ARCHIVED - Anti-dumping and Countervailing Program

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OTTAWA, December 3, 2004

4235-264
AD 1318
4218-16
CVD 102

STATEMENT OF REASONS

Concerning the termination of an investigation, pursuant to paragraph 41(1)(b) of the Special Import Measures Act, regarding the dumping and subsidizing of

OUTDOOR BARBEQUES ORIGINATING IN OR EXPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA

DECISION

On November 19, 2004, in accordance with paragraph 41(1)(b) of the Special Import Measures Act, the President of the Canada Border Services Agency caused the investigation concerning the dumping and subsidizing of self-standing barbeques for outdoor use, consisting of metal lid, base and frame, fuelled by either propane or natural gas, with primary cooking space between 200 and 550 square inches (approximately 1,290 and
3,549 square centimetres), in assembled or knocked-down condition, originating in or exported from the People's Republic of China, to be terminated.

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

Table of Contents

Summary of Events

Period of Investigation

Interested Parties

• Complainant
• Exporters
• Importers

Product Information

• Definition
• Additional Product Information
• Classification of Imports

Canadian Industry

The Canadian Market

Investigation Process

Dumping Investigation

Results of the Dumping Investigation

• Information Received - Final Investigation
• Normal Value
• Export Price
• Margin of Dumping
• Other Exporters

Summary of Results - Dumping

Subsidy Investigation

• Government of China
• Program Analysis

Results of the Subsidy Investigation

Other Exporters

Summary of Results - Subsidy

Representations Concerning the Investigation

Decision

Future Action

Publication

Information

Appendix I

Appendix II

Appendix III

Appendix IV

Summary of Events

[1] On February 19, 2004, the Canada Border Services Agency (CBSA) received a written complaint from Fiesta Barbeques Limited (Fiesta) concerning the alleged injurious dumping and subsidizing of certain outdoor barbeques originating in or exported from the
People's Republic of China (China). On March 11, 2004, the CBSA informed Fiesta that the complaint was properly documented. The CBSA also notified the Government of China (GOC) and provided a copy of the non-confidential version of the subsidy portion of the complaint.

[2] On April 13, 2004, the President of the CBSA (President) initiated an investigation into the alleged injurious dumping and subsidizing of the goods pursuant to subsection 31(1) of the Special Import Measures Act (SIMA).

[3] On April 23 and June 23, 2004, consultations were conducted between Canadian government officials and representatives of the GOC, in accordance with Article 13.2 of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (Subsidies Agreement).

[4] Upon receiving notice of the investigation, the Canadian International Trade Tribunal (Tribunal) started its preliminary injury inquiry. On June 11, 2004, the Tribunal determined that there is evidence that discloses a reasonable indication that the dumping and subsidizing of the subject goods have caused injury to the domestic industry.

[5] On June 25, 2004, pursuant to paragraph 39(1)(a) of SIMA, the President made a decision to extend the 90-day period for making a preliminary decision in the investigation to 135 days, due to the complexity of the issues presented in the investigation.

[6] On August 27, 2004, at the conclusion of the CBSA's preliminary investigation, the President made a preliminary determination of dumping and subsidizing, pursuant to subsection 38(1) of SIMA.

[7] The CBSA continued its investigation for purposes of reaching a final decision. On the basis of the results of the investigation, the President determined that the margins of dumping and the amount of subsidy were insignificant. Consequently, on November 19, 2004, the President caused the dumping and subsidy investigation to be terminated pursuant to paragraph 41(1)(b) of SIMA.

Period of Investigation

[8] The investigation covers all subject goods released into Canada during the period January 1, 2003 to March 31, 2004.

Interested Parties

Complainant

[9] The complainant, Fiesta Barbeques Limited, is the largest Canadian manufacturer of outdoor barbeques. The complainant's address is:

Fiesta Barbeques Limited
2 Walker Drive
Brampton, Ontario
L6T 5E1

Exporters

[10] When the investigation was initiated, the CBSA identified 25 potential exporters of the subject goods. The CBSA sent dumping and subsidy questionnaires to these exporters at that time. Each exporter was instructed that, if it was not the manufacturer of the subject goods, the questionnaire should also be forwarded to the manufacturer(s) in China.

[11] Information received during the investigation has allowed the CBSA to refine the list of exporters of subject goods. Importers identified 10 new potential exporters that were not identified at initiation, to which the CBSA also forwarded questionnaires. In addition, five companies indicated that they do not ship subject goods. As of the final phase of the investigation, there were 30 potential exporters of the subject goods.

Importers

[12] When the investigation was initiated, the CBSA identified and forwarded questionnaires to 97 potential importers of the subject goods. Subsequently, 45 of these parties have indicated that they did not import subject goods during the period of investigation (POI). As of the final phase of the investigation, there were 52 potential importers of subject goods.

Product Information

Definition

[13] For the purpose of this investigation, the subject goods were defined as:

Self-standing barbeques for outdoor use, consisting of metal lid, base and frame, fuelled by either propane or natural gas, with primary cooking space between 200 and 550 square inches (approximately 1,290 and 3,549 square centimetres), in assembled or knocked-down condition, originating in or exported from the People's Republic of China.

Additional Product Information

[14] For the purpose of the above definition, the term "primary cooking space" means the area of the main cooking space of the base of the barbeque unit, measured at the upper inside periphery of the base. The term "primary cooking space" does not include peripheral cooking surfaces such as warming racks and/or side burners.

Exclusions:

[15] Excluded from the foregoing definition are:

• barbeques and grills designed to be installed in a fixed or permanent location;
• barbeques and grills, such as camping stoves, designed primarily for portable or table-top use;
• deck-top fireplaces with grilling grates;
• smokers with grilling grates;
• outdoor cookers designed primarily to heat or boil liquids.

[16] The exclusion referred to in item (1) above does not include subject goods that have been altered by affixing brackets or other attaching or installation devices. This exclusion does not include subject goods on which frames have been altered or adjusted or subject goods on which wheels, casters or rolling devices have been removed to facilitate permanent installation.

[17] Details of the production process of outdoor barbeques were provided in the Statement of Reasons issued for the initiation of the investigation. This document is available upon request. Please contact the SIMA Registry at 613-948-4605 or simaregistry-depotlmsi@cbsa-asfc.gc.ca for more information.

Classification of Imports

[18] Outdoor gas barbeques are properly classified under the following Harmonized System classification number:

7321.11.90.30

Canadian Industry

[19] Fiesta is a Canadian manufacturer of outdoor barbeques, producing these goods for both the domestic and export markets. Founded in 1986, Fiesta is the largest producer of barbeques in Canada. It is the only gas barbeque company in the world that manufactures all of its own castings, burners and propane cylinders.¹ The latter-mentioned products are produced by Fiesta's sister company, Wolfedale Engineering Limited. Fiesta produces gas barbeques at its manufacturing facility in Mississauga, Ontario.

[20] Other Canadian manufacturers of outdoor gas barbeques include
Onward Manufacturing Company Limited (Onward), Wolf Steel Limited (Napoleon), and CFM Vermont Castings Majestic Inc.

The Canadian Market

[21] The CBSA notes that the tariff number under which outdoor barbeques are imported is quite broad, and may include products that would not be subject to the investigation. In addition, information received from the parties indicated that some subject goods might have been classified under incorrect tariff numbers.

