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Final Determination - Baby Food

OTTAWA, March 30, 1998
4237-83
AD/1180

STATEMENT OF REASONS

FINAL DETERMINATION OF DUMPING OF
CERTAIN BABY FOOD
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, on this date, made a final determination of dumping respecting prepared baby foods, containing finely homogenized vegetables, fruit, and/or meat which may include some visible pieces of not more than 6.5 mm in size, and strained juice, put up for retail sale as food and beverages for infants of ages 4 to 18 months, in containers of a net volume not exceeding 250 ml, excluding organic baby food and frozen baby food preparations, 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.

STATEMENT OF REASONS

SUMMARY

On October 3, 1997, the Deputy Minister of National Revenue initiated an investigation respecting the alleged injurious dumping into Canada of certain baby food from the United States of America. The investigation was initiated in response to a complaint filed by H.J. Heinz Company of Canada Ltd.

As a result of the investigation, the Deputy Minister is satisfied that the subject goods have been dumped, that the margin of dumping is not insignificant and that the volume of dumped goods is not negligible. Accordingly, the Deputy Minister has made a final determination of dumping in accordance with paragraph 41(1)(a) of the Special Import Measures Act (SIMA).

INTERESTED PARTIES

Complainant

H.J. Heinz Company of Canada Ltd.
5700 Yonge Street, Suite 2100
North York, Ontario
M2M 4K6

Exporter

The only identified exporter of subject goods is:

Gerber Products Company
445 State Street
Fremont, Michigan 49413
U.S.A.

Importer

The only identified importer of subject goods is:

Gerber (Canada), Inc.
2475 Skymark Avenue
Mississauga, Ontario
L4Y 4Y6

BACKGROUND

In August 1997, H.J. Heinz Company of Canada Ltd. (Heinz) filed a complaint with the Department alleging that certain baby food was being dumped into Canada and that the dumping was causing injury to the production in Canada of like goods. The Department informed Heinz on September 19, 1997, that the complaint was properly documented and on October 3, 1997, initiated an investigation into the alleged dumping. After reviewing information provided by both the exporter and the importer, the Deputy Minister made a preliminary determination on December 30, 1997, that the baby food had been dumped and that there was evidence which disclosed a reasonable indication that the dumping had caused injury to the Canadian industry.

PRODUCT INFORMATION

Definition

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

Prepared baby foods, containing finely homogenized vegetables, fruit, and/or meat which may include some visible pieces of not more than 6.5 mm in size, and strained juice, put up for retail sale as food and beverages for infants of ages 4 to 18 months, in containers of a net volume not exceeding 250 ml, excluding organic baby food and frozen baby food preparations, originating in or exported from the United States of America.

Description

The prepared baby foods that are subject to the investigation are packed in hermetically sealed containers or glass jars, and are commonly referred to as "jarred baby foods". They are prepared from a variety of ingredients and in different consistencies to be suitable for infants of different ages. The baby foods subject to the investigation are formulated for infants of ages approximately 4 to 18 months.

Jarred baby food preparations include various single ingredient preparations, and combinations of ingredients such as multiple vegetable or fruit mixtures and meat with vegetable preparations. These preparations may include other ingredients such as rice, pasta, or cereal, in addition to vegetables, fruit, and/or meat. The foods meant as beginner foods for infants starting on solid foods are generally single ingredient preparations, like carrots or peas, that are strained and puréed so they do not need to be chewed before swallowing. Multiple ingredient preparations allow for the introduction of greater variety to the growing infant's diet. The foods formulated for infants old enough to begin chewing solid foods contain small pieces of fruit, vegetable or meat, not more than 6.5 mm in size, so it is still easy to swallow. Strained infant juices and junior juices are made in a number of varieties such as orange and apple.

The subject goods imported from the United States are basically like those produced by Heinz. While there are some differences in ingredient and flavour combinations between the imports and Heinz products, there are no significant differences in terms of the nature of the products or their use. The imported Gerber brand jarred baby foods that are subject to the investigation are called "1st Foods", "2nd Foods" and "3rd Foods". The designations denote different ingredient compositions and consistencies to suit the needs of growing infants.

