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Anti-dumping and Countervailing Program
OTTAWA, September 30, 2005
File No. 4214-10
AD 1347
File No. 4218-20
CVD 115
STATEMENT OF REASONS
Concerning the initiation of an investigation into the dumping and subsidizing of
GRAIN CORN ORIGINATING IN
OR EXPORTED FROM THE UNITED STATES OF AMERICA
DECISION
Pursuant to subsection 31(1) of the Special Import Measures Act, the President of the Canada Border Services Agency caused an investigation to be initiated on September 16, 2005, respecting the alleged 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.
Cet énoncé des motifs est également disponible en français.
This Statement of Reasons is also available in French.
TABLE OF CONTENTS
- SUMMARY
- BACKGROUND
- INTERESTED PARTIES
- PRODUCT INFORMATION
- CLASSIFICATION OF IMPORTS
- LIKE GOODS
- CLASS OF GOODS
- CANADIAN INDUSTRY
- PRODUCTION
- STANDING
- THE CANADIAN MARKET
- EVIDENCE OF DUMPING
- EVIDENCE OF SUBSIDIZING
- ESTIMATED AMOUNT OF SUBSIDIES / VOLUME OF SUBSIDIZED GOODS
- EVIDENCE OF INJURY
- THREAT OF INJURY
- CONCLUSION
- CONSULTATIONS
- SCOPE OF THE INVESTIGATION
- FUTURE ACTION
- RETROACTIVE DUTY ON MASSIVE IMPORTATIONS
- UNDERTAKINGS
- PUBLICATION
- INFORMATION
[1] On August 12, 2005, the Ontario Corn Producers’ Association, the Manitoba Corn Growers Association, Inc. and the 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 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 (US GOV) that a properly documented complaint had been filed with the CBSA.
[2] The complainants provided evidence that the subject goods have been dumped and subsidized. Further, the evidence discloses a reasonable indication that the dumping and subsidizing have caused injury and are threatening to cause injury to the Canadian industry producing these goods.
[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] This is the third case concerning grain corn from the United States. The first, in 1986, was a national case that resulted in a final determination of subsidizing and a positive injury finding by the Canadian International Trade Tribunal (CITT), which expired on March 5, 1992. The second case, in 2000, was a regional industry case defined as Canada, west of the
Ontario-Manitoba border. A final determination of dumping and subsidizing was made, however, the CITT issued a no injury finding and all proceedings were terminated.
[5] The complaint is filed on behalf of the members of the following three associations of corn growers, collectively referred to as the CCG:
(i) Ontario Corn Producers’ Association (OCPA)
90 Woodlawn Road West
Guelph, Ontario N1H 1B2
(ii) The Fédération des producteurs de cultures commerciales du Québec (FPCCQ)
Maison de l’UPA
555, boul. Roland-Therrien
ongueuil, Québec J4H 4G4
(iii) Manitoba Corn Growers Association, Inc. (MCGA)
38 4th Av NE,
Carman, Manitoba R0G 0J0
[6] The CBSA has identified 523 potential exporters of the subject goods from customs import documentation.
[7] The CBSA has identified 369 potential importers of the subject goods from customs import documentation.
[8] For the purpose of this investigation, the subject goods are 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.
[9] For further clarity “grain corn in all forms” includes whole kernel corn and grain corn that has been processed in a limited way by cracking, crushing, rolling, grinding or flaking and includes ground corn such as corn flour, corn grits, corn meal, corn bran, sharps and other residues, corn which is hulled, sliced or kibbled, as well as grain corn mixed with other grains and oilseed (such as millet) which can be separated from the grain corn after importation. The product definition also includes white dent corn.
[10] The complaint includes whole kernel corn as well as grain corn that has been subjected to limited processing or dry milling. While ground corn is not identical in all respects to whole kernel grain corn, it has similar uses and characteristics. It maintains all constituent parts of whole kernel grain corn but has been crushed or ground to a point that it is no longer visually discernable as corn. It is chemically identical regardless of its physical form and it maintains all the components that make up whole kernel grain corn. Ground corn can also be used in many of the applications that utilize whole kernel grain corn.
[11] Seed corn (used for reproductive purposes) – is corn seed specifically grown for reproductive purposes and typically has a seed treatment applied.
