Chapter 4

The Kimberly-Clark decision and other criticisms of Australia's anti-dumping and countervailing system

4.1 Australia's anti-dumping and countervailing framework has regularly been a target of criticism from users of the system. Many submissions to this inquiry argued that there were a number of areas which, in their view, undermine the functionality and accessibility of Australia's system. These criticisms generally fall under six categories, namely that:

the system does not strike the necessary balance between the different users of Australia's anti-dumping and countervailing system;
there is a lack of clarity over Customs' determination of material injury, as evidenced by the Kimberly-Clark decision;
the regulatory burden of substantiating claims and counterclaims of dumping and subsidisation are too high;
the 155 day statutory time-period for investigations is not being adhered to, with an increasing number of extensions to investigations in recent periods.
there is insufficient resourcing of Customs and a lack of industry expertise to undertake anti-dumping and countervailing investigations and reviews; and
Australia's interpretation of its WTO obligations is too 'strict' and overrides its domestic legislation.

4.2 This chapter examines these criticisms of Australia's anti-dumping and countervailing framework. It concludes by establishing the guidelines and principles that the committee will use to evaluate the bill's amendments.

Competing interests

Striking the balance between users of the system

4.3 Balancing the purpose and constraints of anti-dumping and countervailing systems with the often competing objectives of the users of the system is a vexed issue. Submissions to this inquiry agreed to a large extent that Australia's anti-dumping and countervailing system should be efficient, effective, equitable, transparent and compliant with Australia's domestic legislation and international obligations.[1] The principal area of disagreement among submitters was in how to strike this balance and whether the amendments to the bill achieved these objectives.

4.4 The Australian Steel Association (ASA) argued that the anti-dumping system should be available as a 'transparent balance mechanism, not as a marketing tool available for the powerful at the expense of the weak, for these disparate downstream manufacturers'.[2]

4.5 The Australian Workers' Union (AWU), on the other hand, believed that Customs does not have a 'strong enough culture aimed at assisting local industry rather than importers':

In Australia, experience has been that the benefit of the doubt in dumping cases is given to importers. Until this culture changes...little is likely to change'.[3]

4.6 The AWU further argued that Australia's anti-dumping and countervailing framework is currently skewed against domestic producers, and does not take full advantage of its rights under WTO agreements:

Australia must enforce its rights to apply effective anti-dumping and countervailing measures to prevent injury and loss to Australian industry and workers. Amendments proposed by the bill go a long way in addressing current weaknesses in domestic law. In particular, reversing the onus of proof and enshrining the rights of unions to be a party to investigations and complaints are warmly welcomed.[4]

4.7 The Construction, Forestry, Mining and Energy Union (CFMEU) went a step further, suggesting that the priority of the system should be to protect the interests of local manufacturers:

It is the union's view that the government has a duty to ensure that local industry is afforded the maximum amount of security to prevent encroachment from unfair trade whilst remaining accommodating to our broader international trading strategy framework. In this sense, the CFMEU considers Australia's anti-dumping system seriously flawed. The anti-dumping system, time and time again has proven to be inaccessible, expensive, complicated and unresponsive to the concerns and requirements of local industries and unions.[5]

4.8 The Institute for International Trade (IIT) recognised that opinions would differ:

We acknowledge that views will differ regarding where the balance should be struck between the interests of industry (including downstream sectors), importers and consumers, but argue that many aspects of the 'political economy' argument remain valid. We believe the 'cost to the community' will risk becoming imbalanced by a step as significant as changing the onus of proof in the manner proposed.[6]

4.9 In his Second Reading Speech on the bill, Senator Nick Xenophon indicated that the bill aims to rebalance Australia's anti-dumping and countervailing system to make it more favourable to Australian manufacturers:

These dumping duties are supposed to offset the effects of injury; however I am increasingly concerned that the current framework does not adequately protect and does not fairly act in favour of Australian manufacturers. In fact, the burden, the cost and the process appears to be skewed very much in favour of overseas importers. This Bill seeks to correct this and put greater focus on the unfair impact on Australian manufacturers.

4.10 Unsurprisingly, industry councils, unions and manufacturers were broadly in favour of the bill, while importers and other downstream users were mainly in opposition to amendments which were perceived by some as 'based on a lack of understanding or appreciation of the real world situation' in their industry sectors.[7]

The Kimberly-Clark decision and the determination of material injury

The Kimberly-Clark decision

4.11 In his Second Reading Speech on the bill, Senator Xenophon highlighted the case of Kimberly-Clark, a paper and tissue manufacturer which had been fighting a reversal of a decision to impose dumping duties on tissue products imported from China and Indonesia.

4.12 In its original decision in December 2008, Customs ruled in favour of Kimberly-Clark's anti-dumping application against toilet tissue products imported from China and India, determining that the export prices undercut prices of local rivals and caused material injury to the Australian industry. As a result, Customs recommended, and the Minister imposed anti-dumping duties ranging from 2 per cent to 45 per cent on these imports.

