Review of a decision to publish a dumping duty notice in respect of certain hollow structural sections (HSS) exported from China

On 25 June 2007, I received an application for a review of a decision to publish a dumping duty notice in respect of certain hollow structural sections (HSS) exported from China. The applicants for review are Tian Jin No. 1 Steel Rolled Co Ltd (Tianjin No. 1) and GP Marketing International Pty Ltd (GPMI), each of whom are an ‘interested party’ within the meaning of that term as defined in section 269ZX of the Customs Act 1901 (the Act). The notice concerned was published in the Commonwealth of Australia Special Gazette No. S105 on Thursday, 24 May 2007. The goods concerned are electric resistance welded pipes made of carbon steel comprising circular and non circular hollow sections in galvanized and non galvanized finishes. Sizes of the goods are, in the case of circular and oval products, those exceeding 21 mm up to and including 165.1 mm outside diameter, and for square and rectangular products, those up to and including 1277.3 mm in perimeter. Since 1 January 2007, the goods have been classified to tariff subheadings 7306.30.00, 7206.61.00 and 7306.69.00 in Schedule 3 to the Customs Tariff Act 1995.

2.         The investigation by Customs was initiated following an application by the Australian industry manufacturing HSS on 29 March 2006. This application was made on behalf of three Australian manufacturers, OneSteel Trading Pty Ltd, Orrcon Operations Pty Ltd and Smorgon Steel Tube Mills Pty Ltd. The manufacturers alleged that HSS had been exported to Australia at prices less than normal value and that dumping had caused material injury to the domestic industry.

3.         Customs terminated its investigations in relation to HSS from Korea, Malaysia, Taiwan and Thailand on the basis that the volumes of HSS exported to Australia at dumped prices from these countries were negligible.

4.         On 22 November 2006, Customs made a preliminary affirmative determination that there appeared to be significant grounds for publication of a dumping duty notice in relation to certain HSS exported from China. Accordingly, provisional measures were implemented in the form of securities on goods exported from China and entered for home consumption on or after 24 November 2006.

Submissions Received in relation to the Application

5.         On 19 July 2007, I published a notice in The Australian newspaper indicating I was satisfied Tianjin No. 1 and GPMI were interested parties and that they had reasonable grounds to warrant review of the Minister’s decision. Other interested parties were invited to make submissions in relation to the matter within 30 days of the publication of the notice. I received one submission from Mr John O’Connor, on behalf of the Australian industry, supporting Customs’ findings and requesting that they be affirmed. I also received a supplementary submission on behalf of the applicants from their representative, Mr Daniel Moulis of Moulis Legal.

Grounds for Review

6.         The applicants dispute the following findings:

a. that exports from Tianjin No. 1 were dumped at a weighted average margin of 2.5%

b. exports of HSS from Chinese exporters other than Tianjin No. 1 were dumped at a weighted average margin of 14.6%, and

c. the Australian industry suffered material injury and that such material injury was caused by exports of HSS from China.

Dumping margin of 2.5% regarding exports by Tianjin No. 1

7.         The applicants dispute the finding that there was a dumping margin of 2.5% for exports by Tianjin No. 1 on the basis that no upwards adjustment should have been made to the domestic price on account of Tianjin’s gross margin in accordance with subsection 269TAC(8).

8.         Customs found that Tianjin No. 1 was the exporter, but not a domestic seller, of the goods under consideration. Therefore, in accordance with subsection 269TAC (1) of the Act, Customs used sales by ‘other sellers of like goods’ in the Chinese domestic market to determine normal price. The majority of HSS exported by Tianjin No. 1 was purchased from Yayi General Industry and Commerce Co Ltd (Yayi), and therefore Customs used the sales between Yayi and its customers to determine the normal value under section 269TAC(1).

9.         As the domestic sales used to determine normal values were made by the manufacturer of the HSS, Customs found the export sales by Tianjin No. 1 incorporated a gross trader margin that was not present in the domestic sales by Yayi. Customs therefore made an upward adjustment to domestic sales to ‘ensure a fair comparison of Yayi domestic sales with Tianjin export sales.’[1]

10.       The applicants argue that Yayi’s domestic price was already ‘fully loaded’ with a selling margin. They say that the transfer of goods from Yayi to Tianjin was not an ordinary sale from producer to trader because the two companies were so close. This transaction was ‘a simple order process taking place between related companies’, evidenced by, among other things, the fact that the companies occupied the same premises. The applicants say that giving Yayi the ‘label’ of being only a manufacturer is incorrect and unfair as many of its customers were end users in the domestic market. They say that Customs did not undertake the careful analysis of facts necessary to work out whether the circumstances necessitated an adjustment.  In essence, the applicants argue that Yayi’s selling price accurately reflected a normal value in the domestic market and could have been fairly compared to export price without adjustment. Similar points were made in the supplementary submission of the applicants.

