REPORT OF FINDINGS
ON THE ANTI-DUMPING PROTEST AGAINST
THE IMPORTATION OF COLD ROLLED COILS/SHEETS FROM TAIWAN
(HS Hdg. Nos. 7209.15 00, 7209.16 00, 7209.17 00, 7209.18 90, 7209.25 00, 7209.26 00,
7209.27 00 and 7209.90 00) UNDER SECTION 301 OF THE TARIFF AND CUSTOMS CODE, AS AMENDED
(Anti-Dumping Investigation No. 00-02)

(Public Version)


24 April 2001

EXECUTIVE SUMMARY AND CONCLUSIONS

1. SUMMARY

On 28 June 1999, National Steel Corporation filed an anti-dumping protest against the importation of Cold Rolled Coils/Sheets from Taiwan. The law prevailing then was R.A. 7843, otherwise known as the "Anti-Dumping Act of 1994". The preliminary determination of this case was suspended on 17 January 2000 due to the pendency at the Tariff Commission (TC) of an earlier case against the same product originating from the said country of export. An affirmative determination by the Tariff Commission of the first case will necessarily embrace the period covered by the second case.

On 18 May 2000, pursuant to Tariff Commission’s decision contained in the report of findings, the Secretary of the Department of Trade and Industry (DTI) issued an order dismissing the first anti-dumping case against Taiwan for lack of merit.

Thus, on 02 July 2000, the Secretary of DTI formally resumed the anti-dumping investigation under the prevailing law RA 8752 otherwise known as the "Anti-Dumping Act of 1999".

The government of Taiwan was officially notified by the Department of Trade and Industry - Bureau of Import Services (DTI-BIS) of the anti-dumping investigation. Likewise, the protestant, exporters, foreign producers, importers and other interested parties were notified of the initiation. Notices to initiate said anti-dumping investigation were published in the Manila Standard and the Philippine Star on 07 July 2000.

On 12 December 2000, the DTI-BIS issued the results of its preliminary determination:

* CRCs from Taiwan were dumped into the Philippines at a margin ranging from US$ 21.62 – US$ 74.37/MT or 6.63% to 26.98% of the export price. Said margins were above the 2% de minimis requirement.

* Volume of dumped imports was 9.30% of total Philippine imports of the like product. Said volume satisfied the 3% de minimis volume requirement.

* Dumping of Taiwan CRC materially injured the local industry.

The DTI-BIS preliminary investigation indicated an affirmative finding of the necessary elements of dumping which merited the imposition of the corresponding surety bond for the identified exporters from Taiwan, of cold rolled coils/sheets, having a width of 600 mm or more, as exported to the Philippines within the period of March 1998 to May 1999. Implementation of the imposition of dumping bond was however suspended in the light of NSC’s production shutdown.

Pursuant to Section 301 of the Tariff and Customs Code of the Philippines (TCCP), as amended, the DTI-BIS on 12 December 2000 endorsed the protest, together with its findings, to the Tariff Commission (Commission) for formal investigation. The same was received by the Commission on 13 December 2000.

Preliminary Conference was held on 27 December 2000 for the purpose of exploring the possibility of amicable settlement/price undertaking and to apprise the parties on the schedule(s) and procedure of the public consultation, and other related matters necessary for the speedy disposition of the case.

The parties in attendance were the protestant NSC, importers/protestees Sonic Steel, Bacnotan Steel Corporation, Philsteel, Puyat Steel Corporation and observers from Wichimen Corporation, Multi-Metals Corporation and gentlemen from Taipei Economic and Cultural Office in the Philippines.

The Commission encouraged the importers-protestees to consolidate their respective position papers/initial memoranda for submission to the Commission.

2. PERIOD OF INVESTIGATION

For dumping determination, the Commission followed the POI adopted by the DTI-BIS covering the arrival of allegedly dumped imports of CRC from Taiwan during the 15-month period from 01 March 1998 to May 31, 1999. With respect to injury, the period covered were the years 1996 to 1998 and from the months of 01 January to 31 May 1999.

3. CONCLUSIONS

3.1 On the Determination of Like Product

The DTI-BIS, in its preliminary findings, included all shipments of CRCs in coil form from Taiwan falling under HS Heading No 72.09 (HS Heading No.72.09 covers all cold-rolled non-alloy steel coils and sheets, of widths of 600 mm or more, regardless of thickness, carbon content and mechanical properties). In its formal investigation, the Commission limited the coverage to JIS G 3141 Class 1-SPCC (for general application) which is the equivalent specification of the domestically produced CRCs conforming to PNS 127 Class 1.

Having examined the product under consideration and the locally manufactured product, the Commission is satisfied that the domestically produced CRC, of widths of 915 and 1220 mm and nominal thickness of 0.2 mm up to 1.6 mm, not clad, plated or coated, whether annealed or unannealed, and conforming to PNS 127 (Class 1) constitutes a "like product" to the product under consideration, i.e., cold-rolled low carbon (0.12% max.) steel coils and sheets conforming to JIS G 3141- SPCC, of widths of up to 1220 mm, thickness of up to 1.35 mm and classified under HS subheading Nos. 7209.15 00, 7209.16 00, 7209.17 00, 7209.18 90, 7209.25 00, 7209.26 00, 7209.27 00 and 7209.90 00.

3.2 On Domestic Industry Support

NSC was the largest manufacturer of CRC in the Philippines, accounting 55.53% or 357,500 MT of the total domestic capacity in 1996. As such, the protestant satisfied the requirement of domestic industry support.

3.3 On Price Difference

3.3.1 Export Price

Estimates of export price were based on the import entries submitted by the protestant, on file with the Commission and verified commercial invoices of the exporters.

Export prices were adjusted to the ex-factory level, (i.e., net of sea freight, inland freight, harbor construction cost, commission, customs brokerage fees and other related fees, trade promotion cost, etc.)

With respect to the other exporters/traders who did not cooperate via submission of answers to the questionnaire, the best information available (BIA) rule was applied to them. In the case of Hua Ming Steel (identified trader of Sheng Yu), Hillman Limited and Mitsubishi Motor, (identified traders of Yieh Phui), their export prices were adjusted using their respective exporter’s/ manufacturer’s adjustment factors.

3.3.2 Normal Value

Normal value adopted for the three (3) Taiwanese exporters/manufacturers namely; Ton Yi, Sheng Yu and Yieh Phui is the constructed normal value (i.e., cost of production plus selling and administrative expenses plus margin of profit). Respective domestic selling prices for Ton Yi and Yieh Phui were not adopted because domestic sales for specific sizes (thickness x width) during the POI were less than 5% of its export sales to the Philippines. On the other hand, for Sheng Yu, domestic sales transactions of Sheng Yu presented as evidence of domestic selling prices were not adopted since these were mostly special transaction sales, bearing very low prices which were not usually bestowed to all domestic customers.

For Hua Ming Steel (identified trader of Sheng Yu), Hillman Limited and Mitsubishi Motors (identified traders of Yieh Phui), normal values adopted were the constructed normal values of their respective exporter/manufacturer. For other exporters/traders ( i.e., Kao Hsing, Ornatube, Yieh Loong, DIH-Chun, Hsien-Juie, and Po-Chun), the best information available was used i.e., constructed normal value of Sheng Yu, being the highest constructed normal value.

Yieh Loong’s normal value was not adopted because it was submitted during the public hearing, which was beyond the required thirty (30) days to respond to questionnaires. Thus, BIA was resorted to.

3.3.3 Adjusted Normal Values

Modification on the estimated dumping margins was made as a result of the change in the constructed normal value of Sheng Yu (deducting delivery, selling expenses and commission having found to be part of export costs) and the inclusion of six (6) shipments (6,758.37MT) of Hua Ming Steel which were not included in the first estimation as contained in the staff report.

3.3.4 Dumping Margin

Except for Sheng Yu and Yieh Phui, whose estimated dumping margin was de minimis at 1.19% and 1.66%,respectively, and Ton Yi and Hillman Limited with a negative dumping margin at -0.17% and -3.34%, the computed dumping margins of the rest of the identified exporters were all above de minimis (2%), ranging from 3.84% to 45.59% of the export price.

3.4 On Negligible Volume of Dumped Imports

Dumped imports accounted for 11.10% of the total Philippine imports. The volume of dumped imports being above 3% is not negligible and therefore, for purposes of Article 5.8 of the WTO Agreement on Anti-Dumping Practices, there was no cause for termination of the investigation against Taiwan.

Note that volume of dumped imports increased on account of inclusion of Hua Ming Steel’s six (6) shipments aggregating to 6,758.37 MT found to be all at dumped prices.

3.5 On the Determination of Material Injury and Causal Linkage

3.5.1 Volume of Dumped Imports

Total Philippine imports of CRC from Taiwan during the POI aggregated to 284,689 MT. Dumped imports (31,600 MT) constituted 11.10% of the total Philippine CRC imports.