4.13 The measures were to remain in place for the usual five year timeframe. However, on appeal from several companies such as Asia Pulp & Paper, and the Indonesian Government, in January 2009 Customs launched a re-investigation in which it:

onfirmed that Chinese and Indonesian toilet paper imports were dumped in the Australian market and had caused injury to the domestic industry in 2007; but
found more significant factors in the situation. These included competition from another Australian producer and the rising value of the Australian dollar against the US dollar, which was argued to have affected the applicants' pricing decisions in 2007.[8]

4.14 In accordance with Article 3.5 of the AD Agreement, these more 'significant' factors resulted in the anti-dumping measures being revoked by Customs, a decision which was upheld by the Federal Court following appeal by Kimberly-Clark.[9]

4.15 The decision drew widespread criticism from a number of interested parties, with the Australian Plantation Products & Paper Industry Council (A3P) left:

...perplexed and concerned [about] the lack of rationale provided by Customs of how they have assessed material injury. The current system, the uncertainty of the...definition of material injury, and recent findings create significant uncertainty and further undermine the competitiveness of the Australian industry. A clear definition of material injury and the rationale behind Customs' decisions...would provide more certainty to industry.[10]

4.16 The decision reflected a number of concerns and criticisms of Australia's anti-dumping and countervailing system, and motivated Senator Xenophon's introduction of the Customs Amendment (Anti-Dumping) Bill 2011 into the Senate.

Need for greater clarity and certainty in the determination of dumping and 'material injury'

4.17 Ultimately, the Kimberly-Clark decision demonstrated the difficulty that both Customs and users of the system have in determining a causal link between dumping and material injury. Dumping could be occurring, but Customs is obliged under Australian legislation and international obligations to differentiate between injury being felt by the industries as a result of dumping and injury that could be attributed to other factors.

4.18 The Australian Industry Group (AIG) further elaborated on the difficulty that users of the system face in understanding the reasons for Customs' decisions:

Senator XENOPHON: In the CSR case of float glass, with JELD-WEN on the other side, there was an initial statement of facts in relation to that, but in the end Customs decided not to proceed with it. In fact, the statement of essential facts found that dumping occurred and material injury occurred, but the decision was changed in the determination report. They could not determine material injury. Where are the flaws in the current system in determining material injury? Where does it fall down in a practical sense?

Mr Willox: That is a very good question, because often the concern is how 'material injury' is defined...is it through loss of market share? Is it through loss of employment within an operation? Is it loss of ability to compete in the future, because once a new price—a new, lower 'dumped' price—has been established, does that then become the market norm? And what is the multiplier impact on your business as a result of that? There are always fundamental, undefined answers around questions related to what material injury is. We have seen a couple of instances in which dumping was found to have occurred but material injury was not found to have taken place. It always leaves those affected more than bemused—and often downright angry—that a finding can be made that dumping has occurred but that it has not materially impacted on the business in Australia. At a time when competition is tight, that sort of finding is befuddling. The WTO agreement does not define material injury. It gives some factors that it might involve, but at no point does the definition of material injury under the WTO prohibit the impact of dumping on capital investment and jobs—among other factors—as being material to an impacted party's interests. That is where an issue for us such as the impact on an organisation's ability to employ skilled people should be very much taken into account as a material factor in determining a dumping claim.[11]

4.19 Customs explained that a number of factors may lead to a determination that dumping had taken place, but that material injury resulted from other factors. It submitted that factors that may lead to this determination include:

volume and prices of imported like goods that are not dumped;
contraction in demand or changes in the pattern of consumption;
restrictive trade practices of, and competition between, the foreign and domestic producers;
development in technology;
export performance and productivity of the domestic industry;
issues raised by interested parties;
domestic or global economic factors (such as the global financial crisis);
domestic competition; and
capacity/supply constraints.[12]

4.20 Industry concerns appear to be reasonable given the significant proportion (40 per cent) of the 15 investigations in the last three financial years (2008-09 to 2010-11[13]) which resulted in a finding by Customs that while there was dumping/subsidisation, this had not caused material injury.

4.21 It is important to note at this point, however, that the high proportion of investigations which did not result in anti-dumping measures being imposed is consistent with international trends. Since January 1995, global initiations of anti-dumping investigations have consistently outnumbered measures imposed, with final measures imposed between January 1995 and June 2010 representing 65 per cent of initiations over the corresponding period.[14]

Consideration of the threat of material injury

4.22 Significantly, Customs does not assess the threat of material injury during the prima facie stage or as part of each investigation, unless an allegation is made by the Australian industry.

