Review of decision to terminate an investigation into alleged dumping of certain electric resistance welded circular hollow sections from the Republic of Korea

strong>22 November 2004

INTRODUCTION

  1. As a member of the World Trade Organisation (WTO), Australia is bound by the WTO Uruguay Round Anti-Dumping Agreement and Agreement on Subsidies and Countervailing Measures (the WTO Agreement). Article 2.1 of the WTO Anti-Dumping Agreement provides that a product is considered dumped, i.e. introduced 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 dumping 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 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 (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 anti-dumping duty. On the basis of Customs’ recommendations the Minister will then make a decision whether to impose definitive anti-dumping measures.
     

    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 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 either 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 finding(s) 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 5 March 2004, following an application by OneSteel Trading Pty Ltd (OneSteel Trading), a wholly owned subsidiary of OneSteel Limited, Customs initiated an investigation into the alleged dumping of certain electric resistance welded circular hollow sections of iron or steel (hereinafter referred to as electric resistance welded pipes) exported to Australia from the Republic of Korea (Korea).
  10. OneSteel Limited, a publicly listed company, is the only Australian manufacturer and supplier of the goods the subject of the inquiry. OneSteel Limited has three business divisions in Australia viz.:
    • OneSteel Whyalla Steelworks which manufactures steel feed stock for further processing as well as a range of hot rolled structural products, rail products and slabs;
    • OneSteel Market Mills which manufactures and supplies a wide range of steel products (including electric resistance welded pipes) at Kembla Grange in NSW; and
    • OneSteel Distribution which is the distribution arm of OneSteel Limited supplying an array of steel products (both domestically produced and imported) primarily to the Australian market.
  11. The applicant in this case, OneSteel Trading, is a legal company entity emanating from Tubemakers of Australia Ltd (Tubemakers), an Australian company which undertook pipe and tube manufacturing and steel distribution activities. Tubemakers was acquired by the (then) BHP Co Limited (BHP) in 1996. BHP excised certain assets in 2000 resulting in the formation of, inter alia, OneSteel Limited which included the pipe and tube manufacturing and steel distribution assets of Tubemakers. In 2001, the company entity Tubemakers had its name changed to OneSteel Trading. Legal complexities, tax considerations and commercial complications have to date hampered the rationalisation of the pipe and tube manufacturing assets of OneSteel Trading into the OneSteel manufacturing division.
  12. The goods under inquiry are electric resistance welded circular hollow sections (pipes) of iron or steel, coated (excluding concrete-weight coating) or uncoated, with outside diameters of 168mm up to and including 457mm and wall thicknesses of 4.8mm up to and including 12.7mm. The goods fall into two categories:
    • low grade which is used for a wide array of purposes including structural fabrication, short distance gas pipelines (for utility companies), slurry pipelines, process pipe work, pressure fire hydrant systems and bore casing; and
    • high grade which is used in cross-country, long distance, high pressure oil or gas pipelines.
  13. On 11 August 2004, Customs terminated its investigation in relation to this matter. Section 269TDA(13) of the Act stipulates that Customs must terminate an investigation if it is found that dumping has caused negligible injury. Customs found that some electric resistance welded pipes exported to Australia from Korea had been dumped but that negligible injury had been caused to the Australian industry by that dumping.
  14. In September 2004, OneSteel Trading lodged an application with the Review Officer for review of the decision by the CEO of Customs to terminate the investigation into the alleged dumping of electric resistance welded pipes exported to Australia from Korea.
  15. The Review Officer accepted the application on 23 September 2004.
     

    THE REVIEW

  16. The application for review from OneSteel Trading was received on 10 September 2004 and an amended version of the application was received on 15 September 2004. A non-confidential version of OneSteel Trading’s amended application for review is at Attachment A to this report.
  17. OneSteel Trading argued that Customs’ report in this matter was flawed and challenged the findings of Customs in relation to:
    • Customs’ analysis and conclusions in relation to the goods under consideration;
    • Customs’ assessment of the Australian industry;
    • export prices, normal values and dumping margins;
    • Customs’ assessment of the economic condition of the industry;
    • Customs’ conclusions in relation to material injury; and
    • Customs’ consideration of causation issues.
  18. Further details in relation to OneSteel Trading’s claims in its application for review are at Attachment A.
     

    The Review Officer’s Assessment

  19. The Review Officer’s assessment of the above claims by OneSteel Trading follows.
     

    Customs’ analysis and conclusions in relation to the goods under consideration

  20. OneSteel Trading claimed, in essence, that Customs had insisted, at the commencement of its inquiry, on a broader definition of the goods under inquiry than that which OneSteel Trading had advanced in its original application. The applicant stated that its original application had nominated a narrower range of goods against which action was sought and that Customs had, it was alleged, required OneSteel Trading to expand the description of the goods under inquiry to enable a full assessment of the market and causal link issues. Accordingly, OneSteel Trading claimed that Customs had failed to “thoroughly investigate material injury to the range of products as intended by OneSteel’s application”.
  21. The Review Officer considers that there was ample opportunity for the applicant and Customs to discuss and resolve any issues to do with the definition of the goods under inquiry at the time of screening and initiation of the application. The available data indicates that there was discussion between OneSteel Trading and Customs on this matter and that both parties were ultimately prepared to (and did) go on to the inquiry process with mutual agreement (albeit apparently grudgingly on behalf of the applicant) on the terms of reference of the investigation. It was open to the applicant to withdraw its application at any time and, if needs be, resubmit it in a different form but it is evident that this did not happen. OneSteel Trading proceeded to willingly and actively participate in the subsequent inquiry. The Review Officer considers that it is now too late in the process for the applicant to be disputing the definition of the goods under inquiry.
  22. OneSteel Trading further argued that Customs had erred in its analysis of the Australian market by confusing the one good under inquiry (being all grades of electric resistance welded pipes) with the two distinct end-uses for high grade and low grade electric resistance welded pipes. Customs accepted the Australian industry’s argument that all grades of electric resistance welded pipes should be considered as one good although Customs noted that there appeared to be two distinct markets for low grade and high grade pipes. However, according to OneSteel Trading, “having conceded this ‘one good’ approach, Customs incorrectly proceeded to analyse the matters….cumulatively but continually with reference to conclusions drawn by grade (low and high). In doing so, OneSteel submits that Customs has conducted a flawed analysis”. The applicant further stated that “after defining like goods, Customs often departed from their definition when analysing the market ie. focussing on low & high-grade and ignoring the overall impact of injury on the like goods”.
  23. In its Statement of Essential Facts (SEF) in this matter, Customs concluded that the Australian industry’s description of the goods under inquiry (i.e. that all grades of electric resistance welded pipes - both high grade and low grade - should be considered as one good) was “not inappropriate”. Customs further found, in relation to like goods, that electric resistance welded pipes manufactured by OSMM were like goods to the goods under inquiry in accordance with the Act - Customs did not distinguish between high grade and low grade electric resistance welded pipes in reaching the conclusion that, although not identical in all respects, the Australian produced goods had characteristics closely resembling the imported goods.
  24. The Review Officer has difficulty with Customs’ conclusion that all grades of electric resistance welded pipes produced in Australia are like goods to all electric resistance welded pipes imported from Korea. The available evidence indicates that, whilst it would be possible (but not practical) to use high grade pipes for low grade applications, it would not be possible to use low grade pipes for high grade applications. The Review Officer therefore considers that low grade pipes and high grade pipes are not like goods. The Review Officer does, however, accept that low grade pipes produced in Australia are like goods to low grade pipes imported from Korea and that high grade pipes produced in Australia are like goods to high grade pipes imported from Korea. Accordingly, the Review Officer believes that Customs’ investigation would have been better conducted as an analysis of two distinct markets i.e. the low grade and the high grade electric resistance welded pipes market segments.
  25. This said, the Review Officer does not consider that Customs has erred in its ultimate analysis of developments in the Australian market for the goods under inquiry. Customs has examined market information in respect of low grade pipes and high grade pipes separately and in respect of the goods under inquiry as a whole (i.e. low grade and high grade pipes combined). The Review Officer is satisfied that Customs’ analysis includes the inquiry and investigation that appropriately should have been undertaken in this case and rejects the applicant’s arguments in this regard.
     

    Customs’ assessment of the Australian industry

  26. OneStee l Trading argued, in essence, that Customs had erred in its analysis of the local industry’s sales and profitability by concluding that OneSteel Market Mills (OSMM) and OneSteel Distribution (OSD) constituted the Australian industry producing like goods. The applicant maintained that sales by OSMM to OSD were arm’s-length transactions and that the local industry for the purposes of this inquiry was OSMM - OSD (being the distribution arm of OneSteel Limited) was not, it was claimed, part of the local industry producing like goods in Australia.
  27. The Review Officer considers that, for the purposes of this inquiry, the applicant should have been OneSteel Limited, the parent company, and not OneSteel Trading, a subsidiary of OneSteel Limited and a quite nebulous entity which, for reasons mentioned earlier, exists precariously from the remnants of the old Tubemakers operations.
  28. The manufacture of the goods under inquiry in Australia is undertaken by OSMM, a division of OneSteel Limited, from feedstock provided by OneSteel Whyalla Steelworks. OSMM “sells” its production of electric resistance welded pipes almost entirely to OSD which then sells the goods to the market. OSMM also sells a small portion of the goods under inquiry directly to end-users.
  29. In the first instance, the Review Officer is of the firm opinion that the alleged sales by OSMM to OSD are not sales at all but are internal transfers between two divisions of OneSteel Limited. It means little that these transfers might be valued at arm’s length prices in internal accounts – at all times the beneficial owner of the goods is effectively OneSteel Limited and there can be no sale if ownership does not change.
  30. Accordingly, the Review Officer considers that the local industry producing the goods under inquiry is OneSteel Limited and that the local industry’s domestic sales are constituted by the external sales direct to customer by OSMM and the sales by OSD of electric resistance welded pipes produced in Australia by OSMM.
  31. It was in fact these sales that Customs examined as being the local industry’s domestic sales of the goods under inquiry and the Review Officer agrees with Customs in that respect.
  32. The Review Officer considers, therefore, that Customs has not erred, in the manner alleged by the applicant, in its assessment of the local industry’s sales and profitability.
  33. OneSteel Trading further stated that Customs had “clearly overstated the impact of OSD imports and purchases of imported product”. The applicant stated that Customs had created the impression that OSD’s imports were a factor in the injury suffered by OSMM.
  34. Having examined the available information, the Review Officer can find no basis for this claim. Customs has, quite correctly, identified OSD’s imports and purchases of imports of the goods under inquiry and has, quite properly, taken these into account in its assessment of the Australian market and developments therein.
  35. The Review Officer therefore rejects the applicant’s claims in this regard.
     