Dumping was significant in the 1st, 2nd and 3rd quarter of 1988 and in the 1st quarter of 1999, aggregating to 4,876MT, 6,493MT, 10,424MT and 4,837MT, respectively. Relative shares were estimated at 15.43%, 20.55%, 32.99% and 15.31%, in that order, of the total dumped imports.

The volume of dumped imports, being above 3%, was not negligible. Therefore for purposes of Article 5.8 of the WTO Agreement on Anti-Dumping Practices, there was no cause for termination of the dumping investigation against Taiwan.

3.5.2 Price Effects

Price Undercutting

The incidence or extent of price undercutting was estimated using the monthly landed cost of dumped CRC from Taiwan against the monthly domestic selling price of local CRC. Undercutting was evident during the whole POI (March 1998-May 1999) as NSC’s CRC was sold at prices higher vis-à-vis the imported counterpart ranging from 1.83% (4th quarter 1998) to 26.36% (1st quarter 1998).

Price Depression

The incidence of price depression was evident in the 2nd and 4th quarter of 1998. NSC’s CRC cost of production during this period remained constant but despite this NSC’s selling prices declined by 6.30% and 8.25%, respectively. This resulted to a decline in EBIT by 91.22% in the 2nd quarter of 1998 and incurring a deficit amounting to P1,408/MT in the 4th quarter of the same year.

It was in the 4th quarter of 1998 when NSC adopted pricing strategy of selling below cost to defend market share.

Price Suppression

There was no evidence of price suppression during the POI.

3.5.3 Market Share

NSC’s market share was consistently on a downtrend from 1996 to 1999, while share of other imports (imports from other countries plus undumped imports from Taiwan) posted an erratic trend, i.e., 43.97%, 49.51%,46.49% and 50.26%, during the same period.

Dumped imports from Taiwan managed to capture a 6.43% share in the market in 1998. This caused a reduction in both domestic industry’s and other imports’ share by 3.41% and 3.02%, respectively. However, in the first five (5) months of 1999, other imports dominated the market, increasing its share from 46.49% in 1998 (March-December) to 50.26%. In contrast NSC’s share decreased from 47.08% to 45.08%. Dumped imports held its share at 4.66%.

The decline in NSC’s share is attributed to declining production, competition from dumped and undumped imports and market contraction.

3.5.4 Production, Sales and Inventory

Production contracted from 1996 to 1998. This dropped further to 86,000 MT in the first five (5) months of 1999. It was in the 4th quarter of 1998 and 1st quarter of 1999 when production declined by 34.29% and 18.84%, respectively. In the 2nd quarter of 1999 (April-May) production volume aggregated to 30,000 MT. The reduction in production led to a corresponding decline in inventory levels from 57,000 MT in 1997 to 38,000 MT in 1998 and to only 18,000 MT in the first five (5) months of 1999.

On the other hand, volume of sales dropped consistently from 1997 up to the POI. Sales contracted by 10.17% and 7.55% in the 4th quarter of 1998 and 1st quarter of 1999, respectively. It was in the 2nd quarter of 1999 (April-May) when sales volume reached only 38,000 MT.

Reduction in production, sales and inventory is attributed to lack of funds (as discussed in Sec.3.3.7), the presence of dumped imports, as well as competition from other imports.

3.5.5 Capacity Utilization

NSC's cold mill had an annual rated capacity of 700,000 MT. Actual utilization steadily declined from 69.57% in 1996 to 58.29% in 1997, to 37% in 1998 and to 12.29% in the first five months of 1999.

The persistent decline in NSC’s actual utilization was due mainly to reduced sales brought about by contraction in the market and shortage of working capital to finance raw material procurement.

3.5.6 Cost of Production

The average cost of producing a metric ton of CRC in 1998 was 45.78% higher than the 1997 level. The rise in cost was attributable to the 48.48% and 37.41% increase in direct materials (slabs) and conversion costs, respectively.

The peso depreciation, which started in the 3rd quarter of 1997, effected an increase in the peso cost of imported materials. This, together with limited working capital resulted in low production levels, ultimately, translating into high cost of production on a per unit basis.

3.5.7 Profitability

In 1997, NSC realized a P562M operating income. Net profit came to P458M after deducting interest and other charges.

In 1998 and January-May 1999, however, the company incurred gross losses amounting to P474M and P248M, respectively. It was during this period that the company sold below cost to defend its market position. With operating expenses increasing relative to sales and sizeable interest and other charges, net losses aggregated to P1,350M in 1998 and P654M in January-May 1999.

3.5.8 Return on Sales

Operating income earned in 1997 led to a favorable 12.89% return on sales. On the other hand, operating losses incurred in 1998 and the first five months of 1999 resulted in negative returns of 15.73% and 20.36%, respectively.

3.5.9 Cash Flow

NSC’s difficulty to generate cash flow stems from the following: (1) Additional loans and investments were hardly forthcoming because the company was already highly leveraged (2) Shortage of fresh funds, in addition to increasing peso cost of raw materials and conversion cost resulted in lower production (3) Low production and competition from imports in a contracting market led to declining sales revenues. (4) Declining sales revenues contributed to difficulties in generating working capital.

NSC’s working capital shortage was supported by claims of NSC’s customers who were required prepayment for CRC orders (validated from the customer’s sales contract) particularly on the 1st quarter of 1999 until the time of its temporary closure on 07 November 1999. As a strategy to alleviate its shortage of working capital, to enable it to purchase slabs, letters of credit were opened by NSC customers (i.e., Chuayuco) as a form of advance payment for their CRC purchases. In fact, Table I of NSC’s position paper dated 12 January 2001 stated that the 5,000 MT export sales deducted from the total sales as payment for NSC’s slab purchases was an implied admission that NSC sought financial assistance in its raw material (slab) procurement.

3.5.10 Investment and Ability to Raise Capital

NSC’s inability to generate investment and raise capital was traced to the company’s internal problems which included enormous debt and high interest cost.

In July 1998, NSC entered into a debt restructuring agreement with its creditor banks. Despite this, the company failed to service its loans because of poor cash flow.

NSC’s heavy debt servicing depleted its financial resources, resulting in difficulty in sustaining operations and eventually to the shutdown in November 1999.

3.5.11 Employment and Wages

Labor complement expanded by less than 1%, from 513 in 1997 to 517 in 1998. This contracted to 510 in the first five (5) months of 1999, or a 1.35% drop.

3.5.12 Labor and Capital Productivity

The labor and capital productivity ratio is 1:275 and 1:14,899 in 1997, respectively. This means that for every metric ton of CRC produced, P275 of labor and P14,899 of capital was utilized. In 1998, the relative share of labor and of capital to CRC manufacture rose to P385 and P18,523 per metric ton, respectively. This is indicative that CRC production is capital-intensive.

3.5.13 Factors Other Than Dumping

Competition From Normal (Undumped) Imports

Other imports continued to improve its market performance over the POI. It took part of the market supplied by NSC and dumped imports, as its share grew from 46.49% (March - December 1998) to 50.26% (January – May 1999). The share of NSC contracted from 47.08% to 45.08% in the same period, while that of dumped imports declined from 6.43% to 4.66%.

Market Contraction

The Asian financial crisis effected, among others, a slowdown in construction activities, a drastic reduction in steel consumption and depressed world steel prices. Thus, NSC had to deal with a contracting domestic market dominated by imports whose prices were falling.

High Cost to Produce

NSC’s average cost to produce CRC during the POI in 1998 and 1999 was higher compared to its 1997 level. The high cost of slabs, as a result of depreciation, contributed to the increased cost of production and put the company at a cost disadvantage.

Inefficient Production of NSC

There have been numerous complaints from customers (i.e., Bacnotan, Chuayuco and Puyat) on NSC’s quality defects, delayed deliveries, inadequacy of supplies and failure to deliver on sales contracts.

The problem of quality defects can be traced to old technology and equipment automation, which in turn led to high production cost on a per unit basis. On the other hand, delayed deliveries, shortage of supplies and failure to deliver on sales contracts can be attributed to lack of funds for slabs purchases.

Poor Financial Performance

NSC's poor financial performance can be traced to internal factors, primarily, import dependence on materials and significant level of foreign debt. The company was susceptible to changes in the world market prices of slabs resulting in high production cost and relative uncompetitiveness vis-à-vis imported CRCs. This affected sales revenues and internal generation of funds (generation of funds from operations). Moreover, the inability to generate sufficient funds internally puts NSC in a vulnerable position with regard to debt servicing.

The financial crisis exacerbated the financial position of the company. Operations were affected because the currency depreciation raised the peso cost of importing slabs, and consequently weakened further the ability to generate funds internally. This impacted negatively on debt servicing which rose, likewise because of the depreciation.

The crisis underscored a vicious cycle of problems. The company, having difficulty raising funds internally, had to depend on additional loans and investments to support operations. But these were hardly forthcoming because the company was already highly leveraged. Thus, funds to support operations and service debt dwindled, resulting in intermittent production, to contracting sales revenues and to further weakening of internal funds generation.

