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Expiry review RR-2009-002

OTTAWA, May 14, 2010

STATEMENT OF REASONS

Concerning an expiry review determination under paragraph 76.03(7)(a) of the Special Import Measures Act regarding

CERTAIN WHOLE POTATOES IMPORTED FROM THE UNITED STATES OF AMERICA, FOR USE OR CONSUMPTION IN THE PROVINCE OF BRITISH COLUMBIA

DECISION

On April 29, 2010, pursuant to paragraph 76.03(7)(a) of the Special Import Measures Act, the President of the Canada Border Services Agency determined that the expiry of the order made by the Canadian International Trade Tribunal on September 12, 2005, in Expiry Review No. RR-2004-006, would likely result in the continuation or resumption of dumping of certain whole potatoes imported from the United States of America, for use or consumption in the province of British Columbia.

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• Statement of Reasons (PDF, 2.4 MB) [help with PDF files]

Cet Énoncé des motifs est également disponible en français. Veuillez consulter la section "Information".

This Statement of Reasons is also available in French. Please refer to the "Information" section.

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Table of Contents

• SUMMARY
• BACKGROUND
• PRODUCT DESCRIPTION
• CLASSIFICATION OF IMPORTS
• PERIOD OF REVIEW
• REGIONAL MARKET
• BRITISH COLUMBIA INDUSTRY
• CASE ENFORCEMENT
• PARTICIPANTS
• INFORMATION USED BY THE PRESIDENT
  • Administrative Record
• PROCEDURAL ISSUES
• POSITION OF THE PARTIES
  • Parties Contending that Continued or Resumed Dumping is Likely
    • Position of the British Columbia Vegetable Marketing Commission
    • Parties Contending that Continued or Resumed Dumping is Not Likely
      • Position of the Washington State Potato Commission
  • CONSIDERATION AND ANALYSIS
    • Dumping of Goods While Order in Effect
    • Performance of Exporters
      • Production
      • Inventories
      • Supply
      • Selling Prices
    • Overall Demand
    • Proximity to B.C. Market and Channels of Distribution
    • Other Trade Measures
    • Likely Future Performance of Exporters
  • REQUEST FOR INCLUSION
  • REQUEST FOR EXCLUSION
  • CONCLUSION
  • FUTURE ACTION
  • INFORMATION

SUMMARY

1. On December 30, 2009, the Canadian International Trade Tribunal (Tribunal) issued a Notice of Expiry Review of Order¹ with respect to its order made on September 12, 2005, in Expiry Review No. RR 2004-006,² concerning certain whole potatoes imported from the United States of America (United States), for use or consumption in the province of British Columbia.

2. As a result of the Tribunal's notice, on December 31, 2009, the Canada Border Services Agency (CBSA) commenced an expiry review investigation to determine whether the expiry of the order is likely to result in the continuation or resumption of dumping of the goods.

3. The British Columbia Vegetable Marketing Commission (BCVMC) provided information on behalf of its member producers defending the position that the expiry of the order is likely to result in the continuation or resumption of dumping of the goods. Conversely, the Washington State Potato Commission (WSPC) provided information on behalf of its member producers in support of its position that the expiry of the order is not likely to result in the continuation or resumption of dumping of the goods.

4. The CBSA also received submissions from all four agencies under the BCVMC, three importers and one exporter of the subject goods.

5. An analysis of the information on the record shows that:

   • the subject goods were dumped while the order was in effect;
   • U.S. production is large;
   • U.S. inventories are increasing;
   • there is a surplus of U.S. supply;
   • U.S. selling prices have fallen below production costs;
   • overall demand is decreasing;
   • the major U.S. producers are located within close proximity to the B.C. market and U.S. exporters have well established channels of distribution in the B.C. market;
   • no other trade measures were in effect during the Period of Review (POR); and,
   • U.S. exporters are likely to continue to sell large volumes into the B.C. market at low prices in the foreseeable future.

6. On the basis of the above, the CBSA believes that U.S. exporters will continue to dump subject goods into the B.C. market in the foreseeable future.

7. For the foregoing reasons, the President of the CBSA (President), having considered the information on the record, determined on April 29, 2010, pursuant to paragraph 76.03(7)(a) of the Special Import Measures Act (SIMA) that the expiry of the order in respect of certain whole potatoes imported from the United States, for use or consumption in the province of British Columbia is likely to result in the continuation or resumption of dumping of the goods.

BACKGROUND

8. This case was originally two separate dumping investigations concerning whole potatoes.

9. The first case was initiated on September 30, 1983, following a complaint filed by the BCVMC. A preliminary determination of dumping was made on March 5, 1984. On June 4, 1984, the Anti-dumping Tribunal (subsequently known as the Canadian International Trade Tribunal) issued an injury finding with respect to whole potatoes with netted or russeted skin, excluding seed potatoes, in non-size A, from the state of Washington, for use or consumption in the province of British Columbia.³ A final determination of dumping was made by the Deputy Minister of National Revenue for Customs and Excise on October 12, 1984. At that time, the legislation required the Tribunal to render its final decision regarding injury prior to the final determination of dumping.)

10. A second investigation was initiated on October 18, 1985, followed by a preliminary determination of dumping on December 20, 1985, and a final determination of dumping on March 20, 1986, with regard to whole potatoes from the United States for use or consumption in the province of British Columbia, excluding seed potatoes and excluding those potatoes covered by the previous finding. The Tribunal issued an injury finding on April 18, 1986.⁴

11. Since the original investigations, there have been four expiry reviews that have resulted in the case being continued with and without amendments. The CBSA has also conducted several re-investigations to update the normal values and export prices for enforcement purposes. Anti-dumping duties have been assessed throughout this period when the goods have been dumped.

