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• 3. Anti-Dumping Duties

• Trade Remedies

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• Reassessment Investigations

• Galvanised Wire: Malaysia

3.1 Existing Anti-Dumping Duty

228. The anti-dumping duties that are currently in place for two suppliers in Malaysia are in the form of NV(VFDE) amounts in the currency of the country of origin which ensures that any exchange rate movements will not result in collection of anti-dumping duty above the full margin of dumping. The ad valorem rate that applies to other suppliers/exporters is capped by a NV(VFDE) amount to ensure that the collection of anti-dumping duty does not exceed the margin of dumping. The existing anti-dumping duty rates per kg are as follows:

* The ad valorem rate of anti-dumping duty is capped through the use of a NV(VFDE) amount.

3.2 Methods of Imposing Duty

229. The main objective of an anti-dumping duty is to remove the injurious impact of dumping. In deciding on the form of duty, considerations relating to ease of administration, ability to ensure the dumping margin is not exceeded, fairness between parties, and predictability are matters the Ministry takes into account. The objective of the anti-dumping duty is to remove injury attributable to dumping, and is not to punish the exporter or to provide protection to an industry beyond the impact of the dumping.

230. Section 14(4)(a) of the Act provides that the Minister must not impose a duty that exceeds the margin of dumping for the dumped goods. The Solicitor-General has advised that the references to "export price" and "normal value" in this section are to be read as a reference to the export price and normal value established in the reassessment or to the values at the time the goods subject to the duty are imported.¹ Given this, the Ministry's approach is to adopt a form of duty that minimises the possibility of the duty exceeding the margin of dumping on shipments subsequent to the imposition or reassessment of the duty by the Minister.

231. Anti-dumping duties can be applied in a number of ways and can be imposed as a rate or amount, including any rate or amount established by a formula. The basic approaches are:

• A specific amount per unit of product;
• An ad valorem rate; and
• A reference price approach, consisting of either:
  • a static reference price; or
  • a Variable Element Reference Price (VERP)

Specific Duty

232. A specific duty is a set amount per unit of product based on the monetary value of a margin of dumping. It has the advantages of being convenient to apply and impossible to evade by incorrectly stating the value for duty and clearly indicates to the importer the amount of duty payable. However, difficulties can arise where there is a wide range of goods involved, where exchange rates fluctuate to the extent that the margin of dumping will be exceeded unless there are constant reassessments of the specific amount, or where the exporter otherwise changes prices so that the duty is either greater than the margin of dumping or less than the margin of dumping previously established.

233. A specific duty, expressed as a monetary amount, can really operate effectively only when prices and exchange rates are consistent and stable and where the transaction-to-transaction comparison does not result in a range of different dumping margins. An alternative approach to deal with this problem is to express a specific duty as a formula, being the difference between equivalent prices to the normal value and the export price of a particular shipment, with the values for the normal value and export price being fixed. When those elements of the formula are expressed in terms of the currency of each transaction, the problem of exchange rate movements can be dealt with. However, a formula approach does not deal with the problem of changes in export prices for reasons other than exchange rate movements or movements in normal values such as a price change.

Ad Valorem Duty

234. An ad valorem duty is a duty based on the dumping margin expressed as a percentage of the export price, and is expressed as a percentage of the dutiable value. An ad valorem duty is convenient to apply, is not substantially affected by exchange rate movements or fluctuations in commodity prices. However, collusion between exporters and importers can lead to the manipulation of the invoice value of the goods concerned. Ad valorem rates are often appropriate where there is a large range of goods or where new models appear, provided that the transaction-to-transaction comparison does not result in a range of different dumping margins.

235. Because an ad valorem duty is imposed proportionate to the export price of the goods, a particularly low export price (and therefore a potentially more injurious export price) will result in a proportionately lower amount of duty, which may not be sufficient to remove injurious dumping. Conversely, a particularly high export price (and therefore likely to be less injurious), will attract a proportionately higher amount of duty, which may be higher than is necessary to remove injurious dumping.

236. An ad valorem rate gives an indication of the impact of the duty, but is not as clear an indication as the other forms of duty.

Static Reference Price Duty

237. Using the reference price method of collecting duty, the duty payable is the difference between the transaction price and a reference price. The reference price would normally be based on the normal value by means of NV(VFDE) amounts, or the Non-Injurious Price (NIP) by means of Non-Injurious Free on Board (NIFOB) amounts. A NV(VFDE) amount represents the undumped value of the goods at the FOB level. A NIFOB amount represents the FOB price at which imports would not cause injury to the New Zealand industry.

238. A reference price duty has advantages in that it is best able to deal with movements in the export price and exchange rates (if expressed in the currency of the normal value), and is particularly appropriate for dealing with situations where a lesser duty is applicable. However, it has been argued that it is more easily evaded than the other forms of duty, by overstating the VFD of the goods. Nevertheless, a reference price does have the advantage of clearly signalling to exporters and importers what price is undumped or non-injurious, and provided it is carefully described, the problem of evasion can be dealt with. In addition, a reference price duty only collects duty when the goods are priced below the non-injurious or undumped reference price. It therefore collects duty only to the extent necessary to remove injurious dumping and avoids over-collecting duty.

239. In considering whether a reference price duty should apply in this case, the Ministry notes that reference prices were imposed in the Malaysian investigation and may have become less effective after substantial increases in the price of galvanised wire. The Ministry is mindful that reference prices set at the level representing prices over the POR may become out of date and require further reassessment. In the Malaysian investigation the Ministry set duties which were effective from March 2004, the first month of the POR. There was a substantial increase in prices during the investigation, with world wire rod prices appearing to peak at the end of 2004. More recent trends in world steel industry prices suggest that prices are again moving, this time in a downward direction. Although the current trend is down, the Ministry is not in a position to predict what future prices might be.

Variable Element Reference Price Duty

240. A VERP contains a variable element within a (NV(VFDE)) or NIFOB reference price. The VERP would change to reflect movements in the price of an input. A benefit of this is that the VERP recognises that the undumped or non-injurious price is not static. If prices of inputs fall after duties are imposed, a static reference price, that is one without a variable element, may result in a larger duty being payable than is required to remedy injurious dumping. Conversely if prices of inputs rise above the reference price threshold the reference price may cease to provide protection from injurious dumping.

241. A VERP relating to galvanised wire could reflect changes in the price of wire rod immediately. However, a VERP may require reassessment where a change occurs in the cost of production which is not due to changes in the price of wire rod. The confined nature of a reassessment of this type may mean it could be completed more rapidly than a full reassessment process. Any changes in costs other than wire rod would normally be relatively minor because the majority of costs are reflected in the cost of wire rod.

242. The imposition of a VERP would not exclude a party from seeking a reassessment or a review of anti-dumping duty although it would mean that reassessments for the most common reason, changes in price of an input, would be unnecessary. Reducing the frequency of reassessments could have substantial resource benefits for the Ministry and interested parties alike as well as providing the New Zealand industry with a more certain environment for doing business.

243. There are a number of issues to be considered however. In considering whether to recommend a VERP to the Minister of Commerce the Ministry has taken into account all relevant considerations including whether such a duty is a better solution than a static reference price or any other potential method of imposing an anti-dumping duty.

244. Not all goods would lend themselves to the VERP format. An appropriate product might have the following characteristics:

• a substantial proportion of the cost of production consists of materials (to minimise the effect on total cost of production of non material costs);
• the cost of materials would ideally be made up of only one or two significant inputs;
• the price of input(s) must be capable of calculation through a commodity price index that is easy to access and authoritative sufficiently representative of actual costs; and
• the price of the input must be susceptible to material change so as to warrant enquiring into whether a VERP is an effective method of imposing duty.

245. The Ministry wrote to all interested parties in a letter dated 25 July 2005, explaining that it was considering using a VERP as the method of reassessing the duties and seeking feedback as to how such a method of collecting duty might work (the discussion letter). The discussion letter included an example of a VERP which utilised a price index as the variable element. The Ministry proposed using an index from the Metal Bulletin, an international metals industry resource.² The Ministry provided an example that was indicative as a starting point for discussion. The possible formula was:

VERP (2.50 mm galvanised wire)³ = ("World wire rod price" x Yield %) + "Cost of converting into 1 tonne of 2.50 mm galvanised wire by Malaysian manufacturers".

"World wire rod price" is the price per tonne of steel wire (size 5.50 mm) as notified by the Metal Bulletin, at date of sale, converted to New Zealand dollars at the Customs exchange rate on the day of importation.

"Yield %" reflects the amount of wire rod necessary for Malaysian manufacturers to produce 1 tonne of galvanised wire.

"Cost of converting to 1 tonne of 2.50 mm Galvanised wire by Malaysian Producers" represents the amount in Malaysian Ringgit (MYR) to convert steel rod into 2.50 mm galvanised wire plus costs to FOB. This will also be converted to New Zealand dollars at the Customs exchange rate on the day of importation. Different diameters will have different conversion factors to reflect the specific costs of production.

246. The example provided in the discussion letter and reproduced above is a NV(VFDE) duty which would represent the normal value for the Malaysian producers. If it were to be established that a lesser duty was applicable i.e. a NIFOB amount, the Ministry proposed that the NIFOB could also vary according to the changes in the world wire rod prices. It was suggested that the VERP amount could be multiplied by the proportion that a NIFOB represented of the NV(VFDE) amount to arrive at a NIFOB amount. This suggestion was supported by an example to illustrate how it might work.

247. The Ministry sought submissions by 8 August 2005 and two were received. The following paragraphs summarise those submissions made by interested parties and the Ministry's consideration of the issues raised.

Submission by Malaysian Ministry of International Trade and Industry (M.I.T.I.)

248. This submission proposed that the VERP mechanism contravenes normal value determination under the Agreement because "VERP is not one of the methodologies provided for under WTO Anti-dumping Agreement".

249. M.I.T.I. also submitted that such a mechanism "imposes extreme burden and is too onerous both on the importers and as well as the exporters as it requires information to be submitted prior to each exportation".

250. M.I.T.I. considered that dependence on a world price, such as that offered by the Metal Bulletin, or some other index was not appropriate "because these are not actual prices paid by the exporters concerned for the raw material".

