DUMPING AND COUNTERVAILING DUTIES ACT 1988 DUMPING INVESTIGATION NON-CONFIDENTIAL
FINAL REPORT WASHING MACHINES FROM KOREA

PROCEEDINGS

1.1 1.2 1.3 1.4 1.5 1.6 PROCEEDINGS INTERESTED PARTIES IMPORTED GOODS EXCHANGE RATES DISCLOSURE OF INFORMATION INVESTIGATION PROCESSES

NEW ZEALAND INDUSTRY

2.1 2.2 2.3 2.4 LIKE GOODS NEW ZEALAND INDUSTRY IMPORTS OF WASHING MACHINES NEW ZEALAND MARKET

DUMPING INVESTIGATION

3.1 3.2 3.3 3.4 3.5 INTRODUCTION EXPORT PRICES NORMAL VALUES COMPARISON OF EXPORT PRICE AND NORMAL VALUE. CONCLUSIONS RELATING TO DUMPING

INJURY INVESTIGATION

4.1 4.2 4.3 4.4 4.5 4.6 MATERIAL INJURY CAUSED BY DUMPING IMPORT VOLUMES PRICE EFFECTS ECONOMIC IMPACT OTHER CAUSES OF INJURY CONCLUSIONS RELATING TO INJURY
CONCLUSIONS ANTI-DUMPING DUTIES
6.1 6.2 6.3 LEVEL OF DUTY METHOD OF IMPOSING DUTY AMOUNT OF ANTI-DUMPING DUTY

RECOMMENDATIONS

Trade Remedies Group Ministry of Economic Development June 2001 ISBN 0-478-242417

ABBREVIATIONS

The following abbreviations are used in this Report: Act (the) Amendment Act (the) Anti-Dumping Agreement (the Agreement) AUD Chen Palmer Chief Executive (the) CIF Daewoo EBIT ef&c EIAK Electrolux Email Eurolife Davenports F&P FOB INFOS LDC LG LLDC LM Rankine Ministry (the) NIP NZCS _____ OEM Pac PRG Radiola Samsung VFD WTO YEM ____ Dumping and Countervailing Duties Act 1988 Dumping and Countervailing Duties Amendment Act 1994 WTO Agreement on Implementation of Article VI of the GATT 1994 Australian Dollars Chen Palmer & Partners Chief Executive of the Ministry of Economic Development Cost, Insurance and Freight Daewoo Electronics Co Limited Earnings Before Interest and Tax Essential Facts and Conclusions Electronic Industries Association of Korea Electrolux Home Products (NZ) Limited Email Appliances (NZ) Ltd Eurolife Ltd Davenports West Fisher & Paykel Ltd Free on Board Information for Official Statistics Less Developed Countries LG Electronics Inc. Least Developed Countries L M Rankine Trading Co Limited Ministry of Economic Development Non-Injurious Price New Zealand Customs Service __________________________________________ Original Equipment Manufacturer Forum Island Members of the South Pacific Regional Trade and Economic Co-operation Agreement Pacific Retail Group Radiola Corporation Ltd Samsung Electronics Co Limited Value for Duty World Trade Organisation Year Ended March Confidential Information

1.1 1.1.1

PROCEEDINGS On 12 December 2000, the Chief Executive of the Ministry of Economic Development (hereinafter referred to as the Chief Executive), acting pursuant to section 10 of the Dumping and Countervailing Duties Act 1988 (hereinafter also referred to as the Act) formally initiated an investigation into the dumping of household fully automatic washing machines on being satisfied that sufficient evidence had been provided that: (a) The goods imported or intended to be imported into New Zealand were being dumped; and By reason thereof material injury to an industry has been or is being caused or is threatened or the establishment of an industry has been or is being materially retarded.
In accordance with section 10 of the Act the purpose of the Ministrys investigation is to determine both the existence and effect of the alleged dumping of the subject goods. On 3 April 2001 the Minister of Commerce gave a provisional direction under section 16(1) of the Act that payment of duty in respect of the goods should be secured in accordance with sections 156 and 157 of the Customs and Excise Act 1996, on the grounds that the Minister had reasonable cause to believe that the subject goods were being dumped and by reason thereof causing material injury to an industry, and was satisfied that action under section 16 was necessary to prevent material injury being caused during the period of investigation. Grounds for Application

1.2.19

1.2.20

1.2.22

1.3 1.3.1
Information provided in several of the importers submissions indicates that the imported subject goods are, for the most part manufactured to the AS/NZ2040 standard. The NZCS has advised that washing machines enter under the following tariff classification and statistical keys: 84.50 Household laundry-type washing machines which both wash and dry: Machines, each of a dry linen capacity not exceeding 10kg: Fully-automatic machines: Household Of a dry linen capacity not exceeding 6kg:. Top loading machines. Front loading machines Other:. Top loading machines. Front loading machines

8450.11 8450.11.01

---. 02H. 05B. 07J. 11G.
Applicable duty rates are: Normal Australia Canada LDC LLDC Pac 7% Free 3% 5.5% Free Free
In this report, unless otherwise stated, years are March years and dollars values are NZ$. Year to date (YTD) figures refer to the period April to December 2000. In tables, column totals may differ from individual figures because of rounding. The period for considering claims of dumping is from 1 November 1999 to 31 October 2000. This was the period for which NZCS data as close as practicable to the date of initiation was available. In its application F&P claimed that injury had occurred in the April to July 2000 period and that ongoing injury was likely. The period over which evidence of injury has been considered is 1 April 1997 to 31 December 2000. EXCHANGE RATES Article 2.4.1 of the WTO Agreement provides as follows:
When the comparison under paragraph 4 [of Article 2] requires a conversion of currencies, such conversion should be made using the rate of exchange on the 8 date of sale , provided that when a sale of foreign currency on forward markets is directly linked to the export sale involved, the rate of exchange in the forward sale shall be used. Fluctuations in exchange rates shall be ignored and in an investigation the authorities shall allow exporters at least 60 days to have

1.4 1.4.1

adjusted their export prices to reflect sustained movements in exchange rates during the period of investigation.
Normally, the date of sale would be the date of contract, purchase order, order confirmation, or invoice, whichever establishes the material terms of sale.
In this report Normal Values are expressed in Korean Won, export transactions take place in US and Australian dollars, and any injurious effect is reflected in New Zealand dollars. The investigating team used the invoice date to establish the date of sale and export transactions have been converted into Korean won as at the date of sale. The exchange rates used are the interbank rates listed by the OANDA currency conversion site on the Internet (http://www.oanda.com/converter/classic). DISCLOSURE OF INFORMATION The Ministry of Economic Development makes available all non-confidential information to any interested party through its Public File system. Article 6.8 of the Agreement provides as follows:

1.6.22

1.6.23

1.6.24

1.6.25
interested parties would be unreasonable and inhibit the operation of an inquiry. Blackburn Croft noted that this provision was clearly explained to exporters. Blackburn Croft said it is not for the Ministry to be put into a position where it must determine the breadth of all available information. 1.6.26