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Anti-dumping and Countervailing Program

Preliminary Determination - Refined Sugar

OTTAWA, July 7, 1995

4237-80
4218-2

STATEMENT OF REASONS

TERMINATION OF INVESTIGATION REGARDING THE SUBSIDIZING OF REFINED SUGAR FROM THE UNITED STATES OF AMERICA, PRELIMINARY DETERMINATION OF DUMPING OF REFINED SUGAR FROM THE UNITED STATES OF AMERICA, DENMARK, THE FEDERAL REPUBLIC OF GERMANY, THE NETHERLANDS, THE UNITED KINGDOM AND THE REPUBLIC OF KOREA

AND

PRELIMINARY DETERMINATION OF SUBSIDIZING OF REFINED SUGAR FROM THE EUROPEAN UNION DECISION

Pursuant to paragraph 35(1)(c) of the Special Import Measures Act, the Deputy Minister of National Revenue has, on this date, caused the subsidy investigation to be terminated with respect to refined sugar, refined from sugar cane or sugar beets, in granulated, liquid and powdered form, originating in or exported from the United States of America.

Further, pursuant to subsection 38(1) of the Special Import Measures Act, the Deputy Minister has, on this date, made a preliminary determination that refined sugar, refined from sugar cane or sugar beets, in granulated, liquid and powdered form, originating in or exported from the United States of America, Denmark, the Federal Republic of Germany, the Netherlands, the United Kingdom and the Republic of Korea has been dumped; that refined sugar, refined from sugar cane or sugar beets, in granulated, liquid and powdered form, originating in or exported from the European Union has been subsidized; and that there is evidence which discloses a reasonable indication that the dumping and subsidizing have caused and are threatening to cause injury to the Canadian industry.

This Statement of Reasons is also available in French.
Cet énoncé des motifs est également disponible en français.

STATEMENT OF REASONS

SUMMARY

On March 17, 1995, the Deputy Minister of National Revenue caused an investigation to be initiated respecting the alleged dumping of refined sugar, originating in or exported from the United States of America, Denmark, the Federal Republic of Germany, the Netherlands, the United Kingdom, and the Republic of Korea, and the alleged subsidizing of refined sugar, originating in or exported from the United States of America and the European Union (EU). The investigation was initiated in response to a complaint filed by the Canadian Sugar Institute.

As a result of this investigation, the Deputy Minister has terminated the subsidy investigation of the subject goods originating in or exported from the United States of America, in accordance with paragraph 35(1)(c) of the Special Import Measures Act (SIMA), as the amount of subsidy on the goods is insignificant.

The Deputy Minister is satisfied, however, that the subject goods originating in or exported from all the named countries have been dumped, that the subject goods originating in or exported from the European Union have been subsidized, that the margin of dumping and the amount of subsidy are not insignificant and that the actual or potential volumes of dumped and subsidized goods are not negligible. Furthermore, the Deputy Minister has determined that there is evidence which discloses a reasonable indication that the dumping and subsidizing have caused and are threatening to cause injury to the Canadian industry. Accordingly, the Deputy Minister has made a preliminary determination of dumping, with respect to the named countries, and subsidizing, with respect to the European Union, in accordance with subsection 38(1) of SIMA.

INTERESTED PARTIES

Complainant

The complaint was filed by the Canadian Sugar Institute (CSI), on behalf of its members. The CSI is a trade association comprised of all Canadian producers of the subject goods. Its address is:

Canadian Sugar Institute

WaterPark Place

Suite 620-10 Bay Street

Toronto, Ontario

M5J 2R8

There are three Canadian producers of refined sugar: The British Columbia Sugar Refining Company, Limited (B.C. Sugar), Lantic Sugar Limited (Lantic), and Redpath Sugars, a Division of Redpath Industries Limited (Redpath). B.C. Sugar owns 100 per cent of Lantic, however, the two companies are managed as independent operating units in different regions of the country.

Exporters

The names and addresses of the exporters are listed in Appendix A.

Importers

A list of the names and addresses of the importers can be obtained upon request.

BACKGROUND

On February 10, 1995, the CSI submitted a formal written complaint concerning dumping and/or subsidizing of refined sugar from the United States of America, the European Union and the Republic of Korea. The CSI was notified on February 15, 1995, that the complaint was properly documented. At the same time, the Department advised the governments of the countries of export that a properly documented complaint respecting the alleged dumping and subsidizing of the goods had been received.

On March 17, 1995, the Department initiated an investigation into the alleged dumping and subsidizing of refined sugar.

On April 7, 1995, Canadian Blending and Processing Inc., an importer of the subject goods, referred to the Canadian International Trade Tribunal the question of whether there was sufficient evidence before the Deputy Minister that the dumping and/or subsidizing of refined sugar had caused or was threatening to cause material injury to the domestic industry. On May 8, 1995, the Tribunal advised that the evidence disclosed a reasonable indication that the dumping and subsidizing have caused and are threatening to cause injury to the domestic industry.

On June 14, 1995, the Deputy Minister extended the time period for the preliminary investigation from 90 days to 135 days pursuant to paragraph 39(1)(a) of the Special Import Measures Act. The investigation was extended due to the complexity of the issues in the case.

PRODUCT

Product Definition

For purposes of this investigation, the subject goods are defined as refined sugar, refined from sugar cane or sugar beets, in granulated, liquid and powdered form. For greater clarity, the subject goods include:

white granulated sugar;
liquid sugar including invert sugar; and
specialty sugars (specialty sugars include soft yellow and brown sugar, icing sugar, Demerara sugar and others).

Additional Product Information

The subject goods are available in a broad range of shipping and packaging configurations including:

bulk rail car;
truck load;
tanker load;
one tonne intermediate bulk containers (tote bags);
40, 20, 10, 4, 2, 1 kg, and 500 g bags (some of these are packaged in boxes);
individual service envelopes; and
cubes.

The classification numbers under which the subject goods may be imported are listed in Appendix B. It should be noted that, at the time of initiation, classification numbers 2106.90.10 and 2106.90.21 were included in the list of subject goods. It has subsequently been determined that these classification numbers do not apply to the subject goods.

CANADIAN INDUSTRY

Refined sugar is produced at six locations across Canada. The four Canadian cane sugar refineries are located in Saint John, New Brunswick; Montreal, Quebec; Toronto, Ontario; and Vancouver, British Columbia. The two sugar beet factories owned by B.C. Sugar are located in Winnipeg, Manitoba and Taber, Alberta.

Approximately 90 per cent of the refined sugar produced in Canada is from raw cane sugar. The balance of the sugar produced in Canada is from processed sugar beets.

Canada produces refined sugar primarily to meet its domestic needs. Export markets for refined sugar are extremely limited due to high transportation costs and various trade barriers. Notwithstanding Canada's proximity to the United States, only minor quantities of Canadian refined sugar are exported to that market due to import restrictions which are part of the United States Sugar Program.

MARKET SHARE - DOMESTIC AND IMPORTS

The Canadian market for refined sugar is divided into two segments: the retail market segment and the industrial market segment. Generally, in terms of volume, the industrial market represents between 70 and 80 per cent of the total Canadian refined sugar market and the retail market represents between 20 and 30 per cent of the refined sugar market.

The Canadian market, as the table in Appendix C demonstrates, has been increasing steadily since 1990. Over the four year period, 1990 to 1994, the total Canadian market has increased by 15.5 per cent or 150,045 tonnes. This increase represents an average increase of about 3.9 per cent each year. During the same period, Canadian domestic shipments, which exclude exports, have increased by about 11.7 per cent or 101,459 tonnes. This increase represents an average increase of about 2.9 per cent each year. Appendix C also provides statistics for the total Canadian market for January 1994 to February 1995 which is the period of investigation for dumping.

Information on market share was outlined in more detail in the Statement of Reasons released when the investigation was initiated.

DUMPING INVESTIGATION

The dumping investigation covered all shipments of the subject goods to Canada from January 1, 1994 to February 28, 1995.

THE UNITED STATES OF AMERICA

The Department contacted 34 companies in the United States which were considered to be potential exporters of the subject goods to Canada. Of these, companies representing approximately 85 per cent of the shipments of the subject goods to Canada were requested to provide complete responses to the Department's Request for Information. The remaining companies were advised that they could provide a submission on a voluntary basis, however, none were received. It was subsequently determined that some of the companies identified at the time of initiation do not export subject goods to Canada.

Verification visits were conducted by departmental officers at the premises of three exporters, Domino Sugar Corporation, United Sugars Corporation, and Savannah Foods & Industries, Inc. United Sugars handles the sales of three cooperatives, American Crystal Sugar Company, Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. Of the three cooperatives, American Crystal is the largest supplier of refined sugar exported by United Sugars to Canada and as such, a verification visit was conducted at its premises.

Normal Value Considerations

Domestic Market

The United States domestic market for sugar is controlled in a manner which results in high prices for sugar cane, sugar beets, raw cane sugar, refined sugar and sugar-containing products. In order to prevent lower-priced imported raw and refined sugar from undermining the high domestic price levels, the United States restricts the supply of foreign raw and refined sugar as well as sugar-containing products. One element of these restrictions is the Tariff Rate Quota system for raw cane sugar imports. Under this quota system, a limited quantity of raw cane sugar may be imported for domestic consumption at a price established by the New York Coffee, Sugar and Cocoa Commodity Exchange. This price is commonly known as the #14 raw sugar price and reflects the prevailing domestic market prices for raw cane sugar.

Historically, one of the effects of the U.S. Sugar Program was to make U.S. refined sugar and sugar-containing products uncompetitive in the world market. As a result, the U.S. introduced the Refined Sugar Re-export Program, which allows certain refineries to import world-priced raw cane sugar and refine it for re-export, subject to certain conditions. Under this program, raw cane sugar is imported into the United States at a price which is established in the world market and is traded on the New York Coffee, Sugar and Cocoa Commodity Exchange. This world market price is commonly known as the #11 raw sugar price and historically, has been significantly lower than the #14 raw sugar price.

Under the provisions of the Re-export Program, the #11 raw sugar that is imported must be re-exported as refined sugar or sold to a producer of sugar-containing products which incorporates the refined sugar into products for export. Certain conditions apply to the re-exported goods, and the United States does allow certain substitution practices with regard to exports of the finished product. The U.S. government imposes severe penalties should the provisions of the Re-export Program not be met. The legislative provisions of this program are described in more detail in Appendix E, section 1(d) of this Statement of Reasons.

Legislative Provisions of SIMA

SIMA requires that normal values for subject goods be determined on the basis of the selling price of like goods in the domestic market, as provided for under section 15 of SIMA. However, under certain circumstances, such as where there are insufficient sales at a profit, this approach cannot be used. In such circumstances, normal values may be determined using paragraph 19(b) of SIMA, on the basis of the aggregate of the cost of production of the goods, an amount for administrative, selling and all other costs and an amount for profit. This approach was used in certain instances in this case and, therefore, the costing of the sugar exported to Canada is an important feature of this investigation.

Exports to Canada

In response to the Department's Request for Information, the exporters who are sugar cane refiners have presented costs with an assigned input value for the raw cane sugar according to whether the refined sugar was for domestic consumption or for export. For the domestic sales, the raw cane sugar input was assigned a #14 price while a #11 price was assigned to the exports to Canada. The Department found that this was not acceptable where normal values had to be estimated under paragraph 19(b) of SIMA, using a constructed cost methodology which incorporates actual costs.

In the case of some export sales to Canada, the exporters had certified that the refined sugar qualified for the favourable North American Free Trade Agreement (NAFTA) duty rates. To qualify for such treatment, the refined sugar must be produced from domestically-grown sugar beet or domestically-grown sugar cane. Hence, the Department considered that the cost of refined sugar must incorporate the actual cost of such raw material inputs. Therefore, the Department used the applicable cost of either the sugar beets or the #14 price of the raw cane sugar as the input raw material cost.

On the other hand, for refined sugar exported under the Re-export Program, the origin of the raw sugar used to produce it was not known due to the co-mingling of the raw sugar. It may have been refined from any combination of domestically-produced #14 raw sugar, imported #14 or #11 raw sugar. The Department accordingly determined the cost of such sugar using a weighted average of the costs of domestically-produced #14 raw sugar, the imported #14 raw sugar and the imported #11 raw sugar. The use of the weighted average cost for the input raw cane sugar results in a more accurate cost of the refined sugar exported to Canada than the costs presented by the exporters.

