Review of decision to terminate an investigation into the alleged subsidisation of certain olive oil from Greece, Italy and Spain

23 August 2004

INTRODUCTION

  1. As a member of the World Trade Organisation (WTO), Australia is bound by the World Trade Organisation Uruguay Round Agreement on Subsidies and Countervailing Measures (the WTO Subsidies Agreement).  Article 1 of the WTO Subsidies Agreement provides, in essence but subject to certain caveats, that a subsidy shall be deemed to exist if:
    • there is a financial contribution by a government or any public body; or

    • there is any form of income or price support;

    • and a benefit is thereby conferred.
  2. Before any countervailing action may be taken against subsidised goods, the Australian industry concerned must demonstrate not only that subsidisation is occurring, but that the Australian 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 subsidisation 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 subsidisation has caused the material injury to the industry.  Any injury that has resulted from other, clearly identifiable sources must not be attributed to the subsidisation.  Regardless of whether it is found that subsidisation has caused material injury, it must also be determined whether future subsidisation 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 countervailing measures were imposed.
  3. Under the provisions of the Customs Act 1901 (the Act), Customs has 155 days (or such longer period as allowed by the Minister) from the date of initiation of an investigation within which to make a recommendation to the Minister for Justice and Customs (the Minister) concerning the imposition of interim countervailing duty.  On the basis of Customs' recommendations the Minister will then make a decision whether to impose definitive countervailing measures.  However, the Act also stipulates that Customs must terminate an investigation into alleged subsidisation if it is found that countervailable subsidisation is negligible, if negligible volumes of countervailable subsidisation are found or if subsidisation causes negligible injury.
     

    THE ROLE OF THE TRADE MEASURES REVIEW OFFICER

  4. The Trade Measures Review Officer (the Review Officer) is appointed by the Minister to review certain decisions in relation to dumping and/or subsidisation matters.  The Review Officer is an independent administrative appeal mechanism with no investigative function.  The Review Officer may review a prescribed range of decisions made by the Minister or by the Chief Executive Officer (CEO) of Customs.  Reviews are conducted only on application from relevant interested parties as defined in the Act under section 269ZX.
  5. Subdivision C of Division 9 of the Act provides for reviews by the Review Officer of certain decisions by the CEO of Customs, including decisions to terminate an investigation.  Subdivision C also describes the procedures to be followed in the conduct of a review.
  6. The Review Officer must make a decision on an application for review of a termination decision by the CEO of Customs by affirming the reviewable decision or revoking the reviewable decision.
  7. In conducting a review of a termination decision by the CEO of Customs, the Review Officer must have regard only to the information that was before the CEO of Customs when the CEO of Customs made the reviewable decision.  Therefore, in conducting reviews, the Review Officer collects no new data but confines himself to studying the information which was available to Customs at the time the CEO of Customs made the reviewable decision.  Applicants for review may (and frequently do) point to particular errors they believe Customs made and the Review Officer of course considers these allegations carefully.  However, the Review Officer also examines all other steps in the reasoning used by Customs in coming to the decision under review.
  8. The Review Officer's decision on the application for review must be made within 60 days after the receipt of the application for review (or such longer period as allowed by the Minister in writing because of special circumstances).
     

    BACKGROUND TO THE REVIEW

  9. On 12 November 2003, following an application by Inglewood Olive Processors Limited (Inglewood), Customs initiated an investigation into the alleged subsidisation of certain olive oil from Greece, Italy and Spain and the alleged dumping of certain olive oil from Italy.  On 17 November 2003, Customs widened its investigation to include the alleged dumping of certain olive oil from Spain.
  10. The goods under inquiry (hereinafter referred to as olive oil) are extra virgin and blended olive oil in package sizes of 250ml, 500ml, 1 litre, 2 litre, 3 litre and 4 litre containers for retail sale.  Bulk olive oil was specifically excluded from the application.
  11. On 24 May 2004, Customs terminated its investigations into the alleged subsidisation of olive oil exported to Australia from Greece, Italy and Spain and the alleged dumping of olive oil exported to Australia from Italy and Spain.
  12. In terminating its investigations, Customs stated that it was satisfied that:
    • there was a subsidy called "production aid" paid to olive growers in Greece, Italy and Spain for olive oil;

