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Anti-dumping and Countervailing Program
CERTAIN CARBON STEEL AND STAINLESS STEEL FASTENERS
4243-38
AD/1308
4218-17
CVD/103
STATEMENT OF REASONS
Concerning the initiation of an investigation into the dumping and the subsidization of
CERTAIN CARBON STEEL AND STAINLESS STEEL FASTENERS
ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA AND CHINESE TAIPEI
DECISION
Pursuant to subsection 31(1) of the Special Import Measures Act, the President of the Canada Border Services Agency initiated an investigation on April 28, 2004, respecting the alleged injurious dumping and subsidization of carbon steel and stainless steel fasteners, i.e. screws, nuts and bolts of carbon steel or stainless steel that are used to mechanically join two or more elements, excluding fasteners specifically designed for application in the automotive or aerospace industry, originating in or exported from the People's Republic of China and Chinese Taipei.
Cet énoncé des motifs est également disponible en français. Veuillez consulter la section "Information".
This Statement of Reasons is also available in French. Please refer to the "Information" section.
TABLE OF CONTENTS
- Increased Volume of Dumped and Subsidized Imports
- Lost Sales
- Price Erosion and Price Suppression
- Deterioration of Financial Performance
- Capacity Underutilization
- Loss of Employment
- Other Observations
Consultations and Representations Concerning the Complaint
Retroactive Duty on Massive Importations
[1] On March 24, 2004, the Canada Border Services Agency (CBSA) received a written complaint from Leland Industries Inc. (Leland) of Toronto, Ontario, concerning the alleged injurious dumping and subsidization of certain carbon steel and stainless steel fasteners originating in or exported from the People's Republic of China (China) and Chinese Taipei. On March 29, 2004, pursuant to subsection 32(1) of the Special Import Measures Act (SIMA), the CBSA informed the complainant that the complaint was properly documented. The CBSA also notified the governments of China and Chinese Taipei, and provided copies of the non-confidential version of the subsidy portion of the complaint.
[2] The complainant provided evidence that these products have been dumped and subsidized. The evidence also discloses a reasonable indication that the dumping and subsidization have caused injury or are threatening to cause injury to the Canadian industry producing these goods.
[3] On April 28, 2004, the President of the Canada Border Services Agency (President) initiated an investigation respecting the dumping and subsidization of the goods pursuant to subsection 31(1) of the SIMA.
[4] The complainant, Leland Industries Inc., is one of the major Canadian producers of carbon steel and stainless steel fasteners. The complainant's address is:
Leland Industries Inc.
95 Commander Boulevard
Toronto, Ontario
M1S 3S9
[5] The CBSA has identified 2,857 potential exporters of subject goods from customs import documentation and the complaint submitted by Leland.
[6] The CBSA has identified 2,571 potential importers of the subject goods from customs import documentation and the complaint submitted by Leland.
[7] For the purpose of this investigation, the subject goods are defined as:
Carbon steel and stainless steel fasteners, i.e. screws, nuts and bolts of carbon steel or stainless steel that are used to mechanically join two or more elements, excluding fasteners specifically designed for application in the automotive or aerospace industry, originating in or exported from the People's Republic of China and Chinese Taipei.
Additional Product Information
[8] Screws, nuts and bolts are the subject of this complaint, while fastener products other than screws, nuts and bolts are excluded from the product definition. Also excluded are all non-steel fasteners and fasteners destined for specific applications in the automotive and aerospace industries.
[9] A fastener is a mechanical device designed specifically to hold, join, couple, assemble, or maintain equilibrium of two or multiple components. The resulting assembly may function dynamically or statically as a primary or secondary component of a mechanism or structure. Based on the intended application, a fastener is produced with varying degrees of built-in precision and engineering capability, ensuring adequate, sound service under planned, pre-established environmental conditions.
[10] Screws, nuts, bolts, washers, rivets, pins, studs and custom formed parts are items that are included in the general product family of fasteners. For the purposes of this complaint, only the three fastener products - screws, nuts and bolts - are the subject products under consideration.
[11] A screw is a headed and externally threaded mechanical device possessing capabilities which permit it to be inserted into holes in assembled parts, to be mated with a pre-formed internal thread or to form its own thread, and to be tightened or released by torquing its head. Screws are fastener products with an external threading on the shank. Screws include machine screws, wood screws (including deck screws), self-drilling, self-tapping, thread forming, and sheet metal screws. For example, they can either be used without any other part and fixed into wood (wood screws) or metal sheets (self-tapping screws) or be combined with a nut and washers to form a bolt. Screws may have a variety of head shapes (round, flat, hexagonal etc.), drives (slot, socket, square, phillips, etc.), shank lengths and diameters. The shank may be totally or partially threaded.
[12] A nut is a perforated block (usually of metal) possessing an internal thread for the purpose of tightening or holding two or more bodies in definite relating positions. A nut is usually used in conjunction with a bolt or a machine screw.
[13] A bolt and a machine screw are a headed and externally threaded mechanical device designed for insertion through holes in assembled parts to mate with a nut and are normally intended to be tightened or released by turning that nut.
[14] There are many types of fasteners, each one being defined by its specific physical and technical characteristics, the type of material from which they are made (e.g. brass, plastic, steel etc.) and the grade of the material (e.g. carbon steel: grade 2 or grade 8 etc.). Fasteners are used in a wide range of final applications and depending on the usage, they may be un-hardened or heat-treated, either bare or plated, with or without extra corrosion protection, shipped and distributed in bulk or custom packaged and labelled.
[15] Fasteners are used by a variety of user industries and in a wide range of final applications. Three broad categories of user industries include general industrial, automobile related industries and the aerospace industry. General industrial fasteners, the subject of this complaint, are the most wide ranging in terms of end-use. The wide variety of fastener applications in general industry includes rural buildings, grain bins, machinery and equipment, and household furniture. Automotive and aircraft fasteners are specialized products that meet the requirements for distinct use in the respective industries.
