TR 2017 ER
Certain Liquid Dielectric Transformers
Statement of Reasons

[32] Based on the figures presented in Table 1, the Canadian producers’ share of the apparent Canadian market, in terms of the total dollar value, was 35.7% in 2014, 37.9% in 2015, 36.1% in 2016, and 30.3% in the first half of 2017. The Canadian producers’ share of the apparent Canadian market, as a percentage of the total volume, was 33.3% in 2014, 27.4% in 2015, 31.9% in 2016, and 33.3% in the first half of 2017. The data reveals that the Canadian producers’ share of the apparent Canadian market fluctuated slightly from 2014 to 2017. It is noteworthy that the Canadian producers’ quantity and value sold in the first half of 2017 had already reached the entire sales from Canadian production obtained in 2015.

[33] As seen in Table 1, during the POR, the total dollar value of the imports of subject goods from Korea as a percentage of the apparent Canadian market was 19.3% in 2014, 15.0% in 2015, 9.9% in 2016, and 8.5% in the first half of 2017. The volume of imports from Korea as a percentage of the apparent Canadian market was 27.0% in 2014, 20.0% in 2015, 14.9% in 2016, and 19.2% in the first half of 2017. The data indicates that the imports of subject goods from Korea decreased from 2014 to 2016, but increased based on the first half of 2017 in comparison to 2016. In terms of quantity, large power transformers imported from Korea in the first half of 2017 have already exceeded the quantity for the entire year of 2016.

[34] Also in Table 1, during the POR, the total dollar value of the imports of large power transformers from other countries (i.e., the non-named countries) as a percentage of the apparent Canadian market was 45.0% in 2014, 47.1% in 2015, 53.9% in 2016, and 61.1% in the first half of 2017. The volume of imports from other countries as a percentage of the apparent Canadian market was 39.6% in 2014, 52.6% in 2015, 53.2% in 2016, and 47.4% in the first half of 2017. In terms of value, the data shows that the imports of large power transformers from other countries increased from 2014 to the first half of 2017. In terms of volume, the data shows that the imports of large power transformers from other countries increased from 2014 to 2016, with a slight decrease in the first half of 2017. These imports originate in a number of countries, with Germany and the United States being significant sources during the POR.

[36] On July 26, 2017, the CBSA sent a notice concerning the initiation of the expiry review investigation and ERQs to known Canadian producers, importers and exporters.

[37] The ERQs requested information needed to consider the expiry review factors, as found in subsection 37.2(1) of the Special Import Measures Regulations (SIMR), relevant to this expiry review investigation.

[38] Four Canadian producers ABB^{Footnote 20}, PTI^{Footnote 21}, Northern Transformers^{Footnote 22} and Delta Star^{Footnote 23} participated in the expiry review investigation and responded to the ERQs. Three Canadian importers: Hyundai Canada^{Footnote 24}, Hyundai Corporation USA^{Footnote 25} and Remington^{Footnote 26} and two exporters of subject goods: HEES^{Footnote 27} and Hyosung^{Footnote 28} also participated in the expiry review investigation and provided ERQ responses.

[39] Case briefs and reply submissions were received on behalf of the complainants ABB and PTI^{Footnote 29}, Hyosung^{Footnote 30} and jointly from HEES, Hyundai Canada, Remington and Hyundai Corporation USA.^{Footnote 31}

ABB and PTI

[42] ABB and PTI (the complainants) made representations through their responses to the ERQ, their case brief and reply submission in support of the position that dumping from Korea is likely to continue or resume in the event the present order is rescinded. Consequently, the complainants argued that the measures should remain in place.

[43] The main factors identified by the complainants can be summarized as follows:

• Korean imports cannot compete at non-dumped prices;
• The decreased growth rate in the Korean market is leading to an increased reliance on export markets;
• Excess production capacity available to the Korean exporters;
• Stable large power transformers market in Canada;
• Imposition of anti-dumping measures by other countries;
• Price remains the key sales factor in the power transformers industry;
• Recent move by Canadian power utility companies to adopt “open blankets”; and,
• Korean exporters’ loss of important sales in the Middle East.

Korean imports cannot compete at non-dumped prices

[44] Subsequent to the CITT’s injury finding in 2012 concerning large power transformers from Korea, imports of subject goods have declined substantially. The complainants argue that this trend of decreasing exports of large power transformers from Korea is “evidence of the fact that the subject goods cannot compete in the Canadian market at normal values”^{Footnote 32} or in other words, at undumped prices. This is consistent with the increase in ABB’s orders after the finding in 2012.

