Decorative and other non-structural plywood - DONP 2020 IN
Statement of Reasons - Initiation of investigations

Decision

Ottawa, June 26, 2020

Pursuant to subsection 31(1) of the Special Import Measures Act, the Canada Border Services Agency initiated investigations on June 11, 2020, respecting the alleged injurious dumping and subsidizing of certain decorative and other non-structural plywood originating in or exported from China.

Summary

[1] On April 21, 2020, the Canada Border Services Agency (CBSA) received a written complaint from Columbia Forest Products (CFP), Husky Plywood (Husky), Rockshield Engineered Wood Products, ULC (Rockshield), and the Canadian Hardwood Plywood and Veneer Association (CHPVA) (hereinafter, “the complainants”), alleging that imports of certain decorative and other non-structural plywood (decorative plywood) from the People’s Republic of China (China) are being dumped and subsidized. The complainants alleged that the dumping and subsidizing have caused injury and are threatening to cause injury to the Canadian industry producing like goods.

[2] On May 12, 2020, pursuant to paragraph 32(1)(a) of the Special Import Measures Act (SIMA), the CBSA informed the complainants that the complaint was properly documented. The CBSA also notified the Government of China (GOC) that a properly documented complaint had been received. The GOC was also provided with the non-confidential version of the subsidy complaint and was invited for consultations prior to the initiation of the subsidy investigation, pursuant to Article 13.1 of the Agreement on Subsidies and Countervailing Measures. A request for consultations was not received by the CBSA.

[3] The complainants provided evidence to support the allegations that decorative plywood from China has been dumped and subsidized. The evidence also discloses a reasonable indication that the dumping and subsidizing have caused injury and are threatening to cause injury to the Canadian industry producing like goods.

[4] On June 11, 2020, pursuant to subsection 31(1) of SIMA, the CBSA initiated investigations respecting the dumping and subsidizing of decorative plywood from China.

Interested parties

Product information

Like goods and class of goods

[50] Subsection 2(1) of SIMA defines “like goods” in relation to any other goods as goods that are identical in all respects to the other goods, or in the absence of any identical goods, goods the uses and other characteristics of which closely resemble those of the other goods.

[51] In considering the issue of like goods, the CITT typically looks at a number of factors, including the physical characteristics of the goods (such as composition and appearance) their market characteristics (such as substitutability, pricing, distribution channels and end uses), and whether the domestic goods fulfill the same customer needs as the subject goods.

[52] With respect to the definition of like goods, the complainants stated that like goods are those goods described in the product definition. That is, domestically produced decorative plywood, which meets the product definition, and does not include domestically produced goods which are specifically excluded from the product definition. The complainants noted CITT decisions in Hot-Rolled Carbon Steel Plate and Corrosion-resistant Steel Sheet, to support this position.^{Footnote 11}

[53] The complainants state that like goods and subject goods are sold on a custom basis and therefore the physical characteristics of the goods are the same whether imported or produced domestically. The complainants believe that due to similarities in physical characteristics, market characteristics, production processes, and end uses; like goods and subject goods directly compete with each other in the Canadian market. Further, the complainants state that the goods are fundamentally the same goods and substitutable.^{Footnote 12}

[54] After considering questions of use, physical characteristics and all other relevant factors, the CBSA is of the opinion that domestically produced decorative plywood, that is of the same description as subject goods, is like goods to the subject goods. Further, the CBSA is of the opinion that the subject goods and like goods constitute only one class of goods.

The Canadian industry

[55] The complaint includes data on domestic production and on domestic sales of decorative plywood for domestic consumption.^{Footnote 13}

[56] The complaint contains letters of support from Precision and ProPly.^{Footnote 14}

[57] The complainants and the supporting producers account for the vast majority of the domestic production of like goods.

Canadian market

[60] The complainants, using Statistics Canada data, estimated the total volume of imports of decorative plywood from China and all other countries for 2017 to 2019.^{Footnote 15}

[61] The tariff classification numbers for decorative plywood include both subject and non-subject goods. As such, the complainants made a number of adjustments in an effort to remove non-subject goods.^{Footnote 16}

[62] The CBSA conducted an analysis of imports of decorative plywood based on CBSA’s import data and commercial intelligence provided by the complainants. The CBSA notes there are discrepancies in the volumes estimated by the complainants and the CBSA. The adjustments made by the CBSA were made based on information not available to the complainants.

[63] Due to the COVID-19 pandemic, the CBSA has been limiting interactions with stakeholders for import compliance purposes. As a result, the CBSA did not request commercial documentation from importers, limiting the import analysis.

