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Frozen Self-Rising Pizza
OTTAWA, June 1, 2004
4237-94
AD 1315
STATEMENT OF REASONS
Concerning the preliminary determination of dumping pursuant to subsection 38(1) of the Special Import Measures Act regarding
FROZEN SELF-RISING PIZZA
ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA
DECISION
On May 17, 2004, in accordance with subsection 38(1) of the Special Import Measures Act, the President of the Canada Border Services Agency made a preliminary determination of dumping respecting prepared uncooked frozen pizza products containing uncooked self-rising dough and cooked and/or uncooked toppings which typically may include processed vegetables and/or meats and/or poultry and/or cheeses and/or a prepared sauce, put up for retail sale, originating in or exported from the United States of America.
Cet énoncé des motifs est également disponible en français. Veuillez vous reporter à la section « Renseignements ».
This Statement of Reasons is also available in French. Please refer to the "Information" section.
Table of Contents
- Kraft Foods Global, Inc.
- Normal Value
- Export Price
- Margin of Dumping
- Palermo Villa, Inc.
- Normal Value
- Export Price
- Margin of Dumping
Representations Concerning the Investigation
Provisional Duty to be Imposed
Retroactive Duty on Massive Importations
[1] On November 12, 2003, the Canada Customs and Revenue Agency (CCRA) received a written complaint from McCain Foods Limited (McCain) concerning the alleged injurious dumping of frozen self-rising pizza originating in or exported from the United States of America (United States). On December 3, 2003, McCain was informed that its complaint was properly documented and the Government of the United States of America was also notified.
[2] On December 12, 2003, responsibility for the CCRA program, including the administration of the Special Import Measures Act (SIMA), was transferred to the Canada Border Services Agency (CBSA), which was created on the same day. The President of the CBSA (President) is now responsible for dumping and subsidy investigations.
[3] On January 2, 2004, the President initiated an investigation into the alleged injurious dumping of frozen self-rising pizza originating in or exported from the United States.
[4] Upon receiving notice of the investigation, the Canadian International Trade Tribunal (Tribunal) started its preliminary injury inquiry. On March 2, 2004, in a preliminary determination of injury, the Tribunal determined that the evidence discloses a reasonable indication that the dumping of the subject goods has caused injury to the Canadian industry.
[5] On March 12, 2004, pursuant to paragraph 39(1)(a) of SIMA, the President made the decision to extend the 90-day period for making a preliminary decision in the investigation to 135 days, by reason of the complexity of the issues presented by the investigation.
[6] As a result of the CBSA's preliminary investigation, on May 17, 2004, pursuant to subsection 38(1) of SIMA, the President made a preliminary determination of dumping respecting frozen self-rising pizza originating in or exported from the United States.
[7] The investigation covers all subject goods released into Canada during the period January 1 to December 31, 2003.
[8] The complainant, McCain Foods Limited, is the largest Canadian manufacturer of frozen self-rising pizza, as well as the sole Canadian producer of branded frozen self-rising pizza. The complainant's address is:
McCain Foods Limited
107 Main Street
P.O. Box 97
Florenceville, New Brunswick
E7L 1B2
[9] When the investigation was initiated, the CBSA identified two exporters of the subject goods. The CBSA sent a Request for Information (RFI) to the two exporters and both exporters provided properly documented responses. These two exporters account for 100% of the subject goods exported to Canada during the period of investigation.
[10] When the investigation was initiated, the CBSA identified four potential importers of the subject goods and sent a RFI to each importer. During the investigation, the CBSA confirmed that one of the importers did not import the subject goods during the period of investigation. The other three importers provided complete responses to the RFI. These three importers account for 100% of the subject goods imported into Canada during the period of investigation.
[11] For the purpose of this investigation, the subject goods are defined as:
Prepared uncooked frozen pizza products containing uncooked self-rising dough and cooked and/or uncooked toppings which typically may include processed vegetables and/or meats and/or poultry and/or cheeses and/or a prepared sauce, put up for retail sale, originating in or exported from the United States of America.
Additional Product Information
[12] Frozen self-rising pizza consists of uncooked dough forming a crust, toppings, protective packaging, and a display carton. Frozen self-rising pizza generally differs from other frozen pizza in the following ways:
- Frozen self-rising pizza dough is uncooked, while in regular frozen pizza the dough is pre-cooked; and
- Frozen self-rising pizza is sold in vacuum-sealed packaging, while regular frozen pizza is usually sold in a carton with a simple polyethylene over-wrap.