[22] The CBSA's estimate of the apparent Canadian market for the calendar year 2003, based on information gathered during the investigation, is presented in the table below.

Apparent Canadian Market (2003)

Sales in Canada	Volume (units)	Market Share (%)
Domestic Shipments	396,714	44.0%
Imports:
China	380,105	42.1%
United States	103,170	11.4%
All Other Countries	22,377	2.5%
Total Imports	505,652	56.0%
Total Market	902,366	100%

Investigation Process

[23] In conducting its investigation, the CBSA requested that identified exporters and importers provide sales and cost information necessary to determine the normal values and export prices of the subject goods. Information was also requested from the GOC and producers and exporters located in China in order to determine the amount of subsidy, if any, applicable to the subject goods. For the purposes of the final phase of the investigation, normal values, export prices and amounts of subsidy were determined based on information contained in the exporters, importers and GOC's submissions, where possible.

Dumping Investigation

[24] Normal values are generally based on the domestic selling prices of the goods in the country of export, or on the full cost of the goods (cost of production, administrative, selling and all other costs) plus a reasonable amount for profits.

[25] The export price of goods shipped to Canada is generally the lesser of the exporter's
ex-factory selling price or the importer's purchase price, adjusted by taking specific costs, charges, and expenses into consideration. In certain circumstances, where there is no selling price or the sale is between associated parties, the export price may be determined on the basis of the selling price in Canada less an amount to cover the importer's profit and costs associated with the importation and sale of the goods in Canada and the costs, charges and expenses arising from the exportation of the goods.

[26] When the export price is less than the normal value, the difference is the margin of dumping.

[27] Where the information provided in the final phase of the investigation permitted, the CBSA determined the margins of dumping for each barbeque model by subtracting the total export price from the total normal value. This calculation was performed for each model shipped to Canada during the POI. Accordingly, any sales made at undumped prices reduced the margin of dumping found for that particular model.

[28] The CBSA determined the overall margin of dumping for each exporter by weighting the margins found for each model according to the volumes exported to Canada. In making this calculation, the margin of dumping for any model that was not dumped (i.e., that had an overall negative margin of dumping) was set to zero.

[29] In determining the weighted average margin of dumping of all of the imported goods, the overall margins of dumping found in respect of each exporter were weighted according to the volume of subject goods exported to Canada during the POI.

[30] Under Article 15 of the WTO Anti-dumping Agreement, developed countries are to give regard to the special situation of developing country members when considering the application of anti-dumping measures under the Agreement. Possibilities of constructive remedies provided for, under the Agreement, are to be explored before applying anti-dumping duty where they would affect the essential interests of developing country members.

[31] As China is listed under Part I of the DAC List of Aid Recipients² maintained by the Organization for Economic Co-operation and Development (OECD), the President recognizes China as a developing country for purposes of actions taken pursuant to SIMA. In this particular investigation, this obligation was met by providing the opportunity for exporters to submit price undertakings. The CBSA did not receive any proposals for undertakings from any of the identified exporters.

Results of the Dumping Investigation

[32] Responses to the CBSA's dumping questionnaires were received from 12 importers and 15 potential exporters. A number of the exporter responses were submitted by affiliated and/or intermediary companies involved in the sale of subject goods to Canada. Considerable gaps in the information submitted by exporters resulted in the CBSA issuing supplementary questionnaires to the majority of respondents.

[33] In certain instances, exporters submitted incomplete information or did not permit full verification of the information provided. As such, the submissions from these exporters were deemed to be unusable for this phase of the investigation.

Information Received - Final Investigation

[34] The CBSA received complete responses to its questionnaires and was able to verify the information from the following exporters of subject goods, grouped according to company affiliations.

Company Name	Designation	Location
Winners Products Engineering Ltd. (Winners)	Trading Company	Hong Kong, China
Taishan Winmaster Metalworks Industries Ltd. (Winmaster)	Producer	Guangdong, China
Grand Hall Enterprise Co., Ltd. (Grand Hall)	Trading Company	Taipei, Chinese Taipei
Huiyang RST Ind. Co., Ltd. (RST)	Producer	Guangdong, China
Zhuhai Prokan Relaxation Equipment Co., Ltd. (Prokan)	Producer	Guangdong, China
Zhuhai Grand Hall Inc. (Zhuhai Grand Hall)	Producer	Guangdong, China
Universal Quality Services Ltd. (Universal)	Trading Company	Taipei, Chinese Taipei
CNK Enterprises Co., Ltd. (CNK)	Producer	Guangdong, China

[35] A description of the normal values, export prices, and margins of dumping determined for exporters who provided complete responses to the CBSA's questionnaires is provided below. Subject goods from these exporters are estimated to account for 64% of the total volume of subject goods imported into Canada during the POI.

Normal Value

[36] None of the exporters of barbeques have sales of like goods in China. As a result, normal values cannot be determined pursuant to section 15 of SIMA, based on profitable domestic sales. When normal values cannot be established pursuant to section 15, SIMA provides that they can be established pursuant to paragraph 19(b), based on the full cost of production of the goods, plus an amount for all general, selling, administrative and other costs, plus a reasonable amount for profits.

[37] Paragraph 11(b) of the Special Import Measures Regulations (SIMR) provides direction on what the CBSA is to use as the amount for profits when calculating normal value under paragraph 19(b) of SIMA. Profit must be established in accordance with a hierarchy provided for in the SIMR. In all instances, the profit amount must be based on profit on sales in the domestic market.

[38] In this particular case, none of the cooperative exporters have domestic sales in which a profit amount can be based. As such, the CBSA must look to other vendors of similar products in the domestic market in order to establish an amount for profits.

[39] The CBSA conducted research into the Chinese market in order to determine an appropriate amount for profits that might be used in this case. No publicly available information involving any appropriate industry sector was found that could be reasonably associated with the production and sale of barbeques. As such, the CBSA has been unable to determine an appropriate amount for profits, pursuant to paragraph 11(b) of the SIMR for use in paragraph 19(b) normal values in this investigation.

[40] As a result, normal values for the cooperative, verified exporters were established pursuant to section 29 of SIMA, based on a ministerial specification. The ministerial specification follows an approach, similar to paragraph 19(b) of SIMA, based on the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The amount for profits was based on the weighted average profit earned by the cooperative exporters on their worldwide sales of like goods and was determined to be 11.2% of the cost of production. This is considered to be a reasonable approach as it uses verified costing information provided by the exporters on sales of the like goods, although profit is based on export as opposed to domestic sales.

[41] The CBSA conducted on-site verification involving six of the cooperative exporters listed above in late September and early October 2004. In addition, desk audit verification was conducted with respect to Universal and CNK during the final phase of the investigation. Verification was conducted into the cost of production for each of the models of barbeque shipped to Canada during the POI. In addition, verification was also performed on administrative, selling and all other costs that are attributable to the production and sale of the subject goods.

[42] The CBSA is satisfied that the costing and financial data provided by the exporters is accurate. The costing information that was provided confirmed that the majority of the material inputs are sourced from outside China, for the most part from Chinese Taipei, South Korea and the United States. The input acquisition costs were verified and, in instances where these products were sourced through related parties, the CBSA ensured that all applicable intermediary costs were included in the total cost of the goods, where applicable. It is noteworthy that since the majority of the inputs are sourced from offshore, there is no issue of the cost of these products being influenced by the GOC.

