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• 8. Reassessment

• Trade Remedies

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• Galv Wire from South Africa

8.1 Introduction

370. The Act allows the Chief Executive to initiate a reassessment of the anti-dumping duty following a "sunset" review that concludes there is the need for a continuation of the anti-dumping duties (section 14(6)(c) of the Act). This section of the report provides the basis for a recommendation to the Chief Executive to initiate a reassessment of the anti-dumping duties immediately following the completion of this review. This section of the report also forms an Interim Report for that reassessment and provides interested parties with the opportunity to comment on the proposed duties. Interested parties have until 21 July 2008 to make submissions.

8.2 Method of Imposing Duties

371. The objective of an 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. The Act prevents the Minister from imposing a duty that exceeds the margin of dumping (section 14(4) of the Act). Furthermore, 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 (section 14(5) of the Act). This consideration is known as the "lesser duty rule".

372. There are numerous considerations that are taken into account when deciding on the form of the anti-dumping duty. Factors such as the ease of administration, the ability to ensure the dumping margin is not exceeded, the ability to maintain fairness between parties, and the predictability of the duty payable are all important aspects of an anti-dumping duty.

373. Anti-dumping duties can be applied in a number of different ways. The three basic approaches are:

• a specific duty approach;
• an ad valorem rate approach; and
• a reference price approach.

A Specific Duty Approach

374. A specific duty is a set amount of duty payable per unit of product imported. This specific amount of duty is based on the monetary value of a margin of dumping. The approach is convenient to apply, impossible to evade by incorrectly stating the value for duty, and it clearly indicates to the importer the amount of duty payable on the product.

375. Some problems with a specific duty approach may occur if there are a wide range of goods involved, exchange rates may fluctuate to the extent that the margin of dumping will be exceeded without constant reassessments of the specific amount, or where an exporter manipulates prices so that the duty is either greater than the margin of dumping or less than the margin of dumping previously established.

376. A specific duty, expressed as a monetary amount, can only operate effectively when two conditions are present. The first is that prices and exchange rates are consistent and stable. The second is that the transaction-to-transaction comparison does not result in a range of different dumping margins.

377. A specific duty approach can be used 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 Rate Duty

378. An ad valorem duty is a duty based on the margin of dumping or the margin or injury and is expressed as a percentage of the value for duty (VFD). An ad valorem duty is convenient to apply and is unlikely to be substantially affected by exchange rate movements. Ad valorem rates are often appropriate where there are 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. As with the other approaches, there is the possibility of collusion between an exporter and importer concerning the manipulation of the invoice value of the goods.

379. Under this approach, a particularly low export price (and therefore a potentially more injurious export price) would result in a 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), would attract a higher amount of duty, which may be higher than is necessary to remove injurious dumping.

380. 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.

Reference Price Duty

381. Under the reference price approach, the duty payable is the difference between the transaction price and a reference price. A reference price can be based on either a normal value or the domestic industry's non-injurious price (NIP). A Normal Value (Value for Duty Equivalent) or NV(VFDE) amount represents the un-dumped value of the goods at the South African FOB level. A Non-injurious Free-on-Board (NIFOB) is the price at which the imports would not cause injury to the New Zealand industry, calculated at the Free-on-Board (FOB) level. The Ministry prefers to set reference prices in the currency that the reference price calculations have been worked, that being either the currency of the normal value (in the case of NV(VFDE)s) or the currency of the NIP (in the case of NIFOBs). For example, in the present review, the NV(VFDE) has been based on the normal value in South Africa, which is set in ZAR while the NIFOB has been based on the New Zealand industry's NIP, which is in NZD. A full discussion of both reference price methods is set out below.

382. A reference price 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 un-dumped or non-injurious. In addition, a reference price duty only collects duty when the goods are priced below the non-injurious or un-dumped reference price, therefore duty is collected only to the extent necessary to remove injurious dumping.

383. One of main problems with reference prices is that the information they are based on represents a snapshot of prices and costs at a particular point in time. If these prices or costs change, the reference prices may no longer be accurate although significant changes in prices or costs can be addressed by way of a reassessment of the reference prices.

Developing Country Considerations

384. For the purposes of dumping investigations and reviews and the imposition of anti-dumping duties, South Africa is considered to be a developing country and therefore Article 15 of the Anti-dumping Agreement applies. Article 15 requires 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. The possibility of constructive remedies is to be explored before applying anti-dumping duties where they would affect the essential interests of a developing country member.

