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• Anti-dumping Duties.

• Trade Remedies

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• Review Investigations

• Hog Bristle Paintbrushes:China

8.1 Introduction

357. 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.¹ 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 12 February 2009 to make submissions.

8.2 Methods of Imposing Duties

358. 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.² 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. ³ This consideration is known as the "lesser duty rule".

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

360. 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

361. 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.

362. 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.

363. 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.

364. A specific duty approach can be implemented 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

365. An ad valorem duty is a duty based on the margin of dumping or the margin of injury (if the margin of injury is less that the margin of dumping), 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.

366. 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.

367. 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

368. 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 FOB level. A non-injurious free-on-board (NIFOB) price is the price at which the imports would not cause injury to the New Zealand industry, calculated at the 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) amounts) or the currency of the NIP (in the case of NIFOB prices). For example, in the present review, the NV(VFDE) amounts have been based on the normal value in China, which is set in CNY, while the NIFOB prices have been based on Haydn's NIP, which is in NZD. A full discussion of both reference price methods is set out below.

369. 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.

370. 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

371. For the purposes of dumping investigations and reviews and the imposition of anti-dumping duties, China 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.

372. 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…"⁴ 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 Chinese exporters.

373. 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

374. Anti-dumping duties have been in place on hog bristle paintbrushes from China since 1987, as the result of successive reviews determining that dumping and injury would recommence if the anti-dumping duties were removed. The Ministry has assessed and collected anti-dumping duties on the basis of three categories of paintbrush that are distinguished by different cubic volumes of bristle contained in a brush. The volumes of bristle increase from the industrial category, to the handyman category, to the tradesman category.

375. The volume of bristle for the different brush sizes in the three categories is shown in the following table.

376. In the 2003 review, the Ministry calculated NV(VFDE) amounts and NIFOB prices for each size and category of hog bristle paintbrush. These two types of reference prices were compared and the lesser of the two adopted, in accordance with the lesser duty rule. The reference prices apply on a country wide basis, meaning that there are no exporter specific reference prices and they apply to all Chinese exporters.

377. As noted in paragraph 368, NV(VFDE) amounts are set in CNY and NIFOB prices are set in NZD. Most of the duties are set as NV(VFDE) amounts, but where a reference price was set as a NIFOB price, there was also an alternative duty rate set in the form of a NV(VFDE) amount, which was to ensure that the amount of anti-dumping duty does not exceed the margin of dumping.

378. The Ministry also established separate rates of anti-dumping duty for paintbrush heads based on the average production costs of the New Zealand industry in the 2003 review. From the information supplied by the domestic industry in that review, the Ministry applied 71 percent of the full reference price of a paintbrush, to be the reference price of a paintbrush head.

379. The reference prices which currently apply to Chinese hog bristle paintbrushes and paintbrush heads are set out in the following tables.

380. The "alternative duty" in the tables above is applied when it is lower than the NZD NIFOB price (when converted by the relevant exchange rate). Hog bristle paintbrushes of sizes which are not specified in the tables above are assigned the reference price of the nearest brush size allocated a reference price.

8.4 Reassessed Amount of Anti-Dumping Duty

Specific Duty

381. 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. There are a range of sizes and quality of goods imported and potentially many suppliers with different cost structures and dumping margins. There is also no information available to show that prices are stable, and exchange rates are not stable at the present time. This method of imposing anti-dumping duty is therefore not considered to be appropriate in this instance.

Ad Valorem Duty

382. An alternative method of setting anti-dumping duties is to apply an ad valorem duty to all Chinese 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 would be used as the ad valorem duty rate. Lower priced goods would attract a lower amount of duty and higher priced goods attract a higher amount of duty, which would not necessarily address the amount of injury caused in the relevant paintbrush category.

383. As discussed in section 4.7, the information estimating export prices and normal values sourced in the present review relates to only one brand of DIY hog bristle paintbrushes, which are categorised in the industrial brushes group for duty collection purposes. As noted in paragraph 86, the assessment of the likelihood of a continuation or recurrence of dumping should duties be removed, was unable to be based on a comparison of transaction-to-transaction prices as is this Ministry's normal approach. An assessment of whether there was likely to be dumping was made from the information that was available, that is, from a Chinese bristle merchant's estimate of domestic and export selling prices for one brand and type of paintbrush. These prices were not supported with any evidence so were unable to be verified. Even though there was no information on the actual prices and costs (see inter alia paragraphs 97, 102, 105 and 109) and therefore the actual level of dumping, the information was considered to be sufficient to indicate that there would likely be a continuation of dumping should the duties be removed. The information used in the dumping section of the report is therefore a conservative estimate of the likely dumping margins if the duties are removed, given that these estimated prices on the Chinese domestic market are well below prices estimated by up-dating the normal values established in the last review by an index (see paragraph 400 to 404 below).