251. M.I.T.I. also said that it had consulted with the exporter concerned and the exporter had advised that it was not in favour of such a mechanism. M.I.T.I. concluded by proposing that the duties be reassessed using the same mechanism used in the Malaysian investigation.

Pacific Wire's Submission

252. Pacific Wire also made a detailed submission relating to the Ministry's discussion letter. This submission contained the following points:

• Using exporter's costs carries a danger that the costs will be [Text deleted due to confidentiality]. Pacific Wire referred to previous occasions where it believed Malaysian steel companies [Text deleted due to confidentiality].
• Pacific Wire noted that the method of imposing duty used by the Ministry in the Refined Sugar cases was different than the method proposed in the Ministry's discussion letter. Pacific Wire submitted that the discussion letter method would be more [Text deleted due to confidentiality] by exporters who could "effect [Text deleted due to confidentiality] adjustments that will drive the reference price down."
• Pacific Wire also submitted that while a price index for wire rod such as the Metal Bulletin reflects current aggregate prices of wire rod, those prices are not always accurately reflected in particular countries. Pacific Wire used itself as an example. Pacific Wire provided correlation coefficients comparing the price Pacific Wire paid to Pacific Steel with a "consolidated index price" represented by the average monthly prices of two price indexes available from the Metal Bulletin. The two indexes relate to the FOB prices for drawing grade wire rod in USD. One related to prices in the Turkish market while the other referred to prices in the Brussels market. The results of this comparison show a [Text deleted due to confidentiality] between the two sets of data although it was [Text deleted due to confidentiality].
• Pacific Wire noted that Belgium and Turkey, the sources of the price indexes, were distant economies from both New Zealand and Malaysia, and that it did not believe that either of these markets made significant sales to New Zealand or Malaysia. Pacific Wire also noted world price indexes did not bear a strong resemblance with prices within a country because some countries, including Malaysia, have artificial state mechanisms in place. Pacific Wire referred to ceiling prices, non-tariff barriers and state ownership of steel mills as examples of distortive effects on local prices.
• Pacific Wire submitted that the method proposed by the Ministry could become distorted by fluctuations in the NZD:USD exchange rate. Pacific Wire submitted that this was reflected in its correlation coefficient calculation.
• Pacific Wire also expressed unease at using information from Malaysian manufacturers to establish the yield rate for wire rod and the actual costs to convert wire into galvanised wire, including profit and selling and administration expenses. Reiterating its reference to Malaysian manufacturers [Text deleted due to confidentiality], Pacific Wire suggested it is "does not consider it reasonable to presume that [information from Malaysian manufacturers] will [Text deleted due to confidentiality]".
• Pacific Wire did point to effective instances of marker prices, and referred to the [Text deleted due to confidentiality] as an example. [Text deleted due to confidentiality] export market. Pacific Wire noted the conditions in the market made this an effective pricing method. These included New Zealand's [Text deleted due to confidentiality] and a stable market structure both in [Text deleted due to confidentiality].
• Pacific Wire noted that the example the Ministry proposed in its discussion letter advocated using the price of 5.50 mm rod. Pacific Wire submitted that it was unaware of whether the Metal Bulletin prices for Belgium and Turkey were for a specific diameter or an aggregation of diameters.
• In relation to the Ministry's comment that NIFOB amounts, based on a percentage of the NV(VFDE) may be used to collect duty a rate less than the full margin Pacific Wire advised that it did "not believe that there is necessarily a constant relationship between a NIFOB and an NV(VFDE)".
• Pacific Wire noted that the Ministry did not comment in great detail on what circumstances a reassessment of a VERP might be required. Pacific Wire asked how the Ministry might accommodate requests by exporters for an adjustment in the conversion cost, or yield, or fair profit. Pacific Wire also asked how an adjustment to the NIP might be made. Pacific Wire supposed that when a VERP method of duty is reassessed every element, apart for the variable element, must be re-verified, as well as a requirement to reconsider the NIP to ensure that duties need not be any higher than necessary to remedy injury to the New Zealand industry. Bearing in mind the above comment Pacific Wire submitted that it was "not sure how the VERP mechanism will reduce the timeframe that we have experienced in this reassessment."

Ministry's Consideration of the Issues

253. The Ministry has considered M.I.T.I.'s comments that the use of a VERP mechanism to collect anti-dumping duties "contravenes normal value determination for the purposes of dumping margin determination", and does not consider that to be the case for the following reasons.

254. The Ministry has calculated normal values using the method described in Article 2.1 of the Agreement which is, "comparable sales, in the ordinary course of trade, for the like product destined for consumption in the exporting country". The Ministry proposes consideration of an index price to represent part of the reference price. A static reference price is based on the normal value. While the VERP is also based on the normal value it can reflect changes in the price of the raw material that are also reflected in the normal value.

255. New Zealand uses the prospective system to collect anti-dumping duty. In this system historical financial information is used to impose duties that are prospective in nature. An accurate surrogate index would allow the future duties to reflect more closely the actual normal values at the time of import. In this sense a VERP may better serve to meet the Ministry's obligations under Article 9.3 of the Agreement, reflected in the Act under Section 14, to not impose a duty that exceeds the margin of dumping established under Article 2 of the Agreement.

256. Only if the Ministry concluded that the index price was a sufficiently accurate surrogate for the manufacturer's actual costs of wire rod would it further consider imposition of a VERP mechanism. The obligation to use one of the methodologies identified in Article 2.1 and 2.2 of the Agreement for calculating normal values does not preclude the use of reference or benchmark prices for imposing anti-dumping duties nor does it preclude a VERP as the method of imposing anti-dumping duty.

257. The Ministry has used a VERP mechanism previously to collect anti-dumping duties, in the anti-dumping investigation into Refined Sugar from the Netherlands, Belgium and Denmark and subsequent reviews and reassessments dating from 1989 to 1998. The Ministry is also aware of at least one other jurisdiction (Canada) that has imposed VERPs to assess liability for anti-dumping duty.

258. M.I.T.I. has suggested that the VERP method proposed by the Ministry is too onerous on parties as it requires information to be submitted prior to exportation. The Ministry is conscious that any method of imposing anti-dumping duty should not be overly burdensome on the exporters, importers or Customs. If a VERP method was imposed, the method would be unlikely to burden parties any more than requiring importers to provide Customs with a copy of the sales order(s) relating to the importation. It is unclear what additional information M.I.T.I. considers would need to be submitted before the goods are exported.

259. M.I.T.I. has rejected the use of a price index such as those available in the Metal Bulletin because "[price indexes] are not the actual prices paid for by the exporters". The Ministry has proposed consideration of a price index as it might act as a publicly available surrogate for the actual prices of the Malaysian manufacturers. The Ministry acknowledges that to be a fair surrogate for actual prices, a price index must accurately reflect the prices paid by the Malaysian manufacturers. The relationship between price indexes and Southern Wire's actual prices of wire rod are discussed in the following paragraphs.

260. Pacific Wire submitted that the prices in particular countries may not directly reflect those of the price index. Pacific Wire provided information about its own pricing as an example and analysed the differences between an average of the Brussels and Turkish price indexes for wire rod, sourced from the Metal Bulletin (the consolidated price) and its own purchase price, paid to Pacific Steel.

261. The Ministry has used this same form of analysis as Pacific Wire to compare Southern Wire's price of wire rod, over the POR, to the monthly averages of the Brussels, Turkish and consolidated prices. The Ministry found that there were only weak correlations between the actual prices and the indexes. The Ministry also found that small changes in the data created large changes in the correlation co-efficient. Consequently the Ministry also compared the prices by converting the monthly USD index prices to MYR and plotting the ranges on a graph to review the relationship. The graph below shows Southern Wire's monthly purchase prices over the POR, i.e. Southern Wire's LC, HC and average price, compared with the consolidated price.

Table 3.2: Relationship between Index Prices and Southern Wire's Cost of Wire Rod

[Table deleted due to confidentiality]

262. The Ministry acknowledges that price indexes are an aggregation of prices and may not necessarily reflect the market in which individual companies exist. In this instance the Ministry's analysis of the relationship between Southern Wires actual purchase prices and the index prices confirms this.

263. Pacific Wire has sought clarification from the Ministry as to the circumstances in which a VERP might require reassessment. M.I.T.I. noted that conversion costs may change regularly. The Ministry is mindful of this and pointed out in its discussion letter "that the VERP may require reassessment where changes occur in the cost of production that are not due to changes in the price of wire rod". Should a VERP be put in place, the Ministry could initiate a reassessment of the conversion cost if an interested party provides evidence justifying the need for such a reassessment.

264. The Ministry considers that such a reassessment may be justified where an interested party could provide evidence that a component of the conversion cost, such as wages or the cost of zinc, had changed. Such a reassessment could normally be expected to be completed rapidly as the overall change to the conversion cost would be the difference between the previous verified amount of that cost and the new verified amount.

265. If a VERP was in place and the relevant index price had ceased to accurately reflect the cost of wire rod the Ministry might have to consider whether a static reference price should be used or consider if there was a more appropriate index. This might occur where the producer advises that its prices will be based on a new method that incorporates a different index.

266. M.I.T.I. also referred to the importation date "which is proposed to be the reference date". M.I.T.I. said uncertainty is caused because the exporter may not be sure of this date. The Ministry's example does not require the exporter to know the importation date. The example bases the wire rod price on the date of sale. The exchange rate on the date of importation is used to convert the world wire price (USD) and the conversion costs (MYR) to NZD. The actual FOB price is also converted to NZD to compare to the VERP for the purpose of calculating any duty. These tasks are done by Customs or the customs agent acting for the importer.

267. Pacific Wire felt that using information supplied by the Malaysian exporters [Text deleted due to confidentiality]. Pacific Wire referred specifically to yield, conversion costs, profits and selling and distribution expenses. The Ministry always conducts its verification processes with due scepticism. Pacific Wire's [Text deleted due to confidentiality] in relation to [Text deleted due to confidentiality] by the Ministry and would not of themselves represent [Text deleted due to confidentiality].

268. The Ministry has used the verified actual sales and costs of the Malaysian manufacturers because it is satisfied that this information is sufficient to calculate export prices and normal values for this reassessment. The Ministry advised Pacific Wire in a meeting on 7 July 2005 that conversion costs (including profit and selling and administrative expenses) could be calculated by deducting the cost of wire rod from the invoice price. This allows for actual costs and profits to be used in establishing the conversion cost component of a VERP in the same manner as actual invoice prices are used to establish NV(VFDE)s.