[12] Sweet Corn – or green corn, is eaten fresh, canned, or frozen. It is a type of corn that is grown in many horticultural varieties. Sweet corn contains more sugar than other corn and is harvested when the plant is immature and the kernels still soft. Corn-on-the-cob and canned corn for human consumption are sweet corn.
[13] 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.
Additional Product Information
[14] 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, corn starch, human and pet food and industrial products.
[15] 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.
[16] The most common variety of grain corn in North America is known as dent corn. It is also called field corn. Dent is a corn 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.
[17] The subject goods are normally classified under the following Harmonized System classifications numbers of the Canadian Customs Tariff:
|
1005.10.00.10 |
Yellow dent corn (Zea Mays var. indentata) |
|
1005.90.00.00 |
Other Yellow Dent Corn (Zea Mays var. indentata) |
|
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) |
|
1102.20.00.00 |
Maize (corn) Flour |
|
1103.13.00.10 |
Cornmeal |
|
1103.13.00.20 |
Corn grits for use in the manufacture of corn flour |
|
1104.23.00.00 |
Corn which is hulled, sliced or kibbled |
|
2302.10.00.10 |
Bran Sharps and other Residues |
|
2302.10.00.90 |
Other |
[18] Like goods, in relation to any other goods, are goods that are identical in all respects to the goods sold in the exporters’ domestic market, or in the absence of identical goods, are goods of which the uses and other characteristics closely resemble those of the other goods.
[19] The goods exported to Canada from the United States are identical to the goods sold in the United States domestic market. Grain corn produced by the Canadian industry competes directly with and has the same end uses as the subject goods imported from the United States.
[20] Based on the analysis of the following factors, the CBSA considers all forms of grain corn included in this investigation to constitute one class of goods:
- Chemical Composition / Key Characteristics
- Channels of Distribution / Same Customers
- Substitutability and Circumvention
The CBSA’s analysis can be summarized as follows:
Chemical Composition / Key Characteristics
[21] Whole kernel grain corn, corn meal, grouts, flakes and flour all share the identical chemical characteristics as there has been nothing added or removed and there has been nothing done to the whole kernel corn other than crushing flaking or grinding, etc. Energy is the end use in the majority of applications of grain corn and can be used to produce fuel or food energy. The key component of grain corn used to produce this energy is starch. All forms of grain corn included in this investigation have the same starch component.
Channels of Distribution / Same Customers
[22] A review of customs documentation has revealed that some of the major importers and exporters of whole kernel grain corn also appear as importers and exporters of ground corn. As such, it is apparent that whole kernel corn and ground corn are marketed through similar channels of distribution and have similar customers.
Substitutability and Possibility of Circumvention
[23] The complainants have alleged that grain corn and its ground derivatives are interchangeable. Any form of grain corn can be used in most feed applications. In the case of industrial applications, the complainants claim that whole kernel grain corn can be transformed into any alternate forms with little additional work or cost. It should be noted that circumvention became an issue in the 1986 grain corn investigation. Shortly after the preliminary determination of dumping, importers of whole kernel grain corn began importing ground corn as a substitute for the whole kernel grain corn. As such, the CITT added corn grits and meal to the listing of subject goods. Given the issues of substitutability, channels of distribution and similar customers discussed above, there exists the possibility of circumvention in this case as well.
[24] For the purpose of this complaint, production is defined as the growth, harvest and drying of whole kernel grain corn to approximately 15.5% moisture content. The grinding or dry milling of grain corn is considered processing rather than production of grain corn.
[25] The OCPA, FPCCQ and MCGA are producer organizations representing virtually all of the grain corn producers in their respective provinces. In the 2003/2004 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 2004/2005
crop-year is estimated to be 346 million bushels with Ontario, Quebec and Manitoba, still representing the vast majority of production.3
[26] SIMA requires that the following conditions be met in order to initiate an investigation:
- A7 the complaint is supported by domestic producers whose production represents more than 50% of the total production of like goods by those domestic producers who express either support for or opposition to the complaint; and
- A7 the production of the domestic producers who support the complaint represents 25% or more of the total production of like goods by the domestic industry.
[27] As the CCG represents approximately 98% of domestic production of grain corn, the CBSA is satisfied that the standing requirements of SIMA have been met.