[64] The CBSA’s estimate of the apparent Canadian market for like goods, using the CBSA’s estimates of imports and the complainants’ estimates of domestic production for domestic consumption, is as follows:^{Footnote 17}

[65] The CBSA will continue to gather and analyze information on the volume of imports as part of the preliminary phase of the dumping and subsidizing investigations and will refine these estimates.

Evidence of dumping

[66] The complainants alleged that the subject goods from China have been injuriously dumped into Canada. Dumping occurs when the normal value of the goods exceeds the export price to importers in Canada.

[67] Normal values are generally based on the domestic selling price of like goods in the country of export where competitive market conditions exist or as 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.

[68] The complainants made the allegation that the decorative plywood sector in China may not be operating under competitive market conditions and as such, the domestic market may not be reliable for determining normal values. Accordingly, the complainants submitted that normal values should be determined under section 20 of SIMA.

[69] The complainants also made the allegation that a particular market situation (PMS) may exist in China which does not permit a proper comparison between the sale of like goods with the sale of the goods to the importer in Canada, as described in paragraph 16(2)(c) of SIMA.

[70] The export price of goods sold to importers in Canada is generally the lesser of the exporter’s selling price and the importer’s purchase price, less all costs, charges and expenses resulting from the exportation of the goods.

[71] Estimates of normal values and export prices by both the complainants and the CBSA are discussed below.

Particular market situation

[95] Paragraph 16(2)(c) is a provision of SIMA that may be applied when the CBSA is of the opinion that domestic sales of like goods in the country of export do not permit a proper comparison with the sales of the goods to the importer in Canada because a particular market situation prevails.

[96] Pursuant to subsection 16(2.1), the CBSA may form the opinion that a PMS exists in respect of any goods of a particular exporter or of a particular country.

[97] In such cases, the CBSA would not estimate normal values using the methodology of section 15 of SIMA, which relies on domestic prices. Accordingly, and where such information is available, the CBSA would look to using the methodology of paragraph 19(a) or 19(b).

[98] Where a constructed normal value methodology of paragraph 19(b) is used and the CBSA is of the opinion that a PMS also distorts significant production input costs, the CBSA will use information in accordance with subsection 11.2(2) of SIMR, that best represents the actual cost of the input to permit a proper comparison.

[99] Where the CBSA finds there is sufficient reason to believe that a PMS may exist, the CBSA may solicit information from exporters and, where applicable, the government of the country of export, and independently gather other relevant information in order to form an opinion as to whether paragraph 16(2)(c) is applicable.

[100] The complainants made the allegation that a particular market situation may exist in China, which does not permit a proper comparison between the like goods with the sale of the goods to the importer in Canada.^{Footnote 28}

[101] The complainants submitted that a PMS exists whenever one, or the combination of several, factors or circumstances renders domestic sales inappropriate for the calculation of dumping margins, regardless of whether or not these sales are in the ordinary course of trade. The complainants also argued that subsection 11.2(2) of the SIMR makes clear that a PMS may exist where the acquisition cost of an input used in the production of a subject good is distorted. The complainants also argued that although the concept of PMS is not limited to government influence, the SIMA Handbook states that a PMS may also exist where a named country’s government’s actions and policies affect selling prices such that a proper comparison of home market prices do not allow for a proper comparison. Such actions and policies include, according to the complainants, government regulations, taxation policies, and programs that affect domestic pricing and market activities of state-owned enterprises (SOEs).^{Footnote 29}

[102] The complainants submitted that a PMS exists with respect to China for the following reasons^{Footnote 30}:

1. The acquisition costs of inputs are distorted by illegal supply chains as well as significant state control over domestic timber supplies;
2. The production costs for the manufacture of decorative plywood are distorted as certification standards are routinely circumvented;
3. The GOC heavily regulates the industry, affecting pricing, production, imports and exports; and
4. The GOC heavily subsidizes the decorative plywood industry in China.

[103] The CBSA will further examine whether a PMS exists throughout the dumping investigation.

Section 20 allegations

[104] Section 20 is a provision of SIMA that may be applied to determine the normal value of goods in a dumping investigation where certain conditions prevail in the domestic market of the exporting country. In the case of a prescribed country under paragraph 20(1)(a) of SIMA, it is applied where, in the opinion of the CBSA, the government of that country substantially determines domestic prices and there is sufficient reason to believe that the domestic prices are not substantially the same as they would be in a competitive market.

[105] The provisions of section 20 are applied on a sector basis rather than on the country as a whole. The sector reviewed will normally only include the industry producing and exporting the goods under investigation.

[106] A section 20 inquiry refers to the process whereby the CBSA collects information from various sources in order to form an opinion as to whether the conditions described under subsection 20(1) of SIMA exist with respect to the sector under investigation. Before initiating an inquiry under section 20, the CBSA must first analyze the information submitted in the complaint and the evidence it has gathered independently to determine if it is sufficient to warrant the initiation of an inquiry.

