GB2 2018 IN
Certain 54-inch Gypsum Board
Statement of Reasons

[9] CertainTeed Gypsum Canada Inc. (CTG Canada) operates six gypsum board manufacturing facilities located throughout Canada and is the only producer of gypsum board products located in Western Canada with three manufacturing facilities located in Vancouver, British Columbia, Calgary, Alberta and Winnipeg, Manitoba.

[10] Currently, CTG Canada does not produce 54-inch gypsum board. CTG Canada does produce 48-inch gypsum products.

[11] The address of the complainant’s head office is as follows:

CertainTeed Gypsum Canada Inc.
2424 Lakeshore Road West
Mississauga, Ontario
L5J 1K4

[12] According to the complainant, there are no producers of 54-inch gypsum board in Western Canada. The CBSA conducted research, and based on the available information there are no Canadian producers of 54-inch gypsum board in Western Canada.

[13] The CBSA has identified 26 potential exporters of the subject goods from CBSA import data^{Footnote 3} and the complaint.

[14] The CBSA has identified 29 potential importers of the subject goods from CBSA import data and the complaint.

[15] The complainant has identified two trade unions representing persons employed in the production of gypsum board products in Western Canada.

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

[17] Gypsum board volume is measured in the North American industry and wider construction sector in imperial units of measure, with typical units of measure used being thousands of square feet (“msf”), millions of square feet (“mmsf”), and billions of square feet (“bsf”).

[18] Gypsum board is used as a building material for various applications, including: the surface layer of interior walls and ceilings; a base for ceramic, plastic, and metal tile; elevator and other shaft enclosures; area separation fire walls between occupancies; and the fire-resistant layer over structural elements.

[19] Gypsum board has long been used as a building material because of its fire-resistant properties. It provides a durable, economical, non-combustible and easily decorated surfacing material for construction use. Gypsum board is the most widely used material for ceilings and interior walls for residential, commercial, and institutional buildings in developed countries. Paper-covered gypsum board is well suited to the application for which it was designed, that is interior non-load bearing construction.

[20] The process of gypsum board production does not typically vary substantially between producers of gypsum board. This process is standard in North America in that the main stages of production process do not differ materially between plants in the US and Canada, although the production process from one plant to another may vary slightly depending on the type of gypsum they use and the design and configuration of the production facility.

[21] To make gypsum board, gypsum rock is crushed and heated to about 150 Celsius, drying out roughly 75 percent of the chemically combined water in a process called calcining. Forty-five kilograms of gypsum rock contains approximately 8.5 kilograms of water. The calcined gypsum powder (commonly referred to as “plaster of Paris”) is used in producing the core of the board. The board is formed by introducing a slurry of calcined gypsum (also known as stucco), along with water, foam, pulps, starch and set control agents between two unwinding rolls of absorbent paper resulting in a continuous “sandwich” of wet board resting on a continuous belt line. To manufacture fire-resistant or water-resistant gypsum board, additional chemical components are added to the core when introducing the slurry of calcined gypsum.

[22] As the board moves down the production line, the calcined gypsum rehydrates and recrystallizes reverting to a solid gypsum matrix, and the paper sheets become firmly bonded to the rehydrated core. After moving down the line for approximately four to five minutes, the continuous “sandwich” is firm enough to be cut to length and is then conveyed through dryers to remove excess moisture. The board is conveyed afterwards to a “take-off” point, where it is packaged, bundled, stacked, and removed to storage or shipped directly.

[23] Although the production process for 48-inch and 54-inch board is similar, the production of 54-inch board requires additional and more costly equipment to accommodate the extra six inches of board.

[24] Prior to January 1, 2018, the subject goods were normally classified under the following tariff classification numbers:

1. 6809.11.00.00
2. 6809.11.00.10

[25] Effective January 1, 2018, the subject goods are normally classified under the following tariff classification number:

1. 6809.11.00.11

[26] The listing of tariff classification numbers is for convenience of reference only. The tariff classification numbers include non-subject goods. Also, subject goods may fall under tariff classification numbers that are not listed. Refer to the product definition for authoritative details regarding the subject goods.

[27] 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 identical goods, goods the uses and other characteristics of which closely resemble those of the other goods.

[28] In considering the issue of like goods, the CITT typically looks at a number of factors, including the physical characteristics of the goods, their market characteristics and whether the domestic goods fulfill the same customer needs as the subject goods.

