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Termination of Undertaking - Bingo paper

OTTAWA, June 20, 2003

File No. 4235-259
Case No. AD/1240

STATEMENT OF REASONS

Concerning the review of an undertaking pursuant to subsection 53(1) of the Special Import Measures Act, with respect to

BINGO PAPER, IN FINISHED OR UNFINISHED FORM, ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA AND PRODUCED BY OR ON BEHALF OF ARROW INTERNATIONAL, INC., ITS AFFILIATES, SUCCESSORS AND ASSIGNS

DECISION

Pursuant to subsection 52(1.2) of the Special Import Measures Act, as it read prior to April 15, 2000, the Commissioner of Customs and Revenue has today terminated an undertaking respecting bingo paper, in finished or unfinished form, originating in or exported from the United States of America and produced by or on behalf of Arrow International, Inc., its affiliates, successors and assigns. This action terminates all proceedings with respect to the subject goods.

This Statement of Reasons is also available in French.

Cet énoncé des motifs est également disponible en français.

Summary

On March 20, 2000, a dumping investigation was initiated, pursuant to subsection 31(1) of the Special Import Measures Act (SIMA), respecting the alleged injurious dumping into Canada of bingo paper, originating in or exported from the United States of America and produced by or on behalf of Arrow International, Inc. (Arrow USA).

The investigation was initiated in response to a complaint filed by Bingo Press and Specialty Limited (Bingo Press) of St. Catharines, Ontario. On June 15, 2000, the Commissioner of Customs and Revenue (Commissioner) extended the time period for completing the preliminary investigation to 135 days. Following a preliminary investigation, the Commissioner made a preliminary determination of dumping in accordance with subsection 38(1) of SIMA on

July 5, 2000. On September 27, 2000, the Commissioner accepted an undertaking that eliminated the dumping of the goods and suspended the investigation.

On February 21, 2003, the CCRA initiated a review of the undertaking. Having reviewed the undertaking, the Commissioner is satisfied that the condition described in paragraph 49(1)(a) of SIMA, under which the undertaking was accepted, would no longer exist in the absence of the undertaking. Accordingly, the Commissioner has terminated the undertaking on this date.

Interested Parties

Complainant

The complainant is Bingo Press and Specialty Limited, doing business as Bazaar & Novelty. This company is the largest Canadian manufacturer of finished and unfinished bingo paper. The company is located at 301 Louth Street, St. Catharines, Ontario L2S 3V6.

Exporter

The exporter is Arrow International, Inc., 9900 Clinton Road, Cleveland, Ohio, U.S.A. 44144.

Importer

The importer is Arrow Games, Inc. (Arrow Canada), 37 Woodyatt Drive, Brantford, Ontario N3R 7K3. This company is a wholly-owned subsidiary of the exporter.

Background

A dumping investigation was initiated on March 20, 2000, following a complaint filed by

Bingo Press, alleging the injurious dumping of bingo paper exported to Canada by Arrow in the United States. On June 15, 2000, pursuant to paragraph 39(1)(a) of SIMA, the Commissioner extended the time period for completing the preliminary investigation to 135 days. On

July 5, 2000, the Commissioner made a preliminary determination of dumping.

The investigation was suspended on September 27, 2000, when the Commissioner accepted a price undertaking eliminating the margin of dumping. At the time of the acceptance of the undertaking, the weighted average margin of dumping was estimated to be 43.5 per cent, expressed as a percentage of normal value.

According to the terms of the undertaking, Arrow agreed to increase the selling price of the subject goods to Canadian purchasers to eliminate the estimated margin of dumping found during the investigation.

In late 2000, Arrow Canada began producing the subject goods in Canada. This resulted in a reduction in the volume and value of the subject goods that were being imported from Arrow USA. This reduced volume of imports was noted during the CCRA's continuous monitoring of Arrow's adherence to the terms and conditions of the undertaking. On February 21, 2003, an early review of the undertaking was initiated in order to determine whether the undertaking continues to serve its purpose.

