grain corn, the President caused the dumping and subsidy investigation with respect to processed grain corn to be terminated pursuant to paragraph 35(2)(a) of SIMA.
[105] In light of the preliminary determination of injury made by the CITT concerning unprocessed grain corn, the President also considers that the imposition of provisional duties is necessary to prevent injury, retardation or the threat of injury from dumped and subsidized imports of the subject goods.
Provisional Duty to be Imposed
[106] Pursuant to subsection 8(1) of SIMA, provisional duty will be applied to dumped and subsidized subject goods that are released during the provisional period commencing on the day the preliminary determination is made, and ending on the earlier of the day on which the President causes the investigation to be terminated pursuant to subsection 41(1) or the day on which the CITT makes an order or finding.
[107] The provisional anti-dumping duty is equal to the estimated margin of dumping, in the amount of US$0.58 (approximately CDN$0.76) per bushel. Provisional countervailing duty is equal to the estimated amount of subsidy on the imported goods in the amount of US$1.07 (approximately CDN$1.25) per bushel. Appendix II contains a summary of the estimated margin of dumping and estimated amount of subsidy found for the preliminary determination. Provisional anti-dumping and countervailing duty is payable on subject goods released from Customs on or after December 15, 2005.
[108] Importers are required to pay provisional duty in cash or by certified cheque. Alternatively, they may post security equal to the amount payable. Importers should contact their regional customs office if they require further information on the payment of provisional duty or the posting of security. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in customs documents, an administrative monetary penalty could be imposed. The provisions of the Customs Act apply with respect to the payment, collection or refund of any duty collected under SIMA. As a result, failure to pay duties within the prescribed time will result in the application of interest.
The Canada Border Services Agency
[109] The CBSA will continue its dumping and subsidy investigation respecting unprocessed grain corn, and will make a final decision by March 15, 2006. During the second phase of the investigation, the CBSA will review any additional information received, in a timely manner, to finalize the calculations of normal value, export price, and amount of subsidy.
[110] If the President is satisfied that the goods were dumped and/or subsidized, and that the margin of dumping or amount of subsidy is not insignificant, a final determination will be made. Otherwise, the President will terminate the investigation and any provisional duty paid, or security posted, will be returned to the importers.
[111] The following table outlines the schedule of future events in the CBSA’s investigation:
Date |
Event |
January 16, 2006 |
Closing of the Record Date |
January 23, 2006 |
Case Arguments Due from All Parties |
January 30, 2006 |
Reply Submissions Due from All Parties |
March 15, 2006 |
Final Determination / Termination of Dumping and/or Subsidy Investigation |
March 31, 2006 |
Statement of Reasons (Final Determination / Termination of Investigation) Issued |
The Canadian International Trade CITT
[112] The CITT has begun its full inquiry into the question of injury to the Canadian industry. The CITT is expected to issue its final decision by April 18, 2006.
[113] If the CITT finds that the dumping or subsidizing has not caused injury or is not threatening to cause injury, the proceedings will be terminated and all provisional duties collected, or security posted, will be returned. If the CITT makes an affirmative decision, anti-dumping duty and/or countervailing duty will be imposed on imports of the subject goods.
[114] For purposes of the preliminary determination of dumping or subsidizing, the President has responsibility for determining whether the actual and potential volume of dumped or subsidized goods is negligible. After a preliminary determination of dumping or subsidizing, the CITT assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the CITT is required to terminate its inquiry in respect of any goods if the CITT determines that the volume of dumped or subsidized goods from a country is negligible.
Retroactive Duty on Massive Importations
[115] Under certain circumstances, anti-dumping and countervailing duty can be imposed retroactively on subject goods imported into Canada. When the CITT conducts its inquiry on 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. Should the CITT issue a finding that there were recent massive importations of dumped and/or subsidized goods that caused injury, imports of subject goods released by the CBSA in the 90 days preceding the day of the preliminary determination, other than the goods that were released before the initiation of the investigation, could be subject to anti-dumping and/or countervailing duty.
[116] In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the President has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy. 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.