    Export prices, normal values and dumping margins

  36. The applicant’s arguments in relation to these issues are presented in detail at Attachment A to this report.
  37. It can be seen from Attachment A that a large part of the applicant’s grievances in respect of export prices, normal values, and dumping margins relate to the veracity of information collected by Customs in the course of its visits to Korean manufacturers and exporters. Frequently used terms in this regard include that Customs “was not able to verify….”, “failed to satisfactorily investigate…”, “failed to rigorously investigate….”, “cannot be satisfied that the cost data they have verified is reliable….”, “failed to ascertain, clarify, compare….”, “understated and cannot be satisfied….” and so on and so forth. The common thread in all of this is the applicant’s concerns about the reliability and credibility of the data collected by Customs during its verification visits in Korea.
  38. The Review Officer does not share the applicant’s concerns in this regard. The Review Officer notes that most of the concerns raised in OneSteel Trading’s application in this respect were also raised with, and considered by, Customs after the release of Customs’ SEF in this matter and were discussed in Customs’ Termination Report.
  39. The Review Officer considers that, in its visits to manufacturers and exporters in Korea, Customs undertook an extensive and detailed investigation and verification exercise and collected all relevant data for the purposes of its inquiry. As part of this exercise, Customs was required to collect and verify relevant financial and other data and establish a suitable and reasonable methodology for allocating various overhead costs to the goods under inquiry. Such a verification exercise is commonplace in dumping inquiries and Customs is well versed in these matters.
  40. The Review Officer is also of the view that it is the responsibility of the investigating authority (in this case, Customs) to reach (through extensive spot checking and cross verification of all data) a level of satisfaction with the suitability and reliability of the information collected and ultimately analysed.
  41. It is not the duty of the Review Officer to himself attain this said degree of satisfaction (that would clearly not be practical) nor is it the prerogative of the Review Officer to question Customs’ satisfaction with the integrity of the information collected. In the conduct of a review, the Review Officer cannot replicate or reinvestigate Customs’ actual inquiries and visits. In a review such as this, the Review Officer is confined to studying only the information that was before the CEO of Customs when the CEO made the reviewable decision.
  42. The information before the Review Officer is, therefore, datum and the required degree of satisfaction with the integrity and veracity of the data collected is also given. Accordingly, the Review Officer will invariably accept the suitability and reliability of the information collected and verified by Customs unless there is significant evidence (but not new evidence that was not available to Customs at the time of the decision) that there are substantial inconsistencies, ambiguities or obvious mistakes in the data available to the Review Officer.
  43. This is not to say that the Review Officer will necessarily agree with Customs’ analysis or manipulation of the data in terms of ascertaining export prices, normal values, dumping margins and factors to do with material injury and developments in the Australian market – it is merely to say that Customs and the Review Officer start their respective analyses at the same point with the same verified data. . The Review Officer’s task is to review Customs’ analysis - not its data collection and verification methodologies.
  44. Despite the applicant’s allegations and speculation to the contrary, it is the opinion of the Review Officer that it is not the case, in this review, that there are substantial inconsistencies, ambiguities or obvious mistakes in the available data.
  45. The Review Officer therefore accepts the probity of the data collected by Customs for the purposes of this inquiry.
  46. OneSteel Trading further claimed that Customs had erred in its assessment of certain normal values by failing to make adequate and reasonable adjustments for:
    • risks and contractual provisions for liquidated damages for sales of high grade pipes;
    • duty drawback on hot rolled coil inputs;
    • certain advertising expenses; and
    • inventory holding expenses.
  47. The Review Officer has examined Customs’ assessment and establishment of normal values and, on the basis of the information available, does not believe that Customs has erred in the manner claimed by the applicant in calculating normal values for the goods under inquiry.
  48. OneSteel Trading also queried Customs’ methodology in its determination of weighted average dumping margins and expressed concern that Customs erred by including goods that were not under inquiry in normal value assessments. The Review Officer has examined these claims and is satisfied that Customs has not erred in the manner claimed by the applicant.
     

    Customs’ assessment of the economic condition of the industry

  49. OneSteel Trading argued, in the first instance, that the injury analysis undertaken by Customs was concerned only with end point to end point comparisons and should have included a year-on-year assessment. The Review Officer does not accept this assertion - Customs has analysed injury over the claimed injury period (from January 2001 to December 2003) appropriately and has examined possible injury factors throughout that period. The Review Officer concurs with Customs’ methodology in this respect.
  50. The applicant further disputed Customs’ injury analysis and conclusions in respect of price effects, volume effects and profits and profitability (full details are at Attachment A).
  51. The Review Officer has examined the claims of the applicant in this respect and the analysis undertaken by Customs. The Review Officer considers that Customs’ analysis of the various possible indicators of material injury was fundamentally sound and agrees with Customs’ conclusions in this regard.

    Customs’ conclusions in relation to material injury
  52. OneSteel Trading claimed that Customs had erred in its injury analysis by failing to take into consideration:
    • profit effects from volume losses i.e. profit loss from missed volumes of projects; and
    • the relationship between sales volumes of high grade pipes and the profits and profitability of both low and high grade pipes.
  53. As already mentioned, the Review Officer has examined Customs’ analysis in this inquiry and agrees with the findings and conclusions reached by Customs in relation to material injury.
  54. OneSteel Trading claims that Customs should have considered “profit loss from missed volumes” in its injury analysis.
  55. The Review Officer is of the opinion that the applicant is, in essence, arguing that Customs should have based its sales and profit analysis on a hypothetical circumstance rather than on actual and observed facts.
  56. Simply put, Customs analysed actual sales data and actual data on profits and profitability over the alleged injury period. The Review Officer agrees with Customs’ findings in relation to the observable evidence before Customs.
  57. However, in the context of assessing material injury, neither Customs nor the Review Officer can analyse, and/or draw conclusions from, what did not happen. To attempt to do so involves assumption, speculation and hypothesis and would entail a complete departure from analysis based on fact.
  58. Material injury in any dumping inquiry (and similarly the questions of whether or not dumping has occurred and whether or not dumping has caused material injury) must be assessed in isolation and based on observable fact and evidence. The question of whether or not the Australian industry has suffered material injury requires a simple yes or no answer based on the available evidence on the demonstrated economic condition of the industry. It is not a speculative exercise - a finding of material injury requires evidence of actual injury to the Australian industry from some cause or causes.
  59. The Review Officer therefore rejects OneSteel Trading’s claim in this regard.
  60. In relation to the latter claim by OneSteel Trading that Customs did not consider the relationship between sales volumes of high grade pipes and the profits and profitability of both low and high grade pipes, the Review Officer again rejects the applicant’s argument - the Review Officer is satisfied that Customs clearly did consider this matter.
     

    Customs’ consideration of causation issues

  61. OneSteel Trading stated that Customs had erred in its analysis by not categorising dumped imports with de minimis (i.e. negligible - less than 2 per cent) margins of dumping as “dumped” goods.
  62. The Review Officer notes that, in terminating its inquiry in this matter, Customs concluded that electric resistance welded pipes exported from Korea at dumped prices had caused negligible injury to the Australian industry. In other words, it was the degree of injury caused by dumping that was found to be negligible (and the Review Officer agrees with this conclusion). It was not the extent of dumping that was found to be negligible.
  63. Accordingly, the Review Officer considers the applicant’s argument irrelevant in this respect.
     

    CONCLUSIONS AND RECOMMENDATIONS

  64. In conducting this review, the Review Officer has taken account of 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.
  65. The reviewable decision in this particular case is a decision by the CEO of Customs to terminate the investigation into the alleged dumping of certain electric resistance welded circular hollow sections exported to Australia from Korea.
  66. The Review Officer rejects the claims of the applicant, OneSteel Trading, that Customs’ decision to terminate its investigation into the alleged dumping of certain electric resistance welded circular hollow sections exported to Australia from Korea was erroneous and flawed.
  67. Accordingly, the Review Officer affirms the reviewable decision by the CEO of Customs to terminate the investigation into the alleged dumping of certain electric resistance welded circular hollow sections exported to Australia from Korea.

Richard Oliver
Trade Measures Review Officer

22 November 2004

 

ATTACHMENT A

NON-CONFIDENTIAL APPLICATION

FROM

ONESTEEL TRADING PTY LTD

IN RELATION TO

CERTAIN ELECTRIC RESISTANCE WELDED

CIRCULAR HOLLOW SECTIONS FROM

THE REPUBLIC OF KOREA

 

APPLICATION TO

TRADE MEASURES REVIEW OFFICER

FOR REVIEW OF A DECISION

TO TERMINATE AN INVESTIGATION

DECLARATION

I hereby request, in accordance with Section 269ZZN of the Customs Act 1901, that the Trade Measures Review Officer review a decision by the Chief Executive Officer of the Australian Customs Service to terminate an investigation into whether the Minister should publish:

® a dumping notice(s); or

® a countervailing duty notice(s)

in respect of the goods which are the subject of this application.

I believe that the information contained in the application:

  • provides reasonable grounds for a review to be undertaken; and
  • is complete and correct to the best of my knowledge and belief.

Signature: ….………………………………………………………………………..

Name: Stephen Porter

Position: Manager, International Trade

Company: OneSteel Trading Pty Ltd

Date: 10 / 09 / 2004

Applicant Details

Applicant : OneSteel Trading Pty. Ltd.,

ABN & Company Details: OneSteel Trading Pty. Ltd. ABN 50 007 519 646

Ingall St Mayfield

NSW, 2304

AUSTRALIA

Contact Name: Stephen Porter, OneSteel Trading Pty. Ltd.