[43] All of the financial statements provided by the cooperative exporters had been reviewed by certified public accountants in China, Chinese Taipei or Hong Kong, as the case may be. In each case, the financial statements contained declarations made by the reviewers indicating that the financial statements fairly reflected the financial status of the company and were in accordance with the accepted accounting standards for that jurisdiction during the period in question. The verification exercise did not uncover any irregularities in the financial statements of those companies that were verified. As such, the CBSA has no reason to believe that the financial statements provided by the cooperative exporters did not accurately reflect the financial situation of the company during the POI.

Export Price

[44] Export prices were determined using information provided by exporters. As the goods were sold to unrelated importers in Canada, export prices were determined based on the exporter's selling price, as described in paragraph 24(a) of SIMA. Amounts for inland freight in China and port charges were deducted from the exporter's selling price, pursuant to subparagraph 24(a)(iii) of SIMA.

Margin of Dumping

[45] Normal values were compared with export prices for all subject goods that were shipped to Canada during the POI by Winners, Grand Hall and Universal. Of the volume of subject goods shipped to Canada during the POI by these exporters, only 0.8% was dumped (99.2% was undumped). None of the shipments made by Winners or Grand Hall were dumped during the POI.

[46] With respect to Universal, the margins of dumping of the dumped goods ranged from 0.7% to 4.3%. As mentioned earlier, any sales of a particular model made at undumped prices reduced the margin of dumping found for that particular model. As such, when determining the weighted average margin of dumping found for this exporter, the result was also zero (i.e. the margins of dumping found for Universal were offset by undumped sales of the same model). Therefore, the weighted average margin of dumping for all of the cooperative, verified exporters during the POI was zero.

Other Exporters

[47] Those exporters that were determined to be uncooperative represent 36% of the volume of goods shipped to Canada during the POI. One of these uncooperative exporters represents 29% of the volume shipped to Canada during the POI.

[48] Generally, when exporters do not provide a complete response to the CBSA's questionnaire, do not submit required information in a timely manner, or do not permit verification of the information submitted, the highest margin of dumping found for the verified companies is used to determine normal values for these exporters.

[49] In this case, the highest margin of dumping for the cooperative exporters is 4.3%. This represents the best available information for this case. The CBSA has no information that would lead it to believe that the uncooperative exporters were dumping goods by an amount larger than those that were the subject of verification. In addition, a review of information on file reveals that the export prices of the barbeque models shipped to Canada by the uncooperative exporters are within the same price range of similar models exported to Canada by those companies that were the subject of verification.

[50] As such, for exporters that did not provide a complete response to the CBSA's questionnaire, did not submit required information in a timely manner, or did not permit verification of the information submitted, the normal value has been determined by advancing the export price by 4.3% based on a ministerial specification pursuant to section 29 of SIMA.

Summary of Results - Dumping

[51] The results of the investigation indicate that 36% of the subject goods imported into Canada during the POI were dumped. The overall weighted average margin of dumping found was 1.6%, when expressed as a percentage of export price.

[52] When making a final determination of dumping under subsection 41(1) of SIMA, the President must be satisfied that the subject goods have been dumped and that the margin of dumping is not insignificant. Subsection 2(1) of SIMA stipulates that the margin of dumping is insignificant if it is less than 2% of the export price of the goods. In this case, the margin of dumping is below the 2% threshold, and as such requires the termination of the investigation.

[53] A summary of the margins of dumping found for each exporter is provided in Appendix I.

[54] For purposes of the preliminary determination of dumping, the President has responsibility for determining whether the actual or potential volume of dumped goods is negligible. After a preliminary determination of dumping, the Tribunal assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the Tribunal is required to terminate its injury inquiry in respect of any goods if the Tribunal determines that the volume of dumped goods from a country is negligible. This issue is no longer of consequence as the President has caused the dumping investigation to be terminated due to insignificant margins of dumping.

Subsidy Investigation

[55] Prior to the initiation of the investigation, the complainant submitted allegations that the subject goods from China are eligible for government programs that may constitute actionable subsidies.

[56] In support of its allegations, the complainant has provided a number of documents detailing support offered by the GOC, primarily to exporting enterprises and those operating in special economic areas. Reference was also made to the fact that there is a lack of information available with regard to potential subsidies granted by the GOC.

[57] In reviewing the information found in the reports and articles that were provided by the complainant, the CBSA developed the following list of programs and incentives that may be provided to manufacturers of outdoor barbeques in China:

• Special Economic Zone Incentives;
• Grants Provided for Export Performance and the Employment of Common Workers;
• Preferential Loans;
• Loan Guarantees by the Government of China;
• Income Tax Credits, Refunds and Exemptions:
  • Reduced Corporate Tax Rate for Export-Oriented Enterprises;
  • Exemption/Reduction of Corporate Income Tax during Designated Start-up Period;
  • Income Tax Refund of Amounts Further Invested in Special Economic Zones;
  • Exemption/Reduction in Local Income tax for Special Economic Zone Enterprises;
• Relief from Duties and Taxes on Inputs;
• Reductions in Land Use Fees;
• Purchase of Goods from State-owned Enterprises.

[58] Appendix II provides further details regarding the subsidy programs that were identified upon initiation of the investigation.

[59] The CBSA forwarded questionnaires relating to the named programs to the producers and exporters of subject goods in China, as well as to the GOC. Information was requested in order to establish whether there had been financial contributions made by any level of government and, if so, to establish if a benefit has been conferred on persons engaged in the production, manufacture, processing, purchase, distribution, transportation, sale, export or import of the subject goods; and whether any resulting subsidy was specific in nature.

[60] Complete responses to the CBSA's subsidy questionnaires were received from four exporters located in China, as well as from the GOC. A number of the exporter responses were submitted by affiliated and/or intermediary companies involved in the sale of subject goods to Canada.

Government of China

[61] For purposes of this investigation, "GOC" refers to all levels of government, including federal, central, provincial/state, regional, municipal, city, township, village, local, legislative, administrative or judicial levels. For this reason, the CBSA instructed the GOC to forward the relevant sections of its questionnaires to the appropriate subordinate level of government. Benefits provided by state-owned enterprises operating under the direct or indirect control or influence of the GOC may also be considered to be provided by the GOC for purposes of this investigation.

[62] As noted above, the GOC provided a response to the subsidy questionnaire that was issued by the CBSA at the initiation of the investigation. The information originally submitted by the GOC was deemed to be incomplete and unusable as the GOC failed to respond adequately to a number of questions posed by the CBSA.

[63] The CBSA issued a series of supplementary questionnaires to the GOC, in an effort to obtain complete and accurate information. The requested information related to the question of whether the named programs constitute a financial contribution by any level of government, which confers benefits on exporters of the subject goods to Canada. Additional questions were also posed to the GOC to determine whether subsidies that may have been provided as a result of these programs were specific in law or in fact.

[64] Information was submitted by the GOC in response to the CBSA's supplementary questionnaires. However, at the time of the preliminary determination, the information was found to still be incomplete, and further information was requested from the GOC in order for the CBSA to be in a position to conduct a complete analysis of the named subsidy programs.