- Frozen self-rising pizza is generally produced in "family size" (9 inches in diameter or larger), and sold as single pizzas ("1-packs") or as a set of two pizzas ("2-packs"). Smaller pizzas, known as "personal" size pizzas are also produced.
[13] Details concerning the production process of frozen self-rising pizza were provided in the Statement of Reasons issued for the initiation of the investigation. This document is available on the CBSA Web site at the following address:
URL: http://www.cbsa-asfc.gc.ca/sima-lmsi/i-e/ad1315/ad1315i-eng.html
Classification of Imports
[14] Frozen self-rising pizza is properly classified under the following Harmonized System classification numbers:
1901.20.13.20
1901.20.15.20
[15] McCain is the largest Canadian manufacturer of frozen self-rising pizza, as well as the sole Canadian producer of branded frozen self-rising pizza. Other Canadian manufacturers of frozen self-rising pizza include Les Aliments T&N of Dorval, Quebec, and Les Aliments Da Vinci Ltée of Montréal, Quebec. Both of these manufacturers produce self-rising pizzas on a private label basis. At the time of initiation, Multi-Do Inc. of Saint-Georges, Quebec, was identified as a manufacturer of frozen self-rising pizza. This company has informed the CBSA that it ceased operation in September 2003.
[16] The CBSA has further refined the volume of Canadian imports estimated at the time of the initiation of the investigation, based on information received during the course of the investigation from the importers and exporters. Information on the volume and value of imports cannot be published because this would reveal confidential data supplied by the two exporters involved in the investigation.
[17] 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 inquiry in respect of any goods if the Tribunal determines that the volume of dumped goods from a country is negligible.
[18] At the time of the initiation of the investigation, the CBSA requested information from two exporters to estimate the normal values and export prices of the subject goods. The two exporters account for 100% of the goods imported into Canada during the period of investigation. Information concerning imports of the subject goods was also requested from the importers. CBSA officers carried out on-site verifications of the information provided by one importer and the two exporters in March 2004.
[19] In conducting its investigation, the CBSA requested identified exporters and importers to provide sales and cost information necessary to determine the normal values and export prices of the subject goods. For purposes of the preliminary determination, normal values and export prices were estimated based on information contained in the importers' and exporters' submissions.
[20] 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 profit.
[21] 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, 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.
[22] When the export price is less than the normal value, the difference is the margin of dumping.
[23] For each product, the CBSA estimated the margins of dumping by subtracting the total export price from the total normal value. This calculation was performed on each pizza variety for each package configuration shipped to Canada during the period of investigation. Accordingly, any sales made at undumped prices reduced the margin of dumping found for that particular product.
[24] The CBSA estimated the overall margin of dumping for each exporter by weighting the margins found for each product variety and package configuration according to the volumes exported to Canada.
[25] In estimating the weighted average margin of dumping of the country, 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 period of investigation.
[26] The two exporters from the United States are Kraft Foods Global, Inc. (formerly Kraft Foods North America, Inc.) and Palermo Villa, Inc. (Palermo). Both exporters submitted complete responses to the RFI. The calculations of the estimated normal values, export prices and margins of dumping for each exporter are discussed below.
[27] Effective March 19, 2004, Kraft Foods North America, Inc. became Kraft Foods Global, Inc. (KFG). Kraft Foods Inc. is the parent company of KFG. The subject goods are produced by KFG at production facilities in Little Chute and Sussex, Wisconsin.
[28] KFG is the exporter of record on all exports to Canada. Kraft Canada Inc. (Kraft Canada) is the sole importer, marketer and national distributor of subject goods in Canada and purchases all of its frozen self-rising pizza from KFG.
[29] In the United States, frozen self-rising pizza is sold through the Kraft Pizza Company (KPC). Kraft Foods Inc. is the parent company of KPC.
[30] The normal values were estimated using the method in section 15 of SIMA, based on domestic market selling prices of like goods in the ordinary course of trade. Paragraph 16(1)(c) of SIMA further directs that, where the sales of like goods by the exporter were solely or primarily to purchasers who were associated with the exporter, the President may specify one or more other vendors to be the exporter, if there were sales of like goods by other vendors that permit a proper comparison.
