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Final Determination - Fresh, whole, Delicious, Red Delicious and Golden Delicious apples

OTTAWA, January 6, 1995

4237-79

AD/1094

STATEMENT OF REASONS

IN THE MATTER concerning a final determination of dumping made pursuant to paragraph 41(1)(a) of the Special Import Measures Act regarding

Fresh, whole, Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America.

DECISION

Pursuant to paragraph 41(1)(a) of the Special Import Measures Act, the Deputy Minister of National Revenue has today made a final determination of dumping respecting certain fresh, whole, Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America.

This Statement of Reasons is also available in French.

Cet énoncé des motifs est également disponible en français.

SUMMARY

On July 14, 1994, the Deputy Minister of National Revenue initiated an investigation into the alleged injurious dumping of certain Delicious, Red Delicious and Golden Delicious apples originating in or exported from the United States of America.

The final results of this investigation indicate that the subject goods have been dumped and that the margins of dumping and the volume of dumped goods are not negligible. Therefore, a final determination of dumping respecting the subject goods was made on this date.

INTERESTED PARTIES

Complainant

The complaint was filed by the Apple Committee of the Canadian Horticultural Council on behalf of the Canadian apple producers.

Exporters & Importers

Over 150 exporters were identified, most of which are located in the state of Washington.

A list of names and addresses of exporters and importers can be obtained upon request.

BACKGROUND

On June 30, 1994, the Apple Committee of the Canadian Horticultural Council (CHC) submitted a complaint alleging the injurious dumping of certain Delicious, Red Delicious and Golden Delicious apples. The CHC was notified on July 7, 1994, that the complaint was properly documented.

On July 14, 1994, the Department initiated an investigation into the alleged dumping of the subject apples.

On August 10, 1994, the Northwest Horticultural Council, on behalf of exporters in the state of Washington, referred to the Canadian International Trade Tribunal the question of whether there was sufficient evidence of material injury to the production in Canada of like goods. On September 9, 1994, the Tribunal advised that the evidence disclosed a reasonable indication of injury caused by the alleged dumping.

On October 12, 1994, the Deputy Minister made a preliminary determination of dumping in accordance with subsection 38(1) of the Special Import Measures Act (SIMA). It was then estimated that the overall weighted average margin of dumping was equal to 22%.

PRODUCT

Product Definition

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

"Fresh, whole, Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America, excluding fresh, whole, Delicious, Red Delicious and Golden Delicious apples imported under the authority of a ministerial exemption issued pursuant to the Canada Agricultural Products Act and the Fresh Fruit and Vegetable Regulations."

Product Information

The subject goods include three varieties of apples - Delicious, Red Delicious and Golden Delicious - which are grown and marketed for the fresh market. The Delicious variety is included with the Red Delicious variety for purposes of this investigation. Apples for the fresh market are sold for retail, as opposed to apples sold for further processing into juice and other products. The definition of the goods subject to the investigation excludes apples imported under a ministerial exemption pursuant to the Canada Agricultural Products Act and the Fresh Fruit and Vegetable Regulations. Such exemptions can be granted for apples imported for processing or re-packing, where necessary, in order to alleviate a shortage in Canada in the available supply from domestic production.

Apples are graded in Canada under the Canada Agricultural Products Act as Canada Extra Fancy, Canada Fancy and Canada Commercial. Some provinces also have their own grading standards, for example, B.C. Extra Fancy. In the United States, fresh apples are graded as U.S. Extra Fancy and U.S. Fancy. In addition, some states have their own grading standards, for example, Washington Extra Fancy and Washington Fancy. Canadian provincial and U.S. state standards are generally higher than national standards.

The grading standards in both countries are based on uniformity of size, shape, minimum and maximum diameters, colour, maturity, freedom from disease, defects, damage, and cleanliness. Apples are also pressure tested for firmness to establish internal quality.

Apples are also sized for marketing in the fresh market. In general, these apples must meet a minimum diameter of 5.7 cm (2.2 inches). The size will determine the number of apples that can be layered into a carton. A size "113" means that there are 113 apples in a tray pack or cell pack carton weighing approximately 42 lbs. The most common apple size counts are 72, 80, 88, 100, 113, 125 and 138.

Furthermore, apples are categorized on the basis of their method of storage, as either regular storage or controlled atmosphere storage. Apples for regular storage can be kept for three to seven months. Controlled atmosphere storage (C.A.) slows the maturing process and apples can be stored for up to 12 months.