4.23 Customs indicated that the threat of material injury has been assessed in only 4 of the 15 new investigations that have been held between 2008-09 and 2010-11. None of these four cases have resulted in a finding that material injury was threatened by dumping and/or subsidies. In addition, it noted that measures have not been imposed solely on the basis of threat of material injury.[15]

4.24 Part of the difficulty in determining that dumping could threaten to cause material injury is the strict requirements under the AD Agreement. For example, Article 3.8 states that, 'with respect to cases where injury is threatened by dumped imports, the application of anti-dumping measures shall be considered and decided with special care'.[16]

4.25 In addition, Article 3.7 notes that 'a determination of a threat of material injury shall be based on facts and not merely on allegation, conjecture or remote possibility. The change in circumstances which would create a situation in which the dumping would cause injury must be clearly foreseen and imminent'. It goes on to list factors that investigating authorities should consider in making their determination as:

(i) a significant rate of increase of dumped imports into the domestic market indicating the likelihood of substantially increased importation;

(ii) sufficient freely disposable, or an imminent, substantial increase in, capacity of the exporter indicating the likelihood of substantially increased dumped exports to the importing Member's market, taking into account the availability of other export markets to absorb any additional exports;

(iii) whether imports are entering at prices that will have a significant depressing or suppressing effect on domestic prices, and would likely increase demand for further imports; and

(iv) inventories of the product being investigated.

No one of these factors by itself can necessarily give decisive guidance but the totality of the factors considered must lead to the conclusion that further dumped exports are imminent and that, unless protective action is taken, material injury would occur.[17]

4.26 Another difficulty arises in Australian domestic legislation, which does not differentiate between factors to consider in the assessment of 'material injury' and factors to consider in the assessment of 'threat of material injury' from dumping.

4.27 Theoretically, this would result in a higher hurdle to prove that dumping is likely to threaten material injury to the domestic industry. This is because, if dumping is already causing material injury to the industry, then it should be relatively easier to substantiate based on existing evidence. However, in the case of a 'threat of material injury', dumping would not yet have caused the material injury. Thus, applicants could potentially have difficulties substantiating their claims regarding a 'threat' of material injury if they are compared against the factors used to determine 'material injury'.

Summary

4.28 Consequently, both Australia's own domestic legislation, as well as the AD Agreement, impose restrictions on the capacity of Customs to determine the threat or the existence of material injury that is attributed to dumping. This has an important bearing on the outcomes of investigations, and has acted as one of the key motivations of the bill.

Regulatory burden of substantiating claims and counterclaims of dumping and subsidisation

Costs of accessing the system 'unfair' and 'prohibitive'

4.29 Industry frustration over final determinations on dumping and material injury partially stem from the significant barriers, particularly for small to medium enterprises, in preparing an application for anti-dumping or countervailing measures. These barriers were exacerbated for small to medium enterprises.

4.30 Indeed, some companies reported that by the time they had submitted an application, they had already incurred significant costs, with some spending hundreds of thousands of dollars investigating the practices of overseas manufacturers who they believe to be dumping goods. In a current matter, CSR Limited, for example, noted that the Viridian case has cost it over $300,000 thus far.[18]

Table 4.1: Costs of applying for anti-dumping notices

Product	Origin	Complainant	Cost of case
Mushrooms	China	Mushroom Growers Association of Australia and Windsor Farm Foods	$400,000
Currants	Greece	Australian Dried Fruits Association	$120,000
Unspecified	Unspecified	Dow Chemical (Australia) Limited	$50,000-100,000
Pork imports	Unspecified	Australian Pork Limited	$200,000*
Thermoplastic polyurethanes	Germany, Italy, USA	Townsend	>$200,000

* This figure refers to the APL's estimated costs associated with lodging an anti-dumping application, although APL did not meet the threshold test required for the application to be accepted. Source: Australian Pork Limited, Submission No. 39 to the Productivity Commission's inquiry into Australia's Anti-dumping and Countervailing System, 2009, pp 3, 5.

Source: Submissions to the Productivity Commission's inquiry into Australia's Anti-dumping and Countervailing System; committee submissions.

4.31 It was not only domestic producers who criticised the costliness of an anti-dumping case; importers and lawyers who represented exporters also demonstrated that it was burdensome to defend a case.

I have to say that the JELD-WEN organisation has incurred expenditure of $1 million to date in opposing the antidumping application by CSR and Viridian in respect to clear float glass. Hopefully, that puts some perspective on the observations about the costs to applicants.[19]

4.32 The Australian experience is similar to that in other comparable jurisdictions, with studies of US anti-dumping claims showing that the cost of legal fees alone for pursuing an anti-dumping investigation ranges from US$250,000 to US$1,000,000. This cost reflects the initial case, and does not include the costs of compiling information or the fees incurred for each subsequent annual review.[20]

4.33 The 'prohibitive' costs of accessing the system were further compounded by the breadth of data required to mount a case, and the legislative prohibition of providing further data after the application was submitted. This led some to contend that by the time action was taken by Customs, damage had already been done to the industries affected by dumping, especially as preliminary affirmative action could only take place 60 days after initiation of investigation.