[117] After a preliminary determination of dumping, exporters may submit a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. Similarly, after a preliminary determination of subsidizing, the government of a country may give a written undertaking to eliminate the subsidy on the goods, or to eliminate the injurious effect of the subsidy by limiting the amount of the subsidy or the quantity of goods exported to Canada. Exporters, with the consent of their government, may also undertake to revise their selling prices so that the injurious effect of the subsidy is eliminated.
[118] Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped and subsidized goods. In the event that an undertaking is accepted, the required payment of provisional duty on the goods would be suspended.
[119] In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determination of dumping and subsidizing. Further details regarding undertakings can be found in the CBSA’s Memorandum D14-1-9, available online at: http://www.cbsa-asfc.gc.ca/publications/dm-md/d14/d14-1-9-eng.html.
[120] The legislation allows interested parties to make representations concerning any undertaking proposals. The CBSA will maintain a list of interested parties and will notify them should an undertaking proposal be received. Persons wishing to be notified must provide their name, address, telephone, fax or email address to one of the officers listed below. Interested parties may also consult the website noted below for information on undertakings offered in this investigation. A notice will be posted on the Web site when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.
[121] A notice of this preliminary determination of dumping and subsidizing is being published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA. Similarly a notice of the termination with respect to processed grain corn is also being published in the Canada Gazette pursuant to paragraph 35(2)(b) of SIMA.
[122] This Statement of Reasons has been made available 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 one of the officers noted below.
Mail:
Canada Border Services Agency
Trade Programs Directorate
Anti-Dumping and Countervailing Program
100 Metcalfe Street, 11th Floor
Ottawa, Ontario K1A 0L8
Canada
Telephone:
Ron McTiernan (613) 954-7271
Gilbert Huneault (613) 954-7376
Fax:
(613) 948-4844
Email:
simaregistry-depotlmsi@cbsa-asfc.gc.ca
Web site:
http://www.cbsa-asfc.gc.ca/sima
Suzanne Parent
Director General
Trade Programs Directorate
Seed corn (used for reproductive purposes) – is corn seed specifically grown for reproductive purposes and typically has a seed treatment applied.
Sweet Corn – or green corn, is eaten fresh, canned, or frozen. Sweet corn contains more sugar than other corn and is harvested when the plant is immature and the kernels still soft.
Popping Corn – is a variety of corn that has small ears and small pointed or rounded kernels that, on exposure to dry heat, are popped by the expulsion of the contained moisture, and form a white starchy mass many times the size of the original kernel.
High Moisture Corn – is a variety of corn with a moisture content of approximately 24% to 26% and is stored in oxygen-limiting silos without being dried. It is used for animal feed almost exclusively on the farm where it is grown and is not normally traded or used for industrial purposes.
Processed Corn – processed grain corn in which one of the constituent parts of the whole kernel grain corn, such as the bran layer or pericarp, germ, tip cap or endosperm has been removed.
Unprocessed Corn – includes whole kernel grain corn and grain corn that has been milled to a limited degree such that the milled grain corn, regardless of its physical form, preserves all the constituent parts of whole kernel grain corn and is chemically identical to whole kernel grain corn. White dent corn is also included as part of the product definition.
Grain corn mixed with other grains and oilseed (such as millet), which can be separated from the grain corn after importation is also considered subject to this investigation.
The following table provides a summary of products that are subject and not subject to this investigation
HS Tariff No. |
Description |
Endosperm |
Tip Cap |
Pericarp |
Germ |
Subject |
1005.90.00.11 |
US No. 1 yellow dent corn |
X |
X |
X |
X |
Yes |
1005.90.00.12 |
US No. 2 yellow dent corn |
X |
X |
X |
X |
Yes |
1005.90.00.13 |
US No. 3 yellow dent corn |
X |
X |
X |
X |
Yes |
1005.90.00.14 |
US No. 4 yellow dent corn |
X |
X |
X |
X |
Yes |
1005.90.00.19 |
Other |
X |
X |
X |
X |
Yes |
1005.90.00.99 |
Other (including white dent corn) |
X |
X |
X |
X |
Yes |
1102.20.00.00 |
Maize (corn) Flour |
X |
X |
X |
EXCLUDED | |
1103.13.00.10 |
Cornmeal |
X |
X |
EXCLUDED | ||
1103.13.00.20 |
Corn grits for use in the |
X |
X |
X |
EXCLUDED | |
1104.23.00.00 |
Corn which is hulled, sliced or kibbled |
|||||
Hulled |
X |
X |
EXCLUDED | |||
Sliced |
X |
X |
X |
X |
Yes | |
Kibbled |
X |
X |
X |
EXCLUDED | ||
2302.10.00.10 |
Bran Sharps and other Residues |
X |
X |
EXCLUDED | ||
2302.10.00.90 |
Other |
EXCLUDED |
Note: Grain corn mixed with other grains and oilseed (such as millet), which can be separated from the grain corn after importation is also considered subject goods.
