REPORT OF FINDINGS ON THE ANTI-DUMPING PROTEST AGAINST THE IMPORTATION OF COLD-ROLLED STEEL COILS (CRC) AND SHEETS FROM MALAYSIA (HS HDG. NO. 7209.18 90) UNDER SECTION 301 OF THE TARIFF AND CUSTOMS CODE, AS AMENDED (ANTI-DUMPING INV. 99-05)


1. EXECUTIVE SUMMARY OF FINDINGS AND CONCLUSIONS

1.1 SUMMARY

On 28 June 1999, National Steel Corporation (NSC) filed with the Department of Finance (DOF) an anti-dumping protest against the importation of cold rolled steel coils (CRC) and sheets from Malaysia (Ornasteel Enterprise Corporation-Ornasteel) on the ground that said products were imported at dumped prices and were causing injury to the domestic industry.

The protest was endorsed by the DOF to the Bureau of Import Services (BIS) of the Department of Trade and Industry (DTI) on 09 July 1999 for initial investigation. The DTI-BIS, in its initiation report, found the information supporting the petition of NSC as constituting a prima facie case of dumping and in view thereof decided to initiate the conduct of preliminary determination for purposes of imposition of provisional measures (anti-dumping bond). Notice of initiation of investigation was published in the Philippine Star and Today on 5 October 1999.

On 14 December 1999, the DTI-BIS issued the results of its preliminary determination:
  • CRCs from Malaysia were dumped into the Philippines at a margin ranging from US$ 73.78 - US$ 95.37/MT or 25.51% to 35.26% of the export price. Said margins were above the 2% de minimis requirement.
  • Volume of dumped imports was 8.75% of total Philippine imports of the like product. Said volume satisfied the 3% de minimis volume requirement.
  • Dumping of Malaysian CRC materially injured the local industry.
The elements of dumping having been established, the DTI-BIS required the posting of anti-dumping bond amounting to US$ 88.51/MT or 32.08% of the export price. 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 14 December 1999 endorsed the protest together with its findings to the Tariff Commission (Commission) for formal investigation.

In compliance with procedural requirements, notice of the conduct of formal investigation by the Commission was published in the Philippine Star and Today on 30 December 1999. Individual notifications were sent to the government of Malaysia, through its Embassy in Makati City, the Philippine Commercial Attache in Kuala Lumpur, Malaysia, protestant - NSC, exporter-protestee (Ornasteel), importers-protestees, and other interested parties. Notice of public consultations/ hearings was published in the Philippine Star and Today on 10 February 2000. All known interested parties and concerned government agencies were also sent individual notices.

For dumping determination, the Commission followed the POI adopted by the DTI-BIS covering the arrival of allegedly dumped imports of CRC from Malaysia i.e, the 6-month period from 01 December 1998 to May 31, 1999. With respect to injury, the period covered were the years 1996 to 1999.

1.2 PERIOD OF INVESTIGATION (POI)

For dumping determination, the Commission followed the POI adopted by the DTI-BIS covering the arrival of allegedly dumped imports of CRC from Malaysia during the 6-month period from 01 December 1998 to May 31, 1999. With respect to injury, the period covered were the years 1996 to 1999 (January – May).

1.3 CONCLUSIONS

1.3.1 On the Determination of Like Product

The domestically produced CRC constitutes a "like product" to the product under consideration, i.e., cold-rolled steel coils conforming to JIS G 3141-SPCC, of nominal thickness of 0.40 mm and nominal width of 914 mm (915 mm) and falling under subheading 7209.18 90.

1.3.2 On Domestic Industry Support

NSC was the sole manufacturer of CRC in the Philippines during the POI. As such, the applicant satisfied the requirement of domestic industry support.

1.3.3 On Price Difference

Export Price

Estimates of the export price were based on the import entries submitted by the protestant - NSC and protestee/ exporter - Ornasteel and on file with the Commission that were validated with the Clean Report of Findings (CRF) issued by Societe Generale de Surveillance (SGS).

Export prices were adjusted to ex-factory level, (i.e., net of ocean freight, inland freight, storage and handling charges, and forwarding and documentation fee).

Ornasteel's CRC export prices at the FOB level ranged from US$273.29 to US$292.81 per MT. After deducting the adjustment factors from the unadjusted export price, the resulting adjusted export prices ranged from US$ 268.39 to US$278.36/MT.