Results of the Investigation

1. Domino Sugar Corporation

Domino is a refiner of raw sugar, wholly-owned by Tate & Lyle PLC, London, England, which is a publicly held company. Domino, which is a major supplier of refined cane sugar to Canada, operates three refineries, in Brooklyn, New York; Baltimore, Maryland; and Chalmette, Louisiana.

(a) Normal Value

Domino sold the subject goods in both the domestic market and to importers in Canada during the period of investigation. These products are sold to customers at the industrial trade level.

Where there were profitable sales of like goods to more than one domestic customer, normal values for the goods were estimated using section 15 of SIMA, based on the weighted average selling price of like goods sold to customers in the United States at the same trade level as the importer in Canada.

Where there were insufficient profitable sales of like goods, normal values were estimated using paragraph 19(b) of SIMA, based on the cost of the raw sugar, processing costs, packaging, administrative, selling and all other costs, and an amount for profit. The raw sugar costs were determined as per the methodology outlined in the Normal Value Considerations section of this Statement of Reasons.

A regulation 6 cash discount was allowed in estimating all the normal values for Domino, as this discount is granted to domestic customers and the importer would have qualified if the sales had occurred in the United States.

(b) Export Price

The goods were generally sold to importers in Canada on an ex-factory basis. In the case of sales by Domino to its affiliate, Redpath, export prices will be reviewed in detail during the next phase of the investigation.

For the goods reviewed during the period of investigation, it was determined that 99.7 per cent of the subject goods exported to Canada were dumped. The estimated margins of dumping of goods exported to Canada ranged from 0 to 56 per cent with a weighted average margin of 44 per cent, when expressed as a percentage of the normal value.

2. United Sugars Corporation

United Sugars is a cooperative whose membership consists of three sugar beet processors, American Crystal Sugar Company, Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. United Sugars markets and sells refined sugar on behalf of its members to industrial users and to the consumer market through retailers. American Crystal accounted for a large proportion of United Sugars' exports to Canada during the period of investigation.

(a) Normal Value

United Sugars sold the subject goods in the domestic market and to importers in Canada during the period of investigation. These products are sold in both markets to customers at the industrial and retail trade levels.

Where there were profitable sales of like goods to more than one domestic customer, normal values were estimated using section 15 of SIMA based on the weighted average selling price of like goods sold in the domestic market to customers at the same trade level as the importers in Canada.

Where there were sales of like goods to only one domestic customer, normal values were estimated using paragraph 19(b) of SIMA based on the aggregate of the cost of sugar beets, processing costs, packaging, administrative, selling and all other costs, and an amount for profit. The raw sugar costs were determined as per the methodology outlined in the Normal Value Considerations section of this Statement of Reasons.

The weighted average selling prices were adjusted to reflect several regulation allowances. A regulation 5(a) adjustment was allowed in instances where the packaging configurations were different between the exported product and the like goods sold in the domestic market. A regulation 6 cash discount was allowed, as this discount was granted in the domestic market and the importer would have qualified if the sales had occurred in the United States. A regulation 7 adjustment was allowed, as the delivery costs which were incurred in transporting the goods from the warehouse to the domestic customer were included in the selling price.

(b) Export Price

United Sugars acts as a non-resident importer and identifies itself as the importer of record on the Customs documents.

United Sugars ships subject goods directly to their customers in Canada, which are identified as consignees in the Customs documentation. For purposes of SIMA, the importer in Canada must be resident in Canada and carry on business in Canada. United Sugars does not meet these criteria.

Accordingly, the persons in Canada who purchase the goods from United Sugars, are deemed to be, in reality, the importers of the goods for the purposes of this investigation, and as such, are liable for the payment of any provisional duties.

The goods were sold to importers in Canada on a delivered basis. Export prices have been estimated using section 24 of SIMA based on the exporter's selling price to the Canadian customer with deductions for freight, regular duty and brokerage.

For the goods reviewed during the period of investigation, it was determined that 99.8 per cent of the subject goods exported to Canada were dumped. The estimated margins of dumping of goods exported to Canada ranged from 0 to 64 per cent, with a weighted average margin of 41 per cent, when expressed as a percentage of the normal value.

3. Savannah Foods & Industries, Inc.

Savannah is a refiner of raw sugar, a producer of beet sugar and a marketer of sugar and related products. It is a publicly held company which is listed on the New York Stock Exchange. Wholly owned subsidiaries which are involved in the sugar trade are Michigan Sugar Co., (a beet sugar processor), Colonial Sugars Inc. and Everglades Sugar Refinery, Inc., (raw cane sugar refineries), Racelands Sugars Inc. (a sugar cane miller) and Dixie Crystals Foods Services, Inc. (a packager of sugar and condiments for the food service industry).

(a) Normal Value

Savannah sold the subject goods in the domestic market and to importers in Canada during the period of investigation.

A review of a sample of Savannah's domestic sales revealed that the sales were made at a loss, so normal values could not be estimated using section 15. As a result, normal values were estimated using paragraph 19(b) of SIMA, based on the cost of the raw sugar, processing costs, packaging, administrative, selling and all other costs, and an amount for profit. The raw sugar costs were determined as per the methodology outlined in the Normal Value Considerations section of this Statement of Reasons.

(b) Export Price

Savannah acts as a non-resident importer and identified itself as the importer of record on the Customs documents. The declared selling prices on the Customs documents reflect Savannah's selling prices to its customers in Canada.

Savannah ships subject goods directly to their customers in Canada, which are identified as consignees in the Customs documentation. For purposes of SIMA, the importer in Canada must be resident in Canada and carry on business in Canada. Savannah does not meet these criteria.

Accordingly, the persons in Canada who purchase the goods from Savannah, are deemed to be, in reality, the importers of the goods for the purposes of this investigation, and as such, are liable for the payment of any provisional duties.

For the goods reviewed during the period of investigation, it was determined that 100 per cent of the subject goods exported to Canada were dumped. The estimated margins of dumping of goods exported to Canada ranged from 37 to 55 per cent with a weighted average margin of 46 per cent, when expressed as a percentage of the normal value.

4. Other Exporters in the United States

A submission was received from Refined Sugar Inc. (RSI) which has not yet been reviewed or verified. The remaining exporters in the United States were informed that they may provide a response to the Department's Request for Information, on a voluntary basis, however, no submissions were received. Therefore, the margin of dumping for RSI and all other U.S. exporters is estimated to be equal to the weighted average margin of dumping determined pursuant to subparagraph 38(1)(a)(i) for exporters in the United States which provided complete information. This amount is 44 per cent, when expressed as a percentage of the normal value.

THE EUROPEAN UNION

A Request for Information was sent to eleven companies in the European Union. E D & F Man Limited, a sugar broker, was the only company which was requested to provide a complete response to the Department's questionnaire because the volume it shipped to Canada represented a major portion of the subject goods shipped during the period of investigation. E D & F Man acted as a broker for goods shipped from all the European countries included in the dumping investigation. The remaining companies were informed that they could provide a submission on a voluntary basis. It was subsequently determined that some of the companies identified at the time of initiation do not export subject goods to Canada.

Results of the Dumping Investigation

Complete submissions were not received from any of the exporters, including E D & F Man. Therefore, the margin of dumping was estimated on the basis of information available to the Department that reasonably indicates the extent to which dumping is occurring.

For E D & F Man, which was requested to provide information and did not provide a complete submission, the margin of dumping was estimated on the basis of the highest margin of dumping found during the period of investigation. The highest estimated margin of dumping found for exporters in the United States which provided complete information, was 64 per cent, when expressed as a percentage of the normal value.

For all other exporters which were not required to provide information and did not provide a voluntary submission, the margin of dumping was estimated based on the estimated weighted average margin of dumping determined for exporters in the United States which were required to provide information and which fully complied with the Department's request. The estimated weighted average margin of dumping found in the United States was 44 per cent, when expressed as a percentage of the normal value.

THE REPUBLIC OF KOREA

A Request for Information was sent to six companies in the Republic of Korea. Four companies which represented over 95 per cent of the subject goods, were requested to provide a complete response to the Department's questionnaire. The remaining companies were informed that they may provide a submission on a voluntary basis.

Results of the Dumping Investigation

Complete submissions were not received from any of the companies. Therefore, the margin of dumping was estimated on the basis of information available to the Department that reasonably indicates the extent to which dumping is occurring.

For the four companies which were requested to provide information and did not provide a complete submission, the margin of dumping was estimated on the basis of the highest margin of dumping found for the period of investigation. The highest estimated margin of dumping found for exporters in the United States which provided complete information, was 64 per cent, when expressed as a percentage of the normal value.

SUBSIDY INVESTIGATION

The period of investigation selected was January 1, 1993 to December 31, 1994.

In determining whether a program results in a subsidy, the Department considered whether: (1) there was a financial contribution by a government of a country other than Canada; and (2) there was a benefit conferred to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods.

Under SIMA, there is a financial contribution by a government of a country other than Canada where:

practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;
the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
the government permits or directs a non-governmental body to do any thing referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.

For a subsidy to be subject to countervailing duties, inter alia, the subsidy must be specific to an enterprise or industry; or it must be a prohibited subsidy, such as an export subsidy which is contingent on export performance. A subsidy is not specific where the criteria or conditions governing eligibility for, and the amount of, the subsidy are:

objective;
set out in a legislative, regulatory or administrative instrument or other public document; and
applied in a manner that does not favour or is not limited to a particular enterprise. Under subsection 2(1) of SIMA, the term "enterprise" is defined to include "a group of enterprises, an industry and a group of industries".

Notwithstanding that a subsidy is not limited in the foregoing manner, the Deputy Minister may still determine the subsidy to be specific if:

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.

The amount of subsidy is calculated on the basis of the total benefits to the recipients and is considered to be insignificant, if the amount of subsidy attributable to the subsidized imports from a particular country is less than one per cent of the total export price of all subject goods under investigation from that country. Where the amount of subsidy for a particular country is insignificant, the subsidy investigation for this particular country must be terminated.

THE UNITED STATES OF AMERICA

Requests for Information were sent to the U.S. government and the governments of the States of Minnesota and North Dakota on March 17, 1995. A complete submission was received from the U.S. government and from the two state governments. Verification meetings were held with U.S. government officials on May 10 and 11, 1995, in Washington. Verification meetings were held with officials of the State of North Dakota and the State of Minnesota on May 9 and May 12, 1995, in Bismarck and St. Paul, respectively. As well, a meeting was held with United States Customs Service in New York.

Requests for Information were also sent to 34 companies in the United States which were considered to be potential exporters of the subject goods to Canada. All companies were requested to respond to the Department's questionnaire.

Complete responses to the Department's Subsidy Request for Information were received from eight companies, five of which were visited. Shipments by these five companies represent approximately 85 per cent of the subject goods shipped to Canada from the United States during the calendar year 1994. The Department focused primarily on the sugar beet exporters and processors, since virtually all of the identified subsidies alleged by the complainant pertain to this segment of the industry.

For the remaining companies, it was determined that the company either did not have any shipments of subject goods to Canada or did not participate in any subsidy programs, or in the case of a few small companies, did not to respond to the questionnaire.

The Department reviewed information from various sources, including the government, exporters, and industry to identify other possible subsidy programs which were not known at the time of the initiation of the investigation.