    • production aid was not an actionable subsidy;

    • there were no other actionable subsidies in respect of olive oil exported from Greece, Italy and Spain to Australia;

    • olive oil exported by Moreno SA and Juan Ballester Rosés, Sucesores SA of Spain was not dumped;

    • olive oil sold by Unilever Bestfoods Italia s.r.l was dumped but the margin of dumping was negligible; and

    • other olive oil exported from Italy and Spain was dumped but the injury, if any, to the Australian industry that had been caused by that dumping was negligible.

  13. Accordingly, Customs terminated its investigations into both the alleged subsidisation of olive oil exported to Australia from Greece, Italy and Spain and the alleged dumping of olive oil exported to Australia from Italy and Spain.
  14. On 8 June 2004, Inglewood lodged an application with the Review Officer for review of the decision by the CEO of Customs to terminate the investigation into the alleged subsidisation of olive oil exported to Australia from Greece, Italy and Spain.  Inglewood did not request review of the decision by the CEO of Customs to terminate the investigation into the alleged dumping of olive oil exported to Australia from Italy and Spain.
  15. The Review Officer accepted the application on 23 June 2004.
     

    THE REVIEW

  16. The application for review from Inglewood was received on 8 June 2004 and supporting submissions from the applicant were received on 21 June 2004, 3 August 2004 and 11 August 2004.  A non-confidential version of Inglewood's application for review is at Attachment A to this report.
  17. Inglewood is an Australian olive oil producer and its original application to Customs was confirmed by Customs to have been supported by 21 smaller Australian olive oil producers.
  18. Inglewood argued that Customs' decision to terminate its investigation into the alleged subsidisation of olive oil from Greece, Italy and Spain was wrong in law and should be promptly revoked.  The applicant further contended that there was ample evidence to establish that the benefit of production aid paid to olive producers passed through to the olive oil exported to Australia.
  19. Further details in relation to Inglewood's claims in its application for review are at
    Attachment A.
     

    The Review Officer's Assessment

  20. The Review Officer's assessment of the above claims by Inglewood follows.
    Customs' decision to terminate its investigation into the alleged subsidisation of olive oil from Greece, Italy and Spain was wrong in law
  21. In its termination report in relation to the alleged subsidisation of olive oil from Greece, Italy and Spain, Customs was not satisfied that production aid (paid to olive producers) conferred a benefit on the exporter (of olive oil) and, for that reason, Customs considered that the production aid was not a countervailable subsidy.
  22. The applicant for review, Inglewood, argued that Customs' analysis in this respect was flawed and stated:

    "In section 7.5 of its Termination Report of 24 May 2004 ("the Report") Customs reported that it was satisfied that the production aid granted on olive oil and paid to EU olive growers as income support based on the amount of olive oil extracted from their olives ("production aid") was a subsidy within the meaning of s269T of the Act.

    Because the s269T definition of a "subsidy" in relation to goods that are exported to Australia requires that a financial contribution or income or price support as defined confers a benefit in relation to the goods exported to Australia, inherent in Customs' reported satisfaction that production aid was a subsidy within the meaning of s269T is its satisfaction that production aid conferred a benefit in relation to the goods exported to Australia.

    In sections 7.5.1 and 7.5.2 of the Report, Customs reported that it was satisfied that production aid was a specific subsidy in terms of s269TAAC of the Act and concluded that it was not an excluded subsidy.  That is, it concluded to the effect that production aid was a countervailable subsidy within the meaning of s269TAAC.

    Having then concluded that production aid was a subsidy in relation to the goods exported to Australia within the meaning of s269T of the Act and was countervailable within the meaning of section 269TAAC, it was obviously not open for Customs to be satisfied that no countervailable subsidy had been received in respect of any of the goods exported to Australia.  Hence Customs termination of the investigation in accordance with s269TDA(2) was unlawful.