CLASSIFICATION OF IMPORTS

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

0808.10.10.20 Golden Delicious

0808.10.10.60 Red Delicious & Delicious

CANADIAN INDUSTRY

The apple industry in Canada is represented by the CHC and various provincial producer organizations representing approximately 4,500 apple growers in the five producing provinces - British Columbia, Ontario, Quebec, Nova Scotia and New Brunswick. The subject goods are grown primarily in British Columbia and Ontario, with British Columbia accounting for about 65% and Ontario for 30% of Canadian production.

The British Columbia Fruit Growers' Association represents the interests of approximately 85% of the growers in the province. British Columbia Tree Fruits Ltd. is responsible for marketing and setting prices through the five principal packers which are co-operatively owned and market 90% of the province's crop.

The Ontario Apple Marketing Commission has the authority to licence growers, promote product and establish minimum prices at which graded and packed apples from Ontario may be sold to wholesalers and retailers. The crop in Ontario is marketed by individual growers and a number of small packing houses.

CANADIAN MARKET

The levels of Canadian production, Canadian exports and imports from the United States have remained fairly constant in recent years. Over the past several years, the domestic producers' share of the Canadian market averaged approximately 65% and the U.S. imports share of the Canadian market was about 35%. The Canadian market for the 1993/94 crop year has been estimated at about 197,000,000 lbs.

U.S. INDUSTRY

Red and Golden Delicious apples are grown in a number of states in the United States and are the predominant variety, accounting for about 60% of total U.S. apple production. Washington state accounts for about 80% of total production of the subject goods. Washington state has several hundred packers both privately and co-operatively owned, ranging from grower packers, who pack only their own product to large organizations which pack for many growers.

ANALYSIS OF INFORMATION

At the time of the initiation of the investigation, notices and Requests for Information were sent to all known exporters and importers of the subject goods. The period of investigation covered importations into Canada made during the period February 8 to May 31, 1994, as explained in the Statement of Reasons issued at the preliminary determination of dumping.

In response, the Northwest Horticultural Council (NHC), Yakima, Washington, provided a submission on behalf of the Washington state apple industry. The submission included responses from 9 sales agents/brokers, 15 packers and 82 growers of the subject goods. The submission contained information relating to sales to Canada, sales in the U.S. domestic market, and growing and packing cost data.

After review, the Department is satisfied that the size of the sample is large enough to give a reasonable degree of statistical accuracy and that the NHC data, including orchards of different sizes, locations, maturity and plantings, provides a suitable basis for establishing average costs per acre. However, the Department does not consider the reported growers' yields to be a satisfactory basis for determining unit costs.

The NHC contended that the yields in its sample should be accepted as representative of the industry. The Department considered this carefully, but determined that the NHC sample does not properly represent the average yield for the Washington state 1993 crop. The most complete and reliable information on the size of the 1993 fresh crop for the state is reported in the Washington Growers Clearing House Bulletin. As well, accurate information on the productive, or bearing, acreage in the state was obtained from the 1993 Washington Fruit Survey. From these sources, it was determined that the 1993 average yield for the state was equal to 551 packed boxes per acre for the Red Delicious and 563 packed boxes for Golden Delicious. The Department noted that the yields for the limited NHC sample were much higher than the yields for the state as a whole. As the published information was taken from authoritative reports on the Washington state apple industry, the yields derived from this information were considered to be more reliable than the NHC sample. Accordingly, the Department used the state average yields per bearing acre in determining growing costs per packed box.

Departmental officers verified the information relating to four packers and seventeen growers located in the Yakima and Wenatchee areas, the dominant export points. The purpose of the on-site visits was to verify growing and packing cost data. In addition, meetings were held with representatives of the NHC and their counsel to obtain clarification on how the information in their submission had been derived from the original data supplied by the various packers and growers.

The information was generally reliable for both growing and packing costs, but some cost adjustments made by the NHC were disallowed or revised. These adjustments included pre-production costs associated with the developmental stages of an orchard, which are usually spread over a period of three to five years. Where the evidence did not support the cost adjustment in the NHC submission, no adjustment was allowed. Some discrepancies were found in packing costs as well. As a result of the verification, the actual growing and packing costs for both Red and Golden Delicious apples were found to be higher than claimed in the NHC submission.

The NHC submission included costs for controlled atmosphere storage which were not clearly identified. Thus, the Department overstated this aspect of packing costs for the purposes of the preliminary determination. This issue has since been satisfactorily explained and substantiated. The costs were adjusted downward accordingly to reflect the proper charges for controlled atmosphere storage.