Results of the Subsidy Investigation

The following programs were identified and examined in order to establish if there were financial contributions made by any level of government, and if so, to establish if a benefit was conferred on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of the subject goods:

1. U.S. Government Programs

Nonrecourse Loans
Tax Subsidies to Sugar Beet Cooperatives
Preferential Financing by Banks for Cooperatives
Export Subsidy from GATT - Inconsistent Duty Drawback
Minn-Dak - Cancellation of Fines Levied for Marketing Sugar in Excess of Marketing Allotment

2. State of North Dakota Government Programs

Preferential Loan Programs
Industrial and Pre-competitive Research Assistance Programs
Coal Severance Tax Exemption
Agricultural Fuel Tax Fund
Northern Crops Institute Courses and Technical Services
Industrial Revenue Bond Guarantee Program
General Property Assessment
Assistance for Financially Distressed Farmers and Small Business Persons
Agricultural Commodity Assessment Funds
Funds for Agricultural Commodity Promotion Groups
Agriculture Partnership in Assisting Community Expansion

3. State of Minnesota Government Programs

Preferential Loan Programs
Agricultural Resource Loan Guaranty Program
Value-Added Agricultural Production Loan Program
Tax Credit for Agricultural Alcohol Gasoline

Appendix E contains a brief description of each of the programs and the rationale used by the Department in determining whether the programs result in countervailable subsidies in accordance with the legislation. The Department has concluded, after detailed examination of the foregoing potential subsidy programs involving the United States government and the States of Minnesota and North Dakota, that the nonrecourse loan program and a number of loan programs administered by the States of North Dakota and Minnesota would constitute countervailable subsidies pursuant to SIMA.

In the case of the nonrecourse loans, the estimated amount of the subsidy attributable to the volume of goods exported to Canada when allocated over the total export price of all subject goods shipped to Canada from the United States during the calendar year 1994, equals 0.35 per cent. In the case of the preferential loan programs for both states, the estimated amount of the subsidy attributable to the volume of goods exported to Canada when allocated over the total export price of all subject goods shipped to Canada from the United States during the calendar year 1994, equals 0.07 per cent.

The Department examined the other programs and found that they do not to result in countervailable subsidies.

Since the total amount of subsidy is less than one per cent of the total export price of all subject goods from that country, the subsidy investigation is being terminated for the United States. In reaching this decision, the Department's review was limited to 1994, since most of the countervailable benefits were received during that year.

THE EUROPEAN UNION

A Request for Information was sent to the Commission of the European Communities on March 17, 1995. A complete submission was received and a verification visit was conducted on May 10, 11 and 12, 1995, in Brussels.

Requests for Information were also sent to 16 companies which were considered to be potential exporters of the subject goods to Canada; two in Belgium, one in Denmark, three in France, five in Germany, one in the Netherlands and four in the United Kingdom. All exporters were advised that a response was required to the Department's questionnaire. Only six responses were received and all were incomplete submissions. Therefore, no verification visits were conducted.

Results of the Subsidy Investigation

The following programs were identified and examined in order to establish if there were financial contributions made by any level of government, and if so, to establish if a benefit was conferred to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of the subject goods:

export refunds;
compensation system for storage costs;
system of preferential imports;
UK refining aid; and
framework program for research and technological development.

Appendix F contains a brief description of each of the programs and the rationale used by the Department in determining whether the programs result in countervailable subsidies in accordance with the legislation. The Department has concluded, after detailed examination of the potential subsidy programs, that the export refunds, the compensation system for storage costs, the system of preferential imports and the United Kingdom refining aid are programs which result in countervailable subsidies pursuant to SIMA. The framework program for research and technological development was examined and found to be a non-countervailable subsidy pursuant to SIMA.

Subparagraph 38(1)(b)(iii) of SIMA provides for the Deputy Minister to specify where there is a prohibited subsidy on the goods and to estimate the amount of the prohibited subsidy. In this case, the export refunds have been designated a prohibited subsidy and the amount of this subsidy has been specified.

Since the exporters of the subject goods failed to provide all of the information necessary to permit the Department to determine the amount of subsidy pursuant to the legislation, the amount of subsidy was established on the basis of the available information. The estimated benefit that each program provides to the recipients of the subsidy is also contained in Appendix F.

The total estimated amount of subsidy attributable to the volume of goods exported to Canada, when allocated over the total export price of all subject goods shipped to Canada from the European Union, equals 171 per cent in 1993 and 134 per cent in 1994.

REPRESENTATIONS CONCERNING THE INVESTIGATION

At the initiation of the investigation the Department invited interested parties to file written submissions on the questions of the alleged dumping, subsidizing and injury. In response, several individual companies and a number of trade associations provided information and made representations. Submissions were received from the following:

The Canadian Industrial Sweetener Users
The National Dairy Council of Canada
International Sugars Inc.
Effem Foods Ltd.
R.W. Patten Distributors Ltd.
The Canadian Sugar Beet Producers' Association.

With the exception of the Canadian Sugar Beet Producers' Association, which supported the investigation, all of the other parties were opposed to the investigation. Their representations concerned a number of significant issues which are explained below.

1. Some parties disputed the CSI's allegation that Canadian refiners suffered reduced profit margins as a result of competitive pressure to increase their discounts to customers. They stated that the Canadian refiners' list price of refined sugar, before discounts, had increased when raw sugar prices increased, but were not reduced proportionately when raw sugar prices fell. Therefore, while the refiners granted larger discounts, these were from higher list prices, and hence it was suggested that the Canadian refiners were still maintaining their net profit margins at comfortable levels.

The Department reviewed the available information and found that the refiners' list prices in Canada generally track the world raw sugar prices. While there may be some fluctuation in the spread between their list price and the raw sugar price, it does not appear that this difference is large enough to refute the complainant's evidence of significantly depressed and suppressed margins. However, the intricacies of sugar pricing are such that a more detailed analysis would be needed to fully explore the relationship between raw and refined sugar prices and the effect on the refiners' margins and profitability.

2. Certain representations noted that two of the Canadian refiners, Redpath and Lantic, have regularly imported sugar from the U.S. exporters to whom they are related. Redpath and Domino are both owned by Tate & Lyle, PLC. Further, B.C. Sugar wholly owns both Lantic and Refined Sugars, Inc. (RSI), another U.S. exporter. Both Redpath and Lantic imported subject goods from their related companies during the investigation period. The representations on this matter suggested that both the evidence of dumping and of injury may have been distorted by consideration of these imports, which were within the control of the Canadian refiners. It was also suggested that because of the relationship of all three Canadian refiners to exporters in the United States, the complaint of the Canadian industry had no validity.

The Department reviewed the importations in question made by the Canadian refiners. It was found that Redpath had imported only a small volume of refined sugar from Domino. As well, the sugar that Lantic imported from RSI was a special, extra fine sugar which Lantic was unable to produce in sufficient quantity to meet an unexpected demand. These importations, while included in the dumping determination, were not of sufficient size to affect the results of the investigation, nor was their impact in the Canadian market significant in terms of the alleged injury. Accordingly, the Department is satisfied that imports by the Canadian refiners did not distort either the dumping or the injury analysis. In fact, while RSI provided information to the Department, it was not used for the purpose of the preliminary determination. It will be reviewed in detail in the next phase of the investigation.

With regard to the suggestion that the Canadian refiners would lose their standing as Canadian producers because they had imported sugar or were related to exporters in the United States, this argument was rejected. In evaluating a complaint under SIMA, the Department may exclude producers that are related to exporters or that themselves import, but is not required to do so. In this case, the Department is satisfied that neither the Canadian refiners activities as importers on a small scale, nor their relationship with certain exporters, are grounds for excluding them from consideration as part of the Canadian industry.

3. A number of representations stated that factors unrelated to dumping or subsidizing were responsible for the problems experienced by the Canadian industry. Specifically, these factors were considered to be:

the effects of competing substitutes for sugar, such as high fructose corn syrup;
the impact of United States trade action to restrict the Canadian industry's access to the U.S. market; and
general economic conditions that have adversely affected the industry.

The Department recognizes that there may be some effect on the Canadian refiners from the factors mentioned in these representations. Nevertheless, the investigation has revealed substantial margins of dumping and amounts of subsidy on the imports investigated, and hence the dumping and subsidizing must also be viewed as important factors in the consideration of injury. Furthermore, much of the evidence of injury concerns the effects on the Canadian refiners of low prices that can be attributed to either dumping or subsidizing of the imports.

4. Representations were made to the Department that sugar refined from sugar cane, exported to Canada under the U.S. Re-export Program, was not dumped and was not causing injury. The Department was asked to terminate the investigation for such sugar. It was stated that sugar exported under the U.S. Re-export Program does not originate in the United States, does not enter into the commerce of the United States and should not be deemed to be exported from the United States. In addition, it was postulated that such sugar has no domestic counterpart in the United States and that accordingly it has no normal value.

Details of the U.S. Re-export Program are given in the Normal Value Considerations section of this Statement of Reasons. Under this program, the raw cane sugar is sourced in the international market at world prices, which are lower than the U.S. market price. However, the Department determined that some of the sugar refined from raw cane sugar imported into Canada from the United States was not exported under the U.S. Re-export Program, rather it was certified as qualifying for NAFTA tariff treatment, applicable to sugar made from raw cane sugar sourced in the United States at prevailing U.S. market prices. Furthermore, this sugar was indistinguishable physically and commercially from the sugar that was sold under the Re-export Program.

The Department considers that sugar refined in the United States, whether from imported or domestic sugar cane, meets the requirement that it "originates in or is exported from the United States" and so cannot be excluded from the scope of the investigation. The investigation disclosed that sugar refined from sugar cane, whether or not under the Re-export Program, was dumped into the Canadian market, and the alleged injury pertains to it. As a result, the Department found no basis for excluding sugar under the Re-export Program from the investigation.

5. Representations were made concerning Redpath's expansion of its refining capacity in 1992. It was stated that this expansion of capacity forced aggressive price discounting among the Canadian refiners, so the complainant's own competitive activities caused injury. The Department was requested to consider how increased refining capacity affected pricing and marketing activities in Canada.

In considering this representation, the Department noted that the Canadian market increased by 97,000 tonnes between 1992 and 1994. It is natural that the Canadian refiners would match their refining capacity to increasing demand, and Redpath's Toronto refinery had been built in 1959. The company has stated that prior to the expansion, its capacity was constrained and that this resulted in higher per unit production costs. The new facility enabled the company to overcome these concerns in anticipation of growth in domestic and foreign markets.

6. Representations were made concerning refined sugar that is imported, and used in Canada to produce sugar-containing products which are then exported. In the view of some parties, such sugar does not compete with sugar sold for ultimate consumption in Canada, and does not contribute to the alleged injury.

Sugar that is used to produce sugar-containing products is consumed in a production process in Canada. This fact is not altered whether the sugar-containing product remains in Canada or is exported. It is the Department's position that imported sugar competes with the sugar produced by Canadian refiners for the manufacture of sugar-containing products, regardless of the destination of the finished product. If the sugar-containing product is exported, the exporter may claim a drawback of the duty paid on the imported sugar. This is, however, a separate issue.

7. Representations were made to the effect that the threat to the Canadian refiners was principally from imports from the U.S. of refined beet sugar, and that the investigation should be terminated with regard to imports from the U.S. of refined cane sugar.

In this regard the Department found that imports of both beet sugar and cane sugar from the United States were dumped, and the margins of dumping for both types of sugar were substantial. In addition, the alleged injury pertains to imports of both types of sugar since refined sugar from both sugar cane and sugar beet are essentially interchangeable and the one is indistinguishable from the other in most applications. In the circumstances, there was no reason found to terminate the investigation in respect of the dumping of refined cane sugar.

8. Some parties stated that the level of imports from the European Union countries and the Republic of Korea were so low that injury could not be attributed to these sources and that, accordingly, the investigation should be terminated in respect of these countries.

Information on the volume of imports is provided elsewhere in this Statement of Reasons. While the United States was the main supplier of refined sugar imported into Canada during the period of investigation, the Department has noted that the actual or potential volume of dumped and subsidized imports from the other countries subject to the investigation is not negligible. Furthermore, the alleged injury concerns imports from these sources as well as from the United States. Accordingly, there was no basis for terminating the investigation on imports from these sources.

While the foregoing covers the major issues contained in the representations, the Department also received a number of arguments in contradiction to other more specific allegations of injury made by the CSI in its complaint. These will not be discussed in detail here. The Department was not in a position to conduct a full inquiry on the question of injury, that being the purview of the Canadian International Trade Tribunal. None of the information provided to the Department refuted the evidence of injury submitted by the CSI. It is expected that these arguments will be made to the Tribunal during the detailed inquiry into the question of injury.

