INVESTIGATION 441 CERTAIN STEEL PALLET RACKING … · Certain Steel Pallet Racking –Schaefer...

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INVESTIGATION 441

CERTAIN STEEL PALLET RACKING

EXPORTED FROM THE PEOPLE’S REPUBLIC OF CHINA AND MALAYSIA

VISIT REPORT - EXPORTER

SSI SCHAEFER SYSTEM INTERNATIONAL (KUNSHAN) CO., LTD

THIS REPORT AND THE VIEWS OR RECOMMENDATIONS CONTAINED THEREIN WILL BE INVESTIGATIONED BY THE CASE MANAGEMENT TEAM AND MAY NOT REFLECT THE FINAL POSITION OF THE ANTI-DUMPING COMMISSION

June 2018

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Certain Steel Pallet Racking –Schaefer Kunshan - Exporter visit report

CONTENTS

CONTENTS ................................................................................................................................................................. 2

1 BACKGROUND.................................................................................................................................................. 3

2 THE GOODS AND LIKE GOODS .......................................................................................................................... 4

2.1 THE GOODS EXPORTED TO AUSTRALIA .................................................................................................................... 4 2.2 LIKE GOODS SOLD ON THE DOMESTIC MARKET .......................................................................................................... 4 2.3 MODEL MATCHING ........................................................................................................................................... 4 2.4 LIKE GOODS – ASSESSMENT ................................................................................................................................. 4

3 VERIFICATION OF EXPORT SALES TO AUSTRALIA .............................................................................................. 5

3.1 APPROACH TO VERIFICATION................................................................................................................................ 5 3.2 VERIFICATION OF AUSTRALIAN SALES TO AUDITED FINANCIAL STATEMENTS ...................................................................... 5 3.3 VERIFICATION OF AUSTRALIAN SALES TO SOURCE DOCUMENTS ..................................................................................... 5 3.4 THE EXPORTER ................................................................................................................................................. 6 3.5 THE IMPORTER ................................................................................................................................................. 6 3.6 RELATED PARTY CUSTOMERS ................................................................................................................................ 6 3.7 ARMS LENGTH.................................................................................................................................................. 7 3.8 EXPORT PRICE – ASSESSMENT............................................................................................................................... 7

4 COST TO MAKE AND SELL ................................................................................................................................. 8

4.1 VERIFICATION APPROACH .................................................................................................................................... 8 4.2 VERIFICATION OF COSTS TO AUDITED FINANCIAL STATEMENTS....................................................................................... 8 4.3 VERIFICATION OF COSTS TO SOURCE DOCUMENTS ...................................................................................................... 8 4.4 RELATED PARTY PURCHASES ................................................................................................................................. 9 4.5 COST TO MAKE AND SELL – SUMMARY .................................................................................................................... 9

5 VERIFICATION OF DOMESTIC SALES ............................................................................................................... 10

5.1 APPROACH TO VERIFICATION.............................................................................................................................. 10 5.2 VERIFICATION OF AUSTRALIAN SALES TO AUDITED FINANCIAL STATEMENTS .................................................................... 10 5.3 VERIFICATION OF DOMESTIC SALES TO SOURCE DOCUMENTS ...................................................................................... 10 5.4 RELATED PARTY CUSTOMERS .............................................................................................................................. 11 5.5 ARMS LENGTH................................................................................................................................................ 11 5.6 ORDINARY COURSE OF TRADE ............................................................................................................................. 11 5.7 SUITABILITY OF DOMESTIC SALES AND PROFIT ......................................................................................................... 12 5.8 DOMESTIC SALES – SUMMARY ............................................................................................................................ 12

6 ADJUSTMENTS ............................................................................................................................................... 13