12. The first expiry review resulted in an order issued by the Tribunal on September 14, 1990, in Review No. RR-89-010,⁵ continuing the two findings without amendments. On September 14, 1995, in Review No. RR-94-007,⁶ the order was continued with amendments to exclude imports during the period from May 1 to July 31, inclusive, of each calendar year. On September 13, 2000, in Review No. RR-99-005,⁷ the order was continued without amendments and on September 12, 2005, in Review No. RR-2004-006, the order was continued with amendments to exclude red potatoes, yellow potatoes, exotic potato varieties and white and russet potatoes in 50-lb cartons in certain count sizes.

13. On November 10, 2009, the Tribunal issued a notice of expiry of the September 12, 2005 order and invited comments from all interested parties. A submission was received from the BCVMC requesting that the order be continued. Based on the available information and representations by the BCVMC, the Tribunal decided that a review of the order was warranted.

PRODUCT DESCRIPTION

14. The goods subject to this expiry review are defined as:

    whole potatoes, excluding seed potatoes, excluding imports during the period from May 1 to July 31, inclusive, of each calendar year; and excluding red potatoes, yellow potatoes and exotic potato varieties, regardless of packaging, and white and russet potatoes imported in 50-lb cartons in the following count sizes: 40, 50, 60 70 and 80, imported from the United States, for use or consumption in the province of British Columbia.

15. Hereafter, the subject and the like goods will be referred to as “potatoes.”

CLASSIFICATION OF IMPORTS

16. Imports into Canada of the subject goods described above are normally, but not exclusively, classified under the following tariff classification numbers:

January 1, 2006 - December 31, 2006	January 1, 2007 - Current
0701.90.00.00	0701.90.00.10
	0701.90.00.20

PERIOD OF REVIEW

17. The POR for the CBSA's expiry review investigation covers three crop years from August 1 to July 31, 2006-2009, inclusive, along with the period from August 1, 2009 to December 31, 2009. The President considered information placed on the record up to the closing of the record, which was February 18, 2010.

REGIONAL MARKET

18. The Tribunal order relates to potatoes imported into a regional market, namely, the province of British Columbia.

19. In accordance with SIMA, two conditions must have been met for the existence of a regional market. As per subsection 2(1.1) of SIMA, the conditions are that:

    • the producers in that market sell all or almost all of their production of like goods in the market; and,

    • the demand in that market is not to any substantial degree supplied by producers of like goods located elsewhere in Canada.

20. Further, where subsection 2(1.1) of SIMA applies, subsection 42(5) of SIMA provides that the Tribunal shall not find that the dumping of the goods has caused injury or is threatening to cause injury unless:

    • there is a concentration of those goods into the regional market; and,
    • the dumping of those goods has caused injury or is threatening to cause injury to the producers of all or almost all of the production of like goods in the regional market.

20. On December 2, 2009, in response to the Tribunal's initiation of the expiry review of the order, the BCVMC submitted that British Columbia continues to be a regional market because almost all of the potatoes grown in that province are sold in the B.C. market and the demand in that market is not to any substantial degree supplied by producers of like goods located elsewhere in Canada.⁸ More specifically, it detailed that, since the last Tribunal order was issued on September 12, 2005, BCVMC producers have marketed approximately 90% of their potatoes in the B.C. market when all like goods are considered and approximately 93% of russet potato varieties. Russet potatoes are the most common potatoes produced by B.C. producers and the most common potatoes imported into the B.C. market. When the volumes marketed by B.C. producers through on-farm stands, farmer's markets and manifest sales to smaller outlets are also taken into account, these percentages increase to levels well within the range accepted by the Tribunal in determining that British Columbia is a regional market.⁹

21. Further, at the last expiry review, the Tribunal concluded that, based on the data collected from its questionnaires and Statistics Canada, total shipments of potatoes from other provinces in Canada did not, to any substantial degree, supply the demand for potatoes in the B.C. market.¹⁰

22. The Tribunal will again give consideration to the issue of regional market, should the President determine that the expiry of the order is likely to result in the continuation or resumption of dumping of the subject goods.

BRITISH COLUMBIA INDUSTRY

24. There are approximately 51 producers of potatoes in the province of British Columbia.

25. The BCVMC is a commission established by legislation under the Natural Products Marketing (B.C.) Act empowered to regulate the production and marketing of certain vegetables grown in British Columbia, including potatoes. It administers this legislative scheme by way of a sub-delegation of powers to various sales agencies in the province, of which the producers are members. These agencies, namely, the BC Fresh Vegetables Inc. (formerly the Lower Mainland Vegetable Distributors Inc.), the Interior Vegetable Marketing Agency Ltd., the Island Vegetable Co-operative Association and the Vancouver Island Produce, provide producers with provincial sales outlets for their product and derive virtually all of their revenue from marketing potato and vegetable crops. Potato sales represent over 63% of this revenue.¹¹

26. Unlike virtually all other potato producing regions in North America, B.C.'s potato sector does not have a processing industry. It is strictly geared toward the production of fresh potatoes for the table stock market. As a result, potato producers rely solely on fair market access to the fresh potato market, i.e., the table potato and food service markets, within British Columbia to survive.¹²

27. In contrast, 70% of the potatoes produced in the United States in 2008 were sold to the potato processing industry, with the remaining portion sold to the fresh potato market. In Washington, this percentage increases to approximately 87%.¹³

28. Potatoes destined for the processing industry can be sold in the fresh potato market, however, many varieties grown for the fresh market can only be sold in the fresh market as they are unsuitable for processing.¹⁴ Accordingly, fresh and processed potatoes produced in the United States compete directly with fresh potatoes produced in British Columbia.