[29] The complainant indicated that 54-inch gypsum board they plan to produce should be considered “like goods” to certain 54-inch gypsum board imported from the US. This is based on the CITT’s finding in Gypsum Board.^{Footnote 4}

[30] The complainant noted that during the CITT’s injury inquiry, the CITT accepted that only domestically produced certain 48-inch gypsum board is “like goods” to certain 48-inch gypsum board imported from the US and no party contested that conclusion. For this reason, the complainant concluded that only certain 54-inch gypsum board should be considered “like goods” to certain 54-inch gypsum board imported from the US.

[31] Further, the complainant argued that certain 48-inch gypsum board and certain 54-inch gypsum board constitute two separate classes of goods. The complainant noted that in the CITT’s inquiry concerning certain 48-inch gypsum board, the CITT determined a single class of like goods coterminous with the definition of subject goods (i.e., excluding 54-inch board). For this reason, the complainant argued that a single class of like goods coterminous with the definition of subject goods is appropriate in this case.

[32] The complainant reasoned that 48-inch gypsum boards are not like goods in relation to the subject goods, because:^{Footnote 5}

• Certain 54-inch boards are primarily used for the construction of residential buildings with nine-foot ceilings while certain 48-inch boards are primarily used in commercial construction projects.
• Certain 54-inch and certain 48-inch boards are produced on different machinery and equipment.
• Unlike certain 48-inch boards, certain 54-inch boards are not sold through the retail channel because the demand for certain 54-inch board from “do-it-yourself” homeowners and small contractors doing small renovation projects is very low. Certain 54-inch boards are wider, heavier, and as a result, more difficult to install without assistance and not appropriate for most small home owner renovation projects.
• Certain 48-inch boards are not generally substitutable for 54-inch boards from an end user perspective under normal circumstances.
• Certain 54-inch boards generally are sold at premium above certain 48-inch boards because of the increased production costs and the lower sales volume.

[33] The 54-inch gypsum board produced in Eastern Canada and the 54-inch gypsum board that the complainant is planning to produce in Western Canada would have the same physical characteristics and end uses as the subject goods imported from the US. The goods to be produced in Western Canada and the US would be fully interchangeable when manufactured to industry standards and specifications. As such, subject goods from the US would compete directly with the 54-inch gypsum board that is planned to be produced in Western Canada.

[34] The CBSA is of the opinion that certain 48-inch gypsum board produced in Canada is not like goods in relation to certain 54-inch gypsum board imported from the US because, as set out above, 48-inch gypsum board differs significantly in terms of physical characteristics, end use, manufacturing processes, distribution channels, substitutability and price.

[35] After considering questions of use, physical characteristics and all other relevant factors, the CBSA is of the opinion that the 54-inch gypsum board produced in Eastern Canada and the 54-inch gypsum board planned to be produced in Western Canada are like goods in relation to the subject goods. Further, the CBSA is of the opinion that subject goods and like goods constitute only one class of goods.

[44] Subsection 31(2) of SIMA requires that the following conditions be met in order to initiate an investigation:

1. the complaint is supported by domestic producers whose production represents more than 50% of the total production of like goods by those domestic producers who express either support for or opposition to the complaint; and
2. the production of the domestic producers who support the complaint represents 25% or more of the total production of like goods by the domestic industry.

[45] However, this investigation relates to the retardation of the establishment of a domestic industry in Western Canada. There are currently no producers of 54-inch gypsum board in Western Canada. The complainant is the only known party planning to produce 54-inch gypsum board in Western Canada. Since there are no domestic producers in Western Canada, there are no parties to provide support for or opposition to the complaint. Therefore, the CBSA is satisfied that the requirements of subsection 31(2) of SIMA have been met in respect of the initiation of this investigation pursuant to subsection 31(1) of SIMA.

[56] The complainant estimated normal values for the subject goods using the methodology of section 15 of SIMA. Normal values were estimated based on average monthly domestic sales prices for two benchmark products sold by the complainant's sister company in the US during the period January 1, 2017 and February 28, 2018.

[57] The CBSA estimated normal values on the basis of the methodology of section 15 of SIMA by combining the complainant’s information with publicly available information that was filed with the US Securities and Exchange Commission.^{Footnote 8} Specifically, the CBSA also used quarterly domestic pricing information that was published in financial statements of two US gypsum board producers.^{Footnote 9} The quarterly domestic average selling prices reported by the two companies in their financial statements were net of freight and delivery costs.