384. The Ministry considers that because of the lack of supporting information and the availability of other verified information from past cases, using an ad valorem rate of duty is not appropriate in this instance.

Reference Prices

385. The Ministry's normal practice regarding reference prices is to calculate both NIFOB and NV(VFDE) amounts and in accordance with the lesser duty rule, apply the lower of the two reference prices. The following section discusses this approach to setting reference prices.

Calculation of Non-Injurious Prices (NIPs)

386. A NIP is an unsuppressed selling price at which a domestic producer can sell its products in its domestic market and is the basis on which a NIFOB reference price is calculated. An unsuppressed selling price is one that is achievable in the absence of competition from dumped product in the New Zealand market.

387. The Ministry has found evidence of some injury to the industry over the POR(I), but this injury is not likely to be attributable to imports of hog bristle paintbrushes from China (given there is an anti-dumping duty currently in place). In this situation, and taking account of the information available, the review team considers the industry's NIPs to be the net selling prices achieved by the industry over the POD(R). The relevant level of trade for the industry is the ex-factory level (see paragraph 165).

388. PAL provided its gross selling prices for its domestically produced hog bristle and synthetic paint brushes, but the Ministry does not have sufficient information to calculate ex-factory prices (as discussed in paragraph 175). The Ministry has therefore based the industry's NIPs on Haydn's ex-factory selling prices.

389. To calculate Haydn's average ex-factory selling price, a deduction was made for the [Text deleted due to confidentiality]. The Ministry has calculated Haydn's average ex-factory selling prices of the like goods (hog bristle paintbrushes and synthetic paintbrushes) for the year ended 30 June 2008. As discussed in section 3.1, domestically produced synthetic paintbrushes are considered to be like goods to the subject goods.

390. The Ministry considers that synthetic paintbrushes produced by Haydn are at the top of the range, and should therefore be classified within the tradesman category of paintbrushes. The Ministry has calculated a weighted average selling price for the hog bristle Trade and Elite brushes, and the synthetic paintbrushes to establish a NIP for the tradesman category. The NIPs for the industrial and handyman categories are the average net selling prices achieved by Haydn over the year ended 30 June 2008 for its DIY and Handyman brushes respectively.

391. The following table shows Haydn's NIPs calculated using the method described above.

Calculation of NIFOB Reference Prices

392. The purpose of a NIFOB price is to ensure that the price of imported product, when considered at the FOB level, is such that when the paintbrushes are sold at the relevant level of trade in the New Zealand domestic market, the sale price is not lower than the NIP. As stated in paragraph 165, the first point of competition and relevant level of trade is at the importer's ex-store level. NIFOB prices are calculated by taking the industry's NIP at the ex-factory level and deducting costs and margins that would be incurred by importers between the FOB level and the importer's ex-store level.

393. The costs between FOB and importer's ex-store price include ocean freight, insurance, customs duty, local costs and importer's margin and were calculated on the basis set out in the price undercutting section of the report starting at paragraph 169.

394. The following table shows the NIFOB prices for the three categories of paintbrushes.

NV(VFDE) Reference Prices

395. NV(VFDE) amounts are calculated by adding to the Chinese normal value, all costs incurred by the exporter up to the FOB level. The NV(VFDE) amounts therefore represents an un-dumped price at the FOB level.

396. As discussed in the dumping section of this report (section 4.5) the Ministry received limited normal value information in this review which relates only to [Text deleted due to confidentiality] hog bristle paintbrushes, which are included within the industrial category of paintbrushes for duty collection purposes. This normal value information has not been supported with any evidence.

397. As stated in paragraph 383, the Ministry considers that the normal value information sourced in this review is a conservative estimate of the current selling prices of hog bristle paintbrushes within the industrial category in China. The Ministry considers the normal value information provides enough information to conclude that there is likely to be dumping if the anti-dumping duties are removed. However, the Ministry considers that the normal value information obtained in this review may not be most appropriate information to be used when setting anti-dumping duties. The information obtained relates to a bristle merchants estimate of the price of a model of industrial brush and what it would sell for on the Chinese domestic market, but the estimate has not been accompanied with any supporting evidence and has not been verified. Costs from ex-factory to the FOB level have not been based on actual transactions but taken from the 2003 Review. There is also a question mark about the veracity of the information, as in the 2003 Review Report an estimate of prices provided for the Chinese domestic market when compared with normal values updated from the Chinese retail index, supported the level of prices provided for the Chinese market. Here the price levels provided are substantially lower when compared with updated normal values. This could be due to the limitations of the data which did not cover the range of brushes being imported, being information for only one type of brush from the lowest price category, and an absence of cost information.

398. The Ministry considers that because there is insufficient data available, information which was used in previous reviews is the best available information for the purposes of setting anti-dumping duties because the information has previously been verified by the Ministry and it also relates to all three categories of hog bristle paintbrushes.