269. Pacific Wire has also submitted that the discussion letter method is prone to abuse as it does not include a NIFOB component. In order to simplify the example given in the discussion letter, and because during the Malaysian investigation only NV(VFDE) reference prices were established, the Ministry's main example was that of a NV(VFDE) amount. However, the Ministry did suggest in the discussion letter how the variable element could be included in a NIFOB amount. A NIFOB can use information from the New Zealand industry or from some other source. Whatever the source the Ministry approaches the information with due scepticism and will verify information where necessary.

270. Pacific Wire also considered there was an inconsistent relationship between the NIFOB and the NV(VFDE) and that it did not agree with the Ministry's comment about the possibility of establishing a lesser duty at 90 percent of the NV(VFDE). In this report the NIFOB and the NV(VFDE) for the POR have been compared to establish which is the lesser amount in terms of section 14(5) of the Act. Both methods represent an aggregation of prices, normally over the length of the POR. If the Ministry were to compare the two at another point in time using another period then it could result in a different ratio. At the same time when NIFOB and NV(VFDE) amounts are set using a static method for setting reference prices, the ratio between them is set for the period they remain in place, except to the extent they may be affected by exchange rate movements. The Ministry's comment regarding the NIFOB in the discussion letter was posed as a potential method of creating a variable NIFOB.

271. Pacific Wire queried whether the diameter in the Ministry's example method (5.50 mm) was appropriate. The Ministry has enquired with the Metal Bulletin about the criteria used to calculate its price indexes. The Metal Bulletin stated that their pricing series covers many steel products of different types and standard. To provide clarity the Metal Bulletin states the major end-use of the product e.g. mesh making or wire drawing. The Ministry's analysis is based on index prices that are the result of aggregating prices of a variety of diameters and types of wire rod.

272. M.I.T.I. submitted that the yield percentage in the Ministry's example method is arbitrary. The Ministry agrees. The example method is only intended to be illustrative of a possible method of calculation a VERP. If a VERP method of collecting AD duty was to be imposed any yield percentage in the calculation would reflect the actual yield of the Malaysian manufacturers.

Conclusion

273. After considering the potential use of a VERP to accommodate fluctuations in the price of galvanised wire the Ministry considers that the indexes it has considered are not sufficiently representative of the prices of the Malaysian manufacturers to allow a VERP to be an appropriate method for calculating anti-dumping duties.

274. The Ministry concludes from the above analysis that duties should be established using static reference prices as it did during the Malaysian investigation. In order to establish effective static reference prices the Ministry must consider the appropriate period of time over which reference prices should be calculated to allow for effective and fair duties.

3.3 Period for Reference Prices

275. The price of galvanised wire follows the prices of wire rod, being the major input in the production of galvanised wire both physically and in terms of cost of production. In the Malaysian investigation, NV(VFDE) reference prices were established using prices from the month of March 2004, because export prices rose after the POI due to increases in the cost of scrap, and presumably the cost of wire rod.

276. The following graph shows international prices of wire rod from July 1998 to October 2005.⁴ It clearly shows that prices during the POR are much higher than the preceding period. The Ministry has included eight months of data collected after the POR. As of 26 October 2005 the Brussels wire rod prices (FOB) were between USD 400 and USD 415. This shows that prices have dropped from the highs of late 2004 but are still significantly higher than before the POR.

Table 3.3: Prices of Wire Rod from July 1998 to October 2005 (USD per Tonne)

277. Setting duties is a forward looking exercise, but is one which should generally be based on information gathered during the current investigated period. Accordingly NIFOB and NV(VFDE) amounts should, to the extent possible, reflect prices that are most likely to be representative of future prices.

278. The Ministry has examined the extent to which prices of imports of galvanised wire have fluctuated over the POR and has availed itself of prices for wire rod subsequent to the POR as well as industry commentary on future prices. The Ministry considers that the recent downward trend in wire rod prices coupled with industry commentary predicting further cooling of the world steel market, indicates that prices are most likely to continue to decline.

279. The Ministry also notes that the steel market, like any international market, is unpredictable. Although prices appear likely to decrease they may flatten off at their current level or even increase further. In spite of the volatility the Ministry considers it unlikely that galvanised wire prices will return to pre-investigation levels in the short term.

280. Given the above the Ministry considers that the weighted-average data from the whole POR is the fairest method of calculating duties that are representative of future values. The weighted average data takes into account prices from the beginning of the POR which are lower than the most recent prices. Import volumes were also greater in the earlier part of the POR. The weighted average will also reflect the highest prices experienced later in the POR.

3.4 Amount of Anti-Dumping Duty

281. Section 14(5) of the Act requires that the Minister have regard to the desirability of ensuring the amount of duty is not greater than is necessary to prevent material injury to the New Zealand industry. To establish the appropriate level of duty and whether a lesser duty should apply, the Ministry firstly calculates a NIFOB and secondly calculates a NV(VFDE) to check that the NIFOB has not exceeded the margin of dumping. If the NIFOB is less than the NV(VFDE), then the NIFOB amount, which is a form of lesser duty, will apply. If the NIFOB is greater than the NV(VFDE) then the NV(VFDE) will apply, i.e. duty will be reassessed at the full margin of dumping.

282. In order to calculate a NIFOB it is first necessary to establish the New Zealand industry's unsuppressed selling price achievable in the absence of dumped product in the New Zealand market normally referred to as its NIP, and considerations relating to this for the purposes of determining whether a lesser duty should apply, are set out below.

3.5 Calculation of a Non-Injurious Price

283. The NIP refers to the price achievable in the absence of dumped product in the New Zealand market. The difficulty arises where, as in this case, the objective is to try to determine an appropriate NIP in the absence of dumping, when dumping has been taking place for some years, and where a remedy has been applied with the objective of removing the injury caused by dumping. Possible methods for determining a NIP include:

1. the current cost of production plus industry profits taken at a time when the industry was unaffected by dumped imports;
2. determining the lowest priced undumped product in the market such as the price of goods originating from Australia or Malaysia; or
3. using pre-injury prices scaled up by a relevant index.

284. The first method described above was used to calculate the NIP in the South African investigation and the Malaysian investigation.

Relevant Factors in Establishing the NIP

285. Before proceeding to consider the most appropriate method of establishing a NIP consideration needs to be given to when the industry was unaffected by dumped goods and whether the current prices can be used to establish a NIP(s). The following paragraphs discuss these issues.

Latest Non-Injurious Period

286. Pacific Wire submitted that the non-injurious period is 1998. Consequently Pacific Wire proposed that the NIP should reflect its margins in 1998 and the sales mix that it achieved in 1998 for 2.50 mm high tensile galvanised wire (because this was the product line which Pacific Wire said incurred the substantial injury).

287. In the South African investigation Pacific Wire claimed in its application that material injury commenced in 2001, but later advised that material injury occurred as early as 1999. In 1999 Pacific Wire achieved a margin of xxxx percent (of the cost of production) for HiSpan V and a margin of xxxx percent (of the cost of production) for standard high tensile galvanised wire. Pacific Wire claimed it could achieve these margins in the absence of dumped imports. In its final report on the South African investigation the Ministry stated that the most recent period unaffected by dumping was the year ended June 1998.

288. The Ministry concluded in the South African investigation that it was appropriate to use the HiSpan V gross margin of xxxx percent (achieved in 1999), as it would allow the most effective remedy to the New Zealand industry, based on what would have been achieved, but for the presence of the dumped galvanised wire. Three NIPs were established in the South African investigation for three different ranges of diameters all incorporating this 1999 profit margin. Any inference that the Ministry used the year ended June 1998 as a benchmark to calculate the NIP in the South African investigation is incorrect.

289. In the Malaysian investigation the Ministry determined that it was more appropriate to establish a NIP for six diameters of galvanised wire, which represented the bulk of the imported like goods over the POI. The Ministry established a NIP for the six diameters using a profit margin based on the overall weighted average profit margin achieved in 1999 of xxxx percent. The Ministry noted that a margin based solely on sales of HiSpan V was now an unfair approach.

290. In 1999 Pacific Wire introduced a new financial software package and in providing financial information for the Ministry specifically on the production and domestic sale of galvanised wire from 1998 onwards, the financial information for 1998 only was based on one month of actual data (June only) and the remaining eleven months being estimated from its financial performance in 1999 and 2000.

291. On that basis the Ministry considers that the 1998 information is not as reliable as the later information from 1999, which at any rate represents a more recent non-injurious period, as concluded in the Malaysian investigation.

Current Domestic Sales

292. For the purpose of considering whether current prices are subject to price depression or price suppression the Ministry has compared current financial data with information from 1999.

293. To assess whether Pacific Wire's prices continue to be affected by imports of galvanised wire from Malaysia and therefore are not suitable for use in determining a NIP, the Ministry has examined whether the up-to-date financial information supplied by Pacific Wire shows that its average price is depressed or suppressed.

294. Price depression occurs when actual prices are lower than they would be in a market unaffected by dumping, usually in a previous period. The Ministry has based its analysis on financial information provided in the South African investigation and the Malaysian investigation which has been updated to December 2004. The following table illustrates Pacific Wire's average selling price.

295. The table above shows a [Text deleted due to confidentiality] decrease in the average price for 2004 and a [Text deleted due to confidentiality] increase in six months to December 2004. The price in 2004 was depressed as it was at a level lower than shown in 1999, but in the six months to December 2004 it has increased to a level higher than that in 1999.

296. The Ministry generally bases its assessment of price suppression on positive evidence, in particular the extent to which cost increases have not been recovered in prices. Cost increases not recovered in prices will be reflected in decline in gross profit and Earnings Before Interest Tax (EBIT) expressed as a percentage of sales. Where cost savings have been made, the lack of any price increase will not normally be regarded as price suppression.

297. The following table shows Pacific Wire's costs, gross profit and EBIT relative to sales revenue.

298. The table above shows that in 2004 the gross profit and EBIT as a percentage of sales revenue has declined [Text deleted due to confidentiality] compared to 1999 and then increased [Text deleted due to confidentiality] in the six months to December 2004, but not to the level seen in 1999.