[107] The complainants alleged that the conditions described in section 20 prevail in the decorative plywood sector in China. The complainants alleged that this industry sector in China does not operate under competitive market conditions and consequently, prices established in the Chinese domestic market for decorative plywood are not reliable for determining normal values.^{Footnote 31}

[108] The complainants provided a variety of evidence supporting the claim that the GOC substantially determines prices of decorative plywood sold in China. The complainants noted the CBSA’s previous section 20 opinions on various industry sectors. The complainants provided evidence that the GOC places great importance on its forestry industry through various plans, policies and state-owned enterprises, allows a black-market logging supply chain to thrive, and provides a wide variety of government subsidy programs. The complainants did not provide detailed pricing information regarding the decorative plywood sector.^{Footnote 32}

[109] The CBSA reviewed the information submitted in the complaint and conducted research regarding the GOC’s macro economic policies and measures in relation to the decorative plywood sector.

[110] Based on the information submitted in the complaint and the research conducted by the CBSA on the decorative plywood sector, it is not apparent that domestic prices are substantially determined by the GOC, in law or in practice. Furthermore, due to the lack of pricing information available, there is no reason to believe that these prices are not substantially the same as they would be if they were determined in a competitive market. Accordingly, at this time there is not sufficient information to initiate a section 20 inquiry of the decorative plywood sector in China in this investigation.^{Footnote 33}

Evidence of subsidizing

[111] In accordance with section 2 of SIMA, a subsidy exists where 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 World Trade Organization (WTO) Agreement that confers a benefit.

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

1. practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
2. 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;
3. the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
4. the government permits or directs a non-governmental body to do anything referred to in any of paragraphs (a) to (c) above 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.

[113] A state-owned enterprise (SOE) may be considered to constitute “government” for the purposes of subsection 2(1.6) of SIMA if it possesses, exercises, or is vested with, governmental authority. Without limiting the generality of the foregoing, the CBSA may consider the following factors as indicative of whether the SOE meets this standard: 1) the SOE is granted or vested with authority by statute; 2) the SOE is performing a government function; 3) the SOE is meaningfully controlled by the government; or 4) some combination thereof.

[114] 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 or in fact, 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”. Any subsidy which is contingent, in whole or in part, on export performance or on the use of goods that are produced or that originate in the country of export is considered to be a prohibited subsidy and is, therefore, specific according to subsection 2(7.2) of SIMA for the purposes of a subsidy investigation.

[115] In accordance with subsection 2(7.3) of SIMA, notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific in fact, 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.

[116] For purposes of a subsidy investigation, the CBSA refers to a subsidy that has been found to be specific as an “actionable subsidy”, meaning that it is countervailable.

[117] The complainants alleged that subject goods have been subsidized at a significant level and maintained that exporters/producers of subject goods have received countervailable subsidies from various levels of the GOC, including the central government as well as provincial and local government authorities.^{Footnote 34}

[118] The complainants provided information in respect of specific subsidy programs identified in: the United States Department of Commerce’s (USDOC) 2017 Issues and Decisions Memorandum for the Final Affirmative Determination concerning certain hardwood plywood from China; China’s most recent notification of active subsidy programs to the WTO for the years 2017 and 2018; the United States Trade Representative’s February 2019 Report to Congress on China’s WTO Compliance; previous CBSA subsidy decisions concerning products from China; and other publically available information concerning Chinese subsidies.^{Footnote 35}

[119] Of the previous CBSA investigations referenced in the complaint, the complainants primarily referred to the CBSA’s investigations concerning the following products from China: Aluminum Extrusions, Silicon Metal, Unitized Wall Modules, Copper Tube, Certain Laminate Flooring, Certain Oil Country Tubular Goods, Photovoltaic modules and laminates, Steel Grating, Stainless Steel Sinks, Galvanized Steel Wire, and Rebar.^{Footnote 36}

[120] The complainants identified 110 Chinese subsidy programs which may have conferred benefits to the producers/exporters of the subject goods in China, and in turn resulted in the actionable subsidizing of exports of subject goods to Canada.

[121] The CBSA reviewed the relevant public reports for the subsidy programs identified in the complaint. The CBSA also reviewed the descriptions of subsidy programs provided in reports for other investigations, in particular for other programs found by the USDOC in its recent hardwood plywood investigation that were not specifically mentioned in the complaint.

[122] As a result, based on the information available, the CBSA identified 23 potentially actionable subsidy programs that may have benefited Chinese decorative plywood producers/exporters. Many of these are programs that the CBSA has already countervailed in respect of previous subsidy investigations concerning goods from China.

[123] The description of the identified programs are found in the Appendix.

