REPORT 360 - industry.gov.au · Anti-Dumping Commission ( the Commissioner) of certain findings in Final Report No. 276 (REP 276), relating to the dumping of certain prepared or preserved

PUBLIC RECORD

ANTI-DUMPING COMMISSION

REPORT TO THE ANTI-DUMPING REVIEW PANEL

REINVESTIGATION OF CERTAIN FINDINGS CONCERNING PREPARED OR PRESERVED TOMATOES EXPORTED TO AUSTRALIA FROM ITALY BY FEGER DI

GERARDO FERRAIOLI S.P.A AND LA DORIA S.P.A

REPORT 360

6 October 2016

PUBLIC RECORD

Reinvestigation – Prepared or preserved tomatoes exported from Italy – REP 360 1

CONTENTS CONTENTS ................................................................................................................................................................. 1

ABBREVIATIONS ........................................................................................................................................................ 2

1 INTRODUCTION AND FINDINGS ....................................................................................................................... 3

1.1 INTRODUCTION ................................................................................................................................................ 3 1.2 APPROACH TO REINVESTIGATION .......................................................................................................................... 3 1.3 SUMMARY OF FINDINGS ..................................................................................................................................... 3 1.4 CONCLUSION ................................................................................................................................................... 5

2 BACKGROUND.................................................................................................................................................. 7

2.1 ORIGINAL INVESTIGATION ................................................................................................................................... 7 2.2 REVIEW BY THE ADRP ....................................................................................................................................... 7 2.3 RELEVANT INFORMATION .................................................................................................................................. 10 2.4 APPROACH TO REINVESTIGATION ........................................................................................................................ 11

3 INTERPRETATION OF SUBSECTION 43(2) OF THE REGULATION ...................................................................... 13

3.1 OVERVIEW .................................................................................................................................................... 13 3.2 FINDINGS IN REP 276 ..................................................................................................................................... 13 3.3 SUBMISSIONS BY INTERESTED PARTIES .................................................................................................................. 13 3.4 REINVESTIGATION OF FINDING 2 GENERALLY .......................................................................................................... 15

4 VALUE OF SPS PAYMENTS AND AMOUNTS RECEIVED BY GROWERS .............................................................. 19

4.1 OVERVIEW .................................................................................................................................................... 19 4.2 FINDINGS IN REP 276 ..................................................................................................................................... 19 4.3 SUBMISSIONS BY INTERESTED PARTIES .................................................................................................................. 19 4.4 REINVESTIGATION OF FINDING 3A ....................................................................................................................... 21 4.5 REINVESTIGATION OF FINDING 2B ....................................................................................................................... 23

5 IMPACT OF SPS ON RAW TOMATO PRICES PAID BY FEGER AND LA DORIA .................................................... 24

5.1 OVERVIEW .................................................................................................................................................... 24 5.2 FINDINGS IN REP 276 ..................................................................................................................................... 24 5.3 SUBMISSIONS BY INTERESTED PARTIES .................................................................................................................. 24 5.4 REINVESTIGATION OF FINDING 3A, 3B .................................................................................................................. 25

6 FEGER’S CLAIMED ADJUSTMENTS AND THE CALCULATION OF DUMPING MARGINS ...................................... 35

6.1 OVERVIEW .................................................................................................................................................... 35 6.2 FINDINGS IN REP 276 ..................................................................................................................................... 35 6.3 SUBMISSIONS BY INTERESTED PARTIES .................................................................................................................. 36 6.4 REINVESTIGATION OF FINDING 4A ....................................................................................................................... 37 6.5 REINVESTIGATION OF FINDING 4B ....................................................................................................................... 38 6.6 REINVESTIGATION OF FINDING 4C ....................................................................................................................... 38 6.7 CONSEQUENTIAL IMPACTS ON DUMPING MARGIN CALCULATIONS ................................................................................ 39

7 ASSESSMENT OF INJURY AND CAUSATION ..................................................................................................... 40

7.1 OVERVIEW .................................................................................................................................................... 40 7.2 FINDINGS IN REP 276 ..................................................................................................................................... 40 7.3 SUBMISSIONS BY INTERESTED PARTIES .................................................................................................................. 40 7.4 REINVESTIGATION OF FINDING 1A ....................................................................................................................... 41 7.5 REINVESTIGATION OF FINDING 1B ....................................................................................................................... 42 7.6 REINVESTIGATION OF FINDING 1C ....................................................................................................................... 44 7.7 REINVESTIGATION OF FINDING 1D ....................................................................................................................... 45 7.8 CONSEQUENTIAL IMPACTS ON INJURY AND CAUSATION ANALYSIS ................................................................................ 49

8 ATTACHMENTS .............................................................................................................................................. 52

PUBLIC RECORD


ABBREVIATIONS

the Act Customs Act 1901

ADA Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (also referred to as the Anti-Dumping Agreement)

ADN Anti-Dumping Notice

ADRP Anti-Dumping Review Panel

AGEA Agenzia per le Erogazioni in Agricoltura (Agency for Agricultural Payments)

CAP Common Agricultural Policy

the Commission the Anti-Dumping Commission

the Commissioner the Commissioner of the Anti-Dumping Commission

Feger Feger di Gerardo Ferraioli S.p.A

ha hectare(s)

the injury analysis period from 1 January 2010

the investigation period 1 January 2014 to 31 December 2014

kg kilogram(s)

La Doria La Doria S.p.A

OCOT ordinary course of trade

the Parliamentary Secretary the Assistant Minister for Industry, Innovation and Science and Parliamentary Secretary to the Minister for Industry, Innovation and Science

the then Parliamentary Secretary

the then Assistant Minister for Science and Parliamentary Secretary to the Minister for Industry, Innovation and Science

PPT prepared or preserved tomatoes (also referred to as “the goods” or “the goods under consideration”)

REP 217 Final Report No. 217

REP 276 Final Report No. 276

SEF 276 Statement of Essential Facts No. 276

SPCA SPC Ardmona Operations Ltd

SPS Single Payment Scheme

WPTC World Processing Tomato Council

WTO World Trade Organization

PUBLIC RECORD


1 INTRODUCTION AND FINDINGS

1.1 Introduction

This report provides the results of the reinvestigation by the Commissioner of the Anti-Dumping Commission (the Commissioner) of certain findings in Final Report No. 276 (REP 276), relating to the dumping of certain prepared or preserved tomatoes (PPT) exported to Australia from Italy.

1.2 Approach to reinvestigation

The Anti-Dumping Commission (the Commission) has reinvestigated the relevant findings requested by the Anti-Dumping Review Panel (ADRP). However, given the interrelated nature of these findings, in undertaking the reinvestigation the Commission has:

• examined the application of subsection 43(2) of the Customs (International Obligations) Regulation 2015 (the Regulation) in respect of the cost for raw tomatoes recorded in the accounts of Feger di Gerardo Ferraioli S.p.A (Feger) and La Doria S.p.A (La Doria) and considered whether the Commissioner may adjust those costs in accordance with the Customs Act 1901 (the Act);1, 2

• assessed the magnitude of that cost adjustment, if any;3 • updated and refined the dumping margins calculated for Feger and La Doria,

inclusive of a further consideration of the adjustments made to Feger’s dumping margin;4 and

• reassessed whether the Australian industry, comprising SPC Ardmona Operations Ltd (SPCA) has experienced material injury caused by the dumping of PPT exported to Australia by Feger and La Doria.5

1.3 Summary of findings

1.3.1 Interpretation of the Regulation (Chapter 3)

Section 43 of the Regulation requires the Minister to have regard to (among other things) the nature of the costs recorded by an exporter of like goods, and to assess whether those costs reasonably reflect “competitive market costs”.6 This assessment is for the purpose of working out whether the Minister must determine an amount for the cost of production or manufacture of like goods in a country of export using the exporter’s records.

1 Unless otherwise indicated, all legislative references in this report are to the Customs Act 1901. 2 Finding 2 in the letter from the ADRP requesting the reinvestigation refers. 3 Finding 3 in the letter from the ADRP requesting the reinvestigation refers. 4 Finding 4 in the letter from the ADRP requesting the reinvestigation refers. 5 Finding 1 in the letter from the ADRP requesting the reinvestigation refers. 6 Subsection 43(2)(b)(ii) refers.

PUBLIC RECORD


1.3.2 Value of Single Payment Scheme payments and amounts received by growers (Chapter 4)

The evidence obtained by the Commission indicates that the value of Single Payment Scheme (SPS) payments made to growers under the terms of the Common Agricultural Policy (CAP) of the European Union varies according to the entitlements held. These entitlements are based on the land holding, and the payments are made regardless of crop or whether any part of the land remains fallow. The payments made to the growers supplying raw tomatoes to Feger and La Doria are able to be quantified on a per hectare (ha) basis. The value of the SPS payments received is substantially less than the amount established by the Commissioner in REP 276.

1.3.3 Impact of SPS on raw tomato prices paid by Feger and La Doria (Chapter 5)

The Commission has been able to calculate a per kilogram (kg) value of the SPS payment received by growers by using an estimated yield rate (based on World Processing Tomato Council (WPTC) data) and applied to the volume of tomatoes actually purchased by either of Feger or La Doria. The Commission has been unable to identify any quantifiable impact of the SPS payments received by growers on the prices paid by Feger or La Doria. There is little - if any - correlation between the value of the SPS payments received and the prices obtained, and no other evidence of government or other influence in the market for raw tomatoes which would lead to a conclusion that the market is not “competitive”. In the absence of evidence to the contrary, the Commissioner therefore finds that the cost of raw tomatoes recorded by Feger and La Doria in their accounts are competitive market costs.

1.3.4 Feger’s claimed adjustments and the dumping margin calculations (Chapter 6)

The Commissioner has rejected Feger’s claims regarding its claims for various adjustments to its normal value. Taking the Commissioner’s findings in the relevant preceding chapters into account, the Commission has established the following dumping margins.

Exporter / Manufacturer Dumping Margins

Feger di Gerardo Ferraioli S.p.A. 5.6%

La Doria S.p.A. - 0.9%

Table 1 – Dumping margins

PUBLIC RECORD


The Commissioner acknowledges the ADRP’s request that the alternative calculation methodologies be provided to enable the ADRP to calculate a different margin if it disagrees with the Commissioner’s findings. As a result, the Commission has provided the ADRP with an “inputs” worksheet for each dumping margin calculation. From this, the amount of the SPS payment received with respect to a kilogram of raw tomatoes and the proportion of the SPS payment which flows through to the cost of raw tomatoes (if any) can be selected and the consequential impact on the dumping margin for each company can be calculated.

1.3.5 Injury experienced by SPCA and causation (Chapter 7)

The Commission has re-examined the financial and other data, including cost to make and sell (CTMS) and sales data reported by SPCA, and its trends. The injury experienced by SPCA and reported in REP 276 (with regard to price suppression, reduced profits and profitability) has been reviewed and confirmed. The dumped goods (being goods imported from Feger) have undercut the prices obtained by SPCA. Whilst there are other factors which have caused injury to SPCA (such as the presence of un-dumped goods in the market, the price of those goods and broader market conditions), the dumped goods have nevertheless caused material injury to SPCA. The Commissioner has concluded that the changes in the market which occurred as a result of the imposition of measures following REP 217 provide a reliable indication that SPCA would have gained some proportion of Feger’s sales outright, and would have been better able to compete with Feger’s un-dumped prices. This in turn would have reduced the degree of price depression, lost profit and reduced profitability experienced during the investigation period.

