DEPARTMENT OF FINANCE
Roxas Boulevard Corner Vito Cruz Street
Manila 1004

IN THE MATTER OF PROTEST
AGAINST THE IMPORTATION OF
ELECTROLYTIC TINPLATES (ETP)
FROM SOUTH KOREA
ANTI-DUMPING CASE NO. 1-2000
NATIONAL STEEL CORPORATION
Protestant.


DECISION

This is an anti-dumping protest pursuant to Section 301 of the Tariff and Customs Code of the Philippines (TCCP) as amended by Republic Act No. 7843 otherwise known as the Anti-Dumping Act of 1994 and Article VI of the General Agreement on Tariff and Trade (GATT) 1994 and Article, by National Steel Corporation (NSC), herein referred to as the Protestant against the importation of electrolytic tinplates (ETP) from South Korea.

The article under protest is electrolytic tinplate-prime JIS G3303, SPTE-4CA, classified under HS Heading No. 7210.1200 and PSCC Code No, 674.21.04 with a duty rate of 7%. These are of rectangular or square shape with coating weights of up to 1.00 lb/BB, produced using CA TMBP as raw material, of thickness ranging from 0.17 mm. to less than 0.5 mm. and widths of 600 mm. to about 1000 mm. The surface finish can either be bright, matte (dull and silvery gray) or stone finish (between bright and matte). The tin coating weights range from 0.25 lb./BB (2.8g/cm2) to 1.00 lb/BB (11.2g/cm2 ). Prime ETP sheets are used in a broad range of applications such as in the manufacture of cans for food (bodies and ends) e.g. sardines, meat, beverages, milk, infant dietetics and of metal closures.

In compliance with procedural requirements, the Tariff Commission (TC) sent invitations to a consultation on 29 July 1997 and pre-hearing conference on September 1997 to all interested parties. Notices were sent to the Philippine Embassy in South Korea and the Embassy of Korea in Makati City, Philippines informing them that the case is now with the TC for formal investigation. Questionnaires were sent on 29 July 1997 to NSC, Korean exporters and Philippine importers. A notice of public hearing was published in two newspapers of general circulation (Manila Times and Today) on 24 September 1997 while notices to 11 known interested parties and concerned government agencies were sent on 26 September 1997.

As provided for under Section 1 of DOF Department Order No. 150-95 implementing Section 301 of the Tariff and Customs Code, as amended by RA 7843 and Article VI of GATT 1994, there is dumping whenever any specific kind or class of foreign article is being imported into, or likely to be sold into the Philippines at a price less than its normal value, the importation of which might injure, or retard the establishment of, or is likely to injure an industry producing like articles in the Philippines.

Articles 2.1 and 2.2. of the GATT Anti-Dumping Agreement defines "normal value" as the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. When there are no domestic sales or when domestic sales are not comparable because of the particular market situation or when there is low volume of domestic sales, the normal value shall be the representative export price to an appropriate third country or the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and profits.

1. Determination of Like Product

Article 2.6 of the GATT Anti-Dumping Agreement defines "like product" as a product which is identical i.e. alike in all respects to the product under consideration, or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration.

With respect to product similarity, TC expressed that "Product under consideration and the locally manufactured product, prime ETP sheets of thickness not exceeding 0.38 mm. of widths of 600 mm. or more, and coating weight of up to 0.75 lb/BB, produced by NSCs ETP #2 in Pasig City are like products. Both use the same manufacturing methods and methodology; use CA TMBP as input; have comparable standards for input and finished products; have comparable product specifications; are used in the same applications with comparable levels of substitutability in terms of use; and fall within the same tariff heading (TC report pp. 21-24)"

2. Domestic Industry Support

Article 4.1 of the GATT Anti-Dumping Agreement defines "domestic industry" as "referring to the domestic producers as a whole of the like products or to those whole collective output of the products constitutes a major proportion of the total domestic production of those products......."

Article 5.4 of the Agreement further 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 percent 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 percent of total production of the like product produced by the domestic industry.

NSC is the only manufacturer of the like product in the Philippines. As such the applicant satisfies the requirement of domestic industry support.

3. Determination 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 allowances 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....."

For the purpose of determining dumping, the period of investigation adopted by the Tariff Commission covers a seven (7) month period from 1 January to 31 July 1996.