[65] Subsequent to the preliminary determination, additional information was provided by the GOC that dealt with the majority of the outstanding issues. As a result, on September 22, 2004, a decision was taken to conduct verification meetings with the GOC.

Program Analysis

[66] In accordance with SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex 1A to the WTO Agreement, that confers a benefit.

[67] Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists where:

• practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
• amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;
• the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
• the government permits or directs a non-governmental body to do any thing referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.

[68] If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidy. An "enterprise" is defined under SIMA as also including a group of enterprises, an industry and a group of industries. A "prohibited subsidy" includes an export subsidy which is contingent, in whole or in part, on export performance or a subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.

[69] Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether:

• there is exclusive use of the subsidy by a limited number of enterprises;
• there is predominant use of the subsidy by a particular enterprise;
• disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
• the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.

[70] For purposes of a countervailing duty investigation, the CBSA refers to a subsidy that has been found to be specific as an "actionable subsidy" meaning that it is subject to countervailing measures if the imported goods under investigation have benefited from the subsidy.

Results of the Subsidy Investigation

[71] The CBSA received complete responses from four exporters in China as well as the GOC. The four exporters are as follows:

Exporter	Location	Affiliated Company
Taishan Winmaster Metalworks Industries Ltd. (Winmaster)	Guangdong, China	Winners Products Engineering Ltd. (Winners)
Huiyang RST Ind. Co., Ltd. (RST)	Guangdong, China	Grand Hall Enterprise Co., Ltd. (Grand Hall)
Zhuhai Prokan Relaxation Equipment Co., Ltd. (Prokan)	Guangdong, China	Grand Hall Enterprise Co., Ltd. (Grand Hall)
Zhuhai Grand Hall Inc. (Zhuhai Grand Hall)	Guangdong, China	Grand Hall Enterprise Co., Ltd. (Grand Hall)

[72] Verification meetings were held with the above-noted exporters during late September and early October 2004. The CBSA also conducted verification meetings with officials of the GOC during this period. The government meetings were held in Guangzhou, the capital of Guangdong Province, and involved representatives from various government departments including: Bureau of Fair Trade for Imports and Exports of the Ministry of Commerce of China, Department of Foreign Trade and Economic Cooperation of Guangdong Province, Zhuhai Bureau of Foreign Trade and Economic Cooperation, Zhuhai Land Use Bureau, Department of Finance of Guangdong Province, Guangdong Provincial Department of Land Resources, Local Taxation Bureau of Guangdong Province, China Customs Service and the Territory Resource Bureau of Taishan City.

[73] Verification was conducted in the following program areas: Special Economic Zone Incentives, Grants Provided for Export Performance and the Employment of Common Workers, Preferential Loans, Loan Guarantees by the GOC, Income Tax Credits, Refunds and Exemptions, Relief from Duties and Taxes on Inputs, Reductions in Land Use Fees and Purchase of Goods from State-owned Enterprises.

1. Special Economic Zones

[74] Two of the factories that cooperated in the subsidy investigation are located in a special economic zone. The remaining two are located in what would be commonly referred to as industrial parks. These industrial parks do not offer any special benefit from any government agency.

[75] Zhuhai Grand Hall and Prokan are located in the Zhuhai Special Economic Zone. Verification revealed that, other than a more beneficial tax rate, these companies did not receive any additional benefits from the GOC as a result of it locating in this particular area. See item 5 below for further details on the tax benefits.

[76] RST indicated that its facilities were located in an export-processing zone, however, except for a more beneficial tax rate, the CBSA determined that the company did not receive any additional benefits from the GOC as a result of it locating in this area.

[77] In its submission, Winmaster indicated that it was not located in any special economic zone. On-site verification confirmed that this is the case. Although the company is located in the "Taishan High-Technology Development Zone", municipal officials indicated that this was a title used for marketing purposes only, and this zone is not considered a special economic zone in China. It should be noted that on-site verification at Winmaster confirmed that this company is the major tenant in the industrial park and there was no indication of any `hi-tech' industries in the area.

[78] Based on the information received and verified, the CBSA is able to confirm that there is no evidence of any of the factories receiving benefits from the GOC for establishing operations in the localities where they did.

2. Grants Provided for Export Performance and the Employment of Common Workers

[79] In its response to the CBSA's Request for Information (RFI), the GOC indicated that the Province of Guangdong administers a fund to support exports. During the verification meetings held with the GOC officials, it was explained that this program provided an incentive for companies that increase exports over the prior year. Although the program was terminated at the central government level in 2002, it continued at the provincial level in 2003. The program provided companies ten fen (100 fen = ¥1.00 renminbi) per US dollar of increased sales over the prior year. It was explained that this program was only available for companies that were registered at the provincial level (based on the amount of initial capital investment >$US30 million). Provincial finance authorities confirmed that none of the barbeque exporters would be eligible for this program as none were registered at the provincial level due to the capital investment threshold limit. The CBSA also confirmed during the verification meetings with the exporters that no benefits were received from this program during the POI.

[80] A second program involves funding for small and medium enterprises to gain greater access to world markets. This involves financial support for attendance at trade fairs, assistance with travel costs to attend trade fairs, assistance with the application of foreign patent protection and basic skills training to attend foreign trade fairs. GOC officials explained that this program was available to any company in China (either foreign invested or domestic invested). Provincial finance department officials conducted a search in their database and confirmed that none of the barbeque manufacturers received any of the funds from this program. The CBSA also confirmed during the verification meetings with the exporters that no benefits were received from this program during the POI.

[81] The GOC also administers a program involving a re-employment promotion for displaced employees in state-owned enterprises. Verification meetings with GOC officials confirmed that the program involves funding for the labour department to provide training programs for laid-off workers to obtain new skills that would be in demand in the workforce. In addition, the GOC provides assistance for displaced workers from state-owned enterprises. The government provides loan guarantees through banks to enable laid-off workers to start their own small business. Government officials confirmed that no enterprises in China were able to have access to any of these funds.

[82] Furthermore, the CBSA confirmed during on-site exporter verification, that new employees are generally hired by way of signs posted at the factory gate, through word of mouth referrals by existing employees and by way of notices of available positions posted with local employment offices. At no time during the POI, did any of the cooperative factories receive any financial benefit from the GOC for hiring any employees.

[83] The CBSA has confirmed that none of the factories that cooperated in the subsidy investigation have received any grants whatsoever during the POI. Verification of income tax returns and financial data submitted by the factories confirmed that none of the factories received any grants from the GOC and corroborated the statements made by GOC officials.

3. Preferential Loans

[84] In its submission, the GOC indicated that it had not provided any preferential loans during the POI. On-site verification of the cooperative exporters indicated, however, that there were firms that received loans from state-owned banks during the POI. In order to establish whether these loans were made at rates more preferential than those which the firms could have obtained from non-state owned or controlled banks in respect of non-guaranteed loans, the CBSA undertook to determine whether state-owned banks in China had lending rates, in general, that were comparable to those found in respect of non-state owned or controlled financial institutions. This was established by a comparison of lending rates between China and Hong Kong, China. During the period of investigation, the lending rate of the People's Bank of China ranged from 5.04% to 5.76% depending on the term (duration) of the loan. During the same period, the prime-lending rate of non-state owned or state-controlled banks in Hong Kong, China, was 5.00%. This would suggest a relative comparability between the two banking regimes and it would further suggest that the interest rates associated with the loans made to the verified exporters were comparable to prevailing commercial rates.

[85] Based on the above, the CBSA has concluded that none of the cooperative exporters have received any preferential loans during the POI.

4. Loan Guarantees

[86] The GOC indicated in its submission that, under Chinese law, it is not possible for it to provide any loan guarantees. As part of its response, it provided a copy of the Guaranty Law of the People's Republic of China³. Article 8 of this legislation states that "No state organ may act as surety, except in the case of securing loans, for onlending, from a foreign government or an international economic organization as is approved by the State Council".

[87] Verification with the cooperative exporters revealed that none of the factories have received any loan guarantees whatsoever. As such, the CBSA has concluded that none of the cooperative exporters benefited from any loan guarantees during the POI.

5. Income Tax Credits, Refunds and Exemptions

[88] All of the cooperative barbeque exporters in China are classified as Foreign Invested Enterprises (FIE) under Chinese law. All FIEs are subject to the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (FIE Tax Law). The GOC provided a copy of the legislation and the Detailed Rules for the Implementation of the FIE Tax Law (Tax Law Rules) as part of its original submission⁴.

[89] The FIE Tax Law contains two broad provisions. One involves a reduced tax rate and the other involves a `tax holiday' for a fixed period of time. The CBSA has determined that there have been financial contributions by the GOC that has conferred benefits to the exporters of subject goods. Further details on these programs can be found in Appendix III.

[90] The Tax Law Rules contain another provision that involves a further reduction of income tax rates for export-oriented FIEs once the tax holiday period referenced in the FIE Tax Law has expired. Article 75(7) of the Tax Law Rules state that export-oriented enterprises whose period of enterprise income tax exemptions or reductions has expired, shall be subject to income tax at the tax rate specified in the Tax Law reduced by one half if at least 70% of production is exported. In addition, if the company is located in a Special Economic Zone or Economic and Technological Development Zone the income tax rate is 10% if the firm meets the aforementioned conditions.

[91] The CBSA determined during verification that none of the cooperative exporters have reached the expiration of the tax holiday provisions yet, and as such do not yet qualify for the benefits identified in Article 75(7) of the Tax Law Rules. As a result, the CBSA has concluded that none of the cooperative exporters have benefited from the tax provisions of Article 75(7).

6. Relief from Duties and Taxes on Inputs

[92] During verification meetings with the GOC, the CBSA met with officials of China Customs. It was explained that export-oriented companies have the ability to import machinery and inputs free of duty and taxes.

[93] In order for a company to be able to import inputs without duty, it is required to obtain a Customs Handbook. The Customs Handbook is the primary administrative tool used by China Customs to track all importations of inputs as well as all products subsequently exported. In the case of the barbeque exporters, a separate handbook is required for each model of barbeque that is to be produced. Each handbook identifies specific amounts of materials to be imported, the supplier, port of importation, authorization certificate, and a summary of the finished products exported. Exports are then tracked against the imported product. At the conclusion of the period encompassed by the handbook, usually one year, China Customs then audits the handbook and duties are assessed against any product that was imported but not consumed in production or re-exported.

[94] The CBSA reviewed the Customs Handbooks for two barbeque exporters and found no irregularities in the documents and no instances of any assessments of duty. The issue of a refund and/or over-refund of duties and taxes was also examined during verification at the exporter's premises and it was confirmed that none of the factories received any such refunds. As such, the CBSA has concluded that none of the cooperative exporters benefited from any excess refunds of duties and taxes on importations of inputs.

[95] China Customs also explained that export oriented companies are also able to import machinery free of duty. However, domestic invested companies are also able to import machinery free of duty. The machinery duty exemption is a program designed to assist in the importation of machinery that is not readily available in China. In its submission to the CBSA, the GOC provided the Directory of Imported Commodities of Non-Tax Exemption for Domestic Invested Projects⁵ and the Directory of Imported Commodities of Non-Tax Exemption for Foreign Invested Projects⁶. As such, any product that does not appear in either directory can be imported free of duty. A review of the directories was conducted, and none of the machinery imported duty free by the barbeque exporters during the POI appears in the directory for domestic invested projects that was in effect during the POI. As such, there is no issue of preferential treatment of duty free importation of machinery involving any of the cooperative barbeque exporters during the POI.

7. Reductions in Land Use Fees

[96] In China, private ownership of land is generally not permitted. As such, entities obtain long-term land use rights through the payment of land use fees. The GOC indicated in its submission that no level of government provided any assistance in a reduction in land use fees to any of the companies identified by the CBSA. Land use contracts were provided in the submission of the GOC as well as in each of the cooperative exporters' subsidy submissions.

[97] During the verification meetings, the CBSA officers met with officials responsible for land resources at both the provincial and municipal levels of government. It was explained that the responsibility for management of land resources could be at the provincial or municipal level depending on the zoning of the land and the type of land (residential, commercial, industrial, agricultural, etc.). In either case, when a decision is made by the government to put the land up for development, the land use rights are usually obtained by land development corporations that then take on the responsibility of developing and sub-leasing the land use to other investors (tenants).

[98] It was confirmed during verification that all of the cooperative exporters obtained land use rights from real estate development companies that are operating outside the control of the GOC, as either non-profit or for profit companies. It was confirmed that land use fees were negotiated under normal market conditions without the influence of the government.

[99] Based on the above, the CBSA found no indication that any of the cooperative exporters obtained any financial benefits when obtaining their land use rights.

8. Purchase of Goods from State-Owned Enterprises

[100] As indicated earlier, the cooperative exporters obtain the majority of their raw materials offshore. The CBSA confirmed during verification that any materials that were sourced domestically were obtained from companies that are not state-owned. The exporters do obtain utility services from state-owned companies. The utility companies operate within the control of the municipality or province. In accordance with SIMA, goods or services provided by a government confer a benefit when they are provided at less than the fair market value of the goods or services in the territory of the government providing this subsidy. In the case of utilities provided by state-owned enterprises, the CBSA has not established whether the price charged for the utilities is less than the fair market value of the utilities had they been provided under competitive market conditions. However, it was determined that the rates charged to the exporters of the subject goods by the state-owned enterprises are similar to those charged to all industrial users. This would indicate that, any subsidy that may exist as a result of the provision of services by the utilities, would be generally available and therefore, would not constitute a specific subsidy pursuant to paragraph 2(7.1)(c) of SIMA.

[101] Based on the above, the CBSA found no indication that any of the cooperative exporters obtained any goods or services from state-owned enterprises at prices that would be considered an actionable subsidy.

Other Exporters

[102] Generally, when exporters do not provide a complete response to the CBSA's questionnaire, do not submit required information in a timely manner, or do not permit verification of the information submitted, the highest amount of subsidy found for each program for those verified companies is used to determine the amount of subsidy for these exporters.

[103] In this case, the highest amount of subsidy found for the cooperative exporters is 1.9%. As such, for exporters that did not provide a complete response to the CBSA's questionnaire, did not submit required information in a timely manner, or did not permit verification of the information submitted, the amount of subsidy has been determined to be 1.9% of the export price based on a ministerial specification pursuant to subsection 30.4(2) of SIMA.