Certain kinds of baby foods were not included in the complaint and, therefore are not subject to the investigation. Organic baby foods and frozen prepared baby foods are excluded, as are dry cereal mixes and "toddler" foods - preparations intended for older children, that contain larger pieces to challenge the child's teeth.

CLASSIFICATION OF IMPORTS

The Harmonized System provides twenty-one classification numbers under which subject baby food may be classified:

1602.10.90.00
1901.90.59.00
1902.20.00.10
1902.30.11.10
1902.30.12.10
1902.30.20.10
1904.10.10.90
1904.10.21.90
1904.10.29.90
1904.10.90.90
1905.90.39.19
2005.10.00.00
2007.10.00.00
2009.19.90.21
2009.70.90.10
2009.80.19.94
2009.80.19.95
2009.80.20.10
2009.90.30.31
2104.20.00.00
2106.90.99.99

CANADIAN INDUSTRY

Heinz began producing jarred baby food in Canada in 1934 and is currently the only producer of these goods in the country. The goods are produced at its plant in Leamington, Ontario, along with a variety of other processed food products including infant cereals, ketchup, beans, pasta, and other tomato-based food products.

Heinz jarred baby food products which compete directly with the goods under investigation are: infant food, meat dinners, and juices in 128 ml jars, junior food and juices in 213 ml jars, and strained meat in 100 ml jars.

CANADIAN MARKET

The Canadian market for jarred baby food is shared by two companies, Heinz and Gerber (Canada) Inc. Heinz has the larger share of the market in terms of both the quantity and the value sold. It estimates that the value of the retail market in Canada for jarred baby food, as defined for this investigation, is about $60-70 million annually. In 1992, Gerber (Canada) closed its production facilities in Niagara Falls, Ontario, and began importing all of its jarred baby food from its parent company in the United States.

Canadian consumers purchase jarred baby food primarily from grocery and drug store retailers. Heinz and Gerber (Canada) market jarred baby food either directly to retail accounts, such as major supermarket and drugstore chains, or to wholesalers or buying groups that sell to a variety of other retail accounts. Wholesalers and retailers provide distribution, advertising, shelf management, pricing analysis and promotional support for jarred baby food, in return for which they may receive certain discounts from Heinz and Gerber (Canada).

RESULTS OF THE INVESTIGATION

The Department conducted an investigation to determine whether subject goods shipped to Canada during the period January 1, 1997, to June 30, 1997, were dumped. Dumping occurs when goods are imported into Canada at prices lower than those prevailing in the exporter's home market or at prices below their full costs. To determine whether the goods in question were dumped, both the exporter and the importer were requested to provide sales and cost information necessary to determine the normal values and export prices of the subject goods. The term "normal value" generally refers to the selling price of the goods in the home market, while the term "export price" refers to the selling price of the goods exported to Canada.

Responses to the Department's requests for information were received from both parties and verification exercises were conducted at both the exporter's and importer's premises in order to verify the information provided.

Normal Value

All products exported to Canada were produced at Gerber's plant in Fremont, Michigan. As such, sales and cost data were requested for goods sold in the U.S. market from this location which were like the products exported to Canada. The company did not have sales in its domestic market to customers who operated at the same trade level as the importer in Canada. Therefore, sales to purchasers at a lower level of trade were examined. Of these, only sales made to unrelated customers who purchased in volumes most comparable to Gerber (Canada) were used to determine normal values.

For all like goods examined, there were found to be sufficient profitable domestic sales, and therefore normal values were determined for all goods pursuant to section 15 of SIMA on the basis of the weighted average selling prices to the selected customers. Adjustments to these weighted average selling prices were made pursuant to section 5 of the Special Import Measures Regulations (Regulations) where necessary to account for differences in the size of the jar and/or the packaging used in the two markets. Adjustments were also made to the selling prices pursuant to section 6 of the Regulations to account for various discounts, rebates and allowances granted on sales to the selected customers and pursuant to section 7 to account for delivery costs. Finally, an adjustment was made to the selling prices, pursuant to section 9 of the Regulations, to reflect the difference in trade level between the domestic customers and the importer in Canada.