    Notwithstanding its conclusion that production aid was a countervailable subsidy in relation to the goods exported to Australia, Customs concluded in section 7.6 of the Report that -

    Customs is not satisfied that production aid confers a benefit on the exporter and, for that reason, it considers that the subject production aid is not a countervailable subsidy (emphasis added).

    This conclusion is not only contrary to Customs' findings per sections 7.5, 7.5.1 and 7.5.2 of the Report, but it takes into account the irrelevant consideration of whether production aid confers benefit on the exporter.  The s269T definition of "subsidy"in relation to the goods exported to Australia does not require benefit to be conferred on the exporter but rather that benefit be conferred on the goods exported to Australia.  That the exporter may not be the recipient or beneficiary of the production aid is an irrelevant consideration.  The relevant consideration is whether benefit is conferred in relation to the goods exported to Australia.  Of course for there to be benefit conferred there must be a beneficiary (or recipient), but the law does not require that it be a particular person, it merely requires that the subsidy benefits the goods exported to Australia.

    What's more, having found that a subsidy was received in relation to the goods exported to Australia (section7.5 of the Report) and that the subsidy was other than a direct financial payment in respect of the goods exported to Australia (section 7.5.3 of the Report), it was not open for Customs to determine the question of whether the subsidy (production aid) conferred a benefit and the amount, if any, of subsidy attributable to the benefit.  These determinations were to be made by the Minister in accordance with sections 269TACC(3) and 269TACC(6)/(7) of the Act respectively.
    Customs' termination vide s269TDA(2) of the Act involved a further error of law in that, having found the production aid to constitute a countervailable subsidy in relation to the goods exported to Australia, it was necessary for Customs to refer the matter to the Minister for his decision in accordance with section 269TJ of the Act.  It did not do so."
  23. Before addressing these arguments by Inglewood, the Review Officer considers that it is necessary to clarify and explain some of the background to the applicant's claims.
  24. Production aid is a scheme administered by the European Commission (EC), usually through producer organisations in the countries concerned.  In essence, production aid is a payment to olive growers in the European Union (EU), based on the amount of olive oil extracted from their olives, to provide or contribute to a fair income for olive growers in the EU.  It is important to note that the production aid (although it is calculated on the basis of the quantity of olive oil produced from the olives grown) is paid to olive growers and not to producers or exporters of olive oil (the goods the subject of the application).
  25. In essence, section 269T of the Act defines a subsidy, in relation to goods that are exported to Australia, as a financial contribution or any form of income or price support (as defined) if that financial contribution or income or price support confers a benefit in relation to those goods (emphasis added).
  26. As Inglewood has pointed out, in its termination report in this matter, Customs stated that it was satisfied that production aid is a subsidy within the meaning of s269T of the Act.  The applicant has gone on to argue that, to be so satisfied, Customs must be also satisfied that the production aid confers a benefit in respect of the goods (olive oil) exported to Australia.
  27. The Review Officer disagrees with this interpretation of Customs' words at the beginning of section 7.5 of the Customs termination report.  Customs has said that it is satisfied that production aid is a subsidy within the meaning of section 269T of the Act.  However, Customs has not said that it is satisfied that production aid is a subsidy (within the meaning of section 269T) in respect of olive oil exported to Australia.  In fact, it is abundantly clear to the Review Officer that Customs was saying that it was satisfied that production aid is a subsidy within the meaning of section 269T in respect of the production of olives.
  28. This is manifestly clear from the rest of section 7.5 of the termination report which goes on to examine the question of whether or not production aid confers a benefit in respect of the exportation of olive oil to Australia.  Customs' starting point for this analysis is its satisfaction that production aid (being a direct financial contribution which confers a benefit on olive growers) is a subsidy in respect of the production of olives .  The Review Officer agrees with Customs conclusion in this regard and rejects the applicant's interpretation of this aspect of Customs' termination report.
  29. The applicant's misconstruction of Customs' findings in this regard renders invalid and irrelevant its arguments concerning whether or not production aid is a countervailable subsidy in respect of goods exported to Australia (olive oil).  It also renders erroneous Inglewood's conclusion that, based on Inglewood's assertion that Customs had concluded that pr o duction aid was a subsidy in relation to the goods exported to Australia (which Customs most certainly did not conclude), Customs' termination of the investigation was unlawful.
  30. The Review Officer further considers that Inglewood's arguments in relation to whether a benefit is conferred (if indeed a benefit is conferred at all) on the exporter or on the exported goods are irrelevant in the context of the analysis of whether or not production aid confers a benefit on the exportation of olive oil to Australia.
  31. Inglewood then goes on to argue that Customs made a further error of law by terminating its investigation when, Inglewood maintains, it was necessary for Customs to refer the matter to the Minister for his decision in accordance with the Act.  Inglewood contended that Customs' decision to terminate the investigation was flawed in that it was not open for Customs to determine the question of whether the production aid conferred a benefit and the amount, if any, of subsidy attributable to the benefit (sic)- these determinations were to be made by the Minister in accordance with the Act.
  32. Again, the Review Officer disagrees with the applicant's arguments in this respect.  In forming his opinion, the Review Officer has had regard to all of the evidence presented to both Customs' inquiry and this review including legal opinions obtained by the applicant.