[16] Fasteners are produced from round wire either by cold forming or by machining operations. The cold process starts with round wire, which, through a series of dies and punches, is formed into the desired shape with certain characteristics. A variety of metal materials are used with carbon steel and stainless steel being the more common material used. Cold forming is generally scrapless compared to machining. Machining produces tighter tolerances, but is significantly slower and generates scrap because it involves the removal of material. Currently, cold forming is more prevalent and machining is not commonly used.
[17] Threads are also either formed or cut. A thread rolling operation forms thread on the part by feeding the headed blank into a thread-rolling machine. Rolled threads are stronger than cut threads. Steel fasteners can be un-hardened or hardened; the latter is achieved by heat-treating the steel. Hardening can be accomplished through straight hardening, which is designed to uniformly harden the part; or case hardening where the process is used to give the surface of the part a higher hardness than its core. In both cases the hardening process affects the whole part.
[18] There are various types of finishing processes such as electroplating (most commonly with zinc, nickel or chromium), and phosphate conversion coating, with the selection of finish being influenced by factors such as a requirement for corrosion protection. Extra corrosion protection is provided by certain types of paint. Some fasteners are also painted (powder or wet) for cosmetic reasons.
[19] Various bodies including, among others, ANSI/ASME, SAE, IFI, DIN and ISO, have issued industry standards for fasteners.1
[20] The subject fasteners are properly classified under the following Harmonized System (HS) classification numbers:
| 7318.11.00.00 | 7318.12.00.00 | 7318.14.00.00 |
| 7318.15.90.00 | 7318.16.00.00 |
[21] Like goods, in relation to any other goods, are goods that are identical in all respects to the other goods, or in the absence of identical goods, are goods of which the uses and other characteristics closely resemble those of the other goods.
[22] Fasteners produced by the domestic industry compete directly with and have the same end uses as the subject goods imported from China and Chinese Taipei. The goods produced in Canada, China and Chinese Taipei are completely substitutable. Therefore, the CBSA has concluded that fasteners produced by the Canadian industry constitute like goods to the subject goods.
[23] While the subject goods definition comprises an extremely wide variety of products, all fasteners are produced using the same basic raw material (steel wire, either carbon or stainless steel), the same basic manufacturing process and are distributed to customers using similar channels of distribution. The CBSA is of the opinion that there are no separate classes of goods based on use, physical characteristics, or other factors.
[24] Leland is one of the major Canadian producers of like carbon steel and stainless steel fasteners. The goods are produced at its manufacturing plant in Toronto, Ontario. Leland maintains four warehouses in Canada, two warehouses in the United States and also has associated sales representatives in Canada and the United States.
[25] In order to confirm that Leland meets the standing requirements of subsection 31(2) of SIMA, the CBSA contacted eight other fastener producers in Canada, who were not themselves importers of the subject goods from the two named countries.
[26] There are several other Canadian manufacturers of fasteners, some of whom themselves are also importers of the subject goods from China and Chinese Taipei. Some of the Canadian producers who do not import subject goods include Visque Inc., Canadian Threadall Limited, Ready Rivet & Fasteners Limited, Westland Steel Products Limited, Elam Martin M. Machine Shop, Genfast Inc. and Arrow Fasteners Limited.
[27] SIMA requires that the following conditions be met in order to initiate an investigation:
- the complaint is supported by domestic producers whose production represents more than 50% of the total production of like goods by those domestic producers who express either support for or opposition to the complaint; and
- the production of the domestic producers who support the complaint represents 25% or more of the total production of like goods by the domestic industry.
[28] For the consideration of standing under SIMA, domestic industry means the domestic producers as a whole of the like goods except that, if a domestic producer is related to an exporter or importer of allegedly dumped or subsidized goods, or is an importer of such goods, "domestic industry" may be interpreted as meaning the rest of those domestic producers.
[29] The Canadian Fasteners Institute, representing ten Canadian fastener manufacturers, provided a letter to the CBSA supporting the complaint. Supporting letters were also received from Westland Steel Products Limited and Ready Rivet & Fastener Limited. Elam Martin M. Machine Shop and Genfast Inc. advised the CBSA that they do not produce like fasteners.
[30] Based on an analysis of information provided in the complaint, as well as a survey of other Canadian producers, the CBSA is of the view that the complainant represents more than 50% of Canadian production of the like goods. The CBSA is satisfied that the standing requirements of subsection 31(2) of SIMA have been met.
[31] Leland has sales personnel based at its Toronto-based head office, regional sales representatives, and a network of warehouses in Canada and parts of the United States to handle the marketing and sales functions for the like goods. Exporters from China and Chinese Taipei primarily sell fasteners to Canadian distributors and manufacturers but Leland has observed that some exporters are now beginning to establish sales offices in Canada in order to begin selling directly to their Canadian customers.
[32] Leland provided its own production data for fasteners as well as an estimate of other Canadian manufacturers' production numbers for each of the four years from 2000 to 2003. Leland also submitted import data for fasteners from Statistics Canada that was available to it for certain HS codes for periods between 1999 and September 2003. The CBSA reviewed actual import data for fasteners obtained from its internal information system and from customs entry documentation for 2003.
[33] The complainant estimated that the subject imports from China and Chinese Taipei accounted for about 16% of the volume of total fasteners imported into Canada during the nine months ended September 30, 2003. The CBSA estimated that imports from China and Chinese Taipei accounted for 27% of the volume of total imports and 34% of the value of the total imports in 2003 (full year). This estimate is based on an analysis of the actual import data obtained from its internal information system and from customs entry documentation. The Canadian market for fasteners (excluding fasteners for automotive and aerospace industry), in 2003, was estimated to be valued at almost $500 million. The majority of imports, other than those from China and Chinese Taipei, originated in the United States during this period.
