Review of decision to terminate an investigation into the alleged dumping of certain hollow steel sections from the People's Republic of China, the Republic of Korea, Malaysia and Thailand

27 July 2005

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, 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.)
  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 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

  4. The Trade Measures Review Officer (the Review Officer) is appointed by the Minister to review certain decisions in relation to dumping and/or subsidisation matters. The Review Officer is an independent administrative appeal mechanism with no investigative function. The Review Officer may review a prescribed range of decisions made by the Minister or by the Chief Executive Officer (CEO) of Customs. Reviews are conducted only on application from relevant interested parties as defined in the Act under section 269ZX.
  5. Subdivision C of Division 9 of the Act provides for reviews by the Review Officer of certain decisions by the CEO of Customs, including decisions to terminate an investigation. Subdivision C also describes the procedures to be followed in the conduct of such 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 decision under review.
  8. The Review Officer’s decision on the application for review must be made within 60 days after the receipt of the application for review (or such longer period as allowed by the Minister in writing because of special circumstances).
     

    BACKGROUND TO THE REVIEW

  9. On 23 December 2004, following a decision by the Review Officer to revoke a decision by the CEO of Customs to reject an application by OneSteel Trading Pty Ltd (OneSteel), Smorgon Steel Tube Mills Pty Ltd (Smorgon) and Orrcon Operations Pty Ltd (Orrcon, Customs initiated an investigation into the alleged dumping of certain hollow steel sections (HSS) exported to Australia from the People’s Republic of China (China), the Republic of Korea (Korea), Malaysia and Thailand.
  10. OneSteel, Smorgon and Orrcon were identified by Customs as the Australian industry producing HSS.
  11. The goods under inquiry (HSS) are electric resistance welded pipes made of carbon steel comprising circular and non-circular hollow sections in galvanised and non-galvanised finishes. HSS are commonly used in structural and mechanical applications.
  12. On 5 April 2005, Customs terminated its investigation in relation to this matter. In terminating its investigation, Customs stated that it was satisfied that injury to the Australian industry was negligible and that Customs had therefore terminated the investigation in accordance with section 269TDA(13) of the Act.
  13. In its public notification of this decision to terminate the inquiry, Customs further stated that Customs was satisfied that, for the goods the subject of the application that have been, or may be, exported to Australia from China, Korea, Malaysia and Thailand:

    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.
  14. On 28 April 2005, the Australian industry manufacturing HSS 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 HSS exported to Australia from China, Korea, Malaysia and Thailand.
  15. The Review Officer accepted the application but requested from the Minister an extension of 30 days within which to complete this review due to the heavy workload on hand at the time and the complexity of this and other reviews being undertaken concurrently. The Minister granted the requested extension and the Review Officer was accordingly required to complete this review by 27 July 2005.
     

    THE REVIEW

  16. The application for review from the Australian industry was received on 28 April 2005 and a further brief submission by the Australian industry was received on 15 June 2005. A non-confidential version of the Australian industry’s application for review is at Attachment A to this report.
  17. The Australian industry manufacturing HSS claimed that "Customs has erred in its assessment of material injury to the HSS industry and, as a consequence of this error, has denied the industry the opportunity of a complete and thorough investigation into the alleged dumping and material injury of HSS exported from the nominated countries".
  18. The application expounded, in some detail, the grounds for review in relation to Customs’ assessment of material injury, but, as is explained in the next section of this report, the Review Officer does not intend, at this point in time, to analyse and conclude upon most of the issues raised.
  19. However, the Review Officer notes the following points raised by the Australian industry in its application which are salient in, and pertinent to, the Review Officer’s assessment that follows. The Australian industry, in its application for review, stated:

    "...Customs assumed for the purposes of terminating the investigation that exports from the four nominated countries had been made at dumped prices";

    "...Customs has erred by acting prematurely in terminating the investigation prior to overseas visits to exporters";

    "...early termination of the inquiry prevented this essential investigative element...from occurring, as is normal practice in an anti-dumping inquiry";

    "The Review Officer is requested to examine the industry’s concern that Customs has erred in terminating the inquiry process prematurely, by not conducting overseas visits to exporters to verify actual levels of dumping..."; and

    "It is the industry’s view that Customs has terminated the HSS investigation prematurely without allowing for the full investigative process to proceed".
  20. Full details in relation to the Australian industry’s claims in its application for review are at Attachment A.
     

    The Review Officer’s Assessment

  21. It is clear to the Review Officer that Customs has terminated this inquiry (on the basis of negligible injury to the Australian industry) without conducting overseas visits to exporters in China, Korea, Malaysia and Thailand. These overseas visits, to collect and verify data to establish normal values and, ultimately, dumping margins, are common practice in Customs anti-dumping inquiries and form the basis for assessing and establishing dumping or threat of dumping by the nominated exporters.
  22. It is also clear to the Review Officer that, in the absence of these overseas visits, Customs cannot have been able to establish, or satisfy itself, whether dumping of HSS had occurred, or was likely to occur, from the four countries nominated in the original application. This is further evidenced by the Customs files in this inquiry and the termination report produced by Customs, both of which make no mention of whether dumping has been established or any relevant dumping margins that were assessed.
  23. Customs has terminated this investigation under section 269TDA(13) of the Act essentially on the basis that Customs was satisfied that injury to the Australian industry was negligible. Although the public notification of the termination decision stated that Customs was satisfied that there had been, or may be, dumping of some or all of those goods (the subject of the application), Customs did not conduct formal overseas inquiries to collect and verify relevant information and, in effect, did not properly investigate or inquire into the dumping aspect of the inquiry.
  24. Section 269TDA(13) of the Act stipulates:

    If:
    (a) application is made for a dumping duty notice; and
    (b) in an investigation, for the purposes of the application, of 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:
    (i) there has been, or may be, dumping of some or all of those goods; but
    (ii) 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.
  25. In other words, to terminate an investigation under section 269TDA(13) of the Act, Customs must, in essence, be satisfied (in a positive sense i.e. on the basis of definitive evidence) of four things viz.:
    there has been dumping of some or all of the goods; or
    there may be dumping of some or all of the goods; but
    the injury to an Australian industry that has been caused by that dumping is negligible; or
    the injury to an Australian industry that may be caused by that dumping is negligible.
  26. Customs has satisfied itself of only one of the above by concluding that the injury to the Australian industry was negligible. Customs has then proceeded to terminate the inquiry on this basis and on this basis alone.
  27. Since Customs did not undertake overseas visits to the relevant exporters to examine the whole issue of dumping, the Review Officer is of the view that Customs clearly cannot have satisfied itself that there had been, or may be, dumping of some or all of the goods under inquiry.
  28. In addition, Customs has also clearly not had regard to the issue of threat of material injury to the Australian industry by HSS that may be exported to Australia in the future at dumped prices.
  29. Section 269TG of the Act (which governs imposition of dumping duties by the Minister) is very clear on the need for the Minister to be satisfied that the issue of future dumping threatening material injury to the Australian industry has been considered before anti-dumping measures can be imposed.
  30. Section 269TDA(13) of the Act is obviously intended to mirror the intent of section 269TG, in terms of a termination decision by the CEO of Customs, in that Customs also needs to examine, and achieve the requisite level of satisfaction, that future dumping does not threaten to cause material injury to the Australian industry before a termination decision can be taken.
  31. The wording of section 269TDA(13) of the Act states "has been, or may be, dumping" and "injury...that has been, or may be, caused by that dumping". The words "or may be" are not in the past tense but clearly refer to future eventualities which Customs has failed to address or evaluate.
  32. As a result of all of the above, the Review Officer is of the firm opinion that Customs has inappropriately terminated the inquiry (under section 269TDA(13) of the Act) into HSS exported to Australia from China, Korea, Malaysia and Thailand since:
    Customs cannot possibly have been satisfied, in the absence of thorough overseas investigations, that there has been, or may be, dumping of some or all of the goods under inquiry; and
    Customs has not examined the issue of whether future dumping threatens to cause injury to the Australian industry.
  33. Accordingly, the Review Officer must revoke Customs’ decision to terminate this inquiry.
  34. Under the circumstances, the Review Officer does not consider that it is necessary or appropriate at this point in time to comment on the claims made by the applicant in relation to material injury since the decision by Customs to terminate the inquiry was inappropriate.
     

    CONCLUSIONS AND RECOMMENDATIONS

  35. 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.
  36. 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 hollow steel sections exported to Australia from China, Korea, Malaysia and Thailand.
  37. As explained in the foregoing, the Review Officer considers that Customs’ decision to terminate this inquiry was inappropriate in terms of section 269TDA(13) of the Act.
  38. Accordingly, the Review Officer revokes the decision by the CEO of Customs to terminate the investigation into the alleged dumping of certain hollow steel sections exported to Australia from China, Korea, Malaysia and Thailand.

 

Richard Oliver
Trade Measures Review Officer

27 July 2005

ATTACHMENT A

NON-CONFIDENTIAL APPLICATION FROM THE AUSTRALIAN HOLLOW STEEL SECTIONS INDUSTRY IN RELATION TO CERTAIN HOLLOW STEEL SECTIONS FROM THE PEOPLE’S REPUBLIC OF CHINA, THE REPUBLIC OF KOREA, MALAYSIA AND THAILAND

28 April 2004

Trade Measures Review Officer
Attorney General’s Department
Robert Garran Offices
National Circuit
BARTON ACT 2601
Facsimile: (02) 6250 5914

Dear Sir

Re: Application for Review of a Decision to Terminate an Inquiry – Certain Hollow Steel Secti ons from P R China, Korea, Malaysia and Thailand.

I refer to an application for anti-dumping duties in respect of Certain Hollow Steel Sections (HSS) made by the Australian industry comprising OneSteel Trading Pty

Ltd, Smorgon Steel Tube Mills Pty Ltd and Orrcon Operations Pty Ltd against allegedly dumped imports from P R China, Korea, Malaysia and Thailand.

The investigation was initiated by the Australian Customs Service ("Customs") on 23 December 2004 following an earlier appeal by the applicants of a decision by Customs not to initiate an investigation (application to Trade Measures Review Officer dated 9 September 2004, and subsequent decision of 22 November 2004).

The HSS industry was notified (by telephone and email) of the decision of the delegate to terminate the HSS investigation on 4 April 2005. Formal notification of the decision was forwarded on 5 April 2005.

1 Application Details

Section 269ZZO of the Customs Act 1901 (as amended) details parties who may seek a review of certain decisions. In this instance, a decision to terminate the investigation was made under S. 269TDA(13). S.269ZZO permits only the applicants to the original application the right to appeal the decision to the Trade Measures Review Officer.