  33. Section 269TDA of the Act stipulates that Customs must terminate an investigation into alleged subsidisation if it is found that countervailable subsidisation is negligible, if negligible volumes of countervailable subsidisation are found or if subsidisation causes negligible injury.
  34. Customs was not satisfied that production aid conferred a benefit on the exporter (of olive oil) and, for that reason, Customs considered that production aid was not a countervailable subsidy.  In other words, Customs found that there was no countervailable subsidisation of olive oil exported to Australia.  Under these circumstances, the law dictates that Customs must terminate its investigation and this Customs did.
  35. Inglewood has argued, in essence, that section 269TACC of the Act requires that the question of whether a benefit is conferred and the amount of that benefit is to be determined by the Minister.  The Review Officer considers that this would be the case if Customs had established that production aid conferred a benefit on the exportation of olive oil - Customs would then report to the Minister that Customs considered that a benefit had been conferred and Customs' estimate of the amount of that benefit would be propounded in conjunction with a recommendation in respect of countervailing action.
  36. However, it is the opinion of the Review Officer that the Act clearly requires termination by Customs in cases of no or negligible subsidisation.  The corollary to this is the Act's requirement that Customs must terminate a dumping investigation if negligible dumping is found - in such circumstances it could not be argued that Customs would need to have the Minister establish export prices and normal values merely so that Customs could be satisfied that there was no dumping and thereby terminate its investigation.  No sensible interpretation of the Act would support either that proposition or the proposition that Customs needs the Minister to determine that there is no subsidisation in order to terminate.  Indeed, the Act demands termination by Customs in the appropriate circumstances.
  37. Accordingly, the Review Officer rejects the applicant's claims that Customs' decision to terminate its investigation into the alleged subsidisation of olive oil from Greece, Italy and Spain was wrong in law.