[45] The complainants also argue that the CITT has previously interpreted the assessment of anti dumping duties to reflect an apparent inability to compete in the Canadian market at non dumped prices.^{Footnote 33} As a result, the complainants maintain that, in order for Korean exporters to penetrate mature and existing markets, they must undercut prices and this leads to a likelihood of dumping.^{Footnote 34}

The decreased growth rate in the Korean market is leading to an increased reliance on export markets

[46] The complainants provided an excerpt from HEES’s Registration of Securities for 2017 filed with the Korean Financial Services Commission on September 11, 2017. Based on this information, the complainants indicate that the Korean domestic market is contracting. According to the same report, the Korean domestic energy industry is mature and thus demand is primarily for the replacement of transformers.^{Footnote 35} As such, the complainants argued that the demand in the Korean domestic market would also decrease and lead to an increasing number of Korean producers seeking sales in export markets. According to the Korea Electrical Manufactures Association’s 2017 Electrical Industry Forecast Report, the value of Korean production of transformers decreased by more than 20% between 2014 and 2016.^{Footnote 36} Further, it reported that the Korean Electric Power Corporation (KEPCO), a state-owned electricity supplier, continues to reduce its investments which will result in a reduction in orders for large power transformers and cause corresponding excess capacity for the Korean producers of transformers. The complainants note that KEPCO is the dominant player in Korea since it controls 80% of the Korean power market with its major subsidiaries and affiliated companies.^{Footnote 37}

[47] Furthermore, according to the complainants’ reply submission, the Korean government is planning to reduce nuclear and coal powered energy generation by the introduction of a new energy policy.^{Footnote 38} The cancellation of these power plants will result in the cancellation of contracts for which HEES was supposed to be the supplier of large power transformers.^{Footnote 39}

[48] The complainants stated that HEES is also involved in court proceedings that could impact its ability to sell large power transformers in the Korean market as its former corporate entity, Hyundai Heavy Industries Co. Ltd., was found by the Korean government to have been involved in a bribery scandal related to the construction of a nuclear power plant in the United Arab Emirates, and on January 13, 2015 an order was issued that suspended them from participating in KEPCO purchases for 2 years.^{Footnote 40}

[49] In conclusion, the complainants argue that this decreasing demand in the Korean market will lead to additional focus by the Korean manufacturers on export markets, including Canada.

Excess production capacity available to the Korean exporters

[50] The complainants contend that the Korean exporters of large power transformers have a substantial and growing excess capacity while the demand in Korea for transformers has been decreasing and is forecast to continue to decrease. As evidence, the complainants provided production capacity information of a selection of exporters from Korea.^{Footnote 41} During the POR, the Korean economy has experienced an economic slowdown leading to a decline in electricity demand and consequently, a decrease in production of electric and electro equipment.^{Footnote 42} As a result of this economic contraction, HEES has indicated that its share of sales of power transformers has dropped significantly from 54% to 43%, between 2015 and the first half of 2017.^{Footnote 43} Likewise, Hyosung has experienced a decline in sales for its heavy industries division (which includes large power transformers), dropping from Korean Won (KRW) 938 billion in 2015 to KRW 858 billion in 2016.^{Footnote 44}

[51] The complainants also noted that the Korean exporters have significantly increased their production capacity even if available data and market predictions don’t indicate any major increase in demand in the Korean market.

[52] In the case of HEES, the complainants argue that it has increased its capacity more than 20% between 2013 and 2017 reaching an annual capacity of 121,400 MVA.^{Footnote 45} As such, the complainants argue that HEES had excess capacity available for production during the POR.^{Footnote 46} Similarly, the complainants argue that Hyosung also had excess capacity available for the production of large power transformers.^{Footnote 47} Given HEES and Hyosung’s excess production capacity of power transformers, the complainants argue that the producers will be seeking out sales in export markets in order to maintain or increase their capacity utilization.^{Footnote 48}

Stable large power transformers market in Canada

[53] Based on the market intelligence and analysis by ABB’s sales force, the complainants predict that there are a number of key bids coming within the next one to two years.^{Footnote 49} However, the growth in electricity generation is expected to remain unchanged, as the demand for large power transformers in the Canadian market is expected to be relatively stable in the future.^{Footnote 50} In its ERQ response, ABB provided a forecast based on “The World Market for T&D Equipment and Systems 2015 – 2025, June 2016” from Goulden Reports that corroborated the statement made regarding a stable market in Canada in the future.^{Footnote 51}

[54] In their responses to the ERQ, both ABB and PTI indicated that there are several blanket contracts involving a number of power companies expected in the near future. The complainants state that these contracts will be vital for Canadian producers.^{Footnote 52}