[124] If information becomes available during the investigation process that indicates that some exporters/producers of subject goods may have benefited from any of the alleged programs or any other programs during the Period of Investigation (POI), the CBSA will request complete information from the GOC and exporters/producers of subject goods to pursue the investigation of the program.

Evidence of injury

[130] The complainants allege that the subject goods have been dumped and subsidized and that such dumping and subsidizing have caused and are threatening to cause injury to the domestic industry producing like goods in Canada.

[131] SIMA refers to material injury caused to the domestic producers of like goods in Canada. The CBSA has concluded that decorative plywood produced by the domestic industry are like goods to the subject goods from China.

[132] In support of their injury allegations, the complainants provided evidence of an increase in the volume of dumped and subsidized imports, price depression and lost sales, price undercutting, lost market share, impacted financial results, underutilization of capacity, and an impact on current/proposed investments.

Threat of injury

[153] The complainants state that the import of the allegedly dumped and subsidized goods threaten to cause further material injury to the Canadian domestic industry.

[154] The complainants provided the following information to support the allegation that imports of subject goods threaten to cause further injury to the Canadian industry.

Causal link - dumping/subsidizing and injury/threat of injury

[174] The CBSA finds that the complainants have sufficiently linked the injury they suffered in terms of loss of market share, price depression and lost sales, price undercutting, impacted financial results, underutilization of capacity, and negative impact on current/proposed investments to the alleged dumping and subsidizing of the subject goods imported into Canada and the price advantage this provides.

[175] Evidence has been provided to establish this link via import data, specific examples of lost sales and financial information, as provided in the complaint and respective attachments, as well as in the injury allegations submitted.

[176] The complainants submitted that the continued dumping and subsidizing of goods from China will cause further injury to the Canadian domestic industry in the future. As discussed above, the CBSA is of the opinion that this allegation of threat of injury is reasonably supported.

[177] In summary, the CBSA is of the opinion that the information provided in the complaint has disclosed a reasonable indication that the alleged dumping and subsidizing have caused injury and are threatening to cause injury to the Canadian domestic industry.

Conclusion

[178] Based on information provided in the complaint, other available information, and the CBSA’s import documentation, the CBSA is of the opinion that there is evidence that decorative plywood originating in or exported from China has been dumped and subsidized. Further, there is a reasonable indication that such dumping and subsidizing have caused and are threatening to cause injury to the Canadian industry. As a result, pursuant to subsection 31(1) of SIMA, dumping and subsidy investigations were initiated on June 11, 2020.

Scope of the investigations

[179] The CBSA is conducting investigations to determine whether the subject goods have been dumped and/or subsidized.

[180] The CBSA has requested information from all potential exporters and importers to determine whether or not subject goods imported into Canada during the POI of April 1, 2019 to March 31, 2020, were dumped. The information requested will be used to determine the normal values, export prices and margins of dumping, if any. The CBSA also requested information from the GOC with respect to the possibility of a particular market situation.

[181] The CBSA has also requested information from the GOC and all potential producers/exporters to determine whether or not subject goods imported into Canada during the POI of January 1, 2019 to March 31, 2020, were subsidized. The information requested will be used to determine the amounts of subsidy, if any.

[182] All parties have been clearly advised of the CBSA’s information requirements and the time frames for providing their responses.

Future action

[183] The CITT will conduct a preliminary inquiry to determine whether the evidence discloses a reasonable indication that the alleged dumping and subsidizing of the goods has caused or is threatening to cause injury to the Canadian industry. The CITT must make its decision on or before the 60th day after the date of the initiation of the investigations. If the CITT concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigations will be terminated.

[184] If the CITT finds that the evidence discloses a reasonable indication of injury to the Canadian industry and the CBSA’s preliminary investigations reveal that the goods have been dumped and/or subsidized, the CBSA will make preliminary determinations of dumping and/or subsidizing within 90 days after the date of the initiation of the investigations, by September 9, 2020. Where circumstances warrant, this period may be extended to 135 days from the date of the initiation of the investigations.

[185] Under section 35 of SIMA, if, at any time before making a preliminary determination, the CBSA is satisfied that the volume of goods of a country is negligible, the investigation will be terminated with respect to goods of that country.

[186] Imports of subject goods released by the CBSA on and after the date of preliminary determinations of dumping and/or subsidizing, other than goods of the same description as goods in respect of which a determination was made that the margin of dumping of the goods is insignificant, may be subject to provisional duty in an amount not greater than the estimated margin of dumping or the estimated amount of subsidy on the imported goods.

[187] Should the CBSA make preliminary determinations of dumping and/or subsidizing, the investigations will be continued for the purpose of making final decisions within 90 days after the date of the preliminary determinations.