BRITISH COLUMBIA MARKET

29. The B.C. potato market¹⁵ is estimated as follows by volume and percentage:

ESTIMATED B.C. MARKET
(In Metric Tons)

Source	2006 Crop Year	2007 Crop Year	2008 Crop Year
B.C. Production Sales	107,979	108,864	105,462
Other Canadian Production sold in British Columbia	4,942	4,733	4,518
Imports from the United States into British Columbia
· California	12,659	9,679	11,187
· Idaho	220	1,031	864
· Oregon	10,281	5,522	7,899
· Washington	64,610	62,522	53,313
· All other States	1,041	815	1,174
Total Imports from the United States into British Columbia	88,811	79,569	74,437
Total Imports from all other Countries	0	0	0
Total B.C. Production Sales and Imports from the United States	196,790	188,433	179,899
Total B.C. Market	201,732	193.166	184,417

Note: The crop year is from August 1^st to July 31^st each year. The 2009 crop year is not included, as sales will not be completed until July 31, 2010.
Other Canadian production sold into British Columbia was estimated by the CBSA at 2.45% of the total B.C. market, based on information provided by the Tribunal at the last expiry review.¹⁶

 

ESTIMATED B.C. MARKET
(In Percentage of Volume)

Source	2006 Crop Year	2007 Crop Year	2008 Crop Year
B.C. Production Sales	54	56	57
Other Canadian Production sold in British Columbia	2	2	2
Imports from the United States into British Columbia
· California	6	5	6
· Idaho	0	1	1
· Oregon	5	3	4
· Washington	32	32	29
· All other States	1	1	1
Total Imports from the United States into British Columbia	44	42	41
Total Imports from all other Countries	0	0	0
Total B.C. Production Sales and Imports for the United States	98	98	98
Total B.C. Market	100	100	100

30. Information used to determine the estimated B.C. market was obtained from Agriculture and Agri-Food Canada, based on statistics compiled by Statistics Canada and includes all potatoes, not just those potatoes subject to the order. Data specific to the subject goods is not available, however, the conditions that characterize the potato industry as a whole are believed to be the same and the production and import trends for all potatoes are believed to be an accurate assessment of the subject goods, based on percentage.

CASE ENFORCEMENT

31. In the making of a determination regarding the likelihood of continued or resumed dumping, the President may consider, pursuant to paragraph 37.2 (1)(a) of the Special Import Measures Regulations (SIMR), whether there has been dumping of the goods while an order in respect of the goods is in effect and, if applicable:

    1. the period during which the dumping occurred;
    2. the volume and prices of the dumped and non-dumped goods;
    3. the margin of dumping; and,
    4. for non-dumped goods, the amount by which the export prices exceed the normal value of the goods.

32. Dumping occurs and anti-dumping duties are payable when export prices are less than the normal values of the goods. The margin of dumping is the amount by which the normal value exceeds the export price.

33. In examining these factors, it is important to understand how normal values and export prices were determined during the POR, in light of some unusual circumstances surrounding this case.

34. Throughout the POR, normal values were determined by means of a ministerial specification, pursuant to section 29 of SIMA, on the basis of published cost of production data, using total costs and expenses associated with growing and harvesting potatoes, an amount for packing and selling the goods, and a reasonable amount for profits. Normal values were determined in this manner because no exporters provided company specific cost and sales data during the re-investigations. Some general information regarding costs, such as cost studies, was provided by the trade associations. This information was given due consideration by the CBSA in determining the normal values.

35. Normal values currently in place have been in effect since September 25, 2009, the day that the CBSA concluded its latest re-investigation of normal values. These values are based on the costs of producing like goods during the 2007-2008 crop year. Three university studies from Washington, Idaho and California were used for this purpose. Two of the studies, from Washington and Idaho, referred to the costs of producing russet potatoes while the third, from California, simply referred to the costs of producing potatoes destined for the fresh market. These studies were provided to all participating associations prior to the issuance of the values and no opposition to them was voiced.

36. For the portion of the POR covering the period from August 1, 2006 to September 24, 2009, normal values were based on similar information on the costs of producing like goods in the early 1990's. Accordingly, the revised normal values issued in September of 2009 resulted in an increase in the amount of anti-dumping duties collected.

37. Export prices are also determined by means of a ministerial specification, pursuant to section 29 of SIMA. As per the ministerial specification, export prices are determined weekly on the basis of the preponderant selling prices, referred to as “mostly” prices, as reported in the National Potato and Onion Report (Market News) published by the Federal-State Market News Service, United States Department of Agriculture (USDA). In the absence of preponderant selling prices, export prices are specified as the straight average of the price range quoted in the Market News.

38. Such a manner of determining export prices is unusual since it is based on domestic prices in the country of export rather than export prices. This method was deemed necessary during the course of a past review when it was revealed that the information on the commercial invoices for sales to Canada was not reliable. In light of this, the prevailing prices in the United States were considered a more accurate assessment of the selling prices to the Canadian importers.

39. The order applies only to those subject goods imported from the United States, for use or consumption in the province of British Columbia, from August 1st to April 30th each year. Each week within that period, the CBSA compares the export prices based on the mostly prices, reported in the Market News for specific goods, with the normal values of those goods and issues a Margin of Dumping Report. The report indicates the anti-dumping duties that would be applicable should the goods be imported into British Columbia that week.

40. The CBSA's enforcement statistics show that subject goods from the United States were imported into Canada for use or consumption in the province of British Columbia. The CBSA collected $838 in anti-dumping duties from August 1, 2006 – April 30, 2007, $39,063 from August 1, 2007 – April 30, 2008, $1,210 from August 1, 2008 – April 30, 2009 and $288,974 from August 1, 2009 – December 31, 2009.

41. As mentioned above, anti-dumping duties increased subsequent to the issuance of updated normal values on September 25, 2009. This indicates that the goods were sold in the U.S. market below their full costs (i.e., costs and expenses associated with growing and harvesting potatoes and an amount for packing and selling the goods) plus a reasonable amount for profits.

PARTICIPANTS

42. Expiry Review Questionnaires (ERQ) and the Tribunal's Notice of Expiry Review of Order were sent to all Canadian producers, importers and exporters of the subject goods.

43. The ERQs requested information relevant to the consideration of the expiry review factors found under subsection 37.2(1) of SIMR. Any persons or governments having an interest in this investigation were also invited to provide a submission regarding the effect the expiry of the order would have on the continuation or resumption of dumping.

44. The BCVMC and its four marketing agencies provided responses to the Canadian producer ERQ. In addition, three importers, one exporter and the WSPC provided responses to the respective ERQs.

45. Case arguments were received from the BCVMC, arguing that continued or resumed dumping is likely should the order be allowed to expire.

46. No other case arguments or reply submissions were received.

INFORMATION USED BY THE PRESIDENT

Administrative Record

47. The information used and considered by the President for purposes of this expiry review proceeding is contained on the administrative record. The record includes the exhibits listed on the CBSA's Exhibit Listings, which is comprised of the Tribunal's record at the initiation of the expiry review investigation, CBSA exhibits, and information submitted by interested persons, including information which they believe is relevant to the decision as to whether dumping is likely to continue or resume, if the order expires. This information consists of excerpts from trade magazines and newspapers, orders and findings issued by authorities in Canada and responses to the ERQs submitted by the Canadian producers, importers and exporters.

48. For purposes of an expiry review investigation, the CBSA sets a date after which no “new” information may be placed on the administrative record. This is referred to as the “closing of the record date,” and is set to allow participants time to prepare their case arguments and reply submissions based on the information that is on the administrative record as of the closing of the record date. For the CBSA's expiry review investigation, the administrative record closed on February 18, 2010.

PROCEDURAL ISSUES

49. There were no procedural issues with regard to this expiry review investigation.

POSITION OF THE PARTIES

Parties Contending that Continued or Resumed Dumping is Likely

Position of the British Columbia Vegetable Marketing Commission

50. The BCVMC provided a case brief presenting its position, on behalf of its four agencies and all registered B.C. potato producers, that continued or resumed dumping is likely should anti-dumping measures be allowed to expire. It argued that the order should remain in place.

51. The BCVMC's position is summarized as follows:

    • U.S. potato producers have regularly and persistently sold large volumes of potatoes at dumped price into the B.C. market; ¹⁷
    • U.S. producers have historically overproduced and that this continues;¹⁸
    • U.S. selling prices are declining;¹⁹
    • there is an overall decline in consumer demand for the subject goods;²⁰
    • U.S. inventories are increasing;²¹
    • proximity of the major U.S. producers to the B.C. market is a significant factor;²² and,
    • U.S. producers in the western states, especially in Washington, are extremely dependent on export markets.²³

Large Volumes Dumped

52. The BCVMC stated that, throughout the POR, U.S. potato producers have regularly and persistently sold and continue to sell large volumes of potatoes subject to the order at dumped prices into the B.C. market. In fact, the BCVMC believes that the dumping extends beyond just the subject goods.

53. The BCVMC provided an analysis of the frequency of dumping and the margins of dumping since the last order was put in place for the two most popular products sold into British Columbia from Washington, the 5 x 10 lb and 10 x 5 lb poly bags of russet potatoes. Washington was used for this exercise, since it is the largest exporter of the subject goods and British Columbia's closest neighbour. The normal values used were those just recently revised, indexed retroactively by means of the USDA Producers Paid Index in order to cover the full POR. These values were compared to the actual Washington selling prices to British Columbia, FOB Vancouver, as per USDA reports.

54. A summary of the analysis is as follows:

MARGIN OF DUMPING
5 X 10 LB POLY BAGS OF RUSSET POTATOES²⁴

Crop Year	No. of Weeks Sold Below Normal Value	Total Weeks in Period	Margin of Dumping Average        Minimum      Maximum
2005	40	40	23%	13%	39%
2006	37	40	16%	2%	22%
2007	40	40	35%	19%	54%
2008	16	40	32%	1%	63%
2009*	28	28	75%	38%	114%

Note: For 2009, the calculations were based on data from August 1, 2009 to January 31, 2010.

MARGIN OF DUMPING
10 X 5 LB POLY BAGS OF RUSSET POTATOES²⁵

Crop Year	No. of Weeks Sold Below Normal Value	Total Weeks in Period	Margin of Dumping Average        Minimum      Maximum
2005	31	40	10%	8%	38%
2006	32	40	23%	0%	59%
2007	40	40	17%	6%	31%
2008	13	40	21%	6%	40%
2009*	28	28	48%	22%	74%

Note: For 2009, the calculations were based on data from August 1, 2009 to January 31, 2010.

55. Based on this analysis, the BCVMC contended that for the crop years from 2005-2009, the 5 x 10 lb poly bags were sold below the normal values 86% of the time and the 10 x 5 lb poly bags were sold below the normal values 77% of the time.

56. The BCVMC compared this analysis to the frequency of dumping for the same goods at the last expiry review, at which time the 5 x 10 lb poly bags were dumped 65% of the time and the 10 x 5 lb poly bags were dumped 59% of the time. The BCVMC maintains that this revealed that U.S. growers continued to dump the subject goods during the POR and by increasing frequency.

57. According to the BCVMC, the results further revealed that, throughout this period, the subject goods were dumped into British Columbia by significant margins of dumping. For the 5 x 10 lb poly bags, the margin of dumping ranged from 1-114% and for the 10 x 5 lb poly bags, the margins of dumping ranged from 0-74%.

58. The BCVMC claimed that this was very similar to the results at the last expiry review, which found margins from 0-108% for the 5 x 10 lb poly bags and from 0-72% for the 10 x 5 lb poly bags.

59. The BCVMC relayed that the dumping of potatoes during the POR extended beyond just the subject goods, also affecting the selling prices of 40-80 count size potatoes. These goods were excluded from the last order in 2005 after a review found that they were being sold into British Columbia above the normal values most of the time.

60. The BCVMC explained that major food retailers require a supply of 40-80 count size potatoes and that they account for over 40% of the retail and food service market. These products are considered a premium product to pack sizes and are very popular for use as baking potatoes.

61. Since the last order was put in place and particularly during the fall of the year when the majority of B.C. potatoes are sold, the BCVMC explained that the selling prices for 40-80 count size potatoes have fallen below their costs of production. This is particularly evident during this current crop season where prices for U.S. count size potatoes have fallen below the revised normal values and even below the selling prices for pack size potatoes.

62. As such, the BCVMC is of the opinion that importers have found a way to circumvent the anti-dumping protection afforded to the B.C. industry by importing count size potatoes that are not subject to the order.

63. Accordingly, the BCVMC has requested that the count size exclusion be removed from any future order and that anti-dumping enforcement be resumed for all count size russet and white potatoes.

Overproduction

64. The BCVMC relayed that U.S. producers have historically overproduced the subject goods and that current information shows that this is continuing. It indicated that previous Tribunal orders have noted this problem and that the situation has not improved since the last Tribunal review.

65. The BCVMC provided evidence showing that since 2001, overall U.S. production increased by 6% despite decreasing demand (to be discussed later). Further, during the POR, although there were some modest decreases in the acreage planted, the increased yields resulted in increased production levels.

66. The BCVMC emphasized the enormous size of the U.S. potato industry relative to the B.C. industry. It stated that U.S. production capacity, as compared to the B.C. market, is a significant consideration in determining the likelihood of continued or resumed dumping. Any fluctuations in U.S. production must be considered in context to the size of the much smaller B.C. industry.

67. The BCVMC stated that the B.C. industry is particularly sensitive to overproduction from the four western states within close proximity of the B.C. market: Washington, Idaho, Oregon and California. Together, these four states account for 60-63% of all U.S. fall production and produce over 260 times more potatoes than are grown in British Columbia.

Decline in Selling Prices

68. The BCVMC illustrated that there is a direct relationship between the supply of the potatoes and the selling prices of the goods. As supply increases, the selling prices decrease and vice versa. During the POR, U.S. potato production and excess supply increased causing decreases in open market selling prices.

69. The BCVMC explained that any decline in U.S. selling prices has a direct impact on the B.C. industry as B.C. potato producers are simply “price takers” in their own market. That is, their selling prices are primarily determined by the landed Vancouver selling prices of U.S. potatoes, originating primarily from Washington, Idaho, Oregon and California.

70. The BCVMC noted that the U.S. selling prices of russet table potatoes have recently gone down, falling to their lowest levels since 2005 and well below the U.S. cost of production. It contends that this has resulted in price suppression for all potato types in the B.C. market.

71. Of particular concern to the BCVMC are price reductions in Washington and Idaho because of the close proximity of these states to the metro Vancouver potato market and the fact that these states have historically been the lowest priced potato suppliers in North America.

Decline in Consumer Demand

72. The BCVMC stated that there has been an overall decline in consumer demand for potatoes in the last few years. It noted that the main contributing factors include a shift away from home prepared foods towards more convenient “fast” foods and the perception that carbohydrates are bad for health and cause weight gain.

73. Although a decrease in demand for fresh potatoes has a direct affect on the fresh market, the BCVMC pointed out that any decrease in demand for processing potatoes also effects fresh potato sales, as excess processing potatoes are diverted to the fresh market.

74. While overall U.S. production increased since 2001, the per capita consumption of fresh potatoes declined by 19% and the per capita consumption of processing potatoes declined by 14%. The BCVMC believes that this has intensified the oversupply situation.

Increase in Inventories

75. The BCVMC stated that U.S. potato inventories are currently higher than they were three years ago. This problem existed during the last expiry review when the Tribunal noted that U.S. production had failed to adjust for the declining demand and thus had exacerbated the oversupply situation. The BCVMC believes that this situation continues.

76. The BCVMC provided evidence showing that overall U.S. potato stocks are up by 19.5 million hundredweight over last year and are up by 4.7 million hundredweight in Washington.²⁶ It pointed out these increased potato stocks are the result of a rise in production and a drop in demand.

Proximity of Major Producers

77. The BCVMC relayed that the close proximity of the U.S. producers to the B.C. potato market is yet another significant factor that must be considered. It stated that U.S. potato producers have long targeted the B.C. market because of its close proximity and that this will continue in the future

78. The four western states and more specifically, Washington, being the major exporter and British Columbia's closest neighbour, are of particular concern to the BCVMC.

Dependency on Export Markets

79. The BCVMC is of the opinion that the U.S. potato industry is dependent upon its export markets, highlighting the large volume that is shipped into the B.C. market on an annual basis.

80. The BCVMC reinforced that U.S. exporters have established distribution networks and relationships with B.C. importers that could be readily used as a foundation to increase its sales should the order be allowed to expire.

81. Washington is of particular concern and the BCVMC believes that the Washington potato industry continues to aggressively target and pursue the B.C. market, in constant search for new opportunities.

82. The BCVMC also noted that U.S. producers target and export volumes of potatoes into British Columbia during the summer months when no anti-dumping measures are in place. Should the order be allowed to expire, the BCVMC believes that this will allow U.S. exporters to ship volumes into British Columbia throughout the entire year.

Parties Contending that Continued or Resumed Dumping is Not Likely

Position of the Washington State Potato Commission

83. Although the WSPC did not provide a case brief for this expiry review, it did present its position on behalf of its member producers with the response to the exporter ERQ that continued or resumed dumping is not likely should the order be allowed to expire. Accordingly, it argued that the order should not remain in place.

84. The WSPC's position is summarized as follows:

    • dumping assessed while the order was in place was based on unreliable information;²⁷
    • white potatoes should be removed from the order;²⁸
    • the WSPC and the Washington potato producers have played and will continue to play a vital role in supplying the B.C. potato market to satisfy demand that cannot be met by the B.C. potato producers;²⁹ and,
    • no anti-dumping measures by any authorities of a country other than Canada exist and there is no possibility of a diversion of dumped goods into Canada due to measures taken by authorities of a country other than Canada.³⁰

Unreliable Information Used to Assess Dumping

85. The WSPC is of the opinion that the information used to determine export prices is flawed and unreliable, and that the resulting margins of dumping cannot be used as evidence of a propensity to dump.

86. The WSPC believes that these “mostly” prices outline a range of estimated prices that have no correlation to the actual prices on the shipments to British Columbia. It stated that these price summaries are compiled by telephoning potato sheds or cooperatives involved in both domestic and export sales, and shipments of fresh potatoes. It believes that this method causes data gaps for various configurations that are not traded, it results in export prices that do not reflect supply and demand, and it ultimately results in inflated margins of dumping.

87. The WSPC also noted that the ministerial specification used to determine export prices was put in place some 17 years ago based on certain CBSA perceived pricing/invoicing conditions prevailing at that time. It believes that there is no evidence that these conditions exist today.

88. Accordingly, the WSPC is of the opinion that no accurate conclusions can be drawn respecting the dumping of the subject goods during the POR based on the information used by the CBSA and that no plausible evidence can be drawn in support of a propensity to dump.

White Potatoes Should be Removed from Order

89. The WSPC stated that a determination of a propensity of continued or resumed dumping may be made in reference to “any” of the goods and not necessarily “all” of the goods.

90. In light of this, the WSPC noted that, the data used to determine dumping with respect to white potatoes from the United States was comingled with the russet data on the weekly Margin of Dumping Report throughout the POR. Had whites and russets been correctly segregated in this report, the WSPC contends that there would have been no dumping of white potatoes from the United States. It also stated that no dumping was applicable to white potatoes from Washington throughout this period.

91. The WSPC reinforced that white potatoes are unlikely to be dumped due to the nature of quality and pricing associated with this variety. Accordingly, it has requested that white potatoes from the United States be removed from the order and from further scrutiny.

WSPC and Producers Vital in B.C. Market

92. The WSPC emphasized that the WSPC and its producers have played and will continue to play a vital roll in the B.C. market by supplying potatoes to satisfy demand that cannot be met by B.C. potato producers.

93. The WSPC noted that, at times, the WSPC producers have satisfied more than 50% of B.C. demand, depending on the performance of the B.C. industry and that this pattern of supply will continue into the future.

94. The WSPC emphasized that, over the last 50 years, its producers have consistently increased production efficiency thereby decreasing actual production costs. This, the WSPC believes, would not have been possible had it sold products below cost, year after year.

No Other Anti-dumping Measures in Place and No Possibility of Diversion

95. The WSPC pointed out that there are no anti-dumping measures in place with respect to potatoes by any country other than Canada and that there is no possibility of a diversion of dumped goods into Canada due to measures taken by authorities of any other country. The WSPC believes that this further supports the position that there is a lack of propensity on behalf of the U.S. exporters to continue or resume dumping.

CONSIDERATION AND ANALYSIS

96. In establishing whether the expiry of an order is likely to result in the continuation or resumption of dumping, the President may consider any factor specifically identified in subsection 37.2(1) of the SIMR, as well as any other factors relevant under the circumstances when rendering a determination pursuant to paragraph 76.03(7)(a) of SIMA.

97. Guided by the aforementioned regulations and having examined the information on the administrative record, the following is a summary of the most relevant factors considered in this analysis:

    • whether the goods were dumped while the order was in effect;
    • performance of the exporters in respect of production, inventories, supply and selling prices;
    • overall demand for the goods;
    • proximity of the U.S. industry to the B.C. market and channels of distribution;
    • other trade measures; and,
    • likely performance of the exporters in respect of production, inventories, supply and selling prices.

98. A discussion of these factors is presented below.

Dumping of Goods While Order in Effect

99. The anti-dumping duties collected throughout the POR are presented in the “Case Enforcement” section of this Statement of Reasons. The information discloses that since the revised normal values were put in place in 2009, there was substantial dumping of the subject goods into the B.C. market. As stated previously, margins of dumping result when export prices are less than the normal values of the goods.

100. As of September 25, 2009 forward, the weekly Margin of Dumping Report discloses significant dumping on all potatoes with the exception of white potatoes from Washington. At the time the revised values were put in place, the WSPC requested that white and russet potatoes from Washington be broken out in the report. This was possible for Washington, as per the weekly Market News, but information pertaining to whites was not reported for most other states.

101. As mentioned earlier, during the portion of the POR that predates September 25, 2009, the normal values were based on older costing information. Accordingly, very little anti-dumping duties were collected. Had the normal values during that period been based on more recent costing data, it is possible that dumping would have been found throughout the POR on a more consistent basis.

102. Contrary to the argument by the WSPC that the margins of dumping during the POR were based on unreliable information, evidence on the record does indicate that U.S. producers were selling below full costs plus a reasonable amount for profits from September 25, 2009 forward, and possibly well before.

103. Prior to the issuance of the revised normal values, a review had not been conducted since 2004. At that time, the CBSA continued the normal values previously in place without amendment as the information at hand disclosed that the costs remained relatively constant. As discussed previously, these normal values were determined based on costs in the early 1990's.

104. This situation compromises the assessment of the extent to which the goods were dumped during the POR. The actual anti-dumping duties collected may not reflect the actual amount of dumping had more up to date normal values been in place.

105. Such being the case, the BCVMC provided its own analysis of the margins of dumping throughout the POR for the two most common selling packages, the 5 x 10 lb and the 10 x 5 lb poly bags of russet potatoes. This analysis is believed to be reliable and a reasonable assessment in light of the situation that exists.

106. The BCVMC based its calculations on the revised normal values, indexed retroactively and compared these with the actual Washington selling prices to British Columbia, FOB Vancouver. The results demonstrate sustained dumping throughout the POR.

107. While the analysis does not reflect the total extent of the dumping for all subject goods, it does indicate that, the 5 x 10 lb poly bags would have been dumped 86% of the time by margins ranging from 1-114% and the 10 x 5 lb poly bags would have been dumped 77% of the time by margins ranging from 0-74%.³¹

108. In accordance with this information, the actual anti-dumping duties collected after September 25, 2009 and the fact that normal values previous to this date were based on older costing data, the CBSA is of the opinion that U.S. producers were unable to sell into British Columbia at non-dumped prices during the POR.