6.1 CREDIT TERMS ............................................................................................................................................... 13 6.2 INLAND FREIGHT AND INSTALLATION COSTS ........................................................................................................... 13 6.3 PACKAGING ................................................................................................................................................... 13 6.4 NON-REFUNDABLE VALUE-ADDED TAX .................................................................................................................. 13 6.5 ADJUSTMENTS – CONCLUSION ........................................................................................................................... 14

7 NORMAL VALUE ............................................................................................................................................. 15

8 DUMPING MARGIN ........................................................................................................................................ 16

9 APPENDICES AND ATTACHMENTS .................................................................................................................. 17

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1 BACKGROUND

On 13 November 2017, the Commissioner of the Anti-Dumping Commission (the Commissioner) gave public notice in Anti-Dumping Notice (ADN) Number 2017/161 of his decision to initiate a dumping investigation in relation to certain steel pallet racking (the goods) exported to Australia from the People’s Republic of China (China) and Malaysia. The background relating to initiation of this investigation is contained in consideration report number 441 (CON 441).1

Following initiation of the investigation, a search of the Australian Border Force (ABF) import database indicated that SSI Schaefer System International (Kunshan) Co. Ltd (Schaefer Kunshan) exported the goods to Australia from China during the period 1 October 2016 to 30 September 2017 (the investigation period).

The Anti-Dumping Commission (the Commission) notified Schaefer Kunshan of initiation of the investigation and sought its cooperation through the completion of an Exporter Questionnaire regarding the goods.

1 www.adcommission.gov.au

http://www.adcommission.gov.au/

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2 THE GOODS AND LIKE GOODS

2.1 The goods exported to Australia

During the investigation period Schaefer Kunshan exported certain steel pallet racking components (pre-dominantly beams) to Australia. The goods exported by Schaefer Kunshan meets the description of ‘the goods’ as described in the application.

2.2 Like goods sold on the domestic market

During the investigation period Schaefer Kunshan sold certain steel pallet racking (beams, braces and uprights) to its domestic customers in China.

The verification team considers that the goods manufactured and sold for domestic consumption are identical to, or have characteristics closely resembling, the goods exported to Australia, as they:

have physical characteristics that are similar;

are produced at the same facilities and with the same raw material inputs and manufacturing processes; and

can be considered functionally and commercially alike as they have similar end uses.

2.3 Model matching

The Commission has preliminary determined that a particular market situation exists in the Chinese steel pallet racking market. The verification team has therefore constructed a normal value under 269TAC(2)(c) of the Customs Act 19012 which does not require matching domestic models to export models of the goods.

In constructing normal values, the cost of production of the goods3 will be determined based on certain steel pallet racking components (beam, upright, brace).

2.4 Like goods – assessment

The verification team considers that certain steel pallet racking produced by Schaefer Kunshan for domestic sale has characteristics closely resembling those of the goods exported to Australia and are therefore ‘like goods’ in accordance with subsection 269T(1) of the Customs Act 1901 (the Act).4

2 All legislative references in this report are to the Customs Act 1901 unless otherwise specified.

3 269TAC(2)(c)(i)

4 References to any section or subsection in this report relate to provisions of the customs Act 1901, unless specifically stated otherwise.

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3 VERIFICATION OF EXPORT SALES TO AUSTRALIA

3.1 Approach to verification

The Commission verified the completeness and relevance of Schaefer Kunshan’s Australian sales listing by reconciling it to audited financial statements in accordance with ADN. No 2016/30.

At the visit, the verification team noted that some non-goods being included in the export sales and asked Schaefer Kunshan to remove those transactions provide an updated export sales listing rectifying those deficiencies. The verification team did not find any further issues in the revised export sales data.

Details of this verification process are contained in the verification work program, and its relevant attachments, at Confidential Attachment 1.

3.2 Verification of Australian sales to audited financial statements

The verification team matched Schaefer Kunshan’s Australian sales listing by reconciling it to audited financial statements in accordance with ADN. No 2016/30.