[188] After the preliminary determinations, if, in respect of goods of a particular exporter, the CBSA’s investigations reveal that imports of the subject goods from that exporter have not been dumped or subsidized, or that the margin of dumping or amount of subsidy is insignificant, the investigation(s) will be terminated in respect of those goods.

[189] If final determinations of dumping and/or subsidizing are made, the CITT will continue its inquiry and hold public hearings into the question of material injury to the Canadian industry. The CITT is required to make a finding with respect to the goods to which the final determinations of dumping and/or subsidizing applies, not later than 120 days after the CBSA’s preliminary determinations.

[190] In the event of an injury finding by the CITT, imports of subject goods released by the CBSA after that date will be subject to anti-dumping duty equal to the applicable margin of dumping on the imported goods and countervailing duty equal to the amount of subsidy on the imported goods. Should both anti-dumping and countervailing duties be applicable to subject goods, the amount of any anti-dumping duty may be reduced by the amount that is attributable to an export subsidy.

Retroactive duty on massive importations

[191] When the CITT conducts an inquiry concerning injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of an investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry.

[192] Should the CITT issue such a finding, anti-dumping and countervailing duties may be imposed retroactively on subject goods imported into Canada and released by the CBSA during the period of 90 days preceding the day of the CBSA making preliminary determinations of dumping and/or subsidizing.

[193] In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the CBSA has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy, as explained in the previous “Evidence of Subsidizing” section. In such a case, the amount of countervailing duty applied on a retroactive basis will be equal to the amount of subsidy on the goods that is a prohibited subsidy.

Undertakings

[194] After a preliminary determination of dumping by the CBSA, other than a preliminary determination in which a determination was made that the margin of dumping of the goods is insignificant, an exporter may submit a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated.

[195] Similarly, after the CBSA has rendered a preliminary determination of subsidizing, a foreign government may submit a written undertaking to eliminate the subsidy on the goods exported or to eliminate the injurious effect of the subsidy, by limiting the amount of the subsidy or the quantity of goods exported to Canada. Alternatively, exporters with the written consent of their government may undertake to revise their selling prices so that the amount of the subsidy or the injurious effect of the subsidy is eliminated.

[196] An acceptable undertaking must account for all or substantially all of the exports to Canada of the dumped goods. Interested parties may provide comments regarding the acceptability of undertakings within nine days of the receipt of an undertaking by the CBSA. The CBSA will maintain a list of parties who wish to be notified should an undertaking proposal be received. Those who are interested in being notified should provide their name, telephone and fax numbers, mailing address and e-mail address to one of the officers identified in the “Information” section of this document.

[197] If undertakings were to be accepted, the investigation and the collection of provisional duties would be suspended. Notwithstanding the acceptance of an undertaking, an exporter may request that the CBSA’s investigation be completed and that the CITT complete its injury inquiry.

Publication

[198] Notice of the initiation of these investigations are being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.

Information

[199] Interested parties are invited to file written submissions presenting facts, arguments, and evidence that they feel are relevant to the alleged dumping and subsidizing. Written submissions should be forwarded to the attention of the SIMA Registry and Disclosure Unit.

[200] To be given consideration in this phase of the investigations, all information should be received by the CBSA by July 20, 2020.

[201] Any information submitted to the CBSA by interested parties concerning these investigations is considered to be public information unless clearly marked “confidential”. Where the submission by an interested party is confidential, a non-confidential version of the submission must be provided at the same time. This non-confidential version will be made available to other interested parties upon request.

[202] Confidential information submitted to the CBSA will be disclosed on written request to independent counsel for parties to these proceedings, subject to conditions to protect the confidentiality of the information. Confidential information may also be released to the CITT, any court in Canada, or a WTO or North American Free Trade Organization (NAFTA) dispute settlement panel. Additional information respecting the CBSA’s policy on the disclosure of information under SIMA may be obtained by contacting one of the officers identified below or by visiting the CBSA’s website.

[203] The schedule of the investigations and a complete listing of all exhibits and information are available at: www.cbsa-asfc.gc.ca/sima-lmsi/i-e/menu-eng.html. The exhibit listing will be updated as new exhibits and information are made available.