The representations from industrial users of refined sugar, whether it be imported or Canadian-sourced, portrayed the harmful effects that could result to industrial users of refined sugar as a result of a preliminary determination and the imposition of provisional duties. It would appear that their concerns relate to matters of public interest which the Department has no mandate to consider as part of the investigation. However, the legislation provides that the question whether the imposition of duties is in the public interest may be raised for consideration by the Tribunal.

UPDATE OF THE COMPLAINANT'S EVIDENCE OF INJURY

The Department requested information from the Canadian Sugar Institute to update the evidence of the injury alleged in the complaint filed prior to the initiation of this investigation. In response, the CSI provided additional information which indicated that the Canadian producers are continuing to experience injury, in the form of reduced profitability, depression and suppression of profit margins, and lost sales. As well, the threat of injury continues given that imports into Canada have generally been increasing in recent years and that a substantial proportion of these imports are dumped and subsidized. The CSI supplied confidential quantitative data in support of these further allegations.

The margin suppression and depression caused by dumped and subsidized imports continues to adversely affect financial performance of the Canadian industry in fiscal 1995. Margins in both the industrial and retail markets have continued to decrease, according to information provided by the CSI. The continued margin depression and suppression have been reflected in industry profit figures to the end of March 1995.

The Canadian refiners have provided updates of competitive activity with imported sugar and the adverse affect of such activity on particular accounts. Examples have been provided of recent situations where Canadian refiners have had to increase discounts to compete with dumped and subsidized imports of refined sugar. The industry has indicated that United Sugars, R.W. Patten, Moyal and E D & F Man have continued to be notably aggressive in offering discounts. This activity has continued to contribute to depressed and suppressed margins.

Redpath and Lantic have provided confidential figures concerning changes in profit margins. B.C. Sugar's financial condition is public. In the first quarter of 1995, B.C. Sugar recorded a net loss of $2.7 million, compared with net earnings of $885,000 for the same quarter in 1994. In addition, in early May, 1995, B.C. Sugar reduced its workforce by 17 per cent, citing severe competition from dumped and subsidized imports of sugar, cutbacks in U.S. market access and a need to increase efficiency.

CONSIDERATION OF MATERIAL INJURY

Before making a preliminary determination, the Deputy Minister must be satisfied that there is evidence that discloses a reasonable indication that the dumping and subsidizing have caused and are threatening to cause injury. In making a decision on this matter, the Deputy Minister must take account of the role of this Department in relation to the role of the Canadian International Trade Tribunal.

The role of the Tribunal is to examine and reconcile all injury evidence presented to it through a full quasi-judicial inquiry process. In this process, the Tribunal obtains detailed information dealing specifically with the question of injury. The information is analyzed by the Tribunal and may be provided to counsel for parties to the proceedings to assist them in the preparation of their case and to expedite proceedings. The Tribunal conducts public hearings where the parties are given a full opportunity to present their position on injury in detail and to cross-examine other parties.

By contrast, the role of the Deputy Minister of National Revenue,with regard to the consideration of injury at the preliminary determination, is to assess whether there is a reasonable indication of injury based on the more limited evidence available at this time. The evidence available at the preliminary determination includes the properly documented complaint, and any additional information provided subsequently by the complainant. It includes, as well, all information which was provided by other interested parties. As has been discussed earlier, in this case there were many substantial representations provided, with supporting arguments and information, from parties representing the importing and exporting interests and representing industrial sugar users.

Determination with respect to the alleged injury

Based on an analysis of all available information, the Department is satisfied that there is evidence that discloses a reasonable indication that the dumping and subsidizing has caused and threatens injury to Canadian production. Many representations were received from interests opposed to the investigation, and much additional information was presented regarding the question of injury. Nevertheless, there is no basis for termination of the investigation on the question of injury. While the representations demonstrated that the case for injury is open to question and argument, the proper forum for a detailed inquiry into this question is the Canadian International Trade Tribunal. Accordingly, the Department is satisfied that there is sufficient evidence of injury to meet the requirements of subsection 38(1) of SIMA.

In summary, the Department has taken into consideration the submissions made by interested parties and by the Canadian Sugar Institute on the question of injury. It has been concluded that there is a reasonable indication that the dumping and subsidizing have caused and are threatening to cause injury to the Canadian industry sufficient to justify proceeding with a preliminary determination of dumping and subsidizing.

VOLUME OF IMPORTS

Before making a preliminary determination of dumping or subsidizing, the Deputy Minister must be satisfied that the actual or potential volumes of the dumped or subsidized goods are not negligible. If the volume of dumped goods of a country is less than three per cent of the total volume of like goods that are released into Canada from all countries, the volume is considered to be negligible. The exception is where the total volume of dumped goods of three or more countries, each of whose exports of dumped goods into Canada is less than the three per cent figure, is more than seven per cent of the total volume of like goods imported into Canada, such a volume is not considered to be negligible.

Appendix D summarizes total imports of subject goods during the dumping investigation period. Imports from the Republic of Korea, Germany, the Netherlands and the United Kingdom individually are under the three per cent figure and collectively total 6.85 per cent. However, the potential exists for the volume of imports to be more than seven per cent. Exports from Europe into the Canadian market have been suppressed and displaced by imports from the United States. The European situation is such that there is always a surplus of refined sugar. One large trader in the United Kingdom sources from various European countries for shipments to Canada and can easily shift from one country to another to ensure a large, readily available source of supply.

Furthermore, the volume of refined sugar exported from the Republic of Korea has grown substantially from 1993 to 1994, a trend which would likely continue in the absence of an anti-dumping action. In the event of a finding against the European Union countries and the United States, the potential would exist for the Republic of Korea to further increase its volume. Given the capacity of these sources to ship refined sugar to Canada, the Deputy Minister has concluded that the potential volume of dumped goods from these countries is not negligible.

With respect to the volume of imports of subsidized goods, imports from the European Union represent nine per cent of the total imports of the like goods from all countries. The volume of subsidized goods from the European Union is not negligible.

DECISION

FUTURE ACTION

The Tribunal will now hold an inquiry into the question of whether the dumping and subsidizing have caused or are threatening to cause material injury to Canadian industry. The Tribunal is required to issue its decision on the question of injury with respect to the subject goods no later than 120 days after the receipt of notice of the preliminary determination. Pursuant to section 8 of SIMA, the Deputy Minister considers that the imposition of provisional duty is necessary to prevent injury or threat of injury, in view of the expectation of continuing imports during the provisional period. Therefore, subject goods released from Customs during the period commencing on the day the preliminary determination is made and ending on the earlier of the day the investigation is terminated or the day on which the Tribunal makes an order or finding, are subject to provisional duty not greater than the estimated margin of dumping and amount of subsidy.

While the Tribunal's inquiry is in progress, the Department will continue its investigation in order to obtain further information relating to the dumping and subsidizing of the goods. During this period, the Department may consider any voluntary submissions by exporters which are complete and received in sufficient time to permit analysis and verification. Within 90 days of the preliminary determination, a final determination will be made, specifying the margin of dumping and the amount of subsidy, on the basis of all information available at that time. If the margin of dumping or the amount of subsidy is insignificant, or the actual or potential volume of dumped or subsidized goods is negligible, proceedings will be terminated, in whole or in part, and any provisional duty paid or security posted will be returned to the importers, as appropriate.

It should be noted that the legislation provides that after a preliminary determination of dumping, exporters may submit written undertakings to revise their 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, 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 consent of their government, may undertake to revise their selling prices so that the injurious effect of the subsidy is eliminated.

It should be noted that acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped or subsidized goods. If an undertaking is accepted, the required payment of provisional duties on the goods would be suspended.

In accordance with section 57 of the Special Import Measures Regulations, undertakings should be offered no later than 60 days after this preliminary determination. However, it is preferable that written undertaking proposals be received by the Department as early as possible to allow sufficient time for their analysis.

PROVISIONAL DUTIES TO BE COLLECTED

The Deputy Minister considers that the imposition of provisional duty is necessary to prevent injury and the threat of injury to the Canadian industry. Payment of such duty is hereby demanded. Therefore, provisional duties will be collected on all dumped or subsidized imports of the subject goods that enter Canada during the provisional period.

The importers of the goods subject to provisional duties must pay the duties in cash or by certified cheque or post security equal to the duties payable.

Dumped Goods

The duties to be collected during the provisional period, are based on the estimated margins of dumping, expressed as a percentage of the export price of the goods. For exporters which provided a complete submission to the Department, the provisional duties will be based on information supplied by that exporter.

For all other exporters, the provisional duties will be based on the information submitted by exporters which provided a complete submission to the Department. In the case of RSI and those exporters which were not required to provide a complete submission to the Department, provisional duties are based on the weighted average margin of dumping for exporters in the United States which provided a complete submission.

In the case of exporters which were required to provide a complete submission to the Department and did not do so, provisional duties are based on the highest margin of dumping found for exporters in the United States which provided a complete submission.

Subsidized Goods

The amount of provisional duties to be collected on subsidized goods from the European Union are expressed in the European Currency Unit (ECU). The amount reflects the correction factor applied by the Commission to all agricultural prices on February 1, 1995.

For the export refunds program, the amount of provisional duty to be collected during the provisional period will be 47.01 ECU/100 kg, which is the maximum export refund published in the Official Journal of the European Communities of May 10, 1995.

For the compensation system for storage costs, the amount of provisional duty to be collected during the provisional period is 4.40 ECU/100 kg, which is the corrected amount of the average reimbursement of the last marketing year.

For the United Kingdom refining aid program, the amount of provisional duty to be collected on subject goods originating in the United Kingdom during the provisional period will be 4.93 ECU/100 kg, which is the corrected amount of the UK refining aid.

The total amount of provisional duty to be collected on subsidized goods will be 56.34 ECU/100 kg for the United Kingdom and 51.41 ECU/100 kg for all other members of the European Union. This amount is a total of the amounts of subsidy estimated for each subsidy program, as outlined in this section.

Dumping and Countervailing Duties Payable

Where both anti-dumping duties and countervailing duties are payable on goods imported into Canada, the full amount of countervailing duty and the portion of the margin of dumping that is not attributable to an export subsidy will be collected in order to avoid double-counting of duties. The investigation revealed that the average export subsidy in the European Union represented 120 per cent of the export price in 1994. Therefore, the amount of dumping duties to be collected during the provisional period will be the estimated amount of the margin of dumping, expressed as a percentage of the export price, less the amount of export subsidy, expressed as a percentage of the export price.

Summary

Appendix G provides a summary of the duties payable during the provisional period.

PUBLICATION

Notice of this preliminary determination is being published in the Canada Gazette, pursuant to paragraph 38(3)(a) of the Special Import Measures Act.

INFORMATION

A Statement of Reasons explaining this decision has been provided to persons directly interested in these proceedings. A free copy may be obtained by contacting the Revenue Canada officers named below. For further information, please contact the following officers by fax at (613) 954-2510, or by telephone at:

United States:

Dumping: Ronald Medas at (613) 954-1664;

Subsidy: Wayne Lee at (613) 954-7346

European Union:

Michel Desmarais at (613) 954-7188;

Korea:

Karen Humphries at (613) 954-7176;

or at the following address:

Department of National Revenue

Anti-dumping and Countervailing Directorate

191 Laurier Avenue West

Ottawa, Ontario

K1A 0L5

B. Brimble
Director General
Anti-dumping and Countervailing Directorate

APPENDIX A

EXPORTERS

United States

Allen Sugar Company

6515 Carnegie Avenue

Cleveland, Ohio

44103 USA

Amalgamated Sugar Company

2427 Lincoln Avenue

P.O. Box 1520,

Ogden,Utah

84402 USA

Bariatrix Int'l Inc.

40 Allen Road

S. Burlington, VT

05403 USA

Bunge Foods

6901 Fox Avenue South

Seattle, WA

98108 USA

California & Hawaiian Sugar

830 Loring Avenue

Crockett, California

94525 USA

Crompton & Knowles Corp.

Ingredient Technology Div.

1533 Union Ave.

Pennsauken, NJ

08110 USA

D.W. Montgomery & Co.

608 Manatee Drive

Satellite Beach, Florida

32937 USA

Domino Sugar Corporation

Grace Building

1114 Avenue of the Americas

New York, NY

10036-7783 USA

Fantasy Blanke Baer

25 E. Main St.

Amboy, IL

61310 USA

Federal Bakers Supply Corp.