Product

Product Definition

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

"Bingo paper, in finished or unfinished form, originating in or exported from the United States of America and produced by or on behalf of Arrow International, Inc., its affiliates, successors and assigns."

Product Description

The product definition includes finished bingo paper in cut, booklet or folded and sealed form that is imported ready for sale to end users. This definition also includes unfinished "skidded" or "flat stock" paper which requires collation, gluing and cutting prior to sale to end users.

Additional Product Information

Additional information regarding the subject goods may be found in the Statement of Reasons issued at the time of the initiation of this investigation. This document is available on the Canada Customs and Revenue Agency's (CCRA) Web site at the following address:

http://www.cbsa-asfc.gc.ca/sima-lmsi/ad1240i-eng.html.

Production Process

The manufacture of bingo paper involves printing bingo cards onto newsprint paper utilizing a printing press specifically designed for this purpose. This process includes the collation of a specific number of colours as well as the cutting and gluing of a predetermined configuration based on the customer's requirements.

Classification of Imports

Finished bingo paper is classifiable under the following tariff item:

9504.90.90.92
articles for funfair, table or parlour games, bingo equipment (this tariff item number also includes bingo equipment, including blowers, flashboards, and verifiers).

Unfinished bingo paper or flat stock is classifiable under the following tariff item:

4810.29.90.10
other paper and paperboard, of a kind used for writing, printing, or other graphic purposes, printed, embossed or perforated.

Canadian Industry

The CCRA is aware of four producers of bingo paper in the Canadian bingo paper industry. All four companies produce finished bingo paper from newsprint.

Bingo Press is the predominant Canadian manufacturer and sells product throughout Canada. In addition, Bingo Press' parent company also sells product in the United States market that is produced by Bingo Press. Arrow Canada began producing bingo paper in Canada in the autumn of 2000. It sells bingo paper throughout Canada with the exception of British Columbia and Manitoba, where sole-supplier government contracts are in place.

In addition to Bingo Press and Arrow Canada, there are two other small regional producers. Servi-Jeux, Enr., Montréal North, is a fully-integrated supplier of bingo paper to the Quebec market and exports some product to the United States. The fourth producer, Canuck Amusements, Inc. (also known as The Bingo Company) produces a full line of bingo paper, primarily for regional markets in Western Canada and the United States.

Review Process

At the commencement of this review, the CCRA requested that Canadian producers, the exporter and importer respond to a questionnaire designed to elicit relevant information. Information was requested for the years 2000, 2001 and 2002.

Subsequently, interested parties were given the opportunity to submit written argument based on the information submitted in response to the CCRA's questionnaires. Finally, interested parties were permitted to submit reply briefs responding to the arguments initially submitted. All of the information and argumentation submitted by interested parties has been considered during the review.

Position of the Parties

Bingo Press believes that the undertaking should be continued. Compliance with the undertaking has eliminated the dumping of bingo paper from Arrow USA and ensured that Bingo Press' financial performance and employment levels have not deteriorated due to dumping. It also believes that if the undertaking were eliminated, dumping from the United States would resume.

Arrow USA and Arrow Canada believe that the undertaking should be terminated upon conclusion of the review. This position is based on the change in conditions since the acceptance of the undertaking. Arrow Canada began production of bingo paper in Canada in late 2000 and has reduced imports of bingo paper significantly. The magnitude of this reduction cannot be disclosed due to the confidential nature of the information.

Neither Servi-Jeux, Enr., nor Canuck Amusements, Inc., provided a response to the CCRA's request for information.

Both Bingo Press and Arrow addressed the issue relating to the timing of the termination of an undertaking. Counsel for Bingo Press argued that, since the review of the undertaking was initiated under section 53 of SIMA, any decision to renew or not renew the undertaking must also be made pursuant to section 53 which, in part, states that an undertaking that is not renewed by CCRA "expires at the end of the period before the expiration of which the review was required to be made", i.e. at the end of five years (September 27, 2005). It is Arrow's position, that the undertaking may be terminated at the time of the Commissioner's decision in the event that a decision is made in accordance with subsection 52(1.2) of SIMA.