Apart from these, the crisis brought with it a contraction in the world demand for steel products, and a similar contraction in local steel demand. What little production NSC could sell in the market faced stiff competition from countries with excess capacities, exporting CRCs to the Philippines at much lower prices. NSC tried to defend its market share by selling below cost, but all this achieved was to generate larger operating losses.

Thus, it is hardly surprising that the debt restructuring effort undertaken in 1998 did little to improve the financial position of NSC, and that the company finally shutdown its operations in November 1999.

Foreign Currency Losses

As of 31 December 1997, the company had total foreign currency losses of about P1.3 billion, which climbed to P1.7 billion and P1.8 billion in 1998 and 1999, respectively. The high cost of money for the servicing of NSC's dollar-denominated loans as a result of the peso depreciation had major adverse impact on the company's financial position.

4. CAUSAL LINKAGE

NSC suffered injury as evidenced by declining market share arising from low levels of production and sales, and resulting in poor financial performance. The problem basically stemmed from high manufacturing cost due to inefficient production technology and vulnerability to fluctuations in the cost of imported slabs. This created a host of problems, primarily, a limited capability to generate funds internally. NSC, during the POI, was already highly leveraged and depended largely on internal funds generation to service its debt and to support operations.

The financial crisis exacerbated the company's financial condition. The crisis brought more intensive competition in the local market because of the global steel market contraction. Countries with excess capacities were exporting CRCs to the Philippines at low prices. Thus, NSC was experiencing contracting market share because of the pressure brought about by the crisis, on one hand, and the pressure of limited funds to support operations, on the other.

The market contraction not only affected NSC's share but that of dumped imports as well. During the POI, we see evidence that NSC was losing market share to other imports rather than to dumped imports.

The currency depreciation that accompanied the crisis put further pressure on the company. The peso cost of raw materials increased, but more significantly, the peso cost of debt servicing surged.

The magnitude of injury suffered by the company cannot be attributed to dumping from Taiwan. NSC's inability to support operations because of its limited ability to generate funds internally compromised the viability of the company. It severely lacked funds to bring operations to a profitable level, and to service its mounting debt. Thus, it is hardly surprising that the debt restructuring effort undertaken in 1998 did little to improve the financial position of NSC and that the company finally shutdown its operations in November 1999.

5. APPLICATION OF PROCEDURAL MATTERS UNDER R.A. 8752 (ANTI-DUMPING ACT OF 1999)

Procedural provisions of RA 8752 are applicable to the instant anti-dumping case. In Republic vs. Court of Appeals, G.R. No. 92326, January 24, 1992, the Court held:

"Procedural matters are governed by the law in force when they arise, and procedural statutes are generally retroactive in that they apply to pending proceedings and are not confined to those begun after their enactment although, with respect to such pending proceedings, they affect only procedural steps taken after their enactment." (205 SCRA 356).

6. DECISION

In view of the foregoing, the element of material injury resulting from dumped imports from Taiwan not having been established, it is ordered that the anti-dumping case against Taiwan be dismissed for lack of merit.

INTRODUCTION

1. The Anti-Dumping Protest

On 28 June 1999, National Steel Corporation filed an anti-dumping protest against the importation of Cold Rolled Coils/Sheets from Taiwan, the law then prevailing was R.A. 7843 otherwise known as the "Anti-Dumping Act of 1994". The preliminary determination of this case was suspended on 17 January 2000 due to the pendency at the Tariff Commission (TC) of an earlier case against the same product originating from the said country of export. The preliminary determination was suspended because a positive determination by the Tariff Commission of the first case will necessarily embrace the period covered by the second case.

On 18 May 2000, pursuant to TC’s report of findings, the Secretary of the Department of Trade and Industry (DTI) issued an order dismissing the first anti-dumping case against Taiwan for lack of merit.

Thus, on 02 July 2000, the Secretary of DTI formally resumed the anti-dumping investigation under the prevailing law RA 8752 otherwise known as the "Anti-Dumping Act of 1999".

The government of Taiwan was officially notified by the Department of Trade and Industry - Bureau of Import Services (DTI-BIS) of the anti-dumping investigation. Likewise, the protestant, exporters, foreign producers, importers and other interested parties were notified of the initiation. Notices to initiate said anti-dumping investigation were also published in the Manila Standard and the Philippine Star on 07 July 2000.

On 12 December 2000, the DTI-BIS issued the results of its preliminary determination:
  • CRCs from Taiwan were dumped into the Philippines at a margin ranging from US$ 21.62 – US$ 74.37/MT or 6.63% to 26.98% of the export price. Said margins were above the 2% de minimis requirement.
  • Volume of dumped imports was 9.30% of total Philippine imports of the like product. Said volume satisfied the 3% de minimis volume requirement.
  • Dumping of Taiwan CRC materially injured the local industry.
  • NSC claims than it can produce CRC under specifications of Japanese International Standard (JIS) 3141 SPCC sub-classified into annealed or full hard, JIS G 3141 SPCD which is of drawing quality, American Standard (ASTM) A 366, and CRC tailor-made to customer’s specifications.
  • Dumping of CRC has caused material injury to the domestic industry as evidenced by the following:
    • significant increase of imported CRC from Taiwan in absolute terms in the first five months of 1999 as compared to the total imports from the same country for the whole year of 1998. Share of imports from Taiwan in terms of total imports increased from 6.67% in 1996 to 13.46% in 1998, while the first five months of 1999 registered an increase of 22.48% of total Philippine imports from January to May of 1999.
    • significant drop in market share from 55.53% in 1996 to 49.33% in 1997 and further to 47.45% in 1998. Despite the contraction in the total Philippine market demand for CRC in 1998, share of imports from Taiwan increased from 2.97% in 1996 to 7.07% in 1998, and further to 13.01% in the first five months of 1999.
    • cost of production increased by 45.78% from 1997 to 1998. The cost of production increased due to the decline in the production level.
    • decline in domestic sales from 357,500 MT in 1996 and further to 180,000 MT in 1998.
    • decline in profit by P 1.3billion, or a decline of 394.98% from the 1997 net income.
    • capacity utilization reduced from 73% in 1995 to as low as 43% in 1998.
  • CRCs and sheets imported from Taiwan are similar or identical in sizes and specifications to those locally produced, and are within the capability of NSC to produce. Sheets are identical to coils in terms of thickness and width and all other physical properties, except length. Sheets are coils that are slit to desired lengths.
The DTI-BIS preliminary investigation indicated an affirmative finding of the necessary elements of dumping which merited the imposition of the corresponding surety bond for the identified exporters from Taiwan of cold rolled coils/sheets having a width of 600 mm or more as exported to the Philippines within the period of March 1998 to May 1999. Implementation of the imposition of dumping bond was however suspended in light of NSC’s production shutdown.

Pursuant to Section 301 of the Tariff and Customs Code of the Philippines (TCCP), as amended, the DTI-BIS on 12 December 2000 endorsed the protest together with its findings to the Tariff Commission (Commission) for formal investigation. The same was received by the Commission on 13 December 2000.

2. The Investigation

2.1 Period of Investigation

For dumping determination, the Commission followed the POI adopted by the DTI-BIS covering the arrival of allegedly dumped imports of CRC from Taiwan during the 15-month period from 01 March 1998 to May 31, 1999. With respect to injury, the period covered were the years 1996 to 1998 and from the months of 01 January to 31 May 1999.

2.2 Notifications

In compliance with procedural requirements, notice of the conduct of formal investigation by the Commission was published in the Philippine Star on 22 December 2000 and The Manila Times on 23 December 2000. Individual notifications were sent on 20 December 2000 to the government of Taiwan, through its Taipei Economic and Cultural Office (TECO) in the Philippines in Makati City, the Philippine Commercial Attaché in Taipei, Taiwan, protestant – NSC, exporters-protestees and importers-protestees, and other interested parties.

Generally, the contents of the notification letters sent are: (a) formal notification of the interested parties for the commencement of the anti-dumping investigation; (b) request for financial data from importers and exporters and (c) invitation for the preliminary conference.

2.3 Preliminary Conference

Preliminary Conference was held on 27 December 2000 for the purpose of exploring the possibility of amicable settlement/price undertaking and to apprise the parties on the schedule(s) and procedure of the public consultation, and other related matters necessary for the speedy disposition of the case.

The parties in attendance were the protestant NSC, importers-protestees Sonic Steel, Bacnotan Steel Corporation, Philsteel, Puyat Steel Corporation and observers from Wichimen Corporation, Multi-Metals Corporation and gentlemen from Taipei Economic and Cultural Office in the Philippines.

The Commission encouraged the importers-protestees to consolidate their respective position papers/initial memoranda for submission to the Commission.