The applicants of the current application are detailed below:

Company

Contact Person

Address

Phone

Fax

Website / Email

Manufacturers

 

 

 

 

 

OneSteel Trading Pty Ltd. ,

a wholly owned subsidiary of OneSteel Limited

Stephen Porter, Manager – International Trade

Industrial Drive

Mayfield NSW 2304

02 4935 5555

02 4935 4410

http://www.onesteel.com

porters@onesteel.com.au

Smorgon Steel Tube Mills Pty Ltd, a wholly owned subsidiary of Smorgon Steel Limited

Tony Schreiber

General Manager

146 Ingram Road

Acacia Ridge QLD 4110

07 3246 2600

07 3246 2660

www.smorgonsteel.com.au

tschreiber@smorgonsteel.com.au

Orrcon Operations Pty Ltd, a wholly owned subsidiary of

Orrcon Limited

Scott Loose

Chief Development Officer

121 Evans Road

Salisbury QLD 4107

07 32740564

07 3274 0677

www.orrcon.com.au

s.loose@orrcon.com.au

 2 Consultant representing applicants

Consultant details are as follows:

Company

Contact Person

Address

Phone

Fax

Website / Email

John O’Connor and Associates Pty Ltd

John O’Connor

P.O. Box 329, Coorparoo, Qld 4151

07 3342 1921

07 3342 1931

jmoconnor@optusnet.com.au

3 Description of the imported goods to which the application relates

The goods under consideration (GUC) are welded pipes made of carbon steel, comprising circular and non circular hollow sections in galvanised and non galvanised finishes, commonly used in structural and mechanical applications. The product is normally referred to as either CHS (circular hollow sections) or RHS (rectangular or square hollow sections).

Collectively, the GUC are known as Hollow Steel Sections (HSS).

The industry identified end-use applications which include construction, building, balustrade, agricultural equipment, fencing, sign posts, materials handling, truck and bus manufacture, fabricated metal products and many other uses including fluid conveyance.

Finish types of the goods under consideration include in-line galvanised, pre-galvanised, hot-dipped galvanised and non-galvanised HSS. Non-galvanised HSS is typically imported with painted, black, lacquered or oiled finished coatings. Sizes of HSS covered by the application included:

• for circular products, those exceeding 21 mm up to and including 165.1 mm in outside diameter; and

• for square and rectangular products, those up to and including 1277.3 mm in perimeter.

HSS is normally produced to either the British Standard BS1387 (Australian equivalent AS1074) or the Australian Structural Standard AS1163. HSS may also be classified according to its minimum yield strength. The most common classifications are 250 and 350 mega Pascals (MPA).

HSS can also be referred to as extra light, light, medium, heavy or extra heavy according to its wall thickness.

Customs published ACDN No. 2005/17 on 22 March 2005 which provided further clarification on the GUC. A copy of ACDN No. 2005/17 is enclosed with this application (refer Attachment A).

4 Tariff classification/statistical code of the imported goods.

The GUC are classified to tariff subheadings 7306.00.00 and 7306.60.00 in Schedule 3 of the Customs Tariff Act 1995. Statistical codes within these two tariff sub-headings vary according to outside diameter and perimeters of the GUC.

5 Copy of the written advice from the CEO of the decision to terminate the investigation.

A copy of the advice dated 5 April 2005 received from the delegate of the CEO is enclosed with this application (refer Attachment B).

6 Detailed Statement setting out the grounds upon which the Review Officer is being asked to review a decision by the CEO to terminate an investigation into whether a dumping duty notice or countervailing duty notice should be published.

i. Background to Application

On 22 November 2004, the Trade Measures Review Officer (Review Officer) overturned a decision by Customs not to initiate an investigation into the alleged dumping of HSS exported from P R China, Korea, Malaysia and Thailand.

S. 269ZZS (2) required the CEO to publish a notice announcing the initiation of the HSS application "as soon as practicable" after the Review Officer’s decision was announced on 22 November 2004. Customs published an initiation notice announcing the commencement of an investigation on 23 December 2004.

On 10 December 2004, the applicants were requested to supply Customs with updated financial appendices data for the GUC. Customs was already in possession of data through until 31 March 2004, but had substituted an investigation period covering 1 October 2003 to 30 September 2004 for the purposes of the inquiry.

The industry provided Customs with updated Appendices A6.1 and A6.2 (in quarterly format) to 30 September 2004 at various intervals throughout January 2005. Customs had also sought the same Appendix A6.1 and A6.2 data for OneSteel Trading Pty Ltd’s distribution business and Smorgon Steel Distribution Pty Ltd (the latter being a separate legal entity to one of the applicant’s Smorgon Steel Tube Mills Pty Ltd).

This information was also supplied during January 2005.

Verification visits with Australian industry commenced during the week of 17 January 2005 (for both OneSteel Trading Pty Ltd and Orrcon Operations Pty Ltd). The visit with Smorgon Steel Tube Mills Pty Ltd was conducted during the period 2-4 February 2005.

Customs considered it appropriate to also conduct verification visits at OneSteel Trading Pty Ltd’s distribution business and also at Smorgon Steel Distribution Pty Ltd. These visits were held during February 2005.

During the verification visits Customs indicated to industry that it was likely that an extension to the investigation timeframe would be sought. On 17 February 2005 Customs notified the industry that a request would be made to the Minister for an extension to the investigation timeframe due to "…outstanding industry distribution data, the large numbers of importers and exporters, overlapping holiday periods and the current Branch workload".

The industry responded to the letter of 17 February 2005 indicating that it supported an extension provided that Customs imposed provisional measures at the earliest opportunity once it was satisfied dumping, material injury and causal link had been established.

By letter of 1 March 2005, the industry detailed its revised injury claims. A period of almost twelve months had transpired from the date of formal lodgment of the original application and the initiation date of 23 December 2004, over which time there had been substantial changes in raw material hot rolled coil (HRC) prices and local industry HSS prices.

The industry’s revised material injury claims were identified as:

  • loss of market share (estimated at 10 per cent);
  • profits and profitability foregone (approximately 30 per cent of 2004 profit);
  • price undercutting;
  • an underutilization of industry capacity; and
  • inadequate return on investment.

Industry representatives met with Customs on 9 March 2005 to discuss the revised material injury claims. The purpose of the meeting was to detail the material injury claims identified in the 1 March 2005 submission and, in particular, to demonstrate to Customs the impact of dumped imports on market share and profitability.