1.4 Conclusion

The Commissioner considers that, in light of the above findings, the correct and preferable decision is that:

• section 43 of the Regulation requires the Commissioner to consider whether the recorded cost of raw tomatoes in Feger and La Doria’s accounts are competitive market costs;

• the actual value of the SPS payments made to growers supplying Feger and La Doria is to be preferred to the Commission’s estimate in REP 276;

• in the absence of any quantifiable impact of the SPS payment on the cost of raw tomatoes purchased by Feger and La Doria, and noting that there is no other evidence of government or other influence in the market which would cause the Commissioner to determine that the recorded costs were not competitive market costs, the cost of raw tomatoes recorded by Feger and La Doria are “competitive market costs” within the meaning of subsection 43(2) of the Regulation;

• the adjustments claimed by Feger are not supported by the evidence provided and ought to be rejected;

• the goods exported by Feger were therefore dumped, with a dumping margin of 5.6 per cent;

• the goods exported by La Doria were not dumped; • the injury experienced by SPCA as reported in REP 276 is an accurate analysis

and faithfully represents the economic condition of the Australian industry;

PUBLIC RECORD


• the injury that was experienced by SPCA was caused by a range of factors, including the policies of the supermarket chains, the presence of un-dumped goods in the market (being the goods subject to measures arising from REP 217 and goods exported by La Doria); but

• nevertheless there is sufficient evidence to indicate that the goods exported by Feger have suppressed prices and caused SPCA to experience reduced profit and reduced profitability; and

• the injury experienced by SPCA has been material in degree, and but for the dumping of the goods would have been diminished.

PUBLIC RECORD


2 BACKGROUND

2.1 Original investigation

On 24 November 2014, SPCA lodged an application for the publication of a dumping duty notice in respect of PPT (the goods) exported to Australia from Italy by Feger and La Doria. Following consideration of the application, the Commissioner decided not to reject the application and initiated the investigation. Public notification of the initiation of the investigation was made on 19 January 2015 in The Australian newspaper and in Anti-Dumping Notice (ADN) No. 2015/05. In respect of the investigation, the Commissioner established an:

• investigation period of 1 January 2014 to 31 December 2014 for the purpose of assessing dumping (the investigation period); and

• injury analysis period beginning from 1 January 2010 for the purpose of determining whether material injury has been caused to the Australian industry (the injury analysis period).

Following two extensions of time granted by the then Parliamentary Secretary to the Minister for Industry, Innovation and Science (the then Parliamentary Secretary), the Statement of Essential Facts No. 276 (SEF 276) was published on 4 September 2015. A further extension of time was granted by the then Parliamentary Secretary to complete the final report. REP 276 was subsequently provided to the then Parliamentary Secretary on 18 January 2016. The then Parliamentary Secretary accepted the findings and recommendations contained in REP 276. A dumping duty notice imposing dumping duties on PPT exported to Australia from Italy by Feger and La Doria was subsequently published on 11 February 2016.7 The decision by the then Parliamentary Secretary to impose dumping duties is the reviewable decision to which this reinvestigation relates.

2.2 Review by the ADRP

Division 9 of Part XVB of the Act sets out procedures for review by the ADRP of certain decisions made by the Assistant Minister for Industry, Innovation and Science and Parliamentary Secretary to the Minister for Industry, Innovation and Science (the Parliamentary Secretary)8 or the Commissioner.

7 ADN No. 2016/13 refers.8 The Minister for Industry, Innovation and Science has delegated responsibility with respect to anti- dumping matters to the Parliamentary Secretary, and accordingly, the Parliamentary Secretary is the relevant decision maker. On 19 July 2016, the Prime Minister appointed the Parliamentary Secretary to the Minister for Industry, Innovation and Science as the Assistant Minister for Industry, Innovation and Science. 8 The Minister for Industry, Innovation and Science has delegated responsibility with respect to anti- dumping matters to the Parliamentary Secretary, and accordingly, the Parliamentary Secretary is the relevant decision maker. On 19 July 2016, the Prime Minister appointed the Parliamentary Secretary to the Minister for Industry, Innovation and Science as the Assistant Minister for Industry, Innovation and Science.

PUBLIC RECORD


Interested parties can apply to the ADRP to review certain decisions (reviewable decisions)9 in relation to anti-dumping matters.10 If an application for review of a decision of the Parliamentary Secretary is not rejected, the ADRP must make a report to the Parliamentary Secretary on the application recommending that the Parliamentary Secretary either affirm the reviewable decision or revoke the reviewable decision and substitute a specified new decision.11 The ADRP may, by written notice, require the Commissioner to reinvestigate specific findings that formed the basis of the reviewable decision, and report the result of his reinvestigation to the ADRP within a specified period.12 By notice published on 14 April 2016, the ADRP announced that it had received applications from Feger, La Doria and the Government of the Italian Republic (collectively referred to as the applicants) seeking a review of the then Parliamentary Secretary’s decision on a range of grounds. The notice advised that the ADRP would conduct such a review.13 By letter dated 14 June 2016, under subsection 269ZZL(1), the ADRP required the Commissioner to reinvestigate four major findings (and certain supporting findings). The relevant findings are summarised as follows:

9 As defined in subsection 269ZZA(1). 10 Section 269ZZC. 11 Subsection 269ZZK(1). 12 Subsection 269ZZL(1). 13 Non-confidential versions of all documents associated with the ADRP’s review of the decision are published on the ADRP’s website at www.adreviewpanel.gov.au.

PUBLIC RECORD


2.3 Relevant information

In conducting a review and making a recommendation to the Parliamentary Secretary, subsection 269ZZK(4) provides that the ADRP must, subject to subsections 269ZZK(4A) and 269ZZK(5), only have regard to relevant information (as defined in subsection 269ZZK(6)) and any conclusions based on the relevant information that are contained in the application for the review, or in any submissions received under section 269ZZJ within the period of 30 days referred to in that section. Under paragraph 269ZZK(6)(a), relevant information is the information to which the Commissioner had regard to, or was required to have regard to, under subsection 269ZDBG(2)(a) when making the findings in REP 276. This comprises the application, submissions concerning the inquiry to which the Commissioner had regard to for the purpose of the SEF 276, SEF 276, submissions in response to SEF 276, REP 276 and any other matters considered relevant by the Commissioner in the course of the investigation. If the ADRP gives the Commissioner a notice under subsection 269ZZL(1), then, in making a recommendation to the Parliamentary Secretary, the ADRP must also have regard to the reinvestigation report the Commissioner gives the ADRP under subsection 269ZZL(2).15

2.3.1 Submissions to reinvestigation

In order to address the matters outlined in Table 2, the Commissioner determined that it would be appropriate to provide interested parties with an opportunity to make submissions relating to the four findings being reinvestigated by 16 July 2016.16 Separately, the Commission wrote to Feger, La Doria, the European Commission and SPCA to seek specific additional information and evidence relevant to this task. The responses and other submissions received are as follows:

15 Subsection 269ZZK(4A). 16 ADN 2016/63 refers.

PUBLIC RECORD


• reassesses whether the Australian industry, comprising SPCA, has experienced material injury caused by the dumping of PPT exported to Australia by Feger and La Doria.21

21 Chapter 7; Finding 1 in Table 2 refers.

PUBLIC RECORD


3 INTERPRETATION OF SUBSECTION 43(2) OF THE REGULATION

3.1 Overview

The Commissioner finds that section 43 of the Regulation requires the Minister to have regard to (among other things) the nature of the costs recorded by an exporter of like goods, and to assess whether those costs reasonably reflect “competitive market costs”.22 This assessment is for the purpose of working out whether the Minister must determine an amount for the cost of production or manufacture of like goods in a country of export using the exporter’s records.

3.2 Findings in REP 276

Section 6.4.2 of REP 276 discussed the application of section 43 of the Regulation to the assessment of whether the normal value of the goods exported to Australia can be determined under subsection 269TAC(1) and the construction of certain normal values under subsection 269TAC(2)(c). The following sections noted the submissions of interested parties, the interpretation of the Regulation in Australian law, whether the costs recorded by Feger and La Doria reasonably reflect competitive market costs due to the existence of payments under the SPS to growers, the price of raw tomatoes in Italy, and the broader views of the interested parties.23 The Commission concluded that:

the totality of direct income support payments made to growers of raw tomatoes in Italy have significantly affected the prevailing market prices in Italy for raw tomatoes. Consistent with its usual policy and practice, the Commission is therefore satisfied that the costs recorded by Feger and La Doria for raw tomatoes in their records do not reasonably reflect competitive market costs for the purposes of section 43(2) of the Regulation.24

3.3 Submissions by interested parties

3.3.1 Applications to the ADRP

The Government of the Italian Republic, Feger, and La Doria25 argue that the cost adjustment infringes World Trade Organization (WTO) law, on the basis that the assessment of the impact of the SPS can only occur within the framework of a countervailing investigation.26 The applicants point out that the SPS is a “green-box” measure (compliant with the requirements of Annex II to the WTO Agreement on Agriculture) and therefore has no trade distorting effects.

22 Subsection 43(2)(b)(ii) refers. 23 Sections 6.4.3, 6.4.4, 6.4.5, 6.4.6, 6.4.7 and 6.4.8 of REP 276 refer, respectively. 24 Section 6.4.8 of REP 276. 25 Section 3.1 of the respective applications to the ADRP refer. 26 Referring to Article 32.1 of the WTO Agreement on Subsidies and Countervailing Measures.

PUBLIC RECORD


Further, the applicants claim that the language of subsection 43(2) of the Regulation mirrors that of Article 2.2.1.1 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (the Anti-Dumping Agreement, or ADA), which requires that the records “reasonably reflect” the costs associated with the production and sale of the product under consideration (not the costs associated with the production of any input) and that the records must reflect all costs associated with the production and sale of the product under investigation in a reasonable way (rather than requiring that the costs in the records should be reasonable). The applicants conclude that Article 2.2.1.1 does not allow the Commission to scrutinise whether the costs recorded by Feger and La Doria reflect the costs which they should have borne in the absence of the SPS. The applicants further argued that the Commission’s conclusion that prices for raw tomatoes in Italy are artificially low is contradicted by evidence collected during the investigation, noting the high cost of raw tomatoes in Italy and the absence of a higher benchmark price. The applicants content that the Commission’s report contains only speculative allegations that in the absence of the SPS the market price for raw tomatoes would have been higher, and is contradicted by the Commission’s finding that there was no particular market situation in the Italian market for PPT. The applicants concluded that it was also impossible to calculate the amount of the alleged subsidy as the alleged national ceiling for tomatoes relied on by the Commission did not exist.

3.3.2 With respect to the reinvestigation

The European Commission referred to the comparatively high cost of raw tomatoes in Italy and cast doubt on the Commission’s assessment that the cost was not competitive.27 The European Commission echoed other comments made by the Government of the Italian Republic that the Commission’s finding that there was no particular market situation (and therefore that domestic sales prices are suitable for the calculation of the dumping margin) is contradictory to the Commission’s subsequent decision to adjust the cost of production. The European Commission considers that the adjustment is unfounded and not supported by any evidence that raw tomato prices would be higher in the absence of the SPS. The European Commission is also critical of the Commission’s estimate of the value of the SPS received by tomato growers, referring to its submission in December 2015.28 Feger and La Doria also made additional submissions to the Commission which largely re-iterated the points made in other submissions.29

27 Document 002 on the public record for 360, page 6, refers. 28 Document 072 on the public record for 276 refers. 29 Documents 004, 005 on the public record for 360 refer.

