OTTAWA, November 23,2007
STATEMENT OF REASONS
Concerning the making of preliminary determinations of dumping and subsidizing of
CERTAIN SEAMLESS CARBON OR ALLOY STEEL OIL AND GAS WELL CASING ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA
DECISION
Pursuant to subsection 38(1) of the Special Import Measures Act, the President of the Canada Border Services Agency made preliminary determinations of dumping and subsidizing on November 9,2007, respecting the alleged injurious dumping and subsidizing of seamless carbon or alloy steel oil and gas well casing, whether plain end, beveled, threaded or threaded and coupled, heat-treated or non-heat-treated, meeting American Petroleum Institute (API) specification 5CT, with an outside diameter not exceeding 11.75 inches (298.5 mm), in all grades, including proprietary grades, originating in or exported fiom the People's Republic of China.
Cet knonck des motifs est Cgalement disponible en franqais. Veuillez vous reporter a la section "Information". This Statement of Reasons is also available in French. Please refer to the "Information" section.
TABLE OF CONTENTS
SUMMARY O F EVENTS ......................................................................................................................................................I PERIOD O F INVESTIGATION ......................................................................................................................................... 1 2 INTERESTED PARTIES .......................................................................................................................................................
........................................................................................................................................................................ COMPLAINANT 2 EXPORTERS ............................................................................................................................................................................. 2 OTHER COMPANIES .................................................................................................................................................................. 2 ............................................................................................................................................................................. IMPORTERS 3 OF ....................................................................................................................................................... 3 GOVERNMENT CHINA SURROGATE COUNTRIES .......................................................................................................................................................... 3
PRODUCT DEFINITION ....................................................................................................................................................... 3
ADDITIONAL PRODUCT INFORMATION .................................................................................................................................... 4 PRODUCTION PROCESS ........................................................................................................................................................... 4 CLASSIFICATIONIMPORTS .................................................................................................................................................. OF 5
CANADIAN INDUSTRY ..................................................................................................................................................... 5 IMPORTS INTO CANADA ..................................................................................................................................................... 5 INVESTIGATION PROCESS ............................................................................................................................................ 6
7 REPRESENTATIONS ...........................................................................................................................................................
DUMPING INVESTIGATION ................................................................................................................................................ 9
SECTION INQUIRY 20 ............................................................................................................................................................... 9 NORMAL VALUE .................................................................................................................................................................... 12 EXPORT PRICE ....................................................................................................................................................................... 13 .................................................................................... 13 SUMMARY PRELIMINARY OF RESULTS DUMPING INVESTIGATION OF 14 PRELIMINARY DUMPING RESULTS BY EXPORTER ...................................................................................................................
SUMMARY O F RESULTS . DUMPING ............................................................................................................................. 17 SUBSIDY INVESTIGATION ............................................................................................................................................ 17
........................................................................................................ 19 PRELIMINARY PHASE THE SUBSIDY OF ~NVESTIGATION SUMMARY RESULTSSUBSIDY OF . ........................................................................................................................................ 20
SUMMARY O F RESULTS . SUBSIDY ............................................................................................................................... 21 21 DECISION ......................................................................................................................................................................... PROVISIONAL DUTY ...........................................................................................................................................................21 FUTURE ACTION
.................................................................................................................................................................. 22
RETROACTIVE DUTY ON MASSIVE IMPORTATIONS
.........................................................................................22 23 UNDERTAKINGS .................................................................................................................................................................. 23 PUBLICATION ....................................................................................................................................................................... 24 INFORMATION .....................................................................................................................................................................
APPENDIX 1. SUMMARY O F ESTIMATED AMOUNT O F DUMPING. ESTIMATED AMOUNT O F SUBSIDY AND PROVISIONAL DUTIES PAYABLE ..................................................................................................................... 25 DESCRIPTION O F PROGRAMS AND INCENTIVES AT INITIATION ........................................... 26 APPENDIX 2 .
1.
SPECIAL ECONOMIC ZONE(SEZ) INCENTIVES OTHER DESIGNATED AND AREAS ......................................................... 26
APPENDIX 3 .SUMMARY OF PRELIMINARY FINDINGS FOR NAMED SUBSIDY PROGRAMS
1. 2. 3. 4. 5. 6. 7. 8.
......................29
........................................................ 29 SPECIAL ECONOMIC ZONE(SEZ) INCENTIVES OTHER AND DESIGNATED AREAS GRANTS ....................................................................................................................................................................... 40 ................................................................................................................................................ PREFERENTIAL LOANS 41 ..................................................................................................................... PREFERENTIAL INCOME PROGRAMS TAX 42 .......................................................................... 52 RELIEF FROM DUTIES AND TAXES MATERIALS MACHINERY ON AND REDUCTION LAND IN USEFEES................................................................................................................................... 54 PURCHASE GOODS OF FROM STATE-OWNED ENTERPRISES .......................................................................................... 55 SUBSIDY PROGRAMS IDENTIFIED INITIATION NOT AT .................................................................................................. 55
APPENDIX 4 - SUMMARY OF FINDINGS FOR SECTION 20 OF SIMA .................................................................... 59
GOVERNMENT CHINAAND EXPORTER OF SUBMISSIONS ....................................................................................................... 59 CHINA STEEL POLICY ............................................................................................................................................................ 59 EFFECT GOC MEASURES DOMESTIC OF ON PRICES .............................................................................................................. 70 ........................................................... 75 NEXUS BETWEEN THE STEEL OCTG SECTOR OTHER AND STEEL SECTORS CHINA IN
Trade Programs Directorate (Anti-dumping and Countervailing Program)
SUMMARY OF EVENTS
These investigations were initiated in response to a complaint filed with the Canada Border [I] Services Agency (CBSA) by TenarisAlgomaTubes Inc. (TAT) of Calgary, Alberta on June 22,2007. The complainant provided evidence that certain seamless carbon or alloy steel oil and gas well casing (hereafter "seamless steel casing") originating in or exported from the People's Republic of China (China) had been dumped and subsidized and that the dumping and subsidizing had caused injury to TAT. The complaint also alleged that section 20 conditions existed in the steel oil and country tubular goods (OCTG) sector in China. On July 13,2007, the CBSA informed TAT that the complaint was properly documented and [2] notified the Government of China (GOC) that a complaint had been filed with the CBSA. At that time, the GOC was also provided with the non-confidential version of the subsidy portion of the complaint. On August 13, 2007, the CBSA initiated investigations into the alleged injurious dumping [3] and subsidizing of certain seamless steel casing originating .in or exported from China. On the basis of the information available, the CBSA also concluded that there was sufficient evidence to initiate a section 20 inquiry concurrently with the dumping and subsidy investigations to examine the degree of Chinese government involvement in the steel OCTG industry sector and the related impact on pricing. Upon receiving notice of the initiation of the investigation, the Canadian International Trade [4] Tribunal (Tribunal) started a preliminary injury inquiry into whether the evidence discloses a reasonable indication that the alleged dumping and subsidizing of certain seamless steel casing from China have caused injury or retardation or are threatening to cause injury. On October 12,2007, the Tribunal made a preliminary determination that there is evidence that discloses a reasonable indication that the dumping and subsidizing of seamless steel casing have caused injury. On November 9,2007, as a result of the CBSA's preliminary investigations and pursuant to [5] subsection 38(.1) of the Special Imports Measures Act (SIMA), the President made preliminary determinations'of dumping and subsidizing with respect to certain seamless steel casing originating in or exported from China.
PERIOD OF INVESTIGATION
The period of investigation, with respect to dumping (Dumping POI), covered all subject [6] goods released into Canada from July 1,2006 to June 30,2007. The period of investigation, with respect to subsidizing (Subsidy POI), covered the period of [7] January 1,2006 to June 30,2007.
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INTERESTED PARTIES Complainant
The complainant, TAT, is the only known producer of like seamless steel casing in Canada, [8] constituting 100% of the domestic industry for this product. TAT'S production facilities are located in Sault Ste. Marie, Ontario, and its headquarters are located in Calgary, Alberta. TAT is part of Tenaris, a leading global manufacturer of seamless pipe products and provider of pipe handling, stocking, and distribution services to the oil and gas, energy, mechanical and automotive industries.
Exporters
At the initiation of the investigations, the CBSA had identified 37 potential exporters of [9] seamless steel casing based on a review of Customs import documentation and information provided in the complaint submitted by TAT. This included 8 companies located in the U.S. and 5 companies located in other jurisdictions that participated in the export of the goods originating in China (i.e. vendors, trading companies, etc.). [lo] The CBSA sent a Dumping Request for Information (RFI) and Subsidy RFI to each of the identified potential exporters of the goods. [ l l ] As part of the CBSA's section 20 inquiry, the CBSA also sent section 20 RFI's to each of the identified potential exporters and producers of the goods. [12] Six exporters in China, that accounted for approximately 88% of the exports of seamless steel casing to Canada over the Dumping POI, provided a response to the dumping, subsidy and section 20 RFI's. The six exporters included:
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a o
Dalipal Pipe Company (Dalipal) Hengyang Steel Tube Group Int'l Trading Inc. (Hengyang) Shandong Molong Petroleum Machinery Co. Ltd. (Shandong Molong) Tianjin Pipe Corporation (TPCO) Tianjin Tubular Goods Machining Co. Ltd. (TTGM) Wuxi Seamless Oil Pipe Co. Ltd. (WSP)
Other companies
[13] Two additional companies, which participated in the export of the goods, also provided a response to the CBSA's dumping RFI. This included:
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Energy Alloys, LLC (Houston, United States) MC Tubular Products Inc. (Houston, United States)
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Importers
[14] At the initiation of the investigation, the CBSA identified 30 potential importers of seamless steel casing based on a review of Customs import documentation and information provided in the complaint submitted by TAT. [15] The CBSA sent a dumping RFI to all potential importers of the goods. Seven importers provided a response to the CBSA's dumping RFI. [16] There may be instances where the importer in Canada for SIMA purposes may be a different party than the importer of record. Based on information obtained surrounding certain transactions involving non-resident importers, the consignee in Canada was considered to be the importer for SIMA purposes for the reason that the consignee was the originator of the import transactions.
Government of China
[17] At the initiation of the investigations, the CBSA sent both a subsidy and a section 20 RFI to the Government of China (GOC). The GOC provided a submission in response to each of the subsidy and section 20 RFIs.
Surrogate countries
[I 81 As part of the CBSA's section 20 inquiry, a RFI was also sent to known producers in other countries, who are not subject to the present dumping investigation, including Japan, India, Russia and the United States of America. [19] Only one response was provided by NKK Tubes of Japan, a company registered in Japan and a manufacturer of seamless pipe including the seamless steel casing products subject to this investigation.
PRODUCT DEFINITION
[20] For the purpose of this investigation, certain seamless steel casing is defined as:
Seamless carbon or alloy steel oil and gas well casing, whether plain end, beveled, threaded or threaded and coupled, heat-treated or non-heat-treated, meeting American Petroleum Institute (API) specification 5CT, with an outside diameter not exceeding 11.75 inches (298.5 mm), in all grades, includingproprietary grades, originating in or exported from the People's Republic of China.
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Additional Product Information
[21] Seamless steel casing falls within a category of products commonly referred to as oil country tubular goods ("OCTG), which include drill pipe, casing and tubing. These OCTG goods are used in the drilling of oil and gas wells and to convey these products to the surface. Casing is used to prevent the walls of the bored hole from collapsing, both during drilling and after the well has been completed. [22] Casing must be able to withstand outside pressure and internal yield pressures within the well. Also, it must have sufficient joint strength to hold its own weight and must be equipped with threads sufficiently tight to contain the well pressure where lengths are joined. The manufacturer or a local threading operation may perform threading. Various factors limit the total amount of open hole that can be drilled at any one time, and it may be necessary to set more than one string of casing concentrically for certain portions of the well depth.
Production Process
[23] Producers manufacture sea.mless steel casing in the same general manner. The process begins with the formation of a central cavity in a solid steel billet (shell). The shell is then rolled on a retained mandrel and reduced in a stretch reduction mill to produce the finished size before cooling on a walking beam cooling bed.' The tube rounds are inspected and then cut into the required billet lengths according to the casing size to be produced. Different steel chemistries are used for different casing grades. The final stage of the process involves end finishing according to customer requirements. These can be plain end, beveled or threaded. Finished casing is given a final inspection in which size, wall thickness, concentricity, straightness and surface quality are checked. If necessary, couplings are applied and torqued. The final processing steps involve the application of end protectors and a protective coating. Beveling and threading both ends finish the casing. A coupling and a coupling protector are applied to one end of the casing and a thread protector to the other end before the casing is ready for shipment. [24] Seamless steel casing products are of higher quality than welded products due to the manufacturing process difference whereby seamless steel casings do not have corrosion weakness in the weld and eliminate the possibility of a body failure in the well. In practice, welded products are not generally substitutable for seamless products where seamless products are required due to their quality and reliability.
' Narrative Complaint, "Seamless vs. Welded" Part 2.1.
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Classification of Imports
[25] Seamless steel casing is typically classified under the Harmonized System (HS) Heading 7304, under the following HS Codes: HS 73.04 HS 7304.29.00.1 1 Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel. Casing of an external diameter exceeding 114.3 mm (4.5 inches) but not exceeding 177.8 mm (7 inches):
- Of an API grade H-40, J-55, K-55 or equivalent proprietary specification
HS 7304.29.00.19 Casing of an external diameter exceeding 114.3 mm (4.5 inches) but not exceeding 177.8 mm (7 inches):
- Other
HS 7304.29.00.21 Casing of an external diameter exceeding 177.8 mm (7 inches) but not exceeding 298.5 mm (1 1.75 inches):
- Of an API grade H-40, J-55, K-55 or equivalent proprietary
specification" HS 7304.29.00.29 Casing of an external diameter exceeding 177.8 mm (7 inches) but not exceeding 298.5 mm (1 1.75 inches):
- Other
CANADIAN INDUSTRY
[26] TAT is the only known domestic producer supplying seamless steel casing to the Canadian industry and thus accounts for 100% of the entire domestic production of like goods. TAT employs over 550 employees and has a production capacity of 250,000 tonnes per year. Based on the latest full year data available for 2006, Tenaris supplied 36% of the estimated Canadian market for seamless OCTG.
IMPORTS INTO CANADA
[27] During the preliminary phase of the investigations, the CBSA hrther refined the estimated volume of imports based on information fiom its internal Customs Commercial Systems, Customs import entry documentation and other information received from exporters, importers and other parties.
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[28] The following table presents the CBSA's estimates of importations of seamless steel casing for purposes of the preliminary determination: Imports of Certain seamless steel casing (July 1,2006 to June 30,2007)
Imports into Canada Imports China Imports USA Imports - Other Tenaris CO'Sin Argentina and Mexico Imports - Other countries Total Imports
A
% of Total Imports
34.6% 15.7% 3 1.O%
18.7% 100%
INVESTIGATION PROCESS
[29] Regarding the dumping and subsidy investigations, information has been requested from known and possible exporters, vendors and importers, concerning shipments of seamless steel casing released into Canada'during the Dumping POI of July 1,2006 to June 30,2007. Information related to potential actionable subsidies has also been requested from known and possible exporters and the GOC concerning financial contributions made to exporters of seamless steel casing of Chinese origin imported into Canada during the Subsidy POI of January 1,2006 to June 30,2007. [30] At initiation, the CBSA initiated a section 20 inquiry as there was sufficient evidence that domestic prices of the goods under investigation are substantially determined by the GOC and there is sufficient reason to believe that they are not substantially the same as they would be if they were determined in a competitive market. [3 11 Exporters and potential producers of the goods along with the GOC were requested to respond to the section 20 RFI for the purposes of the section 20 inquiry. Both the GOC and the six participating Chinese exporters responded to the section 20 RFI. [32] For respondents which identified legitimate circumstances affecting their ability to provide the requested information within the stated time frame, extensions for responding to the RFI were granted by the CBSA. This included 1 week extensions granted to the exporters/producers located in China and a two-week extension granted to the GOC. All respondents provided RFI submissions by the extended due date. [33] The GOC's subsidy RFI response was incomplete, despite the two-week extension granted by the CBSA. Accordingly, the CBSA issued two supplementary RFIs (SRFI) to the GOC, in an effort to obtain complete information and to clarify the information received. The GOC failed to provide complete information as requested and, as a result, the CBSA considers the GOC's response to the subsidy RFI to be incomplete. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 6
[34] Any additional information provided by the GOC, which is received by the CBSA prior to scheduled visits to China, will be given full consideration for purposes of the final stage of the investigation. [35] Therefore, the preliminary decisions are based on the information available at the time of the preliminary determination.