385. The WTO Dispute Settlement Panel in European Communities - Cotton-Type Bed Linen from India was of the view that "the imposition of a "lesser duty" or a price undertaking would constitute "constructive remedies" within the meaning of the Article 15…"¹ Price undertakings offered in relation to an initial investigation are covered in section 15 of the Act but do not explicitly extend to reassessments of current anti-dumping duties in place. In addition, no offers of price undertakings were received from South African exporters.

386. The Ministry considers that, given the above, its consideration of a lesser duty (as discussed below) fulfils its obligation under Article 15 of the Agreement to give special regard to constructive remedies.

8.3 Present Anti-Dumping Duties

387. Anti-dumping duties have been in place on galvanised wire from South Africa since 31 October 2002. The subject goods were divided into three categories based on the diameter of the wire. The Ministry calculated NV(VFDE) amounts for all three exporters and compared them to the NIFOB amounts to identify if a lesser duty rule should apply. NV(VFDE) reference prices for all three categories were set for Independent and Consolidated because they were lower than the NIFOB amounts. NIFOB reference prices were established for all three categories for Cape Gate because they were lower than the NV(VFDE) amounts.

388. The residual rate that applies to all other suppliers is an ad valorem rate. This rate was calculated by taking the NIFOB amount and then subtracting the latest FOB export price from South Africa. The difference was divided by the FOB export price to calculate a percentage which formed the ad valorem duty rate. This method in effect sets an ad valorem duty based on the "injury margin" rather than the dumping margin.

389. The rates of duty set in 2002 are as follows:

8.4 Amount of the Reassessed Anti-dumping Duty Rates

Exemption from Anti-Dumping Duties

390. The original investigation concluded that Finmesa and African Gabions were not dumping and therefore both companies' exports to New Zealand were exempt from anti-dumping duties. The Ministry concludes that there can not be a recurrence or a continuation of dumping by exporters who were found not to be dumping in the original investigation. Therefore, both companies will continue to be exempt from the proposed reassessed anti-dumping duties.

Specific Duty

391. The Ministry has considered whether a specific duty should be applied. The Ministry does not hold any current information on which to establish a specific duty. Because the cost of steel products can be subject to large fluctuations, any specific duty rate could easily become outdated. The Ministry therefore considers that it is an inappropriate method to impose duties in this instance.

Reference Prices

392. The Ministry's normal practice regarding reference prices is to calculate both NV(VFDE) and NIFOB amounts with the lower of the two anti-dumping duties being used as the reference price. The following section discusses this approach to setting reference prices.

Non-Injurious Price (NIP)

393. A NIP is an unsuppressed selling price at which a domestic producer can sell its products and is the basis on which a NIFOB amount is calculated. An unsuppressed selling price is one that is achievable in the absence of competition from dumped product in the New Zealand market. Anti-dumping duties have been in place on South African galvanised wire for five years and there have been no imports since 2004 and therefore PW's present prices are unaffected by goods of South African origin. The Ministry concluded that the New Zealand industry's prices are suppressed but this is not due to the presence of dumped imports from South Africa and therefore most likely due to other causes.

394. PW provided its 2007 average selling prices net of [text deleted due to confidentiality] separated into the three categories of wire according to the diameters which were established in 2002 investigation for the purpose of setting anti-dumping duties. In addition the Ministry has reduced these prices by NZDxxxx kg (NZDxxxx per tonne) for domestic freight based on the verified figures provided by PW. The prices are shown in the table below.

Calculation of NIFOBs

395. The purpose of the NIFOB is to ensure that the price of the imported product, when considered at the FOB level, is such that when it is sold at the relevant level of trade, the sale price is not lower than the NIP.

396. The calculation of a NIFOB is achieved by deducting from PW's NIP all costs that arise after FOB up to the level of trade at which the imported product first competes with PW's products. The first point of competition between the imported product and PW's product is at the ex-wharf level. Individual NIFOBs for each exporter have not been calculated due to the lack of up-to-date information sourced from these exporters on their costs arising after FOB. As such, one NIFOB amount has been calculated using information sourced in the review and it applies to all exporters. The calculation includes customs duty at 5 percent of the VFD, which applies from July 2008. The cost of overseas freight and insurance and port services charges are discussed in section 5.4 of this report.