PUBLIC RECORD


3.4 Reinvestigation of Finding 2 generally

Subsection 269TAC(1) of the Act relates to the calculation of normal value. The subsection provides:

Subject to this section, for the purposes of this Part, the normal value of any goods exported to Australia is the price paid or payable for like goods sold in the ordinary course of trade for home consumption in the country of export in sales that are arms length transactions by the exporter or, if like goods are not so sold by the exporter, by other sellers of like goods.

Other subsections of section 269TAC identify particular situations in which alternative methods of ascertaining normal values are to be used. Normal value will not be calculated under subsection 269TAC(1) if one of the following indicia applies:

• there is a situation in the market of the country of export such that the sales in that market are not suitable for use in determining a price under subsection 269TAC(1);

• there is an absence or low volume of sales of like goods in the market of the country of export that would be relevant for the purposes of determining a price under subsection 269TAC(1); and / or

• where like goods are not sold in the ordinary course of trade for home consumption in the country of export in sales that are arms length and it is not practicable to obtain, within a reasonable time, information in relation to sales by other sellers of like goods that would be relevant for the purposes of determining a price under subsection 269TAC(1).

In REP 276, the normal value of domestic sales was determined under both subsections 269TAC(1) and 269TAC(2)(c) of the Act. Subsection 269TAC(2)(c) was enlivened in the original investigation due to an absence and low volume of sales of certain models of the like goods, that is, PPT in the market in Italy, that were relevant for the purposes of determining a price under subsection 269TAC(1). This reinvestigation has not departed from this finding. Further to this, as provided for in section 269TAC, normal value in this instance of absent or low volume of sales of PPT was determined as a price constructed under subsection 269TAC(2)(c) using the costs of production with an allowance for administrative, selling and general costs and profit. This is discussed in further detail below.

3.4.1 Domestic sales under subsection 269TAC(1) – ordinary course of trade

In order for normal value to be determined under subsection 269TAC(1) of the Act, the price paid or payable for like goods sold must be in the ordinary course of trade (OCOT). As per subsections 269TAAD(1)(a) and (b), in order for a sale in the country of export to be considered to be in the OCOT, the sales of PPT in Italy must be:

• at arms length; • in substantial quantities during an extended period; and • for home consumption in the country of export or for exportation to a third country,

at a price that is not less than the cost of such goods and the seller will be able to recover these costs within a reasonable period.

PUBLIC RECORD


For sales in the OCOT to be in substantial quantities over an extended period, the total volume of goods that are sold at a price below the cost of such goods must not be greater than 20 per cent of the total volume of sales over that period.30 The costs of the goods are taken to be recoverable within a reasonable period of time if the selling price is above the weighted average cost of the goods over the investigation period (despite the selling price of those goods at the time of their sale being below the cost of those goods at that time).31 In order to determine the cost of production or manufacture of PPT in Italy and the administrative, selling and general costs associated with the sale of PPT under subsection 269TAAD(4), consideration must be had to sections 43 and 44 of the Regulation.32 These sections set out the manner in which the Minister must work out amounts for the cost of production and administrative, selling and general costs, and the factors to which the Minister must take account for that purpose.33

3.4.2 The cost of production and “competitive market costs”

Subsection 43(2) of the Regulation requires that, where an exporter or producer keeps records relating to the like goods and the records are in accordance with generally accepted accounting principles in the country of export and reasonably reflect competitive market costs associated with the production or manufacture of like goods, the Minister must work out the amount by using the information set out in the records. When considering whether the exporter or producer’s records reasonably reflect competitive market costs, the Commission considers “reasonably reflect” to mean that:

• the cost to make items are supported by the books of account; and • the costs themselves are “reasonable”, that is, the cost allocation methods used by

the exporter in working out those costs are reasonable.34

Further to this, the explanatory statement to the originally enacted regulation, that is, subsection 180(2)(b)(ii) of the Customs Regulations 1926, noted that the inclusion of the words “reasonably reflect competitive market costs” was to ensure that the relevant records were only taken into account if those records reasonably reflect competitive market costs and not just actual costs.35 The Commission is of the view that the word “reasonable” in this instance be given its dictionary meaning, which includes “acceptable” or “based on or using good judgement and therefore fair and practical”.36

30 Subsection 269TAAD(2) refers. 31 Subsection 269TAAD(3) refers. 32 Subsection 269TAAD(5) refers. 33 Subsections 43(1) and 44(1) of the Regulation refers. 34 Dumping and Subsidy Manual, page 44 refers. 35 https://www.legislation.gov.au/Details/F2005L03528/Explanatory%20Statement/Text. 36 Cambridge dictionary: http://dictionary.cambridge.org/dictionary/english/reasonable.

PUBLIC RECORD


The Commission also notes that the words “reasonably reflect competitive market costs” are different to Article 2.2.1.1 of the ADA, which uses the words “reasonably reflect the costs associated with the production and sale of the product under consideration.” Australia’s domestic legislation places an emphasis on the costs not only being “reasonable” but also “competitive” and the Commission’s approach gives effect to the intent of the Government when it applies this section of the Regulation.

3.4.3 Other matters – particular market situation

In the original investigation, the Commissioner was not satisfied that there was a situation in the market in Italy for PPT that would make sales of PPT in that market unsuitable for use in determining a price under subsection 269TAC(1).37 In considering whether there is a “particular market situation” the Commission has regard to all relevant factors affecting that market. Typically, the Commission only finds the existence of a “market situation” where there is a collection of factors which, in their totality, affect the interactions between supply and demand to such a degree that prices cannot be viewed as having been established under normal market conditions.38 The assessment of whether a particular market situation exists, however, is a separate and distinct task from assessing whether the costs recorded by an exporter reasonably reflect competitive market costs associated with the production or manufacture of like goods. The former assessment places an emphasis on conditions of supply and demand for the goods under consideration; in the case of PPT, the Commission noted the existence of the SPS and (based on the LECA model) accepted that the payment to raw tomato growers did not have a significant effect on the final price for PPT in the whole of the Italian market. No reasonable evidence of any other distortionary features that were present in the market for PPT were presented to the Commission; there was no evidence presented which would suggest that PPT prices were otherwise unreliable. Accordingly, the Commission did not find that there was a particular market situation relevant to sales of PPT in Italy. However, the Commission must nevertheless consider whether the costs recorded by Feger and La Doria reasonably reflect competitive market costs (for the reasons outlined in the preceding sections). It was reasonable for the Commission to examine whether and to what extent the SPS was impacting on the cost of raw tomatoes. REP 276 essentially concluded that the apparent value of the SPS payments received (€0.037 / kg) resulted in a cost advantage to Feger and La Doria which would not have occurred in a normal competitive market. In REP 276, the Commission’s assessment of whether a market situation existed examined the market for PPT generally. Separately, the Commission assessed whether the recorded costs reasonably reflected competitive market costs in the context of the market for raw tomatoes. Although both assessments closely examined the structure and effects of the SPS, a finding in one of these markets for one purpose is not necessarily instructive with regard to the other market for a different purpose. In the Commission’s view, the nature and effect of each assessment will depend on the facts of the case.

37 REP 276, section 6.3.3. 38 See also Dumping and Subsidy Manual, pages 35-36.

PUBLIC RECORD


The Commission observes that the cost of raw tomatoes represents less than half of the overall CTMS of PPT. In other cases, where the raw material cost represents a high proportion of the CTMS of the finished product (such as in steel), a finding that the recorded costs are not competitive may lead to a conclusion that the cost distortion is so great that it also affects prices in the market for the goods, and therefore that there is a particular market situation. Alternatively, the recorded costs may be entirely competitive (for example, the raw materials may have been imported at globally-traded prices) but nevertheless the market for the finished product may be distorted by other, unrelated factors to such a degree that a particular market situation nevertheless prevails. The Commission’s reinvestigation of the competitiveness of the market for and the recorded costs of raw tomatoes is discussed in Chapter 5.

3.4.4 Other matters – WTO jurisprudence

The Commissioner notes that the ADRP has drawn his attention to the submission made by Orange and Green Pty Ltd, which contends that the interpretation of the words “reasonably reflect” in Article 2.2.1.1 of the ADA has been recently clarified by the Panel Report concerning European Union – Anti-Dumping Measures on Biodiesel from Argentina (referred to in this report as Biodiesel).39 The Commission observes that this matter has now been appealed to the Appellate Body. The Commissioner notes that WTO jurisprudence may assist in interpreting Australia’s anti-dumping law. In Pilkington (Australia) Ltd v Minister of State for Justice and Customs [2002] FCAFC 423 the Full Court stated:

“To the extent that the Parliament has passed (as it has) legislation dealing with the subject matter of the Implementation Agreement, that legislation will be interpreted and applied, as far as its language permits, so that it is in conformity, and not in conflict, with Australia’s international obligations. Where a statute is ambiguous (the conception of ambiguity not being viewed narrowly) the court should favour a construction consistent with the international instrument and the obligations which it imposes over another construction: Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273, 287; Kartinyeri v The Commonwealth (1998) 195 CLR 337, 384 at [97].”

The Implementation Agreement is a reference to the ADA. The important point is that Australia’s anti-dumping legislation should be interpreted so as to be consistent with the ADA “as far as its language permits”. The Commissioner’s view is that the meaning and intent of the expression in subsection 43(2) of the Regulation requires an examination of the costs recorded by an exporter to assess both reasonableness and competitiveness. However, as a result of other findings made in the course of the reinvestigation and referred to in the following chapters, the Commissioner does not consider it necessary to express a view on the Biodiesel case for the purpose of addressing this ground.

39 The relevant submission is available on the ADRP website; the submission refers to the Panel Report (WT/DS473/R) at paragraph 7.242 and footnote 400.

PUBLIC RECORD


4 VALUE OF SPS PAYMENTS AND AMOUNTS RECEIVED BY GROWERS

4.1 Overview

The Commissioner considers that the substantially better evidence obtained in the course of this reinvestigation indicates that the value of SPS payments made to growers under the terms of the CAP varies according to the entitlements held. These entitlements are based on the land holding, and the payments are made regardless of crop or whether any part of the land remains fallow. The Commission has quantified the value of the SPS payments received on a per hectare basis. Once the yield rate for tomato production in Italy in 2014 is factored into the volume of raw tomatoes actually purchased, the Commissioner finds that the growers received approximately €0.014 / kg under the SPS during the investigation period. The value of the SPS payments received is substantially less than the amount established in REP 276.


The Commission relied on the available relevant evidence to calculate an amount for the income support payments made to growers of raw tomatoes under the SPS during the investigation period.40 The Commission identified an amount that to the best of its knowledge reflected the “ceiling” for payments to tomato growers under the SPS (being €183,970,000). This amount was divided by the total production volume of tomatoes in 2014 (4,911,000,000 kg) to calculate a per kilogram value, being €0.037 / kg. The Commission found that this amount had been received by growers of raw tomatoes during the investigation period, relying on the information that was available to the Commission at the time.