REPRESENTATIONS
[36] Following the initiation of the investigations, the GOC requested an extension for responding to the CBSA's section 20 RFI and subsidy RFI. The GOC indicated that its ability to respond to the section 20 RFI was impaired by the CBSA's decision not to release a non-confidential version of the section 20 analysis relied on to initiate the section 20 inquiry. The GOC also indicated that the section 20 RFI was not limited to the industry producing the goods. The CBSA agreed to provide a two-week extension to the GOC for receipt of the section 20 and subsidy submissions. Regarding the CBSA's section 20 RFI, this questionnaire is intended to collect all relevant information relating to the inquiry and this includes information on GOC measures which are broadly targeted and impact both the industry sector under investigation and the wider steel industry sector in China. [37] Regarding the first supplementary subsidy RFI request sent to the GOC by the CBSA, the GOC through its representative in Canada, submitted a written request for another extension to provide additional information requested by the CBSA. This request was denied as the date requested was just before the legislated date for the preliminary determinations. Furthermore, the representative of the GOC requested that the CBSA extend the preliminary determination phase by 45 days in accordance with section 39 of SIMA. No compelling information on which to base a recommendation for such an extension under the legislation was provided to the CBSA. Accordingly, the CBSA determined that such an extension was not warranted.
[381 Counsel for Salzgitter Mannesmann International (Canada) indicated that a report submitted by IPSCO to the CBSA should not be part of the record because IPSCO is not a party to these proceedings. The CBSA, in carrying out its investigative function, attempts to seek relevant information from many sources and issued notifications at the start of the investigation inviting any interested persons to submit facts, arguments and evidence related to the alleged dumping or subsidizing. Accordingly, it is the CBSA's position that IPSCO does not need to be a party to the proceedings in order to submit information that is relevant to the making of a determination. Similarly, the CBSA, having invited any interested person to submit information, is not in a position to refuse information from any person who voluntarily submits it. Under the circumstances, the CBSA sees no reason to remove the submission made by IPSCO from the record. However, the CBSA will consider any facts and evidence to rebut IPSC07sdocument, submitted before the closing of the record.
[39] Regarding the CBSA7ssection20 inquiry and the information request sent to producers in various surrogate countries including India, Counsel for the complainant submitted concerns about
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the selection of India as a potential surrogate for purposes of determining section 20 normal values. As of the preliminary determination, only one producer in Japan provided surrogate information in response to the CBSAYs request. In the event that any information is received by producers in India during the final stage of the investigation, the CBSA will take into consideration the concerns raised. subsidy investigation, Counsel for the complainant requested that the [40] Regarding the CBSAYs CBSA reconsider investigating three alleged subsidy programs, dealing with the VAT rebate system, the forgiveness of export taxes on exports of certain steel products, and the alleged maintenance of artificially low exchange rates. The CBSA has reviewed Counsel's request and has concluded that these same issues and information were already taken into consideration by the CBSA at the time the investigation was initiated. Accordingly, as explained in the Statement of Reasons issued at initiation, the CBSA believes that a further investigation into these programs is not warranted at this time. [411 Regarding Exhibit 103, a submission provided by a Japanese surrogate producer, NKK Tubes of Japan, Counsel (Grey, Clark, Shih and Associates, Limited) indicated that it objected to the acceptance of this Exhibit in the listing of dumping exhibits, stating that it did not meet the SIMA requirements for filing such information and provides an apprehension of bias in that the submission is fiom the complainant's associated company. The CBSA did not use any of the information provided by NKK Tubes of Japan for purposes of making its preliminary determination. For purposes of the final stage of the investigation, the CBSA will take into consideration the objections raised. [42] Additional representations were submitted by the GOC two days prior to the preliminary determination decision date. However, given that the submission was made just prior to the decision date, the CBSA is not in a position to consider this inforkation for purposes of the preliminary determination. This also takes into account the consideration that other parties will not have had an opportunity to comment or provide information in respect of these representations for purposes of the preliminary determination. However, these representations will be placed on the CBSA listing and be considered for purposes of the final determination. [43] Representations were also received two days prior to the preliminary determination decision date by Counsel for Wuxi Seamless Oil Pipe Co., Ltd., and its affiliates Jiangsu Fanli Steel Pipe Co., Ltd., Wuxi Longhua Steel Pipe Co., Ltd. and Eastar Industries Inc. For the same reasons mentioned above, the CBSA is not in a position to consider this information for purposes of the preliminary determination. However, these representations will be placed on the CBSA listing and be considered for purposes of the final determination.
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DUMPING INVESTIGATION Section 20 Inquiry [44] Section 20 is a provision under SIMA that may be applied to determine the normal value of goods in an anti-dumping investigation where certain conditions prevail in the domestic market of the exporting country. In the case of a prescribed country under paragraph 20(l)(a) of SIMA,~ is it applied where, in the opinion of the President of the CBSA (President), domestic prices are substantially determined by the government of that country and there is sufficient reason to believe that they are not substantially the same as they would be if they were determined in a competitive market. Where section 20 is applicable, the normal value of goods in an anti-dumping investigation cannot be determined based on a strict comparison with domestic prices or costs in that country. [45] For purposes of an anti-dumping proceeding, the CBSA proceeds on the presumption that section 20 of SIMA is not applicable to the sector under investigation absent sufficient information to the contrary. [46] The TenarisAlgomaTubes (TAT) complaint requested that section 20 be applied in the determination of normal values due to the alleged existence of the conditions set forth in paragraph 20(l)(a) of SIMA.~TAT provided information to support these allegations concerning the steel OCTG sector in ~ h i n a . ~ [47] On the basis of the information available, the CBSA concluded that there was sufficient evidence to initiate a section 20 inquiry in respect of the steel OCTG sector in ~ h i n a All known .~ . exporters, producers and the GOC were informed of the section 20 inquiry so that relevant information, evidence and arguments could be presented. Forming an Opinion under Section 20 of SIMA [48] The President may form an opinion where there is sufficient information and positive evidence that the conditions set forth in paragraph 20(l)(a) of SIMA exist in the sector under investigation.
China is a prescribed country under SIM Regulation 17.1. Complaint by TenarisAlgomaTubes - Certain Seamless Carbon or Alloy Steel Oil and Gas Well Casing Originating In or Exportedfrom the People S Republic of China (22 June 2007) at 19-24. Ibid. at TAT Appendices 2, 10, 11, 12, 13,23, and 37. Initiation of Dumping and Subsidizing Investigations - Certain Seamless Carbon or Alloy Steel Oil and Gas Well Casing Originating In or Exportedfrom the People S Republic of China (13 August 2007), File Nos. 42 14-15/42 18-23, Case Nos. AD 1371lCV122 at para. 55. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 9
[49] Outlined below is a non-exhaustive listing of factors which provides an adequate basis upon which an evaluation of price determination can be conducted for purposes of the section 20 inquiry. A government may be deemed to be substantially determining domestic prices where one or more of the factors are present within the sector under investigation. The two categories of factors include: [50]
e
Factors Suggesting that the Government Directly Determines Pricing the government or a government body sets minimum andlor maximum (floor or ceiling) price levels in respect of certain goods which permits prices to be established no lower or no higher than the minimum or maximum price levels; the government or a government body sets absolute pricing levels for certain goods; the government or a government body sets recommended or guidance pricing at which it is expected that sellers will adhere to within a certain range above andlor below that value; there are government or regulatory bodies which are responsible for establishing the price levels and for regulating and enforcing these price levels; and there are government-owned or controlled enterprises that set the price of their goods in consultation with the government or as a result of government-mandated pricing policies and, because of their market share or dominance, become price-leaders in the domestic market. Factors Suggesting that the Government Indirectly Determines Pricing
e e
e
e
[5 11
[52] Governments can also indirectly determine domestic prices through a variety of mechanisms that can involve the supply or price of the inputs used in the production of the goods under investigation or by influencing the supply of such goods in order to affect price as follows:
o
e
o
e
o
governments can control import and export levels through licensing, quotas, duties or taxes to maintain domestic prices at a certain level; governments can subsidize producers by providing direct financial subsidies or low-priced inputs in order to maintain the selling price of the product at a certain level; governments can purchase goods in sufficient quantities to raise the domestic price of the goods or they can sell stockpiled goods to put downward pressure on prices; through taxation or other policies, governments can regulate the level of profits that a company can earn which will affect selling prices; and the government can regulate or control production levels or the number of producers or sellers permitted in the market in order to affect domestic prices.
[53] The mere existence of substantial domestic price determination by the government would be insufficient to apply section 20 of SIMA. Rather, the CBSA, by virtue of section 20 of SIMA, is also required to examine the price effect resulting from substantial government determination of domestic prices and whether there is sufficient information and positive evidence on the record for the President to have a reason to believe that the resulting domestic prices are not substantially the same as they would be in a competitive market. [54] A section 20 inquiry refers to the process whereby the CBSA collects information from various sources so that the President may, on the basis of this information, form an opinion regarding
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the presence, in the sector under investigation, of the conditions described under subsection 20(1) of SIMA. [55] As a result, the CBSA, at the initiation of the anti-dumping investigation, sent section 20 questionnaires to all known exporters and producers of seamless steel casing in China as well as to the Government of China (GOC) requesting detailed information related to the steel sector and, more specifically, the OCTG steel sector in China. The requests for information related to the steel industry were necessary to conduct a meaningful analysis given that many of the government measures under consideration were applicable to a wide range of steel producers and steel goods. Nevertheless and notwithstanding the expanded scope of the information requested, the section 20 inquiry is a review of the steel OCTG sector and any results derived therefrom will be limited to this particular sector in China. [56] In response to the section 20 inquiry and the relevant questionnaires, the CBSA received submissions from six exporters and the GOC. [57] In addition, the CBSA has obtained information from both the complainant and secondary sources that includes, amongst others, previous CBSA reports, market intelligence reports, public industry reports, academic studies, newspaper and internet articles as well as government documents such as the "China Iron and Steel Industry Development Policy" issued formally by the G O C . ~ [58] Appendix 4 provides a summary of the preliminary findings considered to date by the President for purposes of the section 20 inquiry. measures, whether through [59] The President considered the cumulative effect that GOCYs government action or by proxy or through government influence, has exerted on the Chinese steel industry and, more specifically, the steel OCTG sector in China. At this time, the information indicates that the wide range and material nature of the GOC measures have resulted in significant influences on the steel industry including the steel OCTG sector through means other than market forces. For purposes of the preliminary determination, the President of the CBSA has formed the opinion that domestic prices in the steel OCTG sector are substantially determined by the GOC and there is sufficient reason to believe that the domestic prices are not substantially the same as they would be in a competitive market. [60] Accordingly, for purposes of estimating normal values for subject goods imported into Canada during the dumping POI, the CBSA has used alternate competitive market pricing information, drawn from an authoritative industry trade publication, Metal Bulletin Research (MBR). [61] During the final stage of anti-dumping investigation, the CBSA will be continuing its section 20 inquiry. The CBSA intends to further verify and analyse relevant information
The information obtained by the CBSA for purposes of the section 20 inquiry has been placed on the "Listings of Exhibits and Information" for the anti-dumping investigation. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 1I
including representations that section 20 conditions do not exist in the steel OCTG sector under investigation. To this end, CBSA officers are scheduled to meet with GOC representatives as well as with the representatives of participating Chinese exporters and other organizations. [62] The President will reaffirm or revise his opinion as to whether the conditions of section 20 exist in the steel OCTG sector as part of the final phase of the investigation.
Normal value
[63] Normal values are generally based on the domestic selling price of the goods in the country of export, or on the full cost of the goods including administrative, selling and all other costs plus a reasonable amount for profits. [64] The export price of imported goods is generally the lesser of the importer's purchase price or the exporter's selling price, less all charges and expenses resulting from the exportation of the goods. When the export price is less than the normal value, the difference is the margin of dumping. [65] For purposes of the preliminary determination, normal values could not be estimated on the basis of domestic selling prices in China or on the full cost of goods plus profit, as the CBSA determined that the conditions of section 20 exist in the steel OCTG sector. [66] Where section 20 conditions exist, the CBSA normally estimates normal values using the selling price, or the total cost and profit, of like goods sold by producers in a surrogate country operating under competitive market conditions. However, only one surrogate producer, NKK Tubes of Japan, provided domestic pricing and costing information relating to the goods under investigation. Other surrogate country producers did not provide this information. Surrogate information provided by a sole respondent is not used by the CBSA as it may disclose commercially sensitive information to other parties and may not be sufficiently representative of industry pricing and costing practices. [67] Accordingly, the CBSA used available market pricing information drawn from Metal Bulletin Research (MBR) Tube and Pipe Monthly for purposes of estimating normal values for seamless steel casing imported into Canada during the Dumping POI. Pricing data for OCTG seamless steel casing is covered in this publication for all major world markets. [68] Market information, including pricing data, is commonly reported for seamless steel casing products based on the steel grade. Grades J55lK55 and N80 represent common industry grades of seamless steel casing and MBR's market reports provide monthly pricing information for these specific grades, expressed in U.S. dollars per metric tonne. These same grades are also representative of the grades imported into Canada during the Dumping POI. [69] Normal values were estimated in U.S. dollars per metric tonne starting with a simple average of monthly reported selling prices, for Japan, Eastern and Western Europe, the Middle East and the USA, for seamless steel casing in grades J551K55 (the same monthly reported selling price was provided for both grades) and N80. Separate normal values for the grades in question were subsequently calculated for the whole of the Dumping POI based on an average of these monthly Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 12
figures. The MBR pricing figures for grade N80 were also used as match to grade L80. The CBSA is satisfied that this is a reasonable match given the proximity in product quality. [70] These four grades of seamless steel casing, K551J55, N80 and L80, accounted for approximately 86% of the total volume of exports from the six exporters in China (cooperative exporters) which provided a response to the CBSA's dumping RFI. These same exporters accounted for approximately 88% of the total volume of seamless steel casing shipped to Canada during the Dumping POI, based on current data. [71] There were a small number of other seamless steel casing grades (i.e. P110) shipped by the cooperative exporters where a closely matching grade of seamless steel casing was not available in the MBR data. This represented a small percentage of the goods shipped from the aforementioned exporters (14%). [72] In those instances, the normal value was estimated by advancing the export price by an amount equal to the average margin of dumping, as a percentage of export price, determined for each exporter on the grades for which a match could be made. [73] For exporters which declined to provide information in response to the CBSA's Request for Information (non-cooperative exporters), the normal values and related margins of dumping were estimated using the highest transaction margin of dumping (68%), expressed as a percentage of export price, as determined for cooperative exporters. Export price [74] The export price of imported goods is generally the lesser of the importer's purchase price or the exporter's selling price, less all charges and expenses resulting from the exportation of the goods. [75] For purposes of the preliminary determination, export prices were estimated using reported export pricing data provided by the exporters of the goods. For non-cooperative exporters, import pricing information available from Canada Customs' internal information systems was used for purposes of estimating export price. [76] These export prices were adjusted to account for charges and expenses resulting from the exportation of the goods to Canada, if applicable. Summary of Preliminary Results of Dumping; Investigation [77] The CBSA estimated margins of dumping by comparing its estimates of normal values with the estimated export prices. When the export price is less than the normal value, the difference is the margin of dumping. [78] The determination of the volume of dumped goods was calculated by taking into consideration each exporter's net aggregate dumping results. Where a given exporter has been determined to be dumping on an overall or net basis, the total quantity of exports attributable to that exporter (i.e. 100%) is considered dumped. Similarly, where a given exporter's net aggregate Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 13
dumping results are zero, then the total quantity of exports deemed to be dumped by that exporter is zero. [79] In calculating the weighted average estimated margin of dumping, the overall estimated margins of dumping found in respect of each exporter were weighted according to each exporter's volume of seamless steel casing exported to Canada during the Dumping POI. [80] Based on the preceding, 100% of the seamless steel casing goods fi-om China were dumped by an estimated weighted average margin of dumping of 35%, as a percentage of export price. [81] Under subsection 35(1) of SIMA, the President of the CBSA is required to terminate an investigation prior to the preliminary determination if he is satisfied that the margin of dumping of the goods of a country is insignificant or that the volume of dumped goods of a country is negligible. Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% is defined as insignificant, whereas a volume of dumped goods from a country forming less than 3% of total imports is considered negligible. [82] The estimated weighted average margins of dumping of seamless steel casing from China is above 2% and is, therefore, not insignificant. As well, the volume of dumped goods from China is above 396, and is, therefore, not negligible.
Preliminary dumping results by exporter
[83] Specific margin of dumping details relating to each of the exporters that provided a response to the CBSAYs dumping RFI are as follows:
Dalipal Pipe Company, Hebei Province (Dalipal)
[84] Dalipal submitted its exporter RFI response on September 26, 2007. Dalipal is a privately owned company operating at one facility located in the Hebei province. The company identified itself as an end finisher of the goods as it purchases steel pipe and processes it into oil casing. [85] This company made shipments to a Canadian distributor during the Dumping POI. Export selling price data, including applicable export price adjustments, provided by Dalipal in its RFI submission was used as the basis for estimating export price for purposes of the preliminary determination. Marain of dumping [86] The total normal value was compared with the total export price for all seamless steel casing imported into Canada during the Dumping POI. It was found that all of the goods exported by Dalipal were dumped by an estimated weighted average margin of dumping of 54%, expressed as a percentage of export price. The estimated margin of dumping was 54% on both shipments.