On 03 January 2001, the Commission issued an order covering the issues taken and agreed upon during the preliminary conference, which were then given to all the interested parties. The matters taken up were as follows:
Action Required
Time Frame
Submission of Initial Memoranda/Position Papers January 12, 2001
Ocular inspection, plant visits and verification by the Commission’s Investigating Team December 27 – 2nd week of January 2001
Issuance of Staff Report February 01, 2001
Comments of parties on the Staff Report particularly on the elements of product comparability and price difference as these matters will be excluded in the coverage of matters for discussion in the Public Consultation. The findings of the Commission will be final unless rebutted. February 06, 2001
Public Consultation will continue daily for five (5) days and will commence from 9:00 AM and may extend until 5:00 PM. The Public Consultation will focus on the aspect of material injury and causal linkage. February 12-16, 2001
Submission of Principal Memoranda February 26, 2001
Submission of comments on the Principal Memoranda March 03, 2001
Disclosure of Essential Facts March 24-26, 2001
Comments on the Essential Facts April 02, 2001
Final Report/Submission to DTI Secretary April 12, 2001

Moreover, a representative of Bacnotan Steel Corporation manifested that Bacnotan Steel Industries, Inc. be deleted as one of the proper parties to the anti-dumping investigation to be conducted by the Commission because they are involved in the production of long steel products. The Presiding Officer ordered the same to be deleted.

Finally, the protestant (National Steel Corporation) was reminded that pursuant to Section 27, last paragraph of the revised TC IRR on dumping, non-payment of the cost of the investigation in the amount of TEN THOUSAND PESOS (P10,00.00) within five (5) days from the notice of billing is an indication that the Protestant is not serious in pursuing the formal investigation and as such may cause the suspension of the formal investigation and the running of the time for the Commission to complete its formal investigation.

2.4 Submission of Initial Memoranda/Position Papers

2.4.1 National Steel Corporation (NSC)

Submission of NSC includes the following issues:

2.4.2 Filipino Galvanizers Institute, Inc. (FGI)

In compliance with the directive of the Commission, the Filipino Galvanizers Institute, Inc., composed of ten (10) local galvanizers namely: Bacnotan Steel, Chuayuco Steel, Group Steel, Jacinto Steel, Luvismin Steel, Malayan Steel, Mindanao Steel, Puyat Steel, Sonic Steel and Tower Steel, submitted their consolidated position as follows:

Issues Raised:

  • The basis of price difference computation is misleading since the data presented in the International Steel Review were used. These give a rough estimate of the domestic prices. Accordingly, the only basis of home consumption values of CRC in Taiwan should be the actual invoices issued by the mills.
  • NSC has no capability to supply CRC sheets and in coils narrower than 914 mm. Moreover, a major problem has been inconsistent quality of CRCs supplied by the company. NSC materials fail to produce quality output and are only limited to non-critical applications such as for corrugated roofing sheets.
  • Material injury incurred by NSC is not dumping related. Other factors such as high production cost, non-competitive market prices, technological obsolescence, inadequate maintenance, inefficient operations, etc., are some of the weaknesses that led NSC to shutdown in November 1999.

2.5 Plant Visits/Verification

The Commission conducted data verification at Jacinto Press Coat Corporation (JPCC) located at km 21 Quirino Highway, Novaliches, Quezon City on 05 January 2001 and ocular inspection at their plant in Sta. Rosa Marilao, Bulacan on 08 January 2001. The Commission failed to conduct verification at Jacinto Iron and Steel Corporation since the company ceased operations and the required data were not available.

On 20, 22 and 27 February 2001, the Commission conducted ocular inspection and verification at Philsteel, Bacnotan Steel Corporation and Puyat Steel Corporation and Chuayuco Steel Corporation, respectively.

THE DOMESTIC INDUSTRY AND MARKET

1. Product Under Consideration

The domestic product is CRC in coil form, of nominal thickness of 0.2 mm to 1.6 mm inclusive, in widths of 915 mm and 1220 mm and conforms to the Philippine National Standard (PNS) 127 (Specification for Cold-Rolled Steel Sheets and Strips), Class 1 (for general use application).

The domestic industry produces both unannealed (full hard (FH)) and annealed CRCs for various applications such as drums, appliances, fabrication and for the production of galvanized or prepainted sheets. The CRCs of thinner gauges are generally intended for galvanizing or pre-painting applications.

2. Market Participants

2.1 Domestic Producers

Article 4.1 of the Agreement defines domestic industry as:

"Domestic producers as a whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products…"

* National Steel Corporation (NSC)

Company Profile

NSC is an ISO 9002-certified manufacturer of CRC. Its plant facilities are located within a 450 ha. lot in Camp Overton, Suarez, Iligan City. The facilities were officially shutdown in November of 1999. The company’s head office, originally located at NSC Bldg. 377 Gen. Gil Puyat Ave., Makati City, was recently transferred to 88 Corporate Center Building, Unit 2701 corner Balero and Sedeño St. Salcedo Village, Makati City.

The company is currently under an Interim Management Committee headed by Mr. Ibrahim Bin Bidin.

Answers to Questionnaire

The protestant provided production, financial, import, export, sales, pricing and market information, as well as other information related to CRC production and material injury.

Ocular Inspection

The Commission did not inspect NSC’s plant but relied on ocular inspection reports covering previous CRC anti-dumping cases. The plant visit report for the 04 and 05 November 1999 contains the following information:

    • NSC has four (4) major operating facilities, namely: (1) a hot-mill which produces HRCs and plates from slabs; (2) a cold-mill for the production of CRC and TMBP; (3) an electrolytic tinning line to produce tinplates; and (4) a plant for the production of billets from steel scraps. Eighty per cent (80%) of the hot mill’s output is consumed by the cold mill for the production of CRC.
    • The cold-mill facilities consist of two (2) pickling lines, two (2) coil preparation lines, high current density cleaning line, alkali cleaning line, recoiler line, 1-stand temper mill, 2-stand temper mill, 4-stand tandem mill, 5-stand tandem mill, batch annealing furnace, and dehumidifier. Production capacity is 700,000 MT a year.
    • NSC produces CRC in coil form, of nominal sizes ranging from 0.2 to 1.6 mm (thickness) and 915 and 1,220 mm (width). NSC’s CRC is of commercial quality and categorized into unannealed (full hard) and annealed for roofing, appliances, drumstock, tinplates, fabrication including welded pipes.
        Other Domestic Producers


        There are two (2) other domestic producers of CRC, namely, Steel Corp. of the Philippines (Steel Corp) and Core Steel Pilipinas (Core Steel). No reply to the questionnaire was received from the two companies.


        2.2 Foreign Manufacturers/Exporters


        2.2.1 Ton Yi Industries Corp. (Ton Yi)


        The company is situated in Yung Kang City, Tainan Hsien, Taiwan. Its product lines include tin mill blackplates, cold rolled steel coils, tinplates, tin-free steel, round and rectangular cans, PP woven bags and machinery and parts. Its cold rolling mill was established in 1996.


        2.2.2 Sheng Yu Steel Co., Ltd. (SYSCO)


        Situated in Hsiao Kang, Kaohsiung, Taiwan, SYSCO is a listed company with its shares traded at the stock market in Taiwan. It is a Sino-Japanese joint venture founded on 19 May 1973. Its product lines include CRC, hot dip galvanized/galvalume steel coil and pre-painted hot dip galvanized/galvalume steel coil. Its CRCs are manufactured in accordance with the standards of JIS G3141, SPCC, in two (2) categories: full hard (FH) and commercial quality (CQ).


        Issue(s) Raised:


        In its letter dated 21 December 2000, SYSCO disputed their inclusion as exporter of CRC to the Philippines since the first anti-dumping case covering the same product was dismissed for lack of merit. Moreover, they are concerned about the continuance of the anti-dumping case bearing the fact that NSC has not been operating since November 1999. The Commission in return has responded that the second anti-dumping case is different from the first case based on the following:
        • The period of investigation for the first case is January to December 1997 while the present dumping case is March 1998 to May 1999.
        • Non-operation of NSC does not preclude the conduct of formal investigation by the Commission. The protestant was still in commercial operation during the period of investigation. NSC’s non-operation may have a bearing on the imposition of the final definitive duty in case of positive finding.
        • SYSCO is therefore included as one of the exporters covered by the anti-dumping investigation.

        2.2.3 Yieh Phui Enterprise Co., Ltd. (Yieh Phui)


        Established in April 1978, Yieh Phui (formerly Kuo Chiao Enterprise Co., Ltd.) is situated in Chaio Tou Hsiang Kaohsiung Hsien, Taiwan. It is the largest galvanized steel producer in Taiwan. Its products include unannealed CRCs, coated galvanized steel coil, hot-dip galvanized steel coils, 55% aluminum-zinc coated steel coils, pre-painted galvanized steel coils, and 55% aluminum-zinc galvanized steel coils.