Customs advised at the meeting that it had commenced visits to importers and was attempting to establish the level of sales of the GUC by the Australian industry. Customs indicated that it was important to establish the volume of sales of imported HSS by industry members (and their affiliates) so as it could correctly quantify the level of lost market share for the Australian industry.

By letter dated 8 March 2005 (received 10 March 2005) Customs sought clarification on particular types of HSS and whether these were included in the coverage of the HSS application. The industry formally responded to this request for clarification on 15 March 2005.

By ACDN No. 2005/17 of 22 March 2005 Customs indicated that certain categories of HSS were excluded from coverage of the GUC. The industry considered that the market share held by these goods represented less than one per cent of the total Australian market.

During discussions with Customs in the week of 21 March 2005 the industry indicated it was seeking a legal opinion on the ‘status’ of sales of imported HSS by SmorgonSteel Distribution Pty Ltd ("SSD"). It was explained to Customs that it was the industry’s view that the sales of imported HSS by SSD were not sales by the applicant industry – SSD was not an applicant to the application - and that sales by SSD were injurious to the industry.

By further conversation with Customs on 30 March 2005, it was confirmed that the legal opinion on SSD’s sales would not be available until 4 April 2005. The following day, the industry advised (by email of 31 March 2005 from the consultant) that the legal opinion and a further submission on material injury to the Australian industry, would be forwarded to Customs by 6 April 2005.

On 4 April 2005 the delegate of the CEO of Customs contacted the industry consultant and advised that the inquiry would be terminated. The delegate advised that the material injury to the industry "came down to the loss of market share" which was the sole indicator. The delegate further commented that Customs "couldn’t convince itself that this was one of those rare occasions where the loss of market share was demonstrable as a material injury indicator". In its view, the material injury to the Australian industry was determined as "negligible" and in accordance with S.269TDA(13) the investigation was terminated.

The delegate advised that a notice terminating the investigation would appear in The Australian newspaper on Tuesday, 5 April 2005.

ii. Grounds upon which the Review Officer is being asked to review a decision

Customs’ Termination Report identifies a loss of market share as the only injury indicator evident to it during the investigation period. The delegate has dismissed the industry’s claims that it suffered material injury since 2002 in terms of profits and profitability forgone (as a consequence of lost market share), price undercutting, underutilized capacity, and an inadequate return on investment.

The applicants consider Customs has erred in its assessment of material injury to the HSS industry and, as a consequence of this error, has denied the industry the opportunity of a complete and thorough investigation into the alleged dumping and material injury of HSS exported from the nominated countries.

The grounds upon which the applicants consider a review of this decision to terminate the investigation is warranted follow.

a. Customs’ view "that this is not one of those rare cases where a loss of notional profits should be regarded as indicating material injury…"

By Ministerial Direction in September 1990, the then Minister of State for Small Business and Customs provided guidelines on how material injury was to be interpreted in the context of an anti-dumping or countervailing investigation. The reference to this direction in Customs Termination Report (P. 19) has not been fully reproduced and therefore does not provide the full context of the direction. The complete passage of the direction is repeated as follows (complete direction is enclosed at Attachment C):

"The Government expects that material injury, or the threat thereof, will only rarely be taken as proven when the Australian industry producing like goods has not suffered, or is not threatened with, a "material" diminution of profits or when the dumped or subsidised imports do not hold (or threaten to hold) a sufficient share of the Australian market to cause or threaten "material" injury, in the sense in which "material" is defined above. Nevertheless, the Government acknowledges that (rare) cases may occur in which material injury may indeed be caused or threatened even though the Australian industry’s profits have not been "materially" reduced and even though the dumped or subsidised imports hold only a small share of the Australian market. (emphasis added)"

The direction identifies two ‘rare’ situations in which material injury, or the threat thereof, may ‘be taken as proven’. The first, as Customs has referred to in its termination report, is where the Australian industry producing like goods "has not suffered, or is not threatened with, a material diminution of profits". Customs’ only consideration was in assessing the profit and profitability of the industry – this is demonstrated by references to increases in profits from 2001/02 to the investigation period of 43 per cent. On this basis, Customs considered that the HSS industry had not suffered, nor was it threatened with a material diminution of profits – as it considered profits were increasing, albeit off a very low base (discussed further below).

The second component of the direction identifies an additional ‘rare’ circumstance where material injury may be proven (and is independent of the first consideration of the direction). This second part refers to the circumstance where dumped imports "do not hold (or threaten to hold) a sufficient share of the Australian market to cause or threaten material injury". In the current HSS circumstances, dumped imports from the four nominated countries increased in volume by 125 per cent from 2001/02 to the investigation period to hold 20 per cent market share (according to the Termination Report). This increase in market share volume continues to grow (as evidenced by import data to February 2005 of which Customs was aware – see Attachment D), and can only be interpreted as not one of those "rare" circumstances where imports hold only a small share of the Australian market to cause material injury.

The ministerial direction on material injury is, therefore, only concerned with circumstances where:

• a material diminution of profits has not occurred or is not threatened; or

• where dumped imports hold only a small share of the Australian market.

Using data contained in the Termination Report, Customs acknowledge that the Australian HSS market is currently 540,000 metric tonnes per annum, of which 138,000 metric tonnes per annum (representing a market share approximately 26%) is supplied by imports. Imports of HSS from the four countries that are the subject of the application are stated in the Termination Report to be approximately 77% of total HSS imports or 106,000 metric tonnes per annum (representing a market share of approximately 20%). A 20 per cent share of the market is considered a substantial portion for dumped imports to hold, and represents a significant injury indicator in its own right (separate from a diminution of profits and profitability).