Consideration and Analysis

When reviewing an undertaking, the Commissioner must consider whether the undertaking continues to serve the purpose for which it was intended. The Commissioner must also determine whether he is required to terminate the undertaking for the reasons specified in section 52 of the legislation.

Since the acceptance of the undertaking, Arrow adhered to the terms and conditions of the undertaking and supplied information to the CCRA on a monthly and quarterly basis. Further, Arrow cooperated with the CCRA in supplying information for annual updates to the prices contained in the undertaking.

Volume and Value of Imports

The review revealed that the volume and value of bingo paper imports by Arrow Canada have declined during the 2½-year period since the undertaking was accepted and are currently at a negligible level. This is mainly due to the decision by Arrow Canada to produce bingo paper in Brantford, Ontario, to service the needs of the Canadian market.

Production, Capacity and Capacity Utilization

Bingo Press has increased its production capacity since the acceptance of the undertaking, mainly through the relocation of production equipment from Mexico to Canada. During the same period, Arrow Canada has established a production operation in Canada. For both companies, employment and production levels have increased as a result.

Information concerning capacity utilization cannot be disclosed due to the confidential nature of the information.

Canadian Market, Supply and Demand

Analysis of the submitted data indicates that the relative market shares held by Arrow Canada and Bingo Press have not changed significantly since the acceptance of the undertaking.

Interested parties state that the demand for the subject goods is decreasing as a result of new casinos, electronic bingo and government lotteries. Reduced attendance at bingo halls, due to no smoking laws, is another cause of decreasing demand for bingo paper. Bingo Press estimates that the market has declined by over 20 per cent in the past 3 years.

Arrow Canada commenced producing bingo paper in Canada in late 2000. It supplies the overwhelming majority of its Canadian market needs from Canadian production. Servi-Jeux has started producing in Quebec for the Quebec and United States markets. The Bingo Company (Canuck Amusements) is also producing for the Canadian and United States markets. As noted above, Bingo Press has increased its production of bingo paper in Canada.

Bingo Press states that, since the United States market is declining, manufacturers are turning to Canada to sell excess capacity. Both companies agree that demand is declining within the Canadian market. Thus, it is clear that the overall demand for bingo paper has declined since the acceptance of the undertaking.

As noted above, the supply of bingo paper has increased due to new or expanded Canadian production. This could lead to reductions in bingo paper prices in an attempt to obtain or retain market share. Should this occur, it would likely be the result of new production in Canada at the Arrow Canada facility and Bingo Press's increased production capacity, not because of imports from Arrow USA.

Pricing

Bingo Press states that it cannot sustain price increases due to price competition from Arrow Canada. Bingo Press stated that gross margins on bingo paper have declined significantly since the mid 90's. The company believes that the undertaking stopped the decline in margins and helped to stabilize them.

The undertaking has had a minimal effect on pricing in the Canadian market, since the overwhelming majority of Arrow's Canadian sales are made using bingo paper produced in Canada.

Financial Analysis

The CCRA reviewed the past and present costs of production and other expenses related to the production and sale of the subject goods. The results of this analysis cannot be disclosed due to the confidential nature of the information.

Employment in Canada

Since the acceptance of the undertaking, employment has increased in Canada. This occurred primarily because Arrow Canada added employees to manufacture bingo paper in Canada and Bingo Press moved production from Mexico to Canada.

This significant increase in employment in Canada can only be indirectly attributed to the undertaking. Bingo Press consolidated its North American manufacturing operations in Canada due to corporate restructuring. Arrow's move to produce in Canada enabled the company to sell product in Canada without the constraints imposed by SIMA. Given Arrow Canada's commitment to Canadian production, employment levels are expected to be unaffected by the termination of the undertaking.

