Review of decision to publish dumping duty notice in respect of preserved mushrooms from China


7 April 2006

  1. By notice dated 29 December 2005, published in Special Gazette S7 of 12 January 2006, the Minister for Justice and Customs, Senator the Hon Chris Ellison accepted the recommendations of the Australian Customs Service (Customs) that anti-dumping measures be imposed against imports of preserved mushrooms from China by a number of companies. The Minister made a declaration that section 8 of the Customs Tariff (Anti Dumping) Act 1975 (the Dumping Duty Act) would apply in relation to imports of preserved mushrooms of the genus Agaricus. Dumping duty was applicable to preserved mushrooms from China entered for home consumption after 30 September 2005, and to preserved mushrooms exported from China to Australia after 12 January 2006: see section 269TG of the Customs Act 1901 (the Act).

  2. Under paragraph 269ZZA(1)(a), a decision of the Minister to publish a dumping duty notice under subsections 269TG(1) and (2) may be reviewed by the Trade Measures Review Officer (the Review Officer). Applications for review were received from Fujian Holdings Pty Ltd (Fujian) and Oriental Merchant Pty Ltd (Oriental). Oriental is a company based in Melbourne that specialises in the wholesaling, distributing and marketing of Asian groceries in Australia. Fujian is an importer of Asian grocery items and is based in Sydney. Both companies made submissions to Customs in the course of its investigation and both are accepted to be interested parties, within the meaning of paragraph (c) of the definition of that term in section 269ZX, and thus entitled to make an application for review under section 269ZZC.

  3. Pursuant to section 269ZZJ, a notice was published in the Australian Financial Review on 10 February 2006 indicating that a review would be carried out.

     The decision under review

  4. The Minister's decision to publish an anti-dumping notice was based on Trade Measures Report No 99 (TMR 99) published on 27 September 2005. Windsor Farm Foods Group Ltd (WFF) had lodged an application with Customs on 10 March 2005 requesting that the Minister publish a dumping notice in respect of preserved mushrooms. WFF are producers of a range of food products, including canned vegetables. In addition to preserved mushrooms, WFF produces canned potatoes, asparagus, and mushy peas. They have a factory at Cowra in central western New South Wales, which they acquired from Cowra Export Packers Ltd in 2000.[1]

  5. 5. WFF claimed that preserved mushrooms were imported from China at dumped prices and that they had suffered material injury by way of lost market share, lost sales volume, price undercutting, price depression, price suppression, reduced profits and profitability, under-utilisation of capacity and reduced employment numbers.[2]

  6. 6. WFF had described the goods under consideration (GUC) as preserved mushrooms or champignons of the genus Agaricus, whole, sliced or as pieces and stems, in brine, sauce or some other preserving medium packed in containers including bottles, cans, bags, pails and barrels. Customs accepted this description but observed that it had not found there were any imports in bags, pails or barrels.[3] WFF does supply preserved mushrooms in 10kg and 20kg pails, 200kg barrels and 2.5kg bags primarily to the hospitality and restaurant industries.[4]

  7. 7. WFF's products include mushrooms in brine, and also mushrooms in butter sauce, peppercorn sauce, garlic sauce and lite sauce. Customs found that the locally produced mushrooms in brine had characteristics closely resembling those of the GUC and were, accordingly, like goods.[5] It made the same determination with respect to the mushrooms in sauce product, notwithstanding that mushrooms in sauce have quite a different taste, and use sliced mature mushrooms only. The statement of essential facts published on 13 August 2005 (hereafter SEF99) did not state a conclusion on whether the mushrooms in sauce products were like goods to the GUC.[6]

  8. Customs found that WFF was the Australian industry.[7] At the time the investigation commenced, China was regarded as an economy in transition rather than a market economy, so Customs made an assessment of whether factors other than market factors influenced the pricing of the goods in the Chinese domestic market, but found no evidence of this.[8]

  9. Customs examined a number of Chinese companies involved in the preserved mushroom trade, those being Xiamen Gulong Import and Export Co Ltd (Xiamen Gulong), Jiangsu Cereals, Oils and Foodstuffs Import Export Group Corp (Jiangsu COF), Fujian Zishan Group Co Ltd (Fujian Zishan), Fujian Provincial Cereals, Oils and Foodstuffs Import/Export Corporation Xiamen Company (COFCO) and Xiamen Fortune Import and Export Co Ltd (Xiamen Fortune). Customs was satisfied that the dumping margin in relation to Jiangsu COF was less than 2% and as required by the Act, terminated the investigation, publishing its notice of termination in Australian Customs Dumping Notice (ACDN) 2005/50. Dumping margins ascertained by Customs were as follows:

    Xiamen Gulong - 4.2%

    Fujian Zishan - 4.8%

    COFCO - 20.67%

    Xiamen Fortune - 17.4%

    All other exporters - 23.2%[9]

  10.  Customs concluded that dumped imports from China of themselves caused material injury to the Australian industry, whilst recognising that in the period under investigation, Australian industry pricing and profitability would have been influenced by factors such as maturity of the market, retailer market dominance, undumped import competition and exchange rate movements.[10] Customs was also satisfied that continued dumping would cause further material injury to the Australian industry.[11]

    Applications for review

  11. Two applications for review of the Minister's decision to issue a dumping notice were received. Oriental made an application on 9 February 2006 through their solicitor Hunt & Hunt Lawyers and Fujian made an application on 30 January 2006 through their consultant Roger D Simpson and Associates Pty Ltd. Both applicants claimed that the mushrooms in sauce products produced by the Australian industry are not like goods to the GUC. Both applicants also claimed that Customs should not have departed from determining normal value in accordance with subsection 269TAC(1) of the Act.

  12. Submissions were received from WFF and from the Food and Beverages Importers Association (FBIA). WFF disputed many of the assertions made on behalf of Fujian and Oriental. FBIA disputed that mushrooms in sauce were like products to the GUC and also asserted that normal business fluctuations in the market were the reason for WFF's lack of profitability, rather than any impact of dumping. 

    Like goods

  13. Fujian agree that mushrooms in brine produced by the Australian industry are like goods to the GUC, but say that the mushrooms in sauce products are not, because they have physical characteristics that do not closely resemble the imported product, have different end-uses and in most applications are not substitutable. Furthermore, Fujian claims that the products do not compete with each other in the market, involve different production processes and have different prices.

  14. Oriental criticises the apparent failure by Customs to give much weight to the views of consumers in determining whether the mushrooms in sauce product were like goods to the GUC.

  15. Section 269T of the Act provides that like goods, in relation to GUC means goods that are identical in all respects to the goods under consideration or that, although not alike in all respects to the goods under consideration, have characteristics closely resembling those of the goods under consideration.

  16. It is clear from the terms of the definition in article 2.6 of the Anti-Dumping Agreement[12], from which section 269T is drawn, that this phrase was intended to be left open to interpretation. However, it can be said that any determination as to like goods will require a consideration of the substitutability of the alleged like goods and the physical characteristics of the respective goods.[13]

  17. In its application for anti-dumping measures, WFF made reference to a report prepared by Associate Professor Euan Fleming of the University of New England which studied the sales data of the mushroom market in Australia. Associate Professor Fleming's findings were that there is a high degree of cross-price elasticity of demand in the mushroom market and that, according to the University's interpretation of the report, "the canned mushroom market appears very competitive and volatile; with fickle consumer preference as price differentials encourage brand and product swapping."[14]

  18. The findings in the report suggest that, at least as analysed from a price perspective, the imported mushrooms compete with all types of domestically-produced mushrooms including mushrooms in butter sauce. Ultimately, Customs' final report appears to have placed great reliance on the findings of the report in reaching a conclusion as to like goods.

  19. 18. While cross-price elasticity of demand is a relevant factor in determining whether goods are like goods, it is only one factor among a range of others. Another significant element of any consideration of substitutability is end-use. In its report, Customs found that a significant overlap existed between the end-use of mushrooms in butter sauce and that of champignons in brine.[15]

  20. 19. Oriental submitted that Customs improperly disregarded the evidence of consumers in reaching their finding that mushrooms in butter sauce are substitutable with champignons in brine. It is clear on the evidence that Customs requested the views of a number of interested parties, such as bakeries and supermarkets, in an attempt to determine whether these goods had similar end-uses. A number of these parties were of the view that champignons in brine and mushrooms in butter sauce are not like goods. However, no explicit reference was made to these views in Customs' final report. In my opinion, Customs did not place appropriate weight on these views in their final report, instead relying on the cross-price elasticity of demand findings made by Associate Professor Fleming.