Conclusion

299. The average price per tonne of galvanised wire in 2004 is depressed when compared to 1999, a period unaffected by dumped product. For the six months to December 2004 the price is not depressed when compared with 1999. However, in 2004 and for the six months to December 2004 the prices are suppressed compared with 1999, indicating that price suppression is occurring even after the imposition of anti-dumping duties against galvanised wire from Malaysia. The Ministry, therefore, concludes that the present price of galvanised wire is not suitable to establish a NIP.

Pacific Wire's Submissions before Release of Interim Report

Current Cost of Production plus Industry Profit from Non-Injurious Period

300. Pacific Wire does not believe that the circumstances have changed sufficiently in the year since the Malaysian investigation to warrant the consideration of any other NIP methodology than using the current method. However, Pacific Wire disagrees with the way elements of the methodology were used by the Ministry, as shown below:

• the weighted average profit margin incorrectly lowers the NIP on the 2.50 mm high tensile product where injury is being substantially suffered;
• the 1999 profit margin is no longer relevant to the new world wire prices and wire industry profitability; and
• the new NIP should be based on an escalation in production costs due to the suppression of Pacific Wire's cost of wire rod.

301. Pacific Wire contends that the pre-injury period was fully assessed in the South African investigation and since the final determination of the Malaysian investigation there have been few or immaterial changes to the market place.

302. The following paragraphs detail Pacific Wire's submission regarding the components of the present method of calculating the NIP.

Cost of Production

303. Pacific Wire submitted information on its cost of production. The information related to all of Pacific Wire's domestic sales of galvanised wire from July 2003 until June 2005 (the sales data). The sales data contained actual sales revenue and quantity as well as standard costs and associated margins for each sale.

304. Pacific Wire advised that variances from standard cost were reasonably [Text deleted due to confidentiality] and supplied the total variance for the POR. In later correspondence Pacific Wire provided the total tonnage over the POR to allow for an approximate variance per tonne to be established. The variance per tonne has been added to the standard cost per tonne for each diameter to arrive at an actual cost of production for each diameter.

305. Pacific Wire submitted that the Ministry should depart from using the actual cost of production because "although it is the only New Zealand wire galvaniser, the price of wire rod feed to it from Pacific Steel has been adversely affected by the competitive pressure applied by the dumped goods on Pacific Steel's wire rod customer [Text deleted due to confidentiality] finished product. The magnitude of that squeeze is an increase in the cost of wire rod in NZD (but for the dumping) of xxxx percent since 1998. If the NIP increase were not to accommodate this world wire rod price increase method then there would be a significantly (sic) shortfall in the relief that Pacific Wire would achieve, against the test of `but for the dumping'".

Profit Margin

306. Pacific Wire submitted that the substantial injury to Pacific Wire has been on sales of 2.50 mm HiSpan V and standard high tensile galvanised wire. Pacific Wire initially stated that the profit margin should be the weighted average margin of xxxx achieved in 1998. This was calculated by taking a weighted average of the HiSpan V margin of xxxx percent and the standard high tensile 2.50 mm wire margin of xxxx percent. The margins are weighted by the sales mix of each product; HiSpan V represents xxxx percent of sales of 2.50 mm high tensile wire and the standard high tensile wire represents xxxx percent. The Ministry notes that the margin for 2.50 mm wire is xxxx percent and the sales mix relates to 1999.

307. Pacific Wire later submitted that the Ministry should apply a weighted margin of xxxx percent which is based on the sales mix from 1998 (xxxx percent for HiSpan V and xxxx percent for standard high tensile) applied to margins suggested above of xxxx and xxxx percent. The Ministry notes that this is weighting the 1999 margins by the 1998 sales mix.

308. Pacific Wire's contention is that it would now, but for the dumping, achieve average unit profitability not less than it experienced in 1998 or 1999. This is due to improved world steel industry profitability. Pacific Wire pointed to a number of examples including, Nippon Steel which recorded a record rise in consolidated net profit⁵ and the overall performance of the US Steel Index.⁶

Industry Current Cost of Production plus Profit Margin of Other Business Units of Fletcher Building Ltd

309. Pacific Wire submitted that this method would be subject to industry and market differences and is "considered inferior to restoration to pre-injury conversion within Pacific Wire".

Import Parity Prices

310. Pacific Wire does not believe that using the price of galvanised wire from Australia is the most suitable method of calculating a NIP because:

• it is incorrect for the Ministry to conclude that an absence of a finding of dumping against Australian goods is the one and same thing as positive proof that those goods are not dumped;
• an error may arise that imports from Australia are undumped which is compounded by the Ministry's suggestion to use the lowest price; and
• there may be reasons why goods that are dumped may not be notified to the Ministry for an investigation.

Pre-Injury Prices Scaled up by Relevant Index

311. Pacific Wire submitted that this method is less suitable than the current method. Pacific Wire advised that pre-injury prices scaled up by indexes will not be suitable to reflect prices that would be achieved in the market in the absence of dumped goods. Pacific Wire said that the Consumer Price Index (CPI) is too broad a measure and the correlation is not sufficiently strong between the CPI and price of wire rod, the major input into the production of galvanised wire. Pacific Wire submitted that the Producers Price Index (PPI) does not take into account the escalating costs of production which have reduced its margins.

Pacific Wire's Submissions in Response to Interim Report

Price Premium for Domestic Supplier

312. Pacific Wire, in its submission on the interim report suggested that the Ministry should consider the price premium aspect of an import parity based NIP because the result of other submissions made by Pacific Wire would cause an increase to normal values to an extent that a NIFOB might set the level for reassessed reference prices.

313. Pacific Wire advised that it was of the view that a domestic service premium for "intangible local supplier benefits and so forth is justified". Pacific Wire provided a list of domestic sourcing benefits which are repeated below:

• Local contact in case of product performance inquiry.
• Product made specifically for local conditions.
• 40 year history of making that locally-made product, for local New Zealand conditions.
• Local contact for complaint resolution.
• Local contact for product development.
• Local key account management.
• Readily available tour of the manufacturing plant.
• Presence of the manufacturer at the annual Mystery Creek Fieldays.
• Compliance by local supplier to local product standards.
• Shorter time lead time for routine orders.
• Less risk of possible freight and delivery disruption.
• No foreign exchange risk.
• Greater capability to supply emergency orders.
• Ability to claim/promote "buy New Zealand made".

314. Pacific Wire suggested that it is difficult to point to specific evidence of a domestic price premium in the wire industry due to the presence of dumped goods. Pacific Wire suggested that the Ministry contact New Zealand Steel to seek further insights into price premiums within New Zealand steel industry.

315. Pacific Wire proposed that a premium of between xxxx and xxxx percent would be a justified addition to the import parity price. Pacific Wire cited examples of sales to [Text deleted due to confidentiality] company, [Text deleted due to confidentiality], by [Text deleted due to confidentiality], [Text deleted due to confidentiality] where the customer paid premiums of [Text deleted due to confidentiality] over the cost of an alternative imported product. Pacific Wire did not provide any evidence of what factors that gave rise to the premium in each case although noted the larger premium of [Text deleted due to confidentiality] percent was accepted by [Text deleted due to confidentiality]. Pacific Wire described the product with the lower premium as "[Text deleted due to confidentiality]".

316. Pacific Wire proposed that it could expect a premium midway between the [Text deleted due to confidentiality] percent band mentioned above i.e. xxxx percent. Pacific Wire gave no explicit reason for its estimate although the Ministry assumes this estimate is based on the differences in the premiums of the [Text deleted due to confidentiality] products discussed above, and how these factors would relate to galvanised wire products in the New Zealand market.

Method of Calculating the NIP

317. In the interim report the Ministry concluded that NIPs should be calculated on an import parity price basis. In response to the interim report Pacific Wire advised that it disagrees with the use of the import parity price method to establish NIP(s). Pacific Wire submitted that "there remains a lack of full and complete argument and rationale on the matter". Pacific Wire submitted that the appropriate method of calculating the NIP is to continue to use the current method i.e. Pacific Wire's cost of production plus a profit margin from a pre-injury period. Pacific Wire submitted that it still considers the most appropriate non-injurious period is 1998.

318. Pacific Wire pointed to the Ministry's conclusion, on the method of calculating the NIP in the Malaysian investigation, that "the team considers the method it has used here to be the most accurate method in this case, as it reflects a current time period (by the use of current cost of production), and is the method that will most likely reflect an accurate selling price in the absence of any dumping (by the use of a pre-injury profit margin)".

319. Pacific Wire also quoted excerpts from two recent dumping investigations i.e. Oral Liquid Paracetamol from the Republic of Ireland (OLP) and Oil Filers from China, Indonesia, Korea and Thailand (Oil Filters), which Pacific Wire proposed provide support for using the cost of production plus pre pre-injury profit method that was used in the Malaysian investigation.

320. Pacific Wire submitted "that the purpose of the reassessment is to review the dumping margins, and therefore the remedy and not to conduct an additional material injury investigation". Pacific Wire did, however, acknowledge that part of the process to establish a new remedy involves recalculating the NIP(s) but it contended that "a reassessment is not the process within which a review of the NIP methodology should take place".

321. Pacific Wire further submitted that the time that has elapsed since the Malaysian investigation is not of such significant length as to bring into question the incumbent NIP methodology even if it were appropriate to reconsider the methodology during a reassessment.

322. Pacific Wire noted the following concerns with using the import parity method to determine the NIP:

• using un-dumped Malaysian pricing carries with it the risk of containing errors that "arise from the difficulty in adequately assessing the adjustments necessary to calculate the normal value";
• Malaysia "has no domestic demand for the goods imported by Euro" and consequently there are "no domestic sales of like goods in Malaysia with which to get any clear comparison or accuracy check for the constructed normal value";
• "the product is made in Malaysia to a New Zealand standard that applies only in New Zealand";
• there are "particular difficulties in assessing the magnitude of manufacturing complexity costs" to produce the galvanised wire destined for New Zealand and the "degree to which those complexity costs are either fully recovered or exceed the constructed normal value"; and
• the adjustments Pacific Wire proposed in its submission on the interim report, would increase normal values to levels that would result in the Ministry finding Malaysian goods were dumped and NV(VFDE) s would no longer be below the aggregate amount under the current method, therefore justifying retention of the current method to determine the NIP.