Future Performance of Parties

Both parties expect that the market will remain competitive, prices will remain stable or suppressed and supply will remain steady. Therefore, the parties are expected to perform in the future as they are now.

Arrow Canada's Production in Canada

Arrow USA states that its new production facility in Brantford, Ontario, represents a very significant investment in Canada (land, building, and manufacturing equipment). The company asserts that, absent the undertaking, it would not choose to shut down operations in order to resume United States production of subject goods destined for the Canadian market. This strategy is based primarily on the company's need to obtain a satisfactory return on its investment.

Bingo Press argues that the purchase of real property does not necessarily indicate a long-term commitment to Canadian production.

In addition, Bingo Press argues that, in an effort to expand its share of sales in Canada, Arrow Canada will supplement Canadian production with dumped subject goods from the United States. On this point, Arrow asserts that, in the absence of the undertaking, it would not choose to resume production in the United States in lieu of producing in Canada, as this would likely result in another dumping investigation and a complete `shut-out' of the Canadian market after a dumping finding.

Arrow further notes that a move to produce in the United States would not be in line with Arrow's long-term marketing plan. According to Arrow, a "made in Canada" marketing scheme allows the company to compete in what it judges to be provincially controlled markets, whereby Canadian-made product is, in Arrow's opinion, essential to obtaining supply contracts.

The CCRA considers it likely that Arrow Canada will continue to produce the subject goods in Canada in the absence of an undertaking.

Legislative requirements

On April 15, 2000, certain provisions of SIMA were amended by the implementation of

Bill C-35, "An Act to amend the Special Import Measures Act and the Canadian International Trade Tribunal Act". The provisions of the new legislation do not apply to this investigation because a properly documented complaint was lodged prior to the coming into force of Bill C-35. As such, the SIMA legislation applicable to this action is that which was brought into force on January 1, 1995. That SIMA legislation contains references to the Deputy Minister. Upon creation of the CCRA on November 1, 1999, the position of Deputy Minister was changed to Commissioner.

The wording of section 53 of SIMA states:

• 53. (1) Except where the Tribunal has made an order or finding under subsection 43(1) that the dumping or subsidizing of the goods to which the preliminary determination applies has caused injury or retardation or is threatening to cause injury and that order or finding has not been rescinded under subsection 76(4), (4.1) or (4.11) or 76.1(2), the Deputy Minister shall review the undertaking before the expiration of five years from the date on which it was accepted and before the expiration of each subsequent period, if any, for which it is renewed pursuant to this section and if, on any such review, the Deputy Minister is satisfied
  • (a) that the undertaking continues to serve the purpose for which it was intended, and
  • (b) that the Deputy Minister is not required to terminate it under section 52 (emphasis added),
• the Deputy Minister shall renew the undertaking for a further period of not more than five years.

It is clear from paragraph 53(1)(b) that the Deputy Minister must consider the provisions of section 52 prior to making a decision whether or not to renew an undertaking.

Subsection 52(1.2) requires the termination of an undertaking where the conditions in paragraph 49(1)(a) (margin of dumping) or (b) (injury caused by the dumping) no longer exist. In addition, subsection 52(1.3) states that the termination of an undertaking under subsection 52(1.2) terminates all proceedings under the SIMA.

Subsections 52(1.2) and 52(1.3) state:

• 52(1.2) Except where the Tribunal has made an order or finding under subsection 43(1) that the dumping or subsidizing of the goods to which the preliminary determination applies has caused injury or retardation or is threatening to cause injury, and that order or finding has not been rescinded under subsection 76(4), (4.1) or (4.11) or 76.1(2), the Deputy Minister shall terminate the undertaking or undertakings where, at any time after accepting the undertaking or undertakings, the Deputy Minister is satisfied that, notwithstanding the termination of the undertaking or undertakings, the condition in paragraph 49(1)(a) or (b), as the case may be, would no longer exist.
• 52(1.3) A termination of an undertaking under subsection (1.2) terminates all proceedings under this Act respecting the dumping or subsidizing of the goods to which the undertaking relates, unless, in any case where the Deputy Minister has accepted two or more undertakings, the Deputy Minister, for good reason, otherwise directs.