[55] In summary, the demand for large power transformers in Canada will continue to be steady. Despite the prediction of important upcoming sales, the market demand will essentially be for the replacement of aging assets rather than new projects. The complainants state that the next 12 to 24 months will be a decisive period for the Canadian producers to win these bids.^{Footnote 53}

Imposition of anti-dumping measures by other countries

[56] The complainants argued that anti-dumping measures against Korean producers and exporters in place in other jurisdictions prove their past tendency to dump into exports markets. The United States Department of Commerce (USDOC) made an affirmative final determination in the anti dumping duty investigation of large power transformers from Korea in 2012, which remains in effect.^{Footnote 54}

[57] Also, on September 24, 2014, the Argentina Republic’s Direction of Unfair Competition made a final determination of dumping concerning its investigation of three phase liquid dielectric transformers of 10 MVA to 600 MVA from Korea and China, and imposed anti dumping duty for five years.^{Footnote 55}

[58] From the complainants’ perspective, these findings reveal that Korean exporters of large power transformer have the tendency to dump into export markets.

Price remains the key sales factor in the power transformers industry

[59] The complainants argue that price has traditionally been the primary tool for competition and marketing for the Korean exporters of large power transformers.^{Footnote 56} To support their arguments the complainants submitted data summarizing export statistics from Korean Customs which shows the average unit selling values of Korean exports over the 2014 to 2016 period for tariff code 8504.23, the HS code that comprises large power transformers. Based on this information, the complainants noted that the average unit values of exports to Canada and the United States were definitely higher than other top export destinations which could be explained by the anti dumping orders in place. For the other countries, Saudi Arabia, Algeria, Qatar and Indonesia, the average unit selling price was lower than in the United States and Canada but also decreased between 2014 and 2016.^{Footnote 57}

[60] The complainants also argued that HEES indicated that it was struggling with the strong price competition. According to HEES, “the market is becoming driven by price competition” and “becoming increasingly difficult to achieve both orders and profitability”.^{Footnote 58} The complainants also state that European and Japanese producers of large power transformers have recently been experiencing favorable exchange rates, thereby increasing their price competitiveness. Together, with late competitors from China (Xian and TBEA) and India (CGL) seeking to expand their markets, the price competition will impact future sales worldwide.^{Footnote 59}

[61] The complainants allege that, as a result of strong competition, mainly price based, the sales of large power transformers will continue to experience downward price pressure. The complainants believe that without dumping measures in place, importers will continue to import dumped products into the Canadian market.^{Footnote 60}

Recent move by Canadian power utility companies to adopt “open blankets”

[62] In their ERQ responses, both ABB and PTI raise a concern regarding a recent change in the Canadian market that is resulting in increased price competition. A number of Canadian utility companies have adopted “open blankets”, whereby a purchaser qualifies multiple suppliers and the purchaser then orders a transformer from one of the qualified suppliers. In open blankets, qualified suppliers are forced to re-compete on price even after blanket agreements are concluded. As such, suppliers qualified in open blanket agreements may be forced to provide further price discounts in order to be awarded with purchase orders.^{Footnote 61}

[63] The complainants argue that, in the absence of the CITT’s order, this increased price competition will lead to Korean exporters dumping large power transformers into the Canadian market in order to obtain sales.

Korean exporters’ loss of important sales in the Middle East

[64] The complainants allege that the Korean exporters of subject goods are experiencing decreasing demand in their primary export market, the Middle East.^{Footnote 62} The complainants report that the demand for large power transformers will remain weak in this market. They state that, the Middle East has “suffered delays and cancellation in electric infrastructure investments due to oil price declines, which resulted in shrinking government budgets”.^{Footnote 63} This in turn, will impact HEES and Hyosung since this territory represents an important market for both of these exporters.^{Footnote 64}

[65] The complainants state that, according to the market forecast entitled “The World Markets for Transformers, 2015 – 2025, March 2015” from Goulden Reports (the 2015 Goulden Report), growth in the Middle East appears to be weak, from 2015 to 2020.^{Footnote 65}

[66] According to the complainants, this decline in the Middle East demand was confirmed by HEES’ Director of Sales, Mr. Lee Chang Ho in a recent interview in The Korea Electric Power News. According to Mr. Lee, there is a general world-wide economic depression in market conditions for high voltage electric equipment that has resulted in a dramatic decline in new order volumes in 2017 compared to the year before in the Middle Eastern market in particular.^{Footnote 66} Similarly, the complainants also allege that declines in new order volumes in Middle Eastern markets will also negatively affect Hyosung’s performance by referencing an excerpt from the Business Post from June 28, 2017 in which it indicates that “exports to Middle East are estimated to have declined as the Middle Eastern economy has stagnated and competition has intensified during the second quarter {2017}”.^{Footnote 67}