Title: Manager - International Trade,

Telephone number: 03 9931 2616 or 0438 622 232

Facsimile number : 03 9931 2650

e-mail address : porters@onesteel.com

Full description of the imported goods to which the application relates.

“ERW (Electric Resistance Welded) Circular Hollow Sections (CHS) of Iron or Steel coated (excluding concrete-weight coating) or uncoated with outside diameters of 168mm up to and including 457mm and wall thicknesses of 4.8mm up to and including 12.7mm”.

Note – For the purposes of this application for review, the term “CHS” is used interchangeably with “Pipe”.

Outside Diameters (OD) less than 168.3mm have been excluded from the range of goods as this represents a logical cut-off point in terms of manufacturing processes, markets, overseas manufacturing source of imports. Some of the key differences in “the goods” compared to products < 168.3mm supplied by OneSteel and other Australian manufacturers are:

·         Virtually all of the imported product > 168.3mm OD has bevelled ends and meets API specifications.

·         Product manufactured in Australia < 168.3mm OD is not designed or capable for use in gas transmission.

·         In excess of 95% of the GUC for which there is an Australian industry going through a separate manufacturing process containing ultrasonic testing of welds. This does not occur for any Australian manufactured product <168.3mm OD.

·         In excess of 95% of the GUC for going through a separate manufacturing process where each individual length of pipe is pressure tested. This does not occur for any Australian manufactured product <168.3mm OD.

·         The GUC are generally manufactured with bevelled ends whereas product < 168.3mm and manufactured in Australia is not.

·         In excess of 95% of the GUC manufactured by OneSteel is certified to international API specifications. None of the pipe <168.3 mm OD manufactured in Australia meets API specifications.

Hereafter “Dumped Imports” will refer to exports of the GUC to Australia from South Korea.

Standards

Imported product is predominantly supplied to the American Petroleum Institute (API) standard 5L (API 5L). This specification covers physical, mechanical and chemical properties of the pipe. On occasion imported product may be specified to AS-1163.

The imported product will be often substituted into applications with the following product standards:

·         API 5L - Specification for Line Pipe,

·         AS-1396 - Steel Water Bore Casing,

·         AS-1163 - Structural Steel Hollow Sections

Refer Attachment A-3.1.1, OneSteel Application 27/2/04 for copies of the relevant Australian and API Standards for the product, which provide further details on physical and chemical properties required.

API 5L is referenced as an acceptable grade within the following Australian design and installation Standards:

·         AS2885.1- Pipelines – Gas and liquid petroleum,

·         AS4041 - Pressure Piping,

The imported product may be offered to a range of specifications including, but not limited, to AS1163, AS 1396, KSD 3566, KSF 4602, KSD 3507, KSD 3562, API 5L Grade B and API 5L X42 through to X80.

Grade/Strength

Within the API 5L standard, the grades are differentiated by increasing strength levels and are denoted as Grades A, B, X42, X46, X52, X60, X70 and X80. All grades apart from Grade A are regularly offered or supplied to the Australian market.

Illustrative and technical material from some of the Australian based distributors of the imported product that are subject to this application are contained in Attachment B-1.4.2, OneSteel Application 27/2/04 and details of the relevant overseas manufacturers is

contained in Attachment B-1.4.1, OneSteel Application 27/2/04.

Properties

The imported goods will possess chemical, structural and mechanical properties that meet the International Standard API 5L (or AS-1163 if specified), which is referenced as an acceptable grade within the Australian Standards previously mentioned.

 
Coatings
Generally imported product will be supplied with a coating such as a rust preventative solution or varnish. However, in certain instances offers have been made for imported ERW Pipe with Polyethelene (PE), Fusion Bonded Epoxy (FBE) coatings.
·               The tariff classification/statistical code of the imported goods.
 
Tariff Classification Code
​Tariff Classification Description
​Applicable duties
7305.12.00/02
​Other tubes and pipes (for example welded, riveted or similarly closed), having circular cross sections, the external diameter of which exceeds 406.4mm, of iron or steel :
–         Other longitudinally welded.
–         Not exceeding 508mm external diameter.
​5%;
DCS : 4%
DCT : 5%
 
7305.12.00/04
​Other tubes and pipes (for example welded, riveted or similarly closed), having circular cross sections, the external diameter of which exceeds 406.4mm, of iron or steel :
–         Other longitudinally welded.
–         Other
​5%;
DCS : 4%
DCT : 5%
​7305.19.00/38 ​Other tubes and pipes (for example welded, riveted or similarly closed), having circular cross sections, the external diameter of which exceeds 406.4mm, of iron or steel :
–         Other
​5%;
DCS : 4%
DCT : 5%
7305.20.00/73
​Other tubes and pipes (for example welded, riveted or similarly closed), having circular cross sections, the external diameter of which exceeds 406.4mm, of iron or steel :
–         Casing of a kind used in drilling for oil and gas
–         Of iron or non alloy steel
​5%;
DCS : 4%
DCT : 5%
​7306.10.00/32 ​Other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similarly closed), of iron or steel :
-          Linepipe of a kind used for oil or gas pipelines
-          Exceeding 165 .1mm external diameter
​5%;
DCS : 4%
DCT : 5%
​7306.20.00/40 ​Other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similarly closed), of iron or steel :
–         Casing and tubing of a kind used in drilling for oil & gas
​5%;
DCS : 4%
DCT : 5%
​7306.30.00/29 ​Other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similarly closed), of iron or steel :
-          Other, welded, of circular cross section, of iron or non alloy steel
-          Exceeding 165.1 mm external diameter.
​5%;
DCS : 4%
DCT : 5%
 
 
Note – South Korea is subject to DCT rates of duty.
 

All of the tariff classifications above cover a broader range of product than that against which action is sought but are believed to predominately represent the GUC. Customs may have additional information available to assist in making this determination.

Background

On January 5, 2004, OneSteel Trading Limited Pty Ltd (OneSteel), a wholly owned subsidiary of OneSteel Limited, lodged an application on behalf of the Australian Industry under s. 269TB (1) of the Customs Act 1901 (the Act) requesting that the Minister responsible for Customs (the Minister) publish a dumping duty notice in respect of certain electric resistance welded circular hollow sections of iron or steel (ERW CHS) exported to Australia from the Republic of Korea (Korea)

OneSteel submitted further information in support of its application.

An investigation was initiated on 5 March 2004 (refer to Australian customs Dumping Notice No. 2004/09)

Customs advised they would examine exports to Australia of ERW CHS during the period of October 1, 2002 to 31 December 2003 (the investigation period) to determine whether dumping had occurred and that Customs would examine details of the Australian market from January 2001 to December 2003 (the injury period) for injury analysis.

Through the course of the investigation, OneSteel submitted to Customs additional information in support of its application . This additional information was either supplied in response to direct Customs requests for further information or by OneSteel wishing to provide further clarity on already provided data/information.

Customs was to place on the public record, the SEF80 on June 23, 2004, however under s.269ZHI, extended the deadline to 7 July, 2004.

On 11 August, 2004 Customs, concluded that, in accordance with s. 269TDA (13) of the Act, the CEO must terminate the investigation in the dumping of ERW CHS from Korea, as

Customs found that:

  • Some ERW CHS exported from Korea was sold to Australia at dumped prices; but that

  • The ERW CHS exported from Korea sold at dumped prices caused negligible injury to the Australian industry.

The details of this were contained in Customs Termination Report (TR 80).

Please refer to Attachment 1.0, for a copy of the written advice from the CEO of the decision to terminate the investigation.

Grounds for Appeal

OneSteel requests the TMRO to review Customs’ decision to terminate the investigation into ERW CHS exported from Korea at dumped prices. The grounds for this appeal are summarized as follows:

    • Customs has incorrectly determined export prices, normal values and dumping margins for a number of the Korean exporters ie. that margins for SeaH and LG were less than 2% and margins for Hyundai Hysco were negative.
    • Customs has reached incorrect conclusions in relation to material injury suffered by the industry ie. OneSteel did suffer lost sales, lost profits and profitability during the injury period.
    • Customs has incorrectly concluded that dumped exports with dumping margins less than 2% were non-injurious;
    • Customs has incorrectly attributed injury from other imports; and
    • As a result, Customs have incorrectly concluded that dumped exports from Korea did not cause material injury to the Australian industry.

1) Customs analysis and conclusions in relation to the goods under Consideration

  • OneSteel’s original application nominated a narrower range of goods against which action was sought;
  • Customs’ required OneSteel to expand the description of the GUC to supposedly allow for a thorough analysis of the complete range of products including those outside OneSteel’s manufacturing capability;
  • the subsequent impact of a broader description of the GUC was a dilution of material injury which could be attributed to dumped imports;
  • a broader definition encompassed “other imports” into consideration – including goods which did not injure the locally produced goods;
  • Customs has failed to thoroughly investigate material injury to the range of products as intended by OneSteel’s application.

In addition, after defining like goods, Customs often departed from their definition when analysing the market ie. focussing on Low & High-Grade and ignoring the overall impact of injury on the like goods.

2) Customs assessment of Australian Industry

    • Section 269T(4) defines the Australian industry as “….persons who produce like goods in Australia…”;
    • OSMM is the producer of like goods in Australia;
    • Customs has erroneously included OSD as a producer of like goods;
    • Customs has incorrectly placed substantial weighting on imports of like goods by OSD which, in the overall context of the Australian market represent less than 0.1 percent market share, and are clearly negligible.