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Heng Yang Steel Tube Group Int'l Trading Inc., Hunan Province (HengYang Group)
[87] The company submitted its exporter RFI response to the CBSA on September 26,2007. Heng Yang Group is a multi-subsidiary integrated steel billet producer and manufacturer of the seamless steel casing goods. The major holdings of the company appear to be state owned and there is also a joint venture facility that has minor interests owned by Mittal Steel Company. [88] Export selling price data, including applicable export price adjustments, provided by Heng Yang Group in its RFI submission was used as the basis for estimating export price for purposes of the preliminary determination. Other third parties, located outside of China, participated in the export of the goods to Canada and their activities on these sales will be further reviewed for purposes of the final stage of the investigation Margin of dumping [89] The total normal value was compared with the total export price for all seamless steel casing imported into Canada during the Dumping POI. It was found that all of the goods exported by Heng Yang Group were dumped by an estimated weighted average margin of dumping of 50%, expressed as a percentage of export price. The estimated margins of dumping ranged from 50% to 53%.
Shandong Molong Petroleum Machinery Co. Ltd., Shandong Province (Shandong Molong)
[90] Shandong Molong submitted its exporter RFI response on September 26,2007. Shandong Molong is a joint stock limited company that was officially listed on the Hong Kong Exchange in 2004. The company is involved in the production and sale of sucker rod, subsurface sucker rod pump, pumping unit, tubing, casing, production, sale and development of petroleum machinery. [91] Export selling price data, including applicable export price adjustments, provided by Shandong in its RFI submission was used as the basis for estimating export prices for purposes of the preliminary determination. One third party, located outside of China, was involved in the export of the goods to Canada and their activities on these sales will be further reviewed for purposes of the final stage of the investigation. Margin of dumping [92] The total normal value was compared with the total export price for all seamless steel casing imported into Canada during the Dumping POI. It was found that all of the goods exported by Shandong Molong were dumped by an estimated weighted average margin of dumping of 50%, expressed as a percentage of export price. The estimated margins of dumping ranged from 34% to 68%.
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Tianjin Pipe Corporation, Tianjin (TPCO)
1931 TPCO submitted its exporter RFI response on September 26,2007. TPCO is a state owned enterprise (SOE) and a joint stock company, established in 1989. It is a fully integrated manufacturer of seamless steel casing. [94] Export selling price data, including applicable export price adjustments provided by TPCO in its RFI submission was used as the basis for estimating export prices for purposes of the preliminary determination. Exports to Canada are all made to a Canadian distributor and there is no other third party involved in the export sale, according to information provided by the exporter. Margin of dumping [95] The total normal value was compared with the total export price for all seamless steel casing imported into Canada during the Dumping POI. It was found that 100% of the goods exported by TPCO were dumped by an estimated weighted average margin of dumping of 9%, expressed as a percentage of export price. The estimated margins of dumping ranged from 7% to 37%.
Tianjin Tubular Goods Machining Co. Ltd., Tianjin (TTGM)
[96] TTGM submitted its exporter RFI response on September 26,2007. TTGM is a private, limited liability company, and was established in 1994. TTGM is not an integrated producer. The company purchases "green tube" (plain end pipe) from other producers. (971 TTGM export pricing data, including applicable export price adjustments, provided in its RFI submission, was used as the basis for estimating export price for purposes of the preliminary determination. TTGM has an agency agreement with a Canadian based party but no other third party appears to be involved in the export sales to Canada Margin of dumping [98] The total normal value was compared with the total export price for all seamless steel casing imported into Canada during the Dumping POI. It was found that 100% of the goods exported by TTGM were dumped by an estimated weighted average margin of dumping of 54%, expressed as a percentage of export price. The estimated margins of dumping ranged from 28% to 57%.
Wuxi Seamless Oil Pipe Co. Ltd., Jiangsu Province (WSP)
[99] The WSP submission was received on September 26,2007. WSP is a privately held, foreign invested enterprise (FIE) that was founded in 1999. Besides producing seamless steel casing, the company also produces other OCTG products such as tubing, drill pipe and line pipe. [loo] WSP export pricing data, including applicable export price adjustments, provided in its RFI submission, was used as the basis for estimating export prices for purposes of the preliminary determination. During the Dumping POI, WSP exported goods to three importers in Canada Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 16
including one related importer. No other third party appears to be involved in the export sales to Canada. Margin of dumping [I011 The total normal value was compared with the total export price for all seamless steel casing imported into Canada during the Dumping POI. It was found that 100% of the goods exported by WSP were dumped by an estimated weighted average margin of dumping of 36%, expressed as a percentage of export price. The estimated margins of dumping ranged from 29 to 52%.
Non-cooperative exporters - Margin of dumping
[lo23 For non-cooperative exporters,' import pricing information available from Canada Customs' internal information systems was used for purposes of estimating export price. Similarly, the normal value and related margin of dumping was estimated using the highest transaction margin of dumping (68%), expressed as a percentage of export price, as determined for cooperative exporters.
SUMMARY OF RESULTS - DUMPING Period of Investigation - July 1,2006 to June 30,2007
SUBSIDY INVESTIGATION
[I031 In accordance with SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex IA to the WTO Agreement, that confers a benefit.
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[I041 Pursuant to subsection 2(1.6) of SIMA, there is a financial contribution by a government of a country other than Canada where: (a) (b) practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities; amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected; the government provides goods or services, other than general governmental infrastructure, or purchases goods; or the government permits or directs a non-governmental body to do anything referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.
(c) (d)
[I051 If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law, to a particular enterprise within the jurisdiction of the authority that is granting the subsidy; or is a prohibited subsidy. An "enterprise" is defined under SIMA as also including a group of enterprises, an industry and a group of industries. A "prohibited subsidy" includes an export subsidy which is contingent, in whole or in part, on export performance or a subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export. [I061 Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether: (a) (b) (c) (d) there is exclusive use of the subsidy by a limited number of enterprises; there is predominant use of the subsidy by a particular enterprise; disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.
[I071 For purposes of a subsidy investigation, the CBSA refers to a subsidy that has been found to be specific as an "actionable subsidy," meaning that it is subject to countervailing measures if the imported goods under investigation have benefited fiom the subsidy. [lo81 Prior to the initiation of the investigation, the complainant submitted documents alleging that the producers and exporters of seamless steel casing in China benefited from actionable subsidies provided by the Government of China (GOC). [lo91 For purposes of the subsidy investigation, "Government of China" refers to all levels of government, including federal, central, provincial/state, regional, municipal, city, township, village, local, legislative, administrative or judicial levels. Benefits provided by state-owned enterprises Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 18
operating under the direct or indirect control or influence of the Government of China may also be considered to be provided by the Government of China for purposes of this investigation. [I101 At initiation, the CBSA identified 26 potential subsidy programs in the following seven categories: 1. 2. 3. 4. 5. 6. 7. Special Economic Zone (SEZ) Incentives and other Designated Areas; Grants: Preferential Loans; Preferential Income Tax Programs; Relief from Duties and Taxes on Materials and Machinery; Reduction in Land Use Fees; and Purchase of Goods from State-owned Enterprises.
[ I l l ] Appendix 2 provides further details regarding the subsidy programs that were identified upon initiation of the investigation. Preliminarv Phase of the Subsidv Investigation
[I 121 In conducting its investigation; the CBSA sent subsidy RFIs to identified potential exporters located in China and to the GOC. Information was requested in order to establish whether there had been financial contributions made by any level of government and, if so, to establish if a benefit has been conferred on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of seamless steel casing; and whether any resulting subsidy was specific in nature. The GOC was also requested to forward the questionnaires to all subordinate levels of government that had jurisdiction over the exporters.
[I131 The CBSA has received substantially complete responses from the six cooperating exporters located in China. However, despite the granting of a two-week extension for submission, a complete response to the CBSA's subsidy RFI was not received from the GOC. Accordingly, the CBSA issued two supplementary RFIs (SRFI) to the GOC, in an effort to obtain complete information and to clarify the information received. Specifically, the CBSA requested that the GOC respond to the RFI in respect of all of the exporters identified by the CBSA at the initiation. The CBSA also requested further information on the following seven subsidy programs identified subsequent to the initiation of the investigation: 1. Government export subsidy and product innovation subsidy in Shandong province; 2. Value-added Tax (VAT) refund for enterprises qualified as a "welfare" enterprise in Shandong province; 3. Tax exemption for enterprises qualified as a "welfare" enterprise in Shandong province; 4. Tax exemption of purchased fixed assets used for qualified technological improvement projects in Shandong province; 5. Employment taxation benefits for the handicapped in Shandong province; 6. Accelerated depreciation on fixed assets in Tianjin Binhai New Area; and 7. Tax exemption for employing former employees laid-off from SOEs in Hebei province.
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[I141 The GOC failed to provide complete information as requested in the second SRFI. Therefore, the CBSA considers the GOC's response to the RFI to be incomplete. [I151 As a result, the preliminary decision is based on the information available at the time of the preliminary determination. A summary of the preliminary findings for the named subsidy programs can be found in Appendix 3. Summary of Results - Subsidy [I161 For the purposes of the preliminary determination, the CBSA estimated the amount of subsidy by comparing the average selling price of like goods sold in the Chinese domestic market to their cost of production estimated by the CBSA. In this case, where the like goods were sold at prices lower than their estimated cost of production, the difference is considered to be the amount of subsidy. [117] The preliminary results indicate that 100% of the seamless steel casing goods imported into Canada during the Subsidy POI were subsidized. The CBSA7sestimated amounts of subsidy ranges from 5% to lo%, expressed as a percentage of export price. The estimated overall weighted average amount of subsidy is equal to 7% of the export price. [I 181 The highest estimated amount of subsidy found, which is estimated to be 10% of the export price, is applicable to those exporters that did not respond to the RFI, or provided an incomplete submission. Details regarding the amounts of subsidy determined for each of the six cooperating exporters are provided in Appendix 1. [I 191 Under subsection 35(1) of SIMA, the CBSA is required to terminate an investigation prior to the preliminary determination if the amount of subsidy on the goods of a country is insignificant or if the volume of subsidized goods of a country is negligible. Section 41.2 of SIMA further requires the CBSA take into account the provisions of Article 27 of the WT0 Subsidies Agreement when conducting subsidy investigations. These provisions stipulate that any investigation involving a developing country must be terminated as soon as it is determined that the total amount of subsidy for a developing country does not exceed 2% of the value of the goods, or that the volume of the subsidized imports represents less than 4% of the total imports of the goods. For developed countries, less than 1% of the value of the goods is considered insignificant, whereas a volume of subsidized goods forming less than 3% of total imports is considered negligible. [I201 The CBSA normally makes reference to the Development Assistance Committee List of OfJicial Development Assistance Recipients (DAC List of ODA Recipients), maintained by the Organization for Economic Cooperation and Development, to determine eligibility for the differential amounts for developing countries in subsidy investigations. According to this list, China is eligible for the higher insignificance and negligibility thresholds. [I211 The following table illustrates that the estimated amount of subsidy respecting China is not insignificant, nor is the volume of subsidized goods negligible.
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SUMMARY OF RESULTS - SUBSIDY Period of Investigation - January 1,2006 to June 30,2007 Country Estimated Subsidized Goods as Percentage of Country Imports
100%
Estimated Weighted Average Amount of Subsidy *
7%
Country Imports as Percentage of Total Imports
Estimated Subsidized Goods as Percentage of Total Imports
China
36%
36%
* As percentage of the export price
DECISION
[I221 Based on the preliminary results of the investigation, the CBSA, on November 9,2007, made preliminary determinations of dumping and subsidizing respecting certain seamless carbon or alloy steel oil and gas well casing originating in or exported from the People's Republic of China, pursuant to subsection 38(1) of SIMA.
PROVISIONAL DUTY
El231 Pursuant to subsection 8(1) of SIMA, provisional duties will be applied to dumped and subsidized seamless steel casing that are released during the provisional period commencing on the day the preliminary determinationsare made, and ending on the earlier of the day on which the CBSA causes the investigation to be terminated pursuant to subsection 41(1) or the day on which the Tribunal makes an order or finding. El241 Provisional countervailing duty is based on the estimated amount of subsidy and is expressed as a percentage of export price. Provisional anti-dumping duty is based on the estimated margin of dumping, also expressed as a percentage of the export price of the goods. Appendix 1 contains the estimated margins of dumping, estimated amounts of subsidy, and the rates of provisional duties, payable on subject goods released from Customs on and after November 9,2007. [I251 Provisional duties are payable by the importer in Canada and apply until the day the Tribunal makes a finding on the question of injury or if the investigation is terminated by the CBSA. [I261 Importers are required to pay provisional duties in cash or by certified cheque. Alternatively, they may post security equal to the amount payable. Importers should contact their CBSA regional customs office if they require further information on the payment of provisional duty or the posting Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 21
of security. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in the customs documents, an administrative monetary penalty could be imposed. The imported goods are also subject to the Customs Act. As a result, failure to pay duties within the specified time will result in the application of the provisions of the Customs Act regarding interest.
FUTURE ACTION The Canada Border Services Agency
[I271 The CBSA will continue its dumping and subsidy investigations and will make final determinations by February 7,2008. [I281 If the CBSA is satisfied that the goods were dumped and/or subsidized, and that the margin of dumping or amount of subsidy is not insignificant, final determinations will be made. Otherwise, the CBSA will terminate the investigation and any provisional duties paid, or security posted, will be returned to importers.
The Canadian International Trade Tribunal
[I291 The Tribunal has begun its full inquiry into the question of injury to the Canadian industry. The Tribunal is expected to issue its final decision by March 10,2008. [130] If the Tribunal finds that the dumping or subsidizing has not caused injury or is not threatening to cause injury, the proceedings will be terminated and all provisional duties collected, or security posted, will be returned. If the Tribunal makes an affirmative decision, anti-dumping duties and countervailing duties will be imposed on imports of seamless steel casing. [13 11 For purposes of the preliminary determination of dumping or subsidizing, the CBSA has responsibility for determining whether the actual and potential volume of dumped or subsidized goods is negligible. After preliminary determinations of dumping or subsidizing, the Tribunal assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the Tribunal is required to terminate its inquiry in respect of any goods if the Tribunal determines that the volume of dumped or subsidized goods from a country is negligible.
RETROACTIVE DUTY ON MASSIVE IMPORTATIONS
El321 Under certain circumstances, anti-dumping and countervailing duties can be imposed retroactively on subject goods imported into Canada. When the Tribunal conducts its inquiry on material injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry. Should the Tribunal issue a finding that there were recent massive importations of dumped and/or subsidized Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 22
goods that caused injury, imports of subject goods released by the CBSA in the 90 days preceding the day of the preliminary determinations could be subject to anti-dumping and/or countervailing duties. [I331 In respect of importations of subsidized goods that have caused injury, this provision is only applicable where the CBSA has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy. In such a case, the amount of countervailing duty applied on a retroactive basis will equal the amount of subsidy on the goods that is a prohibited subsidy. An export subsidy is a prohibited subsidy according to subsection 2(1) of SIMA.
UNDERTAKINGS
[I341 After a preliminary determination of dumping, exporters may submit a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. Similarly, after a preliminary determination of subsidizing, the government of a country may give a written undertaking to eliminate the subsidy on the goods, or to eliminate the injurious effect of the subsidy by limiting the amount of the subsidy or the quantity of goods exported to Canada. Exporters, with the consent of their government, may also undertake to revise their selling prices so that the injurious effect of the subsidy is eliminated. [I351 Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped and subsidized goods. In the event that an undertaking is accepted, the required payment of provisional duties on the goods would be suspended. [I361 In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determinations of dumping and subsidizing. Further details regarding undertakings can be found in the CBSA's Memorandum D 14-1-9, available online at: http://www.cbsa-asfc.ac.ca/E/pub/cm/dl41-9/dl4- 1-9-e.htm1. [I371 The legislation allows interested parties to make representations concerning any undertaking proposals. The CBSA will maintain a.list of interested parties and will notify them should an undertaking proposal be received. Persons wishing to be notified must provide their name, address, telephone, fax or email address to one of the officers listed below. Interested parties may also consult the CBSA Web site noted below for information on undertakings offered in these investigations. A notice will be posted on the CBSA Web site when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.
PUBLICATION
[I381 A notice of these preliminary determinations of dumping and subsidizing will be published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.