Further, the Termination Report also notes that, between 2001/2 and the 12 month period ended 30 September 2004, the Australian HSS market increased by 100,000 metric tonnes per annum (from 440,000 metric tonnes to 540,000 metric tonnes). The Termination Report also notes that, over the same period, imports of HSS grew by 73,000 tonnes per annum (from 65,000 tonnes per annum to 138,000 tonnes per annum) of which imports from the four nominated countries grew by approximately 59,000 tonnes per annum (from approximately 47,000 tonnes per annum to 106,000 tonnes per annum).

The applicants therefore submit that 59% of the growth of the Australian HSS market has been supplied by dumped imports and that this demonstrates material injury. On the basis of recent growth rates in import volumes for the GUC from P R China, Korea, Malaysia and Thailand (which presently hold 20 per cent market share – an increase of 9 per cent from 2001/02), a further doubling of market share of imports from these sources over the next two years will have substantial, irreversible consequences for the manufacture of HSS in Australia.

As imports do already hold a substantial share of the Australian market, the current HSS circumstances do not align with the depicted "rare" situation where material injury is not evident through a diminution of profits or loss of small market share (whether actual or threatened). For HSS, dumped import volumes are growing at a rapid rate – at the expense of Australian industry market share. The Australian HSS industry has failed to capture any reasonable level of market share growth in 2003 and 2004.

The industry considers Customs has misinterpreted the Ministerial Direction on material injury and has not taken full account of the materiality of an 8 per cent loss of market share (which could potentially double over the next two years, based upon growth patterns since 2001/02) as a standalone material injury indicator in its assessment of injury to the HSS industry.

b. Failure to consider Ministerial Guidance of December 1991

In a further guidance letter to the CEO of Customs of December 1991, the then Minister for Industry, Technology and Commerce provided additional comments on assessing the "materiality" of injury experienced by an Australian industry. In particular, the Minister wrote (copy of complete document appended at Attachment E):

"As I understand the matter, the present state of the law…..does not prevent the Authority or the Customs Service from judging the "materiality" of the injury caused by a given degree of dumping differently, depending upon the current economic condition of the Australian industry suffering the injury. That is to say, an industry which at one point in time is healthy and could shrug off the effects of the presence of dumped products in its market, could at another time, weakened by other events, suffer material injury from the same amount and degree of dumping. I would wish the Authority and the Customs Service to consider matters in this way, should the facts of a given case permit."

The present circumstances in the HSS case are commensurate with the scenario envisaged by the Minister in the guidance letter of December 1991. Notwithstanding, the view apparently taken by Customs that the Australian HSS industry can "shrug-off" the effects of dumped imports in a rising market, is ill conceived. The Australian HSS industry has grown at a mere 3.4 per cent compared to market growth of approximately 17 per cent. Price rises for HSS achieved by the industry have simply reflected increasing raw material (HRC) prices. Customs’ analysis indicates that the industry’s margin has improved slightly in 2004 – this would be expected in an expanding market with increased prices. The concern for the industry, however, is in a future declining market where dumped imports have already secured the 20 per cent (or more) foothold, HSS prices will fall at a much faster rate than raw material HRC prices as exporters seek to maintain volumes on the Australian market.

This is the scenario alluded to in the Ministerial Guidance letter of December 2001. In 2004, the HSS world market can be generically termed "tight" as HRC and HSS prices reached record levels, yet despite this, Customs assumed for the purposes of terminating the investigation that exports from the four nominated countries had been made at dumped prices. The situation will descend into mayhem in an environment of economic slowdown where global steel markets become less tight. The threat to the Australian HSS industry is that, in such a situation, exporters will seek to maintain sales into Australia as demand in their home markets contracts.

The December 1991 Ministerial Guidance letter also refers to material injury in the context of a growing market. The letter states:

"Another argument I have heard is that 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 the 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 an industry from growth to decline. In this matter as in all others, of course, your judgement (sic) should be guided by observable facts and not by unsupported assertions that an industry should have been far more prosperous if dumping had not occurred."

The applicants claim that Customs has also failed to take account of the Minister’s directions on the injurious effects of a slowing of an industry’s rate of growth. Customs has determined that the HSS market had expanded by 17 per cent from 2001/02 to the investigation period; dumped imports from the nominated countries had increased by 125 per cent over the same period (Customs’ data), whereas the industry’s sales only increased by 3.4 per cent.

The industry quantified the impact of the profits forgone and lost contribution based on 2004 industry returns (i.e. prices and costs actually achieved). This level of identified injury represented approximately 30 per cent of the industry’s 2004 profitability, and is based upon the industry maintaining the market share level achieved in 2001/02. Any calculations which included an increase in market share (i.e. growth) would be additional to the 30 per cent level of lost profits and lost contribution.

The December 1991 Ministerial Guidance letter provides further clarification of circumstances envisaged by the Minister (i.e. a diminution in an industry’s rate of growth) as reflected in the HSS industry’s claimed injury period.

It is the HSS industry’s submission that Customs has not considered the "downward" side of the expanding HSS market in Australia – a scenario where the HSS industry is highly susceptible to the injurious effects of dumping (in terms of both reduced rates of growth in an expanding market and greater susceptibility to dumping in a market of declining prices as HRC and HSS supply moves from "tight" to "over-supply") and those referred to in the December 1991 Ministerial Guidance Letter to Customs.

It is further noted that the Minister for Justice and Customs in late 2000 provided additional clarification on circumstances involving material injury and an industry’s rate of growth. The Minister’s directives again endorsed the earlier Ministerial Guidance of December 1991 See Attachment F).

c. Customs’ assessment of material injury to the HSS industry

Customs stated that it has examined the economic condition of the industry over the period 1 July 2001 to 30 September 2004. Customs nominated an investigation period of 1 October 2003 to 30 September 2004. The industry’s original application submitted in January 2004 included financial data through until the end of 2003; upon subsequent re-submission, data was updated to 31 March 2004.