        Issue(s) Raised:


        The methodology used by BIS on normal value calculation was incompatible with the provisions of RA 8752 and the WTO Antidumping Agreement. Under the agreement, special circumspection should be employed when the authorities had no other choice but to resort to BIA. They asserted that there was a misuse in the application of BIA or facts available principle. Submissions of YP should not have been disregarded even though they were not in the prescribed form, and the company should have been informed that BIA was used.


        2.2.4 Other Exporters


        Other exporters who did not cooperate and were therefore governed by the provisions of Section 6.8 of the Agreement for failure to submit responses include: Hsien-Juie International Co., Ltd., MC Steel Trade, Ornatube Enterprises Co., Ltd., Steel East, Pte., Ltd., Yieh Loong Ent. Co., Ltd., Po Chun Ent. Co. and Kao Hsing Chang Iron and Steel Corp.


        2.3 Importers


        2.3.1 Puyat Steel Corp. (Puyat Steel)


        Company Profile


        Puyat Steel, founded in 1956, is a producer of galvanized steel, pre-painted galvanized steel for roofing panels and other steel products such as air conditioning and its parts, roofing, materials for car parts, steel decking, lavatory, partition and fish tanks.


        In October 1998, the company inaugurated its galvanizing plant at Rosario, Batangas City. The plant’s annual rated capacity is 150,000 metric tons, but actual production is only 72,000 metric tons per year.


        Plant Visit


        The Commission conducted an ocular inspection of Puyat Steel plant last 27 February 2001 in Rosario, Batangas. The following information were gathered:


        • Total plant investment is P2.0 billion.
        • The plant is located on a 30-hectare lot of which 15 hectares are utilized for the plant and staff house. It is the first galvanizing plant using non-oxidizing furnace technology at par with developed countries such as Korea, Taiwan, Japan, US and Europe.
        • The plant has eight (8) roll forming machines and six (6) shearing machines. All machines and technology assistance came from Belgium and France.
        • The product lines are G.I. sheets and coils under the brand name APO. Total rated capacity is 30,000 MT per year for pre-painted iron sheets and 150,000 MT per year for galvanized iron sheets.
        • The major raw materials of galvanized iron sheets are CRC and zinc. Puyat sources its CRC from National Steel Corporation (NSC) when it was still in operation while zinc is imported from France. Currently, CRC are imported either from Korea, Taiwan or Japan.
        • The plant has its own power generator, wastewater treatment, gas supply and hydrogen supply needed in the production process.

        Issue(s) Raised:


        Imported CRC products adhere to higher quality levels compared to NSC’s CRC in terms of flatness, thickness tolerances, surface appearances, cleanliness and mechanical properties. Thus, imported CRC are preferred and are used for higher value added products such as colored and profiled long-span roofing, and other applications requiring severe bending and deformations.


        2.3.2 Jacinto Press Coat Corporation (JPCC)


        Company Profile


        JPCC was set up in February 1992. Its main function is to fabricate LPG cylinder components and to press roofing accessories, as well as to provide stamping services.


        In 1994, the company undertook a new project and developed its Drum Reconditioning Line or Steel Container Line, which supplies reconditioned drums to oil and petrochemical customers such as Petron, Shell and Caltex.


        Plant Visit
        • The plant is located at Sta. Rosa II, Marilao Bulacan.
        • JPCC currently operates on single shift, 8-hours per day.
        • The customers include Chemphil, Petron Corporation, Pilipinas Kao, Inc.
        • Its raw material in the production of drum is sourced mainly from South Korea.

        Issue(s) Raised:


        CRC products purchased from NSC have been found to have rust formation, particularly on the side portion of the coils as inspected by JPCC’s Quality Control Inspection Report dated 16 January 1999.


        2.3.2 Bacnotan Steel Corporation


        Company Profile


        Bacnotan Steel, a wholly-owned subsidiary of Bacnotan Consolidated Industries, Inc., is engaged in the production of galvanized and pre-painted GI sheets and pre-painted corrugated/ribbed sheets.


        Plant Visit


        The plant is located in Bo. Real, Calamba, Laguna.


        The plant consists of several production lines situated in different locations within Bo. Real. These are the continuous galvanizing line, which employs an alkali cleansing line, and the color coating / pre-painting line.


        Bacnotan Steel Corporation, a member of the Filipino Galvanizers Institute (FGI), has a total installed capacity of 124,000 MT/year for galvanizing and 33,000 MT/year for pre-painting.


        The major raw materials of galvanized iron sheets/coils are CRCs (soft or annealed; full hard or unannealed) and zinc ingots (prime western, high grade, special high grade, or continuous galvanizing grade).


        The company produces GI (galvanized iron) in sheets and coils, and ISO 9002 and BPS certified roofing panels and accessories under the brand name Union Duratile.


        For pre-painting applications, the company uses CRCs of thickness from 0.40 mm to 0.60 mm.


        During the POI, the bulk of CRCs used by the company were sourced from NSC.


        Issues Raised


        Product and delivery complaints were raised. Late deliveries and non-compliance with given specifications were experienced by the company specially during the months prior to NSC’s shutdown. Product defects, such as center buckling, were also cited. These bulges were noticeable in the finished product and affected its quality. Bacnotan Steel Corporation has submitted product complaints encountered within the POI. These were substantiated/acknowledged by NSC.


        2.3.3 Filipino Galvanizers Institute, Inc.


        The Filipino Galvanizers Institute, Inc. (FGI) is composed of ten (10) local galvanizers namely: Bacnotan Steel, Chuayuco Steel, Group Steel, Jacinto Steel, Luvismin Steel, Malayan Steel, Mindanao Steel, Puyat Steel, Sonic Steel and Tower Steel.


3. Industry Support

        Article 5.4 of the Agreement states that an investigation shall not be initiated unless the application has been made by or on behalf of the domestic industry:


        "The application shall be considered to have been made "by or on behalf of the domestic industry" if it is supported by those domestic producers whose collective output constitutes more than 50 per cent of the total production of the like product produced by that portion of the domestic industry expressing either support for or opposition to the application. However, no investigation shall be initiated when domestic producers expressly supporting the application account for less than 25 per cent of total production of the like product produced by the domestic industry."


        NSC was the largest manufacturer of CRC in the Philippines, accounting for 55.53% or 357,500 MT of the total domestic capacity in 1996. As such, the protestant satisfied the requirement of domestic industry support.


4. Market Shares

Table 1. NSC’s Market (In%)
Sources
1996
1997
1998
1999
January-May
% Increase/(Decrease)        
Philippine Market   (2.70%) (39.45%)  
NSC Sales   (13.57%) (41.75%)  
Taiwan   9.62% 28.00%  
Imports from all countries except Taiwan   10.96% (41.82%)  
Japan   54.63% (57.21%)  
Russia   25.44% (52.74%)  
Malaysia   (29.69%) 3.23%  
Korea   (1.45%) 57.33%  
Others   2.72% (73.13%)  
Total Imports   10.87% (37.21%)  
NSC Sales 55.53% 49.33% 47.45% 42.10%
Imports from:        
Taiwan 2.97% 3.34% 7.07% 13.01%
Japan 7.74% 12.31% 8.70% 5.68%
Russia 7.31% 9.42% 7.35% 10.63%
Malaysia 6.25% 4.51% 7.70% 4.71%
Korea 5.67% 5.74% 14.92% 11.21%
Others 14.53% 15.34% 6.81% 12.65%

        Source: NSC documents


        Table 1 gives a breakdown of the Philippine market with NSC as the major player in the local industry. Data shows that 1996 marked the highest sales volume of NSC, at 357,500 MT or 55.53% share of total Philippine market. In that year, NSC supplied more than half of the total domestic CRC requirement of industrial users (galvanizers, drum makers and fabricators. However, the year also marked the start of NSC’s declining sales, to 309,000 MT in 1997, 180,000 MT in 1998 and to 87,000 MT for the first five months of 1999. Thus, NSC’s share to total Philippine market contracted to 49.33% in 1997 and further to 42.10% from January to May 1999.


        In contrast, the share of Philippine imports from Taiwan started increasing from 2.97% in 1996, 3.34% in 1997, 7.07% in 1998 and 13.01% for the period January to May of 1999.


        The domestic requirement for CRC was augmented by imports from other countries such as Korea, Japan, Malaysia and Russia. While imports from these countries show erratic trends for 1996 to May of 1999, imports from Taiwan steadily grew. A significant increase is observed for the first five months of 1999, as imports for the period aggregated to 26,896.79 MT, exceeding the 1998 import volume of 26,820.33 MT.


FINDINGS

        1. On Like Product


        1.1 Characteristics


        1.1.1 Chemical Composition


        The product under consideration conforms to the Japanese standard, JIS G 3141 SPCC (Cold Rolled Carbon Steel Sheets and Strips) Class 1 – SPCC (for general use).