[28] The CCG provided market information regarding grain corn in all forms 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 2003/2004. 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.
[29] The following table represents the apparent Canadian market for the 2002/2003, 2003/2004 and 2004/2005 crop-years:
Apparent Canadian Market – Grain Corn in all Forms
Crop-Year |
2002/2003 |
2003/2004 |
2004/2005 estimate |
|||
Volume (bushels in millions) |
Value |
Volume (bushels in millions) |
Value |
Volume (bushels in millions) |
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 Consumption |
489.0 |
$1,960.9 |
423.0 |
$1,590.5 |
429.4 |
$1,228.1 |
|
Processed Grain Corn |
||||||
|
Imports |
12.9 |
$49.6 |
6.3 |
$42.2 |
4.1 |
$25.9 |
|
Exports |
2.6 |
$15.4 |
2.4 |
$13.7 |
2.4 |
$10.1 |
|
Total Canadian Market |
499.3 |
$1,966.2 |
426.9 |
$1,563.6 |
431.1 |
$1,294.1 |
Data relating to imports from countries other than the United States have not been included in this table as they represent minimal amounts.
[30] The complainant alleges that the subject goods from the United States have 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.
[31] 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.
[32] 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.
[33] The complainants obtained the average cost of production for the 2003/2004 crop-year for grain corn for the Northern Crescent Farm Resource Region of the United States from the
United States Department of Agriculture (USDA) Economic Research Service (ERS). The complainants selected this region as they estimated that the majority of corn imported into Canada originated in or was exported from this region. The complainants then compared this cost of production to the monthly United States average cash prices for US grain corn, as reported by the ERS, during the period from September 2003 to May 2005. Given that the subject goods are a commodity product, the United States average cash prices were considered to be reflective of pricing throughout the United States. The normal value was estimated to be the average of the cash prices in the periods in which sales were found to be profitable (i.e. above the average cost of production).
[34] While the CBSA agrees, in general, with the method utilized by the CCG in its estimate of the normal value, the CBSA further refined the estimate by using the ERS costing information for the various farm resource regions. The CBSA adjusted the 2003/2004 ERS costs upward by 5% in order to estimate the production costs for the 2004/2005 crop-year as information available on the USDA website indicates that costs increased by an average of 5% from 2003 to 2004.4 The production costs for each of the farm resource regions were compared with the monthly United States average cash prices during the period from September 2003 to May 2005, in order to determine whether there were any profitable sales made in the domestic market. In instances in which profitable domestic sales were found, these sales were used to estimate the normal value for that farm resource region. In instances in which there were no profitable domestic sales in a particular farm resource region, the normal value was estimated based on the full cost of production plus an amount for profits. The amount for profits was based on those sales found to be profitable in other farm resource regions.
[35] The normal values estimated by the CBSA are considered to be more accurate than the complainants’ estimate, as the CBSA was able to estimate normal values for each of the farm resource regions, as well as for each crop-year.
[36] The complainants estimated the export price by calculating an average of the USDA ERS monthly average cash prices for the period of June 2004 to May 2005 (US$2.17), as well as an average for the period of September 2004 to May 2005 (US$2.05). The CBSA notes that the complainants’ estimate is based on the reported domestic selling price and the complainants’ assumption that the selling price to Canada was the same, as it is a commodity product.
[37] In its own calculation, the CBSA estimated the export prices using information reported on customs documentation during the period from September 2003 to August 2005, and contained in the CCS. The CCS database was first adjusted to remove all transactions in which it was evident that the quantity reported was in error. While this resulted in the removal of approximately 10% of the import transactions on a value for duty basis, the CBSA nonetheless considers its estimates of export prices to be more representative than the complainants’ estimates, as the CBSA estimates are based on actual amounts for individual transactions as declared on customs documentation.