[34] The complainant alleges that fasteners from China and Chinese Taipei have been injuriously dumped into Canada. Dumping occurs when the normal value of the goods exceeds the export price of the goods sold to importers in Canada. Normal values are generally based on the domestic selling price of the goods in the country of export, or on the full cost of the goods including general, selling and administrative expenses, plus a reasonable amount for profit. The export price of goods sold to importers in Canada is the lesser of the exporter's ex-factory selling price to the importer in Canada and the importer's purchase price.
[35] Estimates of normal value and export price for the named countries are discussed below.
[36] The complainant has not provided evidence, and the CBSA has no information at this time to suggest that domestic prices of like goods are substantially determined by the government of China, and that they are not substantially the same as they would be if they were determined in a competitive market. Therefore, none of the alternate methods for determining normal values in Section 20 of SIMA have been used in formulating the complainant's estimates of normal values.
[37] The complainant was unable to obtain information on domestic selling prices of the subject goods in China and Chinese Taipei. In the absence of such information, normal values have not been estimated in accordance with section 15 of SIMA based on domestic sales.
[38] The complainant has estimated normal values using paragraph 19 (b) of SIMA based on the cost of production of the goods, plus general, selling and administrative expenses, and an amount for profit. Normal values were constructed for a representative selection of high volume products, on the basis of estimated costs for both of the named countries.
[39] Leland's estimates of these costs were based on its own costs, knowledge of the fastener industry and information discerned from price quotes obtained from exporters in Chinese Taipei. Raw material constitutes a significant portion of the total fastener cost and world markets set the price of steel wire, the key input. Prices paid by producers in all countries would be similar with no advantage in the acquisition cost accruing to producers in any country. Similarly, the complainant stated that processing costs i.e. cost of heat treatment, plating and tooling would not vary in any significant aspect between countries. In addition to these production costs, Leland factored in other manufacturing costs, and selling, general and administrative costs to establish the total product cost. The complainant reviewed and analyzed its total costs and expenses as reflected in its financial statements and determined a factor to apply to the raw material and processing costs described above to arrive at its total cost. Although Leland did not believe that the other cost elements would be lower in the two named countries, to ensure that its estimates for the total costs in China and Chinese Taipei were conservative, Leland reduced the factor it applied to establish total costs in Chinese Taipei and used an even lower factor to arrive at costs in China.
[40] An amount for profit was added to the estimated costs to compute the estimated normal values. With respect to China, Leland used a profit amount of 11.2%, which is the recent profit of a publicly traded Chinese fastener manufacturing company.2 For Chinese Taipei, Leland utilized a profit amount of 8.1% obtained from a source quoting government statistics.3
[41] The CBSA considers the normal values estimated by the complainant, using the methodology described above, to be reasonable and acceptable.
[42] The export price of imported goods is generally determined in accordance with section 24 of SIMA as being the lesser of the importer's purchase price or the exporter's selling price to Canada less all costs, charges, and expenses resulting from the exportation of the goods.
[43] The complainant estimated export prices of the selected fastener products from the price quotes it obtained from exporters from Chinese Taipei. From the delivered prices, the complainant deducted estimates for export charges, predominantly ocean freight to arrive at the estimated ex-factory selling price. Leland contends that although distributor markups of as much as 15% are common in the industry, it has not deducted a distributor markup to ensure that its export price estimates are conservative. Leland was unable to obtain price quotes for the same items from exporters in China but asserted that fasteners from China are sold in Canada at prices that are about 20% to 25% lower than fasteners from Chinese Taipei. Accordingly, Leland reduced the export prices established for Chinese Taipei by 20% to arrive at an estimate of export prices for China.
[44] The CBSA reviewed the complainant's calculation and compared the complainant's estimates of the export prices with its own internal import data. Based on this comparison, the CBSA considers Leland's estimates of export prices to be reasonably representative of the exporter's selling prices. However, the CBSA relied on actual import data from its internal information system and on customs entry documentation to estimate export prices.
[45] Margins of dumping were estimated by the CBSA by comparing the complainant's estimated normal values with the export prices obtained from customs entry documentation. Entries of the subject goods originating in and exported from China and Chinese Taipei during 2003 were reviewed. Owing to the large number of entries and the extremely large variety of fasteners originating from the two named countries, it was deemed acceptable to examine a representative selection of import entries for 2003.
[46] Based on this analysis, all of the subject goods reviewed appear to have been dumped. The average margin of dumping expressed as a percentage of the export price was estimated to be 103% for China and 180% for Chinese Taipei.
Margin of Dumping and Volume of Dumped Goods
[47] Under section 35 of SIMA, if, at any time before the President makes a preliminary determination, the President is satisfied that the margin of dumping of the goods of a country is insignificant or the actual and potential volume of dumped goods of a country is negligible, the President must terminate the investigation with respect to that country. Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% of the export price is defined as insignificant and a volume of dumped goods of less than 3% of the total imports is considered negligible.
[48] On the basis of the estimated margins of dumping and the import data for the 12-month period of January 1, 2003 to December 31, 2003, summarized in the table below, the margin of dumping and volume of dumped goods from China and Chinese Taipei are estimated to be above the thresholds outlined above.
IMPORTS OF FASTENERS
January 1, 2003 to December 31, 2003
Country |
Imports of Subject Goods |
Percentage of Total Imports |
Estimated Dumped Goods as Percentage of Country Total |
Estimated Dumped Goods as Percentage of Total Imports |
Estimated Margin of Dumping as Percentage of Export Price |
|---|---|---|---|---|---|
China |
39,588 |
5.28% |
100% |
5.28% |
103% |
Chinese Taipei |
159,549 |
21.27% |
100% |
21.27% |
180% |
Non-Subject Countries |
550,844 |
73.45% |
|
|
|
Total Imports |
749,981 |
100% |
|
|
|
In assessing whether a program results in a subsidy under SIMA, the CBSA considers whether:
- there exists a financial contribution by a government of a country other than Canada; and
- there is a benefit conferred to persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods.