Summary of Preliminary Determination - Estimated Margin of Dumping and Amount of Subsidy
Exporters |
Estimated margin of dumping |
Cargill Agri Grain |
US$0.58 |
Agri Trading Corporation |
US$0.58 |
Allied Grain Co. |
US$0.58 |
Alton Grain Terminal |
US$0.58 |
Archer-Daniels-Midland Company |
US$0.58 |
Bunge Corporation |
US$0.58 |
Cargill, Inc. |
US$0.58 |
Central States Enterprises |
US$0.58 |
Chicago & Illinois River Marketing |
US$0.58 |
Conagra |
US$0.58 |
Farmers Grain Dealer, Inc. |
US$0.58 |
FGDI |
US$0.58 |
Frito Lay Inc. |
US$0.58 |
Interstate Commodities Inc. |
US$0.58 |
Jury Commodities LLC |
US$0.58 |
Lansing Grain |
US$0.58 |
Lapeer Grains |
US$0.58 |
Michigan Agricultural Commodities |
US$0.58 |
Peavey Company, Div. of Conagra, Inc. |
US$0.58 |
Star of The West Milling |
US$0.58 |
The Andersons |
US$0.58 |
The Scoular Company |
US$0.58 |
All other exporters |
US$0.58 |
|
Exporters |
Estimated amount of subsidy per bushel for the Period of Investigation (September 1, 2003 to August 31, 2005) |
Estimated amount of subsidy per bushel on or after December 15, 2005 |
|
All exporters |
US$0.71 |
US$1.07 |
Description of Programs and Incentives Identified at Initiation
1. Direct and Counter-Cyclical Payments
Direct and counter-cyclical payments reduce financial risks and help producers meet their cash flow needs. The direct payment is a payment made to a producer of grain corn by the USGov pursuant to section 1001 of the Farm Security and Rural Investment Act of 2002 (FSRIA).
Under this program, fixed payments are made annually to eligible producers based on historic acreage rather than actual production, and are similar to production flexibility contract (PFC) payments that were made under the Federal Agriculture Improvement and Reform Act (FAIRA) of 1996. In 2003, landowners had a one-time opportunity to either:
- Use their farm’s 2002 PFC acreage; or
- Update their farm’s acreage bases to reflect average 1998 – 2001 plantings.
If no election was made before the 2002 crop-election period ended, acreage bases for the farm were established using the farm’s 2002 PFC acreage. Farm owners must enrol acres annually to receive payments. The amount of direct payment for corn was set to be US$0.28 per bushel for the period 2002 to 2007.
Counter-cyclical payments were created by the FSRIA as a replacement for the Marketing Loss Assistance Payments under the FAIRA. Counter-cyclical payments are designed to reduce financial risks and provide producers with more stable cash flows. The USGov establishes a “Target Price” and an “Effective Price” for various commodities pursuant to the FSRIA. Counter-cyclical payments are made when an agricultural product’s effective price is below its target price and are equal to the amount by which the target price exceeds the effective price.
Producers are eligible for direct and counter-cyclical payments on farms with eligible acreage bases. To be eligible for payments on these farms, producers must annually:
(a) Sign a Direct and Counter-cyclical Payment agreement with the USDA’s Farm Service Agency;
(b) Report how they use all their farm’s cropland;
(c) Comply with conservation and wetland protection requirements on all their farms;
(d) Comply with the planting flexibility requirements;
(e) Use the cropland for agricultural or related activities (including not producing covered crops); and
(f) Control noxious weeds and maintain land in sound condition.