Feger, La Doria and the Government of the Italian Republic have claimed that the Commission’s calculation of the value of the SPS payment received by tomato growers (being €0.037 / kg) is flawed. Feger and La Doria indicate that the Commission’s figure is higher than the estimate made by Rickard and Sumner (€0.0345 / kg) despite a finding that “the CAP payments have been reduced since 2011”, and also higher than the amounts shown on a sample of official payment certificates for Feger’s and La Doria’s growers. Feger and La Doria argue that the Commission’s calculation is therefore “ill-founded”.41

40 REP 276, section 6.4.9 refers. 41 Section 4.1.1 of the applications to the ADRP refer.

PUBLIC RECORD



In addition to the above, Feger and La Doria refer to findings of Rickard and Sumner that CAP payments in 2001 were €34.50 / tonne and had fallen to €17.25 / tonne between 2008 and 2011, and argue that the Commission’s calculation (which was equivalent to €37 / tonne) is clearly contradictory, manifestly overestimated and wrong.42 With regard to the Commission’s rejection of the official payment certificates (the reasons for which are set out at section 6.4.5 of REP 276), Feger and La Doria submit that it would be unreasonable for an exporter to provide evidence of the payments made to all growers of raw tomatoes under the SPS during the investigation period. Further, only the payments made to growers which are also suppliers to the relevant exporters would be appropriate to take into account. Feger and La Doria do not agree that the absence of an official stamp is valid grounds to reject the certificates presented to the Commission, and that they contain publically available information. The low quality of the electronic files submitted was not pointed out during the investigation by the Commission, and therefore neither Feger nor La Doria had an opportunity to remedy this situation.43 The European Commission generally supports the submissions from Feger and La Doria to the ADRP with regard to the quantum of the payments received.44 The European Commission indicates that there is no possible way for it to estimate the annual CAP payments made to tomato growers in Italy since payments are based on land ownership, irrespective of the production (if any) which occurred using that land. There is therefore no evidence available to the Government of the Italian Republic to track the payments made according to crop.45 The European Commission subsequently noted that there is a discrepancy between its official statistics46 and those provided by Feger and La Doria.47 With respect to yield rates for tomato production in 2014, the European Commission has referred to data provided by Eurostat (which indicated a rate of approximately 43,600 kg / ha) whereas Feger and La Doria rely on information provided by the WPTC (which indicated a rate of 73,000 kg / ha). The European Commission suspects that its own statistics have a wider coverage (for example, it may be inclusive of the production of tomatoes for fresh consumption) and states that the statistics compiled by “specialised and internationally recognised sources” (i.e. the WPTC) appear to be more reliable than its own, more general data (i.e. Eurostat). The European Commission advised that it will seek to provide an explanation for the discrepancy between the two sources if possible. No further explanation has been received by the Commission to date.

42 Submissions to the Commission; section 3.1.1 of documents 004 and 005 on the public record for 360 refer. 43 ibid; section 3.1.2 refers. 44 Document 002 on the public record for 360, page 11, refers. 45 ibid, page 10, finding 2b. 46 Document 007 on the public record for 360 refers. 47 Documents 009 and 010 on the public record for 360.

PUBLIC RECORD


4.4 Reinvestigation of Finding 3a

The Commissioner’s view is that the amount paid to growers under the SPS in REP 276, being €0.037 / kg, was reasonable based on the evidence then available, noting that the application of section 269TAC is a practical exercise involving broad judgements on questions of fact.48 The Commission accepts the European Commission’s submissions of 8 July 2016 and 5 August 2016 concerning its inability to track the payments made under the SPS according to crop. The Commission is satisfied that, as a result, the European Commission is unable to advise the value of SPS payments received in respect of the production of raw tomatoes during the investigation period. The Commission’s satisfaction stems from the receipt of new evidence provided by the exporters which directly resolves the same enquiries that the Commission had put to the European Commission (see below). The European Commission has been able to provide information concerning the total value of payments made under the SPS during the investigation period (being almost €3.77 billion) and the total area (over 8.3 million hectares) in respect of which those payments were received. The European Commission therefore calculates that the average value of SPS payments received by entitlement holders is €451 / ha.

4.4.1 New evidence

Notwithstanding the views expressed in their submissions of 13 July 2016, both Feger and La Doria have now provided a significant amount of new information to the Commission in connection with this reinvestigation. This information has been provided in a number of tranches, either offered voluntarily or in response to further questions from the Commission. Feger and La Doria argue that this information supports their view that the Commission has overestimated the payments granted to growers under the SPS. The information includes a spreadsheet which records the value of SPS payments actually received by their suppliers, the volume and value of tomatoes purchased from each supplier, and the area of land (in hectares) held by each supplier in respect of which the SPS entitlements were paid. Feger and La Doria have also provided the Commission with the SPS payment certificates relevant to a sample of their growers. The certificates are issued by the Agenzia per le Erogazioni in Agricoltura (Agency for Agricultural Payments, AGEA); each certificate shows the grower’s name, the year in respect of which the payment has been received, the number of titles held and the quantum of land to which they relate, and the amount received in respect of each title held and the regulatory basis for that payment.49 The certificates provided to the Commission account for growers which supplied 85 per cent and 37 per cent of the volume of raw tomatoes purchased by Feger and La Doria, respectively, during the investigation period.

48 Minister for Small Business, Construction and Customs v La Doria di Diodata Ferraiolli SpA (1994) 33 ALD 35, 45 per Black CJ and Lockhart J. 49 For example, Regulation 73 / 2009. See also Article 37(1) of 1782/03.

PUBLIC RECORD


The Commission was able to access the AGEA website using the information provided by Feger and La Doria to call up the certificates for the growers listed, using the relevant identifying information contained in the spreadsheets. The Commission was able to confirm the accuracy of the information recorded in the spreadsheets for the certificates provided, and was able to update the information in respect of a small number of growers to resolve minor transcription errors. The Commission observed that the value of SPS payments received by growers for whom certificates were not provided (that is, covering the remaining 15 per cent and 63 per cent of Feger and La Doria purchase volumes, respectively) was slightly higher, on average, than the payments supported by the provided certificates. The volume of tomatoes purchased from all suppliers aligned to the purchase volume verified during the investigation. The Commission is therefore satisfied that the new evidence provided is a sufficiently reliable record of the value of SPS payments actually received by all growers supplying raw tomatoes to Feger and La Doria. The Commission has consolidated the information provided by Feger (Confidential Attachment 1) and La Doria (Confidential Attachment 2) for the purpose of this report.

4.4.2 Commission’s analysis

The Commission notes that the evidence provided by the growers supplying to Feger and La Doria demonstrate that the value of SPS payments actually received varies considerably, from €287 / ha to €3872 / ha. There are also a number of growers that appear to have not received any payment, although these are a very small proportion overall (less than 5 per cent by volume supplied). The Commission observes that the weighted average value of the payments received per hectare by the growers supplying to Feger and the growers supplying to La Doria are approximately €1000 and €900 respectively, more than twice the average payment (€451 / ha) calculated by the European Commission. In order to calculate a per kilogram value, Feger and La Doria have both relied on the WPTC yield rate in 2014. Both companies compare the volume of raw tomatoes purchased from their growers, and have applied the yield rate (73,000 kg / ha) to calculate the number of hectares each grower had under cultivation. The Commission notes that SPCA has also been sceptical concerning the Eurostat data, preferring the WPTC statistics as the more reliable source.50 Accordingly, the Commission is satisfied that the yield rate derived from WPTC statistics for 2014 is the most reliable information available for this purpose. As noted by Feger and La Doria in submissions, it is not simply a matter of applying the value of SPS payments received to the volume of raw tomatoes that each company purchased; the suppliers may not have exclusively produced tomatoes, or may not have supplied exclusively to one customer. In those cases, the potential value of the SPS payment received per kg of raw tomatoes would be diluted when it is factored into the cost of production.

50 See document 013 on the public record for 360, referring to document 065 on the public record for 276.

PUBLIC RECORD


5 IMPACT OF SPS ON RAW TOMATO PRICES PAID BY FEGER AND LA DORIA

5.1 Overview

The Commissioner has considered whether economic theory provides some indication as to the potential impact of the SPS payments on the prices obtained by growers. The Commissioner has examined the relationship between the prices paid by Feger and La Doria and the value of SPS payments received by growers, and has found that there is little - if any - correlation between the two. The Commissioner has obtained no other evidence of any other influence over the raw tomatoes market being exerted by the Government of the Italian Republic or the European Union which would cause him to conclude that the prices paid for raw tomatoes are otherwise uncompetitive. Accordingly, the Commissioner finds that the costs recorded by Feger and La Doria in their respective accounts are competitive market costs, and, noting that Feger and La Doria’s records are in accordance with generally accepted accounting principles in Italy, this means that the cost of production for each exporter must be worked out using the information set out in those records.


As noted previously, in REP 276 the Commission found that the full value of the apparent SPS payment amount to growers (€0.037 / kg) impacted prices for raw tomatoes, and therefore the Commission uplifted Feger’s and La Doria’s recorded raw tomato cost by this amount in order to most closely reflect a competitive market cost in the dumping margin calculations. Section 6.4.10 of REP 276 noted that Feger and La Doria objected to the adjustment of the cost of production by the full amount of the subsidy paid to growers. Instead, Feger and La Doria argued that only 73 per cent of the amount of the subsidy should have been applied, on the basis that this “flow on” amount was identified in the market situation assessment. The Commission concluded that a flow on analysis for a market situation assessment is a separate and distinct process from the adjustment of the cost of production while conducting the OCOT test.



Several submissions made by the applicants which have already been referred to in this reinvestigation report are also relevant to this ground.

PUBLIC RECORD


The Government of the Italian Republic noted that in REP 276 the Commission concluded, in the context of a market situation analysis, that “in a realistic scenario” only 73 per cent of the alleged subsidy paid to tomato growers would flow on to the market price paid by Feger and La Doria. As a result, it submitted, the approach in REP 276 (to apply a 100 per cent flow on of the SPS payment) was ill-founded.51 Further, the Government of the Italian Republic argues that Article VI.3 of the General Agreement on Tariffs and Trade 1994 and Article 10 of the Agreement on Subsidies and Countervailing Measures prevent an investigating authority from assuming that a subsidy granted to producers of an upstream input automatically benefits unrelated producers of the downstream product.52 The Government of the Italian Republic argues that the Commission’s failure to undertake a pass-through analysis infringed the abovementioned articles. These views are largely echoed by Feger and La Doria.53


Several submissions made by the interested parties which have already been referred to in this reinvestigation report are also relevant to this ground. The European Commission noted the data in Appendix 1 of REP 276 which showed a subsidy rate of €0.0345 / kg in 2001 when payments were coupled and only €0.01725 / kg in 2011 after the reduction of CAP payments by 50 per cent. The European Commission also referred to its previous submission in respect of REP 276.54 Feger and La Doria echoed these comments, but also referred to the payment certificates provided on behalf of their growers and indicated that the value of the SPS payments received is substantially less than the amount claimed by the Commission in REP 276.55

5.4 Reinvestigation of Finding 3a, 3b

Having established:

• that it is legitimate for the Commissioner to consider whether the cost of raw materials are competitive market costs in Chapter 3; and

• the value of payments received by growers under the SPS in Chapter 4, the next step in the Commission’s assessment is to consider whether, and to what extent, the amount of the SPS payments received influenced the prices paid by Feger and La Doria for raw tomatoes. This analysis is necessary as a first step in examining whether Feger’s and La Doria’s recorded costs for raw tomatoes are “competitive market costs” within the meaning of subsection 43(2) of the Regulation.