Positive price differences were computed between Normal Values and Export Prices of subject articles ranging from US$55.70 to US$118.26/MT as shown in Table 1 below. (TC Report pp. 28-29)

Table 1 Price Difference and Dumping Margin
EXPORTER COATING
WEIGHT
(lb/BB)
NORMAL
VALUE
(US$/MT)
EXPORT
PRICE
(US$/MT)
PRICE
DIFFERENCE
(US$/MT)
DUMPING
MARGIN
(%)
Dongbu 0.21 696.12 612.37 83.75 13.68
  0.22 714.75 612.37 102.38 16.72
  0.23 730.63 612.37 118.26 19.31
  0.24 668.07 612.37 55.70 9.10
  0.25 695.47 612.37 83.10 13.57
  0.28 690.17 612.37 77.80 12.70
  0.30 679.34 612.37 66.97 10.94
Posteel 0.21 to 1.00 747.08 670.24 76.84 11.46
Article 5.8 of the Agreement states that "there shall be immediate termination if the margin of dumping is de minimis or if the margin is less than 2 percent, expressed as a percentage of the export price. The computed dumping margins for Dongbu and Posteel, ranging from 9.1% to 19.31%, are clearly above de minimis. (Table 1) (TC Report p. 29)

4. Volume of Dumped Imports

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 percent of imports of like product in the importing Member, unless countries which individually account for less than 3 percent of the imports of like product in the importing member collectively account for more than 7 percent of imports of like product in the importing member."

In determining the volume of dumped imports, the TC used data from Clean Reports of Findings (CRFS) furnished by SGS. Data from other sources, e.g., NSO Foreign Trade Statistics, were not segregated.

Table 2. Volume of Dumped Imports
POI Imports from South Korea
Total Dumped
Jan. 1996 513.72 106.20
Feb 629.52 629.52
Mar 1,140.82 1,140.82
Apr 441.97 119.42
May 980.11 980.11
Jun 674.60 460.41
Jul 26.50 -
TOTAL 4,407.24 3,436.48
Percent of Dumped to Total   77.97%
Source: SGS Clean Report of Findings

Total imports from South Korea within the period of investigation (i.e. January to July 1996) aggregated to 4,407.24 MT. Dumped imports accounted for 77.97% of the total, or 3,436.48 MT. Since the volume of dumped imports is above 3%, it is therefore not negligible. (TC Report pp. 30-31)

5. Determination of Material Injury and Causal Linkages

For the purpose of determining injury and causal linkages, the Tariff Commission's investigation covered the years 1994 to 1996.

a. Volume Effect

Article 3.2 of the Agreement states:

"With regard to the volume of dumped imports, the investigating authorities shall consider whether there has been a significant increase in dumped imports, either in absolute terms or relative to production or consumption in the importing Member."

The volume of dumped imports from South Korea declined from 9,965.4OMT in 1995 to 4,593.96MT in 1996. Relative to domestic sales, the share of dumped imports fell from 22.75% in 1995 to 11.97% in 1996. As a percentage of total Philippine market, dumped imports likewise contracted from 8.08% in 1995 to 4.5% in 1996. Thus, there was no significant increase in the volume of dumped imports relative to estimated domestic Philippine consumption and relative to sales of the domestic industry (TC report pp.31-32)

b. Price Effect

Article 3.2 of the Agreement further states:

"With regard to effect of the dumped imports on prices, the investigating authorities shall consider whether there has been 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."

The company follows an import parity pricing policy based on the prices of normal imports. An import parity pricing policy is used when a company sells its products at a price equivalent to what it would cost to import a like product. The pitfall of this policy is, price determination is not related to the cost of production, i.e. when the tariff is reduced, the landed cost of the imported product is reduced, and the selling price of the local product is likewise reduced even if the cost to produce remains the same, or increases.

Price Undercutting occurs when the prices of dumped imports are significantly lower than the price of the like product, Dumped imports undercut local ETP by 32.09%. However, this did not result from dumping but from the import parity pricing policy.

Price depression occurs when the price of dumped imports forces down the price of the like product. Price depression occurred in 1996, due to NSC's import parity pricing policy, as the selling price of ETP fell by 7.07% despite a 17.93% increase in cost of production.

Price suppression occurs when the price of dumped imports prevents increases in the price of the like product, which would otherwise have occurred. There was no price suppression from 1994 to 1996. Dumping cannot cause price suppression since NSC's selling price is determined through import parity pricing.

The TC's findings indicate that dumping was not a factor in influencing changes in NSC's selling price. Neither did it influence price undercutting, depression and suppression. (TC Report pp.32-33)

c. Market Share

The Philippine market for ETP contracted by 17.19% in 1996 because of the unusual high ending inventory level of ETP accumulated in 1995, as well as a shift in demand from ETP in sheets to ETP in coils and to tin tree steel (TFS).

The contraction in market size primarily affected dumped imports, whose share decreased to 4.50%. Other imports retained market dominance with 57.89% share. NSC's share aggregated to 37.61%.