Dr Jones: It is maybe not so much the costs in our case, because the last few cases that we have been involved in we have run in house, although there is certainly an ongoing cost in gathering the information from overseas sources and such like. But the disruption it causes to the general running of the business and the time it takes from critical functions can be quite major. Given that, if measures are put in place, after 12 months those measures can be challenged and you might be going through it all again, it can be quite an ongoing burden. If we were to mount a countervailing case in our own right, such as the US one—I believe that cost them several million dollars to put together—that would be totally beyond our resources. Our only option would be to piggyback on theirs...

Senator CAMERON: The big issue here is that by the time you get a resolution to a claim that there have been detrimental effects through dumping, the detrimental effects have been in and the damage has been done.

Dr Jones: Yes, and you have started collecting data six to 12 months before you have got your application together, because you have got to collect it from overseas as well as locally.[21]

ABS suppression of import statistics limits ability to substantiate anti-dumping/countervailing applications

4.34 According to some submitters, the ability of domestic industries to comply with these informational requirements is also materially impeded by the Australian Bureau of Statistics' (ABS) treatment of detailed import data, in certain circumstances, to preserve confidentiality. This is a long-standing issue among users of the system, and has been highlighted by many of the reviews and reforms into the system.[22]

4.35 Import statistics are aggregated prior to publication because of requirements imposed by legislation to preserve confidentiality. Both the ABS and Customs are bound by confidentiality provisions which limit the detail of information they can publish.

Senator XENOPHON: In your submission....you say...One of the largest issues Australian manufacturing industry has in identifying and actioning unfair international competition is access to sufficiently detailed import statistics. And you make reference to the fact that in the US there is a requirement for full disclosure of individual import shipments. Can you just elaborate on that? Is that one of the issues where it is very hard to prove a case because you just do not have the access to that data?

Dr Jones: It certainly is. Here the Australian Bureau of Statistics, if they are asked by an importer—or an overseas exporter, I believe—to conceal the statistics of imports from a certain country that the company is importing from or exporting from, they are basically bound to do so. A very recent example of that is that a new stationery chain entering the market in one of the Australian states was offering copy paper in box lots for $2 a ream, coming in from Brazil. We have no way of knowing whether or not they were just loss leading or whether it was being dumped at an extraordinarily low price, because...three months before that, they had the statistics concealed.

Senator XENOPHON: What explanation has been given to you from Customs to say, 'We won't give you the same level of information that the US provides'?

Dr Jones: Customs refer us to ABS, who send us a form letter basically saying that that is the legislation they operate under. I have not tracked back through to see exactly what legislation that is.[23]

4.36 Customs noted that its ability to 'access, compile and analyse import data is not affected by ABS confidentiality requirements. This is because the primary source of import data in investigations and reviews is Customs and Border Protection's import database. This database contains a high degree of detail relating to all importations, much of which is commercial-in-confidence'.[24]

4.37 The difficulty, Customs contends, for applicants to substantiate claims of dumping or subsidies causing material injury, lies predominantly in tariff classifications, which 'may contain import details for goods of a broader category than the specific goods subject to investigation or review'.[25]

4.38 This point is illustrated by Australian Paper's submission:

The problem is deeper than just country of origin volumes and prices. Even when import data for an individual tariff code and country of origin is available, there may be several suppliers of a good, or one tariff code may contain several distinct goods at quite distinct prices, some dumped or subsidised. The only way this can be resolved is by full disclosure of individual import shipments as takes place in the US system.[26]

4.39 While the bill's amendments seek to reduce the informational burden on domestic producers through other mechanisms (such as reversal of onus of proof, and lower informational thresholds), the issue of ABS restrictions on import statistics, and the difficulties that tariff classifications present are not addressed. This will most likely continue to be a major issue for users of an anti-dumping and countervailing system. This is because while the bill proposes to shift the onus of proof to importers, an individual importer would still face the same information limitations as the domestic producer before him/her. This could potentially weaken the efficacy of the amendments, when perceived both at an individual level and as part of the bill as a whole. This is discussed further in chapter 5.

The 155 day statutory time-period for investigations

4.40 One of the major differences between Australia's system and comparable anti-dumping and countervailing systems is the significantly shorter timeframe for investigations. This has important flow-on effects, as statutory constraints on investigative timeframes influence the course of an investigation. Consequently, the benefits of undertaking a quick investigation (such as minimising injury from dumped/subsidised goods) need to be weighed against the constraints that this imposes on both Customs and users of the system in both compiling information and assessing dumping/subsidising claims within the statutory times allocated.

4.41 Customs points out that the amount of time required for an investigation depends on a number of factors, including:

the number of members of the Australian industry, which may lead to delays in the provision of consolidated information on the Australian industry and its performance over the injury period;
difficulties members of the Australian industry have experienced in providing required information in a timely manner—exacerbated whenever there is more than one member of the Australian industry;
the complexity of the particular case reflected by the number of potential interested parties, which may require additional processes for sampling parties for the purposes of verification; and
the complexity of the particular case reflected by the issues raised and the information required to be provided and potentially verified (e.g. combined claims of dumping and subsidisation, with the latter adding a requirement for consultation with foreign governments).[27]

4.42 These time pressures are evident in the number of extensions that have been granted to Customs by the Minister to complete its investigations. Between July 1999 and May 2009, 69 investigations were undertaken, and of these 28 were completed within the statutory timeframe, with the remaining 41 extended by an average of 57 days.[28]

4.43 The situation does not appear to have improved. Over the past three financial years (2008-09 to 2010-11), around 51 per cent of anti-dumping investigations were extended beyond the 155 day timeframe allowed under the Act.[29] Customs noted in its 2009-10 Annual Report that, in 2009-10 alone, there had been an 80 per cent increase in the dumping and countervailing investigations, with other inquiries increasing by 137 per cent during the financial year. Compounding this trend is the number of investigations that resulted in Customs' decision being remitted during a subsequent appeal to the TMRO (Table 4.2).

Table 4.2: Anti-dumping investigations and appeals (2008 09 to 2010 11)


Period	Number of investigations		Number of appeals to TMRO		Number of appeals to Federal Court
	Extended	Total*	Decisions remitted	Total	Total
2008-09	4	18	3	4	2
2009-10	6	32	4	9	4
2010-11#	17	22	6	15	0

*Total number of investigations is an approximation based on percentages supplied by Customs.

# Year to date (1 July 2011 to 31 March 2011).

Source: Customs, Answers to questions on notice, 4 May 2011 (received 7 June 2011), pp 17-21.

4.44 Where the statutory timeframes constrain available resources impacts on the efficiency and effectiveness of the system and has financial ramifications for users of the system. In the Department of Innovation, Industry, Science and Research's (DIISR's) view:

...recent trends require closer examination so that action may be taken to ensure Australia's anti-dumping and countervailing system maintains an appropriate balance between the threshold for initiating an investigation and investigation timeframes. The need for such a balance was not recognised by the PC in its recent inquiry. While it did consider industry views on the threshold for investigation and the length of investigations, it made no recommendations in relation to either the threshold or the standard timeframes for investigations.[30]

4.45 The timeframes also were a major limitation that Customs identified with many of the bill's amendments. For example, Customs noted that it would be difficult to comply with certain amendments[31] within the current timeframes, given subsections 269TDAA(3) and 269TEA(4), which require Customs to report to the Minister within a 'timely and efficient' manner. Thus, while some amendments are designed to reduce the informational requirements for applicants, their interaction with other amendments, as well as other sections of the Act, may result in lengthier investigative timeframes.

Committee view

4.46 The committee is concerned that the existing statutory 155 day timeframe is insufficient in the current anti-dumping and countervailing environment, and could potentially limit the ability to improve both Australia's administrative and legal anti-dumping and countervailing framework.

4.47 This is clearly demonstrated by the number of times Customs has sought, and the Minister has approved, extensions to the timeframe for specific investigations and reviews.

Recommendation 1

4.48 The committee recommends that the Government re-examine the statutory timeframes imposed to investigate and review anti-dumping and countervailing applications, in light of the lengthy and prevalent extensions to investigative timeframes.

Insufficient Customs expertise and resourcing

4.49 While the statutory timeframes are an obvious constraint, the issue of resourcing could also impede the capacity of Customs to undertake all of the requirements that the bill introduces. This may result in further pressures on the investigative timeframes and the costs to users (and administrators) of the system. Failure to consider the additional resources required to administer the new system could potentially offset some of the benefits of the bill, as highlighted by the IIT:

The combined effect of likely increases in anti-dumping investigations and applications as a result of the proposals, as well as the increased scope (impacts) and range of information potentially introduced at different stages, would be increased costs for all involved in considering greater amounts of material, accommodating additional parties, and dealing with new legal issues and uncertainties, together with increased administration costs and more frequently extended proceedings. Some of the perceived savings may prove illusory.[32]

4.50 Under subsection 269ZT(1) of the Act, the Minister has a legislative requirement to ensure that there are sufficient resources for the TMRO to conduct his/her function:

The Minister must arrange with the Review Officer for sufficient resources (including personnel) to be made available to the Review Officer to enable the Review Officer to perform the Review Officer's functions effectively.[33]

4.51 The 'under-resourcing' of Customs and insufficient industry expertise was one of the biggest concerns for submitters to this inquiry.[34] Customs acknowledged during the public hearing that these were areas that were currently being addressed:

We are working on a couple of things that are relevant to your question. One is staffing up the area, so we are actively recruiting at the moment. And we go through cycles of doing this. The other thing that we are working on is incorporating independent expertise in our guidance to our investigators to a greater extent than we have done in the past.[35]

Inadequate resourcing

4.52 The AWU believed that oversight of Australia's system is inadequate due to:

...[a] lack of resources, bifurcated responsibilities, insufficient legislative coverage and weak governance. A vital part of the governance structure is the work of the Trade Measures Remedies Office (TMRO) which hears appeals following Ministerial determination. But there are too few investigations (the TMRO has many other competing responsibilities); complex and costly engagement by industry; combining dumping and subsidy (countervailing duty) investigations; ad hoc and inconsistent responses; limited assessment of injury on industry from either dumping or subsidies; and, where injury has been established, limited duty margins applied. Appeals are often unsuccessful. Other jurisdictions take much more seriously. In the US and Canada, there is a quasi-judicial body to assess injury on domestic industry. Bodies are properly funded and resourced. They have clear charters. They apply large penalties when cases of dumping or countervailing duties have been proven.[36]

4.53 The AWU called for reforms to Customs' and the TMRO's governance, including the use of industry experts, up-skilling current Customs' officers to include greater industry knowledge, as well as improving the 'culture' of Customs towards assisting local industry rather than importers.[37]

4.54 Australian Paper argued that the 'Customs Dumping Liaison Function could be strengthened to empower it to give positive assistance in preparation of cases and active case management as investigations proceed'.[38]

4.55 The rise in the number of investigations and appeals to the TMRO comes at a time of declining resources allocated to the Trade Measures Branch, both in terms of its overall operating budget as well as the number of staff, as seen in Table 4.3.

Table 4.3: Customs' Trade Measures Branch resourcing allocation (2008-09 to 2010-11)

Period	Trade Measures Branch		Customs
Period	Number of staff (yearly average FTE)	Operating budget	Total budget
2008-09	32	$5,184,303	$1,079,580,000
2009-10	31	$4,925,856	$1,097,717,000
2010-11	29*	$4,517,797	$1,084,775,000

* 1 July 2010—30 April 2011

Source: Customs, Answers to questions on notice, 4 May 2011 (received 7 June 2011), pp 4-5; Customs annual reports (2008-09 to 2010-11).

4.56 Customs has advised that the typical number of resources required to manage an anti-dumping investigation varies from three (in simple investigations) to five (in complex cases). It also indicated that as at 24 May 2011, the branch had a staff of 33 members, comprised of:

19 operations staff members conducting anti-dumping investigations (including reviews of measures, continuation inquiries and duty assessments); and
14 operational support staff members providing quality assurance, policy, capability development, industry liaison and engagement, management of administrative and judicial review, systems and knowledge management, corporate governance and monitoring compliance with anti-dumping and countervailing measures.[39]

4.57 The increase in the number of appeals to the TMRO (see Table 4.2) places added pressures on resources. This is because each Customs decision that is remitted by the TMRO requires a new investigation that does not include staff from the original investigation team. This requirement compounds pressure on the already limited number of staff available to undertake these investigations.

Committee view

4.58 The committee is concerned that without substantial improvements to the resourcing of Customs, the effectiveness of any potential changes to the administrative and legal framework would be diminished, and could potentially fail to reduce the burden on users of the system.

Recommendation 2

4.59 The committee recommends that the Government examine the current resourcing (in monetary terms and in the level and expertise of staffing) provided to the Australian Customs and Border Protection Service (Customs) and the Trade Measures Review Officer to investigate and review anti-dumping and countervailing applications. This examination should recognise the reduced budget allocation to the Trade Measures Branch of Customs, as well as the increased workload experienced over the past three financial years.

Inadequate industry expertise

4.60 Many submitters to this inquiry argued that Customs has insufficient expertise in the industries that are the subject of anti-dumping/countervailing applications.[40]

4.61 CSR Limited, for example, noted that there should be better resourcing for investigations, and the investigating team:

...should be required to engage an industry subject matter expert on its team, who can explain to Customs how the industry works-markets, segments, pricing, cost elements, etc. The team must also have available, and be required to use, interpreters, have forensic experts available and conduct more face to face interviews rather than desk top inquiries, which may be process driven and do not build industry understanding.[41]

4.62 Customs has indicated that, while it is not required to engage industry subject matter experts, over the past five years it has sought independent advice on a number of occasions. In 2006, for example, it sought advice on two occasions which cost $190,000.

4.63 Since 2008-09, Customs has sought expert advice in 10 per cent of investigations and reviews. The expert advice was sought for two cases on three occasions—one case involving linear low density polyethylene from Canada and the US (2009), and a case involving the exportation of aluminium extrusions from China (2010 and 2011). These cases cost approximately $170,000.[42]

Committee view

4.64 The number of consultations with industry experts may be related to the overall complexity of an investigation and the level of Customs' in-house expertise. However, this does not seem to be the case, given both Customs' evidence during the public hearing[43] as well as industry submissions, highlighted above.