323. Pacific Wire also suggested "there are a number of reasons why the price of goods from Australia might be lower than the [NIP using the current method] and/or at a lower price of (sic) the goods from Malaysia" although did not discuss what these reasons might be.

324. With regards to the Ministry's citation of previous dumping investigations and reviews in forming its conclusion relating to the NIP in this reassessment Pacific Wire submitted:

• the "conclusions from the plasterboard industry do not necessarily relate to the steel industry";
• the "economic history traversed in the plasterboard period 1988 to 1996 is grossly different to the galvanised wire period 1999 to 2005";
• "the "other competitive pressures that constrained…" are plasterboard matters, and not necessarily shared in steel";
• the plasterboard period is eight years whereas the galvanised wire period is six years; and
• in the reinforcing steel bar and coil dumping investigation the margins achievable by Pacific Steel were not affected by the increase in raw materials rather they are affected by the presence of dumped product.

325. Pacific Wire also submitted that a departure from the current method is not supported by any interested party to the reassessment.

326. Pacific Wire submitted the current cost of production information the Ministry has, relating to the POR, is outdated. Pacific Wire proposed that a NIP, calculated using the current method, be set using the most recent available information so that "relevant and up to date reference prices are established". Pacific Wire referred to the Review of Canned Peaches from Greece (July 2003)⁷ and proposed that that review lent support for updating NIP information in anticipation of setting forward looking duties. Pacific Wire provided cost of production data which consisted of the average cost of production for six diameters between 1 September 2004 and 31 August 2005.

327. Pacific Wire did acknowledge that if the Ministry were to update NIP information for the purpose of setting duties it would be necessary to update normal values also.

Ministry's Consideration of the Issues

Current Method of Establishing a NIP

Cost of Production

328. From the sales data provided by Pacific Wire the Ministry has been able to extract data relating to the cost of production over the POR. The sales data was sorted by diameter to produce standard costs per tonne for each diameter of galvanised wire produced by Pacific Wire. The sales data also included variances which enabled the Ministry to adjust the cost of production for each diameter to actual cost of production for the six diameters that reference prices were established for during the Malaysian investigation. This is shown in Table 3.7.

329. Pacific Wire purchases wire rod from Pacific Steel. From 1999 to [Text deleted due to confidentiality] 2004 the price of wire rod was based on an import parity model. Pacific Wire advised that during 2004, [Text deleted due to confidentiality] price of wire rod purchased by Pacific Wire with the world price for wire rod.

330. In the Malaysian investigation the average purchase price over the POI of the wire rod feed was $xxxx per tonne. Over the POR, the average purchase price of wire rod from Pacific Steel was $xxxx per tonne which is on average an increase of $xxxx per tonne or xxxx percent.

331. Pacific Wire submitted that the price it pays for wire rod is suppressed due to the competitive pressure placed on Pacific Steel by [Text deleted due to confidentiality] It was apparent from a letter from Pacific Wire that it intended to quantify the amount of the claimed suppression however only included part of the information necessary to do so. Pacific Wire provided world prices of wire rod for calendar years 1998 and 2004 only but did not provide the corresponding prices it paid to Pacific Steel for wire rod in 1998. The Ministry interprets Pacific Wire's submission to mean that the present cost of production is understated because of the suppression of wire rod prices and if the NIP is based on the present cost of production figures it would also be understated. The Ministry asked Pacific Wire to quantify this level of price suppression but Pacific Wire made no further submission on this matter.

332. Information provided by Pacific Wire shows that there is [Text deleted due to confidentiality] correlation between its purchase prices of wire rod and world wire rod prices. The [Text deleted due to confidentiality] Pacific Wire's cost of wire rod illustrates that using actual costs to calculate the cost of production, or to determine if the price of wire rod is suppressed, may not produce a reliable result. In August 2004 Pacific Wire's cost of wire rod was [Text deleted due to confidentiality] below the consolidated index price. Six months after [Text deleted due to confidentiality] Pacific Wire's cost of wire rod was [Text deleted due to confidentiality] above the consolidated index price. The Ministry is mindful of the effect that such a change in pricing can have on a potential NIP and believes that it should be cautious when using costs set by associated companies.

333. The Ministry considers that the actual cost of production i.e. standard cost adjusted for variances is the appropriate calculation for determining the cost of production over the POR. The table below details Pacific Wire's cost of production for the six diameters that reference prices were established for during the Malaysian investigation.

Profit Margin

334. According to financial information supplied by Pacific Wire in the South African investigation, the Malaysian investigation and this reassessment, it appears that Pacific Wire's submission for the reassessment regarding the profit margin is a combination of figures from 1998 and 1999.

335. According to the data in 1998 the sales mix of 2.50 mm HiSpan V and standard high tensile wire was xxxx and xxxx percent respectively of sales of 2.50 mm high tensile heavily galvanised wire. The margin per tonne in 1998 was $xxxx (2.00 mm), $xxxx (2.24 mm), $xxxx (2.50 mm), $xxxx (3.15 mm) and $xxxx (4.00 mm). The Ministry notes that the margin on sales of 2.50 mm of $xxxx per tonne is equal to the margins recorded in 1999 of $xxxx and $xxxx weighted against the sales volume of HiSpan V and standard high tensile galvanised wire in 1998.

336. In 1999 the sales mix of 2.50 mm HiSpan V and standard high tensile wire represented xxxx percent and xxxx percent respectively of sales of 2.50 mm high tensile heavily galvanised wire. The margin for 1999 specific to these sales was $xxxx and $xxxx respectively or xxxx percent and xxxx percent of the cost of production. The margins per tonne in 1999 are recorded as $xxxx (2.00 mm), $xxxx (2.24 mm), $xxxx (2.50 mm), $xxxx (3.15 mm), $xxxx (3.55 mm) and $xxxx (4.00 mm).

337. No information has been provided on the cost of production specific to each diameter for 1998 or 1999 (other than that for 2.50 mm HiSpan V and standard high tensile wire) which would enable a percentage profit rate to be ascertained for each diameter.

338. The Ministry has examined the sales mix of 1999 and compared it with that of 2004 and the six months to December 2004. The results are as follows:

339. The table above shows that sales of [Text deleted due to confidentiality] have continued to reduce since 1999. Sales of [Text deleted due to confidentiality] in 2004 are at a level [Text deleted due to confidentiality] than in 1999.

340. The Ministry considers that using the weighted average profit margin specific to the sale of HiSpan V and standard high tensile wire to establish a NIP is not an appropriate margin to apply to all types of galvanised wire produced by Pacific Wire. Based on the figures shown in 1998 and 1999 the dollar margins per tonne differ between the different diameters. To apply the percentage margin on sales of HiSpan V and standard high tensile wire of 2.50 mm only to other diameters would increase the ex-factory average selling price that could be achieved on diameters less than 2.50 mm and decrease the ex-factory average selling price that could be achieved on diameters greater than 2.50 mm.

341. In the South African investigation the Ministry noted that "[Text deleted due to confidentiality]".⁸ The Ministry considers that to base the margin on a product that would probably not command such a position or margin in the New Zealand market, in the absence of dumped products, as it did six or seven years ago, is inappropriate in this case.

342. The Ministry considers it would be more accurate to use the margin achieved on each diameter of galvanised wire sold on the domestic market in 1999 then apply that percentage to the present cost of production of each diameter. Since the Ministry does not have the necessary information to calculate a profit margin specific to the different types and diameters of galvanised wire sold on the domestic market it has used the weighted average profit margin of xxxx percent which is that achieved over all types of galvanised wire in 1999. This is the same profit margin that applied in the Malaysian investigation.

343. The following table shows the NIP of each diameter to which dumping duty applies based on the cost of production figures seen in Table 3.7 with a profit margin added of xxxx percent.

344. The Ministry is mindful that the current method of calculating a NIP, supported by Pacific Wire, would incorporate a profit margin from either 1998 or 1999 which is more than six years ago. In the 1996 review and reassessment regarding standard plasterboard from Thailand, the Ministry calculated a NIP based on the pre-dumping level of profitability in 1988 which was adjusted for inflation and with allowances made for efficiencies and one-off costs. This method was subject to extensive expert evidence by the industry and the Ministry during judicial review proceedings which established that such an approach could not be justified on economic grounds. This was primarily because of the length of time that had elapsed [8 years], the extensive changes that had taken place in the New Zealand economy since that time and the existence of other competitive pressures that constrained the extent to which the industry could have increased its prices.⁹

345. In a recent dumping investigation regarding reinforcing steel bar and coil from Malaysia and Thailand of March 2004, the Ministry concluded that using the present cost of production plus a gross margin from the latest non-injurious period was unsuitable because the margins achievable for that product were effected by the changes in the price of raw materials. The Ministry observes in this reassessment that the prices of the wire rod during the POR have changed significantly. The Ministry has no way to be certain to what degree these changes are passed on to the customer or absorbed by the manufacturer. This also leads the Ministry to question the validity of a profit margin based on historical information.

Industry Current Cost of Production plus Profit Margin of Other Business Units of Fletcher Building Ltd

346. Fletcher Building Ltd is a publicly listed company that consists of a number of business units in the area of building products, infrastructure, distribution, laminates and panels. Pacific Wire is a business unit within the building products group.

347. The Ministry believes that the most appropriate business unit within the group would be Pacific Steel. However, the Ministry notes that its profit margin(s) could be affected by imports of reinforcing steel bar from Thailand that were found to be dumped and causing injury to the New Zealand industry. The Ministry does not consider that there are any other business units within the Fletcher Group that would be a suitable reference regarding profit margins in the absence of dumped goods.

348. The pricing of wire rod between Pacific Steel and Pacific Wire could have a substantial effect on their respective profitability. As has been expressed in paragraph 332, the Ministry is cautious about using prices between related companies.

349. Profit margins of other business units within Fletcher Building Ltd cannot be used as a reference on which to base a margin as the closest of the units, Pacific Steel, has also been affected by the presence of dumped product.

Pre-Injury Prices Scaled up by Relevant Index

350. The New Zealand Department of Statistics publishes CPI and PPI indexes which are accessible via its website.¹⁰ The CPI measures changes in the cost of goods and services bought by private households. The PPI measures changes in the levels of prices for the production sector of the economy. The PPI comprises of output indexes (which measures changes in prices received by producers) and input indexes (which measure changes in costs of production).