51 Section 4.1 of the application to the ADRP from the Government of the Italian Republic refers. 52 Referring to the views of the Appellate Body in US – Softwood Lumber IV. 53 Section 4.1 of the applications to the ADRP refer. 54 Document 059 on the public record for 276 refers. 55 Documents 004, 005 on the public record for 360 refer.

PUBLIC RECORD


5.4.1 Context – raw tomato prices in Italy

The exporters maintain that the Commission’s failure to establish a benchmark price which is higher than the prices paid for raw tomatoes in Italy proves that the market for raw tomatoes in Italy is competitive. To support that proposition, the exporters relied on the following chart of global raw tomato prices during the investigation period.56

Chart 1: Prices of tomatoes in 2014

Source: World Processing Tomato Council

The Commissioner is satisfied that the WPTC is a relevant and reliable source of information regarding prices of raw tomatoes from its member countries. However, the Commissioner notes that the prices paid in any market for raw tomatoes are a function of the different growing conditions, operating conditions and scale that may be prevalent. There are also practical limitations which may hinder the trade of raw tomatoes, such as food handling or country of origin regulations; differences in quality (real or perceived) will also affect the prices paid. Accordingly, without further evidence regarding the various economic factors described above, the comparison of prices in different markets is not sufficient to demonstrate that any given market is “competitive”. It does not follow that the Commissioner will be satisfied that a high price for a product within one market, compared to another market, necessarily indicates that the first market is competitive (or that the other markets may be uncompetitive). All of the circumstances of the market are relevant considerations.

56 Document 063 (page 11) on the public record for 276.

PUBLIC RECORD


5.4.2 Economic theory – to what extent is the SPS expected to influence prices?

The SPS was a major reform of the CAP in response to criticism from other WTO member countries that the CAP coupled to production provided an unfair competitive advantage.57 LECA, drawing on economic theory, suggests that after a prolonged period of subsidisation even slight changes to the CAP program, such as the introduction of the SPS, would have some real effect on the production and prices of raw tomatoes in Italy.58 Whilst the Commission has obtained some WPTC evidence of historical prices for raw tomatoes in Italy, it is not in a format that enables a meaningful comparison from year to year. However, the chart below illustrates movements in the number of hectares being cultivated and the production volumes of raw tomatoes in Italy since 2000.

Chart 2 – Area cultivated, tomato production volume in Italy

Source: World Processing Tomato Council

There appears to be no obvious correlation between the commencement of the SPS in 2011 and the production volume of tomatoes when compared to historical trends. The Commission’s view is that the SPS confers an economic advantage to its recipients. Whether that advantage is shared between the recipient (the growers) and their customers (Feger and La Doria) was the subject of some discussion in the LECA report, focusing particularly on supply and demand elasticity.59 LECA’s view was that, after considering the characteristics of the market for raw tomatoes in Italy, that any amount of the SPS which flowed on from the growers to consumers was unlikely to be zero, and equally unlikely to be 100 per cent.

57 LECA Report page 19. See also Council Regulation No 1782/2003. 58 LECA Report, page 19. 59 LECA Report, page 27.

PUBLIC RECORD


5.4.3 Actual impact on prices paid by Feger and La Doria

The European Commission has indicated that, to qualify for SPS payments, a person is only required to hold an eligible parcel of land and will receive the SPS payment based on that eligibility alone, regardless of whether any production occurs. The European Commission confirmed that each person who has a parcel of eligible land receives the direct income support payment to which they are entitled, regardless of crop produced.60 Accordingly, the European Commission maintains that the SPS has little, if any, distortionary effect on the market and therefore would have little, if any, impact on the price of raw tomatoes during the investigation period. Having observed the range of SPS payment values received by growers, the Commission hypothesised that, if the SPS payment was passed through to Feger and La Doria, the growers being subsidised the most would be likely to be selling their tomatoes at lower unit prices. To test this hypothesis, the Commission examined the data contained in Confidential Attachments 1 and 2 to see whether there was any correlation between the prices paid to and SPS payments received by the growers that supplied Feger and La Doria. This analysis is contained in Confidential Attachment 3. Chart 3, below, compares unit prices with the per hectare value of SPS payments received by each grower (as explained in chapter 4, incorporating the assumed yield rate and assuming that all hectares in respect of which SPS payments were received were dedicated exclusively to growing the total volume of tomatoes purchased).

60 European Commission’s submission dated 5 August 2016, page 5.

PUBLIC RECORD


Chart 3 – Comparison of SPS payments received, unit prices paid

The analysis demonstrates that growers receiving no payments (at the far left) and growers receiving the highest payments (at the far right) are obtaining mostly similar prices clustered around €0.10 / kg. The chart also suggests that growers receiving no or low SPS payments per hectare are generally obtaining higher (albeit more variable) prices than growers that received larger SPS payments. Chart 4, below, plots each grower at the intersection of the price received per kilogram of tomatoes (left axis) and the per kilogram value of SPS payment received (bottom axis). If there was a strong correlation between the SPS payment received and the unit price of raw tomatoes, the sales would strongly trend from the upper left hand corner of the chart to the lower right. The Commission has incorporated a linear regression, indicated by the red line, with the shaded area representing the 95 per cent confidence interval.

PUBLIC RECORD


Chart 4 – Correlation analysis (SPS payments received per kg, unit prices paid)

The linear regression plots an expected line for the data to follow if one factor is dependent on the other, in this case if the unit price is dependent on the amount of SPS assistance received. The coefficient of determination (r2)61 value explains how much the movement in one factor can be used to explain movement in the other, and is expressed as a fraction of 1 (i.e. a perfect explanation will be 1, and no correlation at all will be 0). In Chart 4, the r2 is 0.0127. Being so close to zero indicates that there is little - if any - correlation between the value of SPS payments received and the prices being obtained by growers. Chart 5, below, examines the relationship between volume and value for each grower.

61 In each instance, the coefficient of determination is the adjusted r2 calculated using a simple regression. This is referred to as the r2 for clarity.

PUBLIC RECORD


Chart 5 – Correlation analysis (volume, value for each grower)

As with Chart 4, a linear regression has been incorporated in Chart 5. The linear regression demonstrates a very strong correlation (r2 = 0.992) between volume and value, which is to be expected (logically, the higher volume of tomatoes purchased, the higher the value overall). However, when the Commission compares unit prices with the volume purchased, the relationship is starkly different.

Chart 6 – Correlation analysis (volume, unit price for each grower)

PUBLIC RECORD


The r2 value in Chart 6 is 0.0032, which indicates that there is even less of a correlation between unit prices and volume than there is between unit prices and SPS payments received in Chart 4. Recalling that the producer organisations negotiate prices on behalf of growers, the Commission’s interpretation of these results is that prices are agreed primarily by reference to quality or type; there appears to be no form of volume discount which is to either Feger’s or La Doria’s advantage, with the effect that growers receive substantially the same price no matter the volume of tomatoes supplied. The Commission noted at section 4.4.2 that a small proportion of growers did not receive any SPS payments. The Commission compared the prices obtained by both subsidised and non-subsidised growers, and noted that there were differing trends:

• of the growers that supplied to La Doria, the subsidised growers obtained slightly higher weighted average prices (a difference of €0.0008 / kg) than the growers that were not subsidised;

• of the growers that supplied to Feger, the subsidised growers obtained markedly lower weighted average prices (a difference of €0.018 / kg) than the growers that were not subsidised.

The Commission delved into the data for Feger and noted that the small proportion of growers that did not receive an SPS payment included a number that received much higher than average unit prices. The Commission considers that these high unit prices are of a scale which indicates that they are most likely a result of differences in the type of tomatoes supplied by that grower. More broadly, the evidence of the volume and value of tomato purchases for each grower are with respect to all types of tomatoes (such as round, long, cherry, organic etc.). Accordingly, the mix and relative proportions of tomato types supplied by each grower will also influence the weighted average prices paid. However, the Commission considers that the bulk of tomato purchases are of “standard” types (being round or long), and therefore the influence of more expensive / smaller volume tomato types on unit prices is likely to be substantially diluted. Noting the comparatively smaller volume of tomatoes supplied to Feger and La Doria by growers that did not receive SPS payments, the Commission is unable to draw any firm conclusions regarding this analysis. However, this evidence does not support a finding that the SPS resulted in tomato prices which were lower than they otherwise would have been but for the SPS. On the basis of the above analysis, the Commission has concluded that the SPS had no discernible impact on the prices actually paid by Feger and La Doria for raw tomatoes during the investigation period.

PUBLIC RECORD


5.4.4 Application of the Regulation to Feger and La Doria’s cost of raw tomatoes

In applying subsection 43(2)(a) of the Regulation, the Commissioner confirmed that both Feger and LaDoria kept records relating to PPT in accordance with the generally accepting accounting principles in Italy. This was confirmed during the Commission’s verification visits to Italy during the original investigation.62 However, as noted elsewhere in this report, the Commission must also assess whether the costs recorded in those records are “competitive”. There is limited guidance in the Dumping and Subsidy Manual as to what “competitive” means; the term is given its usual meaning and this can only be known according to the case circumstances.63 For example, the Dumping and Subsidy Manual goes on to note:

The concept of a competitive market price is not taken to prevent an exporter buying inputs from arms length suppliers at the prevailing price even if that input had been sold at below cost or dumped.

[…]

When examining whether the input is supplied at a normal competitive market price the Commission may enquire whether the government had influenced the price of any major cost inputs. Government influence can be the supply of inputs by government-owned enterprises, or may arise in other circumstances.

Where a finding has been made that a major cost input is supplied by a government-owned enterprise, or there are other forms of government influence, the normal value should be calculated as the sum of:

• a determined (substitute) amount, having regard to all relevant information, for the value of the major cost input supplied by the government-owned enterprise (irrespective of the actual cost incurred by the exporter or producer for that input);

• the remaining production costs incurred by the exporter or producer; and • administrative, selling and general costs associated with the sale and profit, had the goods

been sold for home consumption in the country of export.

The Commission will first look to information in the country of export when calculating a price for the major cost input. [emphasis added]64

In terms of the circumstances of this reinvestigation, there is no evidence to indicate that raw tomatoes were sold to Feger and La Doria at prices which were below cost, nor that prices were negotiated otherwise than at arms length. As can be seen in section 5.4.3, there is no correlation between the SPS payments actually received and the prices being paid by Feger and La Doria. The Commission is not aware of any evidence of other influence over the market for raw tomatoes being exerted by the Government of the Italian Republic or the European Union that would artificially depress prices for raw tomatoes.

62 Documents 051 (page 20) and 053 (page 25) on the public record for 276. 63 Dumping and Subsidy Manual, page 44. 64 ibid., pages 44, 45.