Estimated Margins Of Dumping / Volume Of Dumped Goods
[38] The margins of dumping were estimated by comparing the estimated normal values to the estimated export prices. The results indicate that approximately 63% of the goods imported into Canada during the period from September 1, 2003 to August 31, 2005, were dumped by margins ranging from 0.1% to 161.0% with an estimated average margin of dumping of 4.4%, expressed as a percentage of export price. The results are summarized in the following table:
|
Period |
Volume of goods estimated to be dumped (%) |
Range of margin of dumping (% of export price) |
Average margin of dumping (% of export price) |
|
Sept. 2003 – Aug. 2004 |
65 |
0.1 – 161.0 |
3.7 |
|
Sept. 2004 – Aug. 2005 |
61 |
0.1 – 108.4 |
5.1 |
|
Sept. 2003 – Aug. 2005 |
63 |
0.1 – 161.0 |
4.4 |
[39] It should be noted that these figures relate to imports of subject goods classified under Chapter 10 of the Canadian Customs Tariff, with the exception of 1005.90.00.99 (other), and represent approximately 94% by value of total imports of grain corn subject to this investigation. The remaining 6% of imports represent imports of ground forms of grain corn.
[40] With respect to ground corn, neither the complainants nor the CBSA were aware of any publicly available data that would provide information regarding the domestic selling prices of the goods. The complainants have alleged that millers are, in many cases, purchasing their raw material (whole kernel corn) at prices that are below the full cost of production of the grain corn. The complainants have estimated the export price of various forms of ground corn by dividing the total value of imports by the total volume of imports reported by Statistics Canada. The normal value was estimated by adding the margin of dumping which they had calculated for whole kernel corn to the export price. The complainants estimated the margins of dumping to range from 9.3% to 27.3%.
[41] The CBSA has reservations concerning the methodology used by the complainants in calculating the estimated margin of dumping of ground products given that no domestic pricing or costing information is publicly available. However, the CBSA acknowledges the complainants’ allegation that the processors are, in some cases, purchasing their raw materials at prices that are below the full cost of production. Given that the raw material is
commodity-traded and the price of the ground product closely tracks that of the whole kernel pricing, it is unlikely that the processors’ selling prices are accounting for the cost of the raw materials, the transformation costs, all other costs, and an amount for profits that would eliminate the loss incurred by the producers of the raw materials. Regardless, imports of ground corn products represent less than 6% of total value of imports of subject goods and as such, the results concerning the ground products would not materially affect the overall margin of dumping regarding grain corn in all forms.
[42] 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.
[43] 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 anything 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.
[44] 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.
[45] 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.
[46] 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.
[47] The complainants allege that the subject goods are being subsidized and that these subsidies are actionable in that they constitute a financial contribution by the US GOV, they are specific and targeted to the grain corn industry and they confer a benefit to those who avail themselves of these programs. In support of their allegations, the complainants provided a number of documents detailing the support programs offered by the US GOV. In reviewing the information found in the reports and articles provided by the complainants or obtained through its own research, the CBSA has developed the following list of programs and incentives that may be provided to grain corn producers in the United States:
- Direct and Counter-cyclical Payment Program (Formerly the Marketing Loss Assistance Payments);
- Non-recourse Marketing Assistance Loans and Loan Deficiency Payments;
- Federal Crop Insurance Programs.
[48] These programs, or a previous version of the program in the case of the direct and counter-cyclical payment program, were investigated in the 2000 case and were determined to be actionable.5
Direct and Counter-Cyclical Payments
[49] The direct payment is a payment made to a producer of grain corn by the US GOV pursuant to section 1001 of the Farm Security and Rural Investment Act of 2002 (FSRIA). The amount of direct payment was set to be US$0.28 per bushel of corn for the period 2002 to 2007.6
[50] The complainants allege that direct payments are actionable subsidies under the Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) and under SIMA. 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.7 The
Appellate Body rejected an appeal by the United States.8 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 channeling production toward crops that were eligible for payments.
