Anti-dumping and Countervailing Program

Preliminary Determination - Fresh Garlic

OTTAWA, November 21, 1996

4237-82

AD/1144

STATEMENT OF REASONS

PRELIMINARY DETERMINATION OF DUMPING OF FRESH GARLIC, ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA

DECISION

Pursuant to subsection 38(1) of the Special Import Measures Act, the Deputy Minister of National Revenue has today made a preliminary determination that fresh garlic, originating in or exported from the People's Republic of China, has been dumped and that there is evidence which discloses a reasonable indication that the dumping has caused injury to the Canadian industry.

This Statement of Reasons is also available in French.

Cet énoncé des motifs est également disponible en français.

STATEMENT OF REASONS

Summary

On August 23, 1996, the Deputy Minister of National Revenue caused an investigation to be initiated respecting the alleged injurious dumping of fresh garlic, originating in or exported from the People's Republic of China (China). The investigation was initiated in response to a complaint filed by the Garlic Growers' Association of Ontario.

As a result of the investigation, the Deputy Minister is satisfied that the subject goods have been dumped, that the margin of dumping is not insignificant and that the volume of dumped goods is not negligible. Furthermore, the Deputy Minister is satisfied that there is evidence which discloses a reasonable indication that the dumping has caused injury to the Canadian industry. Accordingly, the Deputy Minister has made a preliminary determination of dumping in accordance with subsection 38(1) of the Special Import Measures Act (SIMA).

Interested parties

Complainant

The complaint was filed by the Garlic Growers' Association of Ontario (GGAO). Its address is:

38 Centre Street

Stratford, Ontario

N5A 1E3

Exporters and Importers

The names and addresses of the exporters and importers are contained in Appendix I and Appendix II, respectively.

Background

Following preliminary meetings between the GGAO and departmental officials, a complaint was submitted by the GGAO on July 10, 1996, alleging the injurious dumping of fresh garlic from China. On July 31, 1996, the Department notified the GGAO that the complaint was properly documented. At the same time, the Department notified the Government of China that a properly documented complaint had been received.

On August 23, 1996, the Department initiated an investigation into the alleged dumping of fresh garlic from China.

Product

Product Definition

For the purposes of this investigation, the subject goods are defined as:

Fresh garlic, originating in or exported from the People's Republic of China.

Product Information

The goods which are the subject of the complaint are various unnamed strains of garlic, of both the ophioscorodon ("hardneck") and sativum ("softneck") subspecies, which are grown in China. Fresh garlic is used principally as a food product and for seasoning. Garlic offered for sale in Canada is graded according to size, however, there is no standardized Canadian grading system.

Fresh garlic may be exported to Canada as whole garlic bulbs that have been cured, trimmed and cleaned, or as individual cloves, whether peeled or not. The definition does not include dehydrated garlic, garlic flakes, garlic powder, garlic paste or similar processed garlic products.

Classification of imports

Garlic is specifically provided for in subheading 0703.20.00.00 of the Harmonized Tariff System. The MFN rate of duty, applicable to imports from China, is 3.3 per cent ad valorem.

Canadian industry

Garlic is grown commercially in all provinces except Newfoundland and there are an estimated 460 acres in production. The garlic grown in Canada is almost exclusively of the hardneck type, which is better suited to cultivation in regions having cold winters. Garlic is usually planted in October and harvested in July and August of the following year, and sold fresh until December. It may be sold to be consumed or processed or as planting stock. The major production area is in southwestern Ontario.

The GGAO has 74 members who are full-time farmers and who grow garlic as part of their selection of crops. The GGAO is the only organized garlic producer association in Canada. Based on surveys of 1996 production conducted by the GGAO, the GGAO represents producers who account for over 60 per cent of total Canadian production.

Canadian market

The apparent Canadian market for fresh garlic has increased steadily and markedly in recent years, from an estimate of less than six million kilograms in 1992, to approximately 10 million kilograms in 1995. It is estimated that the domestic producers' share of the Canadian market is under 10 per cent and the Chinese imports' share of the Canadian market is over 60 per cent. Garlic imported primarily from the United States, Mexico and Argentina accounts for the remainder.

Results of the investigation

The dumping investigation covered all shipments of the subject goods to Canada from July 1, 1995, to June 30, 1996, which is referred to as the period of investigation (POI).

At the time of initiation of the investigation, notices and Requests for Information (RFI) were sent to 42 importers of the subject goods. Three of the companies advised that they were only freight forwarders, three companies indicated that they did not import the subject goods, nine companies provided the Department with a submission and the remaining 27 importers did not reply to the Department's RFI. A review of the most recent import documentation identified 13 additional importers.