1400 William Street

Buffalo, New York

14206 USA

Fountain Industries

922 East, 14th Street

Albert Lea, MN

560073218 USA

Fredak Wholesale Corporation

24667 Mound Road

Warren, Michigan

48091-2043 USA

Guernsev Dell Inc

4300 South Morgan

Chicago, IL

60609 USA

Liquid Sugars

1285 66th Street

Po Box 96

Oakland, CA

94604-0096 USA

Mark-Lynn Industries Inc.

420 Sangamore Road

Bremen, GA

30110 USA

Nutracane Inc.

58 Meadowbrook Parkway

Milford, NH

03055 USA

Paular Corporation

2 Marlen Drive

Robbinsville, NJ

08691 USA

Premier Malt Products

15187 Kercheval

Grosse Pointe, MI

48230 USA

Refined Sugars, Inc.

PO Box 509

1 Federal Street

Yonkers, New York

10702 USA

Reisenberg & Associates

7440 Jager Court

Cinncinnati, Ohio

45230 USA

Savannah Foods & Industries, Inc.

Post Office Box 339

Savannah, Georgia

31402-0339 USA

Select Ingredients

263 North Forman St.

Detroit, Michigan

48209 USA

Spreckels Sugar Company, Inc.

4256 Hacienda Drive

PO Box 8025

Pleasanton, CA

94588-8625 USA

Sucanat North American Corp.

26 Clinton Drive

Unit 117

Hollis, NH

03049 USA

The Lucks Company

3434 Second Avenue South

PO Box 24266

Seattle, WA

98124-0266 USA

The Natural Source Company

PO Box 860970

Orlando, Florida

32866-0970 USA

Tropical Nut & Fruit

6580 Huntley Rd.

Columbus, Ohio

43229 USA

United Sugars Corporation Westreco, Inc.

7801 East Bush Lake Road 809 Collins Ave.

Bloomington, MN Marysville, OH

55439 USA 43040 USA

Republic of Korea

Cheil Foods & Chemicals Inc.

Po Box 1155

150, 2-Ka

Taepyungro

Chung-Ku, Seoul, 100-102

Korea

Da Bong Industrial Company Ltd.

72-5 Samjeon-Dong

Songpa-ku

Seoul, Korea

Samsung Co. Ltd.

C.P.O. Box 1144

Seoul, Korea

Sam Yang Co. Ltd.

Sugar Department

Po Box 1797

263 Yeonji-Dong

Jongro-Ku, Seoul, 110-470

Korea

Samjin Trading Co. Ltd.

C.P.O. Box 2

Seoul, Korea

Taihan Sugar Industrial Co. Ltd.

Po Box 7043

7-23, Sincheon-Dong

Songpa-Ku

Seoul, 138-240

Korea

European Union

August Topfer Co. Gmbh

Raboisen S8

D-20095 Hamburg

Federal Republic of Germany

Crowny Food Industries BV.

P.O. Box 51

1500 EB Zaandam

Holland

Danisco A/S

1 Langebrogade,

PO Box 17

1001 Copenhagen

Denmark

E D & F Man (Sugar) Ltd.

Sugar Quary

Lower Thames Street

London, England

EC3R 6DU

Eridania Beghin Say

B.P. 471-08

F-75360

Paris (France)

Cedex 08

Générale Sucrière S.N.C.

25, av. Franklin D. Roosevelt

F-75008

Paris (France)

Grafschafter Krautfabrik

Josef Schmitz KG

Wormersdorfer Street, 22-26

D-53340 Meckenheim

Federal Republic of Germany

Pahmeyer & Co. GmbH

A.D. Schleifmühle 37

D-2800 Bremen 1

Federal Republic of Germany

Pâtes et gaufres industrielles (PEGI)

37, rue des étangs noirs

B-1080 Bruxelles

Belgique

Raffinerie Tirlemontoise S.A.

Avenue de Tervueren, 182

B-1150 Bruxelles (Belgique)

Tate & Lyle Sugars

Export Department

Sugar Quay

Lower Thames Street

London, England

EC3R 6DQ

VAN TOL B.V.

P.O. Box 64

2410 AB Bodegraven

Holland

APPENDIX B

CLASSIFICATION OF IMPORTS

The subject goods may be classified under the following Harmonized System classification numbers which are set out in Schedule I to the Customs Tariff:

1701.91 Refined sugar (containing added flavouring or colouring matter)
1701.99 Refined sugar (granulated, icing, other)
1702.90 Other sugars, including liquid sugar and invert sugar as follows:

1702.90.31 Containing reducing sugars after inversion not exceeding 65 per cent by weight of the total syrup

1702.90.32 Containing reducing sugars after inversion exceeding 65 per cent but not exceeding 70 per cent by weight of the total syrup

1702.90.33 Containing reducing sugars after inversion exceeding 70 per cent but not exceeding 71 per cent by weight of the total syrup

1702.90.34 Containing reducing sugars after inversion exceeding 71 per cent but not exceeding 72 per cent by weight of the total syrup

1702.90.35 Containing reducing sugars after inversion exceeding 72 per cent but not exceeding 73 per cent by weight of the total syrup

1702.90.36 Containing reducing sugars after inversion exceeding 73 per cent but not exceeding 74 per cent by weight of the total syrup

1702.90.37 Containing reducing sugar after inversion exceeding 74 per cent but not exceeding 75 per cent by weight of the total syrup

1702.90.38 Containing reducing sugars after inversion exceeding 75 per cent by weight the total syrup

1702.90.40 Other invert sugars and other sugar syrups

1702.90.50 Other sucrose sugars

APPENDIX C

CANADIAN MARKET (in tonnes)

Location	1990	1991	1992	1993	1994	January 94 - February 95
Domestic: ¹	869,227	861,210	902,333	932,447	970,686	1,097,387
Imports: ²	98,768	129,129	119,364	158,302	147,356	171,587
US	64,686	68,519	81,236	138,466	125,600	147,706
European Union	14,344	27,549	24,247	16,526	14,863	16,105
Republic of Korea	1,438	1,831	1,470	1,590	3,752	3,981
Other Countries	18,300	31,230	12,411	1,720	3,141	3,795
Total	967,995	990,339	1,021,697	1,090,749	1,118,042	1,268,974

Domestic shipments excluding exports - Statistics Canada catalogue 32-013, 'The Sugar Situation'
Statistics Canada data for subject goods within H.S. categories 1701.91, 1701.99 and 1702.90

APPENDIX D

TOTAL IMPORTS DURING THE INVESTIGATION PERIOD

JANUARY 1994 TO FEBRUARY 1995 - TONNES

Item	U.S.A.	Korea	EU - DK	EU - DE	EU - NL	EU - UK	EU - Other	Other Countries	Total Imports
Total	147,706	3,981	7,718	3,357	2,581	1,840	609	3,795	171,587
% of Total	86.08%	2.32%	4.50%	1.96%	1.50%	1.07%	0.35%	2.21%	100.00%
Total Imports from EU					16,105
EU as a % of all imports					9.39%

APPENDIX E

THE UNITED STATES OF AMERICA (SUGAR PROGRAM)

The United States Sugar Program, which is administered by the United States Department of Agriculture (USDA), protects domestic sugar cane and sugar beet growers from foreign competition and provides a form of support for domestically produced sugar. The Department examined the various elements of this program to determine whether any of the elements would result in a countervailable subsidy as defined in SIMA.

Following are the programs examined by departmental officials:

1. US GOVERNMENT PROGRAMS

1(a) NONRECOURSE LOANS

Nonrecourse commodity loans are an instrument used by the Commodity Credit Corporation (CCC) to support certain eligible agricultural commodities, including sugar, honey, wheat, feed grains, oilseeds, cotton, tobacco and rice.

Under the US Sugar Program, unlike other commodity programs, preferential interest rate loans are made to processors, i.e., sugar cane millers and sugar beet processors, and not directly to growers. To qualify for these loans, a processor must agree to pay growers at least the minimum price, established by the USDA, and pledge processed sugar from the current year's production as collateral.

Interest rates charged to processors are based on US government costs of borrowing. The loans are available from October 1 to June 30 of each year and may be for a duration of up to 9 months but must be paid in full by the end of the fiscal year (September 30) in which the loan was made.

The loans are termed nonrecourse because the CCC takes title to the stored commodity as full payment for the loan if the processor chooses not to repay the principal amount of the loan, plus interest. If domestic market prices are above the loan level plus interest charges, the processor has the incentive to sell the processed sugar on the open market and to repay the loan. To avoid forfeitures of the pledged sugar, the CCC can impose market allotments to limit the amount of domestic sales, thereby causing domestic prices to increase.

Currently cane millers can borrow an average of 18 cents per pound for raw cane sugar, while beet processors can borrow an average of 23.4 cents per pound for refined beet sugar. The actual amount of the loans is often 90 per cent of the loan rate, since the CCC either withholds 10 per cent or requires a bond to be posted to ensure that the borrowers comply with the requirement to pay to the growers the minimum price.

All of the sugar beet processors which exported subject goods to Canada during the period of investigation, with the exception of one, have taken advantage of CCC nonrecourse loans during fiscal year 1994 (1993 crop year).

The Department is of the view that there is a financial contribution in respect of which benefits are conferred in the form of preferential interest rates and an insurance value.

This program is expressly limited by law to certain eligible agricultural commodities and is, therefore, specific.

Interest Rate

The interest rate is set by the CCC at a rate which is below the prevailing prime rate and is available to all qualified processors regardless of their creditworthiness.

The interest rate offered in this program is preferential and therefore confers a benefit to the recipient of the loan. The interest rate charged by the CCC is based upon the estimated cost to the US Treasury of 1-year securities. The applicable rate, during 1994, has been lower than the prevailing prime interest rate by 2.6 to 3.6 percentage points. The prime interest rate is usually the lowest commercial interest rate available to large borrowers with very favourable credit ratings. Sugar beet processors have argued that the loan rate available through the nonrecourse loan program is not preferential, but rather reflects the market rate which their respective companies warrant based on their creditworthiness.

Some processors have attempted to demonstrate that they are able to obtain financing from other sources at rates, terms and conditions comparable to those available from the CCC. To date, the Department has not received information that would conclusively demonstrate that the loans are not preferential. In the absence of this information, the Department used the prime interest rate as the non-preferential rate for the purposes of calculating the benefit conferred to the sugar beet processors as a result of the CCC nonrecourse loan program.

The Department has calculated the amount of subsidy resulting from this program based on the benefits received by all sugar beet processors in the 1994 fiscal year, which shipped subject goods to Canada during the 1994 calendar year and using sales relating to the 1994 calendar year. Four of the five major sugar beet processors whose products were shipped to Canada benefited from nonrecourse loans in the 1994 fiscal year.

Detailed information relating to each sugar beet processors' CCC nonrecourse loans, for fiscal year 1994, was verified and analyzed. The total benefit for each sugar processor was calculated by comparing the preferential CCC loan interest rate and the prime interest rate against the monthly balance of outstanding nonrecourse loans. It should be noted that sugar beet processors did not always obtain nonrecourse loans in all cases in which they were eligible.

The total benefits were allocated over the total quantity of refined sugar sold in the 1994 calendar year for each of the sugar beet processors, to arrive at a per hundredweight rate. These rates were then applied to the volume of exports for each sugar beet processor to arrive at the actual amount of subsidy attributable to the exports to Canada.

The estimated total amount of subsidy as a result of the preferential interest rate under the CCC nonrecourse loan program for the fiscal year 1994 applicable to the Canadian sales is US $23,500.

Insurance Value

The second element of subsidy is the insurance value portion of the program. Since a borrower is permitted to default on a loan and forfeit its pledged collateral to the government, without penalty, this would, in effect, constitute a guaranteed sale at the loan price, thereby minimizing the amount of risk to the borrowers. This can be viewed as an insurance policy or equivalent to the purchase of an option to protect against losses in the future.

There have only been two forfeitures since 1985, involving two companies, which according to U.S. government officials, did not ship subject goods to Canada during the period of investigation. These forfeitures occurred in June and August of 1994, and according to the CCC, it did not expend any funds since it was able to sell the forfeited sugar at prices which exceeded the CCC's costs for principal and interest.

