Review of decision to terminate an investigation into the alleged dumping of linear low density polyethylene from Canada

 

22 August 2005

INTRODUCTION

  • 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, of 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.)
  • 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.
  • 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 duties. 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

  • The Trade Measures Review Officer (the Review Officer) is appointed by the Minister to review certain decisions in relation to dumping and/or subsidisation matters. The Review Officer is an independent administrative appeal mechanism with no investigative function. The Review Officer may review a prescribed range of decisions made by the Minister or by the Chief Executive Officer (CEO) of Customs. Reviews are conducted only on application from relevant interested parties as defined in the Act under section 269ZX.
  • 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 such a review.
  • 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.
  • In conducting a review of a termination decision by the CEO of Customs, the Review Officer must have regard only to the information that was before the CEO of Customs when the CEO of Customs made the reviewable decision. Therefore, in conducting reviews, the Review Officer collects no new data but confines himself to studying the information which was available to Customs at the time the CEO of Customs made the reviewable decision. Applicants for review may (and frequently do) point to particular errors they believe Customs made and the Review Officer, of course, considers these allegations carefully. However, the Review Officer also examines all other steps in the reasoning used by Customs in coming to the decision under review.
  • 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

  • On 9 June 2004, Qenos Pty Ltd (Qenos) lodged an application with Customs requesting that the Minister publish a dumping duty notice in respect of linear low density polyethylene (LLDPE)exported to Australia from Canada. The investigation was initiated on 9 November 2004 as notified in Australian Customs Dumping Duty Notice (ACDN) 2004/36.
  • There have been two previous dumping investigations into LLDPE:
  • Customs Trade Measures Report No.8 of 2000 investigated LLDPE from Indonesia, Korea, Malaysia and Saudi Arabia. As a result, anti-dumping measures were imposed on all exporters from Indonesia;
  • Customs Trade Measures Report No.67 of 2003 investigated LLDPE from Korea and Thailand. As a result, anti-dumping measures were imposed on all exporters from Thailand and all exporters from Korea except Hyundai Petrochemical Corporation (HPC).
  • The goods under consideration are described as LLDPE in various grades, in pelletised form, with a density of less than 0.94 grams per cubic centimetre.
  • LLDPE is a variety of polyethelene produced by the polymerisation of ethylene gas with co-monomers (mainly butene, hexene and octene) in the presence of various catalysts at controlled pressures and temperatures. LLDPE is produced using low pressure in either a gas phase reactor or a solution process. Certain other chemicals are used in the polymerisation process. The raw LLDPE is mixed with additives to produce the various grades, compounded, extruded and chopped into pellets for sale.  
  • The three co-monomers used in the production of LLDPE are sometimes referred to by the number of carbon units they contain. That is, LLDPE produced using butene as the co-monomer is referred to as C4 LLDPE. LLDPE produced using hexene or octene as the co-monomer is referred to as C6 and C8 LLDPE respectively.
  • The main manufacturing processes for which LLDPE is the major raw material and their respective products are as follows:
 
 
​ Manufacturing Process

​ Products

Extrusion​ ​ Films, (plastic bags, shopping carry bags), pipes and coatings
Blow moulding​ ​Containers
Injection moulding
​Telephones, toys, house wares, crate
Rotational moulding​ ​Tanks and drums
  • On 8 April 2005, Customs issued a Statement of Essential Facts in respect of LLDPE from Canada and invited interested parties to provide submissions to Customs in relation to this matter by 28 April 2005. Submissions were received from Qenos and Dow Chemical Canada Inc. (Dow Canada).
  • On 27 May 2005, Customs wrote to the applicant, Qenos, informing them that, in accordance with section 269TDA (13) of the Act, Customs had terminated the investigation since Customs was satisfied that there had been dumping of the goods the subject of the application but that the injury, if any, to the Australian industry that had been caused by that dumping was negligible.
  • Section 269TDA(13) of the Act states that: if
  • application is made for a dumping duty notice; and
  • in an investigation, for the purposes of the application, of the goods the subject of the application that have been, or may be, exported to Australia from a particular country of export, (the) CEO is satisfied that:
  • there has been, or may be, dumping of some or all of those goods; but
  • the injury, if any, to an Australian industry .... that has been, or may be, caused by that dumping is negligible;
  • the CEO must terminate the investigation so far as it relates to that country.
  • On 21 June 2005, Qenos lodged an application with the Review Officer for review of the CEO's decision to terminate its investigation into the alleged dumping of LLDPE from Canada.
  • The Review Officer accepted the application and, in accordance with section 269ZZT of the Act, proceeded to conduct a review of this matter.