    There was ample evidence to establish that the benefit of production aid paid to olive producers passed through to the olive oil exported to Australia
  38. As previously discussed, in its termination report in relation to the alleged subsidisation of olive oil from Greece, Italy and Spain, Customs was not satisfied that production aid (paid to olive producers) conferred a benefit on the exporter (of olive oil) and, for that reason, Customs considered that production aid was not a countervailable subsidy.
  39. The applicant for review, Inglewood, asserted that Customs was in possession of ample information/evidence establishing that the benefit of production aid paid to olive producers passed through to the olive oil exported to Australia.  That information/evidence was said to include the relevant EC regulations, two separate opinions by independent economists and legal opinion.
  40. Again, before addressing these arguments by Inglewood, the Review Officer considers that it is necessary to clarify and explain some of the background to the applicant's claims.
  41. Production aid is paid to olive growers.  The goods the subject of this inquiry are packaged olive oil in containers of various sizes up to 4 litres for retail sale.
  42. The Review Officer accepts that production aid paid to olive growers in Greece, Italy and Spain is a subsidy to the activity of growing olives in that it is a direct financial contribution that confers a benefit in relation to those goods (olives).  There is no suggestion that there is any direct subsidisation of packaged olive oil.  In other words, a subsidised and traded input (olives) forms the basis for the production of an unsubsidised but also traded output (packaged olive oil).
  43. For the purposes of the following analysis, it is important to recognise the processes that take place between the harvesting of olives and the production of packaged olive oil.  Those processes include washing, pressing, heating, decantation, centrifugation or filtration, refining, blending and packaging.
  44. Although there is evidence of some vertical integration of olive oil production in Spain and, to a lesser extent, in Italy and Greece, the available information indicates that the industries in those countries are characterised by large numbers of independent growers, mills and other processing and distribution facilities (such as refiners, filterers, blenders, packagers and exporters).
    The Review Officer notes that the EU is also a significant importer of olive oil from non-EU countries such as Tunisia, Turkey and other Mediterranean basin countries - a large proportion of these imports is blended with EU production and sold domestically or re-exported.
  45. The fundamental question to be answered in this case is whether production aid paid to olive growers confers a benefit on the export to Australia of olive oil from Greece, Italy and Spain.  The Review Officer considers that there is insufficient information available to categorically and definitively determine this issue beyond all reasonable doubt - in fact the Review Officer doubts that it is indeed possible to do so given that there are more than two million olive growers in the EU and more than eleven thousand olive oil processing and packing plants in Greece, Italy and Spain alone.  The Review Officer is confined to studying the available information which is restricted to the information that was available to Customs at the time Customs made its termination decision.
  46. In the first instance, based on detailed and exhaustive study of all the available information, the Review Officer is convinced that there is absolutely no evidence at all (other than mere assertion and allegation) that production aid paid to olive growers does confer a benefit on the export of olive oil to Australia from Greece, Italy and Spain.
  47. The applicant, Inglewood, has argued that such evidence can be found in the relevant EC regulations, in two separate opinions by independent economists and in legal opinion provided in evidence to both Customs and the Review Officer.  The only other "evidence" provided by Inglewood is unsubstantiated assertion.
  48. The Review Officer has examined Inglewood's claims in this regard and rejects them.  The EC regulations referred to describe the operation of production aid within the EU - there is no reference at all to the ramifications of production aid in terms of exported olive oil and certainly no support for the claims of the applicant.  Further, the Review Officer considers that the opinions (both economic and legal) referred to by the applicant do not provide evidence that production aid confers a benefit on the exportation of olive oil.  The Review Officer is of the view that the opinions proffered as evidence are based on questionable and contentious assumptions which either arguably or demonstrably do not hold in reality.  The conclusions reached in these opinions are highly qualified largely because the authors are well aware that various other conclusions could easily be reached depending on the assumptions upon which the analysis is based.  The Review Officer does not consider this to be evidence.
  49. Moreover, the Review Officer's analysis of the evidence that is available supports the proposition that production aid paid to olive growers does not confer a benefit on the export of olive oil to Australia from Greece, Italy and Spain.  It appears to the Revie w Officer that the structure of the markets in Greece, Italy and Spain (being characterised by little vertical integration, very large numbers of olive growers and olive oil processors, producers and exporters and significant competition from both other EU countries as well as from non-EU countries) precludes the possibility of any industry participants holding market power or being in a position to determine market prices independently from the competitive forces of supply and demand.