[49] If a subsidy is found to exist, it may be subject to countervailing duties if it is specific. A subsidy is considered specific when it is limited to a particular enterprise, when it is an export subsidy, which is contingent on export performance or when it is an import substitution subsidy, which is contingent on the use of domestic over imported goods.
[50] For the purposes of this analysis, a program that constitutes a specific subsidy that is potentially subject to countervailing measures is referred to as an "actionable subsidy".
[51] The complainant has alleged that the subject goods from China and Chinese Taipei are eligible for government programs that may constitute actionable subsidies.
[52] In support of its allegations, the complainant has provided a number of documents detailing support offered by the government of China (GoC), primarily to exporting enterprises and those operating in special economic areas. The complainant was unable to provide specific information with regard to all potential subsidies granted by the GoC, as there is a lack of publicly available information.
[53] This lack of available information is largely due to the fact that China has not provided a full notification to the World Trade Organization (WTO) Committee on Subsidies and Countervailing Measures, as required under Article 25 of the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) and under Article XVI of the General Agreement on Tariffs and Trade 1994. The Chair's Report to Council for Trade in Goods in the Transitional Review of China4, November 2003, notes that updated versions of this information have not been provided. Similarly, public reports from both the U.S. Trade Representative (USTR) and the U.S. Department of Commerce indicate that information regarding potential subsidies in China has not been provided and is difficult to obtain.5
Potential Subsidy Programs in China
[54] In reviewing the information found in the reports and articles that were provided by the complainant, the CBSA has developed the following list of programs and incentives that may be provided to manufacturers of fasteners in China:
- Special Economic Zone Incentives
- Grants Provided for Export Performance and Employing Common Workers
- Preferential Loans
- Loan Guarantees by the Government of China
- Income Tax Credits, Refunds and Exemptions:
- Reduced Corporate Tax Rate for Export-oriented Enterprises
- Exemption/Reduction of Corporate Income Tax during Designated
- Start-up Period
Income Tax Refund of Amounts Further Invested in Special Economic - Zones
Exemption/Reduction in Local Income Tax for Special Economic Zone Enterprises
- Relief from Duties and Taxes on Inputs
- Reductions in Land Use Fees
- Purchase of Goods from State-owned Enterprises
[55] Appendix I provides further description of the programs listed above.
[56] There is sufficient reason to believe that the programs and incentives listed above may constitute actionable subsidies provided by the GoC.
[57] Based on the information available to the CBSA regarding the programs named above, it is reasonable to conclude that the named subsidy programs are available to the exporters of fasteners in China. In examining these programs, the CBSA will request information from the government of China and from exporters of the subject goods to determine whether these programs confer countervailable benefits on the subject goods.
[58] Leland has also submitted that exporters of fasteners in Chinese Taipei receive subsidies from the government of Chinese Taipei. In support of its allegations, the complainant provided a number of documents including several extracts taken from government websites detailing subsidy programs designed to encourage investment, excerpts from Chinese Taipei's subsidy notification to the WTO6, and information taken from the results of the previous countervailing investigations conducted by the United States7.
Potential Subsidy Programs in Chinese Taipei
[59] In reviewing the information found in the documents that were provided by the complainant, the CBSA has developed the following list of programs and incentives that may be provided to manufacturers of fasteners in Chinese Taipei:
- Economic Processing Zone Incentives
- Grants and Financial Assistance Provided by the Government of Chinese Taipei
- Preferential Loans
- Income Tax Credits, Refunds and Exemptions:
- Reduced Corporate Tax Rate for Exporters
- b. Exemption/Reduction/Credit/Refund of Corporate Income Tax for Designated Investments
- Income Tax Refund/Exemption for Companies Located or Investing in Economic Processing Zones and Other Designated Zones and Areas
- Exemption/Reduction in Duties and Taxes:
- Exemption/Reduction in Duties and Taxes for Companies Located or Investing in Economic Processing Zones and Other Designated Zones and Areas
- Exemption/Reduction in Duties and Taxes for Companies Not Located in the Designated Areas Above
- Exemption/Reduction in Contract and Commercial Housing Taxes
- Purchase of Goods from State-owned Enterprises
Appendix II provides further description of the programs listed above.
[60] There is sufficient reason to believe that the programs and incentives listed above may constitute actionable subsidies provided by the government of Chinese Taipei.
[61] Based on the information available to the CBSA regarding the programs named above, it is reasonable to conclude that the named subsidy programs are available to the exporters of fasteners in Chinese Taipei. In examining these programs, the CBSA will request information from the government of Chinese Taipei and from exporters of the subject goods to determine whether these programs confer countervailable benefits on the subject goods.
[62] In the absence of available information, the complainant has not been able to determine the value of the alleged subsidies on a per-unit basis, although these programs are believed to significantly lower the cost of production and the selling prices of the subject goods exported to Canada.
[63] The amount of subsidy conferred on producers of fasteners from China and Chinese Taipei was estimated by comparing the average export prices of the subject goods as established by the CBSA with their respective costs of production i.e. raw material and processing cost, as submitted by the complainant. The production cost was found to be higher than export price for both the named countries, which supports the complainant's allegations that producers in China and Chinese Taipei benefit from government subsidies. The average amount of subsidy was estimated to be 32% for China and 50% for Chinese Taipei.
Amount of Subsidy and Volume of Subsidized Goods
[64] Under section 35 of SIMA, if, at any time before the President makes a preliminary determination, the President is satisfied that the amount of subsidy on the goods of a country is insignificant or the actual and potential volume of subsidized goods of a country is negligible, the President must terminate the investigation with respect to that country.