The Department also sent RFIs to 52 exporters of the subject goods. Six RFIs were returned to the Department as undelivered, three companies indicated that they had not shipped the subject goods during the POI, one company reported no domestic sales, another one had closed down and one company ceased exporting the subject goods to Canada in 1996. The remaining 45 exporters did not respond to the Department's RFI.

In order to determine whether China has a free market economy, the Department sent a RFI to the government of China to obtain information regarding the degree of state involvement in the fresh garlic industry. The companies in China were also asked to provide domestic sales and costs of production information in addition to information pertaining to the government's involvement in the fresh garlic industry.

Neither the Chinese government nor the Chinese companies provided the requested information. On the basis of recent economic reports and market studies, the Department concluded that it must regard China as a non-market economy country for the purposes of this investigation.

Normal Value

Normal values are generally based on the domestic selling prices of the goods in the country of export or on the basis of the full cost of the goods plus an amount for profit.

In the case of a non-market economy, normal values are normally determined on the basis of profitable domestic sales or the full cost of the goods, plus an amount for profit, in a country with a market economy.

In this regard, the Department sought information concerning fresh garlic grown in Mexico and the State of California, where the majority of garlic growers in the United States are located.

The California fresh garlic producers advised the Department that they were unable to provide information to establish normal values for this investigation. While two Mexican garlic producers have indicated interest to provide information, a response to the RFI has not yet been submitted.

However, the Department was able to obtain certain published information from official sources in Mexico concerning domestic selling prices and production costs. Growing and packing costs for the period 1995/96 were prepared by Mexico's Ministry of Agriculture and Rural Development on the basis of information gathered from Mexican garlic producers. Domestic selling prices emanate from the Servicio Nacional de Informacion de Mercados. This publication lists weekly and monthly average selling prices by kilogram for garlic in Mexico's Federal District.

A comparison of the estimated growing and packing costs with domestic average monthly selling prices indicates that overall sales were profitable during the POI. Accordingly, the normal value was estimated pursuant to subparagraph 20(c)(i) of SIMA on the basis of domestic selling prices of fresh garlic produced by garlic growers in Mexico. For the purposes of the preliminary determination, the weighted average normal value is estimated at $2.03 CDN per kilogram.

In addition, the Department estimated the normal value (prior to obtaining the above information and in the event the information if received may have been deemed to be insufficient) on the basis of the selling price of Mexican garlic sold to Canadian importers, less any applicable costs, charges and expenses incurred in shipping the goods to Canada that were included in the price, as provided pursuant to paragraph 20(d) of SIMA. A preliminary analysis using this methodology indicated a similar normal value.

Export Price

The export prices for the subject goods were estimated in accordance with paragraph 24(a) of SIMA on the basis of the exporters' selling prices to importers in Canada less any applicable costs, charges and expenses incurred for the exportation and shipment of the goods to Canada. The Department relied on actual import data obtained from its automated entry system and used, as export prices, the actual declared value for duty of imports during the period of investigation.

Margin of dumping

During the POI, over 6 million kilograms of the subject goods were imported from China at an average selling price of $0.58 per kilogram. The estimated weighted average normal value is $2.03 per kilogram. A comparison of the estimated normal value and the export prices revealed that 98 per cent of the subject goods imported during the POI were dumped. The estimated margins of dumping ranged up to 90 per cent with an estimated weighted average margin of 72 per cent, when expressed as a percentage of the normal value.

Representations concerning the investigation

At the time of the initiation of the investigation, the Department invited interested parties to file written submissions respecting the alleged dumping and injury. As a result, the Department received submissions from importers of the subject goods. The Department conveyed these concerns to the complainant for comment and considered the submissions received from interested parties. The following is an analysis of the major points raised in these representations.

1. Canadian Production is Limited

Representations were made to the effect that the acreage planted in Canada is not enough to cover the demand and it was stated that the availability of Canadian garlic is localized and seasonal.

The Department recognizes that the Canadian growers cannot satisfy the entire demand of the Canadian market. Canadian production increased in recent years and growers have demonstrated a commitment to continued expansion. However, they contend that their viability is threatened by low-priced imports from China which have depressed prices and taken markets from Canadian producers.

2. Local Growers Have not Approached Importers

Some companies have indicated that they have not been approached by local growers in Canada to market their product.

The complainant reported the marketing efforts made by the Canadian garlic growers to sell their produce, mainly to wholesalers and retail chains. Canadian-grown garlic is acknowledged to be of high quality, and yet the GGAO claims that many sales have been lost because of competition from much lower-priced Chinese garlic. In support of this, the Canadian growers have provided evidence of lost customers and price suppression.

3. This Investigation Would Only Benefit Growers from the United States

Some importers suggested that the imposition of dumping duties on Chinese garlic would merely enlarge the imports of the United States garlic.