PUBLIC RECORD


The Commission observes that prices are negotiated with the tomato processors via producer organisations in most cases. There are a large number of these organisations in Italy, and their market power appears to be relatively diluted given the varying prices which have been paid by Feger and La Doria. As a result, the Commission has no evidence which suggests that the producer organisations are influencing the market in such a way that would artificially depress prices for raw tomatoes. Based on the further information that has become available to it during this re-investigation, the Commissioner has concluded that the market for raw tomatoes operates on a competitive basis. Accordingly, the Commissioner finds that the cost of raw tomatoes as accounted for in the records of Feger and La Doria are competitive market costs.

PUBLIC RECORD


6 FEGER’S CLAIMED ADJUSTMENTS AND THE CALCULATION OF DUMPING MARGINS

6.1 Overview

The Commissioner has examined Feger’s claimed adjustments. Noting that there is no additional evidence which has been provided in the context of this reinvestigation, the Commissioner is satisfied that the position established in REP 276 is correct. The Commissioner has therefore rejected Feger’s claims in this regard. The Commission has calculated revised dumping margins based on these findings and the findings established in previous chapters. The revised dumping margins are set out in Table 5.






In REP 276 the Commission acknowledged that Feger may have incurred some component of its advertising and quality control expenses in relation to domestic sales of PPT. However, the Commission was not satisfied that the evidence demonstrated what proportion of those expenses could reasonably be allocated to those goods sold domestically. The Commission was therefore not satisfied that the effect, if any, on domestic prices could be reasonably quantified for the purpose of making an adjustment, and did not make such an adjustment.65 The Commission acknowledged Feger’s claims regarding its administration costs, but considered that an adjustment was not appropriate as they related more to the general cost of doing business and were spread across all sales of the company. The Commission found that Feger’s expenses in this regard did not fall within the scope of the term “differences in conditions and terms of sale”, and therefore no adjustment was made.66

65 Section 6.6 of REP 276 refers. 66 Section 6.5.5 of REP 276 refers.

PUBLIC RECORD


The Commission also acknowledged Feger’s claims that the finance cost reported in its financial statement relates to borrowings that have no relationship to the production of tomatoes. The Commission indicated that insufficient evidence was provided to substantiate the net amount of the finance expense recorded in Feger’s 2014 income statement; in any event, the Commission calculated an amount for finance cost based on the statement, and applied that percentage to Feger’s net invoice values of like goods only to determine an amount related to each sale of like goods.67



Feger claims that the Commission unduly rejected downward domestic adjustments regarding advertising and quality control expenses, notwithstanding that such adjustments were accepted in REP 217 and relied on the same documentary evidence and same allocation method.68 Further, Feger argues that the Commission provided no explanation as to why the allocation would not “reasonably represent” the expenses incurred for the goods. These claims were supported verbatim by the Government of the Italian Republic.69 Feger further claims that the Commission unduly rejected a downward domestic adjustment regarding administration costs (as Feger incurs considerably higher expenses to sell the goods in Italy than in Australia) and that the Commission overestimated its finance costs, which represents the “negative interests” that Feger pays to banks for borrowing money and which was also used for extraordinary expenses not related to the production or sale of the goods during the investigation period.


In its submission to the reinvestigation, Feger claims that the Commission’s position in REP 276 was ill-founded.70 Feger claims that it provided the verification team with comprehensive information and evidence regarding the advertising and quality control adjustments, and expressed its availability to provide any further evidence required. Feger argues that it should have been informed that the Commission was dissatisfied with the evidence submitted and been given another opportunity to provide further information. Feger goes on to note the difference in approach to REP 217 when the same evidence was acceptable for the purpose of such an adjustment, and points out that the allocation methodology used by Feger for these costs is no different to the methodology used for other adjustments (such as year-end rebates or commissions) which were acceptable to the Commission. Feger argues that the Commission’s approach is manifestly flawed, and goes on to provide further explanation of its views on this claimed adjustment.

67 Section 6.5.6 of REP 276 refers. 68 Feger application to the ADRP, section 5.1 refers. The approach taken in REP 217 is set out in the Visit Report for Feger (chapter 8 refers), available here. 69 Government of the Italian Republic application to the ADRP, section 5.1 refers. 70 Document 004 on the public record for 360, sections 4.1 to 4.3, refer.

PUBLIC RECORD


Feger notes that the adjustment it claimed for administration costs relates to the comparatively higher number of staff dedicated to direct selling activities in the domestic market than to the export market. Feger points out that the overall higher costs of selling domestically should be deducted from the normal value, noting that the cost of such activities in Australia is incurred by Feger’s customers. Feger provided further detail on its finance costs in 2014, and provided further claims as to why a proportion of those costs should not be included in the Commission’s calculation.


The visit report for Feger in REP 276 indicates that the Commission was satisfied that Feger had incurred costs for both quality control and for advertising, but that there was insufficient evidence to be satisfied that either cost is allocated to the goods under consideration and to like goods, or that either cost is distinguished between domestic and export sales. The Commission further advised that,

Without such evidence, the Commission cannot be satisfied as to whether and to what extent there is a difference in such expenses such that it would affect a comparison of export and domestic prices. Therefore, the visit team consider a downward adjustment [for quality control and advertising expenses incurred on domestic sales] is not warranted.71

The Commission considers the objective of an on-site verification visit to an exporter is to establish, to a level of satisfaction, that the data submitted by the interested party is complete, relevant and accurate. This is in contrast to assessing, on-site, the merits of such data for the purpose of making an allowance for differences which affect price comparability. In the same manner, the Commission also considers that, on the basis of an on-site verification visit, although data submitted by an exporter may be assessed as complete, relevant and accurate, the data may not necessarily constitute sufficient evidence that a particular difference exists that affects price comparability. An assessment of whether or not it does or not may not necessarily be determined at that point in time.72 The Commission considers that the evidence that Feger provided in relation to advertising and quality control costs in the context of REP 217 is specific and relevant only to that investigation and the particular period and circumstances relating to that investigation. The Commission notes that Feger did not provide any new evidence to support its claims for advertising and quality control adjustments to its normal value. The Commission has re-examined the material before it in the context of this reinvestigation and has determined that the data submitted by Feger does not constitute sufficient positive evidence to support such adjustments. The Commission notes that this view was consistently maintained in the verification report, the SEF and the Final Report; the reasoning set out in Confidential Attachment 3 to REP 276 (included here as Confidential Attachment 4) remains the Commission’s position.

The Commissioner therefore affirms the finding made in REP 276.

71 Document 051 on the public record for case 276 refers. 72 Verification Guidelines, ‘Administration of Australia’s Anti-Dumping and Countervailing System’ (March 2016), page 11.

PUBLIC RECORD


6.5 Reinvestigation of Finding 4b

The Dumping and Subsidy Manual states that adjustments will not be made for differences in general sales and administration expenses, when those expenses relate more to the general cost of doing business and are spread across all sales of the company. The Commission considers that general expenses of this nature do not fall within the scope of the expression “differences in conditions and terms of sale.”73 The Commission has re-examined the arguments contained in Feger’s submission to the original investigation and the extra information it provided prior to the publication of REP 276 regarding this claim for a downwards adjustment. The Commission observes that Feger has incurred domestic administration costs. However, these costs are allocated across all products and not only to PPT, which indicates that the costs are related to the general cost of doing business. The Commission’s view is that Feger has not provided sufficient positive evidence that demonstrates price comparability has been affected. The Commission notes that Feger has now claimed that these “administration expenses”, as it has referred to them previously, do not in fact concern Feger’s “administration” but rather concern “direct selling activities performed by Feger’s staff dedicated to Italian customers.”74 The Commission notes that the information provided during this reinvestigation contains no additional evidence that the domestic prices or export prices were modified by way of these expenses. Having reinvestigated Feger’s claims for a downwards adjustment to the normal value in respect of administration costs, the Commissioner affirms the finding made in REP 276.

6.6 Reinvestigation of Finding 4c

The onsite verification of Feger’s data confirmed that its records are in accordance with the generally accepted accounting principles in Italy and that those records reasonably reflect the administrative, general and selling costs associated with its sale of the like goods.75 As a result, and in accordance with section 44 of the Regulation, the Commission used the amount recorded in Feger’s financial records to calculate an amount of finance expense for normal value purposes in REP 276. The reinvestigation has considered Feger’s claim that the amount recorded in its 2014 income statement includes interest expenses in relation to borrowings for extraordinary expenses not related to the production and sale of PPT. Additionally, Feger submitted an alternate calculation which assumes that the finance cost to be attributed to PPT is equal only to the credit cost incurred on domestic sales of like goods.

73 Dumping and Subsidy Manual (November 2016), page 60. 74 Document 004 on the public record for 360 refers. 75 Document 051 on the public record for 276, page 11 refers. See also REP 276, page 34.

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The Commission has considered the evidence that Feger provided.76 The Commission is satisfied that although the evidence indicates that certain cash outflows may have occurred during 2014, the evidence fails to indicate what the extraordinary expenses were or link the cash outflows in 2014 to the “extraordinary expenses”. Further, Feger has not provided any positive evidence to the Commission to support the validity of the claim that the finance cost that should be attributed to PPT is equal to the credit cost incurred only on domestic sales of like goods. After reinvestigating Feger’s claims for a downwards adjustment to the normal value in respect of finance costs, the Commissioner affirms the finding made in REP 276.

6.7 Consequential impacts on dumping margin calculations

Following the reinvestigation of the adjustments claimed by Feger in the preceding sections, the Commission has re-calculated the dumping margins for each exporter. As per the findings in chapters 3, 4 and 5, no uplift has been made to the recorded cost of raw tomatoes. The dumping margin calculations are included in Confidential Attachment 5 (for Feger) and Confidential Attachment 6 (for La Doria).

The revised dumping margins are set out in Table 6.





The Commissioner acknowledges the ADRP’s request that the alternative calculation methodologies be provided to enable the ADRP to calculate a different margin if it disagrees with the Commissioner’s findings. As a result, the Commission has provided the ADRP with an “inputs” worksheet for each dumping margin calculation. From this, the amount of the SPS payment received with respect to a kilogram of raw tomatoes and the proportion of the SPS payment which flows through to the cost of raw tomatoes (if any) can be selected and the consequential impact on the dumping margin for each company can be calculated.

76 Feger’s internal income statement for 2014 (provided at the on-site verification visit and Submission by Feger di Gerardo Ferraioli S.p.A, 26 September 2015 and Annexes to that submission, Annex 4 – Investments and Annex 5 – Dividend).

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7 ASSESSMENT OF INJURY AND CAUSATION

7.1 Overview

The Commission has re-examined the financial and other data, including CTMS and sales data reported by SPCA, and its trends. The injury experienced by SPCA and reported in REP 276 (with regard to price suppression, reduced profits and profitability) has been reviewed and confirmed. The dumped goods (being goods imported from Feger) have undercut the prices obtained by SPCA. Whilst there are other factors which have caused injury to SPCA (such as the presence of un-dumped goods in the market, the price of those goods and broader market conditions), the dumped goods have nevertheless caused material injury to SPCA. The Commissioner has concluded that the changes in the market which occurred as a result of the imposition of measures following REP 217 provide a reliable indication that SPCA would have gained some proportion of Feger’s sales outright, and would have been better able to compete with Feger’s un-dumped prices. This in turn would have reduced the degree of price depression, lost profit and reduced profitability experienced during the investigation period.