Normal Value

During the POI, Ornasteel sold its CRC exclusively to its associate company, Group Steel Corporation (M) SDN BHD, which the latter used in the manufacture of galvanized coated steel and pre-painted galvanized coated steel sheet. Notwithstanding the existing relationship between the two companies, transactions were found to be at arms' length, i.e. in the ordinary course of trade where the domestic selling prices were higher than the cost of production. Hence, the Commission adopted the domestic selling prices as the basis of normal value of Ornasteel.

Estimated normal value during the POI ranged from US$342.37/MT to US$408.16 /MT.

Dumping Margin

Adjusted export prices and normal values yielded a weighted average price difference of US$ 86.14 /MT, or a dumping margin of 31.62%.

The computed dumping margins for all importations during the POI were all above de minimis, i.e. above 2%.

1.3.4 On Negligible Volume of Dumped Imports

Dumped CRC imports from Malaysia accounted for 21.87% of the total Philippine imports. The volume of dumped imports, being above 3%, was 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 dumping investigation against Malaysia.

1.3.5 On the Determination of Material Injury and Causal Linkage

Volume of Dumped Imports

Total Philippine imports of CRC from Malaysia during the POI aggregated to 10,662 MT that were all at dumped prices. Dumped imports constituted 21.87% of total Philippine CRC imports (48,761 MT) and 9.47% of the domestic consumption (112,550 MT).

Dumping was significant in the first five months of 1999 (January-May), accounting for 92.44% of total dumped imports. Noted also was the big share of dumped imports to total Philippine CRC imports during the month of December 1998 and May 1999 at 82.58% and 91.37%, respectively.

Price Effect

Price Undercutting

The incidence or extent of price undercutting was estimated using the monthly landed cost of dumped CRC from Malaysia against the monthly domestic selling price of local CRC. Undercutting was evident in December 1998 and January 1999 as NSC’s CRC was sold, vis-à-vis the imported counterpart, at prices higher by 11.45% and 14.93%, respectively. For the succeeding months (February-May) of 1999, however, no evidence of price undercutting was established as Malaysia's CRC was priced higher than NSC's.

Price Depression

On a per 6-month period basis (December - May), NSC's average selling prices displayed an erratic trend. Average selling price increased by 24.03% from December 1996 - May 1997 to in December 1997 - May 1998. The incidence of price depression was evident during the POI (December 1998 - May 1999) when the domestic selling price dropped by 22.11% vis-à-vis the price in December 1997 - May 1998. For the same period, the 22.11% drop was greater than the 12.46% decline in the cost of production. NSC’s adoption of a pricing strategy of selling below cost, if only to maintain its market presence, resulted in a loss during the POI.

Price Suppression

There was no evidence of price suppression during the POI.

Market Share

On a per 6-month period basis, NSC's market share slightly declined from 56.70% in December 1996 - May 1997 to 55.03% in December 1997 - May 1998. In contrast, other countries' and normal imports' share in the market rose from 43.30% to 44.96%. During the POI (December 1998 - May 1999), NSC's share went up from 55.03% in December 1997 - May 1998 to 56.68 % or by 3%. On the other hand, other countries' and normal imports' share declined by 24.71% from 44.96 % in December 1997 - May 1998 to 33.85% in December 1998 to May 1999. It was noted that the domestic industry was able to maintain its market share despite the occurrence of dumped imports during the POI, only because of its adoption of the pricing strategy of selling below cost. On the other hand, the sharp drop in the other countries’ and normal imports’ share could be attributed partly to the dumped imports from Malaysia and to the discouraged sourcing of CRC primarily from Russia and Taiwan following the imposition of anti-dumping bond in the CRC-Russia case and the filing of anti- dumping protest against Taiwan.

Production, Sales and Inventory

On a per 6-month period basis, there was a constant decline in NSC’s production from December 1996 to May 1999. Sales dropped from 86,720 MT December 1996 - May 1997 to 55,580 MT in December 1997- May 1998 but the same rebounded in December 1998 - May 1999 at volumes lower than those in December 1996 - May 1997. Evident was the significant slide of the volume of production and sales in December 1997 - May 1998 by 55.56% and 35.91%, respectively.

The reduction in production volumes led to a corresponding decline in inventory levels from 11,639 MT in the 6-month period covering December 1997 - May 1998 to 4,841 MT during the POI.

Reduction in production, sales and inventory could be attributed mainly to the market contraction and partly to the presence of dumped imports.