[51] Counter-cyclical payments were created by the FSRIA as a replacement for the Marketing Loss Assistance Payments under the Federal Agriculture Improvement and Reform Act 1996. Counter-cyclical payments are designed to reduce financial risks and provide producers with more stable cash flows. The US GOV 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. The following table shows an estimate of the average counter-cyclical payments for grain corn in the 2003/2004 crop-year and the
2004/2005 crop-year to May 31, 2005:
Counter-Cyclical Payments for 2003/2004 Crop-Year and 2004/2005 Crop-Year to May 31, 2005 (USD/Bushel)9
|
September |
$0.12 |
$0.15 |
|
October |
$0.20 |
$0.20 |
|
November |
$0.12 |
$0.30 |
|
December |
$0.00 |
$0.31 |
|
January |
$0.00 |
$0.23 |
|
February |
$0.00 |
$0.40 |
|
March |
$0.00 |
$0.33 |
|
April |
$0.00 |
|
|
May |
$0.00 |
|
|
June |
$0.00 |
|
|
July |
$0.00 |
|
|
August |
$0.01 |
|
|
Crop-Year Average Counter-Cyclical Payments |
US$0.04 |
US$0.30 |
Non-recourse Marketing Assistance Loans and Loan Deficiency Payments
[52] Marketing Assistance Loans, also provided for in the FSRIA, 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 US GOV and have the loan principal and interest forgiven. To discourage crop forfeitures, the US GOV allows growers to repay the Marketing Assistance Loans 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.
[53] Eligible growers who do not take out Marketing Assistance Loans may, alternatively, receive Loan Deficiency Payments. These payments are equal to the difference between what the grower would be eligible to receive under the Marketing Assistance Loans program and the repayment amount. The following table shows the aggregate amount disbursed for these programs in the 2003/2004 crop-year and the 2004/2005 crop-year to May 31, 2005:
Loan Deficiency Payments and Marketing Loan Gains for 2003/2004 Crop-Year and 2004/2005 Crop-Year to May 31, 2005 (USD/Bushel)10
|
2003/2004 |
2004/2005 |
|
|
10,089,000,000 |
11,807,000,000 |
|
Federal Crop Insurance Program
[54] The Federal Crop Insurance Corporation (FCIC) is a United States federal government enterprise that controls the US GOV’s Federal Crop Insurance Program. The program is administered by the USDA’s Risk Management Agency. The majority of crop insurance policies are sold and serviced by private insurance companies that are then “reinsured” by the FCIC. Reinsurance means that the underwriting gains or losses are shared between the private insurance company and the US GOV. Under the agreements by which the policies are reinsured, the
US GOV 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. The complainants allege that since the US GOV is providing for the reimbursement of administrative and operating expenses and reinsurance, these government financial contributions confer a benefit to the corn growers in the form of reduced or eliminated premiums.
[55] The complainants have estimated the amount of subsidizing for the federal crop insurance payments in the same manner that the CBSA used to calculate the amount of subsidizing in the 2000 case and the results are included in the following table:
Estimated Federal Crop Insurance Program Subsidies for 2003/2004 and
2004/2005 Crop-Years (USD/Bushel)11
|
2003/2004 |
2004/2005 |
|
|
Total net indemnities and expenses for all crop insurance programs |
$3,639,000,000(est.) |
$3,704,000,000(est.) |
|
Percentage relating to grain corn insurance |
31% |
33% |
|
Estimated net indemnities and expenses for grain corn |
$1,128,090,000 |
$1,222,320,000 |
|
10,089,000,000 |
11,807,000,000 |
|
|
Federal Crop Insurance Subsidy per bushel |
US$0.11 |
US$0.10 |
Estimated Amount of Subsidies / Volume of Subsidized Goods
[56] As indicated in the following table, the CCG has estimated the amount of subsidy for the 2003/2004 crop-year to be US$0.44 per bushel, and US$0.91 per bushel for the 2004/2005
crop-year, to May 31, 2005.
Total Amount of Subsidy for the 2003/2004 Crop-Year and 2004/2005 Crop-Year to May 31, 2005 (USD/Bushel)
2003/2004 |
2004/2005 |
|
Counter-Cyclical Payments |
$0.04 |
|
Direct Payments |
$0.28 |
$0.28 |
Non-recourse Marketing Assistance Loans and Loan Deficiency Payments |
||
Federal Crop Insurance Program |
$0.11 |
$0.10 |
Total |
[57] The estimated amounts of subsidy are equal to 18% and 44% of the average export price of the goods shipped to Canada in the 2003/2004 (US$2.50) and 2004/2005, to May 31, 2005 (US$2.05) crop-years, respectively. It should be noted that these figures relate to imports of subject goods classified under Chapter 10 of the Canadian Customs Tariff, with the exception of 1005.90.00.99 (other), and represent approximately 94% by value of total imports of grain corn subject to this investigation. The remaining 6% of imports represent imports of ground forms of grain corn. The complainants allege that since the sole raw material used to produce ground corn is subsidized whole kernel corn and that there is no material change in output after grinding, it is reasonable to estimate that the amount of subsidy for ground corn is equal to that of whole kernel corn. The CBSA is of the opinion that the amount of subsidy on whole kernel corn is being passed through to processors as the commercial realities are such that it is unlikely that producers would increase their selling prices to processors to such a level as to extinguish the amount of subsidy.