109. The CBSA recognizes that enforcement data may suggest that white potatoes from Washington were not dumped during the POR, however, the normal values in place at the time were largely based on estimated costs of russet potatoes, not white potatoes. This was the best information available to the CBSA. Had the normal values for white potatoes been based on the costs of only whites, the resulting normal values may have been different. In that the WSPC noted that quality and pricing of white potatoes are higher than russet potatoes, one may also conclude that the normal values for white potatoes should also be higher.

Performance of Exporters

Production

110. The United States has an enormous potato production in comparison to that of the B.C. industry.

111. The U.S. fall crop is of specific importance, as this is the crop that the B.C. industry competes with.³² Fall acreage is defined as potatoes planted in the spring and typically harvested in the July through October period, with surplus going into storage and marketed throughout the year up until the next harvest.

112. The CBSA reviewed U.S. fall acreage planted and production statistics, compiled by the USDA, for the United States as a whole and for the four western states of concern to the B.C. industry.³³

113. The information discloses that from 2001 to 2009, the United States averaged over 1 million acres planted and almost 400 million hundredweight produced. Idaho had by far the largest fall crop, while Washington was second. Since the last expiry review in 2005, although U.S. area planted decreased by approximately 3%, production actually increased by the same percentage due to increased crop yields.

114. In general terms, production in Washington, Idaho, Oregon and California is approximately 260 times the size of B.C.'s production and Washington's production alone is approximately 95 times the size of the B.C.'s production. Clearly, the United States potato industry has the ability to more than supply the entire B.C. potato market.

Inventories

115. Information on the record suggests that inventory levels in Washington, Idaho and Oregon are currently higher than they were three years ago.

116. A February 2010 edition of the North American Potato Market News (NAPMN) reported that U.S. potato stocks were up by 19.5 million hundredweight over last year and stocks in Washington were up 4.7 million hundredweight, and that U.S. producers were not expected to sell these excess inventories given current demand.³⁴ Further, Washington stocks were up by 12% over 2009, Idaho stocks were up by 16% and Oregon stocks were up by 8%.

117. To put this into perspective, the increase in Washington's stock is on its own approximately five times the size of B.C.'s entire potato industry.

Supply

118. Information on the record supports the fact that the U.S. potato industry is in surplus as it produces more than it sells. This issue was reviewed and acknowledged by the Tribunal during the last expiry review³⁵ and there is no evidence on the record that it changed during the POR or will change in the future.

119. Throughout the POR, while acreage planted decreased slightly, it was more than offset by increased yields resulting in increased production levels. As production increased and demand decreased, the gap between supply and demand widened.

120. The Board of Directors for the United Potato Growers of America (UPGA) recently reported on this issue, recommending that U.S. producers reduce their 2010 acreage planted to 70-75% of their 2004 acreage to maintain demand for fresh potatoes at economically sustainable levels.³⁶

121. Since compliance by U.S. producers is totally voluntary and non-binding, there is little confidence that the UPGA has the ability to influence such a reduction to stabilize the U.S. industry.

122. Indeed, during the course of the last Tribunal public hearing, a witness for the UPGA testified that reductions in U.S. potato production were planned for 2006, however, production levels actually increased that year.

Selling Prices

123. The large volume of production, the increasing inventories and the surplus of supply had a direct impact on the selling prices of the goods in the United States during the POR.

124. Information on the record reveals that there is a strong relationship between the supply of potatoes and the selling prices of the goods. As supply increases, selling prices decrease and vice versa. Throughout the POR, as production and supply increased, selling prices declined.

125. During the last expiry review, the Tribunal found that there was a 1:3 ratio, in describing the relationship between the decrease in production and the increase in selling price.³⁷ Such strong price elasticity means that an increase in production will have a very negative effect on prices if there is no corresponding increase in demand. Similarly, a decrease in the demand will have an equally negative impact on prices if there is no corresponding decrease in supply. As already noted, production and supply increased during the POR while demand decreased.

126. In a September 2009 edition of the NAPMN, it was reported that prices for fresh russet potatoes had fallen below their production costs and that there was little hope for recovery because processing potatoes were being diverted to the fresh potato market.³⁸

127. Further, in a February 2010 edition of the NAPMN already noted, it was reported that surplus stocks had placed a cap on fresh potato prices and that prices would not increase until these surplus stocks were no longer available.

128. A comparison of the preponderant selling prices shown on the weekly Margin of Dumping Report with the total costs and expenses associated with growing and harvesting potatoes, determined as a result of the last re-investigation, verifies that, in many instances, the goods were sold at a loss in the U.S. market.

Overall Demand

129. Information on the record indicates that the overall demand for potatoes decreased during the POR as consumer preferences and lifestyles changed and evolved. This issue was acknowledged during the last expiry review and there is no indication that the situation has changed.

Proximity to B.C. Market and Channels of Distribution

130. The United States is Canada's closest neighbour and largest trading partner. Its major potato producers are located just south of the B.C. border. Of particular concern, are those producers located in Washington and Idaho because of the large production volumes and historically low selling prices.

131. For U.S. exporters, selling into the B.C. market is very similar to selling in their own market. The freight differential is believed to be negligible and exporters have well established channels of distribution in British Columbia. These distribution networks could be readily used and enhanced to increase sales into the B.C. market should the order be allowed to expire.

Other Trade Measures

132. The CBSA may also consider anti-dumping and other trade measures by other jurisdictions when determining the likelihood of continued or resumed dumping. During the POR, however, no other trade measures were in effect.

133. While the CBSA believes that anti-dumping measures with respect of the subject goods in other jurisdictions may be indicative of a likelihood of continued or resumed dumping, it does not necessarily agree that the reverse supports the contention that there is a lack of a propensity to continue or resume dumping. Exporters may not have exported significant volumes into these other jurisdictions or these other jurisdictions may not have had a domestic industry that would have supported a dumping complaint.