[204] This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also available through the CBSA’s website at the address below. For further information, please contact the officers identified as follows:

SIMA Registry and Disclosure Unit
Trade and Anti-dumping Programs Directorate
Canada Border Services Agency
11-100 Metcalfe St
Ottawa ON  K1A 0L8

• Telephone:
• Jody Grantham: 613-954-7405
• Jeffrey Laplante: 613-954-7236

Email: simaregistry-depotlmsi@cbsa-asfc.gc.ca

Doug Band
Director General
Trade and Anti-dumping Programs Directorate

Appendix - description of identified programs

Category 1: Preferential loans and loan guarantees

Program 1: Loans from state-owned banks at preferential rates

This program relates to government loans at a preferential rate of interest. The benefit provided in this case is a lower rate of interest than would otherwise be available if the enterprises had to obtain a non-guaranteed commercial loan (i.e. the benchmark non-guaranteed commercial loan). Financial institutions may be considered to constitute “government” if they possess, exercise or are vested with government authority, which may be indicated by the following factors:

• Where a statue or other legal instrument expressly vests government authority in the entity concerned;
• Evidence that an entity is, in fact, exercising governmental functions; and
• Evidence that a government exercises meaningful control over an entity.

The CBSA has previously countervailed this program in investigations including Fabricated Industrial Steel Components (FISC), Carbon and Alloy Steel Line Pipe (Line Pipe), Pup Joints, Oil Country Tubular Goods (OCTG), and Seamless Casing.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, in that amounts that would otherwise be owing and due to the government are reduced or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 2: Loan guarantee through the government of China/SOE banks/public bodies

Under this program, assurance is provided by the GOC, a SOE bank or public body (the guarantor) to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.

The CBSA has previously countervailed this program in investigations including Large Diameter Carbon and Alloy Steel Line Pipe (Large Line Pipe), FISC, and Line Pipe.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, in that amounts that would otherwise be owing and due to the government are reduced or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 3: Debt and interest forgiveness on loans from state-owned banks

To stimulate the economy and support the development of key industries, the state-owned banks write off bad debts or interest owed by state-owned enterprises.

The CBSA has previously countervailed this program in investigations including Seamless Casing.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, in that amounts that would otherwise be owing and due to the government are reduced or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 4: Preferential export financing and export credit guarantee/insurance

The China Export & Credit Insurance Corporation (Sinosure) is a state-funded policy-oriented insurance company that was established to promote China’s foreign trade and economic cooperation. The China Exim Bank and Sinosure each provide export credit guarantees which, according to information from the Bank, have “played a key role in supporting Chinese companies to go global” and promoted “the export of new and high-tech products”.

This program may constitute 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 or deducted or amounts that are owing and due to the government are forgiven or not collected. The above confers a benefit to the exporter by way of reducing its financial costs upon obtaining loans from a financial institution, and the benefit is equal to the amount of the exemption/deduction. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 2: Grants and Grant Equivalents

Program 5: Insurance grants

This program constitutes local and provincial government reimbursement grants on insurance fees.

The CBSA has previously countervailed this program in investigations including Galvanized Steel Wire, Seamless Casing, OCTG, Pup Joints, Stainless Steel Sinks, Line Pipe, and Large Line Pipe.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 6: Design, research and development grants

A grant that provides financial aid for enterprises determined to have undertaken expenses in design or research and development.

The CBSA has previously countervailed this program in investigations including Sucker Rods, Copper Tube, Photovoltaic Modules and Laminates, OCTG, Unitized Wall Modules, Seamless Casing, and Pup Joints.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 7: Export development and performance grants

Companies in China receive such grants provided by the GOC to assist in the development of export markets or to recognize export performance.

The CBSA has previously countervailed this program in investigations including Sucker Rods, OCTG, Unitized Wall Modules, Galvanized Steel Wire, Aluminum Extrusions, Carbon Steel Welded Pipe, and Steel Grating.

The financial contribution by the government is the direct transfer of funds pursuant to section 2(1.6)(a) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 8: Performance award grants

A grant that provides financial aid for enterprises with excellent performance.

The CBSA has previously countervailed this program in investigations including Seamless Casing, Aluminum Extrusions, OCTG, Pup Joints, Copper Tube, and Line Pipe.

This program is a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 9: Reductions in land use and/or rental fees

This program provides for the reduction in land use fees and rental rates for certain number of years. Examples of this program in action include: a document titled '[2003] No. 8 Preferential Supply of Land', in order to offset costs for industrial companies in the Ninghai Economic Development Zone; or similar initiatives in the Tianjin Binhai New Area and the Tianjin Economic and Technological Development Area.

The CBSA has previously countervailed this program in investigations including Stainless Steel Sinks, Unitized Wall Modules, Photovoltaic Modules and Laminates, Seamless Casing, OCTG, Pup Joints, and Line Pipe.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 10: Grant - patent assistance/award

This is a grant for patents. Based on the information available to the CBSA, this program was provided in several provinces, such as Guangdong, Shanghai and Jiangsu.

For example, the GOC document associated with this program for Guangdong province may include: “Administrative Measures of Patent Award of Guangdong Province”. In Guangdong province, this program was administered by the Intellectual Property Office of Guangdong, the Bureau of Personnel of Guangdong Province and municipal level authorities. The program was established to support improvement in technology innovation and to promote intellectual property.