  21. 20. In my view, it is also relevant to consider the manner in which the products in question are marketed in order to determine the intended end-use of the products. In its application for anti-dumping measures, WFF included excerpts of their marketing material relevant to the mushrooms in question.[16] Under the heading "Old Fashioned Favourites", Windsor Farm Foods lists such goods as mushrooms in garlic sauce, mushrooms in peppercorn sauce, mushrooms in lite sauce, mushrooms in butter sauce and mushy peas. There is no reference in this category of products to mushrooms or champignons in brine. I assume from this omission that such products are not considered to be "Old Fashioned Favourites". Supporting this view, the marketing information provided by Oriental and Fujian, do not characterise their ranges of preserved products as "old fashioned favourites". The marketing material of these companies groups champignons in brine with other product lines that are commonly found in Asian grocery stores and which are used in Asian cuisine.

  22. As section 269T of the Act makes clear, a fundamental consideration in this analysis is whether or not the goods are identical or, failing such similarity, whether they possess "characteristics closely resembling" each other such as to be characterised as "like goods'. In its report, Customs stated that apart from container size, the only other difference between WFF's mushrooms in sauce and mushrooms in brine products is the preserving medium.[17]In response to this finding, Fujian submitted that the nature of the preserving medium (as brine or sauce) is in fact the most fundamental characteristic of the goods and should, accordingly, not be discounted easily. A submission to similar effect was made by FBIA.

  23. 22.  think the view advanced on behalf of Fujian is to be preferred. It is erroneous to characterise both butter sauce and brine as preservatives. Butter sauce is a consumable as well as a preservative. Preserved champignons in brine would normally be drained and the brine discarded before use. Butter sauce cannot be readily drained off the mushrooms, but has to be washed off. Moreover, the butter sauce is an essential ingredient of the mushrooms in butter sauce product. It is the sauce that makes the product capable of use as a stand alone meal when for example it is served on toast. It is the sauce that makes the product capable of being used as a garnishment for grilled steak without additional treatment other than heating. Labelling for the product in some instances also identifies these uses for it, and they are uses that cannot be claimed for the GUC. It follows therefore that in my opinion, the mushrooms in sauce product are not like goods to the GUC.

    Other claims by Oriental

  24. Oriental says that the statement of essential facts (SEF) in this matter was deficient because it did not state a conclusion on the central issue of whether mushrooms in sauce were like goods to the GUC. It is submitted that such a failure denied the parties "the chance to test Customs' view of "like goods'".

  25. Subsection 269TDAA(1) of the Customs Act provides that the CEO must, within 110 days of the initiation of an investigation, place on the public record a statement of the facts on which the CEO proposes to base a recommendation to the Minister in relation to that application.

  26. This provision is based on article 6.9 of the Anti Dumping Agreement. Article 6.9 provides:

    The authorities shall, before a final determination is made, inform all interested parties of the essential facts under consideration which form the basis for the decision whether to apply definitive measures. Such disclosure should take place in sufficient time for the parties to defend their interests.

  27. It is clear from article 6.9 that the publication of the SEF is intended to put all parties on notice as to the factual basis upon which a final recommendation to the Minister will be made.[18] It should be remembered that the SEF is not a final decision; according to the timeline established under the Act, it falls only 110 days into a 155 day reporting period. Clearly, therefore, Customs is not intended to have reached final decisions on all elements of the investigation before the publication of the SEF. However, Customs is required to have reached decisions on all the essential facts on which its recommendation will be based. The question of "like goods' is clearly an essential fact. It would have been preferable if the SEF had stated an unequivocal view on the question of whether the Australian products were like goods to the GUC, as this would have served as a prompt to interested parties to raise any contrary arguments on the issue.

  28. Oriental say that WFF is the incorrect legal entity for the purposes of the Act, and say that there is no reason to pierce the "corporate veil" to put together the collective involvement of various companies. This submission is without substance. The Act is not concerned with questions such as the piercing of the corporate veil. Subsection 269T(4) specifies that if in relation to particular goods, there is a person or are persons producing like goods in Australia, then there is an Australian industry in respect of the like goods and the industry consists of that person or those persons who are involved in it. Customs found that WFF, a wholly owned subsidiary of Windsor Farm Foods Group Ltd was the only entity in Australia manufacturing preserved mushrooms, and therefore constituted the Australian industry. This finding is clearly correct.

  29. Oriental say that Customs placed undue reliance on Associate Professor Fleming's report about cross-price elasticity of demand for mushrooms referred to earlier in coming to its conclusions. Having regard to my conclusion regarding like goods, it is not necessary to express an opinion on this matter. However, as indicated in paragraph 18 above, economic considerations are only one factor bearing on whether or not products are like goods, and there was a substantial body of evidence in the files that suggested the mushrooms in sauce were not like products to the GUC.