The purpose of this investigation is to determine whether Canadian garlic producers are entitled to protection under SIMA. Garlic imports from the other major exporting countries, namely the United States, Mexico and Argentina, compete at fair prices with Canadian-grown garlic and are not at issue in this investigation.

Status of injury

Update of the Complainant's Evidence of Injury

The Department requested the complainant to update the status of the injury allegedly caused by the dumped goods. At the time of initiation, the Department had received details respecting injury indicators mainly in the form of lost sales, price depression and inability to expand market share.

While the GGAO reported a reduced crop for many growers due to poor growing conditions, the information submitted indicated that the Canadian growers are continuing to experience lost accounts and price depression. The GGAO indicated that many growers have been compelled to reduce prices to match the persistently low prices for Chinese garlic.

The GGAO advised that some growers increased their costs by creating packaging and presentation innovations, or incurred losses, to retain customers. The complainant also provided several examples of customers who refused to buy local garlic this fall because of low-priced Chinese garlic. Chinese garlic is still advertised in store flyers and is available in retail outlets at very low prices.

In light of the continuing injury suffered, some growers have decided to limit their acreage planted this fall. Because of lower returns, some growers were forced to sell their garlic as seed. However, returns on seed sales were lower than normal because such garlic had been intended for sale in the fresh retail market.

Determination with Respect to the Alleged Injury

Under subsection 38(1) of SIMA, the Deputy Minister, in making a preliminary determination of dumping, is required to conclude whether there is evidence that discloses a reasonable indication that the dumping has caused injury or is threatening to cause injury. In this case, the Deputy Minister concluded that the evidence discloses a reasonable indication that the dumping has caused injury to the Canadian industry.

Decision

The investigation has revealed that the margins of dumping of the subject goods are not insignificant and that the actual volume of dumped goods is not negligible.

Furthermore, the Deputy Minister has determined that there is evidence which discloses a reasonable indication that the dumping has caused injury to the Canadian industry. Accordingly, on this date, pursuant to subsection 38(1) of SIMA, a preliminary determination of dumping was made with respect to fresh garlic, originating in or exported from the People's Republic of China.

Future action

The Canadian International Trade Tribunal will now hold an inquiry into the question of whether the dumping has caused or is threatening to cause material injury to the Canadian industry. The Tribunal is required to issue its decision on the question of injury with respect to the subject goods no later than 120 days after the receipt of notice of the preliminary determination.

While the Tribunal's inquiry is in progress, the Department will continue its investigation in order to obtain further information relating to the dumping of the subject goods. Within 90 days of the preliminary determination, a final determination will be made, specifying the margin of dumping on the basis of all information available at that time. If the margin of dumping is insignificant or the actual or potential volume of dumped goods is negligible, proceedings will be terminated, in whole or in part, and any provisional duty paid or security posted will be returned to the importers, as appropriate.

The legislation provides that after a preliminary determination of dumping, exporters may submit written undertakings to revise their selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped goods. If undertakings are accepted, the required payment of provisional duties on the goods would be suspended.

In accordance with section 57 of the Special Import Measures Regulations, undertakings should be offered no later than 60 days after this preliminary determination. However, it is preferable that written undertaking proposals be received by the Department as early as possible to allow sufficient time for their analysis.

Provisional duty to be imposed

Pursuant to section 8 of SIMA, the Deputy Minister considers that the imposition of provisional duty is necessary to prevent injury, in view of the expectation of continuing imports at injurious price levels during the provisional period. Therefore, subject goods released from Customs during the period commencing on the day the preliminary determination is made and ending on the earlier of the day the investigation is terminated or the day on which the Tribunal makes an order or finding, are subject to provisional duty not greater than the estimated margin of dumping.

The importers of the goods subject to provisional duties must pay the duties in cash or by certified cheque or post security equal to the duties payable.

The normal value for use in assessing provisional duty on imports of subject goods is $2.03 CDN per kilogram. If export prices are lower than the estimated normal value, the difference will be collected as provisional duty or security will be required to cover the amounts by which the normal value exceeds the export prices.

Publication

Notice of this preliminary determination is being published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.

Information

This Statement of Reasons has been provided to persons directly interested in these proceedings. A free copy may be obtained by contacting the departmental officers.

For further information, please contact the following Revenue Canada officers by fax at (613) 954-2510, or by telephone at:

• Hélène Bernier (613) 954-7259
• Audrey Kelly (613) 954-7173

or at the following address:

Department of National Revenue

Anti-dumping and Countervailing Directorate

191 Laurier Avenue West

Ottawa, Ontario

K1A 0L5

R. A. Séguin
A/Director General
Anti-dumping and Countervailing Directorate