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INFORMATION
[139] This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the CBSA Web site at the address below. For further information, please contact Dan St-Arnaud or Andrew Manera as follows: Mail SIMA Registry Anti-dumping and Countervailing Program Trade Programs Directorate Canada Border Services Agency 100 Metcalfe Street, 11th Floor Ottawa, Ontario KIA 0L8 Canada Dan St-Arnaud Andrew Manera SIMA Registry 613- 954-7373 6 13- 946-2052 6 13-948-4844
Telephone
Fax E-mail Web site
simaregistry@,cbsa-asfc.gc.ca
http://www.cbsa-asfc.gc.ca/sima
~ i r d t oGeneral r Trade ~ r b ~ r a r Directorate ns Attachment
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APPENDIX 1 - SUMMARY OF ESTIMATED AMOUNT OF DUMPING, ESTIMATED AMOUNT OF SUBSIDY AND PROVISIONAL DUTIES PAYABLE
Machinery Co. Ltd. (Shandong
All Other Exporters
68%
10%
78%
* As a percentage of export price
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APPENDIX 2 - DESCRIPTION OF PROGRAMS AND INCENTIVES AT INITIATION Evidence provided by the complainant suggests that the Government of China may have provided support to manufacturers of seamless steel casing in the following manner. For purposes of this investigation, "Government of China" (GOC) refers to all levels of government, i.e. federal, central, provincial/state, regional municipal, city, township, village, local, legislative, administrative or judicial. Benefits provided by state-owned enterprises operating under the direct or indirect control or influence of the GOC may also be considered to be provided by the GOC for purposes of this investigation.
1. Special Economic Zone (SEZ) Incentives and other Desi~nated Areas
In its recent New and Full NotiJication Pursuant to Article W I : I of the GATT 1994 andArticle 25 of the SCMAgreement to the World Trade Organization (WTO notification), China identified the following programs: X. XI. XII. XIV. Preferential tax policies for enterprises with foreign investment established in special economic zones (excluding Shanghai Pudong area); Preferential tax policies for enterprises with foreign investment established in the costal economic open areas and in the economic and technological development zones; Preferential tax policies for enterprises with foreign investment established in Pudong area of Shanghai; and Preferential tax policies in the Western Regions.
In addition, there is information that the GOC may also be providing various benefits and incentives to enterprises in China located within SEZs and other designated areas. The various benefits and incentives are as outlined below: e Corporate Income Tax ExemptiodReduction;
e
e e
Local Income Tax ExemptiodReduction; Exemptiodreduction of special land tax and land use fee; Tariff and Value-added Tax (VAT) exemptions on imported materials and equipment; Income Tax Refund where Profits Re-Invested; and Preferential costs of services and/or goods provided by government bodies or state-owned enterprises.
a e
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2. Grants
There is information that the GOC may be providing grants to producers in China under the following identified programs:
a
a e
The State Key Technology Renovation Projects; Loans and Interest Subsidies.provided under the Northeast Revitalization Program; Reimbursement of Antidumping andlor Countervailing Legal ~ x ~ e n sbysthe Local e Governments; and VAT and income tax exemption/reduction for enterprises adopting debt-to-equity swaps.
e
3. Preferential Loans
There is information that the GOC may be providing loans and policy loans to producers in China. These loans may be made directly by the GOC or indirectly via financial institutions in China. 4. Preferential Income Tax Programs In its recent WTO notification, China identified the following programs: I. 11. VI. Preferential Tax Policies for Foreign-Invested Enterprises (FIE); Preferential Tax Policies for Foreign-Invested Export Enterprises; Preferential tax policies for enterprises with foreign investment which are technology-intensive and knowledge-intensive;
XXVII. Preferential tax policies for the research and development of foreign-invested enterprises; LVIII. Preferential tax policies for foreign invested enterprises and foreign enterprises which have establishments or place in China and are engaged in production or business operations purchasing domestically produced equipment; and Preferential tax policies for domestic enterprises purchasing domestically produced equipment for technology upgrading purpose.
LIX.
There is information that the GOC may be providing income tax refund to enterprises in China under the following program:
@
Income Tax Refund for Re-investment of FIE Profits by Foreign Investors.
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5. Relief from Duties and Taxes on Materials and Machinery
In its recent WTO notification, the GOC identified the following program:
LX.
Exemption of tariff and import VAT for the imported technologies and equipment.
There is information that the GOC may be providing relief from duties and taxes on inputs.
6. Reduction in Land Use Fees
There is information that the GOC may be providing a reduction in land use fees to enterprises in China. 7. Purchase of Goods from State-owned Enterprises There is information that the GOC may be providing goods and/or services other than general infrastructure to enterprises in China. These goods andlor services other than general infrastructure may be provided directly by the GOC or indirectly by state-owned enterprises. There is information that suggests that steel producers may purchase inputs from state-owned enterprises (SOE) at prices below fair market value (i.e. below what the purchaser would pay at arms length from non-SOE suppliers). Based on information available, the GOC may also be providing favourable utility and energy rates to producers in China.
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APPENDIX 3 - SUMMARY OF PRELIMINARY FINDINGS FOR NAMED SUBSIDY PROGRAMS
1. Special Economic Zone (SEZ) Incentives and Other Designated Areas
X. Preferential tax policies for enterprises with foreign investment established in special economic zones (excluding Shanghai Pudong area)
General Information: This program was established in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to absorb foreign investment, expand the open-up policy and enhance development in Special Economic Zones (SEZs). The authority responsible for administering this program is the State Administration of Taxation. The local tax offices are responsible for implementing State policy and all relevant matters related to income tax assessment and collection, including examination and approval of applications relating to preferential tax treatment. Under this program, non-wholly foreign owned FIEs established in SEZs and FEs (wholly foreign owned FIEs) established in SEZs engaging in production or business operations shall pay income tax at a reduced rate of 15%. The program was in operation during the Subsidy POI and continues to be in operation to date. It was mentioned in the GOC's response that the Income Tax Law of the People's Republic of China for Enterprises (the "New Income Tax Law") has been adopted at the fifth session of the Tenth National People's Congress on March 16,2007 and will come into effect as of January 1,2008. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect. Legal Basis: The income tax reduction for FIEs under this program is provided for in Article 7 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the responding companies has applied for or has received preferential tax treatment under this program during the Subsidy POI.
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Eligibility Criteria: The eligibility criteria for this program can be found in Article 69 of the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. Article 69 defines SEZs as the SEZs of Shenzhen, Zhuhai, Shantou and Xiamen and the Hainan SEZ established by law or established upon approval of the State Council. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced andlor exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law ofthe People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.
XI. Preferential tax policies for enterprises with foreign investment established in the costal economic open areas and in the economic and technological development zones
General Information: This program was established in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to encourage foreign investment in Economic and Technical Development Zones (ETDZs) in open coastal cities and encourage some districts to take the lead in development. The authority responsible for administering this program is the State Administration of Taxation and local tax offices. Under this program, FIEs of a productive nature established in coastal economic open zones or in the old urban districts of cities where the SEZs or the ETDZs are located shall pay income tax at a reduced rate of 24%. FIEs established in coastal economic open zones or in the old urban districts of cities where the SEZs or the ETDZs are located or in any other regions defined by the State Council, who are engaged in the following projects: (a) technology-intensive or knowledge-intensive projects, (b) Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 30
projects with foreign investments of over US $30 million and having long periods of return on investment, and (c) energy resource, transportation and port construction projects, may be levied at the reduced rate of 15%. The program was in operation during the Subsidy POI and continues to be in operation to date. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect as of January I, 2008. Legal Basis: The income tax reduction for FIEs under this program is provided for in Article 7 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the responding companies has applied for or has received preferential tax treatment under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria for this program can be found in the following articles of the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. Article 69 defines ETDZs as the economic and technological development zones in the coastal port cities established upon approval of the State Council. FIEs established in ETDZs that are eligible for preferential tax treatment under this program are located in the following ETDZ areas: Changchun, Wuhan, Haerbin, Nanchang, Changsha, Zhengzhou, Taiyuan, Hefei, Wuhu, Xi'an, Chongqing, Chengdu, Hohhot, Kunrning, Nanning, Yinchuan, Guiyang, Shihezi, Ururnchi, Lanzhou, Xining, Tianjin, Kunshan, Suzhou Industrial Park, Guangzhou, Jinqiao, Beijing, Nanjing, Dalian, Caohejing, Qingdao, Hangzhou, Ningbo, Yantai, Shenyang, Haichang Xiamen, Rongqiao Fuqing, Minhang, Fuzhou, Nansha, Xiaoshan, Nantong, Qinghuangdao, Yingkou, Wenzhou, Lianyungang, Weihai, Daxie Ningbo, Zhanjiang, Dayawai Huizhou, Yangpu Hainan, Dongshan and Hongqiao. Article 70 defines coastal economic open zones as "those cities, counties and districts established as coastal economic open zones upon approval of the State Council". FIEs of a productive nature are defined in Article 72 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises as FIEs engaged in the following industries: (a) (b) (4 Machine manufacturing and electronics industries; Energy resource industries (not including exploitation of oil and natural gas); Metallurgical, chemical and building material industries;
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(d) (e)
(f)
(g> (h) (i>
(i
>
Light industries, and textiles and packaging industries; Medical equipment and pharmaceutical industries; Agriculture, forestry, animal husbandry, fisheries and water conservation; Construction industries; Communications and transportation industries (not including passenger transport); Development of science and technology, geological survey and industrial information consultancy directly for services in respect of production and services in respect of repair and maintenance of production equipment and precision instruments; and Other industries as specified by the tax authorities under the State Council.
Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced andlor exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the above-mentioned eligibility criteria.
XII. Preferential tax policies for enterprises with foreign investment established in the Pudong area of Shanghai
General Information: This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to encourage foreign investment in the SEZs of the Pudong Area of Shanghai. The authority responsible for administering this program is the State Administration of Taxation. The local tax offices are responsible for implementing State policy and all relevant matters related to income tax assessment and collection, including examination and approval of applications relating to preferential income tax treatment. Under this program, FIEs, FEs, joint-venture DIEs and single-investor DIEs established in the SEZs of the Pudong New Area of Shanghai shall pay income tax at a reduced rate of 15%.
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The program was in operation during the Subsidy POI and continues to be in operation to date. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect as of January 1,2008. L e ~ aBasis: l The income tax rate reduction for FIEs and FEs under this program is specifically provided for in Article 7 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The income tax rate reduction for joint-venture DIEs and single-investor DIEs under this program can be found in the Circular on Income Tax Rate Applied to Chinese Joint Ventures in Pudong New Area of Shanghai. These legal documents also clearly indicate that the reduced income tax rate of 15% is to apply to all enterprises, including FIEs, located in the aforementioned SEZs. The GOC has stated that none of the responding companies has applied for or has received preferential tax treatment under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria relating to FIEs for this program can be found in Article 73 of the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises, which specifically identifies productive-oriented FIEs established in the Pudong New Area of Shanghai as being eligible for the reduced income tax rate of 15%. The eligibility criteria for this program relating to DIEs located in the Pudong New Area of Shanghai can be found in the Circular on Income Tax Rate Applied to Chinese Joint Ventures in Pudong New Area of Shanghai, which specifically identifies Chinese joint venture and single-investor DIEs established in the Pudong New Area of Shanghai as being eligible for the reduced income tax rate of 15%. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reductiodexemption. Determination of Specificity: Preferential income tax rates provided to enterprises located in the SEZs of the Pudong Area of Shanghai were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises and the Circular on Income Tax Rate Applied to Chinese Joint Ventures in Pudong New Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 33
Area of Shanghai. In addition, the CBSA has determined that, in this case, the particular enterprise consists of a group of enterprises which are specifically located in the SEZs of the Pudong Area of Shanghai.
XIV. Preferential tax policies in the Western regions
General Information: This program was established for DIEs and FIEs in the Circular of the Ministry of Finance, State Administration of Taxation and General Administration of Customs on the Preferential Tax Policy of Development of the Western Region, which was promulgated on December 30,2001, and came into effect as of January 1,2001. This program was established in order to encourage investment in the western region of China. The authority responsible for administering this program is the State Administration of Taxation. The local tax offices are responsible for implementing State policy and all relevant matters related to income tax assessment and collection, including examination and approval of applications relating to preferential income tax treatment. Under this program, DIEs in industries classified in the encouraged category in the Guiding Cataloguefor Industrial Structure Regulation (2005 Version) and FIEs classified in the encouraged category in the Guideline Catalogue for Foreign Investment Industries and the Guideline Catalogue of the Advantageous Industries in Central and Western Regions for Foreign Investment, and who are located in the western region and other specified locations are eligible for a preferential income tax rate of 15%. The program was in operation during the Subsidy POI and is scheduled to expire in 2010. Legal Basis: The income tax rate reduction is specifically provided for in Article 1 of the Circular of the Ministry of Finance, State Administration of Taxation and General Administration of Customs on the Preferential Tax Policy of Development of the Western Region. Based on the information available, the CBSA has identified that at least one exporter is located in the western region and may have received benefits under this program. Eligibility Criteria: The eligibility criteria relating to this program can be found in Article 1 of the Circular of the Ministry of Finance, State Administration of Taxation and General Administration of Customs on the Preferential Tax Policy of Development of the Western Region. The eligibility criteria states that enterprises located in the western region and in industries classified as encouraged in the Guiding Catalogue for Industrial Structure Regulation (2005 Version) or in the Guideline Catalogue for Foreign Investment Industries and the Guideline Catalogue of the Advantageous Industries in Central and Western Regions for Foreign Investment, are eligible for the
.
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preferential income tax rate of 15% provided they are major businesses and their income from major businesses accounts for more than 70% of total income. The western region for the purposes of this program is defined as: Shanxi Province, Jilin Province, Heilongjiang Province, Anhui Province, Jiangxi Province, Henan Province, Hubei Province, Hunan Province, Chongqing Municipality, Sichuan Province, Guizhou Province, Yunnan Province, Tibet Autonomous Region, Shaanxi Province, Gansu Province, Ningxia Hui Autonomous Region, Qinghai Province, Xinjiang Uygur Autonomous Region, Inner Mongolia Autonomous Region and Guangxi Zhuang Autonomous Region. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificitv: Preferential income tax rates provided to enterprises located in the western region and other specified locations were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the Ministry of Finance, State Administration of Taxation and General Administration of Customs on the Preferential Tax Policy of Development of the Western Region. In addition, the CBSA has determined that, in this case, the particular enterprise consists of a group of enterprises, which are specifically located in the western region and other specified locations.
Program: Corporate Income Tax Exemption and/or Reduction
General Information: This program was established in the Regulations on Special Economic Zones in Guangdong Province and approved for implementation on August 26, 1980. The program was established to absorb investment in SEZs and encourage districts to take the lead in their economic development. The program is administered by the State Administration of Taxation and local tax authorities. Under this program, all eligible enterprises may receive a reduced corporate income tax rate of 15%. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The program is described under Article 14 of the Regulations on Special Economic Zones in Guangdong Province.
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The GOC has stated that none of the responding companies has applied for or has received preferential tax treatment under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria can be found in Article 14 of the Regulations on Special Economic Zones in Guangdong Province. Special preferential treatment is given to enterprises established within two years of the promulgation of the Regulations on Special Economic Zones in Guangdong Province, to enterprises with an investment of US$5 million or more and to enterprises involving higher technology or having a longer period of capital turnover. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Preferential tax rates provided to enterprises in SEZs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of enterprises that meet the above-mentioned eligibility criteria.
Program: Local Income Tax Exemption and/or Reduction
General Information: This program was established in the Income Tax Law of the People S Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises, which was promulgated on April 9, 1991, and came into force on July 1, 1991. This program was established to provide preferential tax treatment to FIEs to accelerate the development of local economy. The program is administered by the State Administration of Taxation and local tax authorities. Under this program, any FIE that operates in an industry or undertakes a project encouraged by the State may receive an exemption or reduction in local income taxes at the discretion of the relevant provincial, autonomous region or municipality under the Central Government. The program was in operation during the Subsidy POI and continues to be in operation to date.
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Legal Basis: The program is described under Article 9 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the responding companies has applied for or has received preferential tax treatment under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria can be found in Article 9 of the Income Tax Law of the People's Republic of and China for Enterprises with Foreign ~nvestment Foreign Enterprises. The program is only available to FIEs that are operating in an encouraged industry or project, that is those enterprises identified in the Current Catalogue of Key Industries, Products and Technologies the Development of Which is Encouraged by the State (2000). Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced andlor exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Preferential tax rates provided to enterprises in SEZs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of enterprises that meet the abovementioned eligibility criteria. Program: Exemption/Reduction of special land tax and land use fee The GOC has stated that this program is not available in the SEZs. The CBSA is continuing to review this program in order to determine the administration and availability of the program. Program: Tariff and Value-added Tax (VAT) Exemptions on Imported Materials and Equipment General Information: This program was established in the Regulations on Special Economic Zones in Guangdong Province and approved for implementation on August 26, 1980. The program was established to Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 37
absorb investment in SEZs and encourage districts to take the lead in development. The program is administered by the General Administration of Customs and local customs authorities. Under this program, machinery and equipment, spare parts, raw and semi-processed materials, means of transportation and other capital goods necessary for production that are imported by enterprises in special zones shall be exempted from import duties. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The import duty exemption is detailed in Article 13 of the Regulations on Special Economic Zones in Guangdong Province. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria are stated in Article 13 of the Regulations on Special Economic Zones in Guangdong Province. Any enterprise located in the special zones may receive the import duty exemption. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction~exemption. Determination of Specificity: Import duty exemptions provided to enterprises in the SEZs of Guangdong province were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province.