There is some value to the unique feature of nonrecourse loans which allows the borrower to default on the repayment of the loan, simply by giving up the pledged collateral sugar to the lender. This in effect guarantees the sale price to the processor of the amount of the loan which is typically 90 per cent of the maximum amount.

The complainant has argued that the Black-Scholes formula, which is widely used in option pricing, is the preferred methodology to calculate the benefit. The Black-Scholes formula is a mathematical model, which calculates the value of an option, taking into consideration the important underlying factors that determine its value. These factors include the guaranteed price at which the asset can be sold, the current price of the asset, the alternative interest rate available on risk-free investments, time to expiry and the volatility of the asset price. The rationale for using this formula is that without the nonrecourse loans and the USDA intervention, sugar processors would have to buy options on the futures markets to protect their interests, or in other words, buy some type of insurance.

For purposes of estimating the amount of subsidy, the Department has used the Black-Scholes formula using the variables as presented by the complainant with an adjustment to the length of the option period. Although the stated maximum length of the nonrecourse loans is nine months, this rarely reflects reality. Loans must be repaid when the pledged collateral sugar has been sold and all outstanding loans must be repaid by September 30 of each fiscal year regardless of when the loan was taken or whether the pledged collateral sugar has been sold or not. The Department's calculations show that a six month period rather than a nine month period more accurately reflects the actual situation.

Using the Black-Scholes calculations based on the noted variables, the value of the option, or insurance value is estimated to be one cent U.S. per pound. However, as mentioned previously, sugar beet processors do not always obtain nonrecourse loans in all cases in which they were eligible. For each sugar beet processor, the amount of sugar which was financed using nonrecourse loans was compared to the total amount of sugar produced and sold in 1994.

The estimated total amount of subsidy resulting from the insurance value component of the CCC nonrecourse loan program for the fiscal year 1994 applicable to the Canadian sales is US $130,000.

1(b) TAX SUBSIDIES TO SUGAR BEET COOPERATIVES

The Department reviewed the federal income tax returns of American Crystal Sugar Company (American Crystal), Minn-Dak Farmers Cooperative (Minn-Dak) and Southern Minnesota Beet Sugar Cooperative (Southern Minnesota) to determine if these cooperatives received an exemption from the payment of income taxes as "Tax Exempt Farmer Cooperatives" pursuant to section 521 of the Internal Revenue Code, as alleged by the complainant. The tax returns identified all three of these companies as non-exempt cooperative corporations as per section 1381(a)(2) of the Code. This fact was confirmed with federal government tax experts in Washington.

Federal government officials provided information to the Department that indicated there are currently over 40,000 non-exempt cooperative corporations in the United States. Many industries are represented by these cooperatives including agricultural, bank, grocery wholesale, hardware wholesale, health care, and pharmaceutical industries. U. S. tax laws apply equally to all cooperatives in all industries.

Non-exempt cooperative corporations must distribute all patronage income to their patrons. Patronage income, in the case of agricultural cooperatives, is the proceeds of current year sales of goods produced by the cooperatives using the patron's crops, less the operating expenses of the cooperative. Patrons are the growers who own the cooperative(s). Non-exempt cooperative corporations are required to pay income tax on non-patronage taxable income. This income, which arises from non-member business, and non-operational investment activities, is taxable at the applicable corporate tax rate.

Patronage income must be distributed to the patrons as either cash payments or per-unit retains in the period beginning with the first day of each taxable year and ending with the fifteenth day of the ninth month following the close of that year. Per-unit retains are a portion of the patronage income held by the cooperative for a period of up to seven years for working capital purposes.

Patrons must include all patronage income in their gross income in the tax year that it is received. United States government tax experts have provided documentation to the Department which indicates that deductions allowed in calculation of the patrons taxable income are no different than deductions allowed to corporations or individuals. A patron, which may be structured as a corporation or as an individual, pays the appropriate tax rate on this taxable income.

The above-noted information has satisfied the Department that no financial contributions have been made by the United States government relating to income taxes payable by cooperatives and their patrons. In this regard, the non-exempt cooperative corporations pay corporate income tax on their non-patronage taxable income on the same basis and at the same rates as any corporation. The patrons pay either corporate or individual income tax on patronage income on the same basis and at the same rates as any corporation or individual. Consequently, all non-patronage and patronage income are subject to income tax at the appropriate rates.

1(c) PREFERENTIAL FINANCING BY BANKS FOR COOPERATIVES

The Banks for Cooperatives are organized pursuant to the provisions of the Farm Credit Act of 1971. As part of the Farm Credit System, the Banks for Cooperatives operate as cooperative lending institutions to serve the needs of rural communities and to improve their standard of living. They are federally chartered, customer-owned banks. Borrowers are required to become members of the Bank by making a capital contribution in order to be eligible to borrow from the Bank. Banks for Cooperatives are required by the Farm Credit Act to provide loans nationwide to agricultural, aquatic, rural electrical distribution, rural generation and transmission, rural telecommunications, rural water and waste disposal systems, farm supply, and community bank cooperatives.

The St. Paul Bank for Cooperatives is one of the banks of the Farm Credit System and a bank from which American Crystal, Minn-Dak and Southern Minnesota received loans during the period of investigation. The annual report of this bank was reviewed to establish if this bank had received financial contributions from any level of federal or state government that would have permitted the bank to provide loans at preferential rates, terms or conditions to American Crystal, Minn-Dak or Southern Minnesota. An analysis of this report revealed that its sources of funds and income were from non-governmental sources. Furthermore, there was no evidence from any other sources which would indicate the possibility of any financial contributions by any level of government.

The Department is satisfied that the St. Paul Bank for Cooperatives is not receiving financial contributions from any level of government.

1(d) EXPORT SUBSIDY FROM GATT-INCONSISTENT DUTY DRAWBACK

Drawback Program

The drawback regulations are set out in Chapter 1, Part 191 of the United States Customs Service Regulations. Drawback as defined in § 191.2 (a) of the regulations "means a refund or remission in whole or in part, of a customs duty, internal revenue tax or fee lawfully assessed or collected because of a particular use made of the merchandise on which the duty, tax, or fee was assessed or collected".

With regard to the manufacturing drawback, the drawback is allowed upon exportation of articles manufactured or produced, wholly or in part, in the United States with use of imported merchandise. In this regard there must be a manufacturing or production process and the articles must be exported in order to qualify for drawback.

There are two types of manufacturing drawback - direct identification drawback and substitution drawback. Direct identification occurs when the imported merchandise is used to manufacture or produce the exported goods while substitution occurs when merchandise of the same kind and quality as the imported merchandise is used in the manufacturing or production process in place of the imported merchandise.

The U.S. provisions regarding substitution of inputs of the same kind and quality as the imported merchandise are consistent with the substitution provisions contained in Annex III of the WTO Agreement on Subsidies and Countervailing Measures. In this regard, substitution of inputs is only permitted under the U.S. regulations at the front-end of the production process. Therefore, in order to qualify for drawback of duties paid on imported raw cane sugar under the substitution provisions, the substituted input used in the refining process must be raw cane sugar. Exported refined sugar produced from sugar beets would not qualify for drawback of duties paid on imported raw cane sugar since the beet input is not of the same kind and quality as the imported raw cane sugar used as an input in the production of the refined sugar.

On the basis of examination of the controls in place by the U.S. Customs Service for drawback claims, and other documentation relating to drawback claims made with regard to sugar during the period of investigation, the Department is satisfied that there was no drawback in excess of the import charges levied initially on the imported raw cane sugar. In addition, the Department is satisfied that during the period of investigation, there was no drawback of the higher-tier duty with respect to imports of raw cane sugar.

Further, the Department found no evidence that exported refined beet sugar was the subject of drawback claims made in connection with raw cane sugar imported by refiners at the lower-tier duty rate during the period of investigation. In fact, the evidence indicates that such an occurrence was unlikely in view of the stringent controls over the "registration" of drawback claimants, imports of raw cane sugar and the processing of drawback claims exercised by the U.S. Customs Service and indeed would be in contravention of the U.S. Customs Drawback Regulations.

Refined Sugar Re-export Program

The "Sugar To Be Re-exported In Refined Form" regulations are set out in the Code of Federal Regulations Part 1530. There are eight licensed raw sugar cane refiners in the program. Under this program, the importation of sugar exempt from quota is allowed, provided it is refined and either re-exported or transferred to a licensed manufacturer of sugar-containing products within 90 days of importation. In turn, the licensed manufacturer of sugar-containing products must export such products containing a quantity of sugar equivalent to the quantity of sugar transferred, within 18 months of the date of transfer from the refiner. The licensed manufacturer of sugar-containing products operates under a license limit of 10,000 short tons.

Although there is no limit as to how much sugar may be imported by the refiner and refined under this program, there is a license limit of 50,000 tonnes at any given time. The license is debited when quota exempt raw cane sugar is imported and credited when an equivalent quantity of refined sugar is exported or transferred. A license credit balance may occur when the licensee exports refined sugar using domestic inputs before importing the quota exempt raw cane sugar.

The substitution provisions under this program are satisfied so long as a quantity of refined sugar equivalent to the quantity of raw cane sugar imported is exported or transferred within the 90-day time frame. The U.S. Department of Agriculture has interpreted this provision to permit license credits on exportation of refined sugar regardless of whether the exported sugar was produced from raw cane sugar or sugar beets.

The Re-export Program and the Duty Drawback Program are two separate and distinct programs. The Department found no evidence during the period of investigation that the two programs were combined in such a manner so as to constitute an export subsidy by designating imports of raw cane sugar under the Re-export Program for drawback purposes on exports of refined beet sugar.

It is concluded that the Re-export Program is not a subsidy since there is no financial contribution by the government of the United States of America, nor is it a form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994. Therefore, it is the opinion of the Deputy Minister that any benefits accruing to sugar cane refiners, which elect to participate in the Re-export Program, result from the lowering of their average acquisition cost of the input raw cane sugar. This is the result of private sector initiatives and does not result from any government action.

1(e) MINN-DAK FARMERS COOPERATIVE - CANCELLATION OF FINES LEVIED FOR MARKETING SUGAR IN EXCESS OF MARKETING ALLOTMENT

Marketing allotments, which are imposed by the Secretary of Agriculture in accordance with the Agricultural Adjustment Act of 1938, limit the quantity of sugar from domestically produced sugar cane and sugar beets which may be marketed in the United States during a fiscal year. The Agricultural Act of 1949 provided that the total quantity of sugar marketed by a processor, plus the quantity of sugar pledged as collateral by the processor for CCC nonrecourse loans could not exceed the quantity of the allotment allocated to the processor. The civil penalty imposed against a processor which exceeded its marketing allotment is three times the market value of the sugar marketed in excess of the allotment.

On June 30, 1993, the Secretary of Agriculture, without prior notice, implemented marketing allotments for the period of October 1, 1992 through September 30, 1993. Minn-Dak immediately recognized that its quantity of sugar marketed and sugar pledged as collateral for CCC nonrecourse loans exceeded its market allotment. The potential fine for exceeding its market allotment was estimated to be $21 million. As soon as Minn-Dak discovered the discrepancy, Minn-Dak reduced its amount of pledged sugar by paying down the nonrecourse loans to a level consistent with its marketing allotment.

On August 10, 1993, the Agricultural Adjustment Act of 1938 was amended by the U.S. Congress to remove any reference to sugar pledged as collateral for a loan and to clarify that processors would not be subject to the imposition of civil penalties simply for pledging sugar as collateral for loans. According to the USDA, "the CCC has never assessed, waived or cancelled any civil penalty against Minn-Dak Farmers Cooperative or any other processor."

The noted fine which was alleged to have been cancelled, related to sugar marketed and pledged during the period October 1, 1992 - September 30, 1993. The Department reviewed all exports to Canada during this period and has determined that Minn-Dak did not export any subject goods to Canada during this period, either directly or indirectly. Consequently the Department has determined that this alleged cancelled fine did not confer any benefits to exports of subject goods during the period of investigation.

2. STATE OF NORTH DAKOTA PROGRAMS

The Department reviewed and verified the following State of North Dakota programs and found that only the Preferential Loan Program conferred a countervailable subsidy. A review of the remaining programs showed no financial contributions were made by the State to sugar beet growers or processors.

