Chapter 2

Australia's anti-dumping framework and the Siam decision

2.1        This chapter explains the concept of dumped goods and outlines key aspects of Australia's anti-dumping framework, including Australia's international obligations. This chapter also discusses the decision of the Full Federal Court in Minister of State for Home Affairs v Siam Polyethylene Co Ltd [2010] FCAFC 86 (Siam decision), the implications of which resulted in this bill being introduced.

What is dumping?

2.2        Dumping is 'a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country'.[1]

2.3        The World Trade Organization (WTO) considers that a product has been dumped 'if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country'.[2]

2.4        Whether action should be taken against dumping is an area of debate. Some argue that where dumping has a 'disproportionate' effect on certain industries, 'the damage borne by the affected sector can often be very substantial and difficult to recover from, even when dumping ceases to occur'. This effect is exacerbated when dumping occurs in regional areas, where affected firms are often the largest employer, placing a 'heavy burden on communities and families'.[3]

2.5        On the other hand, the merits of a system that seem to go against the principles of fair trade has been questioned by others. While acknowledging that in instances of 'predatory' dumping, action should be taken, it has been argued that more often than not, anti-dumping measures imposed by countries are 'naked protectionism', harming domestic consumers to the 'partial benefit of domestic firms'.[4]

2.6        A related concept is countervailing measures, which are duties imposed on imports that benefit from any of a specified group of government subsidies and which cause or threaten material injury to a local industry producing like goods.[5]

Australia's anti-dumping framework

2.7        Dumping is not explicitly prohibited in Australia. However, an anti-dumping and countervailing system is in place to allow the government to take remedial measures if the dumped goods are causing, or threatening to cause, material injury to Australian industry.

2.8        The Australian Customs and Border Protection Service (Customs) manages Australia's anti-dumping and countervailing system and makes recommendations to the relevant minister, currently the Minister for Home Affairs. Among other things, it is the Minister who decides whether to issue a dumping or countervailing duty notice. Customs summarised its functions regarding anti-dumping as including:

...investigating applications by manufacturers, conducting reviews and inquiries and advising the minister on whether measures should be imposed, varied, continued or revoked. Customs and Border Protection is also responsible for implementing decisions of the minister. Hence, we monitor compliance with measures imposed and we provide information and assistance to parties who may be interested in making a claim or parties who are subject to measures.[6]

2.9        The legislation primarily relevant to Australia's anti-dumping framework is the Customs Act 1901, with the Customs Tariff (Anti-Dumping) Act 1975 and the Customs Regulations 1926 also applicable. Within the Customs Act, Part XVB contains the provisions relevant to Australia's anti-dumping framework. This part is divided into ten divisions, as follows:

• Division 1 outlines preliminary matters such as the definitions of various terms.
• Divisions 2 and 3 outline the process the CEO of Customs and the Minister must follow, and matters they must have regard to, when considering anti-dumping matters.
• Division 4 provides for importers to apply for an assessment of duty payable.
• Divisions 5 and 6 deal with reviews of anti-dumping measures that are in place, as well as providing for accelerated reviews for new exporters. Division 5 is of primary relevance to this bill.
• Division 6A outlines the process for considering whether to continue anti-dumping measures that are otherwise due to expire.
• Division 7 outlines procedural and evidentiary matters.
• Divisions 8 and 9 establish the position of the Trade Measures Review Officer (TMRO), set out their powers and functions, and provide for reviews by the TMRO of certain decisions by the Minister or the CEO of Customs.

2.10      Part XVB of the Customs Act was significantly amended in 1994 and 1998 to reflect Australia's international obligations as part of the Uruguay Round of the General Agreement on Tariffs and Trade.

WTO obligations

2.11      As a signatory to the WTO agreements related to anti-dumping and countervailing measures—the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement, or AD Agreement) and the Agreement on Subsidies and Countervailing Measures (SCM Agreement)—Australia is obliged to ensure that its anti-dumping and countervailing legislation and systems comply with these agreements.

2.12      In its May 2010 report on Australia's anti-dumping and countervailing system, the Productivity Commission noted that because Australia's system is based on the rules and processes agreed through the WTO, and 'nearly all other developed, and many developing, countries have similar anti-dumping regimes...the objectives and broad concepts underpinning Australia’s system have widespread endorsement'.[7]

2.13      The WTO notes that the relevant agreements do not 'pass judgement' on the appropriateness of having an anti-dumping system, but instead focus 'on how governments can or cannot react to dumping'.[8] Accordingly, there remain differences between the structure and operation of anti-dumping frameworks among WTO members.

2.14      When disputes occur between member countries involving alleged violations of agreements or commitments made through the WTO, member governments can seek the involvement of the WTO's Dispute Settlement Body. If a dispute requires formal consideration, a panel is established whose report assists the Dispute Settlement Body in making rulings or recommendations. The panel's report can also be appealed to a permanent appellate body.[9]

2.15      The Law Council and Law Institute of Victoria outlined some of the possible implications that can arise as a result of the WTO dispute resolution process:

CHAIR: Mr Percival, you mentioned that in the United States several processes and decisions were held to be against WTO requirements. Did that result in the overturning of those decisions in the United States?

Mr Percival: The WTO process is that a complaint is lodged by another country saying your systems and processes are not WTO compliant. If the dispute resolution body in the WTO concludes that that is correct and those processes, procedures or legislation are not WTO compliant then typically the panel, the appellate body who has heard the case, will say, 'This is what you need to do to bring the processes and legislation'—whatever it might be—'into compliance,' and there is an obligation to do that. If they do not do that then ultimately there can be sanctions, which can take the form of awards of compensation or trade sanctions. This is part of what you are seeing, not in this area, in the Boeing-Airbus dispute.

Mr Hudson: Australia has been subject to WTO resolution issues that affected the apples from New Zealand—the fire blight issue—where they ruled that our measures were not consistent with WTO rulings. They told us to go away and do it in a way that is consistent.[10]

The investigative process

2.16      The following is a brief summary of the processes in place within Australia's anti-dumping framework. As the bill deals with the review stage of the process, this area is discussed in comparatively more detail.[11]

Applications for measures

2.17      A person may apply for the publication of a dumping or countervailing duty notice for goods imported into Australia. Once lodged, Customs has up to 20 days to determine whether the application meets the mandatory requirements, such as that the application is supported by a sufficient part of the industry.

2.18      Once an application has been accepted, Customs will commence an investigation by issuing a public notice inviting all interested parties to lodge a submission within 40 days.

2.19      Where the CEO is satisfied that there is sufficient evidence of dumping and injury to an Australian industry caused by the dumping, Customs may make a Preliminary Affirmative Determination (PAD) from day 60 of the investigation. Customs may then impose provisional measures in the form of securities, but only after a PAD has been made. The securities are temporary additional duties designed to prevent material injury while the investigation continues.

2.20      At or before day 110 of the investigation, Customs is required to place on the public record a Statement of Essential Facts on which it proposes to base its recommendations to the Minister. Interested parties have 20 days from the day the Statement of Essential Facts is placed on the public record to make a submission on that document.

2.21      Following this stage, Customs provides a report and recommendations to the Minister. Based on the CEO's report, the Minister will decide whether to publish a dumping duty notice or countervailing duty notice for the imposition of measures.

2.22      The maximum timeframe for Customs to investigate and report to the Minister is 155 days; however, the Minister can approve an extension of time when necessary.

2.23      In the case of dispute, parties can request a review by the TMRO in the Attorney-General's Department, who is a statutory appointment made by the Minister to provide an administrative appeal mechanism. Applicants also have judicial rights of review through the Federal Court.

Reviews of measures

2.24      The process for conducting a review of measures that are already in place is outlined in Division 5 of the Customs Act.[12]

2.25      If an anti-dumping measure is in place and 12 months have passed since the notice imposing the measure was published or the last review was finalised, an affected party[13] may apply for the measures to be reviewed if, in their view:

• one or more of the variable factors relevant to the measures being introduced have changed (the normal value, export price and/or the non-injurious price underlying an anti-dumping duty notice); or
• if the measures had not been taken, the Minister would not be entitled to take any such measures.

2.26      The Minister may initiate a review at any time. Additionally, if an application only requested that a review consider how the measures affect particular exporters, the CEO of Customs can recommend to the Minister that the scope of the review be extended to consider how the measures affect other exporters or exporters generally if they consider it is warranted.

2.27      Customs has 20 days to review an application and consider whether there are in fact reasonable grounds that the variable factors have changed or the measures should be revoked. Once an application for a review has been accepted and a notice commencing the review has been published, the process is similar to that undertaken for the original investigation. That is, Customs will:

• seek submissions from interested parties within 40 days of the notice being published to assist its preparation of a Statement of Essential Facts;
• publish the Statement of Essential Facts by day 110 of the review;
• invite submissions on the Statement of Essential Facts, which are required within 20 days of its publication; and
• provide a final report and recommendations to the Minister by day 155 of the review.

2.28      An important difference between the investigation and the review process, however, is that Customs' decisions in relation to reviews are not reviewable by the TMRO.

2.29      In its report to the Minister after reviewing a dumping or countervailing duty notice, Customs must recommend:

• that the notice remain unaltered; or
• that the notice be revoked in its application to a particular exporter or to a particular kind of goods or revoked generally; or
• that the notice have effect in relation to a particular exporter or to exporters generally, as if different variable factors had been ascertained.[14]

2.30      Guidance material published by Customs provides additional detail on the processes currently in place for initiating and conducting reviews of measures:

An application for a review may concern variable factors only and make no comment about revocation. In this case Customs and Border Protection will focus upon the variable factors. If, in the course of the review, Customs and Border Protection finds grounds to recommend revocation the SEF and the final report will address that matter. If no grounds for revocation are found Customs and Border Protection will report accordingly and the report will largely be confined to the variable factors.

An application for review may concern revocation. The basis for the claim may be that there is no longer any dumping (or subsidy) of some or all of those goods, or that the Australian industry is no longer suffering injury from the goods subject to measures. In such cases Customs and Border Protection will consider whether it should extend a review to include the variable factors as provided for in s269ZC(4).[15]

Reviews and the AD and SCM Agreements

2.31      As noted earlier, Australia is obliged to ensure that its anti-dumping and countervailing legislation and systems comply with the WTO's AD Agreement and SCM Agreement. Article 11 of the AD Agreement (which is mirrored in Article 21 of the SCM Agreement for countervailing measures) addresses the duration and reviews of anti-dumping duties.

2.32      Article 11.1 provides that 'an anti-dumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury'. Article 11.2 then details the circumstances in which a review of the measures can be requested as well as when a WTO member's anti-dumping authority should self-initiate a review. This provision states that:

Interested parties shall have the right to request the authorities to examine whether the continued imposition of the duty is necessary to offset dumping, whether the injury would be likely to continue or recur if the duty were removed or varied, or both.

2.33      The relevance of these obligations to the specific provisions of the bill are discussed in more detail in Chapters 3 and 4.

2.34      It is evident that both the legislative requirements contained in the Customs Act and the overarching obligations imposed by the WTO agreements influence the formulation of Customs' policies and guide their decision-making. Customs described the resulting anti-dumping system as a 'challenging area of administration', because it:

...intersects with Australia's legislative, legal and industry policy frameworks and with our approach to participating as a member of the international trading community. They are all considerations that we have in our minds when we are thinking about how to conduct our administration of the area.[16]

2.35      A perceived emphasis in Australia on the need to comply strictly with a narrow interpretation of the WTO agreements, compared to the approach taken by other WTO members, was criticised by some witnesses:

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.[17]

The Siam decision

Background

2.36      On 3 December 2003, anti-dumping measures were imposed on imports of linear low density polyethylene from Korea and Thailand to Australia. Anti-dumping measures had already been imposed on imports from Indonesia to Australia in 2000.

2.37      On 12 November 2007, Qenos Pty Limited, the sole Australian manufacturer of the product, lodged an application for a review of the anti-dumping measures. On 3 December 2007, a notice was published commencing the review. On 25 March 2008, Customs published a Statement of Essential Facts and invited interested parties to make submissions in response by 14 April 2008. Customs reported its findings and recommendations to the Minister in Trade Measures Report No. 134 (Report 134), on 5 May 2008.

2.38      On 17 January 2008, at day 45 of the review, Dow Chemical (Australia) Pty Ltd (Dow), an importer, lodged a submission objecting to the measures. Dow and Siam Polyethylene Co Ltd (Siam), an exporter, made a further joint submission in response to the Statement of Essential Facts which was received by Customs on 15 April 2008. One of the issues raised by this submission was the consideration of revocation if dumping is not causing material injury.[18]

2.39      As outlined in Report 134, Customs found that the variable factors relevant to the anti-dumping measures (export price, normal value and non-injurious price) had increased. Customs subsequently recommended that the Minister declare by public notice that changes be made to the variable factors for the assessment of anti-dumping duties.

2.40      On the question of revocation, Customs stated in Report 134 that they:

...considered whether the measures should be revoked. However, its examination of the factors relevant to revocations would have been more extensive if Dow had advised Customs, when notified of the review, of its intention to argue for revocation. Based on the available evidence, Customs is not satisfied that circumstances exist to recommend that measures should be revoked as they relate to SPE [Siam Polyethylene Co Ltd] or to exporters generally.[19]

2.41      The Minister signed a public notice giving effect to the recommendations on 23 June 2008. Although the precise figures are not public, it has been noted that:

...this decision increased the previously assessed duty on Siam from nil to a significant figure.[20]

2.42      Siam consequently sought judicial review of this decision.[21] The Federal Court set aside Customs' recommendations and the Minister's declaration and public notice in so far as they related to Siam.[22] The Government's appeal to the Full Federal Court on this issue was dismissed.[23]

The Full Federal Court's judgment

2.43      Essentially, the Full Court found that Customs and the Minister had not applied the test for revocation of dumping measures correctly.