In REP 276 the Commissioner found that SPCA had experienced injury in the form of price suppression, reduced profits and reduced profitability during the investigation period.77 The Commissioner found that the dumped goods had caused the injury experienced.78



Feger, La Doria and the Government of the Italian Republic collectively submit that the injury assessment in REP 276 should not have covered the period before 1 July 2013, since REP 217 had already made findings for the period prior to that date. The Commission’s decision to re-investigate the injury and causality with regard to the period prior to 30 June 2013 violates Articles 3.1 and 5.8 of the ADA. The applicants submit that the Commission’s conclusions on price suppression and profitability are unsubstantiated, in particular because the Commission failed to investigate why SPCA’s unit CTMS increased over the investigation period despite an increase in sales volumes at the same time. The applicants submit that REP 276 lacks any analysis of SPCA’s profitability, and that the Commission failed to demonstrate that the price suppression allegedly experienced by SPCA was “significant” as required by Article 3.2 of the ADA.

77 REP 276, sections 7.6 and 7.7 refer. 78 REP 276, sections 8.5 and 8.7 refer. Note that this analysis was based on the then finding that both Feger and La Doria had exported goods at dumped prices.

PUBLIC RECORD


The applicants submit that the Commission failed to evaluate all relevant economic factors, as required by Article 3.4 of the ADA. In particular, the applicants refer to factors such as the decline in output, the magnitude of the margin of dumping, and the actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments. The applicants submit that the Commission failed to conduct a proper and meaningful economic analysis to assess the actual impact of a number of factors, pointing to the strategy of the retailers in Australia and their impact on SPCA, the appreciation of the Australian dollar and SPCA’s lack of investment (which unduly released SPCA from the burden of proving the injury it claims to have experienced).79


The European Commission made similar submissions as part of this reinvestigation, noting the conclusion of the Panel in EC – Salmon (Norway) that “it would be illogical to treat [imports found to be dumped below the de minimis threshold] as ‘dumped imports’ for purposes of the injury determination, when they cannot be considered as ‘dumped’ for purposes of imposition of anti-dumping duties as a result of the investigation.” The European Commission also emphasised the need to make a determination of injury based on positive evidence and involving an objective examination, submitting that the conclusions with respect to price suppression are based on a simplistic approach. The European Commission noted that SPCA has been loss making for a number of years, which it submits is a clear indication of structural problems rather than injury caused by the allegedly dumped imports. The European Commission concluded that the Commission failed to conduct an adequate injury determination because not all relevant factors were examined, and no evaluation of the relevant economic factors has been made – the European Commission then set out a number of other criticisms concerning the Commission’s approach in REP 276.80 Feger and La Doria substantially reiterated the points made in their applications to the ADRP.81


In an investigation, section 269TACB requires the Commissioner to determine whether dumping has occurred by reference to goods exported to Australia during the investigation period; such a finding has no evidentiary value in terms of assessing whether dumping did – or did not – occur at another point in time. By extension, the dumping of PPT which occurred during the investigation period for REP 276 (calendar year 2014) can only be considered to be a cause of injury to the Australian industry if that injury was experienced during the same period.

79 These submissions are all contained in section 2.1 of the applications to the ADRP from Feger, La Doria and the Government of the Italian Republic. 80 Document 002 on the public record for 360 refers. 81 Documents 004, 005 on the public record for 360 refer.

PUBLIC RECORD


Whilst REP 276 did examine the period from 2010, this examination was to provide context for what has occurred to SPCA’s injury indicators over that time. Although REP 276 could have been clearer on this point, the findings with regard to price suppression, profit and profitability relate solely to the movement in those indicators between the immediately prior period (that is, 2013) and the period in which dumping was found to have occurred (that is, 2014). The Commissioner did not make a finding that either Feger or La Doria’s exports of the goods were dumped by reference to any period other than the investigation period for REP 276. As explained in the preceding chapters, the Commissioner has now concluded that only Feger’s exports were dumped during the investigation period.

7.5 Reinvestigation of Finding 1b

The Commission has received a submission from SPCA on this aspect of the reinvestigation.82 The Commission met with SPCA on 4 October 2016 in order to clarify its understanding of the data. As was noted in REP 276, SPCA’s unit CTMS increased over the injury analysis period. At the same time, there have been increases in sales volumes which would normally be expected to result in a decline in the unit CTMS (since overhead costs would be defrayed over a broader cost base). The Commission has therefore undertaken a more detailed examination of SPCA’s CTMS data, as contained in Confidential Attachment 7. The Commission’s analysis compares movements in the value of CTMS, revenue, SG&A costs and the overall cost to make in the five years from 2010 to 2014, and compares these to movements in sales volume over the same period. The analysis shows that SPCA’s cost of production has increased since 2012 whilst its SG&A costs have reduced. The overall effect has caused a year on year increase in the CTMS since 2012. In contrast, the increase in revenue was marginal, and revenue increased at a lesser rate than the CTMS. This has yielded increasing divergence between the per unit revenue and per unit CTMS. The Commission’s assessment is that the increase in production costs appears to have been driven largely by an increase in overheads since 2012 and an increase in raw material costs in 2014. The increase in raw materials costs in 2014 is a reversal of a trend which saw a decline in raw material costs from 2010 to 2013. These observations were put to SPCA by the Commission, which prompted SPCA’s confidential submission.83 SPCA explained that it uses its finished goods inventory to balance supply and demand from year to year and to offset any crop failure or yield issues. For this reason, there is not a direct correlation between manufacturing costs and sales volume in a given year. The Commission noted that the accounting approach used by SPCA could distort the injury picture if there were substantial movements in certain cost components from year to year. The Commission subsequently examined SPCA’s accounting methodology to understand in greater detail how the approach works.

82 Document 012 on the public record for 360 refers. 83 ibid.

PUBLIC RECORD


The analysis demonstrates that prices generally did not increase during the investigation period. The Commission therefore concludes that in addition to finding that price suppression has occurred during the injury period, detailed analysis shows that price suppression also occurred during the investigation period, in which there were no instances where selling price exceeded the CTMS. The increasing gap between the CTMS and prices during the investigation period has had a direct impact on the deteriorating profit and profitability performance of SPCA. For the reasons outlined above, the increased sales volume during the investigation period did not provide SPCA with the sort of relief that would normally be expected.

7.6 Reinvestigation of Finding 1c

The Commission has evaluated the relevant economic factors in the course of this reinvestigation. The Commission’s assessment is contained in the following sections.

7.6.1 Assets

SPCA stated in the context of both tomatoes investigations that the value of its PPT assets had declined during the applicable injury analysis periods.87 After reviewing the data SPCA provided in Appendix A7 to the relevant applications for the purposes of the reinvestigation, the Commission observed a reduction in the value of its assets from a companywide perspective. However, the Commission points out that SPCA’s accounts do not provide this data with specific reference to the production of PPT. This finding is consistent with the findings in the previous investigations. As a result of the reinvestigation the Commission is also satisfied that there was no material change to the value of SPCA’s assets over the injury period or to the way in which SPCA accounted for the value of its assets from a companywide perspective. Therefore, the Commission is unable to assess whether injury has been experienced in the form of a reduction in the value of assets relevant only to the manufacture of PPT.

7.6.2 Domestic sales revenue

REP 276 indicated that domestic sales revenue particular to PPT substantially declined in 2011 where it stayed at a relatively constant level until 2014, when there was a moderate improvement. The reinvestigation has conducted further analysis of the data SPCA provided in Appendix A7 and is satisfied that while revenue in 2014 did not recover to a comparable level to that achieved in 2010, there was negligible injury caused by lost domestic sales revenue during the investigation period.

7.6.3 Stocks

SPCA provided information regarding its closing stock levels, which decreased in 2011 before increasing in 2012 and in 2013 before reducing in 2014 to a level higher than observed in 2010.

87 REP 217, REP 276 refer.

PUBLIC RECORD


7.6.4 Capacity and capacity utilisation

The Commission has observed no material change in these factors over the injury analysis period. REP 276 stated:

SPCA provided information regarding its capacity representative of its production of PPT which the Commission observes has remained static since 2010 until the end of 2014. SPCA provided additional information on its capacity utilisation, which is based on production volumes and budgeted capacity. The Commission notes that SPCA’s actual production of like goods has been consistently below production capacity throughout the injury analysis period and during the investigation period.88

During the reinvestigation SPCA provided the Commission with updated data relating to its stock holding and its production capacity. The Commission has concluded that whilst some reduction in capacity utilisation is a result of strategic business decisions made by SPCA, the primary factor influencing capacity utilisation during the investigation period was competition from dumped and un-dumped goods in the market. For the reasons set out below, the dumped goods had a significant impact on production volumes.

7.6.5 Additional observations

As a result of the reinvestigation, the Commission is satisfied that the known to be operating economic indicators89 have seen slight improvement during the injury analysis period. However, the Commission does not consider that improvements in relation to particular economic factors, of itself, preclude a finding that the Australian industry has suffered material injury in respect of other factors. This is consistent with the Ministerial Direction on Material Injury (dated 27 April 2012), which states that ‘… [a] material injury assessment involves a range of factors that are considered together; no one or several of these factors can necessarily give decisive guidance’. As noted above, although SPCA’s overall financial position may have seen some slight improvement, the Commission’s analysis is focused on injury experienced by SPCA concerning only PPT. Due to SPCA’s accounting practices, data relevant to all of the factors listed in subsection 269TAE(3) is not available at a level which enables the Commission to assess the factors specifically with regard to only PPT.

7.7 Reinvestigation of Finding 1d

Subsection 269TEA(2A) provides that in determining whether material injury to an Australian industry has been caused by dumping, the Commissioner must consider whether any injury is being caused by a factor other than dumping. The Commission did not attribute injury to un-dumped goods in REP 276, and has not done so in this reinvestigation.

88 REP 276, sections 7.8.4 and 7.8.5.

89 Dumping and Subsidy Manual (November 2016), page 125.

PUBLIC RECORD


The Commission has considered the conclusions in the Appellate Body Report for the US – Anti-Dumping Measures on certain Hot-Rolled Steel products from Japan case, and acknowledges that if the injurious effects of the dumped imports are not appropriately separated and distinguished from the injurious effects of all the other known factors, the investigating authority will be unable to conclude that the injury ascribed to dumped imports is actually caused by those imports, rather than the other factors.90 In the absence of a separation and distinction of the different injurious effects, the investigating authority would have no rational basis to conclude that dumped imports caused injury.

7.7.1 SPCA’s alleged lack of investment

Feger and La Doria are of the view that the lack of investment made by SPCA has caused the injury suffered by SPCA and not the dumped goods.91 REP 276 noted that SPCA’s accounts did not provide investment data specifically related to the production of PPT. Therefore, the Commission was unable to observe or make any injury assessments in relation to capital investment that was particular to PPT. As part of the reinvestigation the Commission requested further information from SPCA regarding capital investment. The Commission makes the following observations regarding the new information provided by SPCA during the reinvestigation.92 SPCA has been open about its need to invest in its tomato processing line. However, investment has been constrained due to its participation in the PPT market being uncertain due to the impact of dumped imports of PPT. Therefore, confronted with the decline in its profitability, SPCA made a decision to invest $ million of capital in what it has termed “stay in business” repairs and maintenance from 2011 to 2014.93 The Commission also notes that while attempting to procure a new tomato processing line in 2014, SPCA discovered that some equipment currently available in the market was ostensibly the same equipment and the same technology already in use in its Mooroopna plant. This suggests that SPCA’s decision to direct its capital investment to “stay in business” projects was done to allow appropriate time to conduct a risk based procurement process given the market conditions it faced (as described above). The Commission considers that the purchase of a new tomato processing plant is a significant capital investment that requires careful consideration and time. During the investigation period SPCA indicated that it conducted due diligence to ensure that any purchase provided it with the latest technology available for processing tomatoes that would deliver the best return on investment.