During this process, the verification team noted that the turnover spreadsheet did not reconcile with the sales appendices for domestic and export sales. At the visit Schaefer Kunshan provided revised turnover and sales spreadsheets which reconciled to the domestic and export sales and to the audited financial statements (for FY2016) and unaudited financial statements (for FY2017).

Details of the verification process are contained in the verification work program, and its relevant attachments, at Confidential Attachment 1.

3.3 Verification of Australian sales to source documents

The verification team verified the accuracy of Schaefer Kunshan’s Australian sales listing by matching selected transactions to source documents in accordance with ADN No. 2016/30.

At the visit, Schaefer Kunshan advised that export sales of shelving products (i.e. non goods) had been included in the Australian sales data and those transactions were excluded from the revised Australian sales spreadsheet.

The verification team is satisfied that the revised Australian sales record listing provided by the company represents a complete and relevant listing of sales of all components of steel pallet racking to Australia during the investigation period.


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3.3.1 Calculation of weight

At the visit, the verification team asked and Schaefer Kunshan included an additional column in the Australian sales spreadsheet for the width of the raw material in order to use a formula to calculate weight. The verification team was able replicate the formula and found negligible variance between the weight provided in the Australian sales spreadsheet and the unit weight calculated according to the formula.

Schaefer Kunshan also amended the spreadsheet to include a column with the unit weight calculated according to the formula and the variance per line item by unit weight.

3.3.2 Packaging costs

In its response to the exporter questionnaire Schaefer Kunshan omitted packaging costs. At the visit, the verification team requested and Schaefer Kunshan provided revised Australian sales listing including export packing costs.

3.4 The exporter

For all Australian exports of the goods during the investigation period, the verification team considers Schaefer Kunshan to be the exporter of the goods.5

3.5 The importer

In relation to certain steel pallet racking exported to Australia by Schaefer Kunshan, the verification team considers that the Schaefer Systems International Pty Ltd (Schaefer Australia) listed in the Australian sales listing was the beneficial owner of the goods at the time of importation, and therefore was the ‘importer’ of the goods. Schaefer Australia is:

invoiced by Schaefer Kunshan for the goods on an Ex-works (EXW) basis;

named as the consignee on the bill of lading;

arranges inland freight from the factory to the port, ocean freight, marine insurance and importation of the goods to Australia; and

pays any import duties and port charges in Australia at the time of importation.

3.6 Related party customers

Based on Schaefer Kunshan’s response to the Exporter Questionnaire, sales data provided by the company, audited financial statements and the information gathered during the visit, the verification team noted that Schaefer Kunshan and Schaefer Australia were related entities during the investigation period.

5 The Commission generally identifies the exporter as a principal in the transaction, located in the country of export from where the goods were shipped, that gave up responsibility by knowingly placing the goods in the hands of a carrier, courier, forwarding company, or its own vehicle for delivery to Australia; or a principal in the transaction, located in the country of export, that owns, or previously owned, the goods but need not be the owner at the time the goods were shipped.

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The verification team did not find any information that might suggest that Schaefer Kunshan was related to any other Australian customers.

3.7 Arms length

In respect of Australian sales of the goods by Schaefer Kunshan to its related entity ‘Schafer Australia’ during the investigation period, the verification team found no evidence that suggests:

there was any consideration payable for, or in respect of, the goods other than its price; or

the price was influenced by a commercial or other relationship between the buyer, or an associate of the buyer, and the seller, or an associate of the seller; or

the buyer, or an associate of the buyer, was directly or indirectly reimbursed, compensated or otherwise received a benefit for, or in respect of, the whole or any part of the price.6

The verification team therefore considers that all exports of steel pallet racking to Australia made by Schaefer Kunshan during the investigation period were arms length transactions.

3.8 Export price – assessment

The verification team considers, in respect of Australian export sales during the investigation period, that:

the goods have been exported to Australia otherwise than by the importer; and

the purchases of the goods by the importer were arms length transactions.