2(a) Preferential Loan Programs

A review of the submission of the North Dakota government disclosed several loan programs that were available to the agricultural sector including sugar beet growers. These loan programs included the Beginning Farmer Real Estate, Established Farmer Real Estate, Family Farm and the Farm Operating loan programs. The Department was unable to obtain sufficient information from either the state-owned Bank of North Dakota (BND) or from the sugar beet growers, during the preliminary investigation to establish whether or not the North Dakota sugar beet growers received preferential loans and if so, to permit the calculation of benefits.

Consequently, the Department estimated the amount of loans that the sugar beet growers may have received from these loan programs, in calendar year 1994, to be equal to the total amount of loans made to the agricultural sector by the BND during this period. The preferential interest rate was estimated, based on information available to the Department relating to these loan programs, to be equal to six per cent. The non-preferential interest rate was estimated to be equal to eight per cent based on information available to the Department. The benefits were estimated to be equal to the difference between the preferential interest expense amount and the non-preferential interest expense amount.

The total benefits were allocated over the total quantity of refined sugar sold in the 1994 calendar year for sugar beet processors exporting from the state of North Dakota, to arrive at a per hundredweight rate. This rate was then applied to the volume of exports for these sugar beet processors to arrive at the estimated amount of subsidy attributable to the exports to Canada.

The Department estimated the total amount of these farmer loan subsidies as they relate to subject goods sold to Canada during calendar 1994, to be U.S. $28,000.

2(b) Industrial and Pre-competitive Research Assistance Programs

The government of North Dakota provides funds to North Dakota companies through the North Dakota Future Fund (NDFF) and Technology Transfer Inc. (TTI), for purposes of creating jobs and economic diversification.

The annual reports of both the NDFF and the TTI covering the period of investigation revealed that no funds were directed to companies involved in the growing or processing of sugar beets.

2(c) Coal Severance Tax Exemption

The North Dakota coal severance tax is imposed upon all coal severed for sale or for industrial purposes by coal mines. Each coal mine operator remits the tax to the North Dakota Tax Commissioner. Coal used in agricultural processing or sugar beet refining plants located in North Dakota or adjacent states is exempt from the tax.

The state government claimed that North Dakota coal was not used by the sugar beet processors as it is very high in sulfur content. The processors would have to install very expensive pollution control equipment before this type of coal could be used. In addition, the North Dakota coal is much softer than coal that is available from other states and consequently has a low BTU rating.

The records of the largest processor were examined and it was confirmed that it purchases its coal requirements from another state.

2(d) Agricultural Fuel Tax Fund

The purpose of the Agricultural Fuel Tax Fund, which is administered by the Agricultural Products Commission of the State of North Dakota, is to make funds available for the research and marketing needs of the State. These funds are used to develop new uses for agricultural products and by-products, and to develop more efficient systems for processing and marketing of agricultural products and by-products.

The government of North Dakota stated that no funds were provided to the sugar beet growers and processors. It provided to the Department, the Biennial Report 1993-1995 of the Agricultural Products Utilization Commission, which listed all of the projects funded by the Commission during the two year period ending in January 1995. None of the projects undertaken by the Commission relate to sugar beet farming or processing.

2(e) Northern Crops Institute Courses and Technical Services

The purpose of the Northern Crops Institute, which is administered by the North Dakota State University, is to provide technical and marketing assistance through specialized training courses and technical services which facilitate the market development and expanded sales of northern grown crops. The technical services include in-plant consultations for the purpose of discussing crop quality problems and manufacturing techniques.

According to the government of North Dakota, all Institute programs since 1983 have related to and continue to focus on spring wheat, durum wheat, barley, oil-seeds, and other feed grains. No training courses or technical services have been directed at the sugar beet industry. The complete 1994 and 1995 course schedule of the Institute was provided to the Department and all of the courses involved feed grains and wheat.

2(f) Industrial Revenue Bond Guarantee Program

The purpose of this program was to further the industrial development, expansion and diversification of industry and to increase employment in the State of North Dakota. The industrial development projects funded by this program involved any buildings and/or equipment engaged in the assembling, fabricating, manufacturing, mixing and processing of agricultural, mineral, or manufactured product or any combination thereof.

This program was not used by any company in any sector during the period of investigation and the legislation which established the program was repealed by the 1995 Legislative Assembly.

2(g) General Property Assessment

State government officials provided the Department with complete legislation relating to general property assessment which demonstrates that commercial and agricultural property tax are calculated using the same criteria. Consequently the assessment of property tax does not involve a financial contribution by the government.

In order to calculate the property taxes payable, it is necessary to determine the true and full value, the assessed value and the taxable value of the property.

The legislation requires that agricultural and commercial property are valued at "true and full value" by considering the earning or productive capacity, if any, the market value, if any, and all other matters that affect the actual value of the property. In this regard, the legislation provides a method for establishing the true and full value of agricultural land based on annual gross return which is a percentage of annual gross income.

Property tax legislation requires that the true and full value of sugar beet and potato cropland is 20 per cent of the annual gross income, whereas the true and full value of other crops is 30 per cent of annual gross income. These percentages were calculated by the North Dakota State University which established that production costs of sugar beet and potato growers were significantly higher than for other row crop growers. The annual gross income of sugar beet and potato growers was also found to be higher than the annual gross income of other crop growers since the selling price of sugar beet and potato crops included these higher costs. The uniform application of 30 per cent to the annual gross income would result in the overvaluation of land used in sugar beet and potato production.

The assessed value of agricultural and commercial property is equal to 50 per cent of the full and true value. In both cases the taxable value is equal to 10 per cent of the assessed value. Finally, a mill rate which is unique to the county in which the commercial or agricultural property is located, is applied in the calculation of property taxes payable.

2(h) Assistance for Financially Distressed Farmers and Small Business Persons

The government of North Dakota made legal and tax services available to eligible financially distressed farmers and small businesses during the period July 1, 1987 to June 30, 1989. Lawyers and tax accountants under contract with the state government provided direct representation, advice and research services to eligible applicants to assist them in legal and administrative proceedings.

The state government provided the Department with documentation that demonstrated that no funds have been appropriated to this program since July 1, 1989. Therefore, there was no financial contribution to any party during the period of investigation.

2(i) Agricultural Commodity Assessment Funds

The State Treasurer makes monies available to the spud, oilseed, edible bean, barley, soybean, corn, honey, turkey, milk stabilization, state wheat, and beef funds. None of these commodity assessment funds relate to the sugar beet industry.

The State government provided the Department with the legislation that confirmed that only the commodity funds specified above are eligible for state funds under this program.

2(j) Funds for Agricultural Commodity Promotion Groups

The Agricultural Commodity Promotion Groups report to the State Legislative Assembly. The Groups are comprised of the North Dakota Wheat, Dairy Promotion, and Beef Commissions; the Oilseed, Edible Bean, Potato, Barley, Soybean and Corn Utilization Councils; the Beekeeper Association, the Turkey Federation and the Milk Stabilization Board.

None of the groups noted above include sugar beet growers or processors.

The State government provided the Department with the legislation that confirmed that only these organizations are included in the Agricultural Commodity Promotion Groups.

2(k) Agriculture Partnership in Assisting Community Expansion

This program was developed to provide low-interest financing to on-farm businesses. A farmer who grows a crop and transforms it into another product in a facility located on the farm, is engaged in a farm business. These loans are available to farm businesses, which are integrated into the farm operation and supplement farm income.

Sugar beet growers ship their products to their cooperative-owned processing facility and do not process sugar beets on their farms. Consequently, in this case, sugar beet growers would not qualify as a farm business and would not be eligible for loans under this program.

3. STATE OF MINNESOTA PROGRAMS

The Department reviewed and verified the following State of Minnesota programs and found that only the Preferential Loan Programs conferred a countervailable subsidy. A review of the remaining programs showed no financial contributions were made by the State to sugar beet growers or processors.

3(a) Preferential Loan Programs

A review of the submission of the state of Minnesota government disclosed several loan programs that are available to the agricultural sector including sugar beet growers. These loan programs which are administered by the Minnesota Rural Finance Authority are the Basic Farm, Seller Assisted, Agricultural Improvement, Restructure II Loan Participation and Beginning Farmer loan programs. The Department was unable to obtain sufficient information from the Minnesota government or from the sugar beet growers, during the preliminary investigation to establish whether or not the Minnesota sugar beet growers received preferential loans and if so, to permit the calculation of benefits.

Consequently the Department estimated the amount of the loans that the Minnesota sugar beet growers may have received from these loan programs, in calendar year 1994, to be equal to the total amount of loans made by the Authority under these loan programs during this period. The preferential interest rate was estimated, based on information available to the Department, to be equal to six per cent. The non-preferential interest rate was estimated to be equal to eight per cent based on information available to the Department. The benefits were estimated to be equal to the difference between the preferential interest expense amount and the non-preferential interest expense amount.

The total benefits were allocated over the total quantity of refined sugar sold in the 1994 calendar year for sugar beet processors exporting from the state of North Dakota, to arrive at a per hundredweight rate. This rates were then applied to the volume of exports for these sugar beet processors to arrive at the estimated amount of subsidy attributable to the exports to Canada.

The Department estimated the total amount of these farmer loan subsidies as they relate to subject goods sold to Canada during calendar 1994, to be U.S. $3,600

3(b) Agricultural Resource Loan Guaranty Program

The purpose of this program, which is administered by the state-controlled Minnesota Agricultural and Economic Development Board, is to stimulate economic development, job creation, redevelopment and community revitalization in the State of Minnesota. Under this program, the State guarantees the payment of sums of money owed by a borrower to a lender.

State officials provided the Department with a complete list of recipients of these loans. This list included details as to how the loan was used. A review of this information revealed that the loans were granted to many sectors, including the agricultural, chemical, machinery, automotive, and steel sectors. No loans were granted to companies involved in the sugar beet industry.

3(c) Value-Added Agricultural Production Loan Program

This program is administered by the Minnesota Rural Finance Authority, which is the lending arm of the Minnesota Department of Agriculture. The Authority provides financial assistance to small agricultural businesses of all kinds.

This program was established by the State of Minnesota in 1994 to provide financing for farmers with limited capital who wanted to buy stock in a cooperative that was planning to build or purchase an agricultural produce processing facility in Minnesota. The maximum amount of each loan was set at $24,000.

State officials provided documentation to the Department which revealed that this program was utilized by companies in the business of producing ethanol, and processing corn. None of the loans were to companies in the sugar beet industry.

3(d) Tax Credit for Agricultural Alcohol Gasoline

The State of Minnesota imposes a gasoline excise tax on gasoline used in producing and generating power for propelling motor vehicles used on the public highways of the state. Until October 1, 1997, a distributor of gasoline is allowed a tax credit on eacgallon of ethanol, an agriculturally derived fuel, commercially blended with gasoline. The blended product is agricultural alcohol gasoline, otherwise known as ethanol, which in the case of Minnesota is produced using corn rather than sugar beets. The tax credit must be passed on to the retailer.

The retailers of agricultural alcohol gasoline sell their product to all sectors of the economy and therefore all industries including the sugar beet industry benefit from this generally available tax credit.

APPENDIX F

THE EUROPEAN UNION

In the European Union (E.U.), sugar producers are supported by a sugar regime which is administered as part of the Common Agricultural Policy by the Commission of the European Communities. This regime guarantees sugar producers in the member countries a price for sugar which is higher than the world price. The E.U. market is shielded from the fluctuations of prices in the international market through a system of variable import levies and export refunds. The variable import levies are used to prevent lower-priced imports from entering the market. The export refunds are direct financial payments to exporters according to the amount of sugar exported. The export refunds are granted to encourage export sales of production that is surplus to E.U. needs. The legal basis for the sugar regime is laid down in the Council Regulation (EEC) No 1785/81 of June 30, 1981.