[65] Further, according to section 41.2 of SIMA, the President is required to take into account paragraph 10 of Article 27 of the WTO Subsidies Agreement when conducting subsidy investigations. This provision stipulates that in an investigation involving a developing country, an amount of subsidy of less than 2% of the value of the goods will be considered insignificant and a volume of subsidized goods of less than 4% of total imports will be considered negligible. As China is being considered as a developing country for purposes of this investigation, these differential amounts will apply.
[66] With respect to Chinese Taipei, an amount of subsidy of less than 1% of the value of the goods will be considered insignificant and a volume of subsidized goods of less than 3% of total imports will be considered negligible.
[67] The CBSA's estimates are summarized in the table below. Based on these results, the CBSA is satisfied that the estimated amount of subsidy and the volume of subsidized goods for both the named countries are above the thresholds outlined above.
[68] On the basis of the estimated amounts of subsidy and the import data for the 12-month period of January 1, 2003 to December 31, 2003, summarized in the table below, the amount of subsidy and volume of subsidized goods from China and Chinese Taipei are estimated to be above the thresholds outlined above.
IMPORTS OF FASTENERS
January 1, 2003 to December 31, 2003
Country |
Estimated Subsidized Goods as Percentage of Country Total |
Subsidized Goods as Percentage of Total Imports from all Countries |
Estimated Percentage of Subsidy on Subject Goods |
|---|---|---|---|
China |
100% |
5.28% |
32% |
Chinese Taipei |
100% |
21.27% |
50% |
[69] The complainant has alleged that subject goods from China and Chinese Taipei have been dumped into Canada and that the goods have been subsidized. The complainant also alleges that the dumping and subsidization have caused or are threatening to cause material injury to the Canadian industry. In support of its allegations, the complainant has provided evidence of increased volumes of dumped and subsidized imports, lost sales, price erosion and price suppression, deterioration of financial performance, capacity underutilization, and loss of employment.
Increased Volume of Dumped and Subsidized Imports
[70] The import volumes from Industry Canada's Strategis website provided in the complaint showed a trend of rising imports from 2000 to 2002, from China, which increased its share of imports from 4.16% to 5.92%, as well as from Chinese Taipei, whose share rose from 13.37% to 16.11%.
[71] Data generated for 2003 by the CBSA, including an analysis of customs entries, showed considerably larger volumes of imports originating in the subject countries than those indicated by the complainant. This lends support to the complainant's claims that imports of fasteners from named countries have been growing over the past three years and their share of the imports in 2003 is higher than estimated by the complainant.
[72] Leland believes that there is an increasing propensity for Canadian fastener manufacturers themselves to import low-priced fasteners to supplement their domestic production, and allow them to attempt to compete with dumped and subsidized fasteners from China and Chinese Taipei.
[73] Leland submitted documentation (faxes, emails, memoranda, logs/lists) evidencing numerous instances where it lost sales to low-priced imports predominantly from China and Chinese Taipei. Leland stated that fasteners from the United States, which are mainly for the automotive and aerospace industries, do not compete with Leland's products, while other countries do not have a significant presence in the Canadian market.
[74] Leland provided numerous specific instances of customers advising Leland that its price quotes were too high compared to off shore (i.e. China and Chinese Taipei) price offerings, and such sales were lost to competitors offering substantially lower-priced imported fasteners. In some cases, Leland could only secure sales at much reduced prices. In other instances where Leland was asked to match a lower-priced quotation on imported fasteners, Leland's quote was more often than not met by an even lower price from the company selling the imported goods. Leland indicated that it also lost large customer accounts whose aggregated yearly purchases from Leland were significant.
[75] The price of fasteners is the determining factor in purchasing decisions and Leland has observed that many Canadian customers no longer request quotes from Leland in the face of very low-priced offerings from China and Chinese Taipei.
Price Erosion and Price Suppression
[76] Leland contends that the increasing presence of dumped and subsidized imports in Canada has precluded any increase in prices to keep up with rising costs. In fact, the increased presence of the low-priced imports have forced Leland to actually decrease prices in the last few years. Leland's customers have used low-priced quotations from exporters of subject goods to insist on lower prices from Leland, which has had no choice but to acquiesce to the request if it wanted to secure the sale.
[77] Leland has also experienced greater levels of competition from other Canadian manufacturers, which are engaged in importing low-priced fasteners from the subject countries to supplement their own higher cost production. This further aggravates the situation for companies such as Leland who have not imported fasteners.
Deterioration of Financial Performance
[78] The complainant provided its sales and costing data for several years to demonstrate deterioration in financial performance over this time. Leland asserted that although it managed to increase its year-over-year sales albeit at a slower pace, this was achieved by a more than concomitant increase in costs, resulting in progressively lower profits. Leland contends that, in the absence of dumped and subsidized imports of fasteners from China and Chinese Taipei, it would have been able to expand it sales volumes with a more efficient cost structure to achieve increased profitability. In its complaint, Leland also utilized a model to quantify in dollar terms the impact of lower production volumes and decreased capacity utilization on revenues, costs and profits.
[79] Leland has contended that it has a considerable amount of idle production capacity attributable to the dumped and subsidized imports of the subject goods from the named countries. Leland constructed a model to compare the actual number of pieces of fasteners produced, given the sales volume, to the number of pieces it was capable of producing if it was fully utilizing existing capacity. Leland used this model to compute the underutilized capacity.
[80] In the fall of 2001, Leland contacted Human Resources Development Canada in order to obtain assistance in organizing a work-sharing program, which is still in place. Prior to this, Leland was forced to make temporary layoffs for 13 weeks. Leland alleges that both of these events were due to the decreased demand for Leland products due to low-priced subject imports from China and Chinese Taipei. The effects of the layoffs and the work-sharing program continue to be felt by Leland, as many of the complainant's most skilled workers have left the company to pursue other opportunities due to perceived job insecurity in the fastener industry.
[81] Leland has had to deal with sustained and significant increases in raw material prices since the summer of 2003, which have had a severe impact on the company's overall performance. These raw material price increases have not been restricted to the Canadian market but have been experienced worldwide. Nevertheless, the selling prices of subject fasteners from China and Chinese Taipei have continued to drop, despite widely published reports that the price of steel in these countries has also been rising. For almost a year, Leland has experienced increased pressure from both rising costs and decreasing market prices, and states that the continued deterioration in its financial performance cannot be sustained indefinitely and will eventually precipitate viability issues for the company.
Consultations and Representations Concerning the Complaint
[82] Both the government of China and representatives of Chinese Taipei requested consultations with the Canadian government in accordance with Article 13.1 of the WTO Subsidies Agreement. Prior to initiating this investigation, representatives of the Canadian government met with representatives of the government of China on April 23, 2004, and with representatives of the government of Chinese Taipei on April 26, 2004.
[83] Subsequently, on April 26, 2004, the counsel for the government of China, in a written submission, raised a number of concerns with respect to the complaint, which in their view precluded the CBSA from initiating an investigation against China. The President took into consideration these concerns prior to initiating this investigation.
[84] The CBSA also received letters from several fastener exporters from Chinese Taipei expressing their concerns with the complaint. These concerns have also been taken into consideration.
[85] Based on information provided in the complaint, other available information, and the CBSA's internal data on imports, there is evidence that carbon steel and stainless steel fasteners, i.e. screws, nuts and bolts of carbon steel or stainless steel that are used to mechanically join two or more elements, excluding fasteners specifically designed for application in the automotive or aerospace industry, originating in or exported from the People's Republic of China and Chinese Taipei have been dumped and subsidized, and there is a reasonable indication that such dumping and subsidization have caused or are threatening to cause injury to the Canadian industry. As such, an investigation was initiated on April 28, 2004.
[86] The CBSA will conduct an investigation to determine whether the subject goods have been dumped and/or subsidized.
[87] As China is listed under Part I of the DAC List of Aid Recipients8 maintained by the Organization for Economic Co-operation and Development, the CBSA will extend developing country status to China for purposes of this investigation.
[88] With respect to the dumping investigation, the CBSA considered January 1, 2003 to December 31, 2003 to be a reasonable period of investigation. This period of investigation captures a large volume of imports of subject goods ensuring that the pricing practices of the exporters are accurately reflected and the use of the full calendar year precludes any undue seasonal factors or aberrations from affecting the review. The CBSA was cognizant of having the period of investigation end closer to the time of initiation of the investigation but determined that in addition to the reasons mentioned above and feasibility considerations with respect to the exporters, extending the period of investigation to include the first three months in 2004 was deemed not warranted for the dumping part of the investigation.
[89] With respect to the subsidy investigation, the CBSA considered a 15-month period of investigation of January 1, 2003 to March 31, 2004 to be appropriate and feasible.
[90] The CBSA will request information relating to the subject goods imported into Canada from China and Chinese Taipei during the period of January 1, 2003 to December 31, 2003, the selected period of investigation for dumping, from exporters, and importers to ascertain the margins of dumping.
[91] With respect to subsidies, the CBSA requested information from the government of China and the government of Chinese Taipei to determine whether or not the fasteners industry in their respective countries has benefited from actionable subsidies. Exporters from both countries will also be requested to provide information concerning the benefits, if any, conferred by any subsidy program.
[92] All parties will be clearly advised of the CBSA's information requirements and the time frames for providing their responses.
[93] Based on its review of customs documentation, the CBSA identified 2,857 exporters of subject goods from the two named countries during the period January 1, 2003 to December 31, 2003. However, a majority of the exporters shipped small quantities and only 187 exporters shipped commercial quantities (i.e. shipments valued at $100,000 or more), with these exporters accounting for over 90% of all fastener imports into Canada in 2003 from China and Chinese Taipei. The CBSA considered the $100,000 threshold for designation as commercial quantity as reasonable and appropriate after an analysis of the importation data from its internal system and consultations with the complainant on this issue.
[94] Similarly, based on its review of customs documentation, the CBSA identified 2,571 importers of subject goods from the two named countries during January 1, 2003 to December 31, 2003. Of these identified importers, 156 imported the subject goods in commercial quantities.
[95] In view of the very large numbers of exporters and importers involved, the CBSA sent request for information questionnaires (RFIs) at the initiation of the investigation only to exporters and importers above the established $100,000 threshold. However, any exporter of subject goods can request an RFI from the CBSA and choose to participate in the investigation.
[96] Feasibility considerations could preclude the CBSA from examining all exporter submissions in the event of a high level of cooperation. In such an eventuality, the CBSA would establish a sampling methodology to deal with the submissions provided by the exporters.
[97] The Canadian International Trade Tribunal (Tribunal) will conduct a preliminary inquiry to determine whether the evidence discloses a reasonable indication that the dumping and subsidization of the goods has caused or is threatening to cause injury to the Canadian industry. The Tribunal must make its decision within 60 days after the date of initiation of the investigation. If the Tribunal concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigation will be terminated.
[98] [98] If the CBSA's investigation reveals that imports of the subject goods have not been dumped or subsidized, that the margin of dumping or the amount of subsidy is insignificant, or that the actual or potential volume of dumped or subsidized goods is negligible, the investigation will be terminated.
[99] If the evidence reveals that the goods have been dumped and/or subsidized and the Tribunal finds that there is a reasonable indication that the dumping and/or subsidizing has caused injury or is threatening to cause injury, the President will make a preliminary determination of dumping and/or subsidizing within 90 days from the date of the initiation of the investigation, that is, by July 27, 2004. Where circumstances warrant, this period may be extended to 135 days.
[100] Imports of subject goods released from customs' possession on and after the date of a preliminary determination of dumping may be subject to provisional duty in an amount not greater than the estimated margin of dumping of, or the estimated amount of subsidy on, the imported goods.