The verification found that the goods have been purchased by the importer from the exporter, and therefore the export price has been calculated using subsection 269TAB(1)(a), as the price paid by the importer less transport and other costs arising after exportation.

The verification team’s preliminary weighted average export price calculation is at Confidential Appendix 1.

6 Section 269TAA of the Act refers.

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4 COST TO MAKE AND SELL

4.1 Verification approach

The verification team verified the completeness and relevance of Schaefer Kunshan’s cost to make and sell (CTMS) spreadsheets by reconciling it to audited financial statements in accordance with ADN No. 2016/30.


4.2 Verification of costs to audited financial statements

While reconciling the CTMS spreadsheet, the verification team noted some errors such as incorrect sales volume and in the allocation of raw materials costs and selling, general and administration (SG&A) expenses. At the visit, Schaefer Kunshan provided a revised cost data correcting the issues identified by the verification team.

At the visit, Schaefer Kunshan stated that it allocates and records its cost to make (CTM) by weight (kilograms or KG) and claims that there is no CTM difference between different grades of steel pallet racking manufactured by the company. The verification team noted that cost allocations was made by weight (predominantly only one type of raw material –hot rolled coil (HRC)) was used to produce various grades of the goods. The verification team also noted that there was only one production line for all goods including the goods exported to Australia.

The verification team noted the raw material data provided in the CTMS and income statement contained other costs. Schaefer Kunshan revised the CTMS data by excluding other costs which were not related to the goods from raw material costs.


4.2.1 Revised CTMS

Schaefer Kunshan provided a revised Domestic and Australian CTMS spreadsheets by allocating all costs correctly as discussed above.

4.3 Verification of costs to source documents

The verification team verified the accuracy of Schaefer Kunshan’s CTMS spreadsheet by reconciling it to source documents in accordance with ADN No. 2016/30.

From the source data collected at the visit, the verification team noted that there were some minor variances (less than one percent) in the purchase price of major raw materials when comparing the data provided in the spreadsheet. Schaefer Kunshan stated that these variances were due to timing differences and also due to different grades of steel used.

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The verification team did not identify any further issues during this process. Details of the verification process are contained in the verification work program, and relevant attachments, at Confidential Attachment 1.

4.4 Related party purchases

The verification team confirmed during the verification process that Schaefer Kunshan is not related to any of its suppliers of raw material. At the visit the verification team did not find any evidence that suggests otherwise.

4.5 Cost to make and sell – summary

Having verified Schaefer Kunshan’s revised CTMS spreadsheet and reconciling it to audited financial statements and to the source documents of the selected transactions, the verification team is satisfied that the final revised CTMS spreadsheet is complete, relevant and accurate.

Schaefer Kunshan’s final revised CTMS spreadsheet is at Confidential Appendix 2.

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5 VERIFICATION OF DOMESTIC SALES

5.1 Approach to verification

The verification team verified the completeness and relevance of Schaefer Kunshan’s domestic sales listing by reconciling it to audited financial statements in accordance with ADN. No 2016/30.

At the beginning of the verification, Schaefer Kunshan outlined that some non-goods were included in the domestic sales listing and provided revised domestic sales.


5.2 Verification of Australian sales to audited financial statements

The verification team verified the completeness and relevance of Schaefer Kunshan’ s domestic sales listing by reconciling it to audited financial statements in accordance with ADN. No 2016/30.

The verification team noted a minor variance (less than two percent) when reconciling the domestic sales to the financial statements. At the visit Schaefer Kunshan provided revised turnover and sales spreadsheets which reconciled to the audited financial statements.

Details of the verification process are contained in the verification work program, and its relevant attachments, at Confidential Attachment 1

5.3 Verification of domestic sales to source documents

The verification team verified the accuracy of Schaefer Kunshan domestic sales listing by matching it to source documents in accordance with ADN No. 2016/30.