Commodities eligible for direct and counter-cyclical payments include wheat, corn, grain sorghum, barley, oats, soybeans, other oilseeds (sunflowers, canola, safflower, flaxseed, rapeseed, mustard seed, crambe and sesame), rice, upland cotton and peanuts.
The direct payment equals the direct payment rate (DPR) times 85 % of the farm’s base acreage times the farm’s direct payment yield. The corn DPR is $0.28 per bushel for crop-years 2002-2007. For the 2003-2007 crops, direct payments are made after October 1 of the year the crop is harvested. Producers may request up to 50 % of the direct payment in advance, but no earlier than December 1 of the year before the crop is harvested.
The counter-cyclical payment equals the counter-cyclical payment rate (CCPR) times 85 % of the farm’s base acreage times the farm’s counter-cyclical payment yield. Counter-cyclical payments are made when a commodity’s effective price (EP) is below its target price (TP). The effective price equals the direct payment rate (DPR) plus the higher of the:
- National average farm price (NAFP); or
- National average loan rate (NALR).
Target prices and national average loan rates are set in the FSIRA. The corn target prices are US$2.60 per bushel for crop-years 2002 and 2003 and $2.63 per bushel for crop-years 2004-2007, inclusive. The corn loan rates are US$1.98 per bushel for the 2002 and 2003 crop-years and US$1.95 per bushel for the 2004-2007 crop-years.8
2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
Marketing Assistance Loans (MAL), also provided for in the FSRIA, provide producers interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are typically at harvest-time lows. The loans allow United States grain corn growers to borrow funds by pledging and storing crops as collateral. The loans are based on a designated loan amount per unit of production and have a maximum term of nine months. Growers have the option to repay their loans with interest or to forfeit their crops to the USGov’s Commodity Credit Corporation (CCC) and have the loan principal and interest forgiven. To discourage crop forfeitures, the USGov allows growers to repay the MALs at lower amounts when market prices fall below the designated loan amount and the repayment amount, resulting in a marketing loan gain to the grower.
Eligible growers who do not take out MALs may, alternatively, receive Loan Deficiency Payments (LDP). These payments are equal to the difference between what the grower would be eligible to receive under the MAL program and the repayment amount. Commodities eligible for non-recourse marketing assistance loans include wheat, corn, grain sorghum, barley, oats, soybeans, other oilseeds (sunflowers, canola, safflower, flaxseed, rapeseed, mustard seed, crambe and sesame), rice, upland cotton, extra long staple cotton, honey, wool, mohair, dry peas, lentils, small chickpeas and peanuts.
3. Federal Crop Insurance Program
Federal crop insurance is provided to reduce losses to agricultural producers as a result of unavoidable causes such as drought, excessive moisture, hail, wind, hurricane, tornado, lightening, insects, disease, etc., or to reduce loss of revenue due to reduces prices, reduced yields, or both.
The Federal Crop Insurance Corporation (FCIC) is a United States federal government enterprise that controls the USGov’s federal crop insurance program. The program is administered by the USDA’s Risk Management Agency. Federal crop insurance is available solely through private insurance companies that market and provide full service on crop insurance policies upon which these companies share the risk. These policies are then “reinsured” by the FCIC. Reinsurance means that the underwriting gains or losses are shared between the private insurance company and the USGov. Under the agreements by which the policies are reinsured, the USGov agrees to pay the insurance company, among other things, a subsidy for a portion of its administration and operating expenses and a subsidy for a portion the total insurance premiums. Any producer who receives any governmental support must purchase insurance coverage or waive eligibility for any disaster benefits that may be made available in that crop-year.
Two major types of insurance are available, ‘catastrophic’ coverage and additional coverage. Catastrophic coverage guarantees producers 50 % of their average yield at 55 % of the expected market price. Premiums are paid by the USGov, which the producer pays a US$100 fee per crop, per county, for which coverage is elected. Additional coverage is available to producers who desire higher levels of coverage. The producer pays an administrative fee for the additional coverage of US$30 per crop, per county.
Summary of Preliminary Findings for named Subsidy Programs
1. Direct and Counter-Cyclical Payments (DCP)
The direct payment is a payment made to a producer of grain corn by the USGov pursuant to section 1001 of the FSRIA. Counter-cyclical payments, also made pursuant to the FSRIA, are designed to reduce financial risks and provide producers with more stable cash flows.
Determination of Subsidy
These payments involve a financial contribution by the USGov in the form of direct payments. These payments have provided benefits to corn producers by providing additional income assistance in each of the last two crop-years.
These payments meet the definition of a financial contribution as defined in paragraph 2(1.6)(a) of SIMA and confer a benefit to the recipient as per paragraph (a) of the definition of subsidy in subsection 2(1).
It is noted that a WTO Panel examined the direct payment program in Upland Cotton and found that this program was an actionable subsidy under the Subsidies Agreement.9 The Appellate Body rejected an appeal by the United States.10 In upholding the decision of the Panel, the Appellate Body stated that the direct payments did not qualify as “green box” subsidies because they were not “decoupled income support”. The Appellate Body found that direct payments were not decoupled from production because such payments were denied if certain specified crops were produced. This ban effectively “coupled” payment with production because it had the effect of channelling production toward crops that were eligible for payments.
Specificity
Only a portion of US agriculture is benefiting from this program. Fruits, vegetables and wild rice production are generally not eligible for payment benefits under the DCP program. This restriction, by itself, would indicate that the program is not "generally available" and that the program meets the specificity provisions outlined in paragraph 2(7.2)(a) of SIMA.
Beyond this restriction, it also appears that other agricultural sectors, such as livestock, poultry, etc. are not directly associated with DCP payments. That is, in practice, it appears that a disproportionately large amount of these payments are made to a limited number of enterprises - which includes producers of corn, wheat, other feed grains (sorghum, oats and barley), rice and upland cotton. According to the 2002 Census of Agriculture, these commodities represent approximately 22% of all agricultural sales.11 Accordingly, the program is considered "specific" as per paragraph 2(7.3)(c) of SIMA.
Program Availability
DCP payments are made to registered producers. These producers are also eligible to receive benefits provided under the Marketing Assistance Loan and related Loan Deficiency payment program.
USDA statistics indicate that approximately 40% of the total direct payments were made to corn producers in fiscal year 2004 and 42% of the total counter-cyclical payments were made to corn producers.12 In addition, of the 87.3 million registered acres of corn production in the 2004 crop, over 74.65 million acres corn production were registered for direct payment and counter-cyclical payments. This represents over 85% of the total registered acres.13
Consequently, it appears that a major proportion of US corn growers are eligible and taking advantage of the DCP payments. These payments are made whether the goods are exported or consumed domestically.
Amount of Subsidy
The total estimated amount of the DCP payments relating to corn has been allocated over total program-registered corn production to estimate an average benefit on all goods (including those exported to Canada). This allocation method is consistent with Special Import Measures Regulations (SIMR) as outlined in subsection 27.1(1) and paragraph 27(a).
This provides an estimated DCP payment amount of US$2.11 billion in the 2003 crop-year and US$4.55 billion in the 2004 crop-year. When allocated over total program-registered corn production in each of those years, the amount of subsidy is estimated at US$0.29 per bushel for the 2003 crop-year and US$0.57 per bushel for the 2004 crop-year.
On October 4, 2005, the USGov announced that the Counter-cyclical Payment for the 2005 crop-year would be US$0.40 per bushel. This is the maximum payment available under this program according to the FSIRA. As these payments relate to the 2005 crop-year, i.e. the goods currently being imported into Canada, it is appropriate that this newly announced rate be incorporated into the total amount of provisional duties to be assessed on imports of subject goods. When incorporated into the total DCP payments, the amount of subsidy is estimated to be US$0.68 for the provisional period.
2. Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
Non-recourse Marketing Assistance Loans (MAL), also provided for in the FSRIA, provide producers interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are typically at harvest-time lows. Eligible growers who do not take out Marketing Assistance Loans may, alternatively, receive Loan Deficiency Payments (LDP). Both the MAL and LDP payments result in a direct financial contribution and related benefit to eligible grain corn producers when market prices fall below the designated loan amount (i.e., the Marketing Assistance loan rate).