Customs simplistic assessment that because OneSteel Market Mills and OneSteel Distribution are both divisions of the same legal entity – together they form the Australian Industry is flawed

3)      Export Price, Normal Values and Dumping Margins

    • In respect of SeaH, Customs has failed to make a specific adjustment to normal value to account for a fair price comparison between domestic and export sales. SeaH indicated (and Customs agreed) that price differentials existed on export sales for projects due to higher associated risks. An adjustment was warranted – separately – for additional costs associated with the production and sale of High-Grade vs Low-Grade including such items as the contractual provision for liquidated damages;
      • Article 2.4 of the Agreement requires Customs to make an adjustment to allow for fair comparison;
    • OneSteel provided Customs with an independent assessment which conservatively quantified the direct cost associated with the risk associated with liquidated damages etc. – XXX per cent of SeaH FOB prices (conservative as the assessment did not quantify a number of other key risks/costs);
      • Customs failed to challenge SeaH on the cost associated with liquidated damages that could be separately identified in the company’s accounts;
    • Customs’ assessment of SeaH’s normal value for high grade product is lower than it should otherwise be, due to Customs’ failure to take account of a cost of the magnitude identified by the independent assessment (a higher adjustment is required when indirect costs are also included) of costs associated with the production and sale of High-Grade;
    • Customs has incorrectly calculated duty drawback for SeaH based upon a higher theoretical weight for imported raw material hot rolled coil (HRC). A higher adjustment for a “theoretical weight” rather than on an actual weight basis has resulted in an adjustment greater than the amount of duty actually paid on imported HRC (which was incorporated into exported finished goods). Further OneSteel requests the TMRO examine the use of actual vs theoretical mass for the determination of Normal Values and Export Prices. It is OneSteel’s view that sales in both markets are based on theoretical mass
    • Customs have incorrectly made adjustments for advertising and inventory holding costs for HuSteel. These are costs incurred by HuSteel in supplying product into both the domestic and export markets. OneSteel would also question the degree to which these affect the price e.g. do price differentials exist on the domestic market depending on advertising expenses or whether the product is sold ex-rolling vs ex-inventory.

    • By reference to industry best practice, Customs’ examination of costs for Hysco appears to be in error as full costs have not been verified;
    • Customs has verified selling price data for HuSteel which are not covered by the GUC. As such, it cannot be concluded that HuSteel’s sales are in the ordinary course of trade (until the irrelevant sales are removed);
      • Customs approach to allocating corporate overheads for exporters versus Australian industry was inconsistent, hence Customs cannot be satisfied there are not overheads disproportionately driven by production and sales of the GUC;
      • OneSteel has been unable to reconcile the normal values established by Customs with best practice cost models using prices for the key raw material (Hot Rolled Coil) contained in SeaH statutory accounts. Furthermore, the normal values established by Customs are even more difficult to reconcile in the case of Hysco and HuSteel who had higher HRC costs. On this basis OneSteel regards the normal value information provided to Customs as unreliable.
    • The foregoing establishes errors and inconsistencies in Customs’ assessment of normal values for SeaH, Hysco and HuSteel. Until these errors and consistencies (including allocation methodologies for certain costs) are corrected, a final determination on de minimis or negative dumping margins should not be made.

4) Customs assessment of the Economic Condition of the Industry

  • Customs concluded that the Australian industry had experienced:
    • some price undercutting by dumped and undumped goods;

    • some price suppression and price depression;

    • OSMM had experienced a reduction in market share of XXX per cent with imports from Korea increasing by XXX  OneSteel’s profit declined by XXX per cent;

    • profitability for both grades declined by between XXX percentage points;

With these injury factors evident over the investigation period, it is difficult to understand how Customs could not establish that OneSteel had been materially injured. Curiously, Customs made no attempt to quantify the injury (despite commenting that the injury was primarily sustained in the high-grade sales);

Customs failed to include year on year assessment when performing their injury analysis. OneSteel stated in its application that material injury became apparent during 2002 yet Customs analysis has largely excluded OneSteel’s results in 2002 and therefore outcomes in half of the injury period. By failing to perform this analysis, customs could in no way make informed conclusions on trends over the injury analysis period.

5)       Customs conclusions in relation to material Injury 

  • Customs erroneous assessment of normal values and subsequent assessment on the level of dumping margins, diminishes the impact of dumped imports on OneSteel’s business;
  • a re-assessment of normal values in accordance with the factors identified above will re-position Korea’s overall market penetration for dumped imports at XXX percent of the Australian market;
  • this level of market share held by dumped imports demonstrates material injury was suffered by OneSteel;
  • Customs’ conclusions and methodologies in examining material injury to the Australian industry was too simplistic and lacked appropriate analytical detail.
  • OneSteel has clearly suffered material injury for ERW CHS (overall, low-grade and high-grade) in the following forms:
    • Lost Sales;
    • Price undercutting;
    • Price depression;
    • Price suppression
    • Reduced profits, profitability + lost profits; and
    • Lost market share.
  • Profit effects from volume losses - Customs has ignored the impact of profit loss from missed volumes of projects and from the diminished market share impact from dumped product undercutting the market price.
  • Customs has also incorrectly concluded that injury in Low-Grade does not affect injury in High-Grade. Data supplied in OneSteel’s application (Refer Charts A-9.2.1 & A-9.2.2) highlights the relationship between sales volumes of High-Grade and the profits and profitability of both Low and High-Grade. Lost sales in either High-Grade or Low-Grade critically effect the operating efficiencies, unit costs of production and unit overhead costs for the other model.

6)       Customs consideration of causation issues

  • OneSteel has outlined a number of reasons why Customs conclusions of negative margins and de minimis margins was incorrect (for the reasons identified above);. Regardless, Customs finding that imports from Korea at negligible dumping margins were “undumped” or “non-injurious” is not correct
  • In light of the incorrect assessments on normal values, dumping margins and material injury, a re-examination of causal link is required. It is OneSteel’s view that correction of the identified matters will result in a direct linkage between dumped exports (negligible and non-negligible) from Korea and material injury experienced by OneSteel as being established i.e. causal link established.

Conclusion

Customs’s final determinations of normal values and dumping margins have been found to contain errors and inconsistencies.. The acceptance of unreliable data has lead to Customs drawing numerous incorrect conclusions.

These incorrect conclusions have lead to the further error in recommending the investigation be terminated.

OneSteel request the TMRO to thoroughly examine the issues identified above and, in consideration of the comments provided, re-visit Customs’ decision to terminate the investigation into the dumping of ERW CHS exported from Korea.

1          Customs analysis and conclusions in relation to the Goods under Consideration

Causation

OneSteel’s initial Application sought to focus on the range of sizes where OneSteel had suffered injury due to the offer and supply of dumped imports. At Customs insistence OneSteel expanded the range of goods. OneSteel has never had the intent of seeking measures on sizes and grades it is not capable of manufacturing.

Customs stated reasons for insisting the range of goods were expanded was to enable them to conduct a full assessment of the market and be able to make a causal assessment about the effect (injurious or non-injurious) of all goods.

Customs having successfully insisted on a broader range for the Goods Under Consideration has completed only part of the investigation. SEF80 and TR80 do not reveal any analysis conducted by Customs to establish the range of products and origins that it believes caused the injury to the Australian industry. Rather it reveals a simplistic analysis of broad-based indices without any regard to the origin, size of sections imported from overseas and the injurious or non-injurious outcomes of individual projects.

‘LIKE GOODS’ – Material Injury Analysis

Having defined “like goods”, Customs departed from their definition at various times throughout the SEF80. OneSteel believes this has created inequities in the analysis by Customs of the market size, the volume of imports, the economic condition of the industry and causation of material injury.

In the SEF80, Customs noted “that there appeared to be two distinct markets” but in the absence of submissions to the contrary “considers the Australian industry’s description of the goods [as one good] is not inappropriate”. Yet having conceded this ‘one good’ approach, Customs incorrectly proceeded to analyse the matters referred to above cumulatively but continually with reference to conclusions drawn by grade (low and high). In doing so, OneSteel submits that Customs has conducted a flawed analysis.

The importance of maintaining consistency in the definition of ‘like goods’ has been spelt out before the WTO in a number of matters under review:

“ … Article 2.6 establishes the like product for the purposes of the entire investigation. Thus, an investigating authority is required to keep the like product consistent in its dumping and injury determinations.

… It is therefore natural that an injury investigation would focus upon the like product and the relationship in the domestic marketplace between the like product and the imported product concerned.

Having defined the like product and the product concerned as it did for the purposes of this investigation, the European Communities was bound to conduct its injury investigation on this basis”[1].

Again in Bed Linen[2], the Appellate Body outlined how once having made a determination on the definition of ‘like goods’, an anti-dumping administration could not, at a subsequent stage of the proceeding, take a different position, as has been the case by Customs in the ERW CHS case:

“ … as we have already noted, at the very outset of its anti-dumping investigation, the European Communities identified, of its own accord, cotton-type bed linen as the product under investigation. Moreover, in defining cotton-type bed linen as the product at issue, the European Communities stated that “the different possible product types … constitute a single product for the purpose of this proceeding because they have the same physical characteristics and essentially the same use”.

On the basis of there being ‘one good’, we submit that Customs has erred in its SEF80 by failing to reflect the ‘one good’ ‘like good’ definition with cumulative assessment.

2          Customs assessment of the Australian Industry

OSMM transactions with OSD

OneSteel submits that by Customs using the transactions between OSMM and OSD to find indications of injury is evidence that OSD is not part of the industry producing like goods in Australia and that the price between the two is at arms’ length.

The Agreement provides that “injury” means “material injury to a domestic industry, threat of material injury to a domestic industry or material retardation of the establishment of such an industry”. It is clear that the focus of any injury determination is the state of the “domestic industry”.

Article 4.1 of the Agreement defines the term “domestic industry” as the “domestic producers as a whole of the like products” or “[domestic producers] whose collective output of the products constitutes a major proportion of the total domestic production”. It follows then that a determination of what constitutes the domestic industry can only contemplate “producers of the like products”.

The definitions in the Agreement are mirrored in the Australian legislation: S.269TAE refers to “material injury to an Australian industry”, while s.269T(4) defines the Australian industry to be:

“ … if, in relation to goods of a particular kind, there is a person or there are persons who produce like goods in Australia:

(a)               there is an Australian industry in respect of those like goods; and

(b)               … the industry consists of that person or those persons.”

OneSteel has provided substantial evidence to Customs on why the manufacturing and distribution divisions should be treated as two discrete entities.

All transactions are transparent. This is not an industry with any amount of domestic production being subject to a captive market. At all times, domestic production by OSMM is not shielded from direct competition with imports.

Despite this Customs reached the conclusion that the margins and sales from OneSteel Distribution were relevant for their assessment of injury.

Having insisted upon supply and verification of data from OneSteel Distribution on sales and profits over the investigation period, Customs have largely disregarded the information in their assessment of injury.

The mere fact, as Customs have observed, that OneSteel does not possess an integrated structure for analysis of sales and margins through different divisions supports the assertions OneSteel has made in relation to the nature of transactions between OneSteel Market Mills and OneSteel Distribution.