[31] KFG did not have domestic market sales to purchasers with whom it was not associated. All frozen self-rising pizza is sold in the domestic market by KPC. The transactions between KFG and KPC cannot be used to determine normal values due to the relationship between the two companies. Accordingly, the CBSA used the rule of subparagraph 16(1)(c)(ii), deeming KPC to be the exporter of the goods for the purpose of estimating the normal value of the goods sold to the importer in Canada.
[32] KPC supplied information on its sales of like goods in the domestic market as well as costs of production of the like goods and of the goods exported to Canada. In analyzing the domestic sales, the quantities and selling prices of each product were tabulated on a monthly basis for each customer, due to the large number of domestic sales. During the on-site verification exercise at the company's premises, the CBSA obtained and verified a further tabulation of domestic sales data on a weekly basis. As a result, it was determined that KPC had a sufficient number of profitable sales of like goods to non-associated customers in the United States, thus meeting the conditions of section 15 of SIMA.
[33] The quantity of goods sold to Kraft Canada is larger than the largest quantity sold by KPC for use in their domestic market. In applying the method of section 15 of SIMA, the CBSA used the rule of paragraph 16(1)(d) of SIMA, which states that, in such circumstances, the sales of like goods shall be those that are in the largest quantity sold by the exporter for use in the domestic market. Accordingly, estimated normal values for each product variety and package configuration were based on the weighted average domestic market selling prices of the like goods sold to KPC's large volume customers.
[34] Where applicable, the estimated normal values were adjusted in accordance with the method described in the Special Import Measures Regulations, as follows:
- A regulation 8 freight adjustment was allowed for domestic sales that were sold on a delivered or freight included basis. Freight and distribution expenses were examined and verified by the CBSA and allocated as a percent of gross sales revenue, which resulted in a downward adjustment to estimated normal values.
- A regulation 9 trade level adjustment was made to take into account selling, advertising and marketing expenses incurred on domestic sales which are at a trade level nearest or subsequent to that of the importer. The importer, Kraft Canada, is a national distributor. KPC's sales in the domestic market are to the grocery level of trade. The CBSA examined and verified selling, advertising and marketing expenses incurred on domestic sales that are not incurred by the vendor on sales to Kraft Canada, resulting in a downward adjustment to estimated normal values.
[35] Export price is usually determined in accordance with section 24 of SIMA, based on the lesser of the exporter's sale price of the goods or the price at which the importer has purchased or agreed to purchase the goods.
[36] When sales are made between associated exporters and importers, such as KFG and Kraft Canada, the President must consider the reliability of the section 24 export price from the exporter to the related importer. This price is tested to ensure that the importer is selling the product in Canada at a price that allows for the recovery of all costs incurred by the importer, including the cost of the goods, costs in preparing, shipping and exporting the goods, reselling the goods, and an amount for profit. If the President forms the opinion that the section 24 export price is unreliable, the export price will be calculated in accordance with paragraph 25(1)(c) of SIMA.
[37] Since the subject goods were imported by Kraft Canada, a related company, the CBSA tested the reliability of the export prices calculated pursuant to section 24 of SIMA. Export prices under paragraph 25(1)(c) were estimated on the basis of Kraft Canada's resale prices in Canada less all costs, charges and expenses incurred by the exporter in preparing, shipping and exporting the goods, all general, selling and administrative costs incurred by the importer and an amount for profit.
[38] A comparison of export prices estimated using the method of paragraph 25(1)(c) of SIMA, with the section 24 export prices, revealed that the section 24 export prices were generally reliable, in that these prices allowed for the recovery of all costs and an amount for profit by the importer in Canada. Export prices were, therefore, estimated using the method of section 24 of SIMA.
[39] The normal values were compared with the export prices for all subject goods imported into Canada during the period of investigation. The CBSA found that 97.9% of the goods exported by KFG were dumped by an estimated weighted average margin of dumping of 40.9%, expressed as a percentage of export price. The margins of dumping of the dumped goods ranged from 0.3% to 199.5%.
[40] Palermo Villa, Inc. (Palermo), a pizza manufacturer, is the exporter and vendor of the subject goods exported to Canada. Palermo has manufacturing operations located in Milwaukee, Wisconsin, and Elk Grove Village, Illinois. In the United States, Palermo sells private label frozen self-rising pizza to retailers and distributors. Palermo exports private label frozen self-rising pizza to unrelated Canadian customers.
