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Undertaking Expiry - Plastic Shrinkable Bags

OTTAWA, April 2, 2003

File No. 4261-80
Case No. AD/1019

STATEMENT OF REASONS

In the matter concerning a review of undertakings pursuant to subsection 53(1) of the Special Import Measures Act in respect of

PLASTIC SHRINKABLE BAGS, WHETHER IN FINISHED OR SEMI-FINISHED (TUBULAR) FORM, FOR VACUUM PACKAGING OF MEAT AND OTHER FOOD PRODUCTS, ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA

DECISION

On this date, the Commissioner of Customs and Revenue, having reviewed the undertakings originally accepted from exporters in the United States of America and their related importers on April 5, 1994, and renewed on April 4, 1997 and April 3, 2000 for three-year periods, decided not to renew the undertakings with respect to the above-mentioned goods.

Therefore, the undertakings in question expire on this date, April 2, 2003, in accordance with subsection 53(2) of the Special Import Measures Act, as it read prior to the January 1, 1995 legislative amendments. The expiration terminates all proceedings under the Special Import Measures Act.

This document is also available in French.
Cet énoncé des motifs est également disponible en français.

SUMMARY

On January 17, 2003, the Canada Customs and Revenue Agency (CCRA), initiated a review of the undertakings with respect to plastic shrinkable bags originally accepted from United States exporters and their related importers on April 5, 1994, and renewed on April 4, 1997 and April 3, 2000. This review was conducted in order to establish whether the undertakings should be renewed or allowed to expire pursuant to subsections 53(1) and 53(2) of the Special Import Measures Act (SIMA), respectively.

Based on the results of the CCRA's review, the Commissioner of Customs and Revenue (Commissioner) is satisfied that the undertakings no longer continue to serve their intended purpose and is not required to terminate pursuant to section 52 of SIMA. Accordingly, the CCRA will not renew the undertakings and consequently they will be allowed to expire on April 2, 2003.

INTERESTED PARTIES

Complainant

Cryovac, a division of Sealed Air (Canada) Inc.
2365 Dixie Road
Mississauga, ON
L4Y 2A2

Exporters

Curwood, Inc.
P.O. Box 2968
Oshkosh, Wisconsin
54903 U.S.A.

Cryovac Division
Sealed Air Inc.
P.O. Box 464
Duncan, South Carolina
29334 U.S.A.

Importers

Cryovac, a division of Sealed Air (Canada) Inc.
2365 Dixie Road
Mississauga, ON
L4Y 2A2

Curwood Packaging Canada Ltd.
114 Armstrong Avenue
Georgetown, ON
L7G 4S2

BACKGROUND

On November 19, 1993, as a result of a complaint filed by Cryovac, a division of W.R. Grace & Co. of Canada Ltd. (Cryovac Canada), Mississauga, Ontario, the Department of National Revenue (now the CCRA) initiated a dumping investigation concerning plastic shrinkable bags, whether in finished or semi-finished (tubular) form, for vacuum packaging of meat and other food products, originating in or exported from the United States of America.

Early in the investigation, the United States exporters and their related importers indicated an interest in price undertakings that would eliminate the material injury to Cryovac Canada. The Deputy Minister of National Revenue accepted two undertakings on April 5, 1994. The undertakings accounted for all or substantially all the exports of the dumped goods and eliminated the material injury to the complainant. Accordingly, the investigation was suspended on that date. Since then, the undertakings were renewed on April 4, 1997 and April 3, 2000, for three-year periods. The undertakings were scheduled to expire on April 2, 2003. On January 17, 2003, the CCRA initiated a review of the undertakings to determine whether they should be renewed for another three years.

It should be noted that one of the two exporters that signed the original undertaking was Viskase Corporation (Viskase). In August 2000, Viskase exited the plastic shrink bag market when it sold its assets to Bemis Company (Bemis) of Minneapolis, Minnesota and its subsidiary Curwood, Inc. (Curwood US). At that time, Curwood US indicated that it was prepared to abide by the terms of the undertaking.

In 2001, Curwood US requested an amendment to the undertaking in order to add a certain number of its company accounts to the list of clients not affected by the undertaking. Following discussions with the CCRA, Curwood US signed the undertaking agreement amendment in June 2001.

PRODUCT

Product Definition

The subject goods are defined as "plastic shrinkable bags, whether in finished or semi-finished (tubular) form, for vacuum packaging of meat and other food products, originating in or exported from the United States of America".

Product Information

The subject goods are single and multi-layer bags which when packed with a product (raw and processed meat, poultry, cheese, etc.) can be vacuum-sealed and shrunk around the product to form a hermetically sealed protective envelope. These bags can be made with or without an oxygen barrier layer and are used for packaging of fresh red meat (FRM barrier bags), smoked and processed meats (other barrier bags) and poultry (non-barrier bags).

The first two applications involve multi-layer bags with low oxygen permeability properties, while the poultry bags, which can be single-layer or multi-layer, do not possess low oxygen permeability properties and usually contain frozen products. It is possible that other products can be packaged in the subject bags, for example, fish and cheese are often packaged in the same type of bag as smoked and processed meats.

The subject goods are used by industrial food producers, primarily meat packing facilities, to protect food products from moisture loss, bacterial contamination and, in some cases, the packaging of the finished consumer products such as turkeys.

The formulation of the resins and the manufacturing processes vary slightly among companies, however, the properties, including shrink, optics and mechanical attributes are so similar that end users would have difficulty in differentiating performance among products in most circumstances.

The tubing or film, which is the semi-finished product used in the manufacture of the finished bags, can range in width from 130mm (5 inches) to 600mm (24 inches). Sizes of the finished bags range from 65mm (2.5 inches) wide by 130mm (5 inches) long to 600mm (24 inches) wide by 1.5m (60 inches) long.

It should be noted that there is another competing product on the market that is referred to as "pouches" which is a vacuum-sealed plastic meat-packaging product. This product, which employs older technology, does not offer the same level of protection as shrinkable barrier bags and can only be utilized on much slower packaging equipment. This product is not shrinkable and is not the subject of this investigation.

Classification of Imports

The subject goods are mainly classified under the following Harmonized System numbers:

• 3920.10.90.11 - Tubing of polymers of ethylene of a thickness not exceeding 0.25mm.
• 3923.21.90.41 - Bags of polymers of ethylene - single layer film
• 3923.21.90.42 - Bags of polymers of ethylene - multiple layer film

CANADIAN INDUSTRY

Cryovac Canada is the only Canadian manufacturer of plastic shrinkable bags. Cryovac, a division of W.R. Grace & Co. of Canada Ltd., became a separate legal entity on April 1, 1998. The new company was named Cryovac Canada Inc. On January 1, 1999, Cryovac Canada Inc. was amalgamated with Sealed Air (Canada) Inc. and was renamed Cryovac, a division of Sealed Air (Canada) Inc. Sealed Air (Canada) Inc. is wholly owned by Sealed Air Corporation, which is located in New Jersey, U.S.A.

POSITION OF THE PARTIES

The CCRA contacted the complainant, the two United States exporters and the two related importers of the subject goods to obtain information pertinent to the review of the undertaking. Responses to the CCRA's Request for Information (RFI) were received from all of the noted parties. A copy of each company's non-confidential response to the RFIs was provided to Cryovac and Curwood for comments. Please note that in this section only, "Cryovac" represents Cryovac as a complainant, importer and exporter. "Curwood" represents Curwood as an importer and exporter. A summary of their representations is outlined below.

Cryovac's initial submission stated that it was of the opinion that the undertakings should be renewed for the following reasons. The company believes that the undertakings have had a favorable impact on the Canadian industry over the past nine years by stabilizing the selling prices of plastic shrinkable bags and thereby creating a stable market. In creating a stable market, the undertakings have allowed Cryovac to compete more effectively on technology, services and quality of product offerings, as it has been able to reinvest its profits into the organization. During the period that the undertakings were in effect, Cryovac introduced new equipment systems and bag technology to the meat industry. This improved the efficiency of the Canadian food processing industry and enabled them to compete internationally.

Curwood indicated in its submission that it did not want the undertakings to be renewed as it felt that the initial intent of the undertaking was to prevent the financially distressed company, Viskase Corporation, from dumping plastic shrinkable bags into Canada. Curwood feels that it has a strong financial position and does not need to dump to compete in the Canadian market. Curwood believes that the undertaking discouraged it from raising prices and Curwood requests the ability to price and compete fairly in the Canadian market.

After reviewing Curwood's submission, Cryovac reconsidered its position and concurred with Curwood that the undertakings should be allowed to expire. Nonetheless, Cryovac has advised the CCRA that it will continue to monitor the exporter's activities and if necessary, submit a new complaint.

LEGISLATIVE REQUIREMENTS FOR REVIEW OF UNDERTAKINGS

The Special Import Measures Act was amended on January 1, 1995. The transitional provisions require that undertakings accepted prior to that date be reviewed under SIMA as it read on the day immediately before January 1, 1995. Therefore, for purposes of this undertaking review, all references to sections of SIMA refer to the version of the Act that was in place prior to the amendments introduced on January 1, 1995.

The Commissioner is required, pursuant to subsection 53(1) of SIMA, to review an undertaking before the expiration of three years from the date on which it was accepted and before the expiration of each subsequent three-year period for which the undertaking is renewed. An undertaking may be renewed for a further period of not more than three years if the Commissioner is satisfied that the undertaking continues to serve the purpose for which it was intended and that he is not required to terminate it in accordance with the provisions of section 52 of SIMA.