399. For the reasons stated above, the Ministry has updated normal value and other relevant cost and margin information from the 2003 review with a relevant Chinese price index to establish NV(VFDE) amounts in this review.

Updated 2003 NV(VFDE) using an Index

400. In the 2003 review, in order to establish up to date normal values, the Ministry updated normal value information obtained in 1991 by the Chinese retail index due to a lack of information provided by Chinese exporters. The Ministry then added xxxx percent to the updated normal values to account for all costs and margins between ex-factory and FOB to establish the NV(VFDE) amounts.

401. For this review, the Ministry has only been able to obtain Chinese retail index information up to 2006. The Ministry considers that this information is not recent enough for the purpose of updating the 2003 reference prices and a more up to date Chinese price index is appropriate.

402. The Ministry has obtained statistical information concerning the Chinese Producer Price Index (PPI) up to June 2008. This statistical information is contained in the October 2008 edition of "International Monetary Fund: International Financial Statistics" which states that 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. The total percentage increase in the NV(VFDE) amount over the period 2003 to 2008 calculated on this basis is 30 percent.

403. In order to establish updated NV(VFDE) amounts, the Ministry has updated the normal values and costs established in 2003 by the Chinese PPI up to 2008. As the 2008 PPI information is limited to the first two quarters, the Ministry has used the average percentage increase in the first two quarters of 2008 (compared to the same two quarters in 2007) as the percentage increase for the 2008 year.

404. The following table shows the NV(VFDE) amounts calculated using the method described above.

Comparison of NIFOB and NV(VFDE) Amounts

405. To establish whether a lesser duty should apply, NIFOB and NV(VFDE) amounts have been calculated to check whether the NIFOB prices have exceeded the margin of dumping. If a NIFOB price is less than the NV(VFDE) amount, then the NIFOB price (which is a form of lesser duty) will apply. If the NIFOB price is greater than the NV(VFDE) amount then the NV(VFDE) amount will apply, i.e. duty will be imposed at the full margin of dumping.

406. The Ministry has converted the NIFOB prices, which are normally set in NZD into CNY to compare the NIFOB prices and NV(VFDE) amounts in the same currency to identify the lower of the two. The Ministry has used the average exchange rate for the year ended 30 June 2008, which is Haydn's 2008 financial year from which financial information was used to calculate the NIPs as discussed in paragraph 387 .

407. The following table shows the comparison of reference prices.

408. The NV(VFDE) amounts are significantly lower than the corresponding NIFOB prices, ranging from xxxx percent to xxxx percent. Therefore the Ministry proposes that the reference prices are all set as NV(VFDE) amounts.

Effect of Exchange Rates on Anti-Dumping Duties

409. The Ministry considers that where an anti-dumping duty is imposed as a NV(VFDE) reference amount, it is appropriate that the duty should be established in CNY. The reason for this is that the NV(VFDE) amounts are established using a normal value, which is the price of a like good in the domestic market of the exporting country, would normally be in the local currency. Due to exchange rate fluctuations, there is a risk of collection of anti-dumping duty which is above or below the margin of dumping if NV(VFDE) amounts are set in a currency other than the country of origin. For instance, if NV(VFDE) amounts are set in NZD, any appreciation of the NZD against the CNY would result in anti-dumping duty being paid in excess of the margin of dumping, and the opposite would occur if the exchange rate depreciated. Fluctuations in exchange rates which may affect the amount of anti-dumping duty payable in relation to the margin of dumping are avoided by setting NV(VFDE) amounts in CNY.

410. The Ministry recognises the problem of exchange rate movements concerning the lesser duty rule where reference prices have been established. In the comparison of NIFOB prices with NV(VFDE) amounts exchange rate movements can result in NIFOB prices identified as being the lesser duty, later becoming higher than the corresponding NV(VFDE) amounts, which would be contrary to the requirement that anti-dumping duties do not exceed the margin of dumping. Exchange rate movements relating to NIFOB prices are not an issue for the proposed reference prices as there are no NIFOB prices which are lower than the NV(VFDE) amounts.

Proposed Anti-Dumping Duties

411. The Ministry considers that anti-dumping duties should be imposed in the form of reference prices as set out in the table below. All of the proposed reference prices are in the form of NV(VFDE) amounts, and have therefore been set in CNY for the reasons discussed in paragraph 368 and paragraph 409.

412. As stated in paragraph 378, in the 2003 review the Ministry used 71 percent of the reference price established for a complete paintbrush to calculate reference prices for imports of paintbrush heads. The Ministry considers that this approach is still reasonable and therefore the same percentage has been applied in this review to establish reference prices for paintbrush heads.

8.5 Opportunity for Comment

413. Interested parties have until 12 February 2009 to make submissions on this Interim Reassessment Report. All submissions must be accompanied by a non-confidential version.

414. 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.