At the visit, in discussion with the verification team Schaefer Kunshan advised that domestic sales of shelving products and uprights lengths of greater than 12 meters (i.e. non goods) had been included in the domestic sales data. The company provided a revised domestic sales listing removing all non-goods.

The verification team is satisfied that the revised domestic sales record listing provided by the company represents a complete and relevant listing of sales of all components of steel pallet racking in the domestic market during the investigation period.

Details of the verification process are contained in the verification work program, and relevant attachments, at Confidential Attachment 2.

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5.3.1 Packaging costs

In its original domestic sales listing, Schaefer Kunshan omitted the packaging costs. At the visit, the verification team requested and Schaefer Kunshan include packaging costs.

5.3.2 Payment terms

At the visit Schaefer Kunshan self-identified that incorrect payment terms had been provided against some line items and provided a revised domestic sales spreadsheet. While most domestic customers pay some advance payments and other payments are done progressively at different stages of the installation (project). The verification team noted that a number of different credit terms were provided to the domestic customer and that the average payment terms was almost on cash basis. The verification team has therefore determined zero credit payment terms for domestic sales.

5.4 Related party customers

Based on Schaefer Kunshan’s responses to the Exporter questionnaire, sales data, audited financial statements and information gathered at the visit, the verification team did not find any evidence that suggests that the domestic customers were related to Schaefer Kunshan during the investigation period.

The verification team found no evidence of any relationship, other than a commercial relationship, between Schaefer Kunshan and its domestic customers.

5.5 Arms length

In respect of domestic sales of steel pallet racking made by Schaefer Kunshan during the investigation period, the verification team found no evidence that:

there was any consideration payable for, or in respect of, the goods other than its price; or

the price was influenced by a commercial or other relationship between the buyer, or an associate of the buyer, and the seller, or an associate of the seller; or

the buyer, or an associate of the buyer, was directly or indirectly reimbursed, compensated or otherwise received a benefit for, or in respect of, the whole or any part of the price.

The verification team therefore considers that all domestic sales made by Schaefer Kunshan during the investigation period were arms length transactions.

5.6 Ordinary course of trade

Section 269TAAD of the Act provides that if like goods are sold in the country of export at a price less than the cost of such goods, and are unrecoverable within a reasonable period, then they are taken not to have been sold in the ordinary course of trade (OCOT).

The verification team compared the revenue (i.e. net sales value) for each domestic sale of each component of steel pallet racking (beams, uprights and braces) to the corresponding quarterly domestic CTMS to test whether those sales were profitable.

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Where the volume of unprofitable sales exceeded 20% for a particular model, the verification team tested the recoverability of the unprofitable sales by comparing the revenue for each transaction to the corresponding weighted average CTMS over the investigation period. Those sales found to be unrecoverable were considered not to be in the OCOT.

5.7 Suitability of domestic sales and profit

As discussed in section 2.3 above, normal values were constructed using the costs to make the exported goods, plus SG&A applicable to the goods sold domestically, and an additional amount for profit.

The profitability of domestic sales of like goods has been calculated by comparing the selling price with the corresponding quarterly CTMS. In calculating the profit, the verification team has only included domestic sales made in the OCOT.7

5.8 Domestic sales – summary

The verification team is satisfied that the domestic sales listing is complete, relevant and accurate, and can be used to work out an amount for profit under Regulation 45(2) of the Customs (International Obligations) Regulation 2015, despite normal values being determined under subsection TAC(2) due to a particular market situation findings having regard to all relevant information (section Error! Reference source not found. refers).

The revised domestic sales listing is at Confidential Appendix 3.

7 Section 45(2) of the Customs (International Obligations) Regulation 2015

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6 ADJUSTMENTS

To ensure the normal value is comparable to the export price of goods exported to Australia at EX-Works (EXW) terms, the verification team has considered the following adjustments in accordance with subsection 269TAC(9).