[41] Palermo supplied information on its sales and costs of production for like goods sold in the domestic market and for goods exported to Canada. As a result, it was determined that Palermo had a sufficient number of profitable sales of like goods to non-associated customers in the United States. The normal values for each product variety and package configuration were estimated using the method in section 15 of SIMA based on the weighted average domestic market selling prices of like goods. The domestic sales of Palermo were at the same level of trade as the importers in Canada.
[42] Where applicable, the estimated normal values were adjusted in accordance with the methods described in the Special Import Measures Regulations, as follows:
- A regulation 5 adjustment was allowed when the goods sold to the importer in Canada and the like goods sold in the domestic market differed in their quality, structure, design or material. The CBSA obtained and verified information for carton costs, which resulted in a downward adjustment to estimated normal values.
- A regulation 6 adjustment was allowed when cash discounts, rebates and deferred discounts were generally granted in the domestic market and the importer would have qualified if the sale had occurred in the United States. The CBSA identified and verified cash discounts given to customers that resulted in this adjustment on certain estimated normal values.
- A regulation 7 freight adjustment was allowed for domestic sales that were sold on a delivered or freight included basis. Palermo provided data covering actual freight costs for shipments to each domestic purchaser of like goods, resulting in a downward adjustment to estimated normal values.
[43] As the goods were sold to unrelated importers in Canada, export prices were estimated in accordance with the method in section 24 of SIMA, on the basis of the exporter's selling price or the importer's purchase price. In this case, the CBSA used the exporter's selling price.
[44] The estimated normal values were compared with the export prices for all subject goods imported into Canada during the period of investigation. In the analysis on a transaction-by-transaction basis, the CBSA found that 10.3% of the goods exported by Palermo were dumped by an estimated margin of dumping ranging from 1.8% to 3.3%, expressed as a percentage of export price. Sales made at undumped prices are allowed to offset the margins of dumping found within each product variety and package configuration to zero. In calculating an exporter's weighted average margin of dumping, the margins of dumping for each product was weighted according to the volume exported to Canada. The weighted average margin of dumping for all Palermo products was zero.
[45] Pursuant to subsection 35(1) of SIMA, the President is required to terminate the investigation with respect to the goods prior to the preliminary determination if he is satisfied that the volume of dumped goods of a country or countries is negligible or the margin of dumping of the goods of that country is insignificant.
[46] A volume of dumped goods from a country equal to less than 3% of total imports from all sources is considered negligible. Given that the United States represents 100% of the exports to Canada from all countries and more than 90% of these exports were dumped, the volume of dumped goods is not negligible. The volume of dumped goods cannot be released for confidential reasons, as there are only two exporters of subject goods.
[47] Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% is defined as insignificant. The overall weighted average margin of dumping calculated for the goods originating in or exported from the United States is 39.4%, well above the 2% threshold.
Representations Concerning the Investigation
[48] Confidential importer and exporter responses to the CBSA's RFI were provided to counsel for all parties to the proceedings. Subsequently, counsel for McCain made a confidential submission regarding the responses and items to be addressed in the CBSA importer and exporter verification exercises. Counsel for the importers and exporters were provided with the opportunity to respond to this submission, and did so under confidential cover. The concerns of the parties were taken into consideration by the CBSA during the verification and analysis of the exporter and importer responses.
[49] Kraft Canada and KFG made a submission regarding the CBSA's administrative policy in determining the reliability of section 24 export prices. Where the President is of the opinion that the export price, as determined under section 24 of SIMA, is unreliable by reason that the sale of the goods for export to Canada was a sale between associated persons, SIMA provides that the export price will be determined under section 25. Kraft submits that the CBSA's methodology used to deem section 24 export prices unreliable constitutes a restrictive interpretation of reliability that is not prescribed in law. Kraft has submitted that export prices should be determined using section 25. McCain has submitted that the CBSA should reject Kraft's request that the CBSA review its policy regarding export price reliability. During the final phase of the investigation, the CBSA will give further consideration to these representations.
[50] Based on the preliminary results of the investigation, on May 17, 2004, the President made a preliminary determination of dumping pursuant to subsection 38(1) of SIMA. In light of the preliminary determination of injury made by the Tribunal, the President also considered that the imposition of provisional duties is necessary to prevent any injury from dumped imports.