Program: Income Tax Refund where Profits Re-invested
General Information: This program was established in the Regulations on Special Economic Zones in Guangdong Province and approved for implementation on August 26, 1980. This program was established to encourage investors to reinvest profits into businesses in the SEZs of Guangdong province. The authority responsible for administering this program is the State Administration of Taxation. The Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 38
local tax offices are responsible for implementing State policy and all relevant niatters related to income tax assessment and collection,.including examination and approval of applications relating to preferential tax treatment. Under this program, investors that reinvest their profits derived in the SEZs of Guangdong province for a period of five years or longer, may apply for a reduction of or an exemption from income tax on the reinvested portion. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The income tax reduction for investors in the SEZs of Guangdong province is provided for in Article 16 of the Regulations on Special Economic Zones in Guangdong Province. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: This program is available to any investors that reinvest their share of the profit in the special zones for a period of five years or longer, according to Article 16 of the Regulations on Special Economic Zones in Guangdong Province. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced andlor exempted, and would confer a benefit to the recipient equal to the amount of the reductionJexemption. Determination of Specificity: Preferential tax rates provided to enterprises located in the SEZs of Guangdong province were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province.
Program: Preferential costs of services and goods provided by government bodies or state-owned enterprises (SOEs)
The GOC has stated that this program is not available in the SEZs. The CBSA is continuing to review this program in order to determine the administration and availability of the program.
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2. Grants
Program: The State Key Technology Renovation Projects
This program was established in the Administrative Measures on the State Key Technological Renovation Projects and the Administrative Measures on Special Fund Generated by Treasure Bonds for the State Key Technological Renovation Projects, Guo Jing Mao Tou Zi (1999) No. 886, which came into effect as of September 10, 1999. The authority responsible for administering this program was the State Economic & Trade Commission (SETC). The GOC stated that the SETC was discontinued during the institutional reform of state agencies in 2003. As a result, no administrative office overseeing the program exists and, as a practical matter, the program ceased to function in 2003. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI.
Program: Loans and Interest Subsidies provided under the Northeast Revitalization Program
The GOC failed to provide complete information with respect of this program. The CBSA is continuing to review this program in order to determine the administration and availability of the program.
Program: Reimbursement of Anti-dumping and/or Countervailing Legal Expenses by the Local Governments
The GOC has stated that this program is not available during the Subsidy POI. The CBSA is continuing to review this program in order to determine the administration and availability of this program.
Program: VAT and Income Tax exemption /reduction for Enterprises adopting Debt-to-Equity Swaps
General Information: This program was established in the Notice on the Tax Policies for Debt-to-equity Swap Enterprises, Cai Shui (2005) No. 29, which came into effect as of January 1,2004. This program was established in order to exert further efforts for the debt-to-equity work and support the reform of enterprises. The authority responsible for administering this program is the Ministry of Finance and the State Administration of Taxation. Under this program, enterprises adopting debt-to-equity swaps, pursuant to the debt-to-equity swap agreement signed between the enterprise and a financial asset management company, are exempted from paying value-added tax andlor consumption tax.
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This program was in operation during the Subsidy POI and is scheduled to expire on December 3 1,2008. Legal Basis: The tax exemption under this program is provided for in Article I of the Notice on the Tax Policies for Debt-to-equity Swap Enterprises, Cai Shui (2005) No. 29. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria for this program can be found in Article I of the Notice on the Tax Policies for Debt-to-equity Swap Enterprises, Cai Shui (2005) No. 29, which states that: If, pursuant to the debt-to-equity swap agreement signed between a swap enterprise and a financial asset management company, the old swap enterprise offers assets in the form of goods to the new swap enterprise as investments, an exemption of values-added taxes thereon shall be granted; and If, pursuant to the debt-to-equity swap agreement signed between a swap enterprise and a financial asset management company, the old swap enterprise offers taxable consumer goods to the new swap enterprise as investments, an exemption of consumption taxes thereon shall be granted. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: The tax exemptions provided to enterprises adopting debt-to-equity swaps were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Notice on the Tax Policies for Debt-to-equity Swap Enterprises, Cai Shui (2005) No. 29.
3. Preferential Loans
The GOC has stated that preferential loans are not available during the Subsidy POI. The CBSA is continuing to review this program in order to determine the administration and availability of the program. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 41
4. Preferential Income Tax Programs
I
Program: Preferential Tax Policies for Foreign Invested Enterprises (FIEs)
Reduced Tax Rate for Productive FZEs Scheduled to Operatefor a Period not less than 10 Years
General Information: This program was established in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to encourage foreign investment. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, from the year an FIE begins to make a profit, they may apply for and receive an exemption from income tax in the first and second years and a 50% reduction in the third, fourth, and fifth years of profitable operation. Should an FIE cease operation following a period of less than 10 years, that enterprise will be responsible for repaying the amount of tax that has been reduced or exempted under this program. If the FIE business license prescribes a scope that encompasses both business of a "productive" nature and of a "non-productive" nature, the FIE may only apply for and receive benefits under this program in the years where the income from productive business exceeds 50% of its total income. Should the scope of the FIE not include business of a "productive" nature in the scope prescribed by its business license, it may not receive benefits under this program under any circumstance, regardless if it has productive business income that exceeds 50% of total income. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The income tax reduction andlor exemption for FIEs under this program is provided for in Article 8 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The program is administered in accordance with the Rules for the Implementation of the Income Tax Law of the People S Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The CBSA has identified at least one exporter that may have received benefits under this program during the Subsidy POI. Eligibility Criteria: As noted above, FIEs of a "productive nature" are eligible for this program as long as they are scheduled to operate for a period not less than ten years. FIEs of a "productive nature" are defined in Article 72 of the Rules for the Implementation of the Income Tax Law of the People's Republic of Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 42
China for Enterprises with Foreign Investment and Foreign Enterprises as FIEs engaged in the following industries:
Machine manufacturing and electronics industries; Energy resource industries (not including exploitation of oil and natural gas); Metallurgical, chemical and building material industries; Light industries, and textiles and packaging industries; Medical equipment and pharmaceutical industries; Agriculture, forestry, animal husbandry, fisheries and water conservation; Construction industries; Communications and transportation industries (not including passenger transport); Development of science and technology, geological survey and industrial information consultancy directly for services in respect of production and services in respect of repair and maintenance of production equipment and precision instruments; and Other industries as specified by the tax authorities under the State Council. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.
I1
Program: Preferential Tax Policies for Foreign Invested Export Enterprises
General Information: This program was established in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established to expand foreign economic cooperation. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, export oriented enterprises invested in and operated by foreign businesses may pay a reduced income tax rate of 15% if their annual output value of all export products amounts to 70% or more of the output value of the products of the enterprise for that year. Export oriented Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 43
enterprises in the SEZs and ETDZs and other such enterprises subject to enterprise income tax at the tax rate of 15% that qualify under the abovementioned conditions, shall pay enterprise income tax at the tax rate of 10%. The program was in operation during the Subsidy POI and continues to be in operation to date. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect as of January 1,2008. Legal Basis: The income tax reduction for foreign invested export enterprises under this program is provided for in Article 8 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Article 75.7 of the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: To obtain this preferential tax treatment, 70% of the sales of the foreign business must be for export. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reductionlexemption. Determination of Specificity: Preferential tax rates provided to foreign invested export enterprises were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is an export subsidy, as defined in paragraph 2(1) of SIMA, as it is contingent, in whole or in part, on export performance.
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VI Program: Preferential tax policies for enterprises with foreign investment which are technology intensive and knowledge intensive
General Information: This program was established in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established to further utilize foreign capital, introduce foreign advanced technology and equipment and accelerate industry structural adjustment. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, production oriented enterprises with foreign investment established in the coastal economic open zones, SEZs, and in the old urban districts of municipalities where ETDZs are located and which are engaged in technology intensive and knowledge intensive projects, may receive a reduced income tax rate of 15%. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The income tax reduction for production oriented enterprises with foreign investment under this program is provided for in Article 7 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Article 73(l)(a) of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: This program is limited to production oriented enterprises with foreign investment established in the coastal economic open zones, SEZs, and in the old urban districts of municipalities where ETDZs are located and which are engaged in technology intensive and knowledge intensive projects. According to the Circular of the State Administration of Taxation Concerning the Tax Preferential Policy Applicable to Enterprises with Foreign Investment with Regard to Technology Intensive and Knowledge Intensive Projects Guo Shui Fa [2003] No. 135, technology intensive and knowledge intensive projects are those involving leading products listed in the China Catalogue of High and New Technological Products (promulgated in 2000), promulgated by the Ministry of Science and Technology (formerly known as Commission of Science and Technology). The income from the sales of the leading products for the year must be more than 50% of the total income from sales of all products of the enterprise for the same year.
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Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced andlor exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Preferential tax rates provided to production oriented enterprises with foreign investment were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the above mentioned eligibility criteria.
LVIII Program: Preferential Tax Policies for the Research and Development of FIEs
General Information: This program was established in the Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee for Foreign Investment Enterprises (Guo Shui Fa [I9991 No. 173), which was promulgated on September 17, 1999, and came into effect on January 1,2000. This program was established to encourage the research and development of enterprises. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, certain foreign investment enterprises may offset their taxable income by 150% of their R&D expenses for the same year, not to exceed the taxable income for the year. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The taxable income reduction for certain FIEs is provided for in Article 1 of the Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee for Foreign Investment Enterprises (Guo Shui Fa [I9991 No. 173). The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI.
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Eligibility Criteria: This program is limited to FIEs that have increased their R&D expenses by 10% or greater from the previous year. The applicable R&D expenses are as follows: New products designing fee for R&D of new production, new skills and new technologies; Technology process formulation fee; Equipment test adjustment fee; Trial production fee for raw materials and semi-products; Technology books and material fee; Intermediate experiment fee not enlisted to the State plan; Staff members wages of the research institutions; Depreciation fee for research equipment; and Other fees related with trial production of new products and technology research. Exclusions include the following:
o
.
Purchase fee or using fee for technology purchased from other units by the enterprise or technology using right transferred to the enterprises; and Fees for operation costs and expenses paid by the enterprises engaged.
Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.
'
Determination of Specificity: The reduction of taxable income provided to FIEs was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee for Foreign Investment Enterprises (Guo Shui Fa [I9991 No. 173).
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LIX Program: Preferential tax policies for FIEs and Foreign Enterprises which have establishments or places in China and are engaged in production or business operations purchasing domestically produced equipments
General Information: This program was established in the Circular of the Ministry of Finance and State Administration of Taxation Concerning the Issue of Tax Creditfor Business Income Taxfor Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises (Cai Shui Zi [2000] No. 49), which came into force on July 1, 1999. This program was established to attract foreign investment and support technology renovation. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, certain FIEs and foreign enterprises are eligible to receive a refund of 40% of the investment for the homemade equipment purchase from the increased part of their enterprise income taxes of the purchasing year over those of the year before. The program was in operation during the Subsidy POI and continues to be in operation to date. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect as of January 1,2008. Legal Basis: The income tax refund for certain FIEs and foreign enterprises is provided for in Article 1 of the Circular of the Ministry of Finance and State Administration of Taxation Concerning the Issue of Tax Creditfor Business Income Taxfor Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises (Cai Shui Zi [2000] No. 49). The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: This program is limited to FIEs and foreign enterprises that fall under the Encouraged Category and Restricted B Category listed in the Directive Category of the Industries of Enterprises with Foreign Investment stipulated in the Circular of the State Council concerning the Adjustment of Taxation Policies for Import Equipment (Guo Fa [I9971 No. 3 7). Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction~exemption.
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Determination of Specificity: The income tax refund provided to FIEs and FEs was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the Ministry of Finance and State Administration of Taxation Concerning the Issue of Tax Creditfor Business Income tax for Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises (Cai Shui Zi [2000] No. 49).
LIX Program: Preferential tax policies for domestic enterprises purchasing domestically produced equip~nents technology upgrading purpose for
General Information: This program was established in the Circular Concerning Printing and Distributing Interim Measures on Business Income Tax Credit Applicable to Technological Transformation Domestic Equipment Investment (Cai Shui Zi [I9991 No. 290), which came into force on July I, 1999. This program was established to encourage domestic investment and support the technology upgrading of enterprises. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, all enterprises with investment on the technological transformation projects conforming to the State Industrial policy in the nation, 40% of domestic equipment investment necessary for its projects may be offset from the newly added business income tax in the current year of purchasing the technological transformation project equipment of enterprises compared with the previous year. The program was in operation during the Subsidy POI and continues to be in operation to date. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect as of January I, 2008. Legal Basis: The income tax refund for domestic enterprises is provided for in Article 2 of the Circular Concerning Printing and Distributing-InterimMeasures on Business Income Tax Credit Applicable to Technological Transformation Domestic Equipment Investment (Cai Shui Zi [I9991 No. 290). The CBSA has identified at least two exporters that may have received preferential treatment under this program during the Subsidy POI. Eligibility Criteria: The eligibility criteria can be found in.Articles 2 and 11 of the Circular Concerning Printing and Distributing Interim Measures on Business Income Tax Credit Applicable to Technological Transformation Domestic Equipment Investment (Cai Shui Zi [I9991 No. 290).
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This program is available to all enterprises with investment on the technological transformation projects conforming to the State industrial policy in the nation. However, FIEs and foreign enterprises are not eligible for this program. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reductiodexemption. Determination of Specificity: The income tax refund for purchasing domestically made equipment is considered to be a prohibited subsidy pursuant to paragraph 2(b) of SIMA, as it is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.
Program: Income Tax Refund for Re-investment of FIE Profits by Foreign Investors
This program was established in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to encourage foreign investors to reinvest profits into businesses in China. The authority responsible for administering this program is the State Administration of Taxation and the local tax offices. Under this program, foreign investors who reinvest their profits received from an FIE back into that FIE by increasing its registered capital, or use their FIE derived profit to establish another FIE which is planned to operate for a period not less than five years, are eligible to receive a refund of the income tax already paid on the profit that was reinvested. Article 10 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises clearly identifies that any foreign investors who directly reinvest their after tax profit into the organization from which they received the profit from, or use the profits to establish a new foreign enterprise, will be refunded 40% of the tax paid on the profit amount directly reinvested. Further, if the direct reinvestment is in a new foreign enterprise and the investor withdraws the investment before five years have passed, the tax refunded must be repaid. It also states that should State Council pass regulations relating to the provision of this preferential treatment, the provisions of those regulations will be applied. Article 80 of the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises refers to "direct reinvestment" as using the profits referred to above, prior to their receipt, to increase registered capital in the FIE who provided the profits, or, following receipt of those profits, establishing another FIE.
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Article 8 1 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises addresses the preferential provisions passed by State Council, as referred to above. It states that where a foreign investor directly reinvests profits to establish or expand export oriented enterprises or advanced technology enterprises, 100% of the income tax paid on the reinvested profit will be refunded. The program was in operation during the Subsidy POI and continues to be in operation to date. This program is not included in the New Income Tax Law. The provisions of the New Income Tax Law shall prevail after it comes into effect as of January 1,2008. Legal Basis: The income tax refund for FIEs under this program is provided for in Article 10 of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Articles 80, 8 1 and 82 of the Rules for the Implementation of the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: In order for a foreign investor to obtain this preferential tax treatment, 100% of the shares of the foreign investor enterprise must be foreign-owned and located outside China. Therefore, foreign-funded enterprises inside China that act as investors in other enterprises will not be considered foreign investors for the purposes of preferential treatment under this program. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: The income tax refund provided to FIEs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of Chinafor Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the above-mentioned eligibility criteria.
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5. Relief from Duties and Taxes on Materials and Machinery
LIX Program: Exemption of tariff and import VAT for the imported technologies and equipment
General Information: The exemptions of tariffs and import linked VAT is provided for and administered in accordance with the Circular of the State Council Concerning the Adjustment in the Taxation Policy of Import Equipment, which was established on December 29, 1997, and came into effect on January 1, 1998. This program was established to further expand foreign capital utilization, attract technologies and equipment from abroad, promote structural adjustments in industry and technological advancement and maintain the sustained, rapid and healthy development of the national economy. The authorities responsible for administering this program are the Ministry of Finance and.the General Administration of Customs in cooperation with local provincial and municipal customs branches. Under this program, enterprises meeting the eligibility criteria set forth below may apply for exemption from tariffs and VAT on imported equipment and its related technologies, components and parts. The enterprise must receive approval of its application from the appropriate authority, and subsequently that approval documentation is submitted to the local customs officials who verify that the documents presented are adequate and that the imported items are not listed in the catalogues of commodities that are not eligible for tax exemptions. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The VAT exemption provided under this program is administered in accordance with the Circular of the State Council Concerning the Adjustment in the Taxation Policy of Import Equipment. The eligibility criteria related to this program also take into consideration the following documents:
e
e
e
e
e
The Current Catalogue of Key Industries, Products and Technologies the Development of Which is Encouraged by the State (2000); Catalogue for the Guidance of Foreign Investment Industries; Guiding Catalogue of the Industrial Restructuring (2005); The Directory of Imported Commodities of Non-Tax Exemption to be Used in Domestic Invested Projects (2000); and The Directory of Imported Commodities of Non-Tax Exemption to be used in Foreign Invested Projects.