As a result of the adjustments made after the verification of the NHC submission and the revised information on 1993 crop yields, the costs on a per packed box basis of growing, packing and selling Red Delicious have been determined to be US$12.00 for regular storage and US$12.50 for C.A. storage. For Golden Delicious, these costs are determined to be US$12.16 and US$12.66 respectively. Due to the nature of the product and as agreed by the NHC, the cost of producing the various grades of a variety is identical. Therefore, all grades were deemed to bear the same cost.

For the preliminary determination, the Department did not use the U.S. domestic selling price information contained in the NHC submission because it was incomplete and contained discrepancies. Subsequently, the NHC provided clarification of part of the information which had been rejected, and it was deemed to be acceptable for the final determination. Accordingly, the Department accepted selling price information supplied by the NHC from exporters whose sales accounted for approximately 50% of the total volume of imports of subject goods made during the period of investigation. The Department deemed this sample to be sufficiently representative of the domestic market sales and used the information for determining the normal values.

NORMAL VALUE

Normal values are generally determined on the basis of selling prices of like goods by the exporter to purchasers in the country of export. However, when domestic selling prices are below the total costs of the goods, normal values are determined on the basis of the total costs plus an amount for profit.

The pricing of apples in the United States is established on a market commodity trading basis, where pricing relates to a grade of apples and is not dependent on the pricing practices of each vendor. Normal values for sales to Canada were also established following this principle, with one normal value established for all exporters rather than the usual practice of establishing separate normal values for each exporter. To accomplish this, normal values were determined using domestic market sales information and cost of production information which met the conditions of sections 15 to 19 of SIMA, that was provided by the NHC from a selected sample of Washington growers, packers and exporters. Under section 29 of SIMA the normal values thus obtained were applied to all exporters.

With respect to the Red Delicious, the overall domestic market sales by the exporters were made at a loss. The weighted average selling price as calculated for all grades of Red Delicious was US$11.94 while the average costs was established to be US$12.30.

The Department reviewed the crop year information for each of the following grades: Washington Extra Fancy (WAXF), U.S. Extra Fancy (USXF), Washington Fancy (WAF) and U.S. Fancy (USF).

For the WAXF grade of Red Delicious apples it was possible to determine normal values based on domestic market selling prices, since these sales were made at a profit and met the conditions set out in section 15 of SIMA. This resulted in a normal value of US$12.99.

For the other three grades of Red Delicious apples, it was not possible to determine normal values based on domestic market prices because the sales were made at a loss. In these circumstances the legislation directs that normal values be based on total production cost plus an amount for profit as determined by the regulations. The costing information supplied by the NHC was presented on an aggregate basis for all grades. In discussions with the NHC, it was agreed that it is not possible to establish different costs for each grade and that, in fact, costs to grow the top grade are the same as the costs to grow the lower grades. As well, the SIM Regulations direct that the amount for profit should be determined from the sales of the most comparable goods, which, in this case, is the profit on the WAXF grade of Red Delicious. Therefore, the normal values for grades sold at a loss must be based on costs which are the same as for the grade sold at a profit, and must be allocated the same amount of profit. Accordingly, the normal values for all grades of Red Delicious are identical.

The following are the normal values for C.A. storage Red Delicious:

WAXF: US$12.99

USXF: US$12.99

WAF: US$12.99

USF: US$12.99

All of the apples imported during the period of investigation were C.A. storage.

With respect to Golden Delicious apples, the weighted average selling price over the crop year was US$17.01, and the variety was sold at a profit overall. An examination of the selling prices by grade disclosed that the WAXF, USXF and USF grades were sold at a profit while the WAF grade apples were sold at a loss. Accordingly, the normal values of the WAXF, USXF and USF grades were established on the basis of the weighted average domestic market selling prices on sales of these grades made during the period of investigation. The normal value of the WAF grade apples was determined as the cost of growing, packing and selling plus an amount for profit, pursuant to the SIM Regulations. The profit used was that realized on the sales of Golden Delicious USF grade made during the period of investigation. This resulted in the following normal values for C.A. storage Golden Delicious:

WAXF: US$17.98

USXF: US$15.20

WAF: US$12.70

USF: US$12.70

These normal values were used in determining the margins of dumping for subject goods exported to Canada from Washington state during the period of investigation.

