Review of decision to publish dumping duty notice in respect of mobile garbage bins imported from Malaysia

5 September 2006

 
  1. This is a review of a decision by the Minister for Justice and Customs to publish a dumping duty notice declaring that section 8 of the Customs Tariff (Anti-Dumping) Act 1975 applies to imports from Malaysia of mobile garbage bins (MGBs) assembled or unassembled of 120 litre and 240 litre nominal capacities. The notice was published in Special Gazette S83 of Monday 5 June 2006. Interim dumping duties were imposed with respect to imports of MGBs entered for home consumption after 27 February 2006.
     

    Background

  2. In Trade Measures Report No 108 (TMR 108), Customs concluded that exports of MGBs from Malaysia were at dumped prices, and that Australian industry had suffered material injury as a result. In addition, Customs concluded that MGBs would continue to be imported at dumped prices and that, as a result, Australian industry would continue to suffer material injury.
  3. Nylex Corporation Ltd (Nylex) and Sulo MGB Australia Pty Ltd (Sulo) made an application to the Minister for the publication of a dumping duty notice on 23 September 2005. The application was in respect of MGBs of 120 and 240 litre capacity imported from Malaysia. Customs initiated its investigation on 31 October 2005. The period of investigation for determining the dumping margin was 1 October 2004 to 30 September 2005, and the period of examination for determining injury was from July 2002.
  4. The goods the subject of the application for the dumping duty notice were described as MGBs whether exported assembled or unassembled, of 120 litre and 240 litre nominal capacities, including but not limited to MGBs meeting European Standard EN840. These types of MGB usually consist of a bin body, bin lid, two wheels, an axle, lid pins, and in some cases a bin divider. MGBs in other nominal sizes were excluded from the investigation because they were not manufactured by the Malaysian producer. In the course of the investigation, Customs became aware of the importation of bin body components of the 240 litre MGBs. In Statement of Essential Facts No 108 (SEF 108) Customs indicated that it proposed to treat these bin bodies as like goods on the basis that they met the same standard as the complete MGBs (European Standard EN840), had the same essential characteristics as assembled bins and because the bin body was the largest component of a complete bin. This view was disputed by Schaefer Systems International Pty Ltd (SSI Australia), Schaefer Systems International Pte Ltd (SSI Singapore) and Schaefer Waste Technology Sdn Bhd (SWT) (whom I shall refer to collectively as Schaefer) on the basis that a bin body was neither an assembled or unassembled bin, and that by itself, the bin body was incapable of meeting European Standard EN840. Schaefer’s view was accepted by Customs and accordingly bin bodies were not treated as like goods in TMR 108. Sulo and Nylex applied to me for a review of this finding in their application of 4 July 2006. They also say that they should have been formally notified by Customs that bin bodies were being further examined in the context of the description of the goods under consideration.
     