The CBSA has identified at least three exporters that may have received preferential treatment under this program during the Subsidy POI. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 52
Eligibility Criteria: In accordance with the Circular noted above, in order for a domestic invested enterprise to be eligible for tariff and VAT exemptions on imported equipment, the domestic investment project that the equipment relates to must be listed in the Current Catalogue of Key Industries, Products and Technologies the Development of Which is Encouraged by the State (2000). In addition, the equipment must be for the applicant's own use and the value of the equipment must be within the total amount of investment in the domestic project. Finally, any type of equipment that is imported and listed in the Directory of Imported Commodities of Non-Tax Exemption to be Used in Domestic Invested Projects is not eligible for the exemptions under this program. In order for an FIE to be eligible for tariff and VAT exemptions on imported equipment, the foreign investment project that the equipment relates to must relate to the projects listed in the Guideline Catalogue for Foreign Investment Industries under the encouragement category or the restricted B category. In addition, the equipment must be for the applicant's own use and the value of the equipment must be within the total amount of investment in the foreign project. Finally, any type of equipment that is imported and listed in the Directory of Imported Commodities of Non-Tax Exemption to be Used in Foreign Invested Projects is not eligible for the exemptions under this program. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. Determination of Specificity: Based on the directories for commodities of non-tax exemption for both domestic and foreign invested projects, it appears that there is an inconsistency between the number and type of items listed in the directory for domestic projects in comparison to the directory for foreign projects. On the basis of available information, this program could give rise to a subsidy by means of providing reductions or exemptions of tariffs and VAT for equipment purchased by FIEs, and such reductions and exemptions would not be provided to DIEs purchasing the same equipment. Conversely, a subsidy could also arise if DIEs received reductions or exemptions of tariffs and VAT for equipment purchased and such reductions and exemptions would not be provided to FIEs purchasing the same equipment. Should a subsidy arise in either circumstance due to the inconsistency between the directories, it would likely constitute a specific subsidy pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited to particular enterprises, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the State Council Concerning the Adjustment in the Taxation Policy of Import Equipment. In addition, the CBSA believes that should this program give rise to a subsidy, it would be further limited to a group of enterprises, which would be comprised of solely FIEs or DIEs that Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 53
meet the above-mentioned eligibility criteria, particularly in relation to the commodity directories for non-tax exempt items.
Program: Relief from Duties and Taxes on Imported Material and other Manufacturing Inputs
The GOC has stated that this program is not available during the Subsidy POI. The CBSA is continuing to review this program in order to determine the administration and availability of the program. 6. Reduction in Land Use Fees General Information: This program is administered in accordance with the Circular on Further Encouraging Foreign Investment Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Ministries Transmitted by the General Office of the State Council, which was established on August 20, 1999. This program was established to attract foreign investors by providing a land use fee exemption to those enterprises with foreign investment that have acquired their lands from the GOC and have paid the transferring fee. The Administrative Office of the State Council is responsible for administering this program. The program was in operation during the Subsidy POI and continues to be in operation to date. Legal Basis: The land use fee exemption provided under this program is administered in accordance with Article 4.5 of the Circular on Further Encouraging Foreign Investment Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Ministries Transmitted by the General Ofice of the State Council. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. Eligibility Criteria: This program is limited to FIEs that have purchased land use right from the GOC and have paid their transferring fee. Determination of Subsidy: On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced andlor exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.
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Determination of Specificity: The land use fee exemption provided to FIEs was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in Article 4.5 of the Circular on Further Encouraging Foreign Investment Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Ministries Transmitted by the General Oflce of the State Council.
7. Purchase of Goods from State-Owned Enterprises
The GOC has stated that the provision of purchasing inputs from SOEs at prices below fair market value is not available during the Subsidy POI. The CBSA is continuing to review this matter. 8. Subsidy Programs Not Identified at Initiation
i) Program: Government export subsidy and product innovation subsidy
The GOC failed to provide complete infomation with respect of this program. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. However, the CBSA has identified at least one exporter that may have received benefits under this program. The CBSA is continuing to review this program in order to determine the administration and availability of the program.
ii) Program: Value-added Tax (VAT) refund for enterprises qualified as a "welfare" enterprise
This program was established in the Notice of the Levy of Turnover Tax of Welfare Enterprises, Guo Shui Fa (1994) No. 155, which came into effect as of January 1, 1994. The Notice of the Levy of Turnover Tax of Welfare Enterprises, Guo Shui Fa (1994) No. 155 was cancelled and officially substituted by the Notice of the Promotion of Employment Taxation Benefits for the Handicapped, Cai Shui (2007) No. 92, which came into effect as of July 1,2007. This program was established in order to promote employment of handicapped people. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, enterprises are eligible for VAT refunds based on the percentage and number of the handicapped employed by the enterprise. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. However, one of the cooperating exporters reported receiving benefits under this program. The CBSA is continuing to review this program in order to determine the administration and availability of the program.
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iii)
Program: Tax exemption for enterprises qualified as a "welfare" enterprise
This program was established in the Notice of the Levy of Turnover Tax of Welfare Enterprises, Guo Shui Fa (1994) No. 155, which came into effect as of January 1, 1994. The Notice of the Levy of 1 Turnover Tax of Welfare Enterprises, Guo Shui Fa ( 994) No. 155 was cancelled and officially substituted by the Notice of the Promotion of Employment Taxation Benefits for the Handicapped, Cai Shui (2007) No. 92, which came into effect as of July 1,2007. This program was established in order to promote employment of handicapped people. The authority responsible for administering this program is the State Administration of Taxation and local tax offices. Under this program, enterprises are eligible for reduction of income tax based on the percentage and number of the handicapped employed by the enterprise. The GOC has stated that none of the responding companies has applied for or has received benefits under this program during the Subsidy POI. However, one of the cooperating exporters reported receiving benefits under this program. The CBSA is continuing to review this program in order to determine the administration and availability of the program.
iv) Program: Tax exemption of purchased fixed assets used for qualified technological improvement projects
The GOC stated that this program was addressed under the program LIX Preferential taxpolicies for domestic enterprises purchasing domestically produced equipments for technology upgrading purpose. The Government of Shandong province simply implements the program under the same regulation.
v) Program: Employment taxation benefits for the handicapped
The GOC stated that benefits provided under this program are covered under two programs addressed earlier, i.e., VAT refund for enterprises qualiJied as a "welfare" enterprise and Tax exemptionfor enterprises qualified as a "welfare" enterprise. The legislation under which the subsidy is granted is the same, i.e., the Notice of the Promotion of Employment Taxation Benefits for the Handicapped, Cai Shui (2007) No. 92.
vi) Program: Accelerated depreciation on fixed assets in Binhai New Area of Tianjin
This program was established in the Notice of the Ministry of Finance and the State Administration of Taxation on the Relevant Preferential Enterprise Income Tax Policies for Supporting the Development and Openness of Binhai New Area of Tianjin, Cai Shui (2006) No. 130, which came into effect as of July 1,2006. This program was established in order to promote the development and openness of the Binhai New Area of Tianjin. The authority responsible for administering this program is the Ministry of Finance and the State Administration of Taxation.
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Under this program, enterprises located in the Binhai New Area of Tianjin are eligible to reduce the depreciation period of eligible fixed assets (excluding houses and buildings) by up to 40%. This program was in operation during the Subsidy POI and continues to be in operation to date. The CBSA has identified at least one exporter that may have received benefits under this program during the Subsidy POI, and is continuing to review this program in order to determine the administration and availability of the program.
vii) Program: Tax exemption for employing former employees laid-off from SOEs
This program was established in the Circular on the Issues of Tax Policy on employment for Unemployed People, Cai Shui (2005) No. 186, which was issued on January 23,2006, and came into effect as of January 1,2006. This program was established in order to promote employment for unemployed people. The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. Under this program, enterprises are eligible to receive reductionlexemption of income tax based on the terms stipulated in Articles 1 , 2 and 3 of the Circular on the Issues of Tax Policy on employment for Unemployed People, Cai Shui (2005) No. 186. The CBSA has identified at least one exporter that may have received benefits under this program during the Subsidy POI, and is continuing to review this program in order to determine the administration and availability of the program.
viii) Program: Supportive Fund (Grant) provided by the Government of Xuyi County, Jiangsu Province
General Information: This program was established in the Notification of Eight Solemn Promises on Attracting Foreign Investment in the Industrial Zone ofXuyi County, Xu Fa (2001) No. 28, which came into effect as of September 26,2001. This program was established in order to attract foreign investment in the Industrial Zone of Xuyi County. The authority responsible for administering this program is the Government of Xuyi County. Under this program, enterprises are eligible to receive supportive funds (grants) provided by the Local Xuyi Government. The amount of grants provided under this program is calculated on the basis of 40% of enterprise income tax paid in the previous year, 25% of VAT paid in the previous year, and 100% of other types of taxes (i.e., stamp tax, real estate tax, urban construction tax and land usage tax) paid in the previous year. This program was in operation during the Subsidy POI and continues to be in operation to date.
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Legal Basis: The grant under this program is provided for in the Notzfication of Eight Solemn Promises on Attracting Foreign Investment in the Industrial Zone ofXuyi County, Xu Fa (2001) No. 28. The CBSA has identified at least one exporter and its related supplier that may have received benefits under this program during the Subsidy POI. Eligibility Criteria: Under this program, enterprises are eligible to receive a grant based on the following criteria: a) b) c) the company must be located in the Industrial Zone of Xuyi County; the company has over RMB 3 million investment on fixed assets, and; the project should be non-pollution and non-combustible.
,
Determination of Subsidy:
On the basis of available information, it has been determined that this program constitutes a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA; i.e. a practice of government that involves a direct transfer of funds, and confers a benefit to the recipient equal to the amount of the grant provided. Determination of Specificity: Grants provided to enterprises located in the Industrial Zone of Xuyi County, were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the NotiJication of Eight Solemn Promises on Attracting Foreign Investment in the Industrial Zone ofXuyi County, Xu Fa (2001).
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APPENDIX 4 - SUMMARY OF FINDINGS FOR SECTION 20 OF SIMA
The following is an overview of the information considered by the President for purposes of the section 20 inquiry:
Government of China and Exporter Submissions
The CBSA has reviewed the information provided by the GOC in its response to the CBSA's section 20 inquiry. The GOC maintains that the forces of supply and demand determine selling prices of steel products in China. The GOC states that neither the GOC nor local governments control or interfere with the pricing decisions of individual companies. Thus, the GOC concludes that the CBSA's section 20 inquiry is without basis. With respect to the "China Iron and Steel Industry Development Policy" (China Steel Policy) (addressed in detail later), the GOC made representations that the China Steel Policy is merely a guideline, addressing issues relating to industrial development, adjustment of industrial structure, policies of industrial technologies, adjustment of enterprise organization stmcture, investment management, raw materials, and saving steel products. Exporters in China which provided responses to the CBSA's section 20 questionnaire offered similar representations concerning the absence of control exerted by the GOC in relation to the goods under investigation and the steel industry in general.
China Steel Policy
The China Iron and Steel Development Policy (China Steel Policy) outlines the GOC's objectives and future plans for the domestic steel industry. Many of these objectives appear to be aimed at effecting the structural adjustment of the Chinese steel industry through directives that, amongst others, emphasize:
a o o e
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e
industry consolidation through mergers and acquisitions; government regulations favouring large state-owned steel producers; the subsidization of steel producers; the closure of "unqualified" steel producers and the elimination of "backward capacities"; government restrictions on certain raw materials; and varying degrees of government oversight and management in the steel industry.7
Many of these objectives if implemented by government action or by proxy or through government influence may constitute measures that would affect the steel industry through means other than market forces. Consequently, the existence of such government measures may result in significant influences on the market, which, in turn, may substantially affect domestic prices.
Exhibit 1: Confidential Complaint -Attachment 12 - China Metallurgical Newsletter, "China Iron and Steel Industry Development Policy;" volume 7, No.14, July 28,2005; 10 pages. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 59
The following is a summary of selected provisions from the China Steel Policy, as well as commentary concerning their significance.' Where applicable, information will be provided to illustrate examples related to the actualization of the China Steel Policy objectives.
Article 2 "By means of adjustment ofproduct structure, by 201 0, the proportion of high quality products of Chinese iron and steel products will be substantially raised. Most products will fulJill the requirement of the [sic] most sectors in [sic] national economy such as construction, machinery, petrochemical.. .. "
The China Steel Policy stipulates that primary steel products are within the scope of this policy but also included are further processed steel products destined for the petrochemical industry. The steel OCTG sector is an integral part of steel products produced for the petrochemical industry. The GOC's inclusion of a range of different steel products, including steel products for the petrochemical industry is evidence that the China Steel Policy is broadly targeted and government initiatives in the iron and steel sector extend to cover a full range of steel producers and products including the steel OCTG sector that is the subject of this section 20 inquiry. The section 20 decision in the hot-rolled steel sheet re-investigation, concluded June 27, 2007, determined that there are indirect government controls in the primary flat steel sector including controls resulting from initiatives and the implementation of policies set forth in the China Steel Policy and that these controls resulted in domestic selling prices that were not substantially the same as they would be if they were determined under competitive market conditions. Evidence of the China Steel Policy's broad scope and application to various steel goods including seamless steel casing further establishes that government action or influence related to substantial price determination, as determined by the CBSA in the primary steel sector, are equally applicable to the steel OCTG sector.
Article 3 "By means of adjustment in organizational structure of the iron and steel industry, mergers and acquisitions will be taken to enlarge the scale of major advantageous groups. By 201 0, the number of iron and steel smelting enterprises will be substantially reduced.
"
Evidence of such mergers or acquisitions through government action or influence has been widely reported and represents significant evidence of measures that may distort a particular industrial sector through means other than market forces. Moreover, information on the record indicates that three known producers of seamless steel casing products have already been involved or are in the
Note that any boldfacing of text has been added for emphasis and was not part of the original text.
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process of being involved in such mergers. Baosteel, Baotou Iron and Steel and Laiwu Iron and Steel ~orporation"are known producers of seamless steel casing. In the case of Laiwu and Shandong Jinan, it was reported that: "...the local government plans to merge the two steelmakers...noting the two companies were uninvolved in the discussion...Since both of the companies are Shandong government owned, it is much easier for the two companies to merge assets. The two companies could share the same market, logistics conditions and raw materials...China's steel industry development policy encourages regional consolidation in the steel industry."
"
In a further example, it was reported that: "Another prominent government-directed merger occurred in May 2007 when Baosteel received a 48.46 percent stake in Xinjiang Bayi Iron & Steel Group ('Bayi') - at no cost. More recently, Baosteel has been conducting talks with the government of Inner Mongolia to acquire Baotou Iron & Steel, which is owned by the Inner Mongolian government. A Baotou official stated on July 23,2007, that "[tlhe merger can be considered a done deal. Baosteel will take us over, either by paying or getting an asset transfer free of charge. It will happen very soon, as our local government is very keen for the merger." l2 Another consideration arising from this particular example is the cost and the potential market and related price distortions resulting from the acquisition of a steel-making asset at no cost. Bear in mind that Baosteel in particular, which is also government owned, is a major producer and exporter of seamless steel casing. It is further important to note that the facilitator of such mergers or, alternatively, the primary influence on such mergers is the GOC'~.Given that the GOC in this particular example controls both entities, the merger or no cost acquisition was made possible. There are numerous other instances of such 'no cost acquisitions' contained on the CBSA record.14
Exhibit 1 - Confidential Complaint Narrative page 6. Also htt~://www.btsteel.con~/. 1 - Confidential Complaint - Appendix 11, page 89 of 94. Laiwu Iron and Steel Corporation. " "The China Price Project", Merage School of Business, University of California-Irvine; Peter Navarro, January 2007, Exhibit 182, page 163 - China Metals Weekly excerpt: "Shandong Jinan Steel and Laiwu Steel may merge - official", June 23,2006. l2 Money for Metal: A detailed examination of Chinese Government subsidies to its steel industry, Wiley Rein LLP, July 2007, pages 44 - 47. l 3 The CBSA, for purposes of its investigations, considers that the GOC is comprised of any rovincial, state, municipal or other local or regional government in the People's Republic of China. P Money for Metal: A detailed examination of Chinese Government subsidies to its steel industry, 4 Wiley Rein LLP, July 2007, pages 44 to 46.