In order to ensure that the financial support to sugar producers is not open-ended, the E.U. operates a system of production controls or quotas that limit the quantity of sugar entitled to price supports and export refunds. These quotas apply to three distinct categories of sugar, which are designated as either A, B or C sugar. The A quota is the amount of sugar produced to fulfill the expected demand within the E.U. market. The B quota is the amount of sugar produced as a security margin, in case of unexpected circumstances, such as crop failure or unanticipated increase in demand. The E.U. price support measures applies only to sugar produced in the A and B quotas. The level of the A and B quotas are established by the Commission and are distributed among producers in all member countries based on historical production patterns. Any sugar produced in excess of the A and B quotas is referred to as C sugar. The price support measures do not apply to C sugar and it may not be sold for consumption in the E.U. countries.

In addition to the export refund program, the Commission provides direct financial support to sugar producers through a storage rebate program and through the preferential treatment of certain imports of raw sugar. These support programs, along with a research and development program sponsored by the Commission and a refining aid program sponsored by the United Kingdom, are described in more detail in this appendix.

EXPORT REFUNDS

To promote the export of surplus sugar, the Commission pays a monetary refund on the export of sugar produced within the A or B quotas that is surplus to E.U. requirements. The amount of the export refund is basically equivalent to the difference between the high support price, known as the intervention price, which the Commission establishes as the internal E.U. price for refined sugar, and the world market price. The export refunds are granted under article 19 of Council Regulation 1785/81.

In order to finance the export refunds, the Commission imposes levies on all sugar produced within the A and B quotas. The levies are paid by the sugar refiners to the Commission. The amount of levy paid to the Commission on the B sugar is greater than the amount of the levy paid on the A sugar. Accordingly, the net return to the refiners and sugar beet growers for the B sugar is lower than the net return for the A sugar. There is no production levy on C sugar, since this sugar can not be sold in the European Union and must all be exported.

The export refunds apply only to the quantity of sugar produced within the A and B quotas that is considered to be the exportable surplus for a marketing year. The exportable surplus is estimated and adjusted based on information related to the production, consumption and the desirable level of ending stocks of sugar.

The export refund is paid out of the E.U. budget through the Member States agencies to the exporters (refiners as well as food traders). This refund, which is a direct transfer of funds by the Commission, is a financial contribution as defined in subsection 2(1.6) of SIMA. This financial contribution confers a benefit to exporters by providing them with export refunds covering the price difference between the E.U. price level and the world price level, therefore, a subsidy exists as defined in section 2 of SIMA. Moreover, these export refunds are direct subsidies contingent upon export performance. Thus, they are considered to be prohibited subsidies and, consequently, specific and countervailable.

Although the funds necessary for the costs of exports resulting from the surplus E.U. production under the quotas are supposedly recovered by a system of levies to be paid by the sugar manufacturers, beet growers and importers, the various levies do not cover all the costs arising from the sale of E.U. sugar surpluses.

The average export refund for the marketing years July 1992/June 1993 and July 1993/June 1994 were, respectively, 41.404 and 38.729 agriculture ECU/100 kg.

COMPENSATION SYSTEM FOR STORAGE COSTS

Article 8 of the Council Regulation # 1785/81 provides for a compensation system for storage costs. The purpose of this system is to ensure a regular flow of sugar from the manufacturer to the consumer at a reasonably constant price. In order to accomplish this, the Commission provides a monthly reimbursement to the sugar refiners for the costs related to storage and financing of the inventory.

To finance the system, a storage levy is charged when the sugar is sold by the manufacturers to their customers. This storage levy is fixed by the Commission on the basis of the quantity of sugar held in storage and the average number of months the sugar is stored before being marketed. The Commission attempts to establish the amount of the levy in such a manner that it fully covers the monthly reimbursements paid out under the program.

Although the storage levy is supposed to offset the storage reimbursement, in the last two complete marketing years, the total reimbursement was larger than the total levy. This negative balance of the compensation system was covered by a direct transfer of funds by the Commission, which is a financial contribution as defined in subsection 2(1.6) of SIMA. This financial contribution confers a benefit to the participants in this program which include the exporters to Canada, in the form of monthly reimbursements for the storage costs which is a subsidy as defined in section 2 of SIMA.

Since the exporters did not respond to the Request for Information, the Department did not have information that may have allowed adjustments to be made to the amount of subsidy in relation to the goods. Therefore, the amounts of subsidy are estimated to be the average reimbursement by 100kg of sugar sold during the marketing years July 1992/June 1993 and July 1993/June 1994 which were, respectively, 3.04 and 3.64 agriculture ECU/100kg.

SYSTEM OF PREFERENTIAL IMPORTS

(a) ACP sugar

Under the IVth Lomé Convention, Protocol 8, the E.U. grants preferential treatment to imports of raw sugar from African, Caribbean and Pacific States (ACP) countries. Imports from these countries are not covered by the general system of import duties. Therefore, raw sugar in an amount equivalent to 1.3 million tonnes of white sugar is imported without the payment of duties. Further, the price of the sugar refined from these imports, is normally the same as the intervention price, that is the price set by the Commission for sugar sold in the domestic market. There are no direct provisions for the imported sugar to be re-exported from the European Union once it is refined. Therefore, it becomes necessary to export an amount of domestically grown A or B sugar, which equals the quantity of refined sugar produced from imports of ACP sugar. The equivalent amount of A or B sugar is entitled to the export refunds which were described earlier in this Appendix.

The cost to the Commission of the preferential treatment for the ACP imports, is the amount of the export refunds paid on the quantity of refined sugar exported. This amount is a financial contribution as defined in subsection 2(1.6) of SIMA. This financial contribution confers a benefit to exporters under the export refunds program. The Department has already calculated an amount for subsidy for the export refunds program and, therefore, the amount of this benefit is included in that program.

(b) Portuguese Imports

Under Article 303 of the Accession Treaty signed by the members of the E.U. on June 12, 1985, the import duties applied to imports of certain quantities of raw sugar from non-Community countries for refining in Portugal are lower than the duties which would be applied to imports of raw sugar into other member countries of the E.U.. Although these refiners do not export to Canada, the amount of refined sugar available in the E.U. market increases. Similar to the situation outlined previously for ACP sugar, an equivalent amount of domestically grown A or B sugar must be exported and is entitled to export refunds. As well, there is a financial contribution as defined in subsection 2(1.6) of SIMA.

This financial contribution confers a benefit to refiners in that they pay less import levies, and to exporters which obtain an export refund. The amount of the benefit is already included in the amount of subsidy for the export refunds program.

UK REFINING AID

Article 46(6) of the Regulation authorizes the United Kingdom (UK) to pay to sugar cane refiners an adjustment aid for the refining of preferential raw cane sugar. Adjustment aid is a payment to compensate the sugar cane refiners for reduced margins earned on the processing of cane sugar. The aid is set at 4.08 agriculture ECU/100 kg, which is equal to the amount of the storage levy collected and an extra amount paid by the UK government and the Commission. This extra amount represents the difference between the storage levy and the set amount of 4.08 ECU/100 kg.

This involves a direct transfer of funds by the Commission and, therefore, there is a financial contribution as defined in subsection 2(1.6) of SIMA. These financial contributions confer benefits to the participants in this program, which include the exporters to Canada, by authorizing them to keep the storage levy which would otherwise be collected and receiving an extra amount as described above.

This aid program is limited to the UK sugar cane refineries and results in a specific and countervailable subsidy.

Since the UK exporters did not respond to the Request for Information, the Department did not have information that may have allowed adjustments to be made to the amount of subsidy in relation to the goods. Therefore, the total amount of subsidy for this program for sugar originating from the United Kingdom is 4.08 agriculture ECU/100kg.

FRAMEWORK PROGRAM FOR RESEARCH AND TECHNOLOGICAL DEVELOPMENT

Assistance for research and technological development activities has been provided during the period of investigation through the actions financed by the European Union's third framework program for research and technological development (1990-1994). The Department examined a project entitled "Plant Molecular Biology for an Environmentally Compatible Agriculture Redirecting Carbohydrate Flow in Plant Cells" which is being conducted under the Biotechnology Program. As well, two projects being carried out under the Agriculture and Agro-industry Program were examined. These projects were entitled "Functional Food Properties of Non-digestible Oligosaccharides" and "Development of Nematode Resistant Crop Plants".

These programs involve a direct transfer of funds by the Commission which is a financial contribution as defined in subsection 2(1.6) of SIMA. This financial contribution confers a benefit to the participants which include exporters to Canada because of the Community financial participation in the research.

The criteria governing eligibility for, and the amount of, the subsidy are objective; set out in a regulatory instrument; and applied in a manner that does not favour or is not limited to a particular enterprise and constitutes a non-specific subsidy. Therefore, the Deputy Minister has determined that the program does not result in a countervailable subsidy.

APPENDIX G

PROVISIONAL DUTIES TO BE COLLECTED

DUMPED GOODS:

Country	Company	Duties Expressed as a Per Cent of Export Price
United States	Domino Sugar	77%
United States	United Sugars	71%
United States	Savannah Foods	85%
United States	Refined Sugars	79%
United States	All Other US Exporters	79%
European Union	E D & F Man	39%
European Union	All Other UK Exporters	0% ^*
European Union	All Other EU Exporters Excluding UK Exporters	0% ^*
Republic of Korea	Cheil Foods & Chemicals Ltd	179%
Republic of Korea	Samsung Co. Ltd.	179%
Republic of Korea	Sam Yang Co. Ltd.	179%
Republic of Korea	Taihan Sugar Industrial Co.	179%
Republic of Korea	All Other Korean Exporters	79%

COUNTERVAILING DUTIES:

United Kingdom		56.34 ECU/100kg
All EU Members		51.41 ECU/100kg

^* Note: The provisional duty to be collected will equal the amount of subsidy, as all of the estimated margin of dumping is attributable to the export subsidy

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Anti-dumping and Countervailing Program

Preliminary Determination - Refined Sugar

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BACKGROUND

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Product Definition

Additional Product Information

CANADIAN INDUSTRY

MARKET SHARE - DOMESTIC AND IMPORTS

DUMPING INVESTIGATION

THE UNITED STATES OF AMERICA

Results of the Investigation

THE EUROPEAN UNION

Results of the Dumping Investigation

Results of the Dumping Investigation

SUBSIDY INVESTIGATION

THE UNITED STATES OF AMERICA

Results of the Subsidy Investigation

Results of the Subsidy Investigation

REPRESENTATIONS CONCERNING THE INVESTIGATION

UPDATE OF THE COMPLAINANT'S EVIDENCE OF INJURY

CONSIDERATION OF MATERIAL INJURY

Determination with respect to the alleged injury

VOLUME OF IMPORTS

DECISION

FUTURE ACTION

PROVISIONAL DUTIES TO BE COLLECTED

Dumped Goods

Subsidized Goods

Dumping and Countervailing Duties Payable

Summary

PUBLICATION

INFORMATION

APPENDIX A

EXPORTERS

United States

Republic of Korea

European Union

APPENDIX B

CLASSIFICATION OF IMPORTS

APPENDIX C

CANADIAN MARKET (in tonnes)

APPENDIX D

TOTAL IMPORTS DURING THE INVESTIGATION PERIOD

JANUARY 1994 TO FEBRUARY 1995 - TONNES

APPENDIX E

THE UNITED STATES OF AMERICA (SUGAR PROGRAM)

1. US GOVERNMENT PROGRAMS

1(a) NONRECOURSE LOANS

1(b) TAX SUBSIDIES TO SUGAR BEET COOPERATIVES

1(c) PREFERENTIAL FINANCING BY BANKS FOR COOPERATIVES

1(d) EXPORT SUBSIDY FROM GATT-INCONSISTENT DUTY DRAWBACK

1(e) MINN-DAK FARMERS COOPERATIVE - CANCELLATION OF FINES LEVIED FOR MARKETING SUGAR IN EXCESS OF MARKETING ALLOTMENT

2. STATE OF NORTH DAKOTA PROGRAMS

3. STATE OF MINNESOTA PROGRAMS

APPENDIX F

THE EUROPEAN UNION

EXPORT REFUNDS

COMPENSATION SYSTEM FOR STORAGE COSTS

SYSTEM OF PREFERENTIAL IMPORTS

UK REFINING AID

FRAMEWORK PROGRAM FOR RESEARCH AND TECHNOLOGICAL DEVELOPMENT

APPENDIX G

PROVISIONAL DUTIES TO BE COLLECTED

DUMPED GOODS:

COUNTERVAILING DUTIES: