Review Of A Ministerial Decision To Publish A Dumping Duty Notice Under Subsections 269tg(1) And 269tg(2) Of The Customs Act 1901 In Relation To Imports Of Split System Caravan Air conditioners From Italy

BACKGROUND

  1. As a member of the World Trade Organisation (WTO), Australia is bound by the WorldTrade Organisation Uruguay Round Anti-Dumping Agreement and Agreement on Subsidies and Countervailing Measures (the WTO Agreement).  Article 2.1 of the WTOAgreement provides that a product is considered dumped, ieintroduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.  (The export price is the price paid before any costs in respect of the goods after exportation are included.  Normal value is usually defined as the price at which a good would be sold in its home market.)

  2. Before any action may be taken against dumped goods the Australian industry concerned must demonstrate not only that there is dumping occurring, but that the industry has suffered material injury as a result.  This is done through an application to the Australian Customs Service (Customs) for an investigation into the facts of the case.  If Customs determines that dumping has occurred, it must then establish whether the Australian industry’s performance has deteriorated, whether any injury suffered would be considered material and whether the dumping has caused the material injury to the industry.  Any injury that has resulted from other, clearly identifiable sources must not be attributed to the dumping.  Regardless of whether it is found that dumping has caused material injury, it must also be determined whether future dumping threatens to cause material injury to the Australian industry.  This includes an assessment of whether any changes in circumstances would make that threat of material injury both foreseeable and imminent unless anti-dumping measures were imposed.

  3. Under the provisions of the Customs Act 1901 (the Act) Customs has 155 days from the date of initiation of an investigation within which to make a recommendation to the Minister responsible for Customs (the Minister) concerning the imposition of interim anti‑dumping duty.  On the basis of Customs’ recommendations the Minister will then make a decision whether to impose definitive anti-dumping measures. 

  4. The Trade Measures Review Officer (the Review Officer) is appointed by the Minister for Justice and Customs to review certain decisions in relation to dumping matters.  The office of the TMRO has been set up as an independent administrative appeal mechanism in this respect – it has no investigative function.  It may review a prescribed range of decisions made by the Minister or by the Chief Executive Officer of Customs (CEO).  Reviews are conducted only on application from other interested parties.

  5. Subdivision B of Division 9 of the Act provides for reviews by the TMRO of certain decisions of the Minister, including decisions to take anti-dumping action under subsections 269TG(1) and 269TG(2) of the Act.  Subdivision B also describes the procedures to be followed in the conduct of a review.

  6. An applicant must establish to the satisfaction of the Review Officer that there are reasonable grounds to warrant the reinvestigation of the finding or findings specified in the application.  Section 269ZZG of the Act provides that the Review Officer must reject an application if satisfied that the applicant has failed to provide sufficient particulars in relation to the application, including particulars concerning the finding or findings to which the application relates, within the 30 day statutory period.  Unless an application is so unreasonable that it may be rejected in the first instance, the Review Officer will accept it at face value and undertake an investigation.  If an application is made by a party to the original decision, it will be assumed that the applicant has a right to request a review.

  7. Before conducting a review, the Review Officer must publish in a national newspaper a notice indicating that the Review Officer proposes to conduct that review.  Interested parties in relation to a reviewable decision by the Minister may make submissions to the Review Officer within 30 days after the publication of the public notice.

  8. The Review Officer must make a report to the Minister on the finding(s) specified in the application by recommending either that the Minister affirm the reviewable decision or that the Minister direct the CEO to reinvestigate the finding(s) which formed the basis of the reviewable decision.  The Review Officer must only have regard to information that Customs relied upon to make its decision and any relevant information provided in submission by interested parties.

  9. The Review Officer’s report must be made at least 30 days after the public notification of the review but not more than 60 days after that notification - or such longer period allowed by the Minister in writing because of special circumstances.

  10. If the Minister accepts a recommendation by the Review Officer to require the CEO to reinvestigate a finding or findings, s269ZZL prescribes that the Minister must, in writing, require the CEO to make further investigation of the finding(s) and report the result of that further investigation to the Minister within a specified period.  In addition, the Minister must, by public notice, indicate acceptance of the Review Officer’s recommendation, including particulars of the requirements made of the CEO.

  11. After receiving a report by the CEO in respect of a reinvestigation, the Minister must either affirm the reviewable decision or revoke that decision and substitute a new decision.  The Minister must give public notice of that decision.

split system caravan airconditioners from italy

  1. The goods under consideration (GUC) are split system airconditioners (split systems) with a cooling output of 3.0kW or less exported to Australia from Italy.

  2. Split systems comprise two major components: the condenser set and the air handler unit.  These components are separately located within the caravan.  Unlike other air conditioners the split systems are not self-contained units and do not incorporate a valve for reversal of the cooling/heating cycles.

  3. The imported split system units are produced in Italy by Electrolux WTA SRL (EWTA) and are known as “Blizzard” air conditioners.  The imports have been predominantly the vertical model (Model number SA101).  A single shipment of a horizontal model (Model number SA102) was imported during the investigation period.

  4. On 21 September 2000, Aircommand Australia Pty Ltd (Aircommand), the Australian industry, lodged an application for anti-dumping measures in respect of split system caravan airconditioners exported to Australia from Italy.  The Australian industry claimed that these exports were at dumped prices and caused material injury. 

  5. Local production and imports from Italy supply the Australian market for split systems.

  6. On 21 January 2001 Customs made a preliminary affirmative determination in respect of airconditioners exported from Italy and imposed securities in respect of imports from that date.

  7. On 20 April 2001 a notice was published indicating that Customs had completed its investigation into split system airconditioners exported from Italy.  Customs made the following findings:

    • Split system caravan airconditioners have been exported to Australia from Italy at dumped prices; and

    • The Australian industry has suffered material injury as a result of exports of those goods at dumped prices from specified countries,

    Customs recommended to the Minister that sufficient grounds existed for the publication of dumping duty notices.  The Minister accepted Customs recommendations and accordingly measures were imposed on imports of split system airconditioners from Italy. 

APPLICATION FOR REVIEW

  1. On 17 May 2001 an application for review of a Ministerial decision to take anti-dumping action against imports of split systems from Italy was lodged with the Review Officer by Trade Consultants (Vic) Pty Ltd on behalf of the importer ElectroluxLeisure Pty Ltd (Electrolux).

  2. On 8 June 2001a notice was published in the Australian Financial Review notifying the intention of the Review Officer to conduct a review into split systems from Italy under section 269ZZK of the Act.  The Review Officer invited interested parties to lodge submissions by 9July 2001 in relation to the application for review in this matter. 

  3. The Review Officer received two submissions from interested parties.  On 6 July 2001 RogerD Simpson & Associates Pty Ltd on behalf of the Australia manufacturer Aircommand lodged a submission in relation to the application by Electrolux  On 9July 2001 Continental Freight Services (Aust) Pty Ltd on behalf of Electrolux provided a response to the Aircommand submission.  These submissions were considered as part of the review process.

  4. The applicant (Electrolux) submitted that Customs erred in its findings in relation to the following:

    • Like goods

    • Normal values

    • Unsuppressed selling price

    • Identity of the exported of the goods

    • One unsuppressed selling price

    • Non-injurious price;  and

    • The offer of an undertaking.

Like goods

The Applicant’s claims are:

The Minister could not be satisfied that a rooftop unit is not a like good to a split system unit.

Customs concluded that a rooftop airconditioning unit manufactured and sold by Aircommand Australia Pty Ltd (Aircommand) is not a like good to a split system unit.

This issue is fundamental because the identification of ‘like goods’ defines the Australian industry.  In turn, determination on material injury, normal value and the imposition and extent of measures to be imposed are directly affected by the determination on this issue.

Electrolux submitted a detailed analysis on the like goods issue and argued that splits are like goods to rooftops.  There is no issue that the splits made by Aircommand are like goods to the splits made by WTA.  In summary, the submission argued:

  1. There is a general consensus that the legislation is to be interpreted broadly and not in narrow or restricted fashion.  In effect, like goods are not limited to the same goods or to identical goods and there are multiple factors to be applied.

  2. WTO Panel and Appellate Body decision support a market-based analysis of the competitive relationship between the products concerned.  In this case, Electrolux argued that available evidence in this regard points to a high level of substitutability by OEMs, dealers and end use customers.

  3. No one has argued that splits are identical in physical characteristics Electrolux argued that the goods closely resembled one another and are goods of the same general category in view of:

    • Same end use

    • Undifferentiated market

    • Negligible output difference

    • Same price (Electrolux) and very similar Aircommand price

    • Similar technology

    • Same tariff classification

    Customs concludes that the very fact that there are two ‘distinct’ types produced and each type ‘ primarily’ caters to different segments of the caravan market (ie standard and ‘pop-top caravans’) indicates to Customs that they are not like goods.

Customs asserts there is a degree of overlap in the caravan market for about 30% of recreational vehicles but says that the majority of the market (the ‘pop-top’ segment) can only be ‘readily’ serviced by the split system.  Customs attributes this conclusion to:

  • Design limitations – a ‘pop-top’ is not designed to support the weight of a rooftop unit

  • Personal preferences – it is not clear whose these are - Original Equipment Manufacturers (OEM) or end users.

Customs also relies on an unsubstantiated proposition that the rooftop unit is a mature product but the split system is still developing in both market terms and in terms of refinement in its design – vertical versus horizontal configuration.  So far as Electrolux is aware, the only evidence about a design development issue is the one small shipment of horizontal units from Electrolux WTA in March 2000.  Horizontal units imported are xxx of a total of overxxxunits imported to date.  Aircommand did not raise this point as an issue in its application or in any document on the public file.  Accordingly, the notion appears to be the creation of Customs.

Customs further concludes that there is scope for splits to take away sales from the ‘traditional’ rooftop unit, but the reverse is unlikely because of the recent trend of strong growth in split system sales from increased sales of pop-tops.  Put another way, Customs analysis is that the size of the overall market is growing due to increased sales of pop-tops that use splits and the share of roof tops in that overall market is declining proportionately.  This analysis points to one market with changing sectoral shares, not two separate markets.

Customs relies on a further unsubstantiated proposition in relation to the market test, Customs claims that its determination is supported by responses from OEM’s and dealers who did express an opinion.  There is no summary or analysis provided in respect of responses made.  It is worth noting that OEMs mainly install caravan airconditioners as original equipment and the market for retrofitting is small.

In the interest of transparency of process, Customs is required by the Customs Act to disregard material put forward under a claim of confidentiality if a sufficient non-confidential version is not supplied for the public file.  Customs called upon the industry for submissions on the issue of like goods.  Most industry participants did not respond.  There is one written response on the public file and that is equivocal.  Customs has not seen fit to provide any report or analysis of the verbal responses to give Electrolux, or any other interested party, a reasonable opportunity to respond.  Customs’ determination on like goods that was first made known in the SEF.

It is clear that there is an absence of formal industry responses and Customs has relied heavily on ‘confidential’ comments in coming to its decision on like goods.  Customs has denied interested parties the opportunity to respond to the matters raised in confidence.

Electrolux does not agree that industry is unanimously or substantially of the view that a rooftop is not like goods to a split system unit.  Comments of its OEM customers after initiation of this inquiry have included the assessment that the selection of type is of no real significance as both perform adequately and are now fully catered for in design and production of fixed roof vans.  One OEM reported that its installer regarded installation of a rooftop unit as somewhat easier.  Overall however, there are relative advantages and disadvantages in the installation of the two types.

Customs’ determination is in part based on an incorrect analysis of the market that identifies two distinct applications – fixed roof and pop-top – and wrongly concludes that there are two separate markets, one for each type, rather than one market with two segments or sectors.  The possibility of sales of splits into fixed roof caravans at the expense of the ‘traditional’ rooftop is disregarded as evidence of one market with two sectors.

The Review Officer’s assessment in relation to like-goods

  1. Customs’ finding was based on investigations that the Australian Industry produces two models of split system the Heron 2.2kW and the Heron 3.0kW, using local and imported components.  Customs is satisfied that the locally produced goods have characteristics closely resembling the GUC.

  2. Customs also considered whether rooftop air conditioners, which are self-contained units with heating and cooling functions, are like goods to split systems.  Customs contacted interested parties seeking views on this issue.  Those contacted included the Australian Industry, the supplier, the importer and exporter, the Caravan Industry Association, the Recreational Vehicle Manufactures Association of Australia and a number of Original Equipment Manufacturers (OEM’s) and dealers.  Customs concluded that rooftop airconditioners were not like goods to split systems.

  3. Customs’ Report indicated that prior to 1996 there were no split system caravan airconditioners on the Australian market.  Although pop-caravans were available a rooftop airconditioner was not suitable, as evidence suggests that the pop-top roof is not able to support the weight of the unit.  According to the Caravan Industry Association in order to install an airconditioner into a pop-top prior to the availability of split systems, a domestic home-window type airconditioner was one option available.  This was fitted into the caravan’s window.  Prior to the introduction of the split-system airconditioner it was apparent that the rooftop was generally not suitable for installation in pop-top caravans.

  4. The Review Officer affirms Customs decision based on the WTO panel reports that examine the issue of like goods.  The Review Officer affirms the decision by Customs to apply the principle of the three WTO cases:  Japan – Taxes on Alcoholic Beverages, Report of the Panel, 1996 and of the Appellate Body, 1996, International Trade LawReports , Volume 1 Issue 2; Indonesia – Certain Measures Affecting the Automobile Industry, report of the Panel, 1998, InternationalTrade Law Reports, Volume 3, Issue 4; and Bronkers, M & McNelis, N, Rethinking the ‘Like Product’ Definition in WTO Antidumping Law, Journal of World Trade33(3),1999, p81.

  5. The Review Officer affirms Customs’ finding that the rooftop unit is not a like good to a split system unit.

The market and like goods – price point

The Applicant’s claims are:

In responding to Electrolux’s written submission on the Like goods issue, at page 17 of the Report, Customs relies on anecdotal information or unsubstantiated generalisations in respect of market segmentation based on price and output:

‘purchasers do not always fellow recommendations regarding applications’

and

‘the 3.0kW unit will no doubt subject to physical size limitations perform the primary function of cooling as well as a 2.2kW unit.’

Customs cites no evidence for these propositions.  Electrolux says that what purchasers do can be ascertained reliably on evidence obtained from OEM’s and dealers.  Customs qualification ‘subject to size limitations’ is an overwhelming impediment to the proposition advanced.

Customs has ignored evidence of market segmentation in Aircommand’s advertising material that recommends a division based on output into >17.6” for 2.2kW splits and <17.6” for 3.0kW splits.

Despite this, Customs, subject to the above ‘exceptions’, nevertheless agreed with Electrolux’s submission on market segmentation by price/output as a general rule.

Customs wrongly determined that the sales data for the imported goods contradicted the claims made by Electrolux in its submission on important points.  They are (1) the promotional price undercut the price of both local units and (2) the promotional pricing continued for an extended period and continued into 2001.

Electrolux has vigorously disputed Customs’ conclusion on point (2) and, at Customs’ invitation, submitted contrary evidence to Customs before the SEF was published.  Customs has ignored that evidence.  Customs has neither produced nor referred to any evidence in support of its conclusion.

Customs had wrongly concluded that the Electrolux’s marketing strategy removed any market segmentation that might have existed.

It is not disputed that a competitive product of 3.0kW output introduced at a price that undercut both the directly competing3.0kW model and the lower priced 2.2kW model affects the market for both units for the duration of that pricing. Customs had failed to consider that after measures designed to remove price undercutting are introduced, the market will revert to its antecedent segmentation because prices will again be differentiated to the different models as evidence demonstrates was the case prior to the advent of the imports.

Customs also erred in concluding that Electrolux intended to continue the promotional pricing policy unless measures were imposed and that the pre-existing market segmentation, affected by the price undercutting, would be permanently removed, despite the imposition of measures.  Customs is arguing from its conclusions.

The Review Officer’s assessment in relation to the market and like goods – price point

  1. Customs’ assessment that the promotional pricing offer ceased at the end of September 2000 was based on evidence supplied by Electrolux. 

  2. However based on Electrolux sales information, orders placed before the end of September 2000 would be entitled to the promotional pricing offer, although delivery was at a future date.  This would indicate that injury would continue past 30September2000 until the order had been filled.

  3. The Review Officer affirms Customs’ finding that the promotional price of split systems offered by Electrolux undercut both local units

Profit Margin in the calculation of normal value

The Applicant’s claims are:

The Minister could not be satisfied that the profit margin applied by Customs does not exceed the amount of profit normally realised by other exporters or producers on sales of the same general category in the domestic market of the country of export.

The Minister could not be satisfied that the information received by Customs in respect of the profit margin is reliable information.

Customs constructed normal values under paragraph 269TAC(2)(c) using the cost of production of the goods and the administration selling and general expenses plus a profit margin for the same general category of goods – roof top airconditioners for recreational vehicles manufactured and sold by Electrolux WTA Italy.

Because there are no domestic sales of split system airconditioners for recreational vehicles in Italy, Customs determined a profit margin pursuant to Regulation 181 (3) being the profit margin of rooftop air conditioners, they being of the same general category of goods.

There being no other exporter or producer of these rooftops in Italy, Customs determined that the profit recorded by Electrolux WTA as the only producer and seller of such goods was necessarily the profit normally realised for such goods for the purposes of Regulation 181 (5).  The scheme of this Regulation implies a reference to other sellers or exporters.  ‘Normal’ must be interpreted having regard to that context and be used to signify usual, regular common or typical profits by reference to an examination of other parties’ margins.  The profit margin of the exporter cannot reasonably be regarded as a normal margin for the purposes of the Regulation.

The profit margin chosen is relatively high profit margin.  Electrolux argued in its submission to Customs that if Customs is prepared to describe the profit levels obtained by Aircommand as abnormal because the market for splits is a developing market in Australia, the same considerations should be brought to bear in considering the choice of a profit margin for this purpose.

Put another way, the market for rooftops in Italy is a mature market for a mature product.  The profit margins realised in such a market is higher than that for a split system that would, if sold in Italy, amount to a brand new product introduced into a traditional rooftop market.  It is also significantly higher than the margins realised on rooftops exported by Electrolux WTA.

Regulation 181(5) is no doubt intended to provide a safeguard against unrealistic or abnormal profit levels being adopted into a constructed normal value so as to prevent an artificially high value procuring a distorted margin with the export price.

In this case, for the reasons noted above, the profit margin (and selling costs) for a mature product in a mature market are artificially, and reasonably selected from a different product that is not sold in Italy.

It seems to Electrolux perverse that Customs is has not adopted the same principle in the case of the exporter and recommended to the Minister that the one identified and possible profit margin is unreliable under Regulation 181(6).

The Review Officer’s assessment in relation to the profit margin in the calculation of a normal value

  1. Customs determined a normal value using the cost to make and sell and profit margin in accordance with paragraph 269TAC(2)(c) of the Act.  EWTA provided Customs with verified information on its costs for splits systems and for the same general category of goods, ie rooftop airconditioners that were sold domestically.  Customs was satisfied that it had sufficient information to enable normal values to be determined pursuant to paragraph 269TAC(2)(c) of the Act. 

  2. Customs constructed normal values using the cost of production of split systems by EWTA plus an amount for profit in accordance with Regulation 181 paragraph (5)(b) of the Act:

If the Minister is unable to calculate an amount using the data referred to in subregulation(2), the Minister must calculate the amount: (a) by identifying the actual amounts incurred and realised by the exporter or other seller in respect of the production, of manufacturer, and sale of the same general category of goods in the domestic market of the country of export.

  1. The Review Officer acknowledges that in these circumstances the fact that Customs assumes roof-top caravan airconditioners as being in the same general category of goods, does not impinge on its conclusion that split systems are not like goods to rooftop caravan airconditioners in the Australian market.  Both the Act and the WTO Anti-dumping Agreement refers to the term ‘ of the same general category’ in providing an alternative to the calculation of profit when actual data representing profit is not available.

  2. The Review Officer affirms Customs’ assessment of normal values under paragraph 269TAC(2)(c) using the cost to make and sell and a margin for profit in accordance with Regulation 181 Determination of costs and profits (subsections 269 TAC(5B).

  3. The Review Officer also affirms Customs’ assessment that the information used by Customs in assigning a profit margin is reliable based on the data supplied by EWTA. 

Profit margin for Aircommand Australia in the calculation of an unsuppressed selling price

The Applicant’s claims are:

The Minister could not be satisfied that:

(i)      It was appropriate to base the USP on a cost to make and sell like goods plus a profit rather than on historical industry prices; or

(ii)     If it was appropriate to base the USP on a cost to make and sell plus profit, it was reasonable to select a profit margin other than that obtained from historical industry prices.

Customs determined not to base the USP on unsuppressed prices determined by Aircommand.  Instead of the historical rate(s)of profit, Customs identified and applied a profit rate of 5.5% to the verified cost to make and sell the Heron 3.0kW model.  In doing so Customs has departed from its long established practice to use industry prices not affected by dumped imports as the basis for a USP, unless there are compelling reasons to do so.

Customs has erred in rejecting the historical profit levels due to unfounded and irrelevant assumptions that the prices and returns for sale of the goods by Aircommand prior to the arrival of imports are indicative of a developing market and represent abnormal returns for the industry.

Customs relied upon a proposition that the introduction in 1996 of a new split unit into a market that was hitherto exclusively serviced by rooftop units required a change in attitude and practice by OEMs and consumers.  Customs concluded that as a consequence, the new split system units ‘would have had to be priced at a level which was comparable to rooftop units despite the fact that adequate returns were not being achieved’.

No evidence of this pricing has been provided by Aircommand in its application or by Customs in the industry visit report.  Customs refers to no evidence from the recreational vehicle industry.  Nor is there any document otherwise placed on the public file that supports this proposition.

Electrolux lodged a detailed submission arguing for the application of historical profit margins and specifically pointing out that there was a lengthy period from 1996 during which Aircommand enjoyed 100% of the market.

Even if there was proper and compelling evidence for such a policy, it points to a single market approach by Aircommand with the rooftops and the split systems competing against each other for market share, rather than to a split market as concluded by Customs in its like goods determination.  Such a policy would be contrary to Customs’ determination on this issue.

Customs also reports that Aircommand has stated that it was anticipating increased sales due to the boom sales of recreational vehicles and in particular the popularity of pop-tops.  Accordingly, Customs says that Aircommand expected to achieve economies of scale and increased margins as the split system market matured and split systems became the standard.

Aircommand makes no such claim nor is there evidence of this proposition provided in its application or in the industry visit report or in any document on the public file. 

Even if there was such an explanation, it amounts to an argument for future profits and is therefore impermissible.  In fact, industry figures that Customs has prove the boom in sales was well in evidence prior to sales of imported splits in February 2000.

Even if these assumptions could be proven and the results quantified, Electrolux submits that they are irrelevant because Aircommand got its profits (if any) from its own policies as a monopolist of split systems over an extended period and may not benefit from artificially adjusted profit levels determined by Customs.

Review Officer’s assessment in relation to the profit margin for Aircommand Australia in the calculation of an unsuppressed selling price

  1. The Act does not define the method of calculating a Non-Injurious Price (NIP), however Customs’ practice is to derive a NIP from the Australian industry’s unsuppressed selling price (USP). 

  2. Customs raised concerns in using market prices unaffected by dumping, these being selling prices before February 2000.  The prices achieved by the Australian industry prior to the dumping according to Customs assessment were not suitable as prices and returns prior to the arrival of imports were indicative of a developing market and indicated abnormal returns for the industry.  Customs decided not to base the USP on historical industry prices. 

  3. Customs decided to use a profit calculation based on Australian Bureau of Statistic’s report for the Manufacturing Division.  Within ‘ Manufacturing’ there are nine subdivisions, the most relevant being ‘Machinery and Equipment Manufacturing’.  The report charts profit margins on sales for small, medium and large business.  Customs used a rate of 5.5%, the 1998/99 rate of profit for small business within the ‘Machinery and Equipment Manufacturing’ subdivision. 

  4. The Review Officer affirms Customs’ assessment in relation to the profit margin.

Profit margin for Electrolux Leisure in the calculation of a Non Injurious Price

The applicant’s claims are:

The Minister could not be satisfied that it was appropriate not to deduct an amount for profit of profit Electrolux in calculating the NIP.

Customs determined not to deduct an amount for profit for Electrolux in calculating the NIP because of Electrolux’s ‘past performance over a long period’.

The ‘long period’ refers directly to the duration of the promotional pricing strategy.  There is a dispute over the length of promotional pricing, Customs asserting that it has continued into 2001.  Customs also states that ‘it cannot be assumed that (Electrolux) will sell at the normal price when historically the vast majority of its sales have not been at that price’.  Customs has not accepted that Electrolux wants to recover the loss on sales from promotional pricing to introduce the product into the market by selling at non-promotional prices.

Customs overlooks the fact that sales of the imported goods commenced in February2000 with the promotional price.  Electrolux has provided evidence that it ceased accepting orders that as at 30 September 2000 and ceased delivering units ordered in the promotional period by December 2000.  Customs apparently rejects this evidence but has failed to articulate the evidence before it that is to the contrary.  Customs does not even refer to the evidence provided by Electrolux about this issue. 

Customs fails to state what is a ‘normal’ price.  Customs may be referring to the list price for sale of the goods to OEM’s.  Aircommand does not sell exclusively at its ‘normal’ OEM price.  It is a notorious fact of commercial life that deals and discounts are regularly given to customers on a variety of bases.  Customs has confused that normal commercial practice with a continuance of the promotional pricing.  Customs determination places Electrolux at a commercial disadvantage vis a vis Aircommand.

Customs also concludes that its determination not to deduct a profit margin from the NIP ‘will go some way to ensuring that Aircommand receives the full benefit of the measures imposed’.

Electrolux presumes that Customs has calculated the measures imposed as sufficient to remove the injury caused by the dumping of the goods.  There is no obvious reason for Customs to make the qualification above.  Electrolux refers to its considerable correspondence on the inquiry file that is critical of some of the language and tenor of the Customs’ reports concerning the individual companies and the Electrolux Group as evidencing unstated reservations about their corporate conduct and intentions.  Electrolux sees this unnecessary qualification as a further gratuitous reference in the same vein.

Review Officer’s assessment in relation to a profit margin for Electrolux Leisure in the calculation of a Non Injurious Price

  1. Customs based its determination on the domestic sales by Electrolux over the eleven‑month period from February to December 2000.  Electrolux’s sales of split systems were at a loss for an extended period.  The Review Officer affirms Customs analysis that, based on historical sales data Electrolux will not break even for at least four to five months or longer after the last shipment of split systems is delivered at the promotional price.

  2. The Review Officer affirms Customs’ finding not to deduct an amount for profit in the calculation of the NIP.

One USP

The applicant’s claims are:

The Minister could not be satisfied that it was appropriate to calculate the one NIP for both models of like goods based on the USP for the Heron 3.0kW model.

Customs determined to calculate one NIP for both the 2.2kW and 3.0kW Blizzard models based on the USP for the Heron 3.0kW model.

Customs’ determination relies on the proposition that there is likely to be significant cross-elasticity between the higher and lower output models.  Put another way Customs expect that OEM’s who are the principal buyers of caravan airconditioners will in many cases (significantly) pay for a higher output unit when a cheaper lower output unit will perform satisfactorily. 