Section 52 provides that the Commissioner shall terminate an undertaking and make a preliminary determination of dumping, if the Commissioner:

• is satisfied that the undertaking has been or is being violated;
• is of the opinion that he would not have accepted the undertaking or undertakings if the information available to him at that time had been available to him when he accepted the undertaking, or
• is satisfied that he would not have accepted the undertaking or undertakings if the circumstances prevailing at that time had prevailed when he accepted the undertaking or undertakings.

The CCRA has regularly reviewed importations of subject goods and determined that the United States exporters and related importers have not violated or circumvented the terms and conditions of the undertakings. The CCRA verified that all shipments of subject goods to Canada and their subsequent sales to Canadian customers were in accordance with the undertaking prices. In addition, no new information has come to light and conditions have not changed that would warrant termination of the undertakings pursuant to section 52 of SIMA.

Given that the undertakings need not be terminated pursuant to section 52 of SIMA, the CCRA addressed the issue of whether the undertakings continued to serve the purpose for which they were intended, that is to eliminate the material injury caused by the dumping.

CONSIDERATIONS AND ANALYSIS

In conducting its analysis of whether the undertakings continue to serve the purpose for which they were intended, the CCRA considered the financial situation of both Curwood US and Cryovac Canada, their position in the Canadian plastic shrinkable bags market and the effectiveness of the undertakings.

Following the CCRA's examination, it was established that the CCRA shared the opinion of Curwood US that it is in a stronger financial position than its predecessor, Viskase Corporation. The parent company of Curwood US, Bemis Company, Inc., has an adequate debt-to-equity ratio, a positive cash flow and an acceptable current ratio. Therefore, it is unlikely that it would resort to injurious dumping of goods into Canada in order to continue its operations. Furthermore, Curwood US has adhered to the terms and conditions of its undertaking, in spite of the fact that the original undertaking was offered by Viskase Corporation, and supplied the required information to the CCRA.

At the same time, Cryovac Canada's financial position has improved and is considered to be more financially stable than in the past. The CCRA agrees with Cryovac Canada that the undertakings have stabilized the market and enabled Cryovac Canada to invest in research and development. As a result, Cryovac Canada has improved its efficiency and lowered costs of production to compete more effectively in the Canadian market. Cryovac Canada has distinguished itself in the Canadian market by offering excellent services, product knowledge and reliability, which strengthened its position in the Canadian market.

In addition, Cryovac Canada has been able to maintain a significant market share since 1999 and has the advantage of being the sole producer of plastic shrinkable bags in Canada. This is beneficial given that there is a portion of the Canadian market that has "emergency orders" and requires shorter lead times. The exporters from the United States are unable to fulfill the demands of these customers due to geographical constraints whereas Cryovac Canada has an advantage due to its proximity to its customers.

Finally, it is evident to the CCRA that Curwood US and Cryovac Canada share similar views in that both companies desire a stable market and the opportunity to compete fairly in the Canadian market. Each company is aware of the necessity to keep prices at a certain level to support this capital-intensive industry. This having been said, and in view of each party's strong financial position, it is unlikely that the exporter will resume injurious dumping should the undertakings be allowed to expire.

CONCLUSION

Based on the above analysis, the Commissioner is satisfied that the undertakings originally accepted on April 5, 1994, and subsequently renewed, no longer serve the purpose for which they were intended. Accordingly, pursuant to subsection 53(2) of SIMA, the undertakings expire on this date, April 2, 2003. In accordance with subsection 53(3) of SIMA, the expiration of the undertakings terminates all proceedings under SIMA in regard to plastic shrinkable bags originating in or exported from the United States of America.

RIGHT OF APPEAL

Any person directly affected by the Commissioner's decision not to renew the undertakings may file a request under section 77.011 of SIMA, subject to the limitation period as defined under subsection 77.011(4), that the decision be reviewed by a binational panel. Alternatively, an application may be made under section 96.1 of SIMA, subject to the limitation period as defined under subsection 96.1(3), to the Federal Court of Appeal to review and set aside the Commissioner's decision. The above rights are to be interpreted by reference to the Special Import Measures Act as it read on the day immediately before January 1, 1995.

PUBLICATION

Notice of the expiration of the undertakings is being published in the Canada Gazette pursuant to subsection 53(4) of SIMA.

INFORMATION

This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also available on the CCRA's website at:

http://www.cbsa-asfc.gc.ca/sima-lmsi/menu-eng.html

A free copy may be obtained upon request.

For additional information, please contact:

Michel Desmarais
Senior Program Officer
Anti-dumping and Countervailing Directorate
19th floor, Sir Richard Scott Building
191 Laurier Avenue West
Ottawa, Ontario K1A 0L5
Telephone: (613) 954-7188
Fax: (613) 954-2510

Suzanne Parent
Director General
Anti-dumping and Countervailing Directorate