[58] Based on data derived from import documentation, 100% of the subject goods are considered to have benefited from the subsidizing.
[59] The CCG submits that the alleged dumping and subsidizing of subject goods has caused, and is threatening to cause, material injury to production in Canada of grain corn as well as future injury to the development of the white dent corn sector. The complaint states that the domestic industry is being injured through price suppression and price erosion, reduced acreage, reduced incomes and cash flows and in the case of the alleged subsidizing, an increased burden on government support programs. The CCG predicts that the injury will continue if the alleged dumping and subsidizing persist. Future injury is of particular concern given the continued decrease in the price of grain corn throughout North America. Evidence provided by the complainants to support these allegations is derived from Statistics Canada, the CCG associations and the USDA.
[60] The complaint contends that the subsidies offered by the US GOV have created incentives for United States’ growers to plant substantially more grain corn acreage each year than would normally be demanded. The CCG provided statistical evidence that demonstrates that the United States supply of grain corn exceeded demand by 1.7 billion bushels in the 2003/2004 crop-year and is estimated to nearly double to 3 billion bushels in the
2004/2005 crop-year. It is noteworthy that the over-production forecasted in the United States for the 2004/2005 crop-year represents 7 times the annual production in Canada. The CCG alleges that this over-production has resulted in selling prices which, in many cases, are below the full cost of production. The complainants allege that imports and/or the possibility of imports at these prices are forcing Canadian producers to sell at suppressed prices in Canada. Since grain corn is a commodity priced product, the CCG is not able to increase selling prices to cover their cost of production.
[61] Furthermore, the CCG estimates the average price for the 2004/2005 crop-year to be CDN$2.86 per bushel, a decrease of approximately 24% from the 2003/2004 crop-year price of CDN$3.77 per bushel, thereby causing further price erosion in Canada to the already suppressed prices of 2003/2004.
[62] The CCG asserts that the acreage of grain corn planted in Canada has decreased as a result of the price suppression/erosion resulting from the dumping and/or subsidizing of grain corn from the United States. Statistics Canada data indicates that seeded grain corn area in Canada in 2002 was 1,299,300 hectares. In 2005, seeded grain corn area is estimated to be 1,120,500 hectares, which represents a decrease of 13.8% since 2002.12 From 2004 to 2005, it is estimated that grain corn acreage will decrease by 5.4%. In addition, Statistics Canada reports that grain corn acreage in Eastern Canada fell for the fourth consecutive year in 2005, citing record large supplies in the United States as a contributing factor.13
[63] The CCG alleges that when price suppression/erosion, resulting from the dumping and/or subsidizing, occurs after planting decisions have been made, as occurred in 2004, a grower is faced with dramatically reduced revenues and no way to reduce costs. The inevitable result is reduced incomes and cash flows.
[64] The complainants estimate that, at current price levels, Canadian corn growers will be required to sell the crop harvested in autumn 2004 at less that its full cost of production. The CCG estimates the average cost of production for grain corn in Ontario (60% of Canadian production) to be CDN$3.18 per bushel (excluding land cost) and the average selling price from the 2004/2005 crop-year to date is CDN$2.86 per bushel. The result is that the average Ontario corn grower is losing CDN$0.32 for each bushel of grain corn sold.
Increased Burdens on Government Programs
[65] The CCG contends that the subsidies granted by the US GOV to grain corn producers in the United States have resulted in increased burdens on government support programs in Canada. The suppression/erosion of selling prices of grain corn in Canada caused by the dumped and/or subsidized imports of United States grain corn, has resulted in increased payments by Canadian governments to the producers of grain corn in Canada. As evidence of the increased burdens, the complainants provided information relating to three agricultural support programs.