OneSteel Distribution Imports

In SEF80 Customs creates the impression that OneSteel Distribution imports were a factor in the injury suffered by OSMM. This is worthy of a greater level of analysis than “OSD imports were not insignificant”.

Analysis of the import volumes over 2001, 2002 & 2003 for which OSD was the importer of record (and verified with Customs) indicate:

  • OSD total imports over the investigation period were – XXX

  • Of those imports only XXX were confirmed in the GUC.

  • Of those imports only XXX were within the range of OSMM’s manufacturing capability. This represents less than 0.1% of the estimated total market of XXX over this period.

Attachment 2.2 in OneSteel’s Submission dated 27/6/04 Contains a summary table of OneSteel’s analysis.

Customs reached their conclusion albeit with no discussion with OneSteel that additional volumes of the GUC imported by Capital Steel and other companies were effectively imported by OneSteel Distribution. Customs did not reach this same conclusion with all other steel distributors who purchased imported product. Customs declined to provide details to OneSteel on the information it was provided regarding OSD purchases from steel importers.

Regardless, analysis of OSD’s purchases during 2003 of linepipe from steel importers plus inclusion of import volumes (denoted above) where OneSteel was the importer of record indicates:

  • OSD purchased XXX of ERW CHS in the range of the GUC.

  • Of those imports only XXX were within the range of OSMM’s manufacturing capability. This represents 0.44% of the estimated 2003 market for ERW CHS of XXX

OSMM consistently acknowledged throughout the investigation instances of OSD purchases of product within its capability:

1)       A purchase when it needed to make up the minimum order quantity required from SeaH.

2)       A purchase conducted by OSD on behalf of Alcoa (via an internet reverse auction tender) where OSMM was not the lowest bidder and therefore did not secure the order. In this case OneSteel would submit the actual importer of the goods was Alcoa given they were the ultimate owner of the goods and determined the selection criteria to be used and followed for the tender. This case represents a clear example of lost Low-grade sales by the Australian industry but at a depth of analysis not evident in SEF80.

Despite this it is worth noting that purchases from OSD over the investigation period within the manufacturing range of OSMM represent a very minor component of overall import volumes. Customs in SEF80 has clearly overstated the impact of OSD imports and purchases of imported product.

3          Export Price, Normal values and Dumping Margins

OneSteel believes Customs have made a number of errors in their approach to establishing normal values (including adjustments), export prices and therefore dumping margins. Key areas of concern for OneSteel include:·         The veracity of normal value sales data plus overhead/production cost allocations given the large inconsistencies between that data established by Customs and best practice models XXX.   The veracity of export sales given Customs inability to obtain and/or verify critical data relating to both the exporters and importers.·        Customs lack of adequate recognition for the substantial differences in costs structures for High-vs Low-Grade in establishing normal values for SeaH’s sales of High-Grade product ie. Customs failed to make adequate adjustment to ensure SeaH’s export sales and normal values were comparable.

SeAH

Customs identified that SeAH sold into the Australian market through 5 import channels during the POI. Customs through its investigations was not able to verify as to whether any of these sales were profitable sales or any other forms of payment were not included in the export sales.

In the absence of this verification, Customs has erred in concluding the transactions have been

·         At arms length and

·         in the normal course of trade

High Grade Export Price

Customs established that there were four players in the transaction involving the importation of High grade (XXX)

  •  SeAH

  • LGI

  • SC France

  • SCL JV

Customs was unable to verify substantive aspects in relation to this chain of transactions, particularly that relating to invoice prices.

It is particularly important to note that each player appears to have presented a different account on who invoiced who, what they were invoiced for and their role in the supply chain.

Refer Attachment 3.1.1b, OneSteel submission 27/6/04

Despite this, Customs failed to satisfactorily investigate the relationship between XXX LGI, SC France and SCLJV, including the need for payment from SC France to A.J. Lucas to compensate for profit generated with S.C France’s re-sale of the product to the joint venture.

OneSteel agrees with Customs that it cannot establish the export price under s269TAB (1) (a) or (b) of the Act, however would question Customs ability to consider the export price under s 269TAB (1) (c) of the Act using the invoiced FOB prices from SeAH to Korean trader and the Australian trader, when they are aware of a fourth party involved in the transactions and they have been unable to verify substantive aspects of the key transactions with consideration to purchase order prices, invoice prices and actual paid price versus invoice price.

Low Grade Export Price

Customs failed to rigorously investigated the relationship between SeAH, Capital Steel and Capital’s Korean trading/shipping agent.

Capital Steel is consistently the lowest priced supplier of SeAH products into the Australian market place. Whilst consideration can be given to a different (lower) SG&A structure for Capital than its competitors, all other factors remain similar eg. Freight, duty, bank charges etc.

This cost advantage however, does not equate to the price advantage Capital maintains in the market place.

Despite Customs considering Capital Steel as ‘unco-operative’ after they chose to withhold their company accounts, Customs has inexplicably concluded that these transaction have been at arms length with little further investigation.

Furthermore, this was not an isolated occurrence as noted by Customs in TR80 - 9.1.

Customs has clearly erred in this assumption, and subsequently erred in using the invoice price from SeAH to Capital Steel for the establishment of the export price for low grade. Given the absence of verified financial data relating to Capital Steel’s accounts Customs could not be reasonably satisfied the invoice supplied by SeaH represented the only aspect of the transaction.

Given these circumstances it would have been more appropriate for Customs under s269TAB (1)(b) of the Act, t o establish the export price using the deductive method based on data provided by OneSteel at the time of its application.

Cost Data – Normal Values

Potential for subsidised HRC input costs – ex-Posco

Customs in their determination of High grade normal values failed to:

  • Ascertain the HRC input costs for SeaH on the XXX;
  • Ascertain the HRC input costs for SeaH and other manufacturers for the same grade of product at the time of supply from Posco for other sales;
  • Clarify that HRC input costs do not represent a “dumped” or subsidised price ex-Posco; and
  • Ascertain what the true input costs would have been for SeaH for a domestic sale of High-Grade.
  • Compare weighted average HRC costs for SeaH’s domestic sales of Low-Grade vs HRC Costs for SeaH’s export sales of Low-Grade to Australia vs HRC Costs for SeaH’s export sales of High-Grade to Australia (with allowance for grade extra’s) to ensure the HRC input costs for the High-Grade were not subsidised.

Cost Model

OneSteel in Attachment 3.2.2h, OneSteel submission 27/6/04 used the average base price for HRC (as published by SeAH’s FSC report -which excludes grade extra’s) and incorporated it into a revised cost model for SeAH (XXX) . Included also, are other key costs as reported by SeAH in their annual report eg. Depreciation, SG&A etc. OneSteel has added the known standard Posco grade extra of KW67,000/MT to the HRC input price.

Cost Model outcome – Using key data components sourced from SeaH’s financial statement combined with optimistic assumptions in relation to operating performance the revised model generates a dumping margin of (XXX) for SeaH’s sales of High-Grade for the XXX. A dumping margin range of XXX is calculated for Low-Grade. Note – The margins are higher in the case of HuSteel and Hysco given their HRC costs were higher (Reported by Customs in (TR80). XXX

Given the optimistic assumptions in the costs model, OneSteel can only conclude that a constructed normal value based on SeAH’s true cost inputs and yield rates would establish a normal value that is higher than Customs constructed and results in a higher calculated dumping margin than Customs determined.

Conclusion – The information provided to Customs for the purpose of establishing normal values would appear to be unreliable for the purposes of establishing normal values i.e. the values obtained by Customs from SeAH do not reconcile with a “best practice” model incorporating a number of key operating costs as reported in SeaH’s audited accounts.

Customs Approach is inconsistent with that used for applicants

Customs when assessing material injury to Industry, requested that OneSteel identify all corporate overheads and subsequently allocate them to individual business units proportionate to the sales revenue generated by that particular business unit during the financial period. This meant that regardless of whether the corporate overhead could directly be attributed to the production of the line-pipe, the cost was duly allocated.

Customs failed to take the same approach with SeAH. Instead Customs enabled SeAH to ’cherry pick’ corporate overheads to allocate against product groups other than the GUC or not allocate at all. In taking this approach Customs has understated the true overhead costs for the GUC and cannot be satisfied that there are not overheads disproportionately driven by the production and sales of the GUC.

Similarly, with consideration of subject goods sold in the Korean domestic market, the potential understatement of costs associated with their production may have an influence on whether Customs can consider those sales to be in the normal course of trade in accordance with s269TAAD of the Act.

In TR80 10.1.2.4 Customs state they were satisfied production costs were allocated in accordance with SeaH’s claimed allocation methods. OneSteel requests the TMRO ascertain the degree to which Customs satisfied themselves that costs were allocated in a method consistent with SeaH’s actual allocation methods.

Conclusion – Costs

There is enough evidence to suggest that Customs should not be satisfied with the reliability of the cost to make and sell data they have obtained from SeAH. As such, these sales should have been considered to be unreliable in terms of s.269TAC(7). Subsequently, Customs should not have considered calculating normal values for Low grade product in terms of s269TAC(1) of the Act.

Adjustments

High Grade

Differences in the conditions of sale

In responding to a question from Customs on whether its prices for large volume projects, such as the LGI exports to Australia reflect the risk associated with contractual obligations, e.g., liquidated damages, SeAH confirmed that these considerations were a key factor in establishing the export prices and confirmed that these same considerations did not apply to domestic prices. However, Customs failed to adequately take these different market circumstances into account, with adjustment for minor claims incurred in supply on the SeaGas project.

In Hot Rolled Steel Products from Japan[3], the Appellate Body found that Article 2.4 of the Agreement expressly requires that allowances be made to the normal value when differences with the export price affect the “comparability” of those prices and it was incumbent upon the investigating authorities to provide a fair comparison:

“We would also emphasize that, under Article 2.4, the obligation to ensure a “fair comparison” lies on the investigating authorities, and not the exporters. It is those authorities which, as part of their investigation, are charged with comparing normal value and export price and determining whether there is dumping of imports.”

We would suggest that the fairness referred to by the Appellate Body extends to the Australian industry which is subject to the dumping and the resulting material injury. By not conducting a proper analysis of the costs that should have been added to the constructed normal value, Customs has effectively undertaken an unfair comparison.