[101] Should the CBSA make a preliminary determination of dumping and/or subsidizing, the investigation will be continued for the purpose of making a final determination within 90 days of the date of the preliminary determination. However, it should be noted that the investigation or a portion thereof, will be terminated if it is found that the goods have not been dumped or subsidized, or that the margin of dumping or the amount of subsidy for the goods is insignificant.
[102] If a final determination of dumping and/or subsidizing is made, the Tribunal will continue its inquiry and hold public hearings into the question of material injury to the Canadian industry resulting from the dumped and/or subsidized imports. The Tribunal is required to make a finding, with respect to the goods to which the final determination of dumping and/or subsidization applies, not later than 120 days after the CBSA issues notice of a preliminary determination.
[103] In the event of an injury finding by the Tribunal, imports of subject goods released from customs' possession after that date will be subject to anti-dumping duty equal to the applicable margin of dumping and a countervailing duty in an amount equal to the amount of the actionable subsidy conferred on the imported goods. Should both anti-dumping and countervailing duty be applied to subject goods, the amount of any anti-dumping duty may be reduced by the amount of the margin of dumping that is attributable to any export subsidy.
Retroactive Duty on Massive Importations
[104] Under certain circumstances, anti-dumping and countervailing duties may be imposed retroactively on subject goods imported into Canada that were released during the period of 90 days preceding the day of the preliminary determination of dumping and/or subsidizing.
[105] When the Tribunal conducts an inquiry concerning material injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry.
[106] Should the Tribunal issue a finding that there were recent massive importations of dumped and/or subsidized goods that caused injury, importations of subject goods released from customs during the period of 90 days preceding the day of the preliminary determination could be subject to anti-dumping and countervailing duties.
[107] After a preliminary determination of dumping, an exporter may submit a written undertaking to revise its selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. An acceptable undertaking must account for all or substantially all of the exports to Canada of the dumped goods.
[108] Similarly, after a preliminary determination of subsidizing, foreign governments may submit written undertakings to eliminate the subsidy on the goods exported or to eliminate the injurious effect of the subsidy by limiting the amount of the subsidy or the quantity of goods exported to Canada. Alternatively, exporters with the written consent of their government may undertake to revise their selling prices so that the amount of the subsidy or the injurious effect of the subsidy is eliminated.
[109] Interested parties may provide comments regarding the acceptability of undertakings within nine days of the receipt of an undertaking by the CBSA. The CBSA will maintain a list of parties who wish to be notified should an undertaking proposal be received. Those who are interested in being notified should provide their name, telephone and fax numbers, mailing address and email address, if available, to one of the officers identified in the "Information" section.
[110] If an undertaking were to be accepted, the investigation and the collection of provisional duties would be suspended. Notwithstanding the acceptance of an undertaking, an exporter may request that the CBSA's investigation be completed and that the Tribunal complete its injury inquiry.
[111] Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.
[112] Interested parties are invited to file written submissions presenting facts, arguments, and evidence that they feel are relevant to the alleged dumping and/or subsidization. Written submissions should be forwarded to the attention of one of the officers identified below.
[113] To be given consideration in this phase of the investigation, all information should be received by the CBSA by June 4, 2004.
[114] Any information submitted to the CBSA by interested parties concerning this investigation is deemed to be public information unless clearly marked "confidential." Where the submission by an interested party is confidential, a non-confidential version of the submission must be provided at the same time. This non-confidential version will be made available to other interested parties upon request.
[115] Confidential information submitted to the President will be disclosed on written request to independent counsel for parties to these proceedings, subject to conditions to protect the confidentiality of the information. Confidential information may also be released to the Tribunal, any court in Canada, or a WTO dispute settlement panel. Additional information respecting the Directorate's policy on the disclosure of information under SIMA may be obtained by contacting one of the officers identified below or by visiting the Directorate's Web site.
[116] This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the Directorate's web site at the address below. For further information, please contact the officers identified as follows:
Canada Border Services Agency |
|
Telephone |
Iqbal Motani -- (613) 952-7547 |
Fax |
(613) 948-4844 |
Iqbal.Motani@ccra-adrc.gc.ca |
|
Web site |
Suzanne Parent
Director General
Anti-dumping and Countervailing Directorate
China
Description of Identified Programs and Incentives
Evidence provided by the complainant suggests that the government of China may have provided support to manufacturers of subject goods in the following manner. For purposes of this investigation, "Government of China" refers to all levels of government, i.e. federal, central, provincial/state, regional municipal, city, township, village, local, legislative, administrative or judicial. Benefits provided by state-owned enterprises operating under the direct or indirect control or influence of the Government of China are also considered to be provided by the Government of China for purposes of this investigation.
- Special Economic Zone (SEZ) Incentives - Available to manufacturers operating in specified regions such as SEZs, economic and technical development zones, export processing zones, bonded zones and high technology industrial development zones. Benefits either granted outright or contingent on export performance, in the form of:
- Tariff exemptions on imported materials
- Rebated corporate income tax
- VAT exemptions
- Rebates on investment costs
- Special land tax and land use exemptions
- Preferential costs of services and infrastructure provided by government bodies or state-owned enterprises
- Grants Provided for Export Performance and Employing Common Workers - Benefits provided by Government of China in the form of direct grants to enterprises satisfying specified export criteria, or to assist in expanding export sales.
- Preferential Loans - Preferential interest rates and financing terms provided, either directly by the Government of China or indirectly through financial institutions, to companies satisfying specified export-contingent criteria.
- Loan Guarantees by the Government of China - Loans provided to certain manufacturers satisfying export-contingent or other criteria guaranteed by the Government of China or by financial institutions operating under the direct or indirect control or influence of the Government of China.
- Income Tax Credits, Refunds and Exemptions:
- Reduced Corporate Tax Rate for Export-Oriented Enterprises - Reduced rate of tax on corporate income for those companies that have a significant volume of export sales.