    Findings by Customs

  5. Customs found that MGBs were a commodity, and the market for them was divided into 3 segments, namely the tender market, the top up or growth and replacement market and the general sales market. The tender market comprises sales of large volumes of MGBs to local government authorities and waste collection contractors. The top up or growth and replacement market similarly involves supplies of MGBs to local government and waste collection contractors for use in new residential developments and to replace MGBs that are lost, stolen or destroyed. The general sales market is for smaller quantities of bins for purposes such as secure document destruction, food storage, hospital waste disposal and the retail sector.
  6. Sulo and Nylex had dominated the MGB market until the emergence of Waste and Recycling Services (SA) Pty Ltd (WRS) as a significant market participant with their own manufacturing plant in South Australia. Malaysian MGBs had little or no presence in the market until 2004 when Schaefer won a contract to supply MGBs to the Ku-ring-gai council in NSW. In early 2005, Schaefer won a further four tenders in NSW.
  7. The Malaysian manufacturer of the goods under consideration was SWT. SWT did not sell the goods to an importer in Australia but to SSI Singapore, a Singapore-based company. SSI Singapore sold bins to SSI Australia and Waste Equipment Sales Pty Ltd (WES). Customs determined that sales by SSI Singapore to SSI Australia were not arms length transactions and therefore export price should be determined in accordance with paragraph 269TAB(1)(b) of the Customs Act 1901 (the Act), that is the price at which the goods were sold by SSI Australia to a person not an associate of SSI Australia less the prescribed deductions. The prescribed deductions are specified in subsection 269TAB(2) and include any duties of Customs or sales tax, any costs, charges or expenses relating to the goods incurred after their exportation and the importer’s profit on the sale. In relation to exports to WES, Customs considered that export price should be determined under paragraph 269TAB(1)(a) of the Act, that is the price paid or payable by the importer for the goods other than any part of the price that represents a charge in respect of transport or any other matter arising after export of the goods.
  8. Customs established normal value for 120 litre MGBs under subsection 269TAC(1) of the Act on the basis of the weighted average price paid for like goods sold by SWT in the ordinary course of trade for consumption in Malaysia in sales that were arms length transactions. In accordance with subsection 269TAC(8), negative adjustments were made in respect of domestic credit terms, domestic inland freight and import duty on wheels and axles. Positive adjustments were made in respect of export credit terms, export inland freight, wharfage and associated free-on-board charges. Customs considered that adjustments for indirect selling expenses and level of trade were not warranted.
  9. Customs found that domestic sales of 240 litre MGBs were not of sufficient volume to allow determination of the normal value of the exports under subsection 269TAC(1). Accordingly, the constructed price method provided in paragraph 269TAC(2)(c) was utilised. The key elements of the construction were the cost to make and sell the exported 240 litre MGBs, the administrative, selling and general costs that would have been incurred had the MGBs been sold on the domestic market and the profits that would be expected to have been realised from sales in the domestic market. In accordance with subsection 269TAC(9), Customs made negative adjustments in respect of domestic credit terms, and positive adjustments in respect of export credit terms, export inland freight, wharfage and associated free on board charges.
  10. As a result of this analysis of the normal and export values, Customs calculated a dumping margin of 6.21%.
  11. Customs found that over the injury period, sales volumes increased for 240 litre bins but decreased for 120 litre bins. Cumulatively however, the Australian industry’s sales volume increased. The market share of the Australian industry fell from 100% to 95%, because the 5 large tenders awarded to Schaefer amounted to 5% of the market. In four of the five cases, the Schaefer price undercut that of the Australian industry price. Customs found that there was price suppression, price depression, loss of profits and profitability, under utilization of capacity and reduced return on investment.
  12. Customs considered whether other factors, such as quality and service, competition between members of the Australian industry, changes in consumption patterns and the like caused injury to the Australian industry rather than dumping, but discounted them.
     

    Application for review by Sulo and Nylex

  13. It is convenient first to deal with the application of Sulo/Nylex. There are two grounds on which they seek a review. The first claim is that the finding that bin bodies are not like goods to assembled or unassembled mobile garbage bins, and therefore not among the goods under consideration, was erroneous. In my opinion, this submission must be rejected.
  14. In all jurisdictions in Australia, local government authorities and waste collection companies have been phasing out lift and carry garbage bins. For a very long period of time, the standard garbage bin was a galvanized metal or plastic cylindrical container with an unattached lid. Garbage was placed into the container wrapped or unwrapped. In some instances, householders were required to line the garbage bins with plastic bags that could be tied closed and removed from the bin so as to simplify the task of the collectors. In most instances, the collectors operated from a compacting truck driven by one of them. The remainder, often called runners, ran along streets picking up bins and disposing of the contents into the compacting truck, and then returning the bin to a kerbside position outside the household.
  15. Garbage collectors were exposed to a range of hazards including being knocked by the collection truck or another vehicle, injured by items of garbage such as broken glass, and other physical injury in particular back strains. With the mobile garbage bin system of collection, there is one collector who operates the collection truck, a mechanical arm grabs the bin and automatically lifts it in such a manner that the lid opens and the contents fall into the compacting chamber of the truck. The mechanical arm then places the garbage bin back in or near the kerbside position from which it was lifted. Ordinarily, the driver does not have to get out of the vehicle and does not come into physical contact with either the bin or the garbage. This obviously superior system has led to the view that the method of garbage collection that formerly prevailed widely is not a safe system of work, and thus contrary to present day occupational health and safety standards. Further, the MGBs hold greater quantities of garbage than the cylindrical containers they have replaced, reducing the number of collections required to be made, with resulting cost benefits.
  16. For the householder, the weekly or more frequent task of lifting a heavy garbage bin and carrying it out to the kerbside for collection has been replaced by the far easier task of taking a mobile garbage bin by the handle and wheeling it out of their premises to the kerbside collection point. Sulo retails a device whereby the mobile garbage bin can be attached to the tow ball of a motor vehicle and hauled at low speed to or from the kerbside to the place where the householder keeps the bin, which is said to be ideal for long or steep driveways.
  17. A bin body of 120 litres or 240 litres without wheels, if filled with garbage or recyclable material such as glass, would be impossible for most people to move or lift. Whilst it is true, as Sulo and Nylex say, that a bin body can be used for the storage of garbage and other material, the most important characteristic that distinguishes the actual mobile garbage bin from the bin body is the wheels, without which the body, when loaded, would be immobile, or at least not readily able to be moved.
  18. The second matter mentioned on behalf of Sulo/Nylex is that they should have been formally notified by Customs that bin bodies were being further examined in the context of the description of the goods under consideration. This submission must also be rejected. The publication by the CEO of a statement of essential facts (SEF) is a critical element in the whole anti dumping investigation process. The point of the SEF is to make known to interested parties the factual basis on which the CEO proposes to base a recommendation to the Minister. Persons can make submissions to the CEO in response to the SEF within 20 days of its publication. Pursuant to subparagraph 269TEA(3)(a)(iv), the CEO must have regard to these submissions when preparing his final report. There is nothing in the Act which suggests that the submission must be confined to any particular matter canvassed in the SEF. Rather, it is clear that the submissions may relate to any matter. It is therefore implicit in the statutory scheme that all matters contained in the SEF are open to be reconsidered before a report is made to the Minister. There is accordingly no basis for implying into the legislative scheme an obligation on the CEO to give separate notice to anyone that particular matters mentioned in the statement of essential facts are being reconsidered.
     