90 WT/DS184/AB/R, dated 24 July 2001. 91 Documents 004 and 005 on the public record for 360 refers. 92 Document 012 on the public record for 360 refers. 93 ibid.

PUBLIC RECORD


The Commission is satisfied that any decision to invest is guided by a range of considerations, including prevailing market conditions, and that the presence of dumped goods in the market may discourage investment, as outlined in SPCA’s submission to the reinvestigation.94 The Commission is therefore satisfied that while a lack of investment may have the potential to cause injury, this is not the case as SPCA has committed large amounts of capital to the viability of its PPT business during the investigation period and injury period. Further, the market conditions created by the dumped imports have presented significant risk to SPCA’s return on investment.

7.7.2 High costs in the Australian food processing industry

Feger and La Doria are of the view that REP 276 did not fully address this point and it is the high costs faced by SPCA that has caused the injury and not the dumped goods.95 The two sources cited by Feger and La Doria to support this claim are from an article published in 2013 in a food magazine promoting local fresh seasonal produce in New South Wales96 and from a speech made in 2015 by the Group Managing Director of Coca-Cola Amatil Ltd.97 Both the article and the speech cover a range of general topics about the whole food processing industry, the influence of Coles and Woolworths on the food industry, buyer behaviour and competition from imports in a range of agricultural product categories. The information contained in these sources make no specific reference to PPT, are “comment” pieces (as opposed to verified research into the tomato processing sector) and compartmentalise a multitude of issues in order to arrive at their conclusions. The Commission considers that changing market conditions can affect a wide range of a manufacturer’s costs in many ways, some of which may have the potential to cause injury. As discussed above, SCPA’s CTMS has fluctuated over the investigation period for a number of reasons. That it is a function of Australia’s food processing sector having the highest cost of doing business is a simplistic proposition.98 Whilst the cost of doing business in Australia clearly contributes to SPCA’s CTMS, the Commission does not consider that this has caused material injury.

94 REP 276, section 7.8.7; see also document 012 on the public record for 360. 95 Documents 004 and 005 on the public record for 360 refer. 96 “Canned : the decline of the production line”, 17 June 2013, www.sproutmagazine.com.au. 97 Presentation by Alison Watkins to Centre for Independent Studies, “Food Processing in Australia: What We Can Learn from SPC”, https://www.youtube.com/watch?v=mZPfu6bW4lU. 98 Documents 004 and 005 on the public record for 360 refer.

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7.7.3 Strategy of the Australian Retailers

Feger and La Doria maintain that retailers favouring their own private labels, at the expense of SPCA’s proprietary labels, points to a conclusion that the Australian supermarkets’ strategy constitutes one of the main causes, if not the main cause, of any injury allegedly suffered by SPCA.99 Feger and La Doria have cited comments made in REP 217 and the Productivity Commission’s 2013 safeguards inquiry report into the Australian tomato processing industry in support of their claim. In REP 276, the Commission did not make any direct reference to the supermarkets favouring private labels over proprietary labels. The Commission has not obtained any new evidence as part of the reinvestigation regarding these claims. The Commission has reconsidered the evidence collected for the purpose of the original investigation. The Productivity Commission has stated that the developments in supermarkets’ private label strategies could cause injury to the domestic industry without any increase in imports.100 However, the Commission wishes to reiterate its position in REP 276 that the Productivity Commission’s inquiry related only to safeguards, which is an inquiry solely related to whether a recent surge in the quantity of imports has caused injury to the Australian industry. In fact, Inquiry Report No 68 goes so far as to state that a safeguards investigation is distinct from an anti-dumping investigation, with entirely different considerations and entirely different tests being applied.101 REP 276 found that the chief considerations of the major supermarkets in its negotiations with suppliers is to obtain a secure and consistent supply of the goods at the lowest possible price. The significant shift in market share towards Feger and La Doria during the investigation period after interim dumping duties were imposed on all other Italian exporters (for the reasons set out in REP 217), shown below, supports this conclusion.102

99 ibid., page 13. 100 Productivity Commission, Inquiry Report No. 68 (12 December 2013), issued in the context of the safeguard inquiry into imports of processed tomato products, pages 57-58. 101 ibid., page 5. 102 REP 276, section 8.4, Graph 6.

PUBLIC RECORD


Chart 7 – Movement in market shares for PPT following REP 217

Any strategy by the supermarkets to favour their private labels over proprietary labels will firstly place further downward pressure on prices, and secondly result in some suppliers seeking to secure contracts at prices less than the normal value.103 This point is further emphasised in confidential information provided to the Commission by SPCA regarding its negotiations with the major supermarkets, which demonstrates that the major supermarkets exert downward pressure on prices.104 This evidence also indicated that the major supermarkets refer to the prices offered by other suppliers when negotiating price with SPCA and that SPCA is encouraged to be more competitive on price in this context. The Commission has concluded that the strategy of the supermarkets to favour their private labels has contributed to the injury experienced by SPCA. However, the strategy places further downward pressure on prices and results in dumped goods having a competitive price advantage, which allows the replacement of SPCA PPT with imported PPT.

7.8 Consequential impacts on injury and causation analysis

Based on the findings outlined above in Chapters 3, 4, 5 and 6, the Commissioner has found that the goods exported by La Doria were not dumped. Accordingly, the Commission must not attribute injury caused by dumping to the exports from La Doria. However, the Commissioner has found that the goods exported by Feger were dumped. The Commissioner must therefore assess whether the dumped goods caused the injury experienced by SPCA during the investigation period, and whether that injury was material.

103 REP 217, section 8.8.6. 104 Confidential Attachment A-9.2a to SPCA’s initial application regarding 276.

PUBLIC RECORD


7.8.1 Characteristics of the market relevant to SPCA and injury / causation

The Commission confirms that SPCA competes with the prices offered by the Italian exporters, including the dumped prices of Feger. It should be noted that these dumped prices were amongst the lowest available in the market during the investigation period.105 The Commission’s analysis of the market indicates that Feger accounted for per cent of all imports and per cent of the Australian market in the investigation period.106 The market shares held by Feger and La Doria increased after the imposition of anti-dumping measures following REP 217. The market comprises proprietary and home brands of PPT, all of which retail at differing price points; these are broken down further into stock keeping units of differing tomato grades (such as long, round, cherry, organic), tomato types (such as diced, whole, peeled, chopped) and recipes (such as with herbs). The Commission has observed that Feger exported a range of these products, predominantly to large retail customers which also purchase PPT from SPCA. To manage variations in demand for the goods it produces, SPCA manufactures a range of finished goods (i.e. labelled), bright cans (i.e. not labelled but otherwise ready for consumption) and work in progress (comprising intermediate manufactured goods which can be re-processed into the relevant stock keeping unit in demand). SPCA maintains that price is the key basis for competition between its own products and the imported goods. SPCA noted (and the Commission accepts) that point of sale data provided by Aztec demonstrates a very close correlation between retail volumes and price; any narrowing of the price differential between products (such as through a promotion or other price discounting) appears sufficient to improve sales volumes (Confidential Attachment 11 refers). Consumers appear to be quick to change their purchasing behaviour on the basis of price, and less so by reference to other factors; this is supported by research commissioned by SPCA (Confidential Attachment 12 refers). SPCA’s experience (and accepted by the Commission) is that the retailers are therefore very sensitive to movements in the wholesale price, and use the prices of competing exporters as a basis for seeking better terms from SPCA.107

7.8.2 Competition between SPCA and Feger

Confidential Attachment 9 demonstrates that, where the data is available for sales to common customers, Feger’s prices undercut SPCA’s prices. Noting the correlation between price and retail volume, the Commission considers that the dumping margin conferred a price advantage on Feger’s goods that was significant.

105 REP 276, section 8.8.1; Confidential Attachment 9 refers. 106 Confidential Attachment 10 refers. 107 REP 276, section 8.8.2, see also confidential attachment A-9.2a of SPCA’s application.

PUBLIC RECORD


If Feger’s goods had not been dumped, the Commission considers that competitively priced PPT from other suppliers (including both La Doria and SPCA) would have been more attractive to Feger’s customers. Whilst the Commission accepts that SPCA’s prices are undercut by a number of participants in the market (including the un-dumped goods supplied by La Doria), the degree of that undercutting is significant because of the correlation between price and sales volume. There is a high degree of price sensitivity in the market (as demonstrated by the Aztec data), and the market switches readily between alternative sources of reliable supply (as demonstrated by the shifts in purchasing behaviour as a result of the anti-dumping measures imposed following REP 217). La Doria, Feger and SPCA were all beneficiaries of the switches in the market that occurred following REP 217; the Commission considers that, had Feger’s goods not been dumped, there would also have been a switch away from Feger during the investigation period. Whilst Confidential Attachment 10 suggests that La Doria would gain the largest share of Feger’s sales in those circumstances, the Commission is satisfied that SPCA would also gain a significant share. Further, as demonstrated by the Aztec data, increases in price at the retail level (particularly where the price differential between the Feger and SPCA products narrows) would be likely to lead to improved sales volumes for other products, including those offered by SPCA. Although not able to be quantified precisely, SPCA has therefore experienced a lost sales opportunity due to the presence of the dumped goods in the market. That lost volume represents a significant material disadvantage to SPCA. As price competition increases, SPCA experiences shifts in the pattern of demand which it attempts to cater for by adjusting its production profile. The presence of dumped goods in the market results in an unfair price advantage, which distorts SPCA’s production planning process. As noted above, a decline in production volume in any given year can have longer term consequences on SPCA’s CTMS, capacity utilisation and therefore profit and profitability; the presence of dumped goods in the market exacerbates the injury experienced from what would otherwise be normal fluctuations in supply and demand. As a result, Feger’s dumped goods have impacted on demand for SPCA’s products, which has led to the decline in SPCA’s production volume and therefore the increased CTMS and SPCA’s inability to raise its prices in response. An improved CTMS (with overheads spread across a larger production volume driven by the increase in demand that had been captured by the dumped goods) would improve SPCA’s profit and profitability as a result.

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8 ATTACHMENTS

Confidential Attachment 1 Feger – SPS payments received, raw tomato purchase volume and value by grower

Confidential Attachment 2 La Doria – SPS payments received, raw tomato purchase volume and value by grower

Confidential Attachment 3 Analysis of SPS payments received, prices and volumes for growers supplying to Feger, La Doria

Confidential Attachment 4 Commission’s assessment of Feger’s claimed adjustments in REP 276

Confidential Attachment 5 Dumping Margin calculation - Feger

Confidential Attachment 6 Dumping Margin calculation – La Doria

Confidential Attachment 7 Commission analysis of SPCA CTMS

Confidential Attachment 8 SPCA additional information concerning CTMS

Confidential Attachment 9 Commission analysis of selling prices

Confidential Attachment 10 Commission analysis of market size

Confidential Attachment 11 Commission analysis of Aztec sales data

Confidential Attachment 12 SPCA market research concerning consumer behaviour