[67] Moreover, Siemens recently entered a framework agreement with the Saudi Arabian government relating to its Saudi National Industrial Clusters Development Program. The complainants allege that this represents a significant lost opportunity for Korean exporters of large power transformers into the future.^{Footnote 68} According to the complainants, the failure of Korean exporters to secure this framework agreement represents considerable potential lost sales in Saudi Arabia as this program is estimated at one billion Euros in infrastructure equipment purchases, including many large power transformers.^{Footnote 69}

[68] Under these circumstances, the complainants argue that it is reasonable to expect that the Korean exporters will strive for alternative markets such as Canada, particularly if the CITT’s order on large power transformers is allowed to expire.^{Footnote 70}

HEES, Hyundai Canada, Remington and Hyundai Corporation USA (collectively, HEES) and Hyosung

[69] HEES and Hyosung made representations through their responses to the ERQs, in case arguments and reply briefs in support of the position that dumping from Korea is unlikely to continue or resume in the event the present order is rescinded. Consequently, they argued that the measures should not remain in place.

[70] The main factors identified by HEES and Hyosung can be summarized as follows:

• The assessment of anti dumping duties during the POR is technical and is the result of the time lag between bids and orders due to long term contracts;
• Korean exporters have almost no excess production capacity;
• Market conditions in Canada and Korea remain stable and a strong demand is expected from other markets; and,
• Anti-dumping orders in other jurisdictions do not indicate a likelihood of dumping.

The assessment of anti-dumping duties during the POR is technical and is the result of the time lag between bids and orders due to long term contracts

[71] HEES claims that, while anti-dumping duties were assessed on some of its exports to Canada during the POR, an examination of the total of all transactions during the period reveal that, the weighted average margin of dumping was negative.^{Footnote 71}

[72] HEES also argues that the assessment of anti-dumping duties was due to the nature of the goods in that it is a function of the long delay between bids and orders that are the result of the use of long term contracts. As a result, in some cases “technical dumping” occurred due to fluctuations in the currency exchange rate between the time of the tender, the date of the actual order, and subsequent fabrication and shipment of the transformer to Canada.

Korean exporters have almost no excess production capacity

[73] HEES reported in its ERQ response that its capacity utilization was very high in the first half of 2017. For this reason, it argues that there is no way for HEES to increase sales destined to the Canadian market. To demonstrate this fact, HEES provided capacity utilization data relating to its Ulsan facility, details of which cannot be disclosed due to confidentiality reasons.^{Footnote 72}

[74] HEES also mentioned that the CBSA should disregard the target set of KRW680 billion by HEES in its “Vision 2021 strategy” because it applies to all of the company’s business lines of which only a portion of HEES sales relate to power transformers.^{Footnote 73}

Market conditions in Canada and Korea remain stable and a strong demand is expected from other markets

[75] HEES further argued that the market situation is expected to be stable in Canada and will remain the same in the Korean market.

[76] With regard to legal proceedings in Korea relating to bribery convictions resulting in HEES’ two year suspension from participating in KEPCO purchases, HEES argued that this relates to Hyundai Heavy Industries, its former corporate entity, and these issues should not impact future sales between HEES and KEPCO. HEES also stressed that the allegations are being appealed via the Korean court system and therefore could result in the suspension being overturned.^{Footnote 74}

[77] Further, HEES forecast that the demand for large power transformers in the Middle East and Asia will remain strong in the near term because countries in these regions are expanding their electrical grids.^{Footnote 75} Moreover, HEES argues that, it is premature to assume that it will not be able to bid on future transformer contracts in Saudi Arabia just because it wasn’t awarded the contract for the Saudi National Industrial Clusters Project, as the scope of these projects is very large.^{Footnote 76}

[78] For its part, Hyosung provided a number of details that point to the fact that its future performance will remain stable and that the continuation or resumption of dumping is not likely.^{Footnote 77}

Anti dumping orders in other jurisdictions do not indicate a likelihood of dumping

[79] According to HEES, the anti-dumping findings in Argentina, Australia and the United States do not indicate that there is a propensity for HEES to dump large power transformers.