    Application for review by Schaefer

  19. By application dated 5 July 2006, Schaefer sought a review of all the findings in TMR 108. They say the cost of marine insurance should not have been included as an adjustment in working out the export price of the goods to Schaefer Australia. In relation to exports to WES, the adjustment to the export price for marine insurance did not represent the actual premiums paid. Further, they claim that defective or substandard bins should have been taken into account in determining Schaefer’s cost to make and sell MGBs. It was inappropriate to use the credit periods applicable to SWT’s sales to domestic resellers in making adjustments to determine normal value. Schaefer contends that the report makes no intellectual effort to determine how much of the injury was caused by dumping. Schaefer disputes all the findings of Customs in relation to price suppression, price depression, under utilization of production capacity and reduced return on investment.
     

    Adjustment for marine insurance costs

  20. Among the items that Customs deducted was an amount for marine insurance. In their application of 5 July 2006 to me, Schaefer says that the sales from SSI Singapore to SSI Australia were free on board and that accordingly, no deduction for marine insurance should be made, or in the alternative, that SSI did not incur any expenses for marine insurance as these were met by the parent company Fritz Schaefer GmbH (Schaefer Germany). According to Schaefer, the reasons for relying on global marine insurance taken out by Schaefer Germany are that Schaefer products are storage containers, shelving systems and similar materials of robust construction that are rarely damaged in transit and accordingly very few insurance claims are made. Consequently, insurance costs are very low. Schaefer say that marine insurance premiums represent a certain proportion of turnover and point to evidence on the file to establish this was the case. They say that Customs’ decision on marine insurance cost was arbitrary and not justified by the facts. They say that this view is supported by the fact that Customs initially decided that marine insurance should be taken to be a certain proportion of the value of sales, but reduced it when Schaefer queried this decision. Schaefer contends that there is no reasonable basis for either of the calculations chosen.
  21. I accept that, assuming there was to be an adjustment for marine insurance, the appropriate figure was indeed that suggested by Schaefer, and not the figure used by Customs. The files contain copies of documents provided by the company with whom Schaefer held a marine insurance policy. The document shows clearly that the premium is given as a per mille proportion, rather than a percent figure. It is possible that one could be confused by the document which uses the per mille symbol. The per mille symbol which otherwise resembles the percent symbol differs from it in that there are two zeroes in the denominator rather than one. The per mille symbol is not widely used by comparison with the percent symbol, and looking at it on paper in small font might lead one into thinking that it was a percent symbol. However that may be, the evidence is clear that Customs was in error in disregarding the evidence on the file to this effect. I also accept Schaefer’s proposition that insofar as exports to SSI Australia were concerned, there should not have been an adjustment for marine insurance as the sales in question were free on board.
     

    Adjustment for substandard bins

  22. Schaefer contends that Customs was in error in adjusting figures setting out the cost to make and sell bins so as not to include MGBs that were not of the correct standard. They say that Schaefer’s "factory costs of producing bins should have been calculated by dividing the total factory cost into the total number of bins produced…[and that] it is the common experience of any manufacturer of simply or elaborately transformed products that in the course of production some bins will be imperfect or damaged…A bin sold by Schaefer as a factory second, or the value of which is based on its reground high density polyethylene content is no less a bin produced by Schaefer which generated a return for Schaefer in the ordinary course of its production." I agree with this submission and consider that Customs should reconsider its position on the matter.
     