Provisional Duty to be Imposed
[51] Pursuant to subsection 8(1) of SIMA, provisional duty will be applied to dumped subject goods from the United States that are released during the provisional period commencing on the day the preliminary determination is made, and ending on the earlier of the day on which the President causes the investigation to be terminated pursuant to subsection 41(1) and the day on which the Tribunal makes an order or finding.
[52] Exporters have been provided with estimated normal values. The provisional duty to be collected is the amount by which the estimated normal value exceeds the export price of the goods.
[53] Importers are required to pay provisional duty in cash or by certified cheque. Alternatively, they may post security equal to the amount payable. Importers should contact their regional customs office if they require further information on the payment of provisional duty or the posting of security. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in the customs documents, an administrative monetary penalty could be imposed. The provisions of the Customs Act apply with respect to the payment, collection or refund of any duty collected under SIMA. As a result, failure to pay duties within the prescribed time will result in the application of interest.
The Canada Border Services Agency
[54] The CBSA will continue its investigation of the dumping and will make a final decision by August 16, 2004. During the final phase, the CBSA will request further information to finalize the calculations for normal values and export prices. In addition, the CBSA will give further consideration to the representations made by Kraft Canada, KFG and McCain regarding the determination of export price before making its final decision.
[55] If the President is satisfied that the goods were dumped and that the margin of dumping is not insignificant, he will make a final determination. Otherwise, the President will terminate the investigation and any provisional duty paid, or security posted, will be returned to the importers.
The Canadian International Trade Tribunal
[56] The Tribunal has begun an injury inquiry and will conduct a public hearing into the question of injury. The Tribunal will make the appropriate orders or findings no later than September 14, 2004.
[57] If the Tribunal finds that the dumping has not caused injury or is not threatening to cause injury, the proceedings will be terminated and all provisional duties collected, or security posted, will be refunded. If a decision of injury is made, anti-dumping duty will be imposed on dumped imports of the subject goods.
Retroactive Duty on Massive Importations
[58] Under certain circumstances, anti-dumping duty can be imposed retroactively on subject goods imported into Canada. When the Tribunal conducts its inquiry on injury to the Canadian industry, it may consider if dumped goods that were imported close to, or after, the initiation of the investigation constitute massive importations spread over a relatively short period of time and have caused injury to the Canadian industry. Should the Tribunal issue a finding that there were recent massive importations of dumped goods that caused injury, and it appears necessary to the Tribunal that duty be assessed, imports of subject goods released by the CBSA in the 90 days preceding the day of the preliminary determination will be subject to anti-dumping duty.
[59] After a preliminary determination of dumping, the President may accept undertakings that eliminate the margin of dumping of the goods or that eliminate the injury caused by the dumping. Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped goods. If undertakings are accepted, the imposition of provisional duty will be suspended, as would the investigation, unless the exporter wishes it to continue and file such a request with the CBSA and the Tribunal.
[60] In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determination of dumping, that is, before July 16, 2004.
[61] The legislation allows all interested parties to make representations concerning any undertaking proposals. The CBSA will maintain an up-to-date list of these parties and will notify them should an undertaking proposal be received. Persons who wish to be notified must provide their name, address, telephone number, fax or email address to one of the officers whose names appear below. Interested parties may also consult the Web site noted below for information on undertakings offered in this investigation. A notice will be posted on the Web site when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.
[62] A notice of this preliminary determination will be published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.
[63] 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.
| Canada Border Services Agency Anti-Dumping and Countervailing Directorate 100 Metcalfe Street, 10th Floor Ottawa, Ontario K1A 0L8 Canada |
|
| Telephone |
Rand McNally -- (613) 954-1663 Karen Humphries -- (613) 954-7176 Tara Ryan -- (613) 954-7187 Ian Gallant -- (613) 954-7186 |
| Fax | (613) 948-4844 |
|
Rand.McNally@cbsa-asfc.gc.ca Karen.Humphries@cbsa-asfc.gc.ca Tara.Ryan@cbsa-asfc.gc.ca Ian.Gallant@cbsa-asfc.gc.ca |
|
| Web site | http://www.cbsa-asfc.gc.ca/sima-lmsi/ |
Suzanne Parent
Director General
Anti-Dumping and Countervailing Directorate