In administering the above-cited provisions of the law, it is the CCRA's view that, if the Commissioner (formerly the Deputy Minister) is satisfied that the condition described in paragraph 49(1)(a) of SIMA, under which the undertaking was accepted, would no longer exist in the absence of the undertaking, the undertaking must be terminated pursuant to subsection 52(1.2) and all proceedings must be terminated forthwith pursuant to subsection 52(1.3) of SIMA. A decision pursuant to subsection 52(1.2) precludes a decision whether or not to renew the undertaking pursuant to section 53.

Conclusion

The undertaking that is the subject of this review was accepted as a means of eliminating the dumping of the subject goods. In this review, the Commissioner has examined a number of factors in order to make a determination whether the undertaking continues to serve the purpose for which it was accepted.

The evidence before the Commissioner reveals that the shares of the Canadian market held by Arrow Canada and Bingo Press have not changed significantly since the acceptance of the undertaking. Production capacity in Canada has increased since the undertaking was accepted, notwithstanding decreasing demand, due to the establishment of Canadian production by Arrow and the consolidation of North American production at the Bingo Press production facility.

As a result of Arrow's decision to establish Canadian production, the undertaking has had a negligible impact on the prices of the subject goods in Canada. Analysis has revealed that Arrow Canada and Bingo Press are operating in a mature and relatively stable market, in which the undertaking has minimal effect.

The most significant development since the acceptance of the undertaking has been the dramatic decrease in the volume and value of importations of the subject goods. This is, of course, a direct result of Arrow Canada's decision to satisfy its Canadian-market needs using Canadian-produced goods, rather than goods imported from its parent company in the United States.

Arrow has argued persuasively that its decision represents a long-term commitment to Canadian production regardless whether there is an undertaking in place. With regard to the reason for which the undertaking was accepted, i.e., the elimination of the dumping of the subject goods, it is clear that the volume of imports will be negligible while Arrow Canada continues to produce the subject goods in Canada. Furthermore, there is no evidence that would suggest that future imports would be dumped.

Analysis of the factors above indicates that it is unlikely that imports from the United States will resume in the foreseeable future. As such, it can be reasonably concluded that the condition that led to the acceptance of the undertaking will not exist if the undertaking is terminated.

Decision

Having reviewed the factors described above, particularly Arrow Canada's replacement of imported goods with goods produced in Canada, the Commissioner is satisfied that the condition described in paragraph 49(1)(a) of SIMA, under which the undertaking was accepted, would no longer exist in the absence of the undertaking. Accordingly, pursuant to subsection 52(1.2) of SIMA, the Commissioner has terminated the undertaking.

Future Action

In accordance with subsection 52(1.3) of SIMA, the termination of the undertaking terminates all proceedings under SIMA in regard bingo paper, in finished or unfinished form, originating in or exported from the United States of America and produced by or on behalf of Arrow International, Inc., its affiliates, successors and assigns.

Publication

Notice of the termination of the undertaking by the Commissioner will be published in the Canada Gazette.

Information

This Statement of Reasons has been provided to persons directly interested in these proceedings. A free copy may be obtained by contacting Mr. Ron McTiernan, as follows:

Mail

Canada Customs and Revenue Agency
Anti-dumping and Countervailing Directorate
191 Laurier Avenue West, 19^th Floor
Ottawa, Ontario K1A 0L5
Canada

Telephone:  (613) 954-7271

Telefax:  (613) 954-2510

e-mail: Ronald.McTiernan@ccra-adrc.gc.ca

Web site:  www.ccra-adrc.gc.ca/sima

Suzanne Parent

Director General
Anti-dumping and Countervailing Directorate