    Nature of the market

  23. As noted above the remainder of Schaefer’s application disputes all of the findings made in TMR 108. I consider a number of the findings in the report are not supported by the evidence on file, and that the matter should be reinvestigated.
  24. As noted in the report, MGBs were first introduced into Australia in the late 1970s. They were invented in Germany by Sulo’s parent company in 1975. Sulo established an Australian subsidiary in 1983, Sulo MGB Australia. This company is now wholly Australian owned after a management buy out in 2003. Sulo had purchased another MGB manufacturer, Otto. The other major industry participant, until comparatively recently was Nylex. In 2004 WRS commenced large scale production of MGBs and immediately captured a significant share of the market.
  25. There is evidence that the Australian industry participants have at various times engaged in predatory pricing to attract a greater market share for themselves. I have been provided with evidence that business was deliberately undercut in tender contracting and that retaliatory action was likely. [EXPLANATORY NOTE]
  26. An industry observer stated that the cheapest MGBs have dropped in price by around $25 since the early 1990s. I also received evidence that Mastec bins, manufactured by WRS were the current price leader in the market.
  27. I received evidence that that Australian manufacturers by themselves were not able to meet the demand for MGBs. This statement is undoubtedly true. For example, the Australian industry does not manufacture 360 litre bins. It is open to conclude on the evidence that there has been a downward price trend over many years that results principally from the fiercely competitive conduct of the Australian industry participants. This has resulted in a situation today where margins are quite low, although industry participants remain profitable. All this occurred before Schaefer won the 5 contracts to supply MGBs to NSW purchasers.
  28. TMR 108 gives detailed consideration to the 5 contracts in NSW won by Schaefer, those being for Collex Pty Ltd (in respect of its collection contract with the Ku-ring-gai Council), the Canterbury City Council, Watts Waste (Bega Valley Shire Council), Staples Waste (Eurobodalla Shire Council) and Handybin Waste Services (Coffs Harbour) Pty Ltd (Coffs Harbour City, Bellingen Shire and Nambucca Shire Councils). Customs asserts that in four of these contracts, the price offered by Schaefer undercut the prices offered by the Australian industry, and states that in its view, price was a key factor in the award of all the contracts. However, in my view, the evidence does not support this conclusion.
  29. One end-user’s previous experience had been that lids on Australian manufactured bins tended to pop off after a time. Replacement or repair of lids was said to be the biggest cost item in MGB maintenance, and this was a matter of significant concern. Some parties were of the view, rightly or wrongly, that the four point lid attachment on the Malaysian product was more durable and secure than anything offered by the Australian manufacturers.
  30. It is noteworthy also that wall thickness of the bin body influenced some purchasers. The Schaefer product is manufactured to comply with the German RAL standard which specifies thicker walls than does the European standard EN840. Customs found that parties seeking to purchase MGBs often specify that the bins should comply with the European standard. It appears that a bin that complies with the German standard will also comply with the European standard, but the reverse is not the case.
  31. 31. Other factors, such as the quality of after sales service and flexibility of payment terms were significant for some purchasers. In the case of Ku-ring-gai Council, the major element of the contract was the replacement of green waste bins of 340/360 litre nominal capacity. Reliability was said to be a critically important factor for this type of bin as the per unit cost is very high and failures could lead to financially crippling repair and replacement costs. Tests were conducted on samples of 340/360 litre bins supplied by various manufacturers, and the Schaefer product, sourced from its factory in the United States was judged to be most suitable. The contractor was then able to negotiate a package deal with Schaefer.
  32. In the Coffs Coast contract, a critical consideration in deciding which tender to accept was compliance of the MGBs with the EN840 specification. Only Schaefer provided a certificate of compliance from an independent third party. One industry member made the point that a mere statement by a manufacturer that a product complies with a particular standard cannot reliably be accepted by a customer, particularly where failure to meet the standard would result in a breach of contract. Relationship issues with one of the Australian manufacturers arising out of previous business dealings, as well as some of the other factors mentioned above may also have influenced the purchaser’s decision to accept the Schaefer tender. By relationship issues I mean matters going to mutual trust and confidence among the tenderer and purchaser, knowledge of the capabilities of the domestic industry on the one hand and Schaefer on the other and other similar matters.
  33. Whilst it might be accepted that there is evidence of price suppression, price depression and reduced profitability, affecting Sulo and Nylex, it is open to conclude that these factors came about for reasons unrelated to the entry of Schaefer into the market. In some of the 5 tenders that were critical to the injury determination, the local industry did not tender, or submitted non-conforming or out of time tenders. In at least one case, the local industry was not able to supply the required number of MGBs. In another case, the local industry won part of a tender for the supply of MGBs of a size that Schaefer was not able to supply. One of the collection contractors indicated that they would be purchasing replacement bins from the Australian industry as Schaefer was not competitive in small jobs. What I have termed relationship issues were also important in determining the outcome of at least two of the tenders.
  34. When considered together, the factors mentioned in paragraph 33 make it difficult to sustain the view put by Customs in TMR 108 that the market for MGBs is a commodities market, and that price alone is the determining factor in the decision to purchase them.
  35. There appears to have been price suppression and price depression in the market for MGBs. Further, Sulo and Nylex lost profitability. However, the evidence suggests that they have been the authors of their own undoing. It is difficult to see how Australian industry has suffered injury from dumping in this case. The local industry had itself already generated conditions where margins are very low. There were other factors at work affecting profitability. A change in regulatory arrangements in Victoria during 2003-4 which required the elimination where possible of garbage containers that had to be lifted manually led to a surge in demand in that year. It is to be expected that when that demand surge was satisfied, there would be a reduction in sales with all the consequences that flow from it. It appears also that the 120 litre MGB is declining in popularity, and its place in the market is being taken by a squat design 140 litre bin. The squat design makes the bin more stable than a conventional bin and less likely to fall over. Sulo and Nylex lost a considerable amount of potential market share to WRS after it developed its own manufacturing capability. Indeed, the evidence is that far more market share has gone to WRS than has gone to Schaefer. During the course of the investigation, more than one industry participant queried the ability of the local manufacturers to supply the market, and indeed Sulo itself imported bin bodies from Schaeffer at various times when it could not meet capacity. A query was also raised as to how Sulo or Nylex could possibly claim to be injured when Schaefer’s activities had resulted in its being awarded only 5 contracts, only in NSW and not elsewhere in Australia, and where the size of the market exceeded Sulo and Nylex’s capacity to satisfy it. Against this, one Australian industry participant asserted that it would be impossible for Schaefer to profitably sell the 240 litre MGBs at the price they had offered and estimating that they must have made a considerable loss on the transaction.
  36. In their submission to Customs of 6 February 2006, Schaefer argued convincingly that the importation of their MGBs have not caused injury to the Australian industry. They made a number of points in this regard as follows:
    • the Australian MGB market is high volume and low price;
    • the conditions of competition which brought this about, and which maintain and sustain this situation are those existing between Australian industry members;
    • Sulo and Nylex drove prices down to levels similar to and less than current prices;
    • WRS has made significant inroads into the market with their Mastec bins; the overall market size is likely to have decreased in 2005 by comparison with 2004;
    • Schaefer MGBs were largely sold on the basis of their particular characteristics;
    • Schaefer won a small number of contracts in a limited area;
      in none of the 5 contracts did Schaefer tender to supply 120 litre bins, it supplied only the 240 litre type;
    • the contracts were at price levels already existing in the Australian market, set by the Australian industry for non price reasons;
    • Schaeffer’s imports are uncompetitive in the non tender market.
  37. In my view, the evidence supports all of these points. Moreover, during the alleged injury period, the volume of sales by the Australian industry increased.
     