Customs did not establish a hypothetical sale of the high grade product in the domestic market. Rather, it established a hybrid based on a combination of the cost of production of high grade coupled with the SG&A expenses and profit of low grade sales. This occurred, in part, we believe, on the incorrect premise that the SG&A expenses on domestic sales of high grade could not be used as a basis of constructing a normal value because they were not in the ordinary course of trade.

We submit that adjustments to the Low-Grade SG&A expenses (to the equivalent of High-Grade sales) will more truly reflect actual costs incurred and realised in a hypothetical sale than SG&A expenses on low grade sales. In using the low grade expenses and making no adequate adjustment to the constructed normal value to account for these differences, Customs did not undertake its obligation to construct a “comparable” normal value. It was noted a number of times in the visit report that SeAH advised Customs that considerations, such as the risk associated with contractual provisions for liquidated damages affected the price on high grade sales.

The legislation allows for adjustments to be made to the normal value under s.269TAC(9) to take account of these differences. We believe that the cost differences will be found in the chart of accounts or else SeAH will have made provision for future expenses on the XXX

OneSteel provided Customs with information on costing and pricing for project sales (refer to OneSteel submission of 8 June 2004). Some of the key factors were:

§         Warranty provisions

§         Liquidated damages

§         General insurance

§         Stock builds – i.e., ‘over-roll’

§         Specific HRC requirements for individual projects

§         Legal expenses

§         Technical development

§         Technical resources

§         Direct labour costs

§         Volumes

§         HRC raw material costs

One allocation that should have been examined further by Customs, for example, was the allocation of expenses for high grade across all high grade manufactured for the XXX and quantities surplus to that and other export orders (sold as ‘over-roll’ in the domestic market).

The above costs are project specific yet Customs failed to (in their SeAH visit) investigate and report on these costs and their specific application to the production and sale of high grade pipe. There appeared to be no drilling down into the chart of accounts to investigate actual costs to determine whether certain SG&A expenses were specific to XXX. Throughout and prior to the investigation OneSteel has highlighted the substantial risks and costs involved with offering and supplying High Grade pipe into major projects. In part, this is a function of the substantial contractual damage clauses frequently contained in contracts for major high-grade pipelines.

In numerous instances this appears to have been acknowledged and recognised by both Customs and SeaH:

·         P15 of Customs visit report for SeaH – primary factors that impacted on SeaH’s selling price included – “the terms and conditions of the contract such as damages, contingent liabilities, quality claims, penalties and warranties.”

·         P34 of Customs visit report for SeaH – “Specifically, we asked SeaH if its prices for large volume projects such as the XXX exports to Australia would reflect the considerable risk associated with contractual provisions for liquidated damages, for example, in the event of failing to meet agreed product quality or delivery schedules. SeaH confirmed that these considerations were a key factor in establishing the export price for such contracted supply arrangements, and it confirmed these considerations did not apply to the domestic price.”

·         P39 of Customs visit report for SeaH – “We also note SeaH’s advice that in establishing price for the XXX on the domestic market, its considerations were substantially different to those for establishing a export price because the domestic sales were not into the project market.”

·         P24 of SEF80 – SeaH was the exporter of High-Grade because it – “was aware of the exact quantity to produce for the Australian customer, the shipping schedule and the substantial penalties if those deadlines were not met;”

·         P24 of SEF80 – SeaH was the exporter because it – “factored the terms and conditions contained in the purchase order between the Korean trader and its Australian customer into its pricing decision, including the terms relating to contingent liabilities and quality guarantees, some of which are substantial;”

·         P24 of SEF80 – SeaH was the exporter because it – “changed its normal certification procedures to comply with the requirements of the Australian customer;”

·         P25 of SEF80 – “SeaH also confirmed that the considerations applying to establishing the price for the High-Grade sales to Australia, for example the risk associated with liquidated damages for failing to meet agreed product quality and delivery schedules, did not apply to setting the domestic prices for those domestic sales.”

Despite this Customs has to a large extent ignored these differences – Refer P27 of SEF80 7.3.2.3. Customs concludes that it did not have any other “reasonable” means for establishing SG&A costs for and profit for High-Grade. This is despite a substantial submission from OneSteel 9/6/04setting out a basis for quantifying those differences. OneSteel submits that taking into account these factors would have represented the most “reasonable” means for establishing a normal value for High-Grade. The absence of actual data does not provide an excuse for Customs to merely give up.

In order to expand and further quantify the basis for this approach OneSteel commissioned National Economic Research Associates (NERA) to provide an independent appraisal and report to OneSteel outlining how the substantial risks and costs associated with supply of high-grade major projects can be quantified (refer Attachment 3.3, OneSteel Submission, 27/6/04). NERA concluded on the basis of the assumptions provided by OneSteel some of the additional costs that could be expected to be incurred by SeaH on domestic sales of High Grade product vs Low-Grade. Some of these costs represent direct expenditure whilst other costs represent provision for the risks and ultimately costs incurred in supply of High-Grade projects. NERA have estimated that these costs equate XXX of the SeaH FOB sell price on the XXX. It should be noted the analysis performed by NERA was conservative as they did not quantify or incorporate a number of the risks/costs identified.

Additionally, the TMRO in conducting the review needs to be satisfied Customs have correctly determined a weighted average dumping margin for the GUC incorporating dumping margins for both Low & High Grade during the period of investigation. This should include a review as to whether a quarterly based assessment of dumping margins was more appropriate given the substantial movements in HRC prices during the period of investigation.

Not only has Customs failed to make adequate and reasonable adjustments in its construction of Normalvalues for High grade pipe, but it has also failed to be reasonable with consideration to subsequent adjustments for high grade product. Whilst Customs has made a minor upward adjustment to reflect the different nature of the sales of high grade to Australia versus low grade sales in Korea, the adjustment does not appear (to any party) to reflect the true costs and inherent risks associated with large high grade line pipe projects as outlined in previous submissions to Customs by both OneSteel and SeAH.

Duty Drawback on 5LB grade export sales

In the SEF80, Customs stated that SeAH received duty drawback on a fixed rate provision, Customs subsequently calculated a downward adjustment for the 5LB grade in excess of the duties actually paid on the hot rolled coil. This occurred, we believe, because the cost data recorded in the SeAH cost accounting system is in relation to actual costs incurred in manufacturing an actual volume (weight) of the goods. For the cost data to be compared to sales data for theoretical volumes of product sold, SeAH converted the cost data from actual to theoretical for Customs’ analysis.

As theoretical weight is generally greater than actual weight, a fixed-rate duty drawback, calculated on a theoretical weight basis, is greater than that calculated on an actual weight basis. SeAH actually receives drawback of duty based on a claim relating to the theoretical weight of hot rolled coil which is used as an input to the exported product, i.e., based on export sales value of the finished product.

Therefore, Customs erred in allowing a downward adjustment to the normal value in excess of the duties paid and should have readjusted the drawback claim by multiplying the reported duty drawback by the factor converting the theoretical weight to actual weight.

More importantly however, OneSteel believes that Customs has erred fundamentally, by even allowing an adjustment for duty drawback with regards to low grade pipe for the following reasons:

·         SeAH is believed to source 100% of its API standard HRC domestically from Posco, hence duty drawback cannot be claimed with regards to the API 5LB or API X42 grade pipe sold to Australia.

·        Imports of STK 490 HRC do not meet the specification requirements required to product AS1163 350L0 grade product, hence Customs should not permit an adjustment as this product cannot be used in the production of the subject goods

 

Cost data

Hysco provided Customs with cost information pertaining to only grade and outside diameter groupings without providing data relating to product thickness. This is particularly important as the production costs can vary substantially based on product thickness.

Interestingly however, Hysco later showed/included Customs CTM&S information for line-pipe thicknesses that were not subject goods.

Customs also state in the Termination Report that SeAH’s FSC HRC price data is in fact lower in value to that verified at Hysco. This would suggest that the HRC equates to over 80% of the total cost to make and sell (Refer Attachment 3.3). This is well above world standard that is closer to 65-70%. This claim either means that Hysco substantially surpasses worlds best practice in conversion or Customs has not verified the full costs of production. On this basis OneSteel has to question the reliability of the cost to make and sell data provided to Customs by Hysco.

Conclusion – Costs

OneSteel believes that Customs cannot be satisfied that the cost data they have verified is reliable. As such, OneSteel considers that these sales should be considered unreliable in terms of s.269TAC(7) and that Customs has erred in calculating normal values for Low grade product in terms of s269TAC(1) of the Act.

Dumping Margins

OneSteel believes that Customs has calculated dumping margins using a normal value based on domestic prices that include goods that are not the subject of the investigation resulting in an understated normal value.

OneSteel also believes that Customs should not be satisfied that the CTM&S data presented for verification represent the total costs involved in the production of the subject goods.

Husteel 

Domestic Price data

As detailed in Section 3.2.1 of OneSteel submission dated 27/6/04, Customs needed to satisfy themselves the domestic sales they have used to establish normal values are comparable goods to Husteels export sales to Australia.

Attachment 3.2.1a of the same OneSteel submission shows the price differentials between API 5LB grade material and other pipe products as listed in the Korean market. These price differentials provide Customs with a suitable guide for considered Adjustments.

Please note this published price list is sourced from Husteel .

It is apparent that this published price data was not accurately verified by Customs

Cost data

OneSteel considers that customs did not verify the full account of the Cost to Make and Sell for HuSteel, particularly relevant HRC costs.

Customs refer in the Husteel visit report to verifying cost data for HRC STK 490. (PYB). It is important to note that HRC grade STK 490 cannot be used in the manufacture of line pipe meeting the API 5LB specification nor can it meet the AS1163 C350L0 specification requirements.

Customs has verified price data that has little relevance to the subject goods.

The same concerns as those outlined for Hysco apply in relation to the credibility of the cost to make and sell data supplied by HuSteel to Customs. The concerns relate to the high proportion (80%+) of HRC represents as a proportion of average export prices from South Korea. Such cost structures would defy all best practice models as well as cost structures apparent to OneSteel personnel whilst visiting South Korean mills.