6.1 Credit terms

The verification team considers that an upward adjustment to the normal value for export credit terms is necessary to ensure a fair comparison to EXW export price.

The verification team has applied this adjustment based on the number of credit days listed for each export transaction and the weighted average interest paid on revolving credit during the investigation period.

The verification team considers that no credit term adjustment for domestic sales is required.

6.2 Inland Freight and installation costs

The verification team noted that inland freight and installation costs were provided separately in the cost data. The verification team eliminated these costs from domestic selling costs. As such, the verification team does not consider that any adjustment to the normal value for inland transport and installation is warranted

6.3 Packaging

In its responses to the Exporter Questionnaire, Schaefer Kunshan claimed that there were no significant differences between the packaging of export and domestic sales.

At the visit, the verification team found no evidence that suggests otherwise, therefore no adjustments for the packaging costs is warranted.

6.4 Non-refundable value-added tax

The verification team considers that an upward adjustment to the normal value for non-refundable value-added tax (VAT) is required to ensure a fair comparison to the EXW export price. Schaefer Kunshan incurs a non-refundable VAT expense on export sales to Australia of 9 percent8, being the difference between the VAT (17 percent) less 9 percent VAT refunded on export sales of pallet racking plus 1 percent recovery charges.

The verification team, therefore recommends applying this adjustment by adding 9 per cent to the normal value.

8 8% non-refundable VAT + 1% admin charges

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6.5 Adjustments – conclusion

The verification team is satisfied that there is sufficient and reliable information to justify the following adjustments, in accordance with subsection 269TAC(9) of the Act, and considers these adjustments are necessary to ensure a fair comparison of normal values and export prices:

Adjustment Type Deduction/addition

Export credit Add the cost of export credit.

VAT adjustment Add VAT of 9% to the Normal value.

The verification team’s preliminary adjustment calculations are included in normal value calculations at Confidential Appendix 4.

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7 NORMAL VALUE

As stated in section Error! Reference source not found., the application has claimed that a particular market situation exists in the Chinese domestic steel pallet racking market. In making this claim, the application has asserted that the key input raw material for the production of steel pallet racking in China, being hot rolled coil steel (HRC), did not represent reasonably competitive costs during the investigation period.

Given the preliminary finding of a particular market situation and that Schaefer Kunshan’s cost of production in its records did not reasonably reflect competitive market costs, the verification team has preliminarily determined normal values using a constructed method:

Schaefer Kunshan’s cost to make that reasonably reflect competitive market costs based on a HRC benchmark preliminary determined by the Commission9; plus

SG&A on the assumption that the goods, instead of being exported, were sold domestically; plus

a rate of profit, as discussed in section Error! Reference source not found., has

been added using its domestic sales of like goods made in the ordinary course of trade.10

The verification team recommends that certain adjustments are be necessary to ensure a fair comparison of normal values with export prices as outlined in chapter 6 above.

The verification team’s preliminary normal value calculations are at Confidential Appendix 4.

9 Section 43(2) of the Customs (International Obligations) Regulation 2015, notwithstanding determining normal values under subsection 269TAC(6).

10 Section 45(2) of the Customs (International Obligations) Regulation 2015

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8 DUMPING MARGIN

The preliminary dumping margin has been assessed by comparing weighted average Australian export prices to the corresponding weighted average normal value for the investigation period, in accordance with subsection 269TACB(2)(a).

The preliminary dumping margin in respect of steel pallet racking exported to Australia by Schaefer Kunshan for the investigation period is 74.4 percent.

The verification team’s preliminary dumping margin calculations are at Confidential Appendix 5.

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9 APPENDICES AND ATTACHMENTS

Confidential Appendix 1 Australian export sales

Confidential Appendix 2 Cost to make and sell

Confidential Appendix 3 Domestic sales and profitability

Confidential Appendix 4 Normal Value

Confidential Appendix 5 Dumping Margin

Confidential Attachment 1 Verification work program and attachments

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