- Exemption/Reduction of Corporate Income Tax During Designated Start-up Period - Exemption from and further reduction of income tax for companies operating in special economic areas during a designated start-up period (usually five years). The result is that export profits are exempt from corporate income tax.
- Income Tax Refund of Amounts Further Invested in SEZs - Certain qualifying companies located in SEZs eligible for rebate of corporate income tax paid when profits are re-invested within the SEZ.
- Exemption/Reduction in Local Income Tax for SEZ Enterprises - Certain foreign invested enterprises located in SEZs granted an exemption or reduction in sub-provincial income taxes.
- Relief from Duties and Taxes on Inputs - Certain qualifying companies located in SEZs permitted to import machinery and other inputs for use in the production of subject goods exempt from applicable duties and taxes.
- Reductions in Land Use Fees - Certain qualifying companies located in SEZs pay long-term land-use fee for land on which factories are located. Certain companies eligible for reduction in land-use fee.
- Purchase of Goods from State-owned Enterprises - Entities operating under the direct or indirect control or influence of the Government of China provide goods, such as raw materials, chemicals, metallurgy and semi-manufactured inputs, and services, such as utilities, natural gas and hydroelectric power, to manufacturers at below-market prices.
Chinese Taipei
Description of Identified Programs and Incentives
Evidence provided by the complainant suggests that the government of Chinese Taipei may have provided support to manufacturers of subject goods in the following manner. For purposes of this investigation, "Government of Chinese Taipei" refers to the national government and encompasses any other levels of government, if such is the case. Benefits provided by state-owned enterprises operating under the direct or indirect control or influence of the Government of Chinese Taipei are also considered to be provided by the Government of Chinese Taipei for purposes of this investigation.
- Economic Processing Zone (EPZ) Incentives - Available to manufacturers operating in specified regions such as EPZs, Export Processing Zone, Environment Technology Park, Science-based Industrial Park, Industrial Estate, Mixed Industrial/Commercial Zone or any other designated area. Benefits either granted outright or contingent on export performance, in the form of:
- Import duties exemptions on imported materials
- Commodity taxes and business taxes exemptions on machinery and materials
- Export taxes and contract taxes exemptions
- Five-year income tax exemptions for companies in "newly emerging and strategic industries"
- Preferential housing tax rates
- Grants and Financial Assistance Provided by the Government of Chinese Taipei - Benefits provided by Government of Chinese Taipei in the form of direct government investment/equity participation, reimbursement of costs of anti-dumping or subsidy proceedings, financial assistance for Research and Development (R&D) under several programs.
- Preferential Loans - Preferential interest rates and financing terms provided, either directly by the Government of Chinese Taipei or indirectly through financial institutions, to companies satisfying specified criteria under various programs involving the Development Fund of the Executive Yuan, Export/Import Bank of the Republic of China (EXIM) and the Board of Foreign Trade (BOFT).
- Income Tax Credits, Refunds and Exemptions:
- Reduced Corporate Tax Rate for Exporters - Reduced rate of tax on corporate income for those companies that have a significant volume of export sales.
- Exemption/Reduction /Credit/Refund of Corporate Income
- Tax for Designated Investments - For companies investing in "emerging, important and strategic industries", new companies or expansions, automated equipment and technology, and outward (foreign) investments and/or technical cooperation projects.
- Income Tax Refund/Exemption for Companies Located or Investing in EPZs and Other Designated Zones and Areas Other Designated Areas - Certain qualifying companies located and/or investing in SEZs and other designated Parks, Estates and Regions are eligible for corporate income tax exemptions and/or deductions.
- Exemption/Reduction in Duties and Taxes
- For Companies Located or Investing in EPZs and Other Designated Zones and Areas - Certain qualifying companies are permitted to import machinery and other inputs for use in production of subject goods exempt from applicable duties and taxes.
- For Companies Not Located in Designated Areas Above - Certain qualifying companies receive a reduction in import duties with respect to inputs used in production of subject goods.
- Exemption/Reduction in Contract and Commercial Housing Taxes - Companies located in EPZs and other Designated Zones and Areas are exempt from contract tax and are allowed reductions in commercial housing tax.
- Purchase of Goods from State-owned Enterprises - Entities operating under the direct or indirect control or influence of the Government of Chinese Taipei may have provided raw material input (steel wire) used in the production of the subject goods, to manufacturers/exporters in Chinese Taipei at preferential prices.
1 The American National Standards Institute/American Society of Mechanical Engineers, Society of Automotive Engineers, Industrial Fastener Institute, Deutsches Institut für Normung e.V., and International Organisation for Standardization, respectively.
2 Superior Fastening Technology Limited, "Financial Highlights", Prospectus dated 2 December 2003.
3 Marine Fasteners Inc. Article, "Fasteners of the World" <http://www.marfas.com/taiwan.shtml>.
4 WTO, Committee on Subsidies and Countervailing Measures, Chair's Report to Council for Trade in Goods on Transitional Review of China, Doc. G/SCM/111 (4 November 2003) at 3.
5 Subsidies Enforcement, Annual Report to the Congress. USTR and US Commerce Department Joint Report to the Congress, February 2004. 2003 Report to Congress on China's WTO Compliance, USTR, 11 December 2003.
6 WTO, New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures - separate customs territory of Taiwan, Penghu, Kinmen, and Matsu, Doc. G/SCM/N/71/TPKM (19 June 2002) at 22.
7 United States Department of Commerce, International Trade administration, Import Administration, Electronic Subsidies Enforcement Library - Taiwan - Subsidy Programs: General, online, United States Department of Commerce, <http://ia.ita.doc.gov/esel/taiwan/taigen.htm>.
8 OECD, DAC List of Aid Recipients - As at 1 January 2003, online: http://www.oecd.org/dataoecd/35/9/248852.pdf