Customs has concluded that this is so despite pricing and output differences and the market segmentation created by Aircommand.  There is no evidence cited for this proposition in this section of the Report or elsewhere in it.  Not surprisingly, there is no evidence from Aircommand or from the industry.  In fact, the evidence in this inquiry is contrary to this proposition, as is common sense.

Despite having a cooling capacity of 2.65kW, the small number of horizontal units imported in March 2000 were sold as 3.0kW units along with the vertical import.  Electrolux has not been asked by Customs about its intentions to import further horizontal units.  If it were asked, the answer is that it does not intend any further imports.  Customs has no reasonable basis on which to conclude that there will be further importations of this unit.

Customs proceeds on the basis that the horizontal Blizzard will be imported at dumped and injurious prices if a NIP for that model is based on the USP for the Heron 2.2kW unit.  There is no reasonable basis to expect further imports of the horizontal unit.  Customs analysis is that OEM’s will buy a more expensive horizontal Blizzard when a less expensive Heron 2.2kW will perform adequately.  Customs determination to strike only one NIP based on 3.0kW model ensures that the imported unit will always be more expensive in the market place.

If the units are truly competitive, as Customs asserts, and there will be further imports of them, as Customs presumes, then this decision confers an unreasonable commercial advantage upon Aircommand and provided impermissible protection to its product that costs less to make and has historically sold for significantly less than the 3.0kW unit.

Review Officer’s assessment in relation to one USP

  1. Electrolux’s submission indicated that both its Blizzard split system airconditioners undercut both the Heron 2.2Kw and Heron 3.0Kw split systems. Customs was satisfied that there was sufficient evidence to indicate that there was significant substitution between the higher and lower output models. 

  2. The Review Officer affirms Customs’ decision to calculate the one NIP for both models of like goods

The identity of the Exporter of the goods

The applicant’s claims are:

The Minister could not be satisfied that the exporter and the importer are the same entity.

Customs determined that Electrolux is the exporter of the subject goods.

In reaching this conclusion Customs relied expressly in the SEF on the legal and practical incidents of the ‘ex-works’ Incoterms.  Customs also stated to Trade Consultants that it relied on the ‘Celpav’.

Electrolux has lodged a written submission on this issue and raised matters critical of Customs’ reading of that case as well as its reading of the commercial realities of international trade.

Electrolux asserts that this issue can be dealt with in short compass.  It is commercial nonsense to regard Electrolux Leisure and the exporter and WTA as an alternative supplier of the goods in Italy when there are acknowledged arms length sales between the parties for export by WTA.  There is no definition of the term ‘exporter’ in the anti-dumping provisions of the Customs Act, nor any useful guidance so Customs has no legislative mandate for its determination.

In the face of detailed criticism of this interpretation, which Customs has not condescended to deal with in the SEF or in the Report, much less acknowledge having received, this determination is manifestly wrong and obtuse.

The consequence here relates to the analysis of whether the export transactions are arms length transactions.  If Customs is mistaken in this, the provisions of 269TAA(2) & (3) of the Customs Act do apply and there is a formal (as distinct from informal) consideration of the same issues that Customs has already decided.

Customs has determined that the export sales were arms length sales.  Despite this, Customs cities the dual identity of Electrolux as importer and exporter as one of the grounds for its determination to recommend against acceptance of an undertaking.  Customs has determined the relationship between the importer and the exporter has not influenced the price.  How then can the dual role of Electrolux as importer and exporter be relevant to the issue of acceptance of an undertaking?

Review Officer’s assessment in relation to the identity of the exporter of the goods

  1. The goods are manufactured by EWTA upon the receipt of an order from Electrolux.  EWTA only manufactures split systems for Electrolux (one shipment of 20 units of split systems was exported to New Zealand) for export to be sold on the Australian market.  There is no domestic market for split systems in Italy and as such there is no other purchasers of split systems in Italy

  2. The Review Officer affirms Customs’ assessment that the price paid by Electrolux to EWTA indicates that EWTA has set a price between itself and Electrolux that is around the cost of production and does not recover all costs or provide for any profit.

  3. The Review Officer affirms Customs’ assessment that Electrolux is responsible for the transportation of the goods from the factory in Italy to the port and also responsible for shipment of the goods to Australia.  There is no other purchaser of split systems in Italy.  Therefore it would appear that there is no market in Italy and EWTA would appear to only sell to Electrolux, ex-works. 

  4. The Review Officer affirms Customs finding that EWTA is the producer and supplier of split systems and that Electrolux is both the exporter and importer.