Export Price

As the importer is a wholly-owned subsidiary of the exporter, the Department has to consider whether the export price should be determined under section 24 or section 25 of SIMA. Export prices were determined under section 24 on the basis of the exporter's declared selling price, less export charges. Export prices were also determined under paragraph 25(1)(c) on the basis of the importer's resale prices of the goods in Canada less all costs incurred in importing and selling the goods in Canada plus an amount for profit. The amount for profit was determined pursuant to paragraph 22(c) of the Regulations. In cases where the export price as determined under paragraph 25(1)(c) is less than the export price as determined under section 24, the declared selling prices are not acceptable for purposes of determining the export price under SIMA.

The Department's analysis showed that the export prices as determined under paragraph 25(1)(c) were indeed lower than the export prices as determined under section 24. Therefore, the export prices determined in accordance with paragraph 25(1)(c) were used in determining the margins of dumping.

MARGINS OF DUMPING

When the export price is less than the normal value, the difference is the margin of dumping. A comparison of the normal values with the export prices revealed that 100 per cent of the imported goods were dumped. The weighted average margin of dumping was 59.76 per cent when expressed as a percentage of the normal value.

UNDERTAKING DISCUSSIONS

Counsel for Gerber and Gerber (Canada) discussed the possibility of an undertaking being offered for acceptance by the Deputy Minister under section 49 of SIMA. Revenue Canada pursued this possibility with counsel for Heinz. In the final analysis, the discussions did not result in an undertaking.

DECISION

The investigation revealed that the margins of dumping of the subject goods are not insignificant and that the actual volume of dumped goods is not negligible. Accordingly, on this date, pursuant to paragraph 41(1)(a) of SIMA, a final determination of dumping was made with respect to the subject baby foods.

FUTURE ACTION

The Canadian International Trade Tribunal's inquiry concerning the question of injury to production in Canada is continuing and an order or finding will be made by April 29, 1998.

Subject goods imported during the provisional period 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, December 30, 1997, and will end on the day the Tribunal issues its finding.

If the Tribunal finds that the dumped goods have not caused injury and do not threaten to cause injury, all proceedings relating to this investigation will be terminated. In such a case, all provisional duty paid or security posted by the concerned importer will be returned and future importations will not be subject to anti-dumping duty.

If the Tribunal finds that the dumped goods have caused injury, the Department will finalize, pursuant to section 55 of SIMA, the anti-dumping duty payable on subject goods released from customs' possession during the provisional period. If the provisional duties paid are in excess of the final amount of anti-dumping duty payable, the excess duties paid will be refunded. Importations released from customs' possession after the date of the Tribunal's finding will be subject to anti-dumping duty equal to the margin of dumping calculated at the time of the final determination. The margin of dumping is the amount by which the normal value exceeds the export price. If anti-dumping duty is payable, such duty is hereby demanded under section 11 of SIMA.

If the Tribunal finds that the dumped goods have not caused injury but threaten to cause injury, all provisional duty paid or security posted by the concerned importer will be returned. However, importations released from customs' possession after the date of the Tribunal's finding will be subject to anti-dumping duty equal to the margin of dumping. If anti-dumping duty is payable, such duty is hereby demanded under section 11 of SIMA.

Specific normal values and export prices for the subject goods have been provided to the exporter. Should the Tribunal issue a finding of injury these values will come into effect the day after its finding.

PUBLICATION

Notice of this final determination is being published in the Canada Gazette pursuant to paragraph 41(3)(a) of SIMA.

INFORMATION

Additional information about SIMA can be found in brochures such as Canada's Special Import Measures Act which provides an overview of the SIMA process and The SIMA Self-Assessment Guide which helps the importing public to self-assess importations of goods subject to anti-dumping and countervailing duties. Both of these documents are available through the following World Wide Web site: /sima-lmsi/

For further information regarding this investigation or to request any of these documents, please contact:

Department of National Revenue
Anti-dumping and Countervailing Directorate
191 Laurier Avenue West
Ottawa, Ontario
K1A 0L5

Audrey Kelly (613) 954-7173
Patrick Mulligan (613) 954-7353
Fax (613) 954-2510

Rob Tait
Interim Director General
Anti-dumping and Countervailing Directorate