Summary of Results - Subsidy

Country	Volume of Imports (Units)	Subsidized Goods as a Percentage of Total Subject Goods Imported	Percentage of Subsidy on Subject Goods
China	380,102	94%	1.7%7

[104] When making a final determination of subsidizing under subsection 41(1) of SIMA, the President must be satisfied that the subject goods have been subsidized and that the amount of subsidy on the goods of a country is not insignificant. According to subsection 2(1) of SIMA, "insignificant" means an amount of subsidy that is less than 1% of the export price of the goods.

[105] However, section 41.2 of SIMA directs the President to take into account the provisions of paragraphs 10 and 11 of Article 27 of the WTO Subsidies Agreement when conducting subsidy investigations. These provisions stipulate, in part, that any investigation involving a developing country must be terminated once it is determined that the total amount of subsidy for a developing country does not exceed 2% of the value of the goods.

[106] The CBSA normally makes reference to Part I of the DAC List of Aid Recipients, maintained by the OECD, to determine eligibility for the differential amounts for developing countries in subsidy investigations. As China is a developing country according to this list, the 2% threshold for insignificance would apply. In this case, the amount of subsidy is below the 2% threshold, and as such requires the termination of the investigation.

[107] A summary of the amounts of subsidy found for each exporter is provided in Appendix IV.

[108] For purposes of the preliminary determination of subsidizing, the President has responsibility for determining whether the actual or potential volume of subsidized goods is negligible. After a preliminary determination of subsidizing, the Tribunal assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the Tribunal is required to terminate its inquiry in respect of any goods if the Tribunal determines that the volume of subsidized goods from a country is negligible. This issue is no longer of consequence as the President has caused the subsidy investigation to be terminated due to insignificant amounts of subsidy.

Representations Concerning the Investigation

[109] On August 13, 2004 and October 1, 2004, the CBSA received written representations from counsel for Loblaws Inc. (Loblaws), an importer of subject goods. It was submitted that the CBSA should undertake verification visits with the foreign manufacturer and vendor involved in the production and sale of subject goods to Loblaws, in order to confirm the accuracy of information provided in their responses.

[110] Loblaws also argued that it purchases subject goods on a "made to order" basis from the foreign manufacturer, and that these goods are comprised of different construction materials than similarly priced models marketed by the complainant. Documentation was provided in support of Loblaws' allegations that subject goods purchased from the foreign manufacturer reflect particular features and specifications distinguishable in the marketplace, and that these goods have not been dumped.

[111] Finally, Loblaws made representations that the alleged subsidies under investigation are non-existent, particularly with respect to the foreign manufacturer and vendor responsible for sales of subject goods to Loblaws.

[112] Complete responses to the CBSA's questionnaires were not received from the foreign manufacturer and vendor in question. As such, this exporter was deemed uncooperative and its submission was not used. Therefore, the CBSA was unable to evaluate the representations submitted by Loblaws for the purpose of making a final decision.

[113] On October 1, 2004, written representations were received on behalf of the complainant, Fiesta. It was submitted that the CBSA should continue to apply the highest margins of dumping in the investigation to the non-cooperating exporters. In addition, counsel for the complainant also submitted that certain costs involving warranty, replacement, and agency fees and commissions should be allocated to the subject goods.

[114] As indicated earlier, the CBSA applied the highest margin of dumping to non-cooperating exporters for purposes of the final phase of the investigation. With respect to warranty, agency fees and commissions, all such costs were included as part of the total cost, where necessary, in the establishment of the normal values for the cooperative exporters.

[115] Written representations were received on October 1, 2004, on behalf of, Onward, one of the Canadian producers. The representations concerned a number of topics as follows:

• That the President should rule that China is not a market economy and that normal values be determined on the basis of a surrogate country pursuant to section 20 of SIMA;
• That since there are no domestic sales in China from which to derive an amount for profits as required by section 11 of the SIMR, the CBSA should look to sales in another country to determine normal values and that country should be the United States;
• That Chinese accounting records may not be sufficient to allow the CBSA to determine if costs are `reasonable';
• That there may be hidden labour costs not properly accounted for in the accounting records of the exporters; and
• That the CBSA in determining prospective normal values for implementation after a Tribunal injury decision should reflect the worldwide increase in steel prices.

[116] On October 26, 2004, representations were received from counsel (importer counsel) on behalf of Wal-Mart Canada, Canadian Tire Corporation, Costco Wholesale Canada Ltd., Winners Products Engineering Ltd., Loblaws Companies Ltd., S.R. Potten Enterprises Ltd. and Lucas Innovations Inc. The representations were made with respect to the submission made on behalf of Onward on the issue that the CBSA should rule that China is not a market economy and that normal values be determined on the basis of a surrogate country pursuant to section 20 of SIMA.

[117] Importer counsel argued that the CBSA should not consider China to be a non-market economy, on the grounds that it would be counter to the CBSA's stated policy and practice, that any decision on non-market status must be made on a sectoral basis in accordance with CBSA policy, and that there is no evidence on the record to indicate that the conditions of section 20 exist in the barbeque sector in China.

[118] With respect to a) above, the stated policy of the CBSA is that anti-dumping investigations are to be initiated on the presumption that section 20 of SIMA is not applicable to the sector under investigation unless there is evidence that suggests otherwise. In this particular case, the complainant stated that it had no reason to believe that the conditions of section 20 existed in the barbeque industry in China. As such, the President did not undertake a section 20 analysis. In this particular case, on-site verification did not reveal any indication that domestic prices were substantially being determined by the GOC. None of the exporters of barbecues have sales of the subject goods in China. In addition, the exporters of the subject goods obtain the majority of the inputs from outside China. As such, there is no indication that the conditions of section 20 of SIMA exist in the barbeque sector in China.

[119] With respect to b), as indicated earlier, normal values were established pursuant to a ministerial specification based on the cost of production of the goods, plus an amount for general, selling and other expenses, plus an amount for profits. The methodology chosen by the CBSA provides more accuracy than determining the normal value based on sales in another country such as the United States, since the normal values are specific to the model of barbeque that was exported to Canada, rather than a surrogate model sold in another country.

[120] The issues identified in c) and d) both relate to the quality of the financial and costing information that the CBSA received from the exporters. As indicated earlier in the section on normal value, the CBSA did not find any uncharacteristic accounting practices or anomalies involving the costing or the financial information provided by the cooperative exporters that were the subject of verification. As such, the CBSA has no reason to reject the information that was submitted and verified.

[121] Finally, with respect to the last item e), raised by Onward's counsel, as the President has caused the termination of the investigation, the issue of the establishment of future normal values is no longer relevant.

[122] Representations were also received from the counsel representing Char-Broil, a Division of W.C. Bradley, concerning the degree of completeness of its submission in response to the CBSA's RFI. In this particular case, Char-Broil did not permit verification of certain aspects of the financial information involving the company. As such, the company was deemed uncooperative and margins of dumping were established based on ministerial specification.

Decision

[123] On the basis of the results of the investigation, the President is satisfied that the margins of dumping of certain outdoor barbeques originating in or exported from the People's Republic of China are insignificant. Consequently, on November 19, 2004, the President caused the dumping investigation to be terminated pursuant to paragraph 41(1)(b) of SIMA.