4.65 Rather, it seems that the low level of consultation can be attributed to the declining budgetary resources and staffing constraints. It could also be related to the difficulty it presents for Customs to adhere to the investigative timeframes imposed by Australia's domestic legislation.

4.66 Again, these obstacles point to the importance of considering and addressing the constraints, both legal and budgetary, that impede the effective functionality of Australia's anti-dumping and countervailing system.

4.67 The bill makes amendments to the Act to require consultation with industry experts. Consequently, the committee further considers this issue in Chapter 5, which examines the specific provisions of the bill.

Compliance with Australia's international obligations

Australia's interpretation of WTO agreements is too stringent

4.68 Submissions to the inquiry were divided over how strictly Australia should interpret its obligations under the AD and SCM agreements.

4.69 The Australian Council of Trade Unions (ACTU) believed that Australia adopted too stringent an approach to its WTO obligations.

I can indicate that in interactions with trade unions from overseas it has been remarked that Australia seems a little bit naive in terms of our trade policy. We are a very open economy by world standards. There is a whiff of fundamentalism about it in Australia that other trade union organisations and indeed other governments find a little curious, I have to say. My own view is that other governments play a much smarter game in terms of applying WTO rules but making sure that they are applied right up to the limit of how strictly one can apply the rules and yet be compliant. The view of the Australian practice that we are not only applying the letter of the law but we are very much capture by that free market ideology that is not necessarily captured in the black letter of the text. In the way that we interpret it, we very much put ourselves at the mercy of more cunning foreign competitors.[44]

4.70 Australian Paper supported this argument, which they believe was exacerbated by Customs' fear of their determinations being challenged by court.

Senator EGGLESTON: ...it has been put to me that the GATT Anti-Dumping Code and the Agreement on Subsidies and Countervailing Measures are both codes of practice rather than absolute law. As such, there is a lot of wriggle room which is used by many countries to advantage themselves, especially large companies in large countries. Could Australia be a little bit more creative, if you like, in using that sort of wriggle room to deal with dumping here in this country? Would you agree with that statement or not?

Dr Jones: You would expect that that would be the case but, as I said a little earlier, my dealings with Customs have reflected the fact that they certainly regarded the WTO rules, guidelines or whatever you would like to call them as being effectively black-letter law and were very afraid of ending up in a court challenge on them.[45]

4.71 The Law Council of Australia (LCA) and the Law Institute of Victoria (LIV), disagreed with the premises of this argument, asserting that contingent protection was a 'sensitive area' between trading partners, and that 'consistency with international rules gives Australian customs law legitimacy and provides the basis of common understanding and interaction with our trading partners. These arrangements underpin Australia's Trade Policy initiatives [and] should not lightly be interfered with'.[46]

4.72 These differences became more pronounced over suggestions by some submitters that some of the bill's amendments contravened the WTO's AD and SCM Agreements. Some stakeholders, including economic and legal experts, as well as the Department of Foreign Affairs and Trade (DFAT), argued that some amendments contravened these Agreements, as summarised in Table 4.4.

Table 4.4: Amendments viewed as contravening Australia's WTO obligations by various submissions[47]

Item(s) of the Bill	Summary of Amendment	Potential non-conformity with WTO obligations
Item(s) of the Bill	Summary of Amendment	AD Agreement	SCM Agreement
9,10	Consideration of applications by producers who represent <25% of production of good	Articles 5.1, 5.4 and 5.5	Articles 11.1 and 11.4
12	Reversal of onus of proof	Articles 3.1, 3.3, 3.5, 5.2, 6.6 and 6.9	Article 11.2, 12.5, 12.8, 15.1, 15.2 and 15.4
3,4,7	Rebuttable presumption of dumping	Articles 3.1, 3.3, 3.5 and 5.2	Article 11.2, 15.1, 15.2, 15.4, and 15.5
8,11	Restricting data requirements to no more than 90 days prior to the application	On appeal, it could be argued that data provided was 'insufficient' and the decision contravenes Articles 5.2 and 5.3	On appeal, it could be argued that data provided was 'insufficient' and the decision contravenes Articles 11.2 and 11.3
13	Allow Preliminary Affirmative Determinations as soon as investigation initiated	Article 7.3	Article 17.3

4.73 The AIG's support for a number of amendments, including the rebuttable presumption of dumping and the immediate implementation of preliminary affirmative determinations once dumping has been proven, was conditional on these amendments being WTO consistent.[48]

4.74 This view was not shared by union representatives, as was illustrated by CFMEU during the hearing:

Our interpretation of the amendments tabled were that it was indeed consistent with the WTO antidumping act—or at least as consistent as the system currently operates.[49]

International treaties overriding Australia's domestic legislation

4.75 Australian Paper further argued that Australia's domestic legislation was being 'overridden' by its concerns with WTO compliance:

My experience with Customs, and, generally speaking, the antidumping and countervailing operations through the Trade Measures Department, is that I have found them to be very dedicated and very good. But they actually seem to pay more attention to the WTO rules than to our own legislation. That is what they are tiptoeing around all the time. We have this absurd situation in Australia where treaties override domestic legislation, whereas the US does not operate that way.[50]

4.76 However, union representatives found merit in ensuring consistency between Australia's domestic legislation and its international obligations under the WTO agreements. The AWU argued that Australia's current system is 'letting down' Australia's local manufacturers due to its failure to implement the range of existing WTO remedies that are available to deal with subsidies in Australia's own legislation.[51] This is in reference to section 269TAAC(6) of the Act, which DFAT noted:

...has not been updated to reflect the fact that Article 13 of the AA (the 'peace clause') and Article 8 of the SCM Agreement have now lapsed... In other words, the Customs Act continues to exclude certain forms of support for agricultural products from countervail action as well as a range of subsidies for non-agricultural goods (research and development, environmental upgrades, subsidies for regions which are economically disadvantaged). The Customs Act therefore does not reflect the full range of trade remedies available under WTO law.[52]

Committee view on compliance with WTO obligations

4.77 Chapter 2 of this report found that Australia's WTO obligations are legally enforceable through the operation of the Dispute Settlement Body (DSB) of the WTO. In addition, the Productivity Commission report noted that 'in some areas, the WTO agreements potentially constrain the degree and nature of change that can be made to the current requirements'.[53]

4.78 In addition, while Australia currently has a very low proportion of disputes against it, this situation may change if the bill's amendments proceed and subsequent decisions by Customs are found to be inconsistent with Australia's WTO obligations. The legislative nature of the changes requires the investigating authority (i.e. Customs) to apply the amendments to each application and subsequent review. Consequently, inconsistencies between Australia's legislation and its international obligations would result in increased risk of litigation by other countries for each affirmative dumping/subsidisation determination by Customs on subsequent applications it receives.

4.79 The committee further notes that many international practices that diverge from these WTO rulings are often successfully challenged, resulting in changes to the administrative system of the non-compliant member.[54] For the bill to ultimately achieve its objectives, its amendments need to be upheld should subsequent anti-dumping and countervailing decisions be challenged through the DSB.

4.80 Finally, the arguments over the WTO compliance overriding domestic law fail to take into account the legislative amendments that have been made to Australia's domestic legislation to ensure its consistency with its WTO obligations. The committee notes that the introduction of amendments that are inconsistent with the WTO agreements would unambiguously contravene certain sections of the Act, which expressly require conformity with WTO obligations.[55] Where the bill does not make amendments to this section of the Act, inconsistencies within Australia's domestic legislation would result.

4.81 Consequently, the committee considers that conformity of the amendments of the bill with Australia's WTO obligations is one of the key factors in its analysis of the benefits of introducing these amendments to the Act.

Committee view

4.82 The bill seeks to redress some of these issues by introducing a broad range of measures that affect both the administration and outcome of the investigations.

4.83 However, Australia's anti-dumping and countervailing system has a number of legal and administrative constraints that could potentially significantly reduce the ability of the amendments to achieve their objectives. These constraints include the:

level of conformity with Australia's international obligations (namely the WTO's AD and SCM Agreements);
statutory timeframes that Customs must adhere to when investigating anti-dumping and countervailing applications;
limitations of and restrictions to ABS trade data; and
capacity of Customs, as currently resourced, to fulfil the new requirements which the bill introduces.

4.84 In addition, a major factor influencing the effectiveness of some amendments is their interaction with certain other amendments. For example, the amendments to reverse the onus of proof and to introduce rebuttable presumption of dumping form the major crux of the bill. They effectively reduce the informational burden and, theoretically, the timeframes required to complete an investigation. The efficiency and, in some cases, workability of other amendments, such as the provision to allow additional information in the investigative and review stage, may depend on these amendments being accepted. Otherwise, the amendments by themselves could add significant costs, both monetary as well as time-related, and uncertainty to the process.

4.85 Many of the issues highlighted have been recurring themes of previous reviews and reforms, and are not easy issues to address. Crucial to the 'success' of Australia's anti-dumping and countervailing system is its ability to manage the competing interests of its users within the constraints of its legal and administrative environment.

4.86 The committee's overall approach is to consider, for each individual amendment and the amendments as a whole:

(a) the workability of the amendments, including their interaction and consistency with other sections of the Act;

(b) the impact of the amendments on the efficiency and effectiveness of the system, including its impact on the transparency, clarity, and certainty of the system, as well as the monetary costs and information-collecting burden to all interested and affected parties; and

4.87 The committee views on the bill's amendments, and its recommendations, are discussed in chapters 5-9. A summary can be found in chapter 10.

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