351. The increase in prices using a CPI or PPI must reflect the New Zealand industry's business operations and the movement in indexes should be similar if not the same compared with the industry's prices over a number of periods. Pacific Wire stated that the most suitable industry group is C14 i.e. manufacturers of sheets and fabricated metal products. Pacific Wire did not provide the Ministry with sufficient financial information relating to years when it was unaffected by dumped goods which would allow the Ministry to calculate a NIP using this method.

352. By applying the difference in the C14 output index between the June quarter of 1999 (index 969) and the March quarter of 2005 (index 1129) to Pacific Wire's average selling price for 1999 gives a current overall NIP of $xxxx per kg.

353. The Ministry has compared the aggregate NIP determined using the PPI to scale up pre-injury prices with other methods of calculating the NIP at Table 3.11. A NIP using this method is higher than the current method for the Malaysia investigation and significantly higher than the NIP based on import parity.

354. The Ministry agrees with Pacific Wire that the CPI is an unsuitable method of reflecting the changes in prices. The Ministry considers that the PPI may be suitable but sufficient information has not been furnished by Pacific Wire to conclude that the most appropriate method of determining NIPs is to scale up the prices by relevant indexes.

Aggregate Import Parity Prices

355. Any New Zealand industry must compete with the prices of comparable non-dumped products that are imported into New Zealand. If goods from a country are dumped then the normal values in that country consist of the undumped price, a level at which the industry must compete with.

356. Over the POR imports originating from Australia represented xxxx percent of all imports of galvanised wire. Malaysian imports represented xxxx percent and imports from the Czech Republic represented xxxx percent. Imports originating from these three countries represented the three largest sources of galvanised wire over the POR and account for xxxx percent of imports over that period.

357. Under the rules of the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) the Ministry is unable to initiate a dumping investigation on goods originating from Australia.¹¹ New Zealand products must compete with goods of Australian origin, irrespective of whether the export price of the Australian good is higher or lower that the normal value of like goods on the Australian market. Consequently Australian goods may be considered by the Ministry when seeking to establish the lowest undumped import prices in the New Zealand market and the Ministry does not agree with Pacific Wire's submission in paragraph 310.

358. The Ministry's examination of the import data shows that different types and diameters of galvanised wire are imported into New Zealand. As an indication of possible prices in the New Zealand market the Ministry has used aggregate information to determine from sources other than Malaysia, the average import prices into the New Zealand's market. This is an approximate calculation but provides a tool with which to measure the relative price of imports from sources other than Malaysia.

359. The average VFD per unit over the POR from Australia and the Czech Republic is, respectively xxxx percent and xxxx percent higher than the equivalent VFD per unit of goods from Malaysia. The estimated ex-wharf price per kg (using costs of insurance and overseas freight from customs data and [Text deleted due to confidentiality]'s customs clearance costs) of galvanised wire from Australia and Malaysia is less than the industry's overall NIP in NZD which has been calculated using the current method. However, the aggregate ex-wharf price per kg of galvanised wire from the Czech Republic is more than the overall NIP in NZD calculated using the current method. The following table compares these prices:

360. The Ministry's examination of dumping in this reassessment concludes that exports from Malaysia, with the exception of ARM exported by Southern Wire and [Text deleted due to confidentiality] exported by SMI, are at undumped prices. Where the average ex-wharf price per kg from Malaysia is undumped and is less than the other large sources, Malaysian prices are necessarily the cheapest undumped prices in the New Zealand market. Import parity prices have therefore been based on import prices from Malaysia, except for dumped imports of ARM and [Text deleted due to confidentiality] exported by SMI, which have been based on the normal values of these products.

Ministry's Consideration of Pacific Wire's Submissions in Response to Interim Report

Domestic Supplier's Price Premium

361. Pacific Wire has suggested that the Ministry should consider the price premium aspect of an import parity based NIP because its other submissions may result in an increase in normal values to such an extent that a NIFOB may become relevant. The Ministry notes the situation described by Pacific Wire cannot actually occur when using the country from which the dumped goods originate as the source of import parity prices. Where the NIP is based on undumped export prices and to the extent that these prices remain undumped after any upward adjustments suggested by Pacific Wire are accepted by the Ministry the corresponding NIFOB will be higher than the NV(VFDE) and so cannot form a lesser duty even without a premium for local supply.

362. If adjustments to normal values proposed by Pacific Wire were accepted by the Ministry and were of sufficient magnitude to result in the goods becoming dumped then the NIFOB would be based on the normal value, rather than the undumped export price. This would be equivalent to the NV(VFDE) amount. Adding a premium to the NIFOB for local supply would also make it greater than the NV(VFDE) and incapable of forming a lesser duty. Where the NIP is already based on Malaysian normal values, as in the case of ARM, any increase to the normal values proposed by Pacific Wire will also be reflected in the NIP. So again, by adding a premium to the NIP, this will make the NIFOB higher than the normal value and therefore incapable of forming a lesser duty.

363. Irrespective of whether the Ministry believes that consideration of Pacific Wire's submission on price premium is necessary for the calculation of a NIFOB that can represent a duty at less than the full margin of dumping, consideration of a price premium allows the Ministry to better compare an import parity NIP with other methods of calculating a NIP.

364. This is because, by adding a premium to import parity prices to reflect any benefits that customers perceive the New Zealand industry provides that allow it to price above the imported products, the NIP can then reflect the position that the local product may not need to compete at that same price point as the imported good. Consideration of Pacific Wire's proposal relating to a price premium can also be used for future consideration of this issue. However each product and market is different in terms of whether the local producer actually provides any additional benefits to its customers that mean the New Zealand industry can command a premium over an imported product and, if so to what extent it can do this.

365. The Ministry considered the concept of a price premium in relation to a NIP calculated by the import parity method in the 2002 reassessment of Plasterboard from Thailand¹². In the final report relating to that reassessment the Ministry considered submissions from interested parties that suggested a price premium for a New Zealand manufacturer competing with imports at the ex-wharf level relevant to ex-wharf purchase might range from xxxx to xxxx percent of the NIP, depending on the customer. The New Zealand industry noted that a premium was "sometimes able to be reflected in the [price] and sometimes not at all". This reflected its understanding that its customers were at different positions along a value perception continuum.

366. The Ministry was not required to select the most appropriate price premium in that reassessment. The Ministry calculated import parity based NIPs using all four price premiums that interested parties provided, to test the validity of the New Zealand industry's submission that it could [Text deleted due to confidentiality].

367. Interested parties to that reassessment suggested tangible costs that might be considered when determining what level of premium a customer might be prepared to pay to receive locally produced products could include devanning costs, inventory holding costs, and credit term adjustments among other things. It was suggested that a premium of approximately xxxx percent, for the certainty and timeliness of local supply, was sustainable in the case of some customers.

368. The Ministry considers that Pacific Wire's product is, depending on customer perception, anywhere from easy to substitute, because there are a number of suppliers internationally of like goods, to very difficult to substitute because its product is made specifically for New Zealand conditions and has vanadium in it which enhances tensility. The Ministry also considers Pacific Wire's brand "wiremark" will also have varying value to customers, again depending on their perception of the value of the brand. The Ministry also considers that galvanised wire is generally considered a commodity product. This appears to support Pacific Wire's contention that any premium it could command would be less than those achieved by the [Text deleted due to confidentiality] products Pacific Wire referred to.

369. The Ministry contacted New Zealand Steel upon Pacific Wire's recommendation. New Zealand Steel advised that it could command premiums of anywhere from five to thirty percent over the cost of the imported competitive product. New Zealand Steel advised that the normal premium for their flat rolled products was between eight and fourteen percent, which is [Text deleted due to confidentiality] percentages noted by Pacific Wire.

370. The Ministry also contacted Pacific Wire's customer, Hurricane Wire Products Ltd (Hurricane), to obtain its views on what sort of premium its supplier, Pacific Wire could sustain. Hurricane also import galvanised wire products and the Ministry considers it is well positioned to place a value on local supply.

371. Hurricane advised the Ministry that it thought an appropriate premium for local supply was twenty five percent. It went on to calculate, by way of a hypothetical example, what it considered to be the objective elements of the premium. Hurricane noted the following costs when sourcing goods internationally:

• a ten percent rate for goods that did not meet Hurricane's specifications and was not refunded by the exporter;
• a cost of credit adjustment to take into account extra stock holding costs;
• extra warehousing costs;
• devanning costs;
• employment of two extra full time equivalent staff to check quality, compliance with specification and liaise with the foreign producer; and
• an increased charge to customers to recover losses due to orders outside yield tolerance.

372. Hurricane noted that the objective costs listed in the above bullet points do not alone amount to twenty five percent of the cost of purchasing the wire as the list does not include the intangible benefits of local supply such as support for product failure and the ease of doing business with a local company.

373. Hurricane also noted that it did not consider the above premium applied to goods of Australian origin, due to the ease of doing business between New Zealand and Australia. The Ministry presumes there would however be a small premium attached to local supply when considering purchasing from Australia that may consist of devanning costs and possibly a small cost of credit adjustment.

374. The Ministry considers that settling on an accurate price premium is a complex issue and one that, were NIFOBs incorporating a price premium to be used to establish a duty, would require sufficient verification. Because no NIFOB amount in this investigation will form a lesser duty, and the purpose of considering a premium is to better compare an import parity NIP with other methods of calculating a NIP it is not necessary to settle upon a definitive amount to represent the premium the New Zealand industry can sustain above the imported good. For that reason the Ministry has applied the premiums proposed by Pacific Wire and Hurricane; i.e. xxxx percent and twenty five percent (representing estimates from the lower and upper end of submissions), to the aggregate ex-wharf prices from the three countries discussed in paragraph 356. Table 3.11 below incorporates these premiums to allow comparison with alternative methods of calculating the NIP.

Method of Calculating the NIP

375. Pacific Wire has raised concerns with basing the NIP on Malaysian undumped export prices and/or normal values. The Ministry undertook a verification visit at the premises of Southern Wire in Malaysia and is satisfied that the information gathered and verified, is accurate and is capable of establishing a NIP. The Ministry notes that the same information has contributed to the calculation of normal values, export prices and the formulation of anti-dumping duties also. Any method of calculating a NIP requires thorough consideration and verification.