Capacity Utilization

NSC's cold mill had an annual rated capacity of 700,000 MT. The specific sizes .35/.38/.40 x 914/915 mm cold rolled were earmarked for direct sales and not for conversion to tinplates. On a per 6-month period basis, NSC's actual capacity utilization constantly declined from 58.29% in December 1996 - May 1997 to 37% in December 1997 - May 1998 to 29.14% during the POI. Likewise, actual production slid from 204,000 MT in December 1996 - May 1997 to 129,498 MT in December 1997 - May 1998 or by 36.52%. It further declined to 102,000 MT or by 21.23% during the POI. The decline in capacity utilization could be attributed to the effect of the contraction of the Philippine market as well as to the entry of imports at dumped prices.

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 cost, respectively. In 1999, however, the average cost of production was lower by 24.92% compared to the previous years. The decline was brought about by the drop of cost of direct materials and conversion cost except direct labor which expanded by 36.88%. Evident was the rise in the cost of production in 1998 and 1999 when compared with that in 1997. This was mainly due to the weakening of the peso which started in the 3rd quarter of 1997.

Profitability

On a per 6-month period basis, NSC's audited financial statements disclosed that sales revenue declined from the period covering December 1997 - May 1998 to December 1998 - May 1999. Noted was NSC's gross loss amounting to P 37 million during the period December 1997 - May 1998 resulting from the adoption of the pricing strategy of selling below cost if only to retain market presence. Sales below cost persisted till the POI resulting to a gross loss of P172 million, or a further decline in gross loss by 565%.

In December 1997 - May 1998, NSC’s loss from operations already reached P150 million which further dipped to P288 million during the POI attributable to the increased operating expenses. NSC incurred a net deficit amounting to P 524 million during the period (December 1997 - May 1998) which further worsened to P791 million during the POI as a result of the continued selling below cost and the increased operating expenses. The hefty interest and other charges related to the total CRC operations exacerbated NSC’s financial performance as early as the pre-POI.

The unfavorable result of operating and financial performance was mainly due to the rise in operating expenses and the huge interest expenses and other charges related to the CRC operation.

Return on Sales

NSC’s income from CRC operation in relation to its sales prior to the occurrence of the alleged dumping, i.e., December 1997 - May 1998, was unfavorable at –9.26%, which worsened during the POI at –19.61% resulting from the reduced sales, selling below cost and increased operating expenses.

Cash Flow

The drop in actual sales revenue, attributable to the contraction of the market, dumped imports from Malaysia and the entry of other countries' CRC exports during the POI, contributed to the liquidity problem of NSC. The revenue foregone could have generated internal cash to fund working capital requirements.

Investment and Ability to Raise Capital

NSC’s inability to generate investment and raise capital was traced to the fact that the company was saddled with internal problems including enormous debt, high interest cost, foreign exchange losses, high slab cost, high operating costs, and a shortage of working capital.

NSC’s interest expense in 1998 ballooned to P2.23 billion or an increase of 80% from P1.23 billion in 1997. The high interest expense of P2.23 billion represents 26% total net sales of P8.58 billion, against 10% interest expense in 1997. This heavy debt servicing depleted NSC’s financial resources, causing difficulty in sustaining operations and eventually led to a shutdown in November 1999.

In July 1998, NSC entered into a debt restructuring agreement with its creditor banks. Despite its debt restructuring, it failed to service its loans, a consequence of its poor cash flow and high working capital requirement.

Employment and Wages

Labor complement exhibited a steady downtrend, dwindling by 7.43% from 1996 to 1997, 10.60% from 1997 to 1998 and by 7.05% from 1998 to the first five (5) months of 1999. This was as a result of the slump in production brought about by the declining sales leading to serious operating and cash flow problems. Consequently, wages in 1998 dropped continuously till 1999 (May).

Factors Other Than Dumping Which Caused Injury

a. Competition From Normal (Undumped) Imports

Normal CRC imports posed stiff competition to the domestic industry as evidenced by their market performance during the POI. Despite the market slump, non-dumped imports from other countries managed to capture a 44.96% during the period covering December 1997 - May 1998 and 33.85% share of the total Philippine market during the POI as against dumped imports’ share at 9.47%.

b. Market Contraction

Contraction in the market in 1996 up to 1999 depressed market prices resulting from a marked decline in steel demand. A slowdown in construction activities took place beginning 1996. Practically, all countries in Asia had to reckon with the economic storm that resulted in a drastic reduction in steel consumption. Prices of world steel products fell. Philippine steel market was no exception from that global market contraction.

c. High Cost to Produce

NSC's average cost to produce CRC was higher in 1998 and 1999 compared to the cost of production in 1997. The high cost of slabs at an average price of US$ 257/MT put the company at a cost disadvantage.

d. Financial Performance

The slow-down in the Philippine economy had significantly affected the company in terms of higher financing costs and reduced sales and production volume. These factors led to the company's declining financial and operating performance since 1997 to 1999.