Likely Future Performance of Exporters

134. The CBSA believes that the current surplus conditions in the U.S. potato market are likely to continue in the foreseeable future. There is no evidence on the record to suggest that the large production and supply will decrease or that demand will increase. As such, there is no indication that the pricing conditions in the potato market will change significantly and it is quite likely that U.S. producers will continue to sell potatoes into the B.C. market at low prices, as was the case during the POR.

135. Further, considering these surplus conditions, the proximity of U.S. producers to the B.C. market and the well established channels of distribution of U.S. exporters in that market, the CBSA believes that current export volumes of the subject goods are likely to be maintained, if not increased, in the foreseeable future.

REQUEST FOR INCLUSION

136. The BCVMC has requested that all count size white and russet potatoes be included in the President's decision.

137. The order under consideration by the President, made by the Tribunal on September 12, 2005, excluded count size white and russet potatoes in the following sizes: 40, 50, 60, 70, and 80.

138. Pursuant to paragraph 76.03(7)(a) of SIMA, the President must determine whether the expiry of the order in respect of the goods of a country is likely to result in the continuation or resumption of dumping. The President cannot expand the order by extending the product definition to include goods that were not covered or were excluded by the Tribunal in the order.

REQUEST FOR EXCLUSION

139. The WSPC has requested that white potatoes be excluded from the President's decision.

140. The WSPC made a similar request during the course of the last expiry review. The Tribunal considered the request but found that a product exclusion was not warranted for whites on the basis that there was production of whites in British Columbia and whites and russets are substitutable for each other in the B.C. market. Therefore, a product exclusion for whites would likely cause injury to the domestic industry.³⁹

141. In accordance with this, the President is making a single determination in respect of all subject goods from the United States.

CONCLUSION

142. In summary, there was dumping of the subject goods while the order was in effect; U.S. production is large, U.S. inventories are growing, there is a surplus of U.S. supply, U.S. selling prices have fallen below production costs, overall demand is deceasing, U.S. producers are located within close proximity of the B.C. market, U.S. exporters have well established channels of distribution in the B.C. market and U.S. exporters are likely to continue to sell large volumes of subject goods into the B.C. market at low prices in the foreseeable future.

143. For the purpose of making a determination in this expiry review investigation, the CBSA conducted its analysis within the scope of the factors found under subsection 37.2(1) of SIMR. Based on the foregoing consideration of pertinent factors and an analysis of the evidence on the record, on April 29, 2010, pursuant to paragraph 76.03(7)(a) of SIMA, the President of the CBSA determined that the expiry of the order made by the Tribunal on September 12, 2005, in Expiry Review No. RR-2004-006, concerning certain whole potatoes imported from the United States, for use or consumption in the province of British Columbia, is likely to result in the continuation or resumption of dumping of the goods into Canada.

FUTURE ACTION

144. On April 30, 2010, the Tribunal commenced its inquiry to determine whether the expiry of the order is likely to result in injury or retardation with respect to the goods from the United States. The Tribunal's schedule indicates that it will make its decision by September 10, 2010.

145. If the Tribunal determines that the expiry of the order with respect to the goods is likely to result in injury, the order will be continued in respect of those goods, with or without amendment. If this is the case, the CBSA will continue to levy anti-dumping duties on imports of dumped potatoes from the United States, for use or consumption in the province of British Columbia.

146. If the Tribunal determines that the expiry of the order with respect to the goods is not likely to result in injury, the order will be rescinded in respect of those goods. Anti-dumping duties will no longer be levied on importations of certain whole potatoes from the United States, for use or consumption in the province of British Columbia, beginning on the date the order is rescinded.

INFORMATION

147. For further information, please contact the officer listed below:

Original signed by

Daniel Giasson

Director General

Anti-dumping and Countervailing Directorate

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1. Exhibit 27 NC Notice of Expiry Review of Order

2. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006)

3. Exhibit 1 NC Finding and Statement of Reasons (ADT-4-84)

4. Exhibit 3 NC Finding and Statement of Reasons (CIT-16-85)

5. Exhibit 4 NC Order and Statement of Reasons (RR-89-010)

6. Exhibit 7 NC Order and Statement of Reasons (RR-94-007)

7. Exhibit 12 NC Order and Statement of Reasons (RR-99-005)

8. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, pages 29-31

9. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006), page 10

10. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006), page 10

11. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, page 4

12. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, page 21

13. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, page 13

14. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, page13

15. Exhibit 72 NC Estimate Canadian Market Statistics

16. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006), page 10

17. Exhibit 87 NC Case Brief of the BCVMC, pages 5-14

18. Exhibit 87 NC Case Brief of the BCVMC, pages 14-19

19. Exhibit 87 NC Case Brief of the BCVMC, pages 20-23

20. Exhibit 87 NC Case Brief of the BCVMC, pages 25-27

21. Exhibit 87 NC Case Brief of the BCVMC, pages 23-25

22. Exhibit 87 NC Case Brief of the BCVMC, page 27

23. Exhibit 87 NC Case Brief of the BCVMC, pages 28-29

24. Exhibit 87 NC Case Brief of the BCVMC, page 9

25. Exhibit 87 NC Case Brief of the BCVMC, page 9

26. Exhibit 87 NC Case Brief of the BCVMC, Appendix 1

27. Exhibit 40, NC Submission from the WSPC, pages 2-5

28. Exhibit 40, NC Submission from the WSPC, page 6

29. Exhibit 40, NC Submission from the WSPC, page 7

30. Exhibit 40, NC Submission from the WSPC, page 8

31. Exhibit 87 NC Case Brief of the BCVMC, pages 9-10

32. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, page 5

33. Exhibit 87 NC Case Brief of the BCVMC, pages 14-15

34. Exhibit 87 NC Case Brief of the BCVMC, Appendix 1

35. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006), page 15

36. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, Appendix 4

37. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006), page 18

38. Exhibit 30 NC Request by BCVMC to Review Order No. RR-2004-006, Appendix 3

39. Exhibit 29 NC Order and Statement of Reasons (RR-2004-006), page 21