In addition, the GOC document associated with this program for Shanghai may include: “The administrative measures regarding the financial support/subsidy for Patents by Shanghai”. In Jiangsu province, this program was administrated by Jiangsu Intellectual Property Office.

This program is a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 11: Environment protection grant

These are grants provided by the GOC for the purposes of improving environmental performance, for example, monitoring and cleaning pollutants, improving energy efficiency, upgrading facilities to be more environmentally efficient, and waste water treatment.

The CBSA has previously countervailed this program in investigations including Copper Tube. In addition, the USDOC found that Chinese producers of hardwood plywood have benefited from similar programs, namely: Shandong Province’s Environmental Protection Industry Research and Development Funds and Waste Water Treatment Subsidies.

This program appears to be a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 12: Forest certification pilot special fund

In United States – Certain Hardwood Plywood Products from the People’s Republic of China, this program was found to be countervailable. The CBSA was unable to unearth a description of this program, however, this program appears to be specific to the forestry sector and potentially to decorative plywood and has been countervailed in a recent investigation by the U.S. Department of Commerce.

This program appears to be a financial contribution pursuant to paragraph 2(1.6)(a) of SIMA as a direct transfer of funds from the government and confers a benefit to the recipient equal to the amount of the grant. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 13: Interest loan subsidies for the forestry industry

In United States – Certain Hardwood Plywood Products from the People’s Republic of China, this program was found to be countervailable. The CBSA was unable to unearth a description of this program, however, this program appears to be specific to the forest sector and potentially to decorative plywood and has been countervailed in a recent investigation by the U.S. Department of Commerce.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, in that amounts that would otherwise be owing and due to the government are reduced or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 3: Preferential tax programs

Program 14: Corporate income tax exemption and/or reduction in Special Economic Zones (SEZs) and other designated areas

This program was established under the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, which came into effect on July 1, 1991. The program was allegedly established to absorb investment in special economic zones (SEZs) and designated areas to take the lead in their economic development. The granting authority responsible for this program is allegedly the State Administration of Taxation and the program is administered by local tax authorities. Under this program, it is alleged that an eligible enterprises may receive a reduced corporate income tax rate of 15%.

The complainants have alleged that several decorative plywood manufacturers are located in SEZs, including the Dalian Free Trade Zone, Jiangyin Economic Development Zone, Anhui Province, Fujian Province, Shenzhen Special Economic Zone, and the Guangzhou Special Economic Zone.

The CBSA has previously countervailed this program in investigations including Aluminum Extrusions, Carbon Steel Welded Pipe, OCTG, Seamless Casing, and Line Pipe.

In a recent investigation by the U.S. Department of Commerce into hardwood plywood from China, it appears that they countervailed this program as the following: Preferential Income Tax Policy for Enterprises in the Northeast Region; Forgiveness of Tax Arrears for Enterprises Located in the Old Industrial Bases of Northeast China; and Income Tax Benefits for Foreign Invested Enterprises Based on Geographic Locations.

The financial contribution by the Government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.2) of SIMA because it is limited to enterprises in certain geographic areas.

Program 15: Corporate income tax reduction for new high tech enterprises

Under Article 28.2 of the Enterprise Income Tax Law in China, companies designated as high- or new-technology enterprises are entitled to a reduced income tax rate of 10 percent instead of the normal national corporate tax rate of 25 percent. The granting authority responsible for this program is alleged to be the State Administration of Taxation and the program is administered by local tax authorities. In its notification of subsidy programs to the WTO, the GOC listed this program.

The CBSA has previously countervailed this program in investigations including FISC, Line Pipe, Seamless Casing, OCTG, and Pup Joints.

In a recent investigation by the U.S. Department of Commerce into hardwood plywood from China, it appears that they countervailed this program as the following: Income Tax Reductions under Article 28 of the Enterprise Income Tax.

The financial contribution by the Government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.2) of SIMA because it is limited to enterprises in certain industries.

Program 16: Municipal/local income or property tax reductions

The CBSA has previously countervailed this program in investigations including Stainless Steel Sinks, Unitized Wall Modules, Photovoltaic Modules and Laminates, and Line Pipe under titles including “Reduction, Exemption or Refund of Land Use Fees, Land Rental Rates, and Land Purchase/Transfer Prices.”

In a recent investigation by the U.S. Department of Commerce into hardwood plywood from China, it appears that they countervailed this program as the following: Local Income Tax Exemption and Reduction Programs for “Productive” Foreign Invested Enterprises.