11.       I am unconvinced by these arguments. While the applicants contend that it is incorrect and unfair to label Yayi as ‘manufacturer’ and Tianjin as ‘trader’, the companies described themselves as such in their response to the questionnaire sent to them by Customs.[2] While it is clear that the companies are related, this is not the issue. It is clear from the evidence that the two companies occupied distinct roles in selling and exporting HSS. While it is true that Yayi had a ‘sales and marketing’ department, it did not directly export goods to Australia, this function was carried out by Tianjin No. 1. Customs was required to assess whether the ‘terms or circumstances of the sales’ of the domestic and exported HSS was such that an adjustment needed to be made in order to allow for their proper comparison. I see no reason to doubt their finding that such circumstances did in fact exist.

12.       Customs calculated the ‘gross trader margin’ with reference to the difference between the total RMB value of the export sales and the total cost of purchase plus variable expenses. The trader margin included selling, administration and finance expenses and a component for profit derived by Tianjin. This was a valid adjustment to make considering the distinct role which Tianjin played in exporting the HSS to Australia. I am satisfied that Customs undertook a proper analysis in this regard and that no basis has been disclosed for disturbing the adjustments made in calculating normal value.


Dumping margin of 14.6% regarding other exporters of HSS from China

13.       The applicants challenge two aspects of the finding of a dumping margin of 14.6% in relation to the ‘other exporters’ from China. First, they say that Customs failed to apply section 269TG(3B) and (3C) of the Act when they ought to have been applied. Secondly, they challenge the manner in which Customs applied section 269TAC(6) of the Act.

14.       In considering these matters, it is necessary to have regard to the course of the investigation, insofar as it relates to exports of the goods from China. At the beginning of the investigation Customs received preliminary information requirement forms and statements of willingness to cooperate with the investigation from thirteen Chinese companies. Eight of these were selected for ‘full verification’. However, one subsequently declined to participate in the investigation and, in relation to another, Customs decided not to proceed with the verification for resource reasons.[3]

15.       A number of Chinese companies exporting HSS to Australia did not cooperate with the investigation, including the largest exporter, by volume, of the goods. Customs refers to these exporters as ‘other exporters’ and, in relation to them, it determined that insufficient information had been furnished to enable export price to be determined under subparagraphs 269TAB(1)(a), (b) or (c), or to enable normal values to be determined under either of subsections 269TAC(1) or (2).[4]

16.       From its own commercial database, Customs was able to establish that the non cooperating exporters accounted for 47% of all exports of HSS from China to Australia. In determining export price under subsection 269TAB(3), Customs disregarded 8% of these transactions on the basis of uncertainty in relation to delivery terms and invoice currency. Customs was able to verify a number of entries of the goods to documents that it examined during Australian importer verification visits.[5]

17.       Customs proceeded to calculate normal value for other exporters under subsection 269TAC(6), that is having regard to all relevant information. In making this calculation Customs relied on the domestic cost to make and sell for one of the Chinese exporters that it had visited, excluding favourable adjustments. As the particular exporter that was visited did produce pre-galvanized HSS during the investigation period, Customs calculated normal value for pre-galvanized HSS by uplifting the export prices by the weighted average dumping margin for black, painted and hot dipped galvanized HSS. HSS can be manufactured from either hot rolled strip steel or hot rolled coiled steel, the latter said to be significantly more expensive. Customs obtained advice from a steel industry analyst about the cost in China of hot rolled coil and used this figure in constructing normal value for ‘other exporters’.

18.       The applicants say that Customs knows, and in its report refers to the fact, that the great majority of HSS manufactured in China is manufactured from hot rolled strip steel, not hot rolled coil steel and therefore that they were incorrect to construct normal value under subsection 269TAC(6) on the basis that hot rolled coil steel was used in the manufacture of HSS by the ‘other exporters’. The applicants do not produce any evidence to support this claim. They say that there are contradictory statements in the report relating to the use of hot rolled coil steel in the manufacturing process. I do not consider the statements they identify in the Customs report to be contradictory. The first statement the applicants refer to is the comment that ‘Customs’ inquiries indicated that a large proportion of the “other exporters’ ” exports during 2005 were produced with [hot rolled coil steel]’. The second statement is in appendix 1, where Customs is considering the market for HSS in China generally, where it is said that ‘Customs observed that the volume of HSS in China manufactured from [hot rolled coil steel] that is exported from China to Australia is small relative to the volume of HSS manufactured from [hot rolled strip steel]’. These statements are not contradictory and are made in two entirely different contexts, the first relating to the information Customs had gleaned about ‘other exporters’ to Australia of HSS and the second relating to the market situation in China with respect to manufacture of HSS.