  30. Oriental say that Customs should have determined normal value under subsection 269TAC(1) of the Act, rather than constructing normal value under other provisions of section 269TAC. They say that if it had undertaken further investigations, it would have been able to find similar models of product sold on the Chinese domestic market to those exported to Australia. This issue will be further addressed in relation to the submissions of Fujian which made some detailed claims in relation to the determination of normal value.

  31. Oriental say that the Australian industry has suffered no material injury, and that changes to sales are part of the normal commercial ebb and flow of the market. They say that WFF created its own underutilisation of capacity problem by expanding the manufacturing plant at Cowra at a time when market share was not increasing. They also say that there was insufficient research into the impact of fresh mushrooms on the market for preserved mushrooms. I consider there may be some substance in these claims and these matters should be investigated again.

    Other claims by Fujian

  32. Like Oriental, Fujian claims that normal values for the relevant products should be determined in accordance with subsection 269TAC(1). Fujian says that there is no legal basis to consider the sales by the other seller not to be relevant for the purposes of subsection 269TAC(1) for the reason that sales by the other seller would not permit fair comparison because of numerous and complex differences between domestic and export sales.

  33. In general, the normal value falls to be determined in accordance with subsection 269TAC(1). That subsection provides that the normal value of the goods is the price paid or payable for like goods sold in arms length transactions by the exporter in the market of the country of export. If the exporter does not sell the goods in its own domestic market, then the normal value is the price paid or payable to other sellers of like goods in the domestic market of the country of export. Subsection 269TAC(1) is said to be subject to the other provisions of the section.

  34. Subsection 269TAC(8) provides for adjustments to be made in a case where the normal value of the goods is the price paid or payable for like goods. Where domestic market and export sales occur at different times, or are not in respect of identical goods, or where the prices are modified in different ways by taxes or the terms or circumstances of the sales, the price payable for like goods may be adjusted, in accordance with directions given by the Minister so that those differences would not affect its comparison with the export price.

  35. Customs considered on the basis of available information that selling prices in the domestic and export markets were influenced by a great many factors. In TMR99 it is stated that Customs:

    examined the other sellers sales and sought at length to use those sales with appropriate adjustments under the provisions of subsection 269TAC(1) and subsection 269TAC(8). However, the results generated appeared to Customs to be significantly inaccurate or unreasonable because of the difficulties experienced in making the adjustments for fair comparison.[19]

    Among the differences that made these adjustments necessary were the following:

    • the producer from whom the goods were sourced and its cost structure;

    • the grade of mushrooms used by the producer;

    • the type of container (glass jars and cans);

    • the size of the container;

    • the style (whole, sliced or pieces and stems) of the mushroom in the container;

    • the manufacturing process;

    • whether the container was purchased, or manufactured by the producer;

    • whether the container was pre labelled or labelled just prior to sale;

    • the delivery and payment terms relating to the purchase of the goods by the exporter;

    • the delivery and payment terms relating to the sale of the goods by the exporter;

    • the delivery and payment terms relating to domestic sales;

    • the volume of preserved mushrooms purchased by: domestic customer from domestic seller; exporter from producer; and Australian customer from the exporter;

    • loyalty relationships between the respective parties;

    • packing costs (eg packs of 12 versus packs of 24);

    • selling costs in the domestic and export markets;

    • exhibition/promotional costs in the domestic and export markets;

    • different VAT implications in the domestic and export markets; and

    • level of trade.

      Customs was also informed that labels on containers may not accurately state the actual net weight of a product - a can marked 400g may in fact weigh 425g.[20]