        The domestic industry, on the other hand, produces CRC conforming to PNS 127 Class 1. PNS 127 (1988) was adopted by the Bureau of Product Standards (BPS) using the Japanese standard JIS G 3141-77, the American Standard for Testing and Materials ASTM A109/M-77 (Specification for Steel Strip, Carbon, Cold-Rolled (Metric)) and the International Standard ISO 3574-76 (Specification for Cold-Reduced Carbon Steel Sheet of Commercial and Drawing Qualities). The requirements in PNS 127 are based mostly from JIS G 3141-77. Under PNS 127 Class 1, the percentage chemical composition specification is practically identical to JIS G 3141.


Table 2 - Element, (in %)
C Mn P S
0.12 max 0.50 max 0.040 max 0.045 max

Source: PNS 127 (1988)

        •Mechanical Properties


        The minimum tensile strength in both the Japanese and the Philippine standard for Class 1 annealed CRC is 275 N/mm2 (28 Kgf/mm2). Both standards further state that the tension test value does not usually apply to Class 1. In terms of hardness, the limits in either the Rockwell or Vickers scale are comparable for the same temper designation.


        1.1.2 Physical Characteristics


a. Sizes (Dimensions)

The thickness of CRC imported from Taiwan during the POI is between 0.17 mm to 1.35 mm, inclusive. The thinner gauges of CRC (up to 0.38 mm) are generally intended for galvanized and prepainted sheets, and are covered by the mandatory standard PNS 127.

The 0.18 mm and 0.38 mm gauge thickness falls within the 0.20 mm (+ 0.03 mm) and 0.40 mm (+ 0.05 mm) nominal sizes, respectively, based on tolerances given in PNS 127 and JIS G 3141.

NSC produces CRC in standard commercial widths of either 915 mm (3 feet) or 1220 mm (4 feet). These widths are based on domestic industry practice of specifying steel sheets at 3 feet or 4 feet wide. Following the findings in the anti-dumping investigation of CRC from Russia (A-D Inv. No. 98-01 ) and from Taiwan (A-D Inv. No. 98-01), CRCs with widths greater than 1220 mm which are not produced by NSC are excluded from the product coverage.


        1.2 Manufacturing Methods and Technology


        CRCs are produced by cold rolling (cold reduction) HRC into the desired thickness. The general process involves cleaning of HRC by passing through pickling tanks to remove the scale from the hot-rolling operation, rinsing with water, and drying before subjecting the material through a 4- or 5-stand cold mill to produce the CRC of desired thickness.


        Heat-treatment (annealing) is done to produce the required mechanical properties of the CRC and is accomplished by using either the continuous annealing (CA) method or batch method (BA). In the latter method, the CRC is placed, for a certain period of time, in an environment of inert gas contained in a bell-type electrically heated furnace.


        1.3 Uses


        The domestic product and the imported CRC are intended for the same applications, such as drums, appliances, fabrication and for the production of galvanized or prepainted sheets.


        1.4 Tariff Classification


        Both protested importations and the domestic like product fall under HS subheading Nos. 7209.15 00, 7209.16 00, 7209.17 00, 7209.18 90, 7209.25 00, 7209.26 00, 7209.27 00, and 7209.90 00.


        Presented in Table 3 is the historical development of the tariff rates for those products.


Table 3 - Historical Development of the Tariff Rates for CRC
P.D. 1464 E.O. 470(1) E.O. 264(2) E.O. 465(3) E.O. 276(4) E.O. 334(5)
1978 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2000 2001-2004
20 20 20 20 15 10 10 10 7 7 7 3* 3

(1)Effective 24 August 1991
(2)Effective 28 August 1995
(3)Effective 22 January 1998
(4)Effective 18 September 2000
(5)Effective 01 January 2001

        *7% when CRC producers are able to supply at least 50% of market requirement based on 1997 Philippine Iron and Steel Institute (PISI) data as certified by the Board of Investments (BOI).


2. On Dumping

        2.1 Export Price


        Export price is the price paid or the selling price to an importer in the Philippines of articles purchased at arms length transaction, excluding any post exportation charges, such as, ocean freight and overseas insurance.


        Estimates of export price were based on the import entries submitted by the protestant, on file with the Commission and the verified commercial invoices of the exporters.


        These were adjusted to the ex-factory level, (i.e., net of sea freight, inland freight, harbor construction cost, commission, customs brokerage fees and other related fees, trade promotion cost, etc.) Annex "A" presents details on adjustments.


        With respect to the other exporters/traders who did not cooperate via submission of answers to the questionnaire, the best information available (BIA) rule was applied to them. In the case of Hua Ming Steel (identified trader of Sheng Yu), Hillman Limited and Mitsubishi Motor, (identified traders of Yieh Phui), their export prices were adjusted using their respective exporter’s/ manufacturer’s adjustment factors.


        Shown is the summary of the specific exporter’s unadjusted and adjusted export prices during the POI:


Table 4- Specific Exporter’s Export Prices during the POI
Exporter(s) FOB Export Prices
(US$/MT)
Adjusted Export Prices
(US$/MT)
Ton Yi Industries Corp. 309-420 297-402
Sheng Yu Steel Co., Ltd. 347-435 336-424
Yieh Phui Enterprise Co., Ltd. 288-373 278-363
Hua Ming Steel 287-308 276-297
Kao Hsing Chang Iron & Steel 284-363 274-353
Ornatube Ent. Co., Inc. 286-372 276-360
Po-Chun Ent. Co. 306-346 269-333
Yieh Loong Ent. Co. 357-377 347-367
Hillman Limited 378-429 368-418
DIH Chun Ent. Co. Ltd. 276 261
Hsien Juie Int'l 350 338
Mitsubishi Motor Corp. 373 363
        2.2 Normal Value


        Article 2.1 of the Agreement states:


        "Normal value shall be the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country".


        2.2.1 Ton Yi – Exporter/Manufacturer


        Normal value adopted for Ton Yi is the constructed normal value (i.e., cost of production plus selling and administrative expenses plus 15% and 17% margin of profit for 1998 and 1999, respectively). The exporter’s domestic selling price was disregarded because its domestic sales for specific sizes (thickness x width) during the POI were less than 5% of its export sales to the Philippines. Estimated normal value ranged from US$300 –US$367/MT.


        2.2.2 Sheng Yu Steel – Exporter/Manufacturer


        Sheng Yu’s normal value was based on the cost of production plus selling and administrative expenses plus a reasonable amount of profit ( i.e., 5% in 1998 and 7% in 1999). Domestic sales transactions presented as evidence of domestic selling prices were mostly special transaction sales, bearing very low prices which were not usually bestowed to all domestic customers, thus, the reason for not adopting them as normal value.


        The company’s constructed normal value was modified after due consideration was given to the verified claim that some adjustment factors (i.e., delivery cost, commission and selling expenses) should have been deducted from the estimates. As a result thereof, its constructed normal value and that of other exporters (for which Sheng Yu’s constructed normal value was adopted via BIA rule because of their failure to respond to the BIS questionnaire, or late submission, in which case, the data were not verified) were lower than the figures disclosed in the staff report.


        Estimated constructed normal value ranged from US$366.05-US$379.38/MT.


        2.2.3 Yieh Phui – Exporter/Manufacturer


        For CRC with specification .35 mm - 40 mm x914, the constructed normal value was used because its CRC domestic sales were less than 5% of its CRC export sales to the Philippines. Estimated constructed normal value ranged from US$ 254-US$ 377/MT.


        2.2.4 Other Exporters


        For Hua Ming Steel (identified trader of Sheng Yu), Hillman Limited and Mitsubishi Motors (identified traders of Yieh Phui), normal values adopted were the constructed normal values of their respective exporter/manufacturer. For other exporters/traders ( i.e., Kao Hsing, Ornatube, Yieh Loong, DIH-Chun, Hsien-Juie, and Po-Chun), best information available was used, i.e., constructed normal value of Sheng Yu, being the highest constructed normal value.


        Yieh Loong’s normal value was not adopted because it was submitted during the public hearing, which was beyond the required thirty (30) days to respond to questionnaires. Thus, BIA was resorted to.


        2.3 Adjusted Normal Values


        Below is the summary of the specific exporter’s constructed normal values during the POI:


Table 5-Adjusted Normal Value (US$/MT)
Exporter(s) Constructed Normal Value
Ton Yi 300.09 - 366.87
Sheng Yu 366.05 - 379.38
Yieh Phui 254.46 - 376.62
Yieh Loong 379.38
Kao Hsing 379.38
Hillman Limited 376.62
Hua Ming Steel 379.38
Mitsubishi 376.62
Ornatube 379.38
DIH Chun 379.38
Hsien-Juie 379.38
Po-Chun 379.38
        2.4 Margins of Dumping


        Article 2.4 of the Agreement sets the terms for comparing normal value and export price:


        "A fair comparison shall be made between the export price and normal value. This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at as nearly as possible the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability..."


        In the estimation of a weighted average dumping margin, the difference between all export prices and normal values on a per transaction basis, whether negative (normal value being lower than export price) or positive (normal value being higher than export price) were included in the estimation, and were divided by the total imports (both dumped and undumped) during the POI.