Thus, the domestic industry faced stiff competition from normal imports in 1995 and 1996, while competition from dumped imports diminished over the same period. (TC Report pp.33-35)

d. Sales

The contraction in local sales from 1995 to 1996 cannot be attributed to dumping. The share of dumped imports to total Philippine market suffered the biggest loss, consequently resulting in diminished competition from these.

Consumers cut back on both local purchases and importation because they already had high ETP inventories. Moreover, there was a shift in preference to ETP in coils and to TFS, which affected local ETP sales (TC Report p. 35)

e. Production, Capacity Utilization and Inventories

Production and capacity utilization declined as a result of market contraction, not dumping.

Production volume was reduced in 1996 to avoid build-up of ETP inventories, leading to its decline in 1996. (TC Report p. 36)

f. Cost of Production

Factors, which contributed to NSC's increase in production cost, cannot be attributed to dumping. This resulted from an increase in raw material cost as well as an increase in the exchange rate. (TC Report p.36)

g. Profits and Profitability

Factors, which contributed to the decline in profits and profitability, cannot be attributed to dumping. These resulted from decline in sales arising from market contraction, as well as increase in the company's cost to produce and sell (TC Report p. 37)

h. Return on Assets

Return on assets was negative in 1996 due to a net loss that resulted from a decline in sales and increase in cost to produce and sell. (TC Report p. 38)

i. Investments

NSC's ability to undertake expansion was not impaired by dumping (TC Report p. 38)

j. Ability to Raise Capital

The company's inability to raise capital is not attributable to dumping. Rather, it is tied up with the company's capacity to repay existing debts. (TC Report p. 38)

k. Terms of Payment

NSC's terms of payment were not affected by dumping. It continues to extend discounts on cash purchases and credit terms. (TC Report p. 39)

l. Employment and Wages

The reduction in the number of employees in the company's Pasig plant in 1996 was due to the decline in production, not dumping. Despite the reduction in the number of employees, however, average labor cost increased. (TC Report p. 39)

m. Factors Other Than Dumping Which Caused Injury

1. Technology Change

Technology advances dictated the shift from ETP in sheets to ETP in coils and to TFS for the manufacture of cans, crowns and caps. Further, industry shifted from ETP to the use of plastics, aluminum, paper, or a combination of all three, in the manufacture of packages. (TC Report p. 39)

2. Import Parity Pricing Scheme

NSC's import parity pricing scheme was implemented at the cost of profits, especially in 1996 when world prices plunged but the company's production cost increased. The lowering of duties from 15% in 1995 to 10% in 1996 exacerbated this. The landed cost of ETP was lower resulting in NSC having to accept small margins on its sales. (TC Report p. 40)

3. Inventory

In 1995, NSC decided to stack up on TMBP, despite its high price, anticipating that it can recover the cost as world price of ETP was increasing. Unfortunately, the price of ETP plunged in 1996, adversely affecting company profits. (TC Report p. 40)

4. Accounting treatment

A write down of inventories was charged to cost of sales instead of other expense, resulting in understated gross profit in 1996. (TC Report pp. 40-41)

6. Conclusion

Price differences exist between the Formal values and export prices of ETP imported from Dongbu and Posteel of South Korea, indicating dumping.

However, material injury suffered by NSC was not caused by dumping. The company suffered injury because of loss in market share arising from a decline in purchases as local can manufacturers had excess inventory, and shift in demand from ETP in sheets to ETP in coils and TFS. This resulted in loss in sales, decline in production and capacity utilization, increase in inventories, and decrease in employment. Simultaneous with loss in sales, the increase in cost to produce and sell, arising partly from the company's decision to stock-up on high cost raw materials, led to net loss, and negative return on profits and assets. Moreover, changes in technology as well as the company's import parity pricing policy adversely affected sales and profits.

7. Recommendations

Considering that the material injury suffered by NSC cannot be attributed to dumping but to other factors, as recommended by the Tariff Commission the case at hand is hereby dismissed.

Let copies of this decision be furnished the Protestant, the Protestee, the Tariff Commission, the Bureau of Customs, the Bureau of Internal Revenue, the Department of Trade and Industry, the Embassy of South Korea, the National Economic and Development Authority, the Department of Labor and Employment and the Bureau of Printing for its publication in the Official Gazette and local newspaper of general circulation.

So Ordered.
18 October 1999.


Edgardo B. Espiritu
Secretary, Department of Finance
Chairman, Special Committee on Anti-Dumping



Lilia R. Bautista
Acting Secretary, Dept. of Trade & Industry
Member
Bienvenido Laguesma
Secretary, Dept. of Labor & Employment
Member