The offer of an undertaking by Electrolux Leisure

The Applicant’s claims are:

The Minister could not be satisfied that it was appropriate to not accept a price undertaking from Electrolux Leisure Pty Ltd.

Customs recommended that the Minister not accept a price undertaking offered by Electrolux Leisure Pty Ltd.  In initial discussions with Customs on this, it was made clear that Customs was adamantly of the view that Electrolux was both exporter and importer.  Accordingly the offer of an undertaking could not come from Electrolux WTA in Italy as it was not the exporter but ‘another supplier’ of the goods.

In making an offer of an undertaking in those circumstances, Electrolux Leisure Pty Ltd was not expressly, or by implication, resiling from its stated criticisms of Customs decision on the issue of the identity of the exporter.

It seems that with the exception of that issue and the promotional sales at a loss, the remaining three grounds relied upon by Customs for its recommendation to refuse an undertaking would apply equally to Electrolux WTA.

Customs determined that an undertaking was inappropriate in this case and relied on five grounds:

  • Significant dumping margins

  • Sales at a significant loss for a long period in addition to the advantage gained from the purchase of the goods at dumped prices

  • Electrolux Leisure is both exporter and importer

  • The supplier and the importer are associated companies

  • Practical difficulties in ensuring compliance where the business activities of the two parties included transactions involving other goods

Customs expressed reservations that a price undertaking could be effectively monitored.  Customs did not say why this is the case here.

Electrolux disputes the relevance of the amount of the dumping margin and says that the margin proceeds from an inappropriate profit margin being applied to a theoretical sale to construct a normal value.  Electrolux has also taken issue with Customs’ claim that Electrolux has gained an additional advantage from the large dumping margin as allowing the promotional pricing policy.  Electrolux does not see how promotional sales at a loss are any advantage, howsoever enabled.  Customs is engaging in a calculated double dipping exercise on this issue solely to criticise the conduct of Electrolux.

Electrolux refers to its claims above in relation to the disputed duration of the promotional sales period.

Electrolux refers to its claims above in relation to the dual character of Electrolux and says further that the ground is irrelevant per se.

Electrolux denies that there is any inherent risk of impropriety (as implied by Customs) by virtue of purchasing the subject goods from an associated company. Electrolux rejects Customs’ claim of practical difficulties in ensuring compliance with an undertaking is based on the alleged existence of ‘transactions involving other goods’. 

Electrolux has pointed out to Customs that this ground is factually incorrect and the only transactions between them are the export sales of the subject goods.  Customs has been to Electrolux WTA in Italy and Electrolux in Australia and knows from there inquiries that this is the case.

Electrolux has lodged various submissions to Customs on all above issues at various times in the inquiry prior to the delivery of the Report to the Minister.  The matters raised in relation to the undertaking were not accorded any comment in the Report, despite a specific request that this be done to assist the Minister.  There is no indication from Customs that it responded to the criticisms of its recommendation in any material accompanying the Report to the Minister.

Accordingly, a separate submission was made to the Minister dealing, inter alia, with the issue of an undertaking.

Electrolux submits that Customs has made both a factual and legal errors in the Report and these have collectively operated to paint an erroneous, misleading and prejudicial picture of the conduct of the individual Electrolux companies concerned, and the Electrolux Group in general, that has influenced the Minister to accept the recommendations of Customs against acceptance of an undertaking.

Review Officer’s consideration of the issue of a price undertaking

Section 269ZZA of the Act prescribes the decisions that are reviewable by the ReviewOfficer.   The issue of a price undertaking is not a reviewable decision under subsection269ZZA(1) of the Act

Review Officer’s Recommendations and Conclusions

  1. In conducting this review, the Review Officer has taken account of all the evidence available to Customs during the course of its inquiry as well as the arguments contained in submissions presented to the Review Officer during the review.

  2. The reviewable decisions by the Minister in this particular case are:

  3. a decision by the Minister to publish a notice under subsection 269TG(1) of the Act which provides that the Minister take action against dumped goods that have already been exported to Australia; and

  4. a decision by the Minister to publish a notice under subsection 269TG(2) of the Act which provides that the Minister take action against like goods that may be exported to Australia in the future at dumped prices.

  5. The foregoing analysis shows that, in the opinion of the Review Officer, Customs’ findings in respect of split systems from Italy were sufficient to satisfy the Minister that exports were sold at dumped prices and that these have caused material injury to the Australian industry. 

  6. The Review Officer is also of the opinion that the foregoing analysis shows that Customs’ findings in respect of split systems from Italy were sufficient to satisfy the Minister that future exports may be at dumped prices.

  7. Accordingly, the Review Officer recommends that the Minister’s original decision in this matter be affirmed.

Geoff Hine
Trade Measures Review Officer

8 August 2001