Following the Review Officer’s decision to initiate the application on 22 November 2004, Customs formally notified the commencement of an inquiry on 23 December 2004. The industry was requested to provide financial data for the whole of the investigation period – in effect an additional nine months data was supplied to Customs from the time of the original submission.

With the passing of time from initial lodgment to formal initiation coinciding with sharp increases in raw material HRC prices, the price-effect injury indicators nominated for the end of 2003 were no longer clearly evident in December 2004. The industry deemed it necessary (and Customs requested evidence) to re-visit its material injury claims, and provided Customs with a submission on 1 March 2005 identifying the relevant indicators.

In drafting its Termination Report, Customs has made no allowance explaining why the industry had amended its claims on material injury and what relevant circumstances in HRC and HSS pricing and supply/demand pressures had had on the market throughout 2004. The Termination Report has been drafted to particularly highlight the lack of some injury indicators (price depression, price suppression, lost sales volumes and reduced profits and profitability) as failures of the application.

The industry’s submission on material injury made it clear that these injury indicators were not evident – nor were they expected to be in an environment of rapidly rising HRC and HSS prices (both domestically and internationally) – but other indicators were present. The injury paper indicated there were intrinsic material injury claims to the HSS industry throughout 2004 – not the least being that the most significant injury indicator was a loss of market share in a rapidly expanding market. Other material injury indicators identified by the industry included:

  • profits and profitability forgone (as a consequence of a loss of market share);
  • price undercutting;
  • underutilization of industry capacity; and
  • inadequate return on investment.

Each of the material injury indicators was addressed by Customs in its Termination Report. The applicants disagree with Customs’ assessment of each of the items identified and consider Customs’ has erred in its finding that injury to the Australian HSS industry producing like goods is ‘negligible’. The Review Officer is requested to consider the following comments on each of the injury indicators identified in the industry’s submission of 1 March 2005 (and subsequently dismissed by Customs in the Termination Report).

  • loss of market share

The HSS industry claimed it had experienced a loss of market share of 10 per cent. This figure was based upon identifiable CHS and RHS imports of the GUC over the period 2001/02 (base year) to the investigation period. The level of 10 per cent was determined prior to Customs ACDN 2005/17 which narrowed the range of the GUC slightly.

When the items nominated in ACDN 2005/17 are taken into account, the level of market share lost to dumped imports is approximately 9 per cent.

Customs’ 8 per cent calculation assumes that sales of imported HSS by companies related to the applicants are excluded from injurious imports. The industry had notified Customs (on 30 March 2005) that it had sought a legal opinion on the status of sales of imported HSS by SSD, and that the opinion would not be available until 4 April 2005. The opinion supports the inclusion of the sales of imported HSS by SSD as injurious imports to the HSS industry. On this basis, the level of lost market share to the HSS industry is approximately 9 per cent.

The Termination Report confirms that the lost market share was supplied by imports of dumped HSS from the nominated countries. To place the loss of market share in context, the market expanded by 17 per cent from 2001/02 to 2004; dumped imports from the nominated countries increased by 125 per cent; industry HSS sales grew by 3.4 per cent; and imports from other sources increased by approximately 9 per cent.

In real terms, a 9 per cent loss of market share equates to approximately 50,000 tonnes of lost production per annum. This level of lost market share was growth that the industry had relied upon to justify investment in new capital equipment and further utilize its existing manufacturing facilities and would have provided certainty for future investment decisions for expanded local manufacture of HSS.

Minister Vanstone’s Guidance letter of December 2000 (Confidential Appendix Y of Industry’s Application) confirmed that in the assessment of material injury to an industry, "..the volume of dumped imports and a diminution of profit are not to be read cumulatively. (emphasis added)". The guidance letter elaborates further on the disconnect between the two indicators and also reiterates the comments of the Minister for Industry Technology and Commerce in his letter of December 2001 about the injurious nature of "…a substantial diminution in an industry’s rate of growth."

It is the HSS industry’s view that Customs has erred in dismissing the 9 per cent loss of market share as a significant standalone injury indicator in its own right. It is clearly evident from the Ministerial directives and guidance letters referred to above that a loss of market share indicator is to be considered in the context of an expanding market and the industry’s supply/demand cycle – both of which add substantial weight to a finding that the HSS industry has suffered, and is threatened with, material injury.

The applicants wish to highlight with the Review Officer a previous case example where anti-dumping measures were recommended on the basis of much smaller market share loss (e.g. LLDPE ex Indonesia, Trade Measures Branch Report No.8, July 2000).

  • profits and profitability foregone

Customs has correctly stated that the HSS industry had assessed profits and profitability forgone "..on the expectation that, but for the presence of dumped imports, the industry would have at least retained its market share in Australia’s growing HSS market."

On the basis that the industry possessed ample capacity to supply the local HSS market, this is a reasonable expectation.

Customs, however, has dismissed this reasonable expectation by concluding that due to "consistent price and profit rises combined with strong sales growth made by the industry during the period examined, Customs is satisfied that this is not one of those rare cases where a loss of notional profits should be regarded as indicating material injury, even if it was satisfied that there was a loss of notional profits." (P.18 of Termination Report).