        Modification on the estimated dumping margins was made as a result of the change in the constructed normal value of Sheng Yu and the inclusion of six (6) shipments (6,758.37MT) of Hua Ming Steel, which were not included in the estimates disclosed in the staff report.


        Based on the constructed normal values and adjusted export prices, the estimated price differences of various importations covered by the investigation are:


Table 6- Estimated Dumping Margin
Exporter/Trader Estimated Dumping Margin
US$/MT % of Export Price
Ton Yi (2.29) (.17)
Sheng Yu 2.83 1.19
Yieh Phui 7.24 1.66
Kao Hsing 44.72 14.61
Hillman Limited (15.19) (3.34)
Hua Ming 96.47 33.36
Mitsubishi 13.94 3.84
Ornatube 90.52 31.98
Yieh Loong 23.91 6.77
DIH Chun 118.79 45.59
Hsien-Juie 41.45 12.27
Po-Chun 64.62 20.98
        Dumping margins for Hua Ming (identified trader of Sheng Yu), Hillman Limited and Mitsubishi (identified traders of Yieh Phui), were estimated using their respective exporter/manufacturer’s constructed normal values. For other exporters/traders ( i.e., Kao Hsing, Ornatube, Yieh Loong, DIH-Chun, Hsien-Juie, and Po-Chun), dumping margins were calculated based on the best information available (BIA), i.e. normal value of Sheng Yu, being the highest constructed normal value.


        Except for Sheng Yu and Yieh Phui, whose estimated dumping margin was de minimis at 1.19% and 1.66%,respectively, and Ton Yi and Hillman Limited with a negative dumping margin at -0.17% and -3.34%, the computed dumping margins for the rest of the identified exporters were all above de minimis (2%), ranging from 3.84% to 45.59% of the export price.


3. Material Injury and Causal Linkage


        3.1 Volume Effects


        3.1.1 The Negligibility Threshold


        Article 5.8 of the Agreement provides for the immediate termination of dumping cases where volume of dumped imports is found to be negligible:


        "There shall be immediate termination in cases where the authorities determine that . . .the volume of dumped imports, actual or potential . . . is negligible . . . The volume of dumped imports shall normally be regarded as negligible if the volume of dumped imports from a particular country is found to account for less than 3 per cent of imports of like product in the importing Member, unless countries which individually account for less than 3 per cent of the imports of like product in the importing Member collectively account for more than 7 per cent of imports of like product in the importing member."


        NSO trade data and customs entries, covering March 1998 to May 1999, furnished by the protestant and on file with the Commission including verified commercial invoices of exporters, were used to determine the volume of dumped imports.


Table 7- Volume of Dumped Imports
(POI) Imports from Taiwan (In MT Imports from Other Countries (In MT) Total Phil. Imports (In MT) Share to Total Dumped Imports (%) Share of Dumped Imports to Phil. Imports (%)
Dumped
1/
Undumped Total
1998              
Q1 (March) 4,876 0 4,876 16,771 21,647 15.43  
Q2 6,493 2,802 9,295 52,745 62,040 20.55  
Q3 10,424 4,514 14,938 47,985 62,923 32.99  
Q4 1,411 0 1,411 32,410 33,821 4.47  
1999              
Q1 4,837 3,058 7,895 41,570 49,465 15.31
Q2(April-May) 3,559 0 3,559 51,234 54,793 11.26
Total 31,600 10,374 41,974 242,715 284,689 100.00 11.10

Source:
1/ 1998 (March-December) & 1999 (January-May) Import Entries, Exporters’ Invoices
2/ NSO Foreign Trade Statistics

        Total Philippine imports of CRC from Taiwan during the POI aggregated to 284,689 MT. Dumped imports (31,600MT) constituted 11.10% of the total.


        Note that volume of dumped imports increased on account of the inclusion of Hua Ming Steel’s six (6) shipments, aggregating to 6,758.37 MT, and found to be all at dumped prices.


        Dumping reached a record high in the 3rd quarter of 1998, at 10,424MT or 32.99% share of total dumped imports.


        The volume of dumped imports being above 3% is not negligible. Therefore, for purposes of Article 5.8 of the WTO Agreement on Anti-Dumping Practices, there was no cause for termination of the investigation against Taiwan.


        4.3.2 Price Effects


        Article 3.2 of the Agreement states:


        "With regard to effect of the dumped imports on prices, the investigating authorities shall consider whether there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree."


        * Price Undercutting


        Price undercutting occurs when the prices of dumped imports are significantly lower than the price of the like product.


        Price undercutting was evident during the POI (March 1998-May 1999) as NSC’s CRC was consistently sold at prices higher than the imported counterpart. Undercutting ranged from 1.83% (4th quarter 1998) to 26.36% (1st quarter 1998).


        * Price Depression


        Price depression occurs when the price of dumped import forces down the price of like product.


        The incidence of price depression was evident in the 2nd and 4th quarters of 1998. NSC’s CRC cost of production during this period remained constant. Despite this, NSC’s selling prices declined by 6.30% and 8.25%, respectively. This resulted to a decline in EBIT by 91.22% in the 2nd quarter of 1998 and a deficit in the 4th quarter of the same year.


        It was in the 4th quarter of 1998 when NSC sold below cost to defend its market share.


        * Price Suppression


        Price suppression occurs when dumped imports prevented increases in the price of like product which otherwise have occurred.


        There was no evidence of price suppression during the POI.


        4.3.3 Injury Factors


        * Market Share


Table 10- CRC Market Share
Q158.27-41.73Q137.41-62.59Q1 (March)31.2515.6253.13Q149.495.0545.46
Market Share (%)
  Domestic Industry Dumped Imports Non-Dumped & Other Countries
1996      
Q2 54.14 - 45.86
Q3 62.18 - 37.82
Q4 50.31 - 49.69
Total 56.03 - 43.97
1997      
Q2 54.43 - 45.57
Q3 55.79 - 44.21
Q4 52.00 - 48.00
Total 50.49 - 49.51
1998      
Q2 38.61 5.94 55.45
Q3 48.36 8.20 43.44
Q4 60.92 1.15 37.93
Total 47.08 6.43 46.49
1999      
Q2 (April-May) 40.42 4.26 55.32
Total 45.08 4.66 50.26
        NSC’s market share was consistently on a downtrend from 1996 to 1999, while share of other imports (imports from other countries plus undumped imports from Taiwan) posted an erratic trend, i.e., 43.97%, 49.51%,46.49% and 50.26%, during the same period.


        Dumped imports from Taiwan managed to capture a 6.43% share in the market in 1998. This caused a reduction in both domestic industry’s and other imports’ share by 3.41% and 3.02%, respectively. However, in the first five (5) months of 1999, other imports dominated the market, increasing its share from 46.49% in 1998 (March-December) to 50.26%. In contrast NSC’s share decreased from 47.08% to 45.08%. Dumped imports held its share at 4.66%.


        The decline in NSC’s share is attributed to declining production, competition from dumped and undumped imports and market contraction.


        * Production, Sales and Inventory
Table 11- CRC Domestic Production, Sales and Ending Inventory
Percentage Increase (Decrease) (%)
  Production Sales Ending Inventory
1996      
1997 (16.22) (13.69)  
1998     (33.33)
Q1      
Q2 36.11 30.00  
Q3 114.29 51.28  
Q4 (39.29) (10.17)  
1999      
Q1 (18.84) (7.55)  
Q2 (April- May)      
        Production contracted from 1996 to 1998. This dropped further 86,000 MT in the first five (5) months of 1999. It was in the 4th quarter of 1998 and 1st quarter of 1999 when production declined by 34.29% and 18.84%, respectively. In the 2nd quarter of 1999 (April-May) production volume aggregated to 30,000 MT. The reduction in production led to a corresponding decline in inventory levels from 57,000 MT in 1997 to 38,000 MT in 1998 and to only 18,000 MT in the first five (5) months of 1999.


        On the other hand, volume of sales dropped consistently from 1997 up to the POI. Sales contracted by 10.17% and 7.55% in the 4th quarter of 1998 and 1st quarter of 1999, respectively. It was in the 2nd quarter of 1999 (April-May) when sales volume reached only 38,000 MT.


        Reduction in production, sales and inventory is attributed to lack of funds (as discussed in Sec.3.3.7), the presence of dumped imports, as well as competition from other imports.


        * Capacity Utilization


        NSC's cold mill had an annual rated capacity of 700,000 MT. Actual utilization steadily declined from 69.57% in 1996 to 58.29% in 1997, to 37% in 1998 and to 12.29% in the first five months of 1999.


        The persistent decline in NSC’s actual utilization was due mainly to reduced sales brought about by contraction in the market and shortage of working capital to finance raw material procurement.


        * Cost of Production


        The average cost of producing a metric ton of CRC in 1998 was 45.78% higher than the 1997 level. The rise in cost was attributable to the 48.48% and 37.41% increase in direct materials (slabs) and conversion costs, respectively.