When grain corn market prices fall below the designated loan amount, one of the following generally occurs:
There is a direct payment from the government to eligible growers who choose to forgo the Marketing Assistance loan - equal to the difference between the local market price and the designated loan amount; or
There is a loan gain to corn growers that accepted a Marketing Assistance loan - equal to the difference between the loan repayment amount (based on the local market price) and the original designated loan amount.
Determination of Subsidy
These direct payments and loan gains result in benefits to corn growers by providing a guaranteed return that is higher than the price available for sales on the open market. These benefits flow directly from the operation of this support program. Accordingly, these payments meet the definition of a financial contribution as defined in paragraph 2(1.6)(a) of SIMA and confer a benefit to the recipient as per paragraph (a) of the definition of subsidy in subsection 2(1).
Specificity
Similar to the DCP, only a portion of US agriculture is benefiting from the LDP and MAL programs. Information contained in the USGov submission confirms that MAL and LDP are available to twenty-four specific commodities including grain corn and are not generally available across the US agricultural sector. As only a portion of US agriculture is benefiting from this program, the program is "specific" as per paragraph 2(7.2)(a) of SIMA.
Program Availability
Statistics from the USDA Farm Service Agency - Price Support Division, confirm that a major proportion of US corn growers are eligible and taking advantage of the Marketing Assistance loans and Loan Deficiency payments.14 These benefits are generated whether the goods are exported or consumed domestically.
Amount of Subsidy
Pursuant to subsection 27.1(1) and paragraph 27(a) of the SIMR, the total amount of both the Marketing Loan Gains and Loan Deficiency Payments have been allocated over total US corn production to estimate an average benefit on all goods (including those exported to Canada).
Loan gains and Loan Deficiency payments on corn production (in aggregate) total US$77 million in the 2003 crop-year and US$2.918 billion in the 2004 crop-year. This represents a subsidy amount of US$0.01 per bushel for the 2003 crop-year and US$0.25 per bushel for the 2004 crop-year.
3. Federal Crop Insurance Program
The Federal Crop Insurance Act (FCIA) is administered by the USDA’s Risk Management Agency under the control of the Federal Crop Insurance Corporation (FCIC). Crop insurance policies are sold and serviced by private insurance companies that are then "reinsured" by the FCIC. The Reinsurance Agreement between the FCIC and the insurance companies provide the terms and conditions under which the insurance companies can operate and how they will be reimbursed by the FCIC.
Pursuant to the FCIA, and as specified in the Reinsurance Agreements, the government agrees to pay certain administrative and operating expenses (an A&O subsidy), all or a portion of policy premiums (a risk subsidy) and a portion of program losses. Program losses occur when indemnities paid are more than premiums collected. Only "eligible" insurance products are reinsured and subsidized by the USGov.
There are a number of different types of eligible insurance products. They include catastrophic coverage, yield based plans, and revenue or income insurance plans. The USGov pays the entire premium for catastrophic coverage and pays a portion of the premium for other insurance products based on a graduated scale. Policyholders pay a nominal administrative fee.
Determination of Subsidy
It is determined that the payments made by the USGov to private insurance companies under the authority of the Federal Crop Insurance Act (and as specified in individual Reinsurance Agreements) for A&O subsidies, risk subsidies and program losses, constitutes a financial contribution under paragraph 2(1.6)(d) of SIMA through the provision of goods and services by a non-governmental body as directed by the government. It is further determined that these financial contributions confer a benefit to all policyholders in the form of reduced, or eliminated premiums. Accordingly, the Federal Crop Insurance Program is considered a subsidy.