There are a number of inconsistencies with the assertions made by Customs. Firstly, the reference to "consistent price and profit rises" distorts the true picture of price increases during 2003 and 2004. Price increases for HSS have been necessitated by raw material HRC cost increases and were implemented on this basis). There has not been separate price increases for HSS above and beyond HRC price increases as alluded to in Customs’ statement. Secondly, the comment reflecting "strong sales growth made by the industry" is not correct. The market has increased by 17 per cent over the inquiry period. Dumped imports increased by 125 per cent, whereas the Australian industry’s sales increased by a mere 3.4 per cent over the same period. A 3.4 per cent increase in sales volume cannot be described as representing "strong sales growth" when the market has increased in size by 17 per cent. Thirdly, the increase in profitability during the investigation period has been contrasted against the 2001/02 year – a low base year with single digit returns on sales which are recognized as substantially inadequate for capital intensive industries.

Customs has further commented that "it is a large assumption that the industry could have maintained its market share and achieved the same level of increase in prices and profit margins". Industry’s response to this statement is central to the request for review to the Review Officer: With ample excess capacity from which to supply the expanding market, the HSS industry, in the absence of dumped HSS imports, could have reasonably expected to at least retain its market share over the injury period.

The failure of Customs to take these relevant factors into account highlights Customs’ unwillingness to prescribe the circumstances outlined in Ministerial guidance letters and directives to those of the HSS industry over the injury period. Furthermore, Customs failed to take into consideration that profits have been inflated as a result of stock revaluations (when price rises have been introduced to the market). As a result Customs has reported profitability figures that overstate the true underlying rate by approximately 10 per cent over the investigation period.

  • price undercutting

Customs’ approach to assessing evidence supplied by the applicants in respect of price undercutting is dismissive in terms of approach and materiality. Information supplied to Customs by the industry on 1 March 2005 detailing examples of price undercutting of local industry prices was much more substantial than merely "purporting" to evidence material injury in an isolated manner.

The Review Officer would be aware of the difficulties encountered by Australian industry to provide actual instances of price undercutting by importers of dumped product (whether for the HSS industry or other industry sectors). This information is generally very difficult to obtain. Despite this, Customs has stated that the information provided was "too general to provide any useful price comparisons" and was from "a very narrow source of import prices quoted and these sales did not appear typical of ordinary trade".

The industry supplied Customs with the examples of price undercutting on 1 March 2005. At a meeting with Customs on 9 March 2005, no mention was made that the examples provided were insufficient, inadequate or "not reflective of the vast majority of import prices paid by Australian distributors for imported HSS in normal business transactions". The industry considered the price undercutting examples were reflective of the actual situation in the market; for example, the selling prices for imported hot dipped galvanised (HDG) pipe sold by traders during February to May 2004 was approximately $ - /MT which was approximately $200/MT below the industry’s cost to make and sell equivalent HDG pipe. Industry is confronted with the choice of selling this product at a significant loss, or foregoing market share to the dumped imports. The data supplied to Customs confirms industry experienced considerable price undercutting (particularly for HDG pipe) and as a result lost substantial market share due to dumped imports. Customs has failed to adequately contrast the level of undercutting evident in examples provided by industry against industry selling prices.

As Customs has indicated in its Termination Report, price undercutting "evaluates the effect of the imported goods on prices by the Australian industry, and also of causal link". The industry considers that the examples of price undercutting provided to Customs clearly identify the selling prices of the GUC from the four countries at levels which were below prevailing selling prices for the industry. The existence of price undercutting supports how the industry has failed to retain its market share in a rapidly expanding market.

Further, the industry pointed to purchases of imported HSS from the nominated countries by OneSteel Distribution and SSD, and the prices paid for the imported HSS. The industry considered that these purchases further evidenced price undercutting in the market.

The industry also believes that Customs has erred by acting prematurely in terminating the investigation prior to overseas visits to exporters. Had exporter visits been conducted, Customs would have been able to contrast the levels of dumping margins with the examples of price undercutting provided by the HSS industry. The early termination of the inquiry prevented this essential investigative element of the material injury assessment process from occurring, as is normal practice in an anti-dumping inquiry. The industry considers that it has been denied access to the complete investigative process in this instance – the level of dumping margins determined from exporter visits and linkage to price undercutting in the market, are key indicators of material injury in an investigation.

In assessing whether the injury experienced by the industry is negligible under S.269TDA(13), the Minister has regard to various indicators as to whether material injury has been caused, or is threatened, to an Australian industry under S.269TAE of the Act. S. 269TAE (1) of the Act requires the Minister to have regard to, inter alia, calculated dumping margins for the GUC that have been exported to Australia.

In particular, S.269TAE(1)(aa) requires the Minister to have regard to:

"if the determination is being made for the purposes of section 269TG- the size of the dumping margin, or of each of the dumping margins, worked out in respect of the goods of that kind that have been exported to Australia and dumped; and"

Section 269TAE(1) of the Act is cumulative and requires the Minister to have regard to all of the matters referred to in sub-paragraphs (aa) to (h).

As Customs had not visited overseas exporters prior to arriving at a decision of negligible material injury, it is considered that Customs has not had regard to all of the provisions of S.269TAE(1) of the Act – i.e. Customs has not determined "the size of the dumping margin, or of each of the dumping margins, worked out in respect of the goods of that kind that have been exported to Australia and dumped".

Customs has failed to have regard to the full provisions contained in S.269TAE(1) of the Act in arriving at a conclusion "that any injury to the Australian industry caused by dumped imports is negligible". It is not unreasonable to conclude that such a finding cannot be made unless the size of the dumping margin(s) has been accurately determined through verification visits to exporters.

The Review Officer is requested to examine the industry’s concern that Customs has erred in terminating the inquiry process prematurely, by not conducting overseas visits to exporters to verify actual levels of dumping, and fully verifying the impact of determined dumping margins on the industry’s claims of price undercutting. Further, the Review Officer is asked to examine whether Customs should have had regard to the size of actual dumping margins (as required by S.269TAE(1)(aa)) through verification visits to exporters.