  50. That is to say that it appears to the Review Officer that prices in the EU of both the input to olive oil and olive oil itself are determined or extraneously imposed by competition and market forces.  Accordingly, it would seem that producers of both olives and olive oil in Greece, Italy and Spain are price takers and their incomes are, as a result, dependent on prevailing market prices and quantities produced and sold.
  51. In addition, during the course of its investigations, Customs was provided with substantial evidence that the bulk of the recipients of production aid (olive growers) were independently operated - i.e. independent of mills and not vertically integrated - and their sales to olive oil processors, producers and exporters were arms length transactions between unrelated entities.  The selling prices achieved by the recipients of production aid were said to be determined solely by the interaction of supply and demand - i.e. by competition and market forces.  Having considered the available evidence, the Review Officer agrees with this and considers that market forces dictate the price of each transaction in the supply chain for olive oil - prices appear very much to be competitively determined and not driven by the payment of production aid in Greece, Italy and Spain (which seems to be internalised by the olive growers).
  52. Production aid, according to the EC, is intended to help olive growers secure a fair income by supplementing the income obtained from the sale of their products.  It is said to be an income support mechanism for olive producers.  The Review Officer notes in this respect that the available data indicates that production aid currently contributes in excess of one third of olive growers' incomes in Greece, Italy and Spain.
  53. Given the lack of definitive evidence in this case, the Review Officer has (as part of his analysis of whether production aid paid to olive growers confers a benefit on the export of olive oil) considered the question of what would happen to the price of the input to olive oil (olives) if production aid were withdrawn.  As discussed earlier, it appears to the Review Officer that competition and market forces determine input prices and that olive producers in the EU are price takers in that they cannot influence the prevailing market price.  Also, producers in both the EU and the rest of the world face the same underlying market price.  Under such circumstances, it seems likely that, if production aid to olive growers were withdrawn, market forces of supply and demand would still determine prevailing prices and the net effect of withdrawal of production aid would be likely to be a reduction in olive growers' incomes in the EU and possibly some related contraction in supply.  Given the substantial competition in the market from both EU and non-EU olive producers, it seems likely that prevailing market prices would still be determined by the mechanics of supply and demand (as is presently the case) and not by reference to the amount of production aid withdrawn.  This analysis, admittedly hypothetical, lends weight to the argument that the payment of production aid to olive growers does not confer a benefit on the export of olive oil to Australia from Greece, Italy and Spain.  The Review Officer does not, however, rely on this particular exercise in supposition for the purposes of concluding in this matter.
  54. The Review Officer, on the basis of all the available information and his analysis of that information, considers that there is no evidence that production aid to olive growers confers a benefit on the export of olive oil to Australia from Greece, Italy and Spain.  Indeed, the available evidence suggests that there is no benefit conferred on the export of olive oil to Australia from Greece, Italy and Spain by the payment of production aid to olive growers in those countries.
  55. The Review Officer therefore rejects Inglewood's argument that there was ample evidence to establish that the benefit of production aid paid to olive producers passed through to the olive oil exported to Australia and agrees with Customs - the Review Officer is not satisfied that production aid paid to olive growers confers a benefit on the export of olive oil to Australia from Greece, Italy and Spain.
  56. The Review Officer considers that production aid paid to olive growers in Greece, Italy and Spain is not a subsidy to the export of olive oil to Australia from those countries because it does not confer a benefit in respect of the goods exported to Australia and the subject of this inquiry.  Since there has been no subsidisation in respect of the goods the subject of the application, the law requires that Customs terminate its investigation and the Review Officer agrees with Customs' decision to do so.
     

    CONCLUSIONS

  57. 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 the application and submissions presented to the Review Officer.
  58. The reviewable decision in this particular case is a decision by the CEO of Customs to terminate the investigation into the alleged subsidisation of olive oil exported to Australia from Greece, Italy and Spain.
  59. The Review Officer rejects the claims of the applicant, Inglewood, that Customs' decision to terminate its investigation into the alleged subsidisation of olive oil from Greece, Italy and Spain was wrong in law and that there was ample evidence to establish that the benefit of production aid paid to olive producers passed through to the olive oil exported to Australia.
  60. Accordingly, the Review Officer affirms the reviewable decision by the CEO of Customs to terminate the investigation into the alleged subsidisation of olive oil exported to Australia from Greece, Italy and Spain.

Richard Oliver
Trade Measures Review Officer

23 August 2004
 
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