  36. In the cases of Fujian Zishan and Xiamen Fortune, Customs determined normal value using paragraph 269TAC(2)(c) of the Act, and made adjustments under subsection 269TAC(9). This was done because Customs was satisfied that there were no relevant domestic sales of models that were comparable to the models exported to Australia, and thus that the sales by the other seller were not relevant to determining normal value under subsection 269TAC(1). Fujian claims that in doing so, Customs made an error of law. I consider that if there was an error that it was not an error of law. If Customs was correct in its assertion that there were no sales in the Chinese domestic market of models comparable to those exported to Australia, that would justify a conclusion that sales in the domestic market were not relevant for determining normal value under subsection 269TAC(1), or that the sales in the domestic market were unsuitable for use for that purpose.
  37. Fujian argued that many of the factors that Customs considered made domestic sales not relevant or unsuitable for determining normal value were either not applicable or were incorrect. In relation to Customs' claims that one complex difficulty was the lack of a number of sellers in the market, Fujian submits that this was an irrelevant circumstance once Customs had determined that Xiamen Cannery constituted sufficient domestic sales for determination under subsection 269TAC(1). I agree that the number of sellers in the domestic market cannot amount to a complex difficulty once it is determined that there exist sufficient domestic sales to permit the use of subsection 269TAC(1).
  38. One of the difficulties was said to concern the large number of "model' types which were identified in the export market. Fujian submits that Customs reated as different models, cans of the same drained weight but with different marked net weights, even after Customs had accepted that drained w eight was the only reliable measure for the goods.[21] The result of this analysis is that there were in fact far fewer "models' of the export product.
  39. Customs also suggested that the lack of a directly comparable model in the domestic market was a difficulty justifying resort to subsection 269TAC(2). As Fujian submits, however, this was not the case for the majority of the product exported by Fujian Zishan or Xiamen Fortune. Once it is accepted that net weights of 184g, 190g and 200g are equivalent to a drained weight of 114g to 115g, the only exported product of Fujian Zishan or Xiamen Fortune for which there was no domestic equivalent was the 400g to 425g cans of pieces and stems. Fujian submits that normal values for these exports could readily have been determined through the use subsection 269TAC(8) adjustments to the domestic selling price of 400g whole mushrooms.
  40. In relation to other difficulties identified by Customs, namely that the terms and circumstances of the of purchases from different producers varied, and that the terms and circumstances of the export sales varied, in my view, these difficulties could have been addressed through adjustments made under subsection 269TAC(8).
  41. It follows that I consider that Fujian has raised sufficient doubt about the correctness of determining normal value using the constructed method, rather than proceeding under subsection 269TAC(1), to warrant this issue being investigated again.
  42. For the foregoing reasons, I have decided to recommend to the Minister that he direct the Chief Executive Officer to reinvestigate this matter, and in particular, the following findings:

    (a) that preserved mushrooms produced by Australian industry, being preserved mushrooms other than those preserved only in brine, are like goods to the GUC;

    (b) that exports of preserved mushrooms were dumped;

    (c) that the Australian industry suffered injury in the form of price undercutting, price suppression, price depression, reduced profits and profitability and underutilization of capacity;

    (d) that preserved mushrooms exported from the People's Republic of China at dumped prices caused material injury to the Australian industry; and

    (e) that exports of preserved mushrooms from China in the future may be at dumped prices and the continued dumping may cause further material injury to the Australian industry[22].
Mark A Zanker
Trade Measures Review Officer

7 April 2006

[1] See web site

[2] TMR 99 pp7 & 8

[3] ibid<

[4] see Windsor Farm Foods Pty Ltd Preserved Mushrooms Application for Dumping and/or Countervailing Duties February 2005 p10

[5] TRM99 pp13 and 14

[6] SEF99 p6

[7] TRM99 p15

[8] ibid pp18 & 19

[9] ibid p29

[10] ibid p44

[11] ibid

[12] the Anti Dumping Agreement referred to is one of the subsidiary agreements to the Marrakesh Agreement Establishing the World Trade Organization, Australian Treaty Series 1995 No 8, namely the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.

[13] This approach is supported by Division 2, section 2.1.1 of the Customs' Dumping and Subsidy Manual. In relation to a similar term defined in Article III:2 of GATT, it has consistently been held that the relevant considerations will be determined on a case-by-case basis: see European Communities - Customs Classification of Certain Computer Equipment, Appellate Body Report, WT/DS62, 67, 68/AB/R (June 5, 1998)

[14] Letter from Jack Allen, University of New England to Michael Leahy, Windsor Farm Foods, attaching Associate Professor Fleming's Report, 30 April 2004.

[15] TMR No 99, p 14.

[16] Windsor Farm Foods application, non-confidential attachment A-3.3.

[17] TMR 99 p 13.

[18] This accords with the Panel Report in Argentina - Definitive Anti-Dumping Measures on Imports of Ceramic Floor Tiles from Italy (WT/DS189/R).

[19] TMR 99 p20

[20] ibid

[21] TMR 99, p 19.

[22] These are some of the findings set out in ibid pp51 and 52