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For example, it was reported in August 2007 that Wuhan Iron & Steel Corp. "decided to take over Kunming Iron & Steel Co. Ltd." and that Anshan Iron & Steel Corp will agree to an asset deal with Benxi Iron & Steel Corp to form China's largest steel That same report suggested that the mergers and acquisition are being "mainly pushed by the government." It should also be noted that Wuhan, Anshan and Benxi are all state owned enterprises (SOE's). l6 Also notable regarding these reported mergers is the lack of participation on behalf of the companies involved in these mergers and acquisitions. As another source of information reported: "The mergers, flow directly from the steel development policy ...The government is very enthusiastic about the mergers, a Shanghai-based analyst said, but not the companies, and I don't see why they should be." l7 The information outlined above represents evidence that government action or significant government influence related to mergers and acquisitions may impact the operations of a competitive market. Such information further demonstrates that this particular China Steel Policy objective is in fact being implemented through government action or significant government influence and that several producers of seamless steel casing have been directly affected. The implication of these GOC driven mergers is significant as these actions are important factors that indirectly affect pricing. This includes two important considerations as follows:
o
a
through taxation or other policies, governments can regulate the level of profits that a company can earn which will affect selling prices the government can regulate or control production levels or the number of producers or sellers permitted in the market in order to affect domestic prices
In reducing the number of players in the market, the GOC is effectively limiting competition. In allowing an acquisition of assets to take place at no cost, as was reported with Baosteel, the GOC is effectively reducing costs for the acquiring company. The implications of reducing competition and costs are two significant factors that will affect selling prices. Article 7
"The government, through the policy and Long & Medium Development Plan, will guide a healthy, sustainable and coordinated development of the industry. The Long and Medium Development Plan of Iron and Steel Industry (the plan) will be outlined by the NDRC and other related departments. "
China Daily - "Alliances in Steel sector rise", August 15,2007.2 pages. ~ x h i b i 1 - Confidential Complaint Narrative page 9. The complainant included Wuhan as having t OCTG capabilities. The CBSA has confirmed Wuhan produces flat products but has not confirmed its capability or that of a subsidiary to make OCTG. Anshan, as part of the Angang group, produces OCTG. l7 Mysteel.net - "Government plays a big role in China's Steel Consolidation", January 8,2007
l5 l6
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The implications of the government being involved in "guiding" and "coordinating" the development of the steel industry speak clearly to the degree of involvement the GOC aims to have in the market. As numerous observers of the policy have noted: "The policy prescribes continued government involvement in all aspect of the management of China's steel industry." '' The GOC itself has issued statements reinforcing the need for GOC involvement in the steel sector. In early 2007, a state official for the GOC proclaimed that "...central SOEs should become heavyweights in sectors like ...iron and steel..." l9 Though unspecific in terms of the mechanisms or measures it intends to employ to achieve the 'guidance' and 'coordination' referenced in this Article, it would appear that the GOC intends to take a very active role in the steel industry. Indeed, as can be seen throughout this.Appendix, the GOC has already demonstrated the manner and extent to which it intends to manage and coordinate the Chinese steel industry. Specific examples of the GOC's efforts to do so can be seen in the following excerpts, where the GOC actually 'negotiated' targets for the steel industry going forward: "Shandong Province, for example, recently issued 'guidelines' for the development of the steel industry in the province. The guidelines.include capacity and production targets for crude and finished steel through 20 10, including targets for specific steel companies ....The guidelines even set targets for product mix and energy usage ...,,20 "China has set the ceiling for steel exports at 10 pct of the country's output, the Economic Observer reported. The newspaper said domestic steel producers and the National Development and Reform Commission reached the agreement on the cap last week in Beijing" 21 The implications in dictating the types' of products to be produced and how much of the country's production can be exported are additional factors, which may affect domestic pricing, given that such government measures may have a significant impact on the amount of domestically available product.
"The China Price Project", Merage School of Business, University of California-Irvine; Peter Navarro, January 2007, Exhibit 191, page 3 of 5 - American Iron and Steel Institute release: "Industrial Subsidies and the Impact on U.S. and World Markets," April 4,2006. l9 "State Seeks Control of Critical Industries" - the government branch supervising SOE's stresses absolute power in key industries. January 11,2007. 8 pages 20 Money for Metal: A detailed examination of Chinese Government subsidies to its steel industry, Wiley Rein LLP, July 2007, page 18. .See also examples on pages 19 and 20. 21 China Sets Steel Exports Ceiling at 10 Pct of Annual Output - Report, June 17,2007, 1 page.
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Article 10
"Inprinciple, no more new integrated steelworks, independent iron making plants, and steelmaking plants will be constructed ... The renovation andproduction expansion must be based upon the existing qualified enterprises...Newly added production capacities should be combined with the elimination of backward capacities. " .
Article 17
"Work will be done to accelerate tlze elimination and forbid the new construction of the backward process and facilities which include primitive sintering, primitive coke ... "
Information on the record indicates that the GOC is directly involved in the closure of steel producers throughout China. It was recently reported that, for example, as a result of the provincial government of Hebei's agreement with six local governments "1 6 mills had already been closed in Tangshan." 22 GOC regulations have been set forth to effect such closures on the basis of pollution and energy use controls. What is apparent, however, is that the category of companies now cited for closure are the same companies whose apparent failure to meet the GOC's industry regulations have also been subjected to GOC involvement in the past. As one analyst recently indicated, it was the GOC's lack of expertise and continual involvement in the steel industry that "seriously affected the healthy expansion of most Chinese private steel makers."23 As a consequence: "[The] Chinese government has to take measures, such as the issuance of [sic] Iron & Steel Industry Development Policy, to close down these steel enterprises.. .The policy ...strikes small and medium-size private steel enterprises...most private small and medium-size steel makers product costs will be driven The manner in which these costs will be driven up involves increases to energy costs, whereby the state is committed to essentially eliminating companies that do not wish to be eliminated by forcing them out of the market through unmanageable energy costs." There are other reports which demonstrate the GOC's willingness to employ such tactics to target mills it wishes to see eliminated and that this approach has been a strategic tool for some time. For example, it was recently reported that: "In order to avoid blind growth of industries with high energy consumption, the NDRC adopted different electricity prices for six industries of electrolytic aluminum, ferroalloy, calcium carbide, caustic soda, cement and steel in 2004.. .Since June 2004, China has put in
22
23
Steel Business Briefing Analytics CHINA - www.steebb.com, June 4,2007, page 2 of 10. Exhibit 39 - Complaint Analysis Attachment 15, Bibliography item 17 - Mysteel.net: "Small and medium-sized private steel mills' problems," April 24,2007. 24 Exhibit 39 - Complaint Analysis Attachment 15, Bibliography item 17 - Mysteel.net: "Small and medium-sized private steel mills' problems," April 24, 2007. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 64
place electricity price differentiation for electrolytic aluminum, ferroalloy, steel, and zinc smelting, and a couple of other high-energy-consuming sectors."25 In terms of using government measures or mechanisms to achieve these objectives, a recent report stated that: "An official with NDRC said that China will take measures to push forward China's iron and steel industrial structure adjustment...and to spur the elimination of production capacity through different water price and electricity price ...and to encourage M&A'sV26 [Mergers and acquisitions]. This notion of a wider government objective via these closures is supported by the China Iron and Steel Association's (CISA) own statements concerning its vision of the future for the steel industry (see also Article 11 and following below): "Mr Luo Bingsheng, deputy director of the China Iron & Steel Association (CISA), told Shanghai Securities News that China aims to breed up four steel clusters through trans-regional merger & acquisition in coming years, including: 1. Anshan-Benxi in northeast China 2. Shougang and Tanggang in North China 3. Baosteel and Maanshan Steel in East China 4. Wuhan Steel and Panzhihua Steel in middle and southwest China." 27 Thus, GOC objectives related to the creation of large-scale steel producers (see also Article 19 below) may be influencing the forced closures and mergers more than the claims of obsolescence and inefficiency related to pollution and energy controls used to justify government regulations and subsequent government actions in respect of effecting such closures. As one recent report stated: "Many small steelmakers are unwilling to be bought out by big ones as they enjoy bumper profits thanks to strong market demand and prices ...Xu Zhongbo, CEO of Beijing Metal Consulting Co, agrees: 'Who wants to be at the mercy of others if it's doing fine by itself?" 28 The information on the record indicates that the GOC is directly effecting structural change to the Chinese steel industry through government regulations and government actions. At this time, such government measures and actions appear to be related to the GOC's desire to create large-scale steel "The China Price Project", Merage School of Business, University of California-Irvine; Peter Navarro, January 2007, Exhibit 177, page 132 and 137. 26 "The China Price Project", Merage School of Business, University of California-Irvine; Peter Navarro, January 2007, Exhibit 184, page 11 - Xinhua Business Weekly excerpt: "Official: Six roblems exist in China's iron and steel sector", April 20, 2007. P Tradeturkey.com - "China to Build four steel production bases," July 27,2007, 1 page. 7 28 China Daily - "Alliances in Steel sector rise", August 15,2007. 2 pages.
25
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producers thereby effecting rationalization of the steel industry through means other than market forces.
Article 11 "...in light of the requirement of mergers and acquisitions and the construction of 'high-end production base, ' [sic] eliminate the backward production capacity, and construct themselves into large-scale enterprises with international competitiveness". Article 19 "Special steel enterprises need to develop towards the direction offorming large groups and being specialized. " Article 20 "Steel enterprises shall be encouraged to develop towards the direction offorming large groups. Strategic consolidation shall be made through the alliance between steel giants, mergers and acquisitions among steelproducers, and mutual share holding so as to reduce the numbers [sic] of steel works.. .Large-scale steel enterprises need to be transformed into share holding corporations. "
These specific Articles from the China Steel Policy flow directly from Article 10 and reveal the GOC's desire to create large-scale enterprises through government action or government influence. The presence of state-owned enterprises (SOEs) amongst China's largest steel producers is particularly relevant given the objectives of strategic consolidation in the steel industry. The benefit to the GOC of having SOEs amongst the large-scale steel producers is one of control. The desire to control the industry has been a widely reported objective of the GOC. For example, going back to 2001, the GOC's tenth five-year plan for National Economic and Social Development stated: "The state must hold a controlling stake in strategic enterprises that concern the national economy and national security, but not necessarily in others...The supervision and control of state-owned enterprises in particular need to be established and strengthened, and the role of the board of supervisors needs to be fully developed." 29
29
Money for Metal: A detailed examination of Chinese Government subsidies to its steel industry, Wiley Rein LLP, July 2007 - Excerpt: "The tenth five year plan for Nat'l Economic and Social Development" - PRC at w w w . / i l o . o r g / p u b l i c / e n g l i s h / e m p l o y m e n t / s k i l l s / ~ .htm. Page 8 l of 14, March 5, 200 1.
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It has been reported that the GOC has continued with its strategy of maintaining extensive control and involvement in SOEs and the steel industry: "The plan is to have output controlled by just a few conglomerates by 2010 and this has seen billions of dollars invested in the country's top steel plants, including Shougang, Wuhan Iron & Steel and Baosteel. The latter produced 23.8 million tons of steel in 2006, making it the world's six-largest steelmaker.. .However, in order to regain control, the government has placed strict limits on foreign firms controlling shares in large Chinese steel companies. The attitude is more flexible where smaller steel operators are concerned." 30 A similar report stated: "The National Development and Reform Commission (NDRC) on July 17 published the 'Circular on Steel Industry Controlling Output and Speeding up Restructuring' on its website, making it clear that to control output and eliminate backward capacities are a major task of restructuring of steel industry in the '1 Ith Five-Year-Program' period (2006-201O)." 31 The objective of control is further facilitated through the GOC's efforts to force mergers and to reduce capacity and the number of steel producers qn the purported basis of obsolescence and inefficiency related to pollution and energy controls. Thus,it would appear that one of the GOC's primary objectives is to establish, through consolidation, the creation of large SOEs to facilitate better oversight and control over the steel industry. Consequently, the GOC has apparently determined that the state, not the market, must be the mechanism that steers the future development of the steel industry. It is not surprising, therefore, that the criteria for which the GOC has used to establish 'inefficiency' through the China Steel Policy favours existing SOEs over smaller private firms.
Article 12
"The usable sintering space of [sic] sintering machine should be over 180 m2, the chamber of [sic] coke oven 6 meters or more, the usable capacity of [sic] blast furnace 1,000m3/unit or more, the nominal capacity of the converter 120 tonneshnit or more, and the nominal capacity of [sic] electric arc furnace 70 tonneshnit or more. "
Following from the commentary provided on the previous Articles of the China Steel Policy, while the GOC has drawn a connection between this policy and the need to improve energy efficiency and reduce environmental damage, criteria such as these from Article 12 seem also directly related to China Economic Review - "Value-added progress", July 2007, page 2 of 2. "The China Price Project", Merage School of Business, University of California-Irvine; Peter Navarro, January 2007, Exhibit 183, page 158 - Xinhua Business Weekly excerpt: "NDRC rectifies surplus production capacity of steel industry", July 21,2006, page
30
31
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favouring large-scale steel producers, who are generally state-owned, as well as to concerns related to environmental pollution and energy controls. The AISI recently commented that: "State-owned enterprises play a dominant role in the Chinese steel industry." As the submission states, "a detailed analysis of China's 20 largest steel groups found that 91 percent of their production is state-owned or controlled." This results in China's steel industry being strongly influenced by government policy when it comes to the size of new steel plants, the location of such plans and even the minimum size of blast furnaces to be installed." 32
Article 16
" ... the government will work out the supportive policies, providing favourable taxation terms, subsidized loans, research fees, etc. "
'
Targeting the steel industry with favourable treatment, including subsidization, is another clear example of the importance and attention the GOC has placed on the steel industry in China. Further information on specific subsidy programs identified by the CBSA may be found in the Statement of Reasons concerning the making of preliminary determinations of dumping and subsidizing in respect of certain seamless steel casing.
Article 22 "The state will conduct necessary [sic] management in the economic activities concerning the investments made by all kinds of economic ownership entities in the domestic steel industry and the investments made by the domestic enterprises in overseas steel industry. The steel investment projects should be submitted to NDRC [sic] for examination and approval. "
The GOC's explicitly stated desire to manage and oversee the steel industry pre-dates the China Steel Policy. In January 2005, a document issued by the Chinese central government was described as follows: "The nine-page document, jointly issued by the Organization Department of the CPC Central Committee and the State-owned Assets Supervision and Administration Commission of the State Council, says that the party committees in SOEs should help to reform the SOEs and to foster a stable environment in the process, 'thus safeguarding these SOEs' leading role in the national economy'." "The document says party committee members should hold major posts in large-scale companies, such as members of boards of directors or general managers, to ensure the party's involvement in the SOEs' major decisions." 33
32
Steel.org - "AISI Expresses Serious Concerns About China's WTO Non-Compliance", September 17,2007. 33 people's Daily Online - "CPC to reinforce leading role in SOE's reform, development: official document," January 24,2005 Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 68
Such information further corroborates other information that the degree of oversight and involvement dedicated by the GOC towards the Chinese steel industry is strong and entrenched. This is neither a recent development nor a temporary stance on the part of the GOC. Indeed, information related to the development and implementation 'of the China Steel Policy's objectives through government measures and actions, constitutes persuasive and compelling evidence that the GOC exerts a significant amount of control and management over the steel industry. Article 30
"The export of initially processedproducts like coke, ferroalloy, pig iron, steel scrap, semi-finished products (inclusive of ingot), products that consume much energy and generate heavy pollution, will be restrained. "
Whether export restrictions on the above mentioned products is primarily connected to concerns respecting energy consumption or levels of pollution is not yet clear, the evidence on the record, however, does indicate that steel making raw materials are under tight scrutiny by the GOC. One way to limit the amount of available product is to limit the amount of available raw materials that factor into the product. As one publication recently reported: "The Chinese government will cut the number of iron ore importers to 90 this year in a bid to tighten import rules and curb soaring international prices, the industry association has said ...Up to 20 percent of China's 118 iron ore importers - 70 steel mills and 48 trading companies - would go out of business, the China Iron and Steel Association (CISA) said at the industry meeting held in the southwestern Kunming city." 34 It is worthy to note that China imports a significant proportion of the iron ore used in steel making. 35 It has also been reported that: "The Chinese government has imposed export restrictions or high export taxes on key steelmaking raw materials such as coke and steel scrap, restrictions that have the effect of reducing domestic prices for these inputs below world market levels." 36
34 Jongonews.com "Industry association: China to cut iron ore importers to 90 this year," January 25,2007, 1 page 35 2006 estimates are 644 million tons of domestic production and 325 million tons of imports, the latter figure representing an 18.2 per cent increase. Courtesy: China Daily, December 22,2006, "Rising steel exports not result of government policies," page 3 of 3. 36 "The China Price Project", Merage School of Business, University of California-Irvine; Peter Navarro, January 2007, Exhibit 191, page 3 of 5 - American Iron and Steel Institute release: "Industrial Subsidies and the Impact on U.S. and World Markets," April 4,2006.