Calculation of NV(VFDE)s

397. NV(VFDE) amounts are calculated by adding to the South African normal value, all costs incurred by the exporter up to the FOB level. The NV(VFDE) therefore represents an un-dumped price at the FOB level. As discussed in section 4.5 above, the Ministry was not able to calculate current normal values for each of the three categories of subject goods for each South African exporter because of the exporters' lack of cooperation in the review. Therefore, in order to establish updated NV(VFDE) amounts, the Ministry has updated the normal values and costs established in 2002 by the South African PPI. According to "International Monetary Fund: International Financial Statistics", the PPI is designed to monitor changes in prices of items at the first important commercial transaction. In principle, the PPI should include service industries, but in practice it is limited to the domestic agricultural and industrial sectors. Of particular note is that the industrial sector prices should be at the ex-factory level.

398. In 2002, the Ministry observed a large difference between the normal values of Independent and Consolidated. Updating each exporters normal value from 2002 by the PPI recognises the difference in the normal values of each company at that time which will be reflected in the updated NV(VFDE) amounts calculated for each exporter.

399. The tables below show the updated NV(VFDE) calculations for Consolidated, Independent and Cape Gate. The NV(VFDE) amounts are expressed in ZAR, but for the purpose of the lesser duty assessment, the amounts have been converted to NZD for comparison with the NIFOBs. Due to the NIP information relating to PW's 2007 financial year, the Ministry has used the average exchange rate over the period 1 July 2006 to 30 June 2007 for the currency conversion, which was listed xxxx xxxx as 1 NZD:xxxx ZAR.

Comparison of NIFOB and NV(VFDE)

400. The following tables show the proposed levels of duty for exports from Independent, Consolidated and Cape Gate, calculated on the basis set out above if the Ministry was to determine that re-assessed duty levels should be established on the basis of reference prices:

Effect of Exchange Rates on Anti-Dumping Duties

401. The Ministry considers that where an anti-dumping duty is imposed at a full margin of dumping, and is therefore based on the normal value (i.e. a NV(VFDE)), it is appropriate that the duty should be established in ZAR as that is the currency in which the normal value is set.

402. The Ministry recognises the problem of exchange rate movements concerning the lesser duty rule where reference prices have been established. In some instances exchange rate movements can result in NIFOB amounts that were identified as being the lesser duty, later becoming higher than the corresponding NV(VFDE) amount, which would be contrary to the requirement that anti-dumping duties do not exceed the margin of dumping.

403. Therefore, the review team proposes that if the reassessed anti-dumping duties are established using reference prices (as they are currently), an alternative duty rate be set at the NV(VFDE) rate due to exchange rate fluctuations. In other words, the NIFOB amounts (in NZD) identified as the lesser duty should be applied, except where the NV(VFDE) amount in NZ dollars (calculated at the exchange rate at the date of importation) is lower than the NIFOB. In this situation the NV(VFDE) rate should be applied instead of the NIFOB rate.

Ad Valorem Duty

404. An alternative method of setting anti-dumping duties is to apply an ad valorem duty to all South African exporters. An ad valorem duty can be set at the margin of dumping or at the margin of injury. In accordance with the lesser duty rule, the lower of the two margins will be used as the ad valorem duty rate.

405. In 2002, the Ministry imposed a residual rate by using an ad valorem duty rate. Cape Gate was identified as the exporter with the highest "dumping margin percentages". The Ministry then calculated "injury margin percentages" for Cape Gate. The "injury margin percentages" were used as the ad valorem duty rate because they were lower than the "dumping margin percentages".

406. Due to a lack of detailed South African export price and normal value information sourced in the present review, the Ministry has been able to calculate a dumping margin for the subject goods as a whole only, rather than for each exporter and for each of the three categories of subject goods. Due to that limitation, an injury margin has also been calculated for the subject goods as a whole so that the lower of the two margins can be identified.

407. The dumping margin was calculated by using the normal value established in section 4.5 of this report and then subtracting from this amount an ex-factory export price which was calculated based on the South African FOB value to all destinations. This exercise was conducted in section 4.6 of this report and the dumping margin calculated was 44 percent (expressed as a percentage of the export price). This dumping margin has been divided by the South African FOB value to all export destinations to ensure that the dumping margin is expressed as a percentage of the same value as the injury margin for the purpose of conducting the "lesser duty rule" (see paragraph below).