19.       The applicants also query whether by excluding favourable adjustments in the process of constructing normal value Customs has in fact had regard to all relevant information. The point of making adjustments is to ensure that a fair comparison is made between domestic process and export prices and adjustments may relate to a range of variables, as indicated in section 2.5.8 of Chapter 22 of the Customs Manual dealing with dumping and subsidy. Adjustments are generally specific to the particular circumstances of an exporter. Where as here, the ‘other exporters’ did not cooperate in the investigation, Customs was not in the position to make ‘favourable’ or other adjustments and, in my opinion, Customs correctly did not factor favourable adjustments into constructed normal value for the ‘other exporters’.

20.       No basis for disturbing these findings of Customs’ has been made out.

21.       Much is urged on behalf of the applicants in relation to the applicability or otherwise of subsections 269TG(3B) and (3C) of the Act in this matter.

22.       Subsection 269TG(3B) requires that in ascertaining normal value and export price for a ‘residual exporter’ that the ascertained normal value is not greater than the weighted average of normal values for like goods of ‘selected exporters’ and that the ascertained export price is not less than the weighted average of export prices for the selected exporters. By virtue of subsection 269TG(3C), when the averaging under subsection 269TG(3B) occurs, it cannot include amounts involving normal value or export price where there is no dumping or the dumping margin is less than 2%, and nor can it include normal values determined under subsection 269TAC(6) or export prices determined under subsection 269TAB(3).

23.       ‘Residual exporters’ are exporters who are not ‘selected exporters’ or ‘new exporters’ and ‘selected exporters’ are exporters who provide information in relation to an application for a dumping duty notice[6] and who are selected for investigation under subsection 269TACB(8) of the Act. The Act does not distinguish between investigations and verifications, but Customs’ practice is to verify information it receives by visiting importers and exporters and examining all their transactions in relation to the goods the subject of an application for a dumping duty notice during the relevant investigation period. But an investigation of an exporter who does not cooperate with an investigation is no less an investigation by virtue of that lack of cooperation.

24.       Subsections 269TG(3B) and (3C) apply only in relation to exporters who provide information in relation to an application for a dumping duty notice and have no application to those who do not. Exporters who provide no information can be neither selected exporters nor residual exporters. Generally, definitions in legislation do not have any stand alone operation, rather they give a specific meaning to a particular term used in operative provisions. The only operative provisions where these terms appear are subsection 269TACB(8) and subsections 269TG(3B) and (3C). It is noteworthy that subparagraph 269TG(3C)(b) contemplates that in some cases it will be necessary to make determinations of export price under subsection 269TAB(3) and normal value under subsection 269TAC(6). Subsection 269TG(3C) specifies that the cases where export price and normal value have been constructed are not to be taken into account in determining the weighted average export prices and normal values for residual exporters, that is those exporters who have not been selected for ‘investigation’ – in practice verification – under subsection 269TABC(8). Were the contentions of the applicant correct, there would be a significant incentive for exporters who know or suspect that they are engaged in dumping not to cooperate in investigations in the hope that they would be found not to be dumping or to be dumping at a lesser margin than was in fact the case. Moreover the interpretation contended for by the applicant in relation to these provisions would make it unnecessary for subsection 269TG(3C) to require that export prices determined under subsection 269TAB(3), and normal values determined under subsection 269TAC(6), be excluded from the averaging calculation process contemplated by subsection 269TG(3B).

25.       The fact that there is no definition in the Act of ‘non-cooperating exporters’ or ‘other exporters’, to use the term utilised by Customs in its report, does not mean that there is no such category of exporters. The ‘other exporters’ might perhaps have been referred to as ‘exporters to whom subsections 269TAB(3) and 269TAC(6) apply’, but that would be a cumbersome expression to be used in a trade measures report.

Material injury caused by dumping

26.       The applicants say that:

a. the dumping margin of 14.5% is overstated

b. that internal transfers between divisions of OneSteel have been improperly treated as sales from which conclusions regarding injury could be drawn

c. impressions of price undercutting on weighted averages of prices of HSS grouped according to the finishes of HSS is improperly based

d. proper account has not been taken of the effect of price differences between Australian Standard and non-Australian Standard HSS, and

e. Customs has failed to take into account the effect of undumped exports of HSS from China and elsewhere.