THE REVIEW

  • The application for review from Qenos was received on 21 June 2005 and a further brief submission by Qenos was received on 5 August 2005. A non-confidential version of Qenos' application for review is at Attachment A to this report.
  • Qenos considered that Customs had erred in its decision to terminate its investigation into LLDPE from Canada on a number of grounds.

COUNTRY HOPPING

  • The first ground upon which Qenos claimed that Customs had erred was in respect of Customs' alleged refusal to conduct the investigation on the basis of evidence proffered by the applicant that the importer had ‘switched' sources of supply (primarily from Thailand to Canada and the Netherlands) immediately following the imposition of provisional measures in June 2003 on all exports of LLDPE from Korea (except HPC) and Thailand.
  • Qenos claimed that the switch in imports of LLDPE from Thailand to imports from Canada by Dow Chemicals (Australia) Limited (DCAL) following the imposition of provisional measures on Thailand (in June 2003) and prior to the imposition of final measures on LLDPE from Korea (except HPC) and Thailand by the Minister constituted a ‘country hopping' situation.
  • A country hopping situation occurs where an application is lodged for anti-dumping measures against certain countries and, after the commencement of an investigation and/or imposition of provisional or final measures against those countries, importers change their source of supply by importing dumped goods from a country or company not included as part of the original investigation or not affected by any subsequent anti-dumping measures. In such circumstances, an inquiry into allegedly dumped imports from a new source (or sources) may be accelerated by Customs.
  • There are no provisions within the Australian anti-dumping legislation which address a situation such as this. However, general guidance and principles to be observed in such circumstances were given in a 1992 Ministerial Advice to Customs and the (then) Anti-Dumping Authority.
  • Qenos stated in its application that the Ministerial Direction of 1992 on country hopping was not limited to circumstances where a new application for an additional source country was submitted prior to the finalisation of the initial case.
  • Qenos said that the Ministerial Direction indicated that where country hopping ‘is identified only months or years after anti-dumping action has been taken' there was a suggestion of a new market entrant. Qenos believed that this was not the circumstance involving LLDPE exported from Canada as the same importer, DCAL, was previously involved with the importation of dumped LLDPE from Thailand (which had since become subject to anti-dumping measures).
  • Qenos further argued that Customs erred in stating that Qenos only brought the matter to Customs' attention ‘approximately 12 months after anti-dumping action had been taken'. Qenos claimed that it had discussed the issue with Customs' Trade Measures Branch in early 2004 and that the application for measures against Canada and the Netherlands was made only six months following the imposition of final measures on the original source countries of Korea and Thailand.
  • Qenos argued that the application involving Canadian imports of LLDPE should not have to re-establish material injury to the Australian industry as there existed sufficient nexus between the importer(s), the subject of the original investigation and those involving Canada for Customs to only require the existence of prima facie evidence of dumping.
  • Customs stated that it considered that the 1992 Ministerial Advice pointed to the move in source happening ‘reasonably quickly' because action had been or was likely to be taken against imports from existing sources. Customs noted that, in the application against Canada, it appeared that the ‘switch' in source of imports commenced soon after the imposition of provisional measures against LLDPE from Korea (except HPC) and Thailand but that the new sources of allegedly dumped imports were not brought to Customs' attention for approximately 12 months after the original anti-dumping action had been taken.
  • Customs position in relation to the country hopping claims by the applicant was that, whilst the injury established in the previous investigation was recognised, given the time elapsed since the imposition of measures, it was necessary for the Australian industry to establish that the injury from allegedly dumped imports was current and that it was not sufficient for Customs to rely upon the previously established injury to Australian industry.
  • Customs considered that the Ministerial Advice noted that information regarding injury may still require updating and that while the main (but not the only) emphasis could be on dumping, it did not suggest that injury analysis for the new source of the goods from Canada should be ignored completely, as Qenos appeared to be suggesting.
  • Customs therefore decided to examine injury over the fifteen month period from the September 2003 quarter onward following the alleged commencement of injury from dumped imports of LLDPE from Canada.