    Conclusion

  38. I have come to the following conclusions. First, if the Australian industry suffered injury, it was principally self inflicted as a result of predatory pricing and in some instances, inadequate attention to customer requirements. Second, the evidence does not convincingly establish there was a causal link between the imports of Schaefer bins and any injury to the industry. The best that can be said is that there was a minor loss of market share in only one segment of the market, namely the 240 litre bin contract segment. Third, Schaefer has ceased tendering for contracts since the dumping investigation began. Whilst it is to be expected that they would attempt to undercut prices offered by Australian industry in a bid to secure more market share, I think it likely that their ability to make significant inroads will be limited by factors such as the ongoing diminution in demand for 120 litre bins as a consequence of the development of the 140 litre squat bin, which Schaefer does not produce. Moreover, Schaefer’s view, and that of most other participants in the industry, is that they could not be competitive in the top up and replacement or general sales market segments.[EXPLANATORY NOTE]
  39. I therefore recommend that:
    (a) the finding that bin bodies should not be regarded as being included among the goods the subject of the application be affirmed; and
    (b) the following matters be investigated again:
    (i) the dumping margin is 6.21%; and
    (ii) there is a causal link between dumped imports and injury to the Australian industry and that the injury caused to the Australian industry by dumping is material;
    (iii) exports in the future from Malaysia are likely to be dumped and material injury to the Australian industry is likely to continue.

    Mark A Zanker
    Trade Measures Review Officer

 

EXPLANATORY NOTE:

Paragraphs 25 and 38 of the Report should not be read as implying that all Australian industry participants engaged in predatory pricing practices or that such practices occurred in the recent past.

KEY LEGISLATION