Conclusion on costs

With consideration of the key cost inputs outlined in this section of the document, OneSteel believes that Customs cannot be satisfied that the cost data they have verified is reliable. As such, OneSteel considers that these sales should be considered unreliable in terms of s.269TAC(7) and that Customs should not consider calculating normal values for Low grade product in terms of s269TAC(1) of the Act.

Adjustments

Advertising Expenses

The GUC represent a global commodity product supplied into a range of applications but specifically gas reticulation. HuSteel is a global supplier of these products and thus incurs significant expenses in ensuring all the required technical and promotional literature is available to support its sales into Australiaand other markets. Refer to http://www.husteel.com/eng which highlights on-line information available to customers of HuSteel in Australia. The GUC is a product that demands a level of technical support and competence in both export and domestic sales. 

Inventory Holding Expenses

Customs appears to operate on the assumption that made-to-order export sales are shipped immediately once manufactured. OneSteel would submit the following represents closer to the reality. Goods will generally be supplied in a single order single shipment. An average rolling cycle of 4 to 6 weeks means that a mixed quantity order of Low-Grade product will on average be in stock 2 to 3 weeks. 1 week will typically be allowed between product manufacture and being ready for export. For export sales to Australiathis product will then meet a shipping schedule (typically a monthly liner service) therefore adding on average an additional 2 weeks. The result being that export sales to Australiaon average will remain in finished-goods inventory on average for 5 to 6 weeks prior to exports (consistent with total lead times on sales to Australiaof 3 months (allowing for 4 weeks shipping).

Recent examples (INI Reassessment of duties) have highlighted instances where Customs have assumed all inventory is domestic inventory when in reality it has been a mixture of export and domestic sales. Additionally, the overseas manufacture has not been able to actually distinguish between domestic vs export inventory (given the products may be identical).

On this basis, OneSteel requests the TMRO re-examine the veracity of Customs adjustments for Advertising and Inventory Holding expenses for HuSteel in establishing Normalvalues. It should be noted that Customs must be satisfied that any identified cost differences affected the price for the goods.

Dumping Margins

OneSteel believes that Customs erred by calculating dumping margins using a normal value based on domestic prices that included goods that are not the subject of the investigation resulting in an understated normal value.

OneSteel also believes that Customs could not have been satisfied that the CTM&S data presented for verification represent the total costs involved in the production of the subject goods.

4           Customs assessment of the Economic Condition of the Industry

Conclusions/Analysis in relation to material injury and causal link

OneSteel submits that the injury analysis undertaken by Customs was concerned only with end point to end point comparisons and this approach is reflected by the comments against the SEF80 80 material injury indices. Customs failed to perform a proper analysis which should have included a year-on-year assessment. By failing to perform this analysis Customs could in no way be in a position to develop informed opinions on trends over the injury analysis period:

OneSteel’s criticism of Customs approach is consistent with the approach adopted by the WTO in the Report of the Panel in “Argentina – Safeguard Measures on Imports of Footwear”, WT/DS121/R of 25 June 1999, at para 8.159[4]:

“… we consider that in the context of both the requirement that imports have increased, and the analysis to determine whether these imports have caused or threaten to cause serious injury, the Agreement requires consideration not just of data for the end-points of an investigation period, but for the entirety of that period.”

Customs Approach

Price Effects- Price undercutting

Customs correctly concluded that OSMM’s selling prices for low-grade had been undercut by dumped low-grade ERW CHS from Korea. The vast majority of import volumes from Korearepresent dumped low-grade product (recognising that exports from Deayang, HuSteel and SeaH were at dumped prices).

 

Customs correctly concluded that OSMM’s selling price of high-grade ERW CHS was undercut by imports from Korea. However, Customs incorrectly concluded that those imports were not dumped.

Conclusion – Price undercutting existed for ERW CHS

Price Effects - Price depression

Customs incorrectly concluded that there was no price depression despite being provided with details of specific examples of OneSteel’s price being depressed for sales of low grade product.

Customs correctly concluded that price depression occurred on both High-Grade and OneSteel’s sales of ERW CHS overall.

Conclusion – Price depression occurred for ERW CHS for OneSteel

Price Effect - Price Suppression

Low-Grade

Customs concluded no price suppression occurred. This is an incorrect and simplistic conclusion:

·         OneSteel claimed it suffered injury over 2002 and 2003 – analysis conducted over this period would indicate on average OneSteel’s CTMS had increased by a greater amount than OneSteel’s price.

·         Customs have ignored movements in OneSteel’s key raw material costs HRC. OneSteel’s gross margin % on HRC was lower in both 2002 and 2003. OneSteel’s average price increase over the period was XXX whilst HRC increased XXX

·         Customs have ignored significant cost increases in HRC in 2003 because these were balanced by substantial improvements in OneSteel’s conversion costs – HRC in 2003 was XXX higher than 2001 whilst OneSteel’s prices were only XXX higher.

The effect of this was that OneSteel received no benefit from a substantial reduction in its conversion costs during this period due to the price suppressing effects of Korean imports.

High-Grade

Customs correctly concluded OneSteel had suffered price suppression in High-Grade.

Overall (Low grade plus High grade)

Customs correctly concluded OneSteel had suffered price suppression overall.

Conclusion – Price Suppression did occur for ERW CHS for OneSteel.

Volume effects- Volume

Low-Grade

Customs correctly concluded that OneSteel volumes decreased over the injury period. It was also noteworthy that this occurred during a period of time where the market size for low-grade grew substantially.

In TR80 12.1 Customs incorrectly state that evidence of injury only existed in Low-Grade sales in the form of price undercutting and loss of market share. This is inconsistent with Customs conclusions in the table contained in TR80 13.1 which concluded OneSteel had suffered loss of sales volume in Low-Grade.

High-Grade

Customs have clearly confused movement in sales volume with industry lost sales. OneSteel supplied substantial evidence in its application and following submissions detailing significant sales volumes lost to imports from South Korea.

Customs erred by including sales that the Australian industry did not produce in its analysis.

Overall (Low grade plus High grade)

Customs conclude that there was no loss of sales volume evident. Again, this is effected by Customs applying a simplistic analysis of movements in sales volumes rather than examining evidence provided for lost sales.

Conclusion – OneSteel suffered a decline in sales volume and lost sales in low-grade and substantial lost sales in high-grade. Overall OneSteel suffered material injury through lost sales to South Korean pipe.

Volume Effects – Market Share

Low-Grade

Customs correctly observed that OSMM had suffered a substantial decline in market share. However, imports with “non-injurious” dumping margins are nevertheless dumped. Customs has misclassified it categorization of “non-injurious” imports vs “dumped imports” and thus its analysis is flawed.

High-Grade

Despite inclusion of imported products (goods not produced) for Australian industry it is still evident that OneSteel suffered a substantial decline in its market share. Customs failed to confirm that this method of analysis has not double-counted imported product purchased by OneSteel in both its market share as well as “other countries” as this would have the effect of understating market share movements of South Korean product. Imports with “negligible” dumping margins are nevertheless dumped. Customs has misclassified its categorization of “non-injurious” imports vs “dumped imports” and thus its analysis is flawed.

Overall (Low grade plus High grade)

Customs as the investigators are beholden to actually determine the level of injury of suffered and what caused that injury. This level of analysis needs to extend beyond simple review of indices and actually examine:

  • Sizes of products imported, their origin and whether they have caused injury to the Australian industry.
  • Circumstances in relation to sales in projects.

SEF80 & TR80 do not demonstrate any analysis of these factors. Customs failed to make judgement on the effect of imports from other countries and whether they vs imports from South Koreacaused the injury. OneSteel submits that it supplied substantial evidence to Customs in relation to these matters – all of which were not addressed in SEF80. This evidence highlights the link between the material injury OneSteel has suffered and the imports from South Korea.

Conclusion - OSMM has suffered a substantial decline in market share (despite the inclusion of non-injurious OneSteel import volumes in Customs analysis). This decline in market share has coincided with a substantial increase in the market share of dumped South Ko rean product.

Profit effects – profit

Low-Grade

In reaching their conclusions Customs failed to examine the effects of injury suffered by OneSteel in 2002 and 2003 (contrary to their approach in the market share analysis). On average OneSteel suffered a decline in its profits on low-grade product since 2001 ie. an average indicate for 2002 and 2003 would indicate 41.

Customs have also failed to acknowledge the substantial contribution to 2003 profits on the basis of reductions in OneSteel’s conversion costs i.e. without the reduction in conversion cost the 2003 index would have been 14 rather than 202.

High-Grade

Customs correctly conclude OneSteel had suffered declines in profit for high-grade.

Overall (Low grade plus High grade)

In 2002 and 2003 OneSteel suffered decline in its profits for ERW CHS. This was despite a cyclical peak in the low-grade and high-grade markets.

It is worth referring to the Ministerial advice from Minister Vanstone x July 1991 which endorsed the following:

“… the Customs Service considering an industry which has been expanding its market rapidly, might decide that no action be taken against dumping which has merely slowed the rate of industry’s growth without causing it to contract. Should such a case arise I expect you to bear in mind that a substantial diminution in an industry’s rate of growth can be just as serious to the Australian economy as the movement of the industry from growth to decline”

It is clear that the market for ERW CHS has undergone substantial growth over 2002 and 2003. OneSteel believes it has been a key participant in encouraging this level of growth and activity for the market. Despite, this growth OneSteel’s returns have declined and the level of returns in 2003 was only sustained from significant reduction OneSteel was able to generate in lowering its conversion costs. It is clear from the Ministers advice that Customs needs to properly consider the non-existence of growth for OneSteel in a market that has grown substantially.

Conclusion – OneSteel has suffered material injury through lost profits

OneSteel regards a decline in overall profits during 2002 and 2003 of XXX to be material. Customs failed to consider the substantial evidence provided by OneSteel of lost profits through price depression & suppression on individual sales and lost sales.

In TR80 12.2.1.3 Customs appear to have confused the concept of an investigation period for the purposes of establishing export prices, normal values and a dumping margins with an injury period ie. the period of time during which the Australian Industry has suffered injury. These periods do not need to be the same.