[66] The Government of Ontario introduced the Market Revenue Insurance Program (MRI) in 1991 as a way to assist producers of particular crops, including grain corn.14 The Ontario government made a decision to terminate the MRI program at the end of the
2002/2003 crop-year, however, additional payments have been announced as a result of continued price depression involving grain corn and other crops. In March 2005, the residual funds of the MRI program were distributed. Ontario grain corn growers received approximately CDN$46 million (52%) of the CDN$89 million that was distributed. In May 2005, an additional CDN$79 million top-up payment was announced, of which Ontario grain corn growers are to receive approximately $44 million (56%).15
[67] The Government of Quebec operates the Programme d’assurance stabilisation des revenues agricoles, the objective of which is to ensure that growers that operate according to the production and market conditions as outlined in the Farm Income Stabilization Insurance program earn a positive net annual income. The CCG alleges that, as a result of the depressed prices caused by the dumped and subsidized United States grain corn, the payouts from this program involving grain corn producers in Quebec have increased by approximately 71% from 2003 (CDN$127 million) to 2004 (CDN$217 million).16
[68] The Government of Canada operates the Canadian Agriculture Income Stabilization Program (CAIS) as a means of stabilizing the fluctuations in farmers’ income.17 Payments under this program are triggered when a grower’s production margin (production expenses subtracted from production revenue) falls below the reference margin (the grower’s average margin from the five previous years minus the highest and lowest margin in such years). The statistics available for field crops indicate that payments increased from CDN$20 million for the year ending December 2003, to CDN$74 million for the year ending December 2004. The CCG contends that the depressed grain corn prices contributed to the increase in the most recent year and further increases in payments can be expected in 2005 as the prices for grain corn continue to decline.
[69] It should be noted that precise payments involving support for grain corn growers are not available for the CAIS program as the program is designed to stabilize whole farm income and the formula is not linked to any particular crop. The CCG asserts that depressed grain corn prices affect the payouts under this program however, as they reduce the whole farm income.
[70] The complainants state that the OCPA, on behalf of grain corn growers in Ontario, has been sponsoring research and development work on the adaptation of white dent grain corn varieties to the growing conditions in Southern Ontario. The OCPA invested more than CDN$400,000 toward this on-going R&D initiative between 1997 and 2004, along with industry contributions of approximately CDN$375,000 and government contributions of CDN$900,000.18 As a result, white dent grain corn is now being grown and sold commercially in Ontario in small quantities (7,000 bushels per year). The complainants argue, however, that as a result of the dumped and subsidized white dent corn from the United States, low revenues and profit margins are preventing Canadian growers from expanding production even though the white dent grain corn produced in Ontario is not susceptible to aflatoxins (a carcinogenic mould) which affects white dent corn in the United States.
[71] The complainants allege that, if subsidized and dumped ground corn is not considered to be causing injury currently, it is likely to cause future injury to domestic production of whole grain corn given the modest incremental cost involved in the dry milling of corn, and the substitutability of ground corn for whole grain corn in most end uses. As such, in the event of the imposition of countervailing and anti-dumping duties on whole kernel grain corn only, it is likely that importers would substitute imports of whole grain corn with ground corn for many end uses, thereby circumventing any protection against the unfairly traded subject goods.
[72] Based on an analysis of the information provided in the complaint, as well as other available information, the CBSA is of the opinion that there is evidence that the subject goods originating in or exported from the United States have been dumped and subsidized. Further, there is evidence that discloses a reasonable indication that the dumping and subsidizing have caused, and are threatening to cause, material injury to the Canadian industry. As such, an investigation was initiated into the dumping and subsidizing of grain corn from the United States.
[73] On September 12, 2005, consultations were conducted between Canadian government officials and representatives of the government of the United States, in accordance with
Article 13.1 of the WTO Subsidies Agreement.
[74] The CBSA will conduct an investigation to determine whether the subject goods have been dumped and/or subsidized.