During the POI, the protestant incurred a loss of P2.9 billion from operation that was much bigger than the deficit of P 687 million in December 1997 - May 1998. Poor operational performance resulted from sales below cost abetted by competitive pressures from dumped imports and increased operating expenses during the POI. The hefty interest expenses in 1998 and 1999 exacerbated NSC's financial performance, leaving the company with a net deficit in the amount of P1.6 billion in December 1997 - May 1998 and P5.2 billion in December 1998- May 1999.

The percentage return on net sales, total assets and stockholders' equity was unfavorable for the company in December 1997 - May 1998 at –20.29%, –5.48% and –10.89% as a result of the loss incurred from operations. Negative returns worsened during the POI as the company suffered heavier losses as evidenced by a bigger negative return on sales from –20.29% in 1998 to –68.47%. The very bad performance during the POI resulted from lower sales revenue and sales below cost that could be attributable to the competitive pressures both from normal imports and imports at dumped prices.

e. Foreign Currency Losses

As of 31 December 1997, the company had a total foreign currency losses of about P2.5 billion which went down to P154.9 million in 1998. Though the 1998 figure was much lower, still the high cost of money for the servicing of NSC's dollar- denominated loans as a result of the peso devaluation had major adverse impact on the company's financial position.

1.4 APPLICATION OF PROCEDURAL MATTERS UNDER RA 8752 (ANTI-DUMPING ACT OF 1999)

On 12 August 1999, RA 8752 was signed by the President amending Section 301 of the TCCP. The aforesaid law became effective on 04 September 1999, i.e., after fifteen (15) days following its publication on 19 August 1999 in Malaya and Philippine Standard.

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)

1.5 FINAL DETERMINATION

The Commission finds that:

1. price differences existed between the normal values and export prices of CRC falling under HS Heading No. 7209.18 90 originating in or exported from Malaysia during the POI (December 1998 - May 1999) in the amount of US$ 86.14 /MT, or a dumping margin of 31.62%;

2. dumping of CRC imports from Malaysia during the POI (21.87% of the total Philippine CRC imports) was a contributory factor to the injury suffered by the domestic industry as evidenced by the decline in sales and consequently in income due to NSC's depressed and undercut prices.

3. A host of factors other than dumping, i.e., competition from normal imports, market contraction, high cost of production, foreign exchange losses and high interest cost on its loan obligations did exacerbate NSC's injury to the point of a significant overall impairment in the position of the domestic industry.

In view of the foregoing, the elements constituting dumping having been established, it is hereby ordered that the dumping duty in the amount of US$ 86.14/MT or a dumping margin of 31.62% be imposed on cold rolled coils and sheets of HS Heading No. 7209.18 90, with specification of 0.40 mm (nominal) x 914mm originating from Malaysia (Ornasteel Enterprise Corporation).

With regard to those exporters or producers in the exporting country in question who have not exported the product to the Philippines during the POI, their individual margins of dumping shall be determined following a review which shall be initiated by the Commission and carried out on an accelerated basis, provided that said exporters or producers can show that they are not related to the exporter (Ornasteel) who is subject to the anti-dumping duties on the product. No anti-dumping duties shall be levied on imports from such exporters or producers while the review is being carried out.

2. ABBREVIATIONS/LEGENDS
ASTM American Standard
BIA Best information available
BIS Bureau of Import Services
BPS Bureau of Product Standard
CA Court of Appeals
Commission Tariff Commission
Core Steel Core Steel Pilipinas
CQ Commercial Quality
CRC Cold-Rolled Steel Coil
DO Department Order
DOF Department of Finance
DTI Department of Trade and Industry
EBIT Earnings Before Interest and Taxes
EO Executive Order
ETP Electrolytic Tinplate
FH Full Hard
FOB Freight on Board
GATT General Agreement on Tariff and Trade
HRC Hot-Rolled Steel Coil
HS Harmonized System
TCCP Tariff and Customs Code of the Philippines
ISR Internal Steel Review
JISSCOR Jacinto Iron and Steel Sheets Corp.
JIS Japanese Industrial Standard
NSC National Steel Corporation
NSO National Statistics Office
PNS Philippine National Standard
POI Period of Investigation
RA Republic Act