[124] Similarly, the President is satisfied that the amount of subsidy of certain outdoor barbeques originating in or exported from the People's Republic of China are insignificant. As a result, on November 19, 2004, the President also caused the subsidy investigation to be terminated pursuant to paragraph 41(1)(b) of SIMA.

Future Action

[125] The termination of the investigation concludes all proceedings by the CBSA concerning this investigation. Consequently, the Tribunal's injury inquiry proceedings have also ceased as a result of this decision. All provisional duties that have been collected will be returned to the importers in accordance with subsection 8(2) of SIMA.

Publication

[126] A notice of the termination of the dumping and subsidy investigation is being published in the Canada Gazette pursuant to paragraph 41(4)(a) of SIMA.

Information

[127] This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the Directorate's Web site at the address below. For further information, please contact one of the officers noted below.

Mail Canada Border Services Agency
Anti-Dumping and Countervailing Directorate
100 Metcalfe Street, 11^th Floor
Ottawa, Ontario K1A 0L8
Canada

Telephone:
Ron McTiernan (613) 954-7271
Peter Dupuis (613) 954-7341
Tara Ryan (613) 954-7187

Fax (613) 948-4844
Email simaregistry-depotlmsi@cbsa-asfc.gc.ca
Web site www.cbsa-asfc.gc.ca/sima

Original signed by
Suzanne Parent
Director General
Anti-Dumping and Countervailing Directorate

Appendix I

Summary of Margins of Dumping

Exporter	Volume of Goods Dumped (%)	Range of Margins of Dumping (% of Export Price)	Weighted Average Margin of Dumping (% of Export Price)
Winners Products Engineering Ltd.	0%	0%	0%
Grand Hall Enterprise Co., Ltd.	0%	0%	0%
Universal Quality Services Ltd.	0%	0.7% - 4.3%	0%8
Other Exporters9	100%		4.3%
TOTAL	36%		1.6%

Appendix II

Description of Identified Programs and Incentives at Initiation

• 1. Special Economic Zone (SEZ) Incentives - Available to manufacturers operating in specified regions such as SEZs, economic and technical development zones, export processing zones, bonded zones and high technology industrial development zones. Benefits either granted outright or contingent on export performance, in the form of:
  • Tariff exemptions on imported materials
  • Rebated corporate income tax
  • VAT exemptions
  • Rebates on investment costs
  • Special land tax and land use exemptions
  • Preferential costs of services and infrastructure provided by government bodies or state-owned enterprises
• 2. Grants Provided for Export Performance and the Employment of Common
  • Workers - Benefits provided by the GOC in the form of direct grants to enterprises satisfying specified export criteria, or to assist in expanding export sales, or to off-set the cost of employing former employees of state-owned enterprises.
• 3. Preferential Loans - Preferential interest rates and financing terms provided, either directly by the GOC or indirectly through financial institutions, to companies satisfying specified export-contingent criteria.
• 4. Loan Guarantees by the Government of China - Loans provided to certain manufacturers satisfying export-contingent or other criteria guaranteed by the GOC or by financial institutions operating under the direct or indirect control or influence of the GOC.
• 5. Income Tax Credits, Refunds and Exemptions:
  • (a) Reduced Corporate Tax Rate for Export-Oriented Enterprises - Reduced rate of tax on corporate income for those companies that have a significant volume of export sales.
  • (b) Exemption/Reduction of Corporate Income Tax during Designated
    • Start-up Periods - Exemption from and further reduction of income tax for companies operating in special economic areas during a designated start-up period (usually five years). The result is that export profits are exempt from corporate income tax.
  • (c) Income Tax Refund of Amounts Further Invested in SEZs - Certain qualifying companies located in SEZs eligible for rebate of corporate income tax paid when profits are re-invested within the SEZ.
  • (d) Exemption/Reduction in Local Income tax for SEZ Enterprises - Certain foreign invested enterprises located in SEZs granted an exemption or reduction in sub-provincial income taxes.
• 6. Relief from Duties and Taxes on Inputs - Certain qualifying companies located in SEZs permitted to import machinery and other inputs for use in the production of subject goods exempt from applicable duties and taxes.
• 7. Reductions in Land Use Fees - Certain qualifying companies located in SEZs pay long-term land-use fee for land on which factories are located. Certain companies eligible for reduction in land-use fee.
• 8. Purchase of Goods from State-owned Enterprises - Entities operating under the direct or indirect control or influence of the GOC provide goods, such as raw materials, chemicals, metallurgy and semi-manufactured inputs, and services, such as utilities, natural gas and hydroelectric power, to manufacturers at below-market prices.

Appendix III

SUBSIDY PROGRAMS IN CHINA THAT WERE FOUND TO HAVE CONFERRED A BENEFIT TO EXPORTERS OF BARBEQUES

Income Tax Law for Foreign Invested Enterprises

All of the cooperative exporters in China are classified as Foreign Invested Enterprises (FIE). An FIE can be formed in one of three ways:

1. Chinese - foreign equity joint venture:

• Joint venture between a Chinese company, enterprise, or other business organization and a foreign company, enterprise, business organization or individual set up in the form of a Chinese limited liability company.
• The characteristics of a Chinese - foreign equity joint venture are joint investment, joint operation, and the participants share profits, risks and losses in proportion to their respective contributions to the registered capital of the joint venture.
• The proportion of the investment by the foreign party is no less than 25% in the registered capital of equity joint venture.

2. Chinese - foreign contractual joint venture:

• Established by foreign enterprises and other economic organizations or individuals and Chinese enterprises or other economic organizations within the territory of the People's Republic of China. The rights and obligations of each part are determined in accordance with the agreement specified in the contractual joint venture contract. The investment or conditions for cooperation contributed by the Chinese and foreign parties may be provided in cash or in kind, or may include the right to the use of land, industrial property rights, non-patent technology or other property rights.

3. Wholly - foreign owned enterprises:

• A Wholly - foreign owned enterprise is established by foreign enterprises and other economic organizations or individuals pursuant to the Chinese laws within the territory of the People's Republic of China and all its capital is invested by foreign investors.

The FIE Tax Law contains two measures that the CBSA has determined to constitute actionable subsidies. One involves a reduced tax rate; the second involves a `tax holiday' for a fixed period of time.

Reduced Tax Rates

General Information:

This program involves the application of preferential tax rates to FIEs that are located in certain designated areas or special economic zones in China.

Legal Basis:

The reduced income tax rates are provided for in Article 7 of the FIE Tax Law. Article 7 contains a provision that the tax on enterprises with foreign investment established in Special Economic Zones, foreign enterprises which have establishments or places in Special Economic Zones engaged in production or business operations, and enterprises with foreign investment of a production nature in Economic and Technological Development Zones are levied income tax at a rate of 15%. This article also contains a provision that enterprises with foreign investment of a production nature established in coastal economic open zones or in the old urban district of cities where the Special Economic Zones or the Economic and Technological Development Zones are located, are levied income tax at a rate of 24%.

Eligibility Criteria:

Preferential tax rates are provided to:

• FIEs located in special economic zones (reduced tax rate of 15%);
• FIEs of a production nature that are located in Economic and Technological Development Zones (reduced tax rate of 15%);
• FIEs of a production nature located in coastal economic open zones or in the old urban district of cities where the Special Economic Zones or the Economic and Technological Development Zones are located (reduced tax rate of 24%).