2.44      Report 134 provides Customs' view, at the time, on the test for revocation:

Customs interprets the test for revocation as whether, in the hypothetical situation of measures not being in place, there would now be grounds to impose the measures. In other words, if the measures were removed, is it likely that the exporter or exporters would dump goods and cause material injury to the Australian industry.[24]

2.45      In Report 134, Customs found that there was not sufficient information on which to establish that dumping would not cause material injury if the measures were to be revoked.

2.46      The Full Court held that these were not grounds on which an application to revoke the measures could be refused. In upholding the lower court's decision, the Full Court stated that when revocation is an issue raised in submissions on the application, and in the absence of a specific test for revocation in Division 5 of the Customs Act:

...it is considered imperative that the question of revocation can only be addressed by reference to (in this case) s 269TG(2).[25] No provision within Division 5 expressly gives content to how the option of revocation is to be resolved. In the absence of any contrary indication, it is considered inevitable that a recommendation can only be made that an existing dumping measure be revoked "if the anti-dumping measures to which the application relates had not been taken, the Minister would not be entitled to take such measures". And the Minister "would not be entitled to take such measures" if he were not (in this case) "satisfied" as to those matters set forth in s 269TG(2).[26]

2.47      Consequently:

The error in the application of that test to the facts as found is that the Chief Executive Officer did not make any finding as to whether the dumped prices would cause or be likely to cause material injury. Rather than making that finding, the Chief Executive Officer made a finding that he could not be satisfied that dumping would not cause material injury. His assessment was that, because he could not be so satisfied, the existing measures should not be revoked.[27]

2.48      Or as the Judge in the primary case put it:

Because they failed to ask these questions[28] or answer them, the respondents [Customs and the Minister] committed an error of law and made a decision outside the authority conferred by the Act.[29]

2.49      Additionally, the Judge presiding over the initial court case was critical of the process of reasoning and the conclusions reached by the CEO regarding the non-injurious price, a view supported by the Full Court. The primary Judge stated that:

The mere fact that the CEO recommended, and the Minister set, a new non injurious price in the declaration under s 269ZDB(1)(a) did not, of itself, mean that either of them had considered the question of material injury or threat. The reasons in Report 134 do not deal with the topic of material injury caused or threatened by Siam's dumping.[30]

2.50      The Full Court concurred, noting that although Report 134:

...set forth some calculations, including a quantification of the unsuppressed selling price and quantifications of profit and overseas freight and the like, there was an absence of explanation. The primary Judge noted ([2009] FCA 837 at [122]) the "absence of a reasoned explanation of how the Minister was entitled to change the variable factors, including the non-injurious price, relating to exports of the product to Australia by Siam ... The selection of the figures for these variable factors in the confidential sections of Report 134 had not been explained". In so concluding, no error is discernible in the reasoning of the primary Judge. There is an absence of any explanation as to the "causal link" between setting the non-injurious price at the figure determined by the Minister and any material injury to the Australian industry.[31]

Implications of the Siam decision

2.51      The Australian Industry Group summarised the findings in the Siam decision which are relevant to the bill as follows:

In essence, the interpretation of the Act in the Siam Decision required of Customs that they apply the same test to determine injurious dumping when considering a request to revoke measures as was applied in the original investigation.[32]

2.52      In his Second Reading Speech on the proposed amendments, the Minister argued that the Siam decision was problematic for two reasons:

First, the case highlighted a lack of clarity in the current review process, whereby affected parties must request one of three things: (a) a complete revocation of existing antidumping measures, (b) an adjustment to existing measures, or (c) both a revocation or, failing that, an adjustment based on changed circumstances...[I]t was established practice for Customs and Border Protection, prior to the Siam decision, to conduct reviews consistent with the nature of the review request. If there was no request for measures to be revoked Customs would not consider whether measures ought to be revoked. The Siam decision changed this by leaving open the question whether revocation must be considered in every case...even in cases where an applicant has not specified that revocation is sought.

Second, the court in its decision formulated a new test for determining whether antidumping measures ought to be revoked...In the absence of a legislative test, the court determined that the minister must revoke antidumping measures, unless satisfied that there would be dumping causing material injury to the Australian industry if measures were not in place. The formulation is problematic because, where dumping measures are in place, it will be difficult to establish dumping causing material injury...The formulation will likely lead to measures being revoked where they remain warranted.[33]

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