The financial contribution by the Government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 17: Preferential tax policies for Foreign-Invested Enterprises (FIEs)

Despite the implementation of the new Enterprise Income Tax Law in 2008, which officially superseded the old FIE Tax Law, FIEs have likely continued to benefit from various incentives that were provided under the older Foreign-Invested Enterprise Tax Law (FIE Tax Law). Specifically, Article 9 of the FIE Tax Law delegates to China’s provincial and local governments the authority to provide exemptions and reductions of local income taxes for “productive” FIEs. Eligibility criteria vary by province and the relevant governmental authorities administer the application process.

The CBSA has previously countervailed this program in investigations including Pup Joints and Seamless Casing. Further, the GOC has listed this title in its notification of subsidy programs to the WTO.

In a recent investigation by the U.S. Department of Commerce into hardwood plywood from China, it appears that they countervailed this program as the following: Income Tax Reductions for Export-Oriented Foreign-Invested Enterprises.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 18: Preferential tax policies related to research and investment

Under this program, based on the 2008 corporate tax law, high- or new-technology enterprises may deduct 50 percent of their total R&D expenses from their taxable income. Eligible expenses include design costs, expenses for materials and fuel consumed through R&D activities, wages, salaries, and benefits for personnel engaged in R&D activities, depreciation expenses on instruments and equipment, and many other expenses.

The CBSA has previously countervailed this program in investigations including Photovoltaic Modules and Laminates, Seamless Casing, OCTG, and Pup Joints. Further, the GOC has listed this title in its notification of subsidy programs to the WTO.

In a recent investigation by the U.S. Department of Commerce into hardwood plywood from China, it appears that they countervailed this program as the following: Tax Offsets for Research and Development under the Enterprise Income Tax; and Tax Offsets for Research and Development by Foreign-Invested Enterprises.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 4: Relief from duties and taxes

Program 19: Offsets to taxable income related to purchases of domestic machinery

Under this program, a tax credit up to 40% of the purchase price of domestic equipment may apply to the incremental increase in tax liability from the previous year. The legal bases of this program are the Provisional measures on enterprise income tax credit for investment in domestically produced equipment for technology renovation projects of July 1, 1999 and the Notice of the State Administration of Taxation on Stopping the Implementation of the Enterprise Income Tax Deduction and Exemption Policy of the Investments of an Enterprise in Purchasing Home-made Equipment, No. 52 [2008] of the State Administration of Taxation, effective January 1, 2008.

The CBSA has previously countervailed this program in investigations including Aluminum Extrusions, Photovoltaic Modules and Laminates, Seamless Casing, OCTG and Pup Joints.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 20: Exemption or refund of tariff and import value-added tax (VAT) for imported technologies and equipment

The program was established to absorb investment in SEZs and encourage districts to take the lead in development. The granting authority responsible for this program is the General Administration of Customs and this program is administered by local customs authorities. Under this program, machinery and equipment, spare parts, raw and semi-processed materials, means of transportation and other capital goods necessary for production that are imported by enterprises in SEZs shall be exempted from import duties.

The CBSA has previously countervailed this program in investigations including Photovoltaic Modules and Laminates, Unitized Wall Modules, Seamless Casing, Pup Joints, and Line Pipe.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 21: Relief from duties and taxes on imported material and other manufacturing inputs

Under a duty drawback program, a subsidy may exist where the amount of duties and taxes relieved or refunded on inputs incorporated into exported goods is found to be in excess of the actual liability that existed on those imports.

The CBSA has previously countervailed this program in investigations including Photovoltaic Modules and Laminates, Seamless Casing, OCTG, and Pup Joints.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Category 5: Good / services provided by the government at less than fair market value

Program 22: Acquisition of government inputs/utilities at less than fair market value

The complainants allege that exporters may avail themselves of input materials or utilities from state-owned enterprises (SOE) at below fair market value. They have identified the following inputs that may be provided to decorative plywood manufacturers at less than fair market value:

• Electricity
• Water
• Timber
• Urea/Formaldehyde

The CBSA has previously countervailed this program in Seamless Casing, OCTG, Stainless Steel Sinks, Steel Piling Pipe, Large Line Pipe, and Pup Joints.

This program may constitute a financial contribution pursuant to paragraph 2(1.6)(c) of SIMA as they involve the provision of goods or services, other than general governmental infrastructure. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.

Program 23: Provision of land for less than adequate remuneration by government

All land in China belongs to the government (i.e., either national or local governments, or through a “collective” at the township or village level), and government land agencies across China control the allocation of land through the granting of land-use rights.

The CBSA has previously countervailed this program in investigations including Line Pipe and Large Line Pipe.

The financial contribution by the government consists of government revenue that is otherwise due is foregone or not collected, pursuant to section 2(1.6)(b) of SIMA. The program may be considered specific pursuant to subsection 2(7.3) of SIMA in that the manner in which discretion is exercised by the granting authority indicates that the subsidy may not be generally available.