 

Profit Effects – Profitability

Low-Grade

Customs statement that in SEF80 that “OneSteel’s Low-Grade ‘profitability’ increased over 2001 to 2003” is factually incorrect. Analysis of OneSteel’s average profitability over 2002 and 2003 indicates that OneSteel’s average profitability declined by XXX compared to 2001.

Again, this position would have been substantially worse if OneSteel failed to secure the significant reductions in its conversion costs in 2003.

High-Grade

Customs correctly conclude that OneSteel’s profitability substantially declined.

Overall (Low grade plus High grade)

Conclusion - OneSteel suffered a substantial and material decline in profitability over 2002 and 2003. It is also noteworthy that the largest market share increase of Korean imports was during 2002.

Conclusion

Customs conclusion in SEF80 is incorrect. The basis for this has been factual errors in Customs approach combined with an overly simplistic level of analysis (particularly in relation to market share and lost sales).

OneSteel has clearly suffered material injury for ERW CHS (overall, low-grade and high-grade) in the following forms:

  • Lost Sales;

  • Price undercutting;

  • Price depression;

  • Price suppression

  • Reduced profits, profitability + lost profits; and

  • Lost market share.

Profit effects from volume losses

Customs have ignored the impact of profit loss from missed volumes of projects and from the diminished market share impact from dumped product undercutting the market price. 

Customs have also incorrectly concluded that injury in Low-Grade does not affect injury in High-Grade. This is clearly incorrect. Lost sales in either High-Grade or Low-Grade critically effect the operating efficiencies, unit costs of production and unit overhead costs for the other model.

As illustrated in the chart below (chart A-9.2.1 from OneSteel application) the total volume is shown as a direct link to the EBIT achieved in High Grade. Thus any loss of volume to the plant via a project in high grade or loss of market share/sales in low grade results in loss of EBIT and a reduction in profitability. This is also true for Low grade pipe as shown below, with lower plant volumes having an even greater effect on the EBIT than High Grade.

Conclusion

The charts below highlight the strong correlation between total production volumes and OneSteel profits in both Low and High-Grade. This highlights the effect that lost sales in Low-Grade impact on the profits and profitability of high-grade and vice verca. This is a function of unit costs of production and overheads and therefore profits for each product model given the two models are manufactured from common facilities. Customs should have been able to draw the same conclusions from analysis of Appendix A6.

Analysis of the unit production costs and unit overhead costs for high-grade would indicate that in the event OneSteel did not lose sales volumes of Low-Grade pipe its unit production and unit overhead costs for High-Grade would be lower and therefore profit and profitability improved. Conclusions drawn by Customs in TR80 13.2 are overly simplistic and do not appear to reflect data supplied by OneSteel to Customs.

Production vs EBIT – High grade Pipe Graph -confidential

Production vs EBIT – Low grade Pipe Graph - confidential

5          Customs conclusion in relation to Material Injury

Customs’ conclusions and methodologies in examining material injury to the Australian industry was too simplistic and lacked appropriate analytical detail.

Cust

·   Profit effects from volume losses .i.e. profit loss from missed volumes of projects

·   The relationship between sales volumes of High grade and the profits and profitability of both Low and High grade

Both have a direct effect on operating efficiencies, unit costs of production and unit overheads costs for the other model.

Conclusion

Despite Customs flawed analysis approach, Customs did however conclude that OneSteel has clearly suffered material injury for ERW CHS (overall, low-grade and high-grade) in the following forms:

·         Lost Sales;

·         Price undercutting;

·         Price depression;

·         Price suppression

Reduced profits, profitability + lost profits; and

·Lost market share.

Had Customs performed a more appropriate analysis, the level of injury would have been more pronounced.

6   Customs consideration of causation issues

Negligible dumping margins

 As OneSteel has previously submitted it believes Customs have made a number of errors in their determination of Normal Values and Export Prices that has resulted in an incorrect determination of de minimis dumping margins for SeaH and LG and negative margins for Hysco. However, OneSteel also believes given a finding of de minimis margins for SeaH and LG Customs have incorrectly concluded that those imports must therefore be ‘non-injurious’.

 In response to the SEF80, OneSteel submitted to Customs that negligible margins (i.e., being those with a dumping margin of less than 2%) should be categorised as dumped goods and not segregated as ‘undumped’ in the market share analysis. At page 23 of the Termination Report, Customs voiced a contrary opinion:

 “Customs considers that imports with a dumping margin of less than 2% should not be aggregated with imports having a dumping margin higher than 2%. … Material injury caused by dumping therefore cannot be attributed to any exports having negative or negligible dumping margins.”

 With this opinion in mind, Customs terminated the investigation on the basis that exports from Koreawith negligible margins were ‘non-injurious’ to the Australian industry. We believe the approach by Customs to de minimis margins only ever being ‘non-injurious’ is wrong in law. In conducting its investigation in such a manner, the Customs analysis of injury was flawed in that it did not take into account matters which it is was required to take into account, namely:

  • De minimis margins count in determining the volume of dumped imports

  • A separate purposive test must be undertaken to examine the degree and effect of dumped imports in their entirety, including those with de minimis margins, and whether such dumping is causing injury to the Australian industry.

 According to the AD Agreement and Part XVB of the Customs Act 1901, we submit that establishing whether margins are de minimis and whether injury caused by dumping is material are two separate and unrelated tests. We find support for our interpretation in panel and appellate bodies of the World Trade Organization. In reversing the finding of the Panel in US-Carbon Steel from Germany[5], the Appellate Body stated at paragraph 83 that:

 “… there is nothing in Article 11.9 [of the SCM Agreement] to suggest that its de minimis standard was intended to create a special category of “non-injurious” subsidization, or that it reflects a concept that subsidization at less than a de minimis threshold can never cause injury.”

 [and that]

 “… the de minimis standard … does no more than lay down an agreed rule that if de minimis subsidization is found to exist … authorities are obliged to terminate their investigation, with the result that no countervailing can be imposed in such cases.” [emphasis in original].

Although the above decision was in respect of the SCM Agreement, the Panel in US- Sunset Review of Carbon Steel from Japan[6] found that it applied equally to the AD Agreement:

 “Considering that the relationship between the concepts of “dumping” and “injury” in the Anti-Dumping Agreement is analogous to the relationship between “subsidization” and “injury” under the SCM Agreement, we find the ruling of the Appellate Body in US-Carbon Steel to be highly relevant for the present case in this respect.”.

In defining the concept of “injury” in footnote 9 to Article 3 of the AD Agreement, there is no reference to the amount of the dumping margin involved:

“… “injury” shall … be taken to mean material injury to a domestic industry, threat of material injury to a domestic industry of material retardation of the establishment of such an industry and shall be interpreted in accordance with the provisions of this Article.”.

 Similarly, paragraph 2.1 of the AD Agreement sets out a definition of “dumping” that applies to the whole of the Agreement. There is nothing in that definition to suggest it must be confined only to dumping margins that are equal to or in excess of 2 per cent, i.e., margins that are not de minimis.

 In applying the words of the ruling of the Appellate Body in US-Carbon Steel from Germany (at para. 81) to the circumstances of the ERW CHS investigation terminated by Customs, we submit that the TMRO should recommend to the Minister for Justice and Customs that the matter be remitted to Customs for an assessment of material injury according to law:

 “Thus, in our view, the terms [“dumping”] and “injury” each have an independent meaning in the [AD Agreement] which is not derived by reference to the other. It is unlikely that very low levels of [dumping] could be demonstrated to cause “material” injury. Yet such a possibility is not, per se, precluded by the Agreement itself, as injury is not defined in the [AD Agreement] in relation to any specific level of [dumping]. (emphasis in original)

 Because “dumping” and “injury” have independent meanings and ones that are “not derived by reference to the other”, we further submit that the conclusions in relation to a finding of injury caused by all dumped imports may be totally different to a finding where imports at de minimis margins have not being included in the injury analysis.

OneSteel submits that given the circumstances in this particular case dumped imports at de minimis margins have caused material injury to the OneSteel business. This can be is particularly relevant in this case where the volume and market share of the dumped imports at de minimis margins have been so significant. It is also noteworthy that OneSteel suffered price depression on the XXX and other Major Projects during the injury period. Given the magnitude of volumes involved with these major projects a single percentage point decline in OneSteel’s selling price on product produced and sold by OneSteel during 2002 and 2003 equates to over XXX negative impact in profit (EBIT). It is OneSteel’s view that this alone is a material factor of injury.

In reviewing this matter, we submit that Customs should not treat exports by SeAH and LGI as un-dumped with consideration to “ other possible causes of injury” (section 269TAE(2A)). Rather, any injury analysis should be made on the basis that SeAH’s and LGI’s exports were dumped and injury to OneSteel can be attributed to those exports. If this is conducted in a lawful fashion, issues such as ‘market share of un-dumped goods from Korea” should change markedly.

In light of the incorrect assessments on normal values, dumping margins and material injury, a re-examination of causal link is required. It is OneSteel’s view that correction of the identified matters will result in a direct linkage between dumped exports from Korea and material injury experienced by OneSteel as being established i.e. causal link established.

[1] European Communities – Anti-Dumping duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, Report of the Panel, World Trade Organization, WT/DS219/R, 7 March 2003, at paras 7.247 to 7.250

[2] European Communities – Anti-Dumping Duties on Imports of Cotton-type Bed Linen from India, AB-2000-13, Report of the Appellate Body, World Trade Organization, WT/DS141/AB/R, 1 March 2001, at paras 56 to 58

[3] United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, AB-2001-2, Report of the Appellate Body, World Trade Organization, WT/DS184/AB/R, 24 July 2001, at para 178

[4] Although this statement was made in the context of the Agreement on Safeguards, the Panel in its Report on “United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan”, WT/DS184/R of 28 February 2001, at para 7.234, shared the views of the Argentina – Footwear Panel, because “the relevant provision in the Safeguards Agreement, Article 4.2(a) is very similar to Article 3.4 of the AD Agreement”. The Panel stated that “… by ignoring intervening changes in circumstances and conditions in which the industry is operating, would present a less complete picture of the impact of dumped imports.”

[5] United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany, AB-2002-4, Report of the Appellate Body, WT/DS213/AB/R, 28 November 2002

[6] United States – Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, Report of the Panel, WT/DS244/R, 14 August 2003, at para. 7.75