[75] The period of investigation is the time frame during which imports into Canada from the United States will be reviewed to determine whether the subject goods have been dumped and/or subsidized. The period of investigation is January 1, 2003, to August 31, 2005, and includes all subject goods shipped to Canada during this period. Information, including sales and cost data, will be requested from exporters and importers to estimate the applicable margins of dumping. Given the large number of parties involved, the CBSA is requesting information from those exporters and importers that represent in excess of 75%, respectively, of the value of the importations of subject goods into Canada. Additional information will be sought from the
US GOV in order to estimate the amount of subsidy. As well, information provided by exporters in response to the Request for Information, may also be used in the calculation of the amount of subsidy.
[76] The CITT will conduct a preliminary inquiry to determine whether the evidence discloses a reasonable indication that the dumping and/or subsidizing of the goods has caused or is threatening to cause injury to the Canadian industry. The CITT must make its decision within
60 days after the date of initiation of the investigation. If the CITT concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigation will be terminated.
[77] If the CBSA’s investigation reveals that imports of the subject goods have not been dumped/subsidized, that the amount of dumping and/or subsidizing is insignificant, or that the actual or potential volume of dumped and/or subsidized goods is negligible, the investigation with respect to the dumping and/or subsidizing will be terminated.
[78] If the evidence reveals that the goods have been dumped and/or subsidized and the CITTl finds that there is a reasonable indication that the dumping and/or subsidizing has caused injury or is threatening to cause injury, the President will make a preliminary determination of dumping and/or subsidizing within 90 days from the date of the initiation of the investigation, that is, by December 15, 2005. Where circumstances warrant, this period may be extended to 135 days.
[79] Imports of subject goods released from customs’ possession on and after the date of a preliminary determination of dumping and/or subsidizing may be subject to provisional duty in an amount not greater than the estimated margin of dumping of, or the estimated amount of subsidy on, the imported goods.
[80] 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 of the date of the preliminary determination. However, it should be noted that the investigation or a portion thereof, will be terminated if it is found that the goods have not been dumped/subsidized, or that the margin of dumping/the amount of subsidy for the goods is insignificant.
[81] 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 resulting from the dumped and/or subsidized imports. 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 issues notice of a preliminary determination.
[82] In the event of an injury finding by the CITT, imports of subject goods released from customs’ possession 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 the actionable subsidy conferred on the imported goods. Should both anti-dumping and countervailing duty be applied to subject goods, the amount of any anti-dumping duty may be reduced by the amount of the margin of dumping that is attributable to any export subsidy.
Retroactive Duty on Massive Importations
[83] When the CITT 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.
[84] Should the CITT 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.
[85] 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.
- After a preliminary determination of dumping, an exporter may submit a written undertaking to revise its selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. An acceptable undertaking must account for all or substantially all of the exports to Canada of the dumped goods.
- Similarly, after a preliminary determination of subsidizing, 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.
- 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.
[89] 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 in the case of dumped goods, or the government of the exporting country in the case of an investigation with respect to subsidized goods, may request that the CBSA’s investigation be completed and that the Tribunal complete its injury inquiry.
[90] Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.
[91] 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.
[92] To be given consideration in this phase of the investigation, all information should be received by the CBSA by October 24, 2005.
[93] 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.
[94] Confidential information submitted to the President 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 CITT, any court in Canada, or a WTO/NAFTA 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.
[95] 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.
[96] 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 Ron McTiernan, Michel Desmarais, or Gilbert Huneault as follows:
Mail: |
Canada Border Services Agency |
Telephone: |
Ron McTiernan (613) 954-7271 |
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
1 Compliant filed by CCG, Exhibit #31
4 USDA, ERS website, Farm Income and Costs: 2004 Farm Income Estimates http://www.ers.usda.gov/briefing/farmincome/2004incomeaccounts.htm
5 CBSA Statement of Reasons re: Final determination of dumping and subsidizing regarding certain grain corn originating in or exported from the United States, February 5, 2001
6 Complaint filed by CCG, Exhibit #19
7 WTO WT/DS267/R (Panel Report) – United States – Subsidies on Upland Cotton, 2004
8 WTO WT/DS267/AB/R (Appellate Body Report) – United States – Subsidies on Upland Cotton, 2005
9 Complaint filed by CCG, page 16
10 Complaint filed by CCG, Exhibit #16
12 Statistics Canada – Field and specialty crops (seeded area), 2001 – 2005
13 Statistics Canada – Estimates of principal field crops, The Daily, June 23, 2005