Determination of Subsidy:

This program constitutes a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA (i.e. amounts that would otherwise be owing and due to the government are exempted), and confers a benefit to the recipient equal to the amount of the exemption.

In this particular case, the corporate income tax rate for all other enterprises in China is 30%. The amount of the benefit received by each of the cooperative exporters was determined by taking the difference between the amounts of income tax that would have been paid and that amount actually paid for the 2003 income tax year. (It should be noted that some of the cooperative exporters operated at a loss or were carrying prior year losses forward, and as such did not pay any income tax in 2003.)

Determination of Specificity:

Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise (the term "enterprise" includes a group of enterprises, an industry and a group of industries) pursuant to paragraph 2(7.2)(a) of SIMA. More specifically, the CBSA believes that the subsidy is limited to a group of enterprises, which is comprised of FIEs that meet the above-mentioned eligibility criteria. Furthermore, in its response to the CBSA's third supplemental RFI, the GOC indicated that that output of all FIEs was 5.8% of gross domestic product (GDP) in 2001.¹⁰ Given that FIEs constitute such a small proportion of China's GDP, the CBSA is of the view that the FIE Tax Law is specific in nature.

Tax Holiday

General Information:

Certain FIEs are able to benefit from a tax holiday during a five-year period where they are not required to pay taxes during the first two profitable years, and pay taxes at a reduced rate for three additional years.

Legal Basis:

The provision is provided for in Article 8 of the FIE Tax Law. This article states that: "Any enterprise with foreign investment of a production nature scheduled to operate for a period of not less than ten years shall, from the year beginning to make profit, be exempted from income tax in the first and second years and allowed a fifty percent reduction in the third to fifth years."

Eligibility Criteria:

Any production oriented enterprise, classified as an FIE, during its first five profit earning years may receive a reduction in taxes during this period.

Determination of Subsidy:

This program constitutes a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA (i.e. amounts that would otherwise be owing and due to the government are exempted), and confers a benefit to the recipient equal to the amount of the exemption.

In this particular case, the corporate income tax rate for all other enterprises in China is 30%. The amount of the benefit received by each of the cooperative exporters was determined by taking the difference between the amounts of income tax that would have been paid and that amount actually paid for the 2003 income tax year. (It should be noted that some of the cooperative exporters operated at a loss or were carrying prior year losses forward, and as such did not pay any income tax in 2003.)

Determination of Specificity:

The tax holiday provided to FIEs were found to be limited, in law, to a particular enterprise (the term "enterprise" includes a group of enterprises, an industry and a group of industries) pursuant to paragraph 2(7.2)(a) of SIMA. More specifically, the CBSA believes that the subsidy is limited to a group of enterprises, which is comprised of FIEs that meet the above-mentioned eligibility criteria. Furthermore, in its response to the CBSA's third supplemental RFI, the GOC indicated that that output of all FIEs was 5.8% of GDP in 2001.¹¹ Given that FIEs constitute such a small proportion of China's GDP, the CBSA is of the view that the FIE Tax Law is specific in nature.

Representations Received

The CBSA received representations on this issue from counsel on behalf of the GOC. In its representations, counsel for the GOC argued that FIEs do not fit the definition of, nor do they constitute an `enterprise' for SIMA purposes. Counsel went on to state that, were the CBSA to determine that FIEs constitute a group of enterprises, it would be applying circular reasoning by grouping FIEs into one so-called industry merely because they are subject to the same tax treatment. It further argued that under SIMA, an `enterprise' is not defined in terms of a particular countervailable program, rather, it is defined in terms of the type of product that it produces. Since FIEs do not produce the same type of product, they cannot form an `enterprise' in any sense of the term, and that by grouping FIEs on the basis that they use the same government program, writes the specificity requirement out of SIMA.

In addition, counsel for the GOC made representations concerning the issue of specificity and taxation and referenced Article 2.2 of the WTO Subsidies Agreement. Article 2.2 of the Subsidies Agreement states that the setting or change of generally applicable tax rates by all levels of government shall not be deemed to be a specific subsidy.

As indicated earlier, the CBSA is of the opinion that the benefits provided in the FIE Tax Law were found to be limited, in law, to a particular enterprise. Although the criterion governing the eligibility for, and the amount of, the subsidy appears to be objective and set out in law, the CBSA is of the opinion that it favours a particular enterprise, i.e. a group of enterprises.

For a subsidy to be actionable, it must benefit the producers of subject goods. However, the subsidy need not be specific to those producers only - it can be specific to a group that includes producers of the subject goods. In the case at hand, the subsidy provided to all FIEs (a group of enterprises) also benefits certain producers of subject outdoor barbeques.

While it appears that the common practice is to refer to industries by the type of products they produce, the same cannot be said about enterprises. An enterprise can properly be defined as "an institutional unit in its capacity as a producer of goods and services"¹² or more simply, a business organization. Therefore, in the case at hand, a group of FIEs is, in fact, a group of enterprises that happen to share a common characteristic - they are all foreign-invested enterprises that meet the afore-mentioned eligibility criteria. Since all FIEs, according to information provided by the GOC, account for approximately 5.8% of GDP, the CBSA is of the opinion that they represent a sufficiently small and homogeneous group for the purposes of determining specificity under SIMA.

With respect to the issue concerning the ability of governments to set or change generally applicable tax rates, the CBSA considers that, in the present case, the 30% tax rate applicable to all other enterprises in China is a "generally applicable" tax rate. However, the reduced rates provided only to FIEs cannot be considered to be "generally applicable". Article 2 of the Subsidies Agreement is concerned with the distortion that is created by a subsidy that is not broadly available. As such, it is the CBSA's opinion that preferential tax rates offered only to FIEs are not broadly available and hence distort trade.

Appendix IV

Summary of Amounts of Subsidy

Exporter	Volume of Goods Subsidized(%)	Weighted Average Amount of Subsidy(% of Export Price)
Winners Products Engineering Ltd.	100%	1.9%
Grand Hall Enterprise Co., Ltd.	26.2%	0.03%
Other Exporters13	100%	1.9%
TOTAL	94%	1.7%14

1 Fiesta Barbeques Limited - Corporate Profile, online: http://www.fiestabbq.com/about/about.html

2 OECD, Development Assistance Committee List of Aid Recipients - As at 1 January 2003, online: http://www.oecd.org/dataoecd/35/9/2488552.pdf

3 GOC original response to CBSA RFI, Exhibit E.4.A1

4 GOC's original response to CBSA RFI, Exhibit E.5(a)A1

5 GOC response to supplemental RFI#1, Exhibit 16.1.1

6 GOC response to supplemental RFI#1, Exhibit 16.2.1

7 A mathematical error was found subsequent to the decision of November 19, 2004. The amount as originally reported of 1.4% should have been 1.7%

8 Margins of dumping, at the model level, were offset by undumped sales, resulting in an overall margin of dumping of zero for this exporter.

9 Based on highest margin of dumping found for the verified exporters.

10 GOC response to supplemental RFI#3, narrative

11 GOC response to supplemental RFI#3, narrative

12 International Standard Industrial Classification of All Economic Activities (ISIC), Revision 3.1, United Nations, para. 53

13 Based on the amount of subsidy found for the verified exporters

14 Supra note 7