        The peso depreciation, which started in the 3rd quarter of 1997, effected an increase in the peso cost of imported materials. This, together with limited working capital resulted in low production levels, ultimately, translating into high cost of production on a per unit basis.


        * Profitability


        In 1997, NSC realized a P562M operating income. Net profit came to P458M after deducting interest and other charges.


        In 1998 and January-May 1999, however, the company incurred gross losses amounting to P474M and P248M, respectively. It was during this period that the company sold below cost to defend its market position. With operating expenses increasing relative to sales and sizeable interest and other charges, net losses aggregated to P1,350M in 1998 and P654M in January-May 1999.


        * Return on Sales


        Operating income earned in 1997 led to a favorable 12.89% return on sales. On the other hand, operating losses incurred in 1998 and the first five months of 1999 resulted in negative returns of 15.73% and 20.36%, respectively.


        * Cash Flow


        NSC’s difficulty to generate cash flow stems from the following: (1) Additional loans and investments were hardly forthcoming because the company was already highly leveraged (2) Shortage of fresh funds, in addition to increasing peso cost of raw materials and conversion cost resulted in lower production (3) Low production and competition from imports in a contracting market led to declining sales revenues. (4) Declining sales revenues contributed to difficulties in generating working capital.


        NSC’s working capital shortage was supported by claims of NSC’s customers who were required prepayment for CRC orders (validated from the customer’s sales contract) particularly on the 1st quarter of 1999 until the time of its temporary closure in 07 November 1999. As a strategy to alleviate its shortage of working capital, to enable it to purchase slabs, letters of credit were opened by NSC customers (i.e., Chuayuco) as a form of advance payment for their CRC purchases. In fact, Table I of NSC’s position paper dated 12 January 2001 stated that the 5,000 MT export sales deducted from the total sales as payment for NSC’s slab purchases was an implied admission that NSC sought financial assistance in its raw material (slab) procurement.


        * Investment and Ability to Raise Capital


        NSC’s inability to generate investment and raise capital was traced to the company’s internal problems which included enormous debt and high interest cost.


        In July 1998, NSC entered into a debt restructuring agreement with its creditor banks. Despite this, the company failed to service its loans because of poor cash flow.


        NSC’s heavy debt servicing depleted its financial resources, resulting in difficulty in sustaining operations and eventually to the shutdown in November 1999.


        * Employment and Wages


Table 15- Employment and Wages for CRC operation
(1996-May 1999)
Year Employment (No.) % Change
1997 513  
1998 517 0.78
1999 (As of May) 510 (1.35)
        Source: NSC


        Labor complement expanded by less than 1%, from 513 in 1997 to 517 in 1998. This contracted to 510 in the first five (5) months of 1999, or a 1.35% drop.


        * Labor and Capital Productivity


        The labor and capital productivity ratio is 1:275 and 1:14,899 in 1997, respectively. This means that for every metric ton of CRC produced, P275 of labor and P14,899 of capital was utilized. In 1998, the relative share of labor and of capital to CRC manufacture rose to P385 and P18,523 per metric ton, respectively. This is indicative that CRC production is capital-intensive.


        * Factors Other Than Dumping


Competition From Normal (Undumped) Imports

        Other imports continued to improve its market performance over the POI. It took part of the market supplied by NSC and dumped imports, as its share grew from 46.49% (March - December 1998) to 50.26% (January – May 1999). The share of NSC contracted from 47.08% to 45.08% in the same period, while that of dumped imports declined from 6.43% to 4.66%.


Market Contraction

        The Asian financial crisis effected, among others, a slowdown in construction activities, a drastic reduction in steel consumption and depressed world steel prices. Thus, NSC had to deal with a contracting domestic market dominated by imports whose prices were falling.


High Cost to Produce

        NSC’s average cost to produce CRC during the POI in 1998 and 1999 was higher compared to its 1997 level. The high cost of slabs, as a result of depreciation, contributed to the increased cost of production and put the company at a cost disadvantage.


Inefficient Production of NSC

        There have been numerous complaints from customers (i.e., Bacnotan, Chuayuco and Puyat) on NSC’s quality defects, delayed deliveries, inadequacy of supplies and failure to deliver on sales contracts.


        The problem of quality defects can be traced to old technology and equipment automation, which in turn led to high production cost on a per unit basis. On the other hand, delayed deliveries, shortage of supplies and failure to deliver on sales contracts can be attributed to lack of funds for slabs purchases.


Poor Financial Performance

        NSC's poor financial performance can be traced to internal factors, primarily, import dependence on materials and significant level of foreign debt. The company was susceptible to changes in the world market prices of slabs resulting in high production cost and relative uncompetitiveness vis-à-vis imported CRCs. This affected sales revenues and internal generation of funds (generation of funds from operations). Moreover, the inability to generate sufficient funds internally puts NSC in a vulnerable position with regard to debt servicing.


        The financial crisis exacerbated the financial position of the company. Operations were affected because the currency depreciation raised the peso cost of importing slabs, and consequently weakened further the ability to generate funds internally. This impacted negatively on debt servicing which rose, likewise because of the depreciation.


        The crisis underscored a vicious cycle of problems. The company, having difficulty raising funds internally, had to depend on additional loans and investments to support operations. But these were hardly forthcoming because the company was already highly leveraged. Thus, funds to support operations and service debt dwindled, resulting in intermittent production, to contracting sales revenues and to further weakening of internal funds generation.


        Apart from these, the crisis brought with it a contraction in the world demand for steel products, and a similar contraction in local steel demand. What little production NSC could sell in the market faced stiff competition from countries with excess capacities, exporting CRCs to the Philippines at much lower prices. NSC tried to defend its market share by selling below cost, but all this achieved was to generate larger operating losses.


        Thus, it is hardly surprising that the debt restructuring effort undertaken in 1998 did little to improve the financial position of NSC, and that the company finally shutdown its operations in November 1999.


Foreign Currency Losses

        As of 31 December 1997, the company had total foreign currency losses of about P1.3 billion, which climbed to P1.7 billion and P1.8 billion in 1998 and 1999, respectively. The high cost of money for the servicing of NSC's dollar-denominated loans as a result of the peso depreciation had major adverse impact on the company's financial position.


5. CAUSAL LINKAGE

        NSC suffered injury as evidenced by declining market share arising from low levels of production and sales, and resulting in poor financial performance. The problem basically stemmed from high manufacturing cost due to inefficient production technology and vulnerability to fluctuations in the cost of imported slabs. This created a host of problems, primarily, a limited capability to generate funds internally. NSC, during the POI, was already highly leveraged and depended largely on internal funds generation to service its debt and to support operations.


        The financial crisis exacerbated the company's financial condition. The crisis brought more intensive competition in the local market because of the global steel market contraction. Countries with excess capacities were exporting CRCs to the Philippines at low prices. Thus, NSC was experiencing contracting market share because of the pressure brought about by the crisis, on one hand, and the pressure of limited funds to support operations, on the other.


        The market contraction not only affected NSC's share but that of dumped imports as well. During the POI, we see evidence that NSC was losing market share to other imports rather than to dumped imports.


        The currency depreciation that accompanied the crisis put further pressure on the company. The peso cost of raw materials increased, but more significantly, the peso cost of debt servicing surged.


        The magnitude of injury suffered by the company cannot be attributed to dumping from Taiwan. NSC's inability to support operations because of its limited ability to generate funds internally compromised the viability of the company. It severely lacked funds to bring operations to a profitable level, and to service its mounting debt. Thus, it is hardly surprising that the debt restructuring effort undertaken in 1998 did little to improve the financial position of NSC and that the company finally shutdown its operations in November 1999.


6. APPLICATION OF PROCEDURAL MATTERS UNDER R.A. 8752 (ANTI-DUMPING ACT OF 1999)

        Procedural provisions of RA 8752 are applicable to the instant anti-dumping case. In Republic vs. Court of Appeals, G.R. No. 92326, January 24, 1992, the Court held:


        "Procedural matters are governed by the law in force when they arise, and procedural statutes are generally retroactive in that they apply to pending proceedings and are not confined to those begun after their enactment although, with respect to such pending proceedings, they affect only procedural steps taken after their enactment." (205 SCRA 356).


7. DECISION

        In view of the foregoing, the element of material injury resulting from dumped imports from Taiwan not having been established, it is ordered that the anti-dumping case against Taiwan be dismissed for lack of merit.


        Let copies of the decision be furnished the Protestant, the Protestees and the Taipei Economic and Cultural Office. The Secretary of Trade and Industry shall, within then (10) days from receipt of this decision, cause the publication of the dispositive portion of the decision in two (2) newspapers of general circulation.


        SO ORDERED.

        24 April 2001.



(Signed) EDGARDO B. ABON
Chairman



(Signed) REMEDIOS G. NAZARETH
Commissioner
(Signed) FERDINAND D. TOLENTINO
Commissioner