Overstating the dumping margin in relation to the ‘other exporters’

27.       As stated previously, I consider the dumping margin for ‘other exporters’ has been correctly determined.

Use of internal transfers in injury analysis

28.       The applicants argue that Customs was wrong to use ‘transfers’ between related entities during its investigation of whether material injury was caused to the Australian industry as a consequence of the dumped HSS. In particular, the applicants refer to the decision which Customs made at section 8.2.2 of its TMR116 that transfers between OneSteel Metaland, OneSteel Steel & Tube and OneSteel Limited ‘… could be relied upon to provide reasonable indicators in the assessment of the economic condition of the industry’.

29.       The applicants say the separate business units are not companies themselves. Customs itself acknowledged that to be the case. The applicants also say that Customs cannot rely on non-sales to establish anything which has any bearing on market price behaviour for the purposes of assessment of material injury, because no goods are sold, there is no price and no independent behaviour of buyer and seller.

30.       These appear to me to be quite artificial contentions. It is not uncommon for units in a business to be operated as separate profit centres and there may be quite legitimate business reasons for doing so. I am satisfied, on my examination of the material in the files, that Customs could rely on the financial data relating to transfers from the manufacturing to the distribution arm of OneSteel and there was no evidence of cost shifting. It is to be observed that OneSteel manufactures goods other than HSS and to examine its overall profitability, as against the profitability of the HSS operation, would give a distorted view of the actual performance of the business.

31.       The applicants also say that section 269TEA insists on comparisons between prices and effects on goods sold, and that internal transfers are not sales but only accounting entries. However, section 269TAE provides a non-exhaustive list of the matters that the Minister may consider in assessing material injury, and Customs is not precluded from examining transactions such as internal transfers as part of its assessment of whether material injury has been caused to the Australian industry. I do not intend recommending to the Minister, as the applicants propose that I do, that this issue be reinvestigated.

Weighted Average price of HSS grouped according to finish

32.       The next two submissions of the applicants related to the weighted average price of HSS, grouped according to finish, and the need for a competitive analysis of HSS in specified and unspecified applications. These submissions may be disposed of by saying that most industry participants agreed, and Customs found as a fact, HSS of both specified and unspecified applications are like goods, albeit goods that compete in different sectors of the market. I agree with that characterisation, and in my view the price undercutting analysis was correctly carried out having regard to that conclusion. The so called specified segment of the market refers to the market for product manufactured to the Australian structural standard AS 1163, which can be used for structural applications such as bridges and other buildings. The unspecified segment of the market refers to product not manufactured to standard AS 1163 that cannot be used in structural applications. As indicated in the report, Customs found that the HSS produced by the Australian industry is not identical to the HSS imported to Australia. However, some HSS manufactured in China is manufactured to the Australian structural standard AS 1163. Material of that standard is also sold into the unspecified market for uses such as agricultural fencing. Whilst it may be accepted that there are price differentials depending upon whether the HSS is manufactured to the Australian structural standard or not, at the end of the day there was significant price undercutting by Chinese exports across the range of HSS products. I note that Customs considered suggestions that there was a premium payable for HSS manufactured by the Australian industry, but that this was incapable of quantification, and that the margin by which imports of HSS from China undercut Australian industry prices was considerably greater than any reasonable estimations of a price premium for the Australian product.[7]

33.       Finally, the applicants contend that the Australian industry has not suffered injury as a result of dumping. They say that experience indicates that the nature of price competition amongst Chinese exporters is usually at the level of equivalence, and query how injury could be caused when a large volume of non-dumped exports from China were entering the Australian market at the same prices as the allegedly dumped goods. Customs noted that it was likely that imports at undumped prices had caused price suppression, volume and profit injury to the Australian industry, but that the volume of HSS exported from China at dumped prices, combined with the degree of price undercutting by those goods, have been sufficient to have influenced the prevailing market prices for HSS in Australia. I can see no basis for disturbing Customs’ findings. It is clear from the file that HSS has been imported into Australia from China at dumped prices and that this has caused material injury to the Australian industry.


34.       I proposed to recommend to the Minister for Justice and Customs that the findings of Customs be affirmed.

Mark A Zanker

Trade Measures Review Officer

[1] See Tianjin No. 1 Steel Rolled Co Ltd exporter Visit Report Exporter Visit Report August 2006 at section 9.8 on file C06/17723.

[2] File C06/16067.

[3] Trade Measures Report No 116 (hereafter TMR116) at p21.

[4] TMR116 at p23.

[5] ibid.

[6] emphasis added.

[7] TMR116 p30.