  • underutilization of capacity

In its submission to Customs of 1 March 2005, the industry detailed the levels of production capacity available to each of the industry members for the GUC. Customs has accepted the industry’s representations that industry capacity has not been constrained by supply shortages. Customs, however, has stated that industry "is at or near capacity with its current shift arrangements".

A serious flaw in this assessment is that Customs has failed to understand the reality that industry (not just the HSS industry) can extend its current production shifts in the very short-term by introducing overtime to address immediate increases in demand. Further, on relatively short notice, the industry could implement an additional shift as required. Customs concluded the following on the introduction of further shifts:

"In Customs’ view, the possibility that the Australian industry could add further shifts, and Customs believes this would not be a simple exercise, is not evidence that the Australian industry had under-utilized capacity over the period examined" (P. 19 of Termination Report).

Customs did not ask the industry whether the introduction of overtime was a possible short-term response to increased market demand; nor did Customs inquire as to how long would be required to introduce additional shift arrangements. The question of the level of capacity for the HSS industry is a question of fact – the industry possesses installed capacity of approximately tonnes per annum. This level of capacity is in excess of the current 540,000 tonnes of HSS assessed by Customs as the size of the Australian market.

Industry provided Customs with breakdowns of capacities and shifts required to achieve these levels (including details of operation on a 24/7 basis). Customs’ analysis on industry utilization was not given adequate consideration to the industry increasing production output through overtime and additional shifts as means of responding to increased market demand.

The industry agrees that its capacity utilization has improved over the period examined by Customs – however, the industry continues to have underutilized production capacities and could adequately supply domestic demand for HSS.

  • inadequate return on investment

Customs has not addressed this issue in its Termination Report. The industry identified in its submission dated 1 March 2005 that returns on investment in 2003 and 2004 were inadequate to allow for re-investment in HSS manufacturing in Australia. S.269TAE(3) of the Act requires Customs to consider this indicator when assessing material injury to the applicant industry. The industry considers that, by failing to address this issue, Customs has ignored an important criterion in the overall material injury assessment in the HSS investigation.

The industry members all have long term capital plans for periods covering at least the next five years, which were based upon improvements in market share levels achieved in 2001/02. This represents a further example of the industry’s long term plan to expand and meet growth potential of the market beyond short terms solutions involving overtime and additional shifts. Recent investments by Orrcon and Smorgon demonstrate the commitment to local manufacture is real (and substantial). Pivotal to the longer term investment plans is access to market growth, to underpin investment decisions.

It is evident from the rapid growth in dumped imports over the injury period, and the increasing import trends of early 2005, that recent market growth shows no sign of abating. The industry’s ability to participate in this growth is seriously threatened by Customs’ finding of negligible injury from dumping, to the point that future investment decisions are at risk.

Conclusion

The Review Officer is requested to examine Customs’ finding contained in its Termination Report in respect of HSS exported from P R China, Korea, Malaysia and Thailand. The HSS industry considers Customs has erred in terminating the investigation on HSS at a date prior to completing overseas exporter visits and publishing a Statement of Essential Facts (SoEF) for the following reasons (detailed above) in this request for review:

    • Customs has failed to take full account of Ministerial Direction of September 1990 (from the then Minister of State for Small Business and Customs) in respect of matters to consider when assessing material injury to an Australian industry;
    • Similarly, Customs has failed to correctly apply the Ministerial guidance requirements of the Minister for Industry Technology and Commerce (December 1991) and the Minister for Justice and Customs (December 2000) on material injury and casual link to the circumstances of the HSS industry in arriving at a conclusion to terminate the investigation on 5 April 2005 due to a finding of negligible material injury vide S 269TDA(13);
    • In assessing material injury to the Australian industry Customs has incorrectly determined that a loss of 8 per cent market share (industry considers 9 per cent), of itself, does not constitutes material injury to the applicant industry;
    • Due to the premature termination of the investigation, Customs has failed to consider the impact of actual dumping margins (Minister to have regard to under S.269TAE(1)(aa) of the Act) on the levels of price undercutting provided by industry, as a basic requirement in determining the "…the effect of the imported goods on prices by the Australian industry, and also of causal link" in its material injury assessment
      • further, Customs has dismissed the industry’s examples of price undercutting as "too general" and "a very narrow source of import prices quoted" without fully investigating the relevance of the examples to the applicant’s prices; and
    • Customs did not correctly assess the HSS industry’s claims of material injury in respect of underutilization of capacity and inadequate return on investment as contributing factors to the industry having experienced, and is further threatened with, material injury.

It is the industry’s view that Customs has terminated the HSS investigation prematurely without allowing for the full investigative process to proceed. Customs was aware, at the date of termination that, the industry had intended to provide a legal opinion and supporting material injury submission, for consideration by it. The industry was told by Customs that it would be seeking from the Minister an extension of time to publish an SoEF – this fact is indicated in industry visit reports prepared by Customs on each of the Australian industry members.

The industry would also like the Review Officer to examine the apparent automatic acceptance of the Australian Steel Association’s (ASA) claims and assertions (see P.20 of Termination Report) as a basis for rejecting industry’s substantiated claims on material injury. This matter raises serious concerns about the ‘weighting’ afforded to the ASA’s assertions in arriving at a decision to terminate the investigation vide S.269TDA(13).

The industry requests the Review Officer to overturn the decision to terminate the HSS investigation and require Customs to immediately publish an SoEF in this regard. The industry is willing to assist the Review Officer with clarification on any aspect of the matters contained in this submission, or throughout the inquiry.

Please do not hesitate to contact the undersigned as required on (07) 3342 1921.

Yours faithfully

John O’Connor
Director
John O’Connor and Associates Pty Ltd
On behalf of the HSS industry