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Two factors indicative of indirect price control mechanisms include the following:
*
Governments can control import and export levels through licensing, quotas, duties or taxes to maintain domestic prices at a certain level The government can regulate or control production levels or the number of producers or sellers permitted in the market in order to affect domestic prices
a
Regulating the importation or export of significant inputs (in this case, pig iron, coke or iron ore) touch on each of these factors. Clearly, regulating the access and usage of inputs is analogous to the 'licensing and quotas' mechanism in the first bullet above. Similarly, where a producer's access to raw materials is limited, the viability or existence of users of those raw materials is threatened so as.to effectively limit the number of producers in the market. Furthermore, when measures restrict or dissuade the export of raw materials, this has the effect of inflating the volume of raw materials available in the Chinese domestic market, artificially decreasing the cost of these materials to producers due to the increase in supply. 37 As costs are reduced, domestic prices will also be affected as competitors leverage their position in the market according to their cost structure.
Article 37
"The market order should be regulated and the market should be stabilized. "
This is a virtual 'catch-all' statement that summarizes the GOCYs approach to the steel industry and further indicates that the GOC will play a role in shaping the direction of the steel industry in China. At this time, the information on the record respecting the objectives set forth in the China Steel Policy and the implementation of these objectives through government action or by proxy or though government influence seems to indicate that the GOC is significantly affecting the steel industry through means other than market forces.
Effect of GOC Measures on Domestic Prices
There is sufficient evidence on the record to support the opinion that domestic steel prices are being substantially determined by the GOC and that those prices are substantially different than they would be in a competitive market. The implications with respect to the steel OCTG sector are equally valid, given that the majority of these price distortions do not favour one part of the steel industry over another, given their macro-applicability (i.e. affecting production, raw materials and inputs such as billets).
37
Money for Metal: "A Detailed Examination of Chinese Government Subsidies to its Steel Industry"; prepared by Wiley Rein LLP, July 2007, page 72. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 70
Government Measures and Price Effects in the Chinese Steel Industry The information on the record indicates that government measures directed at the steel industry have subsequently affected domestic steel prices in China. Regarding policies aimed at taxation: "Steel prices ...have begun sagging since the government adopted a series of macro-control measures, industry insiders said. The steel price in eastern China declined by 70 yuan (8.46 US dollars) per ton following the decision of the Ministry of Finance and the State Administration of Taxation to abolish the export tax rebate policy for billet starting on April 1."38 "However, the government has tightened its grip on steel export [sic] through a string of restrictive policies. Market analysts are concerned that the market sentiment could be badly hurt by the frequent tax changes...Domestic steel prices has [sic] reduced across the board from mid ~une."~' "The country's top planner said last week it expected domestic steel prices, near record highs, to soften as the higher export taxes and lower value-added tax rebates trap more steel in the domestic market in the third and fourth quarters."40 "...imposition by the Chinese government of a 5-10 percent export tax on 83 finished products ...The policy immediately led to a slowdown in Chinese domestic markets ...this increased pressure on the Chinese domestic market and prices fell sharply through the week after posting strong gains the week bef~re."~'
"A reduction in the volume of exports is likely to have a negative effect on the Chinese domestic market. The increased supply may cause prices to soften, squeezing the profits of Chinese producers.. .The new export tax could also impact smaller, less efficient producers if it results in a fall in Chinese domestic prices. If these measures are successful in curbing the growth of small producers, the production share of the top ten mills is likely to increase."42
"Cancelling the VAT export rebate will finally force small-sized steel pipe producers out of the export market, and result in domestic oversupply ...If export growth in the first half of this year remains strong, the government will take further measures to control steel product exports." 43 People's Daily Online - Steel price sagging after government adopts macro-control measures, May 23,2005, 1 page. 39 SteelGuru.com - "Steel policy changes disrupt market sentiments in China", July 21,2007 O Dailytimes.com - "China steel product exports drop 9.4%," September 1, 2007 ' 41 New Chinese Export taxes cause chaos, May 28,2007, page 19 42 China Slaps export tax on 83 finished steel products, May 28,2007, page 4 and 5. 43 Interfax China Business News - "China may reduce or cancel steel pipe VAT export rebates,"
38
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Regarding policies aimed at production:
"The government is slashing outmoded steel production capacity, which, Zhou said, will offset the negative impact on prices from the expected slowdown in steel exports in the second half.
According to a government plan announced earlier this year, 35 million tons of outmoded production capacity will be removed this year to prevent a market glut and save resources." 44 Regarding the effect of policies on exports (and thus domestic supply):
"Exports in the second half of this year will decelerate because of the government's control measures, which are expected put a break on profit growth." 45
"Luo Bingsheng, vice-chairman of the China Iron and Steel Association, predicted the nation's 2007 steel exports will decline sharply as a result of the government's measures." 46 Regarding impending future measures impacting prices: "...the Chinese government is set to increase export taxes on some steel products, particularly billet ..."Earlier this year Chinese billet export prices were increased by 15 percent." 47 An even more recent development suggests that further government measures are forthcoming: "The China Iron and Steel Association (CISA) convened an internal meeting regarding China's steel product exports yesterday morning, at which the National Development and Reform Commission (NDRC) proposed to increase the export tax of steel billet to 25% from the current 15%, raise the export tax of hot-rolled sheet and long products to 15% and cancel export tax rebates for high value-added steel products, said a source close to the situation, who wished to remain anonymous due to the sensitivity of the issue." 4S These export taxes are intended to act as a disincentive to export and, if effective, would lead to an increase in the volume of steel billets available domestically. Increased supply will likely suppress prices for billets, which will in turn affect the domestic prices of products that use the steel billets in
44
45
China.0rg.cn - "Steel Firm's Profits Forecast to Slow Down," June 7,2007, page 2 of 3. China.0rg.cn - "Steel Firm's Profits Forecast to Slow Down," June 7,2007, page 1 of 3. 46 Jongonews.com - "Rising Steel exports not result of government policies", December 22,2006 (From China Daily) 47 Metal Bulletin Online - "Rumours persist that China will raise export duties," September 10, 2007 48 Metalsplace.com - "China discussing further restrictions on steel product exports," September 26,2007 Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 72
production. It is important to note that steel billets are the principle input in the production of seamless steel casing. Thus, it would appear that GOC measures in the form of export taxes on key material inputs will have a substantial impact on the determination of domestic prices in the steel OCTG sector going forward.
Government Intervention in Steel Pricing
The CBSA has obtained information that suggests that the GOC is actively monitoring steel prices and has expressed its intention to address price movements when deemed necessary. For example, an official working for a provincial 'pricing authority' was quoted as stating: "The National Development and Reform Commission asked that all provinces establish a separate price monitoring system for steel products in some selected cities to better understand the steel market and price trends, and when necessary to act to limit price surges.m49 Such information further indicates that the steel price monitoring system will allow price authorities to curb unusual changes in steel prices "by setting ceiling prices when necessary with the approval of the provincial or the central Consider more recently, the following'comments from the China Iron and Steel Association (CISA): "If [sic] price gap between domestic and overseas market still expands till being able to offset the hiked cost resulting from these policies, the export volume may rebound and further regulatory measures would be likely...This however may cause wide price shakes at home and we're trying every means to prevent this from happening."51 Furthermore, another report stated: "Meanwhile, NDRC also urged that 'drastic fluctuations' of domestic steel prices, which have risen for seven consecutive weeks, need to be controlled."52 The oversight employed by the GOC, as per the following excerpt, to monitor prices appears to include the ability to take action when necessary . "[The] Department of Price Supervision (DPS) under [the] National Development and Reform Commission (NDRC) stated on Thursday that China's steel product price would be
49
CBSA Exhibit 143 N.C. Hot-rolled Steel Sheet Reinvestigation 2005, June 24,2005. Metal Bulletin: "Chinese Provinces Reinforce Steel Price Monitoring"; March 22,2005 50 Ibid. 5 1 Mysteel.net - "Steel Export Restrictive Policies Basically Completed, CISA", August 1, 2007 52 Mineweb.net - "Chinese steel capacity cut, government warns against illegal price hikes," September 10,2007 Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 73
flat with last year's level. Influence caused by China's obsolete capacity elimination will offset that caused by the oversupply in domestic market." 53 "Indeed, China's most recent announcements of VAT rebate eliminations and export taxes continue to reflect a government policy of intervening in steel and raw market (sic) markets by (1) 'channelling' or targeting exports of pipe and tube and other high-value steel products (2) taxing or restricting exports of key raw materials and inputs." 54 This willingness to intervene in the market is consistent with statements from the GOC that domestic prices are of concern and that the 'guidance' and 'coordination' envisioned by the GOC and set forth in the China Steel Policy includes both the government oversight and management of domestic prices in the Chinese steel industry.
State Ownership of Steel Companies and Users of Seamless Steel Casing
While significant strides have been made by the GOC in respect of economic and market reforms , the GOC has, nevertheless, continued to "reinforce its role as the leader of large state-owned [enterprises]" . Even prior to the issuance of the China Steel Policy, the GOC stated that: "party committee members should hold maior posts in large-scale companies, such as members of boards of directors or general managers, to ensure the party's involvement in the SOE's major decisions." 5 5 A recent report further corroborates information on.the GOC's continuing involvement in the corporate structure of steel producers: "For example, the following directors and supervisors of Maanshan Iron & Steel also serve as government officials or as officers in state-owned banks: ...In fact, in 2003, seven out of 18 directors and supervisors of Maanshan Iron & Steel also served as officials in the Party Committee or as officers in a state-owned ba&....Through direct participation in the decision-making and overall management of steel companies, the government is able to ensure adherence to its policies and maintain substantial control over the direction of the industry." 56 On the basis of the information available, the GOC intends to maintain an active involvement in the stewardship of large SOEs in the steel industry. Furthermore, information on the record also indicates that a significant number of seamless steel casing producers are, to varying degrees, owned by the GOC. Mysteel.net - "Government: China's steel product price to remain steady in 2007", February 25, 2007 54 AISI Press Release - American Steel Industry comments on Chinese Steel Paper, AISI.com, June 1,2007
53
55 CBSA Exhibit 143 N.C. Hot-rolled Steel Sheet Reinvestigation 2005, June 24,2005. The People's Daily Online:
"CPC to reinforce leading role in SOE's reform, development: official document"; January 24,2005.
56
Money for Metal: A detailed examination of Chinese Government subsidies to its steel industry, Wiley Rein LLP, July 2007, pages 22 and 23. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 74
For example, TAT, in its complaint, stated that: "A significant majority of seamless pipe production in China is wholly or partially owned by government, including the GOC, as well as provincial and local governments. Indeed, the six largest producers of seamless OCTG in China are all government owned to some extent. These six companies alone account for more than half of total Chinese capacity to produce seamless OCTG." 57 Similarly, further information available to the CBSA provided that: "Like China's steel industry generally, the OCTG sector is dominated by majority stateowned enterprises, which account for over two-thirds of China's OCTG production." 5S Not only is state ownership of the OCTG producers prevalent, further information indicates that the end-users of the goods are also largely state-owned companies thereby indicating that the market in which seamless steel casing is bought and sold is subject to state oversight and ~ontrol.'~ The significant government ownership of both producers in the steel OCTG sector and the end users of seamless steel casing further corroborates allegations that the steel industry and, more specifically, the steel OCTG sector is substantially affected by government action and government influence. Nexus between the Steel OCTG Sector and Other Steel Sectors in China The President has previously concluded that the hot-rolled sheet and hot-rolled plate steel sectors in China (flat-rolled products) are operating under section 20 conditions. Consideration was given to these opinions as part of the current section 20 inquiry concerning the steel OCTG sector in China. The reasons for the President's opinion in respect of the conditions in these particular sectors may be equally applicable to the steel OCTG sector. The GOC measures and actions in relation to the steel industry are broadly targeted and thus affect a wide range of steel producers and steel goods. In addition, many steel producers in China manufacture a wide range of products including some steel producers that manufacture seamless steel casing as well as flat-rolled products.
57
Exhibit 1 - Complaint Narrative - Pages 19-20. See also Tenaris Complaint Appendix 11, page 30 and 78-94. 58 ''House Committee on Ways and Means http://waysandnieans.house. ,gov/hearins.as "Testimony before the Subcommittee on Trade of the House Committee on Ways and Means," March 15,2007. 7 pages 59 Exhibit 1 - Complaint Narrative - Page 20 and 23. The complaint states the following: "The vast majority of Chinese demand for seamless casing comes from three GOC state owned enterprises, PetroChina, China National Offshore Oil Corporation and Sinopec."
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In this regard, an attachment has been included to this Appendix that lists the identified producers of seamless steel casing as provided to the CBSA and the corresponding information available to the It CBSA as to whether that producer, or its related affiliates produces flat-rolled products as should be noted that four of the 'big six' producers of seamless steel casing are also producers of flat-rolled products.61
60
61
Exhibit 1 - Complaint Narrative - Page 5 - 9 and Appendix 4. Baosteel, Anshan, Chengdu (part of Pangang Group) and Baotou (part of Baogang group) are identified as producers of seamless OCTG and flat-rolled products either directly or through corporate affiliates. Trade Programs Directorate (Anti-dumping and Countervailing Program) Page 76
Attachment to Summary of Findings for Section 20 of SIMA Seamless Steel Casing - Producers and Relation to Flat Rolled.
4001 Anshan City,
People's Republic of China
People's Republic of China dustrial Area, 0 14010
anadium alloys; appears to own Jiangsu Chengde.
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Baihedong Fang District, 5 10380 Guangzhou, Guangdong Province
132 Banshan Road, Gongshu District, 3 10022 Hangzhou, Zhejiang People's Republic of China Hebei Zhongyuan Industrial Group Nanhuan Road, Wanshan County, 861300 Heibei People's Republic of China Hunan Hengyang Steel Tube (Group) Co Ltd 10 Dalixincun, 42 1001 Hengyang City, Hunan Province People's Republic of China Hunan Valin Iron & Steel Group Co Ltd 22/F Valin Building, 269 Furongzhong Road, 4 10011 Hangsha, Hunan People's Republic of China Jiangsu Chengde Steel Tube Share Company No. 1 Chengde Road Jiangsu City People's Republic of China Jianhu Yong Jie Foreign Trade Co. Ltd. No. 9, North Huzhong Road Jianhu, Jiangsu People's Republic of China Laiwu Iron and Steel Corporation Gangcheng District, Laiwu City Shandong Province People's Republic of China Producer of H Section, angle, Channel, flat, hot-rolled round, rebar, hot-rolled strip, cold-rolled strip, seamless pipe. Appears to make only pipes and tubes.
SOE. Producer of Tubular Products and Steel Billets.
Has possibly been bought by Mittal. Makes mostly pipes and rod, but also some sectional steel.
Makes only casing and tubing but is part of Chengde group (SOE) that makes everything.
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OCTG Producers
CBSA Notes
Liuzhou Iron & Steel Co 117 Beisheng Road, 545002 Liuzhou City, Guangxi People's Republic of China Pangang Group Chengdu Iron & Steel Co. Ltd. (Chengdu) Chengdu Sichuan, 610069 People's Republic of China Panzhihua Iron & Steel (Group) Co Dadukou, 6 17067 Panzihua, Sichuan People's Republic of China Shandong Molong Petroleum No 99 Beihai Road Shougang City, People's Republic of China Shanghai Alison (Zhongqing) Steel Pipe Co 800 Ouyang Road, Room 18-07,200437 Shanghai People's Republic of China Shanghai Baosteel Group Corp Baosteel Tower, 370 Pudian Road, 200122Pudong New District, Shanghai Shanghai No 5 Steel (Group) Co Ltd 333 Tongji Road, 200940 Shanghai People's Republic of China Sichuan Chuantou Changcheng Special Steel Co Ltd Jiangdong Road, 62 1701 Zhongba, Jiangyou City, Sichuan Province
/I
Iso Producer of Flat Products.
Also producer of Hot-rolled Steel.
Seems to be private and to make only casing and tubing.
Private company. Producer of pipe, petrochemicals and packaging materials.
Also producer of sheet and plate.
Part of Baosteel; see above.
Also Producer of Plates and Sheets.
SOE. Makes only pipe, but there is state-owned Tianjin Pipe Corporation Jintang Road, Dong Li District, Tianjin, 300301 plate mill in the city. Not related to Tianjin Tubular Machining, which is a separate, private People's Republic of China company.
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Xiangtan, Hunan Province People's Republic of China Xinyu Iron & Steel Co Ltd 1 Yie Jin Road, 338001 Xinyu City, Jiangxi Province People's Republic of China Yantai Steel Pipe Plant 92 Zhifutun Road, Zhifu District, 264000 Yantai, Shandong People's Republic of China SOE. Also makes sheet and plate.
Producer of only pipes and tubes, but is subsidiary of Laiwu, which deals in several steel products.
Note 1 OCTG producers as identified by complainant (Exhibit 2 (NC) - Complaint narrative p. 5 -9; and Appendix 4) and CBSA internal reporting systems. Note 2 Baosteel, Anshan, Chengdu (part of Pangang Group) and Baotou (part of Baogang group) are identified directly, or indirectly through affiliates, as producers of both seamless steel casing and flat-rolled products.
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