376. Pacific Wire has submitted there are no sales of like goods in Malaysia, and that errors are therefore more likely to exist because adjustments to normal values are necessary to allow the export sales and domestic sales to be fairly compared. Pacific Wire proposed the likelihood of these errors make the use of Malaysian prices inappropriate for establishing a NIP.

377. The Ministry concluded in the investigation that the galvanised wire sold on the domestic market in Malaysia while not like in all respects, the wire had characteristics that closely resembled those goods exported to New Zealand. Where differences between the goods affect price comparability adjustments have been made but these adjustments have been made using methods that all parties have been able to evaluate. The additional adjustments to normal values sought by Pacific Wire for complexity and compliance costs are discussed earlier in this report starting at paragraph 178. The Ministry concluded that no further adjustment was necessary to reflect the complexity and compliance costs proposed by Pacific Wire.

378. Pacific Wire has made references to "constructed" normal values when referring to the adjustments that have been made to both export prices and normal values to allow a fair comparison to be made between the two at the same level of trade. The Ministry notes that "constructed" normal values is a technical term that relates to establishing normal values using the method described in Section 5(2)(d) of the Act. The Ministry has established normal values under Section 5(1) of the Act, being the preferred method under the Act for establishing normal values.

379. Pacific Wire suggested that if the Ministry made the adjustments to normal value proposed in its submission on the interim report then the Ministry would find the Malaysian goods are dumped, which might mean, depending on the quantum of the adjustments, that the current NIP method is less than using non-dumped Malaysian prices (or normal values). Subsequent to the interim report the Ministry has only made further adjustments for differences in zinc and quantity, as discussed in this report starting at paragraphs 168 and 153 respectively. These adjustments are small and do not have a significant effect on normal values. The Ministry is, therefore, satisfied that the information relating to sales of Malaysian goods is suitable for calculation of NIP(s).

380. Pacific Wire has proposed that a reassessment is not the place to reconsider the NIP methodology, and even if it were, the short period since the Ministry last considered the method of calculating the NIP means that no enquiry is necessary during the reassessment and that all that is required is recalculation (using the current method).

381. The Ministry does not agree with Pacific Wire that consideration of the method of calculating the NIP is inappropriate during a reassessment. A reassessment is conducted under Section 14(6) and consists of reassessing "any rate or amount of anti-dumping…duty". The Ministry considers that the obligations under Section 14(5), to consider a lesser duty, apply to reassessments and reviews as well as investigations. A NIP is a key component in establishing the NIFOB which is compared to the NV(VFDE) to establish whether a lesser duty, sufficient to remedy the injury to the New Zealand industry can be imposed.

382. Although the eleven months that has elapsed since the determination in the Malaysian investigation is not a significantly long period, in order to consider what the industry's reassessed NIP might be, the Ministry must consider what factors have changed in the market since the investigation. Whether or not to persist with the current method or use another method is a matter for the circumstances of the case and is not to be limited by arbitrary references to timeframes. The Ministry notes the conclusion in the Malaysian investigation, referred to by Pacific Wire in its submission, states "the [Ministry] considers the method it has used here to be the most accurate method in this case" (emphasis added).

383. Pacific Wire submitted that conclusions from the plasterboard industry are not necessarily related to steel. The Ministry agrees but notes that the plasterboard case does illustrate considerations that are relevant in the current reassessment. The Ministry considers significant changes have occurred in the respective markets since the relevant decisions of both plasterboard from Thailand and galvanised wire from Malaysia. Material changes in the market are an important reason for questioning the continuing reliability of an historical profit margin and consequently that the cost of production and historical profit method of establishing a NIP is appropriate.

384. The passage of time does not of itself mean that an historical margin is unattainable, but is reason to enquire whether a historical margin may no longer be attainable. In this reassessment the Ministry has been able to test the relevance of the current method by undertaking an enquiry into the cost of undumped import prices, both from Australia and Malaysia, and has found that these are at a level significantly below the NIP established using the current method. This led the Ministry to conclude that the current method is inappropriate for this reassessment.

385. Pacific Wire submitted that the Ministry incorrectly referred to the Reinforcing Steel Bar and Coil from Malaysia and Thailand case¹³ (the Rebar case) as an example of the Ministry rejecting the current method because of the uncertainty as to whether significant increases in the cost of raw material could be passed on to customers, and therefore whether an historical profit margin was now attainable. Pacific Wire proposed that dumping was the "central plank" which affected margins in that investigation.

386. In the Rebar case the Ministry found that "given the increase in [the] price of scrap and the corresponding international inability to raise finished products prices sufficiently to off-set the increased cost of scrap all manufacturers have experienced a reduction in the margin achieved" (at paragraph 528). While dumping was found in that case the Ministry must look at all the pressures on the New Zealand industry's prices and cannot, when considering the NIP necessarily attribute all downward price pressure to the dumping.

387. Pacific Wire identified two recent dumping investigations where the Ministry did not establish NIPs using the import parity methods. The Ministry was unable to establish NIPs in the OLP case because of the circumstances surrounding the tender. In the Oil Filters case the Ministry used actual prices from a non-injurious period (2002) to establish the NIP. Using actual prices to determine a NIP is similar in concept to the current method but can normally be used only when there has been a relatively short time between the non-injurious period and the investigation.

388. The Ministry has used the method proposed by Pacific Wire to establish a NIP on a number of occasions and it might have been appropriate again in this reassessment had the aggregate prices of undumped imports from both Malaysia and Australia not significantly undercut the NIP based on the current method, indicating that a NIP calculated under the current method is no longer attainable.

389. The Ministry does not consider, as Pacific Wire has proposed, that because other interested parties have not expressed support for the change to an import parity approach, they do not support it and the Ministry should therefore revert to the current method. The Ministry believes no such conclusion can be drawn from Pacific Wire's observation because silence cannot infer support or opposition.

390. Pacific Wire has submitted that the Ministry should use up to date cost of production financial information. The Ministry has concluded that NIP(s) should be based on the import parity method and therefore this information is not necessary.

391. As to whether up to date normal value information should be sought in order to establish forward looking duties, the Ministry considers that basing duties on information from the whole of the POR, as proposed in the interim report is the most appropriate method.

Comparison of Methods for Establishing NIPs

392. The appropriateness of the method can be considered by comparing the results to the other methods of calculating a NIP. The following table compares NIPs calculated using the import parity method with aggregate NIPs calculated using the pre-injury price scaled up by the PPI and using the current method.

Table 3.11: Comparison of Aggregate Import Parity Prices with Other Aggregate NIPs (per kg)

393. When adding the xxxx percent premium for local supply proposed by Pacific Wire the undumped Malaysian price is still below the aggregate NIP using the current method.

394. Applying a 25 percent premium to the ex-wharf values gives a landed cost well above the aggregate NIP calculated under the current method. A 25 percent local supply premium is the upper limit of possible premiums suggested and the Ministry considers it unlikely that Pacific Wire would be able to achieve a premium of this magnitude. This is reinforced by the large number of companies importing the subject goods, indicating that many customers do not place such a high premium on local supply or any premium at all on local supply.

395. Adding a premium of xxxx percent still results in an import parity price based on undumped import prices from Malaysia well below the NIP calculated using the current method from the Malaysian investigation.

Conclusion

396. A NIP is the selling price in the absence of dumped product and it represents a base from which a potential lesser duty can be calculated to remedy the injury to the New Zealand industry without imposing duties at the full margin of dumping. A lesser duty based on a NIP is founded on historical financial information (over the POR) but is applied on a prospective basis.

397. The Ministry considers that to apply a profit margin achieved six or seven years ago to the present cost of production is fraught with uncertainty. The cost of wire rod has increased significantly over the past year which could have impacted on the profit margin even in the absence of dumped product. The import parity method results in a NIP that, even after adding a price premium for local supply of xxxx percent, significantly undercuts the price calculated using the current method, indicating that prices based on the current method are no longer attainable.

398. The Ministry is satisfied that the import parity method is the appropriate method of establishing the NIP in this reassessment.

399. Although the Ministry has concluded the import parity method is the appropriate method for establishing the industry's NIP in this reassessment, the appropriate method of calculating the industry's NIP in each case will be determined bearing in mind the need to ensure to the extent possible that the NIP used is reasonable and is based on market considerations and on objective criteria.

400. As discussed in paragraphs 361 and 362 where the country under investigation is used as a source of import parity prices NIFOB amounts will be equal to the NV(VFDE), where the NIFOB is based on normal values and the NIFOB will be greater than the NV(VFDE) where the NIFOB is based on undumped export prices. Therefore the NIFOB amount cannot constitute a lesser duty. For this reason it is unnecessary for the Ministry to calculate individual NIPs for each types and diameter of wire in order to calculate a NIFOB to compare with the corresponding NV(VFDE) for that type and diameter of wire to determine whether the NIFOB is lower.

401. Consequently the Ministry has proceeded directly to calculate NV(VFDE) amounts.

3.6 Calculation of NV(VFDE) Amounts

402. NV(VFDE) amounts are calculated by adding to normal values the costs incurred between the ex-factory and FOB levels. The NV(VFDE) therefore represents an undumped price at the FOB level.

403. The NV(VFDE) amounts are based on Southern Wire's and SMI's weighted average normal values over the POR for each of the types of galvanised wire supplied to New Zealand importers. The costs added to the weighted average normal values to reach the FOB level were those used in the calculation of export prices for the manufacturer concerned.

Southern Wire

404. The following two tables shows the calculation of the NV(VFDE) amounts for goods supplied by Southern Wire.

SMI Wire Sdn Bhd

405. The following table shows the calculation of the NV(VFDE) amount for goods supplied by SMI.

3.7 Other Malaysian Exporters

406. It is necessary to establish a residual rate of duty that will apply to exporters other than Southern Wire and SMI. Other than RCI which is exempt from anti-dumping duties, there are no other known exporters.

407. During an investigation the Ministry would be likely to use the weighted average dumping margin expressed as a percentage of export prices to establish a residual rate. The weighted average dumping margin expressed as a percentage of the export price of all goods originating from Malaysia is -11.06 percent. For goods supplied by Southern Wire the weighted average dumping margin is -11.41 percent and for goods supplied by SMI the weighted average dumping margin is 11.31 percent.