THE REVIEW OFFICER'S ASSESSMENT OF COUNTRY HOPPING

  • The Review Officer has considered the issues raised by Qenos in respect of Customs' alleged failure to consider the application by Qenos for the imposition of dumping measures against allegedly dumped imports of LLDPE from Canada as evidence of country hopping and therefore not requiring Qenos to re-establish material injury in the course of a second inquiry. However, it is not part of this review process to assess whether Customs erred in its interpretation of the 1992 Ministerial Direction on country hopping. The passage of time and the sequence of events has essentially rendered this issue as no longer relevant.
  • However, the Review Officer notes that Customs accepted that there was sufficient prima facie evidence to warrant initiation of an investigation into the alleged dumping of LLDPE from Canada and as such proceeded to conduct its inquiry.
  • As part of this inquiry, Customs undertook further analysis to establish whether material injury had been suffered by the Australian industry as a result of dumped imports from Canada.
  • The 1992 Ministerial Advice points to any move in the source imports happening ‘reasonably quickly' because action had been or was likely to be taken against imports from existing sources. Customs found that while it appeared that the switch in source commenced soon after the imposition of provisional measures, the new sources of allegedly dumped imports were not identified for Customs' consideration for a period of approximately 12 months after anti-dumping action had been taken against other imports.
  • Customs noted that, whilst the injury established in the previous investigation was recognised, given the time elapsed since the imposition of measures against other source s, it was necessary for the Australian industry to establish that the injury from allegedly dumped imports from Canada was current and that it was not sufficient to rely upon previous injury established from earlier inquiry.
  • The Review Officer considers that, given the length of time within which Qenos alerted Customs to the apparent country hopping importation situation occurring in the Australian market, Customs' decision to examine injury over the 15 months period following the alleged commencement of injury from the allegedly dumped Canadian LLDPE imports was reasonable.

MATERIAL INJURY

  • Qenos argued that Customs' requirement that Qenos' ‘model' cost to make and sell (CTM&S) data on the basis of assumptions which Customs considered would remove the effects of raw material supply disruptions which were beyond the control of Qenos (the Botany Bushfires of December 2002 and the Moomba gas outage in December 2003) led Customs to, ‘determine a lower than actual CTM&S data for the investigation period, hence no price undercutting (and material injury attributable to the dumped imports) could be substantiated'.
  • Qenos also believed that it was inappropriate for Customs to consider ‘notional' profits and profitability for the LLDPE industry over the 2003 and 2004 years. Rather, Qenos believe it was more appropriate for Customs to have understood the relative injurious impact of dumped Canadian LLDPE imports upon actual unadjusted costs.
  • Qenos claimed that Customs failed to recognise that the only basis upon which imports from Canada could emerge during 2004 as the largest single source of LLDPE into Australia was on the basis of the importer (DCAL) establishing a new source of supply for allegedly dumped LLDPE (thereby continuing the material injury substantiated in the earlier inquiry).
  • The thrust of Qenos' argument was that Customs failed to ‘recognise the nexus between the importing party of LLDPE from Thailand and Canada, and the ongoing material injury attributable to a switching of source country for the supply of octene-grade LLDPE' which subjected the Australian industry to ongoing material injury from dumping.

THE REVIEW OFFICER'S ASSESSMENT OF MATERIAL INJURY

  • Material injury to an Australian industry is essentially a not insignificant deterioration in the economic performance of that Australian industry in terms of its activities in the Australian market.
  • The Review Officer, in conducting this review, has analysed all relevant information collected by Customs as part of its investigation and based his assessment on the basis of actual information gathered.
  • As part of its assessment of material injury, Customs examined whether the Australian industry had suffered injury in the form of lost sales volume, lost market share, price undercutting, price suppression and reduced profit and profitability.
  • The injury period examined by Customs to assess the applicant's claims of injury from allegedly dumped LLDPE from Canada was from 1 January 2000 to 30 September 2004. Customs did not however include the period from September 2001 to June 2003 in its analysis as this period had been affected by dumped imports from Korea and Thailand and Canadian imports were not claimed to have been injurious in this period.
  • The Australian industry claimed that injury due to allegedly dumped Canadian LLDPE imports commenced in July 2003. The Australian industry identified domestic manufacturing disruptions that occurred in the injury analysis period as a cause of injury not related to dumping. Manufacturing disruptions from bushfires in late 2002/early 2003 and ethane outages due to the Moomba gas fires in the first half of 2004 were identified. Customs found that production volumes were affected during these times.
  • Customs found that sales by Qenos on the domestic market in the periods unaffected by manufacturing disruptions were higher than those prior to commencement of injury from dumping in the December 2001 quarter. Customs concluded that while sales showed some quarterly variability, the Australian industry had not suffered from loss of sales volume
  • The Review Officer concurs with Customs in respect of its analysis of sales volumes and accepts that the Australian industry did not suffer injury from a loss of sales volume on a comparative basis in the claimed injury period.
  • Lost production as a result of manufacturing disruptions would have, no doubt, contributed to a loss of market share by the Australian industry in the period following the September 2003 quarter. However, the market share of the Australian industry in the quarters unaffected by manufacturing disruptions (September and December 2003 and September 2004) is at similar levels to the market share held by the Australian industry in periods prior to the commencement of injury from dumping in the December 2001 quarter.
  • The Review Officer, having assessed all relevant information, considers that the market share lost by the Australian industry over the claimed injury period was not caused by imports of allegedly dumped LLDPE from Canada but was attributable to domestic manufacturing disruptions.
  • In assessing price undercutting and in order to make a fair comparison between sales by the Australian industry and sales of imported LLDPE, Customs used into-store prices to end-users from both sources. Comparison was made where sales had been made to the same customer in the same quarter of the same type of LLDPE. In circumstances where a comparison could not have been made on a customer-to-customer basis, Customs used the weighted average selling price for imported product compared to the Australian industry's weighted average selling price for the same type of LLDPE in the same quarter.
  • The Review Officer's analysis of the price undercutting data indicates that, while there may have been some undercutting of Australian industry prices by imported LLDPE, the weighted average selling prices of LLDPE from Canada have been consistently above Qenos' weighted average selling prices. The Review Officer does not consider that Qenos has suffered injury in the form of price undercutting due to Canadian imports of LLDPE.
  • Customs' assessment of actual data relating to profit and profitability found that the Australian industry had suffered injury in the form of lost profit and profitability over the claimed injury period. However, it has been established that, during this period, the Australian industry had suffered significant manufacturing disruptions that affected Qenos' profit performance over the injury analysis period.
  • In assessing any causal link between dumped imports and material injury to an Australian industry, it is a legislative requirement under section 269TAE(2A) of the Act that any injury caused or threatened by factors other than dumped goods the subject of the application must not be attributed to the exportation of those goods.
  • Qenos' actual profitability data was significantly affected by the manufacturing disruptions referred to above. However, Qenos achieved improved profit and profitability in the September 2004 quarter on the basis of the Review Officer's analysis. Customs also found that Qenos' profitability in the September 2004 quarter appeared to have improved further in the December 2004 quarter.
  • The Review Officer, having assessed the available information relating to Qenos' profit and profitability, does not believe that dumped imports from Canada have resulted in injury in the form or lost profit and profitability and, in fact, believes that the evidence indicates that Qenos' profit and profitability is improving. Manufacturing disruptions to Qenos' production appear to be the cause of any profitability downturns during the claimed injury period.
  • The Review Officer does not therefore believe that the Australian industry had suffered injury as a result of dumped imports of LLDPE from Canada.

CONCLUSIONS AND RECOMMENDATIONS

  • 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 the submission presented to the Review Officer.
  • The reviewable decision in this particular case is a decision by the CEO of Customs to terminate the investigation into the alleged dumping of LLDPE exported to Australia from Canada .
  • As explained in the foregoing, the Review Officer considers that Customs' decision to terminate this inquiry was appropriate in terms of section 269TDA(13) of the Act since, although there was dumping of the goods from Canada , the injury caused by that dumping was negligible.
  • Accordingly, the Review Officer affirms the decision by the CEO of Customs to terminate its investigation into LLDPE exported to Australia from Canada.

Richard Oliver
Trade Measures Review Officer

22 August 2005

RELATED DOWNLOADS

Review of a decision by the Chief Executive Officer of the Australian Customs Service to terminate an investigation into the alleged dumping of linear low density polyethylene from Canada - 22 August 2005