408. In the present review, because anti-dumping duties are already in place, an injury margin has been measured by how much the prices of South African imports to New Zealand would likely undercut PW's prices if they were to be exported from South Africa at the current South Africa FOB value to all export destinations. The South African FOB value may not be an ideal price on which a comparison can be made with PW's prices as the range of diameters that make up this value are unknown. However, the value does relate to South African export sales of galvanised wire and it is the best available information regarding the likely export price of South African galvanised wire. To determine the extent to which these South African prices would likely undercut PW's prices, the Ministry has calculated a NIFOB amount based on PW's weighted average price of galvanised wire of 1.60mm to 5.00m diameters (the company's total range of ‘like goods' to the GUR). The calculation of the NIFOB includes a wider range of wire diameters than that of the GUR because in 2002 it was concluded that this range of wire produced by PW were ‘like goods' to the GUR.

409. The injury margin has been calculated by subtracting from the NIFOB amount, the South African FOB price to all destinations, which is NZDxxxx when converted to NZD. The Ministry used the average exchange rate for the year ended June 2007 of 1NZD:xxxxZAR, which was the period over which the NIFOB was calculated. The difference between these two figures has been divided by the FOB price to calculate an injury margin percentage.

410. The tables below set out both the dumping margin and the injury margin calculations.

411. The calculated margin of dumping, as a percentage of the South African FOB price, based on the export price to all destinations, is 40 percent. As the dumping margin is greater than the injury margin, the ad valorem duty rate would be set at the margin of injury and be 17 percent of the VFD of the goods.

Proposed Levels of Anti-dumping Duty

412. The Ministry is of the opinion that a single ad valorem anti-dumping duty rate should be imposed on all three categories of galvanised wire falling within the description of the GUR and on exports from Cape Gate, Independent, Consolidated and all other exporters of the GUR (excluding African Gabions and Finmesa) at the rate established in table 8.8 above of 17 percent.

413. The Ministry prefers to impose a single ad valorem rate rather than to update the reference prices established in the original investigation because of the following reasons:

• Due to the lack of information obtained during the review, the Ministry was unable to calculate accurate and up-to-date normal values specifically relating to each of the three exporters which were assigned NV(VFDE) amounts in the original investigation and for each of the three categories of galvanised wire established for the purpose of imposing duties. Because NV(VFDE)s are established from normal values, the Ministry was unable to establish reliable, updated NV(VFDE) amounts for each of the three exporters using their individual normal value information. The updated NV(VFDE) amounts that were established for each exporter and category of galvanised wire (see tables 8.4 to 8.6 above) were based on the NV(VFDE) amounts that were calculated in the original investigation. The new amounts were simply updated from the original investigation by using the South African PPI from 2002 to present and the Ministry is concerned that these up-dated amounts may not accurately reflect the current South African normal values and export costs for galvanised wire.
• The Ministry is also aware of that the price of steel products and raw material used to manufacture steel products including galvanised wire has increased significantly over recent years and there is no indication that prices will stabilise in the foreseeable future. This, in itself, presents a problem in setting anti-dumping duties on the basis of reference prices because it is likely that such reference prices will quickly become outdated. As referred to in paragraph 383 above, one of main problems with reference prices is that the information they are based on represents a snapshot of prices and costs at a particular point in time and if these prices or costs change, the reference prices will become outdated and may no longer be accurate. Inaccurate reference prices are unlikely to perform the task intended of them, which is to prevent imports of the goods entering New Zealand at dumped prices.
• The single ad valorem duty of 17 percent has been calculated using recent South Africa export price and normal value information sourced during the review and relates to information collected over all categories of galvanised wire of the type under review (including both heavy and lightly galvanised wire). While this information was not available on a per category basis, the Ministry considers that a single ad valorem duty will be more convenient and administratively practical to apply than a number of reference prices relating to different exporters and categories of galvanised wire. Furthermore, it is unlikely to be substantially affected by increases in world steel prices or by exchange rate movements.

8.5 Opportunity for Comment

414. Interested parties have until 21 July 2008 to make submissions upon this interim reassessment report. All submissions must be accompanied by a non-confidential version.

415. A final reassessment report will be completed as soon as practicable after receiving submissions on the interim reassessment report. Depending on the nature of the submissions received and the content thereof, it may be necessary to lengthen the reassessment process in order to include new information in the Ministry's analysis. If submissions result in significant changes to the proposals contained in this interim reassessment report, the Ministry would consider issuing another interim report to allow parties to defend their interests before final recommendations are made to the Minister of Commerce.