408. Because the export prices are likely to be influenced by the presence of reference prices it would be unsuitable to use the weighted average dumping margin calculated on imports subject to a reference price duty as the basis for an ad valorem percentage rate. Since the export and domestic prices have changed since the final determination of the Malaysian investigation the Ministry considers it is more suitable to apply the weighted average dumping margin (as a percentage of the export price) of goods supplied by SMI whose exports were subject to an ad valorem percentage rate of duty and therefore were less likely to be influenced by the existence of the reference prices. The Ministry has therefore assessed that for goods supplied by exporters other than Southern Wire and SMI, excluding RCI, an ad valorem rate of 11 percent should apply.

409. One other exporter Aspac Alliance, which was identified in the Malaysian investigation, appears to have ceased supplying galvanised wire to New Zealand. The Ministry considers that it does not have sufficient information, should it decide to resume supplying New Zealand with galvanised wire, to establish a reference price and therefore, its exports of galvanised wire to New Zealand should be subject to the ad valorem percentage rate.

410. The Ministry considers that to ensure the application of the ad valorem residual rate does not provide a greater level of duty than is necessary to prevent injury to Pacific Wire it should be capped through the use of reference prices.

3.8 Proposed Reference Prices and Level of Duty

411. Table 3.15 shows the proposed NV(VFDE) amounts in MYR. The Ministry proposes that a reference price is established for each type of galvanised wire as well as for the different diameters. By separating the reference prices according to the different products the Ministry believes a more effective and fairer remedy can be provided.

412. The Ministry considers that the NV(VFDE) amounts should be expressed in the currency of the country of origin, since normal values and costs to FOB have been established in MYR and establishing duty amounts in this currency ensures that exchange rate movements do not result in the collection of any anti-dumping duty above the margin of dumping. NV(VFDE) amounts have therefore been expressed in MYR.

413. Over the POR neither Southern Wire nor SMI exported to New Zealand HT 2.00 mm or HT 4.00 mm galvanised wire. To ensure that reference prices cover the diameters and types within the range of the description of the goods the Ministry has calculated a reference price for these two products.

414. In the absence of pricing information for these two products the Ministry has used the best available information and established NV(VFDE) amounts on the basis of the proportionate difference between the LT and HTNV(VFDE) amounts for other diameters. For 2.00 mmHT wire, the NV(VFDE) amount is based on the proportionate difference between the 2.50 mmHTNV(VFDE) amount and the 2.50 mmLTNV(VFDE) amount (2.50 mm being the size nearest to 2.00 mm). For 4.00 mmHT wire, the NV(VFDE) amount was based on the proportionate difference between the 3.15 mmHTNV(VFDE) amount and the 3.15 mmLTNV(VFDE) amount (3.15 mm being the size nearest to 4.00 mm).

415. In instances where the tensile strength of galvanised wire imported into New Zealand is MT the reference price to apply is that of LT. If the diameter of galvanised wire imported into New Zealand is of a size other than the diameters specified in the table below the reference price of the nearest diameter will apply.

416. The Ministry notes that over the POR SMI exported [Text deleted due to confidentiality] galvanised wire to New Zealand. In establishing normal values to compare with export prices the Ministry used as the base price invoiced prices relating to domestic sales of LTxxxxmm galvanised wire. Since the Ministry holds information relating to the domestic sale of this size of galvanised wire it has established a NV(VFDE) amount should SMI choose in the future to export this diameter to New Zealand or any diameter that is between 3.40 mm to 4.00 mm. In establishing a NV(VFDE) amount for xxxxmmHT strength galvanised wire the Ministry has used the same methodology as described above in the previous paragraph i.e. basing the adjustment on the proportionate difference between the NV(VFDE) amounts for xxxxmmHT and LT wire (being the size nearest to xxxxmm).

417. The proposed rates are as follows:

418. For imports from SMI or Southern Wire anti-dumping duty would only be paid if the VFD per kg in NZD imported into New Zealand were lower than the NV(VFDE) amounts shown in the table above for a particular supplier, type and size of galvanised wire. The NV(VFDE) amounts can be converted to NZD using the exchange rate at the date of the invoice for the purpose of making this comparison. If the VFD per kg is lower than the NV(VFDE) amount in NZD, anti-dumping duty is payable. If the VFD per kg is higher than the NV(VFDE) amount anti-dumping duty would not be payable.

3.9 Developing Country Considerations

419. Article 15 of the Anti-Dumping Agreement provides as follows:

It is recognized that special regard must be given by developed country Members to the special situation of developing country Members when considering the application of anti-dumping measures under this Agreement. Possibilities of constructive remedies provided for by this Agreement shall be explored before applying anti-dumping duties where they would affect the essential interests of developing country Members.

420. New Zealand recognises Malaysia to be a developing country for WTO purposes. The Ministry considers the constructive remedies referred to in Article 15 of the Anti-Dumping Agreement are price undertakings as provided for in Article 8 and the desirability of imposing duty at less than the margin of dumping (if a lesser duty would be adequate to remove injury to the domestic industry) as provided for in Article 9.1.

421. Price undertakings are provided for in section 15 of the Act but only in the context of any investigation initiated pursuant to section 10 of the Act. Reassessments are carried out pursuant to section 14(6) of the Act. Price undertakings, therefore, cannot be considered during a reassessment.

422. The Ministry's normal approach is to calculate the NV(VFDE) and NIFOB and compare the two values. If the NIFOB is less than the NV(VFDE) a lesser duty should apply; conversely if the NIFOB is greater than the NV(VFDE) then duty at the full margin of dumping should apply. If a lesser duty is imposed in the form of a NIFOB it is normal practice to cap the duty using a NV(VFDE) amount.

423. The Ministry has examined the need for a lesser duty and concluded that a reference price of NV(VFDE) amounts will apply on goods supplied by Southern Wire and SMI. To ensure that any anti-dumping duty does not exceed the margin of dumping the ad valorem percentage rate is capped by the NV(VFDE).

424. To the extent that it able to do so by the Act, the Ministry considers that it has explored the possibilities of the constructive remedies provided for by Article 15 of the Anti-Dumping Agreement.

3.10 Effective Date of Application of New Duties

425. The Act does not specifically provide for a date from when the new reassessed duties take effect, but the Ministry's practice has been that the new duty is payable and collectable on demand "on and from" the day after the date on which the notice is published in the New Zealand Gazette (section 14(2) of the Act), but is due and payable from the day after the date the Minister determines the new rate under section 14(6) of the Act.

3.11 Changes in Reference Prices and Level of Duty

426. The proposed reference prices for galvanised wire have been separated into reference prices for ARM and reference prices for galvanised wire of five diameters. The following table shows a comparison of the current reference prices and duty with the new reference prices and duty proposed in this report.

*This duty is capped by NV(VFDE) amounts for each category of wire

427. By separating the reference prices according to the diameter, type and different tensile strengths a direct comparison of current reference prices to the proposed reference prices cannot be made. The proposed reference prices are mainly higher than the current reference prices but the reference prices for galvanised wire of HT and LT 2.00 mm, LT 3.15 mm and LT 4.00 mm in diameters exported by Southern Wire are lower than the current reference prices. SMI is a new supplier since the Malaysian investigation and therefore the proposed reference prices will apply to exports by this company rather than the current ad valorem percentage rate.

3.12 Refunds of Anti-Dumping Duty

428. The Act allows for refund of duties under certain conditions. Section 14(10) of the Act states as follows:

Without limiting the ability of the Minister to require refunds in other circumstances, where a reassessment under subsection (6) of this section results in a lower duty being imposed on any goods, the Minister may require the Customs to refund, with effect from the date of initiation of the reassessment (or, in the case of a reassessment carried out under paragraph (c) of that subsection, from the date of initiation of the review referred to in that paragraph), the difference between the duty paid and the lower duty.

429. The most recent prices paid by the importers over the POR are greater than the proposed reference prices except for LT[Text deleted due to confidentiality] mm galvanised wire exported by [Text deleted due to confidentiality]. Any anti-dumping duties paid since the reassessment was initiated, that were collected in excess of the proposed reference prices, may be refunded if the Minister agrees.

3.13 Impact of Anti-Dumping Duties

430. It is proposed that the Minister of Commerce reassess the duty so that reference prices are established in the form of NV(VFDE) amounts for the different types and diameters of galvanised wire exported to New Zealand by Southern Wire and SMI, with a residual ad valorem rate applying for other exporters that is capped by a NV(VFDE) amount. RCI Wire continues to be exempt from the duty. The amount of duty payable on imports will depend on the price at which the subject goods are imported.

431. It is difficult to predict the impact the recommended reference prices will have on prices in New Zealand. The latest import prices of galvanised wire from Malaysia over the POR are greater than the proposed reference prices except for galvanised wire sourced from SMI. The latest import prices of ARM are lower than the reference prices for ARM. The Ministry does not have import prices after the end of the period of reassessment but notes that the world price of wire rod, the major input into galvanised wire, has declined since then suggesting that import prices may also have declined. As noted in paragraph 280 above, reference prices were based on weighted average normal values over the period of reassessment because it best represents likely future values.

432. Imposing a reference price on imports by SMI and reassessing reference prices for Southern Wire will ensure that injury to the industry caused by dumping is removed to the extent possible under the Act.

433. If the price of galvanised wire increases significantly the duties may again become ineffective in providing the New Zealand industry the protection it is entitled to. If the price of galvanised wire changes significantly in a downward direction it is likely that the duties would force the price to stay at the level of the reference price providing the New Zealand industry with protection it is not entitled to. Interested parties who submit evidence justifying the need for a reassessment in either of these instances may make a request to the Ministry to reassess the duties.

434. Article 11.2 of the Agreement requires that the authorities shall review the need for continued imposition of duty provided that a reasonable period of time has elapsed upon request by an interested party which submits positive information substantiating the need for a review. The Ministry considers that when anti-dumping duties are imposed on imported goods it takes time for the market to adjust and the Ministry has not normally considered requests for reassessments or reviews until at least six months have elapsed since the duties were imposed or were last reassessed or reviewed. However, given the volatility of the price of raw materials if the Ministry was to receive a request justifying the need to reassess the rate or amount of duty within six months of the date of this reassessment the request would be considered in accordance with the provisions of the Act.