Although the great majority of subject goods exported to Canada originated in Washington state, nearly 10% of the exports to Canada were from exporters located in states other than Washington. While very little information was supplied by these exporters, the Department contacted those with the most significant volume of exports in order to obtain additional information. The Department determined normal values for all exporters in states other than Washington by Ministerial specification, under section 29 of SIMA, as the applicable Washington state normal values plus amounts to include freight and wholesalers costs incurred prior to direct shipment to Canada.

EXPORT PRICE

The export prices for the subject goods were established pursuant to section 24 of SIMA on the basis of the exporters' selling prices to importers in Canada less any applicable costs, charges and expenses incurred for the exportation and shipment of the goods to Canada.

MARGINS OF DUMPING

The Department reviewed imports of nearly 550,000 cartons of subject goods during the period of investigation. This represents 94% of total imports of subject goods in this period. A comparison between the normal values and the export prices of the subject goods during the period revealed that 60% were dumped and that the weighted average margin of dumping of the dumped imports was 24%.

By variety, imports of Red Delicious totalled 341,000 cartons. Of these, 61% were found to be dumped and the weighted average margin of dumping of those shipments was 28%. Imports of Golden Delicious totalled 207,000 cartons. Of these, 59% were found to be dumped and the weighted average margin of dumping of those shipments was 18%. Details of the margins of dumping by grade are shown in the attached table.

ASSESSMENT OF DUTY

As explained at the time of the preliminary determination, it is recognized that selling prices for apples, as for other agricultural commodities, can vary considerably from one year to another and that the selling prices for regular storage and C.A. storage also differ.

The selling prices for Golden Delicious apples in the 1993/94 crop year were substantially higher than during the previous several years and indications are that prices for the current crop year are substantially lower. Therefore, the normal values for Golden Delicious based on 1993/94 selling prices were not used for the purpose of assessing provisional duties. While sufficient information on this year's selling prices is not yet available, it is reasonable to expect that normal values for the period should not be below the total cost of production and an amount for profit. Accordingly, the provisional duties will continue to be collected in the manner as announced at the time of the preliminary determination until the CITT renders its decision.

Should the CITT issue an injury finding, new normal values will then be established following review of current crop year information. In such case, and pending completion of the review, the Department will assess anti-dumping duties using the normal values determined for the final determination for the Red Delicious. For Golden Delicious the basis of normal values will be the total cost to grow, pack and sell this variety plus an amount for profit of 8%. The normal values for assessment of duty following the CITT decision will therefore be equal to:

Red Delicious: US $12.99

Golden Delicious: US $13.67

CONCLUSION

The investigation revealed that the margins of dumping of the subject goods and the actual and potential volumes of dumped goods are not negligible. Accordingly, on this date, a final determination of dumping was made, pursuant to paragraph 41(1)(a) of SIMA, with respect to fresh, whole Delicious, Red Delicious and Golden Delicious apples, originating in or exported from the United States of America.

FUTURE ACTION

The CITT inquiry concerning the question of injury to production in Canada of like goods is continuing and an order or finding will be made on or about February 9, 1995. Imported goods subject to the investigation which are released from Customs' possession will continue to be assessed provisional duty as determined at the time of the preliminary determination. This provisional period began on the date of the preliminary determination, October 12, 1994, and will end on the date the CITT issues its finding on the question of injury.

If the CITT's finding includes past injury, any subject goods released from Customs' possession during the provisional period will be subject to a determination pursuant to section 55 of SIMA to establish the final amount of anti-dumping duty payable. Should it be found that provisional duties paid are in excess of those finally determined, the excess duties paid will be refunded.

If the CITT's finding includes future injury, all subject goods released from Customs' possession after the date of the finding will be subject to anti-dumping duties pursuant to section 3 of SIMA and in that event, such duty is hereby demanded.

If the CITT finds that no injury has been caused or is likely to be caused by dumped imports, all proceedings relating to this investigation will be terminated. In such a case, imports will not be subject to anti-dumping duty and all provisional duty paid or security posted by importers will be returned.

For further information, please contact Elizabeth White or Edith Trottier-Lawson, Senior Program Officers, by telephone at

(613) 954-7180 or (613) 954-7353, respectively, by telefax at (613) 954-2510, or at the following address:

Department of National Revenue

Anti-dumping and Countervailing Division

191 Laurier Avenue West

Ottawa, Ontario

K1A 0L5

B. Brimble

Director General

Anti-dumping and Countervailing Division