Specificity
Most of the major crops such as wheat, corn, other feed grains, cotton and rice are eligible to participate in the program in nearly every county in which they are grown. However, eligibility for fruits, vegetables and other specialty crops varies by region. A review of the crops that were both eligible to participate and were actually participating shows that in the 2003 and 2004 crop-years, three crops (corn, wheat and cotton) accounted for over 50% of the total cost to the USGov. Of these three crops, corn represented in excess of 25% of the total cost.15
As mentioned earlier, according to the 2002 Census of Agriculture, these commodities represent approximately 22% of all agricultural sales. Accordingly, it is apparent that producers of these three crops received a disproportionate share of the subsidy granted by the USGov for the Federal crop insurance program. As such, the subsidy is specific pursuant to paragraph 2(7.3)(c) of SIMA.
Program Availability
Grain corn is an eligible product for all crop and income insurance plans, which means that all grain corn producers can take advantage of the program. Of the one hundred commodities currently eligible to participate, in excess of 30% of the total value for all insurance involves grain corn. This confirms that grain corn producers have taken advantage of the program. With regard to the benefit attached to the goods imported into Canada, there is no differentiation between insurance policies for grain corn sold in the domestic market or exported to Canada.
Amount of Subsidy
SIMR 36 states that where the government subsidizes the provision of goods or services, the amount of the subsidy will be an amount equal to the difference between the fair market value of the goods or services and the price at which the goods or services were provided, estimated over the total quantity of the subsidized goods. As all grain corn producers are eligible to participate in the Federal Crop Insurance program, the amount of subsidy was estimated over total grain corn production.
A fair market value for insurance products and services would normally be the commercial cost of doing business, plus an amount for profit. Most private insurance companies will operate on the assumption that the revenue generated from premiums and administrative fees will cover expected indemnities, administrative costs and an amount for profit. To estimate an amount of subsidy based on the “fair market value”, the financial contributions by the USGov to the private insurance companies, which would normally be included in insurance premiums and administrative fees, was used. Publicly available information from the FCIC’s Nationwide Summary by Crop was used in conjunction with the USGov’s submission. The costs included the net cost of indemnities, administrative, delivery and other expenses (subsidy).
An amount for profit was not included in the estimated amount of subsidy. The private insurance companies are allowed to retain set amounts of any underwriting gains they earn and are also reimbursed by the federal government for both net underwriting gains and losses. Only those costs normally absorbed by a private company, but incurred by the USGov have been used to estimate an amount of subsidy.
The amount of subsidy was estimated as the total net indemnities and expenses for insurance programs involving corn, less administrative fees paid by producers, divided by the total corn production. The amount of subsidy for the Federal Crop Insurance programs for corn is estimated to be US$0.13 per bushel for the 2003 crop-year, and US$0.14 per bushel for the 2004 crop-year.
1 Compliant filed by CCG, Exhibit #31
4 Source: Data available on the USDA’s Economic Research Service (ERS) Web site:
www.ers.usda.gov/data/costsandreturns/testpick.htm
5 Statement of Reasons concerning the final determination of dumping and subsidizing resulting from the 2000 investigation on grain corn originating in the United States.
6 N.B.: Where a 1999 adjustment factor for opportunity costs of land was not available for a region, the CBSA used the average of the adjustment factors.
7 A copy of this document may be viewed on their Web site, at the following address: www.tradeobservatory.org/search.php.
8 Corn Counter-cyclical Payment Rate Example for 2004 assuming a NAFP of US$2.06:
= TP – [DPR + (higher of: NAFP or NALR)]
= TP – [DPR + (higher of: 2.06 or 1.95)]
= 2.60 – [0.28 + 2.06]
= 2.60 – 2.34
= US$0.26/bu
9 WTO WT/DS267/R (Panel Report) – United States – Subsidies on Upland Cotton, 2004
10 WTO WT/DS267/AB/R (Appellate Body Report) – United States – Subsidies on Upland Cotton, 2005
11 USDA 2002 Census of Agriculture
12 Commodity Estimates Book for FY 2006 President’s Budget - Output 50 report www.fsa.usda.gov/FSA/webapp?area=about&subject=landing&topic=bap-bu-cc
14 USDA Farm Service Agency, Price Support Division www.fsa.usda.gov/FSA/webapp?area=home&subject=prsu&topic=landing
15 Based on the total crop specific costs for subsidized premiums and net indemnities from Exhibit 28 of the USGov response to the RFI.