[80] First, with regard to the United States finding, HEES states that it has continuously cooperated with the USDOC, and the recent determination by the USDOC to apply adverse facts available against HEES has been appealed.^{Footnote 78} As such, the CBSA should disregard the USDOC’s decision as part of its analysis for this expiry review proceeding. Similarly, HEES states that the CBSA should not give any weight to the Argentinian anti-dumping proceedings because (i) Hyundai (now HEES) did not participate in the investigation due to a lack of sales volumes, (ii) the 52%^{Footnote 79} margin of dumping determined by the Argentinian authorities does not appear to be WTO compliant, and (iii) the anti-dumping order was suspended as soon as it was made and that suspension appears to have been extended. Finally, HEES indicated that it participated in the Australian proceedings and was found not to have dumped the power transformers subject to that investigation. Furthermore, it stated that the Australian investigation determined that the actual volume of transformers exported from Korea at dumped prices was negligible and, as a result, terminated its investigation involving transformers from Korea.^{Footnote 80} For these reasons HEES maintains that the CBSA shouldn’t give any credibility to these dumping determinations in other jurisdictions.

[81] In making a determination under paragraph 76.03(7)(a) of SIMA whether the expiry of the order is likely to result in the continuation or resumption of dumping of the goods, the CBSA may consider the factors identified in subsection 37.2(1) of the SIMR, as well as any other factors relevant under the circumstances.

Likelihood of Continued or Resumed Dumping

[82] Guided by the factors in subsection 37.2(1) of the SIMR and having considered the information on the administrative record, the following is a summary of the CBSA’s analysis conducted in this expiry review investigation with respect to dumping:

• Korean producers are export-oriented, which is likely to continue in the future;
• Korean exporters are facing declining sales for power transformers and weak future demand for power transformers in their home market;
• Korean producers/exporters have excess production capacity;
• Increased competitive price pressure on sales of large power transformers in Canada;
• Anti-dumping measures in other countries demonstrate that Korean exporters have a propensity to dump large power transformers;
• Measures taken by the United States are likely to cause a diversion of dumped goods into Canada; and,
• Anti-dumping duties have been assessed on subject goods imported into Canada during the period of review.

[83] As indicated earlier, the CBSA received ERQ responses relating to this expiry review investigation concerning certain liquid dielectric transformers from four Canadian producers (ABB, PTI, Northern Transformer and Delta Star), three Canadian importers (Hyundai Canada, Hyundai Corporation USA and Remington) and two exporters (HEES and Hyosung). The CBSA also received case briefs and reply submissions on behalf of ABB and PTI (the complainants), Hyosung and HEES.

[84] The CBSA relied on information submitted from these parties, as well as other information on the administrative record for purposes of the expiry review investigation.

[85] Both Hyosung and Hyundai Heavy Industries (now known as HEES) participated in the original investigation and the subsequent re-investigation of the normal values and export prices of certain liquid dielectric transformers from Korea. The continued participation by these exporters, including in this expiry review investigation, suggests they are interested in participating in the Canadian market.

Korean producers are export-oriented, which is likely to continue in the future

[86] As noted by the complainants, Korean producers of large power transformers are export oriented. Table 2a and 2b below provide a summary of the sales reported by HEES and Hyosung in their domestic and export markets. The CBSA cannot release specific quantitative data for sales from Republic of Korea as it relates to only two Korean companies and would lead to the disclosure of confidential information. As such information is presented in percentages only.

Table 2a
Sales of Large Power Transformers (Units) by HEES and Hyosung^{Footnote 81}

Market	2014	2015	2016	Jan – Jun 2016	Jan – Jun 2017
	%	%	%	%	%
Korea	24.2%	17.8%	13.4%	10.2%	17.3%
Canada	6.3%	4.9%	3.2%	3.3%	5.1%
Middle East:	26.6%	45.8%	43.2%	46.3%	35.4%
Other Exports	42.9%	31.4%	40.2%	40.2%	42.1%
Total Exports	75.8%	82.2%	86.6%	89.8%	82.7%
Total Sales	100%	100%	100%	100%	100%

Table 2b
Sales of Large Power Transformers (Value in KRW) by HEES and Hyosung^{Footnote 82}

Market	2014	2015	2016	2016 Jan 1 to Jun 30	2017 Jan 1 to Jun 30
	%	%	%	%	%
Korea	19.9%	15.3%	12.0%	7.7%	12.0%
Canada	6.5%	4.2%	3.4%	4.4%	5.0%
Middle East	26.8%	42.7%	38.7%	44.2%	26.7%
Other exports	46.8%	37.8%	46.0%	43.7%	56.4%
Total Exports	80.1%	84.7%	88.0%	92.3%	88.0%
Total Sales	100%	100%	100%	100%	100%

[87] As seen in Table 2a above, HEES and Hyosung’s volume of exports of large power transformers as a percentage of all sales was 75.8% in 2014, 82.2% in 2015, 86.6% in 2016 and 82.7% in the first half of 2017. Similarly, when examining HEES and Hyosung’s value of exports of large power transformers in Table 2b, the percentage of export sales to total sales was 80.1% in 2014, 84.7% in 2015, 88.0% in 2016 and 88.0% in the first half of 2017. Indeed, the share of domestic sales for these companies has decreased between 2014 and 2017 and remains a small proportion of their overall sales and indicates that HEES and Hyosung, are export oriented and dependent on export markets for sales.

[88] Furthermore, according to HEES’ Registration of Securities filed with the Korean Financial Services Commission on September 11, 2017, “as the domestic energy industry has matured, infrastructure investments have stagnated”.^{Footnote 83} This results in HEES turning its focus to export markets, as according to this same filing, HEES states “This company is trying to increase sales in overseas tenders in order to boost its sales revenue”.^{Footnote 84}

[89] As can be seen in Tables 2a & 2b above, the Middle Eastern market is an important market for the both HEES and Hyosung.

[90] An excerpt from HEES’ 2017 Q2 financial review suggests that the sustained depression of oil prices has led major Middle East countries like Saudi Arabia to reduce expenditures on infrastructure, including power generation and the electrical grid.^{Footnote 85} According to HEES’ Registration of Securities filed with the Korean Financial Services Commission on September 11, 2017, there is a decrease in demand in the Middle Eastern market and according to the report, “In 2015, low oil prices have led to the contraction of infrastructure investments in energy industry and weakened profitability, which has in turn resulted in a depression of electric and electro equipment market”.^{Footnote 86} The report further states “The Middle Eastern market, which is our primary market, has suffered delays or cancellations in electric infrastructure investments due to oil price decline, which resulted in shrinking government budgets”.^{Footnote 87}

[91] Additionally, the Saudi Arabian government recently entered a framework agreement with Siemens relating to its Saudi National Industrial Clusters Development Program.^{Footnote 88} This program is estimated at one billion Euros in infrastructure equipment purchases, including many large power transformers. It is unclear at this stage whether the Korean exporters will be able to compete for transformers that will form part of this development and, therefore, this may represent significant future lost opportunity for Korean exporters of large power transformers in a significant export market.

[92] There is also evidence on the record indicating that there is increased competition in various export markets. According to HEES’ Registration of Securities filed with the Korean Financial Services Commission on September 11, 2017, “Advanced companies in Europe and Japan have increased price competitiveness [globally] by taking advantage of favorable exchange rates, while late entrants from China and India are expanding market penetration in the North American and Middle Eastern markets”.^{Footnote 89} According to the Frost & Sullivan Global Transformer Market Report, “The global transformer market has been facing an overcapacity of production due to a high influx of manufacturing companies from Asia in the past 10 years. It faces intense competition from manufacturers in India, China, and South Korea, which sell low-cost transformers in Europe and North America with prices reduced by nearly 30% 50%”.^{Footnote 90}

[93] In summary, HEES and Hyosung are export-oriented producers that are experiencing increased competition in their traditional export markets, which will bring added competitive pressure on pricing of large power transformers in these markets. Due to its relatively stable economy, Canada is considered to be an attractive market for Korean exporters of large power transformers.^{Footnote 91} As a result, it is likely that the Canadian market will continue to be attractive to the Korean exporters in the absence of the CITT order.

Korean exporters are facing declining sales for power transformers and weak future demand for power transformers in their home market

[94] As shown in Tables 2a and 2b, HEES and Hyosung have experienced declining sales of large power transformers in their home market. The volume of units sold has decreased from 24% of total sales in 2014 to 13% in 2016, and was 17% in the first half of 2017. In terms of value, the sales represented 20% in 2014 and decreased to 12% in 2016 and remained at 12% in the first half of 2017.

[95] The largest purchaser of transformers in Korea is KEPCO. According to information provided by HEES in its ERQ response, KEPCO represents approximately 70% of HEES’ domestic sales of large power transformers.^{Footnote 92} Indeed, KEPCO controls 80% of the market share in the Korean power market when its subsidiaries are included, which makes KEPCO the dominant player in the domestic market for large power transformers.^{Footnote 93}

[96] According to KEPCO’s September 2017 Forecast, its capital expenditure plan indicates expenditures of KRW15,346 billion in 2017 and KRW16,386 billion in 2018.^{Footnote 94} This indicates that the major purchaser of transformers in Korea will continue a consistent purchasing pattern.

[97] Moreover, additional instability has been created in the Korean market with the announcement by the Korean government that it is cancelling construction plans involving the Shin Go Ri Nuclear Power Reactors #5 and #6 and also that it is planning for the country to become nuclear free.^{Footnote 95} While there are provisions for suppliers to be compensated for the cancellation, uncertainty will remain in the Korean marketplace while decisions are made with regard to future power generation, thereby negatively impacting the domestic demand for the large power transformers in the short term.

[98] Based on the foregoing, there is evidence that HEES and Hyosung have experienced a decline in domestic sales of large power transformers during the POR. In the near term, it would appear that the Korean market will be stable and may in fact decline slightly, the result of which will be continued focus by the Korean exporters on export markets, including Canada.

Korean producers/exporters have excess production capacity

[99] Table 3 below provides a summary of capacity utilization rates from 2014 to the first half of 2017, based on information provided by HEES and Hyosung. The CBSA cannot release specific production and capacity data as it relates to only two Korean companies and would lead to the disclosure of confidential information. As such information is presented for total capacity in percentages only.

Table 3
Production and Capacity Utilization - HEES & Hyosung^{Footnote 96}
Large Power Transformers

	2014		2015		2016		2016 Jan 1 to Jun 30		2017 Jan 1 to Jun 30
	Units	MVA	Units	MVA	Units	MVA	Units	MVA	Units	MVA
Capacity Utilization (%)	62%	58%	67%	67%	68%	64%	66%	47%	71%	46%
Excess Capacity Rate (%)	38%	42%	33%	33%	32%	36%	34%	53%	29%	54%

Note: In considering the capacity utilization rates for HEES and Hyosung, the CBSA adjusted the information to establish production capacity and utilization.

[100] In percentage terms these two exporters have excess capacity that has consistently been in the 30% - 40% range of total capacity during the POR. Given the size of these two companies, the excess production capacity available suggests they could easily supply the entire Canadian market and still have remaining excess capacity.

[101] There is also evidence on the record that HEES has plans to invest KRW 1,100 billion in the second half of 2017 and first half of 2018, to increase production capacity and reduce costs by constructing new production facilities.^{Footnote 97}

[102] In addition to HEES and Hyosung, there are two other Korean producers, Iljin Electric and LSIS Co. Ltd. that are involved in the manufacture of power transformers. While these two companies are currently not involved in exporting large power transformers to Canada, they have exported non subject transformers to Canada. Given their interest in the Canadian market for non subject goods, it is likely they would also have an interest in the Canadian market for large power transformers in the absence of the CITT’s order. Based on Hyosung’s testimony in 2012 at the U.S. International Trade Commission, Iljin Electric and LSIS Co. Ltd. had annual transformers capacity of 12,000 MVA and 15,000 MVA, respectively.^{Footnote 98}

[103] As indicated earlier, HEES and Hyosung are export oriented. Given Canada’s stable economy and consistent demand for large power transformers, the Canadian market should continue to be an attractive market for Korean exporters. Given the exporters’ additional excess capacity, in the absence of the CITTs order, there will likely be an increased focus by the Korean exporters to sell into the Canadian market.

Increased competitive price pressure on sales of large power transformers in Canada

[104] Recently, Canadian utility companies have switched from having a sole-sourced tendered contract to having a number of pre-qualified suppliers/bidders via an open blanket process. In an open blanket process, the utility company qualifies multiple suppliers to supply its transformer needs. Once the utility company is ready to place an order, these suppliers are asked to re quote the price for the transformer(s) and the utility company then orders a transformer from one of the qualified suppliers.^{Footnote 99} Consequently, this recent modification in the tender process has placed additional pressure on the pre-qualified manufacturers to further lower prices at the time the utility company is ready to place an order. By preselecting multiple manufacturers eligible for the production for specific models of transformers, the open blanket agreements risk intensifying downward pressure on pricing of large power transformers.

[105] Under these circumstances, in the absence of the CITT’s order, Korean producers of large power transformers will be inclined to lower their price in order to win Canadian sales.

Anti dumping measures in other countries demonstrate that Korean exporters have a propensity to dump large power transformers

[106] On July 11, 2012, the USDOC made a final determination of dumping concerning large power transformers from Korea.^{Footnote 100} This finding remains in place.

[107] On July 2, 2014, the Argentinian Anti dumping Commission made a final determination of dumping concerning three phased liquid dielectric transformers with power greater than 10 MVA but not exceeding 600 MVA from Korea.^{Footnote 101} The goods from Korea were found to be dumped by a margin of 52%. For its part, HEES (formerly Hyundai) indicated that it did not participate in the Argentinian investigation due its lack of sales in this market.^{Footnote 102} It is noted that the Argentinian authorities later chose to suspend the application of anti-dumping duties for public interest reasons as the Argentinian producers did not have the production capacity to supply an increased demand in their domestic market.^{Footnote 103} Nevertheless, a definitive decision was made that three phased liquid dielectric transformers with power greater than 10 MVA but not exceeding 60 MVA from Korea were dumped into Argentina.^{Footnote 104}

[108] As was noted in HEES’ case brief, the Australian Anti Dumping Commission also conducted an investigation into the dumping of power transformers greater than 10 MVA from a number of countries, including Korea. HEES indicated that it was found not to have dumped in this investigation. Furthermore, while the Australian Anti-Dumping Commission found that there was dumping by other Korean exporters, the volume of dumped goods from Korea was negligible and, as a result, it terminated the investigation with respect to Korea.^{Footnote 105}

[109] The dumping findings by the United States on Korean large power transformers and on a similar range of goods by Argentina, indicate that Korean exporters have a propensity to dump power transformers into export markets.

Measures taken by the United States are likely to cause a diversion of dumped goods into Canada

[110] The imposition of anti-dumping measures by the United States on Korean large power transformers has made it more difficult for the Korean exporters to sell large power transformers into the United States.

[111] HEES and Hyosung have excess capacity, and are faced with a relatively stable, even declining, domestic market. There is also increased competitive price pressure on sales of large power transformers in Canada. Given that the United States, which is one of “the most attractive markets for transformer manufacturers globally”,^{Footnote 106} has imposed anti-dumping measures on large power transformers from Korea, it is likely that in the absence of the CITT’s order, Korean exporters will be more focused on the Canadian market.

Anti-dumping duties have been assessed on subject goods imported into Canada during the period of review

[112] Given the nature of large power transformers in that they are a capital goods built to a customer’s specific requirements, there are no domestic sales of like goods in Korea. Therefore, normal values have been determined on a “cost plus” basis pursuant to paragraph 19(b) of SIMA. For enforcement purposes, each cooperative exporter was provided with a spreadsheet to be used to calculate the normal value and export price for each transformer exported to Canada. This spreadsheet contained the factors for selling, general and administrative expenses and an amount for profit, relative to each exporter, to be applied to the full cost of the transformer in order to determine the normal value. HEES and Hyosung, therefore, had the ability to calculate the normal value for each transformer prior to it being shipped to Canada and, had the option to set the selling price at a non-dumped level.

[113] During the POR significant amounts of anti-dumping duties have been assessed on importations of subject goods. Furthermore, the amount of anti-dumping duties assessed in the first half of 2017 represents 60% of the total amount assessed during the POR. The CBSA cannot disclose specific details regarding the amount of anti-dumping duties assessed during the POR due to the limited number of parties involved.

[114] HEES argued that the dumping was “technical dumping” due to changes in the currency exchange rate between the time of the irrevocable tender and the date when a transformer was subsequently ordered under the long-term agreement.^{Footnote 107} The CBSA determines whether goods are dumped in accordance with the provisions of SIMA and the SIMR and notes that the concept of “technical dumping” as a result of exchange rate fluctuations is not provided for in SIMA. This is consistent with the CITT’s statements in the recent Inquiry involving Gypsum Board in which the CITT noted “There is no “good” or “bad”, “passive” or “aggressive” dumping. There is only dumping as it is defined under SIMA and the underlying international agreement”.^{Footnote 108} Ultimately, exporters must take into consideration possible fluctuations in exchange rates when setting their export prices in order to ensure the export price is at a non-dumped level.

[115] HEES further argued that, while anti-dumping duties were assessed on some of its exports to Canada during the POR, an examination of the total of all transactions during the period reveal that, overall, the weighted average margin of dumping was negative. The CBSA notes that once a finding is in place anti-dumping duties are assessed on an importation by importation basis, and as such there is no offset of non-dumped importations with dumped importations.

[116] The fact that anti-dumping duties were assessed on importations of subject good during the POR, even though the cooperative exporters had the capability to calculate specific normal values and set pricing accordingly, demonstrates an inability to sell at undumped prices.

Determination Regarding Likelihood of Continued or Resumed Dumping for Korea

[117] Based on the information on the record in respect of the fact that: Korean producers are export oriented, which is likely to continue in the future; Korean exporters are facing declining sales for large power transformers and weak future demand for power transformers in their home market; Korean producers/exporters have excess production capacity; there is increased competitive price pressure on sales of large power transformers in Canada; anti dumping measures in other countries demonstrate that Korean exporters have a propensity to dump large power transformers; measures taken by the United States are likely to cause a diversion of dumped goods into Canada; and Anti-dumping duties have been assessed on subject goods imported into Canada during the period of review; the CBSA determined that the expiry of the order is likely to result in the continuation or resumption of dumping into Canada of certain liquid dielectric transformers originating in or exported from Korea.