[58] The reported quarterly average selling prices are in respect of all gypsum board products including 48-inch and 54-inch gypsum board. As 54-inch gypsum board is generally more expensive than 48-inch gypsum board, the resultant estimated normal values are more conservative than those estimated by the complainant.

[59] The export price of goods sold to an importer in Canada is generally determined in accordance with section 24 of SIMA as being an amount equal to the lesser of the exporter’s sale price for the goods and the price at which the importer has purchased or agreed to purchase the goods adjusted by deducting all costs, charges, expenses, and duties and taxes resulting from the exportation of the goods.

[60] The complainant could not estimate export prices under the methodology of section 24 of SIMA for 2017 because import data reported by Statistics Canada did not separate 54-inch versus 48-inch gypsum board. However, it did estimate export prices under section 24 of SIMA for the first two months of 2018 because in 2018 the tariff classification is specific to only 54-inch gypsum board. For 2018, the complainant excluded anomalies in their estimates. Also, given that import data was not distinguished between ½-inch and 5/8-inch boards, the average unit value of total imports were used.

[61] The complainant noted that US exporters sell and transfer gypsum board to associated importers in Western Canada. As the complainant was unable to estimate export prices under the methodology of section 24 of SIMA, the complainant estimated export prices under the methodology of section 25 of SIMA for 2017.

[62] Where there are sales between associated persons, the export price is estimated based on the importer’s resale price of the imported goods in Canada to unrelated purchasers, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada that are additional to those incurred on the sales of like goods for use in the country of export, all costs included in the resale price that are incurred in reselling the goods (including duties and taxes) or associated with the assembly of the goods in Canada and an amount representative of the average industry profit in Canada as provided for in paragraphs 25(1)(c) and 25(1)(d) of SIMA.

[63] The complainant submitted a price list of a major importer in Canada and from the resale price deducted an industry profit determined in the CBSA’s investigation concerning certain 48-inch gypsum board from the US^{Footnote 10}, its own freight costs and an estimated general selling and administrative based on publically available information from the associated exporter.

[64] In estimating the export prices, the CBSA used the value for duty (VFD) data as reported in the CBSA import data, for each individual shipment imported into Western Canada during the period January 1, 2017 and February 28, 2018. No adjustments were made to the VFD in estimating export price as VFD represents a price exclusive of freight and delivery costs, which is consistent with the normal values estimated by the CBSA.

[65] The CBSA compared the estimated normal values with the estimated export prices obtained from CBSA import data for all importations into Western Canada during the period from January 1, 2017 to February 28, 2018. The estimated margin of dumping was calculated by deducting the estimated total export price from the estimated total normal value and expressing the result as a percentage of the estimated total export price of the subject goods.

[66] Based on this analysis, it is estimated that the subject goods from the US were dumped. The margin of dumping is estimated to be 6.1%.

[74] Retardation occurs when circumstances materially hinder or retard the establishment of an industry in Canada. The CITT has previously recognized that

“SIMA views retardation and injury (or threat of injury) as two distinct and mutually exclusive concepts. In the Tribunal’s view, retardation is possible only if there is no established domestic industry, whereas injury or threat of injury is possible only in the case of an already established domestic industry.”^{Footnote 11}

[75] Based on evidence available in the complaint and the CBSA’s research, the CBSA is satisfied that there is no domestic industry that produces like goods in Western Canada.

[76] The complainant alleged that the dumped goods have led to price suppression, reduced profitability and price erosion in respect of its resales in Canada of imported 54-inch gypsum board from the US, which in turn has caused retardation of the establishment of a domestic industry in Western Canada. Specifically, the complainant alleges that the current market realities caused by the alleged dumping have prevented the investment of the capital necessary to establish a domestic industry in Western Canada.

[77] With respect to the selling price of 54-inch gypsum board in Western Canada, the complainant provided a chronology of events between June 2016 to March 2018 in which the company demonstrated where it attempted, but failed to increase prices for its Canadian resales of imported 54-inch board in Western Canada to address inflationary costs.^{Footnote 12} The complainant also provided a table reporting its net average unit selling price of its Canadian resales of imported 54-inch gypsum board and net margin percentage between 2015 and 2017. The table demonstrates decreasing net average unit selling prices as well as decreasing net margin percentages from 2015 to 2017.^{Footnote 13}

[78] The complainant also provided a table comparing the average unit selling price of 48-inch standard and fire gypsum board versus 54-inch standard and fire gypsum board between 2015 and 2017. The table demonstrates that the price premium of 54-inch over 48-inch eroded from 2015 to 2017.

[79] The effects of the allegedly dumped goods on the Western Canadian market for 54-inch gypsum board, as demonstrated by the alleged price suppression, reduced profitability and price erosion, has impacted the complainant’s ability to establish a 54-inch gypsum board industry in Western Canada.

[80] Based on the CITT’s reasons in its previous injury inquiries,^{Footnote 14} the CBSA also considers that for there to be retardation, the complainant must provide evidence of a “substantial commitment” to establish a domestic industry.

[81] To support its commitment to establish an industry for the production of certain 54-inch gypsum board in Western Canada, the complainant submitted a 36-page confidential declaration and attachments from the General Manager of CTG Canada (“the declaration”).^{Footnote 15} The declaration is in regards to the alleged dumping of 54-inch gypsum board from the US into Western Canada and the proposed investment for establishing 54-inch gypsum board production in Western Canada, including memos between the General Manager of CTG Canada and officials of CTG Canada’s parent company, Compagnie de Saint-Gobain S.A of France (“Saint-Gobain”).

[82] The declaration also contains details regarding initial assessments, project evaluations, various proposed alternative economic analyses, locations, estimated budget, recommendations and plans for the phases of the investment.

[83] In the declaration, the complainant estimated the internal rate of return (IRR) and that the pricing and sales levels it can achieve for its proposed investment in the absence of allegedly dumped prices from US exporters of such goods.^{Footnote 16} An IRR was also estimated for the current scenario, under the environment of allegedly dumped imports.^{Footnote 17}

[84] The declaration makes it clear that the authority for investment approval for the new production line for 54-inch gypsum board is with its parent company, Saint-Gobain.^{Footnote 18}

[85] The complainant also stated that once the project can attain the required return on investment, its parent company, Saint-Gobain, is committed to making the investment.^{Footnote 19}

[86] The complainant has made reasonably detailed plans to establish production and resources have been allocated to advance beyond a mere proposal. The complainant also has land dedicated at one of its facilities in Western Canada. The complainant has not yet purchased any machinery or equipment to establish production.

[87] Overall, based on the evidence contained in the complaint, the CBSA is satisfied that the complainant has provided evidence that it has made a substantial commitment to establish an industry in Western Canada for the production of certain 54-inch gypsum board.

[88] Based on information provided in the complaint and the CBSA import data, importations of subject goods into Western Canada have been ongoing for several years. The information available indicates that the volume of subject goods from the US account for nearly 100 percent of importations of subject goods into Western Canada from all countries.

[89] Information provided in the complaint, and corroborated by the CBSA’s own estimates of normal values and export prices, indicates that subject goods have been dumped into Western Canada since at least January 2017.

[90] As noted above, the complainant has demonstrated a substantial commitment to the establishment of an industry and is positioned to proceed with the next phase of the plan. However, the complainant is unable to achieve the necessary return on investment as a result of the depressed prices from the dumped goods. The inability to achieve the necessary return on investment is preventing CTG Canada’s parent company, Saint-Gobain, from providing final investment approval.^{Footnote 20}

[91] The complainant estimated an IRR for the project under current market conditions of the allegedly dumped goods, which does not meet the required minimum threshold established by Saint-Gobain for approval of an investment.^{Footnote 21}

[92] The complainant also estimated an IRR for the project based on the prices of 54-inch gypsum board at normal levels. The estimated IRR for the project under conditions where alleged dumping is no longer occurring is above the required minimum threshold established by Saint-Gobain for approval of an investment.^{Footnote 22} The CBSA notes that attaining the required return on investment does not guarantee approval as CTG Canada will have to compete for funding with other projects from sister companies owned by the parent company, Saint-Gobain.

[93] As of the date of the complaint, the complainant had been instructed by its parent company to only expend a fixed and limited amount of capital to proceed in planning the project. By indicating that CTG Canada cannot spend above the allocated amount on the project until it can attain the necessary return on investment, Saint-Gobain has effectively postponed the project.

[94] Based on the information detailed above, there is a reasonable indication that the plans to establish a domestic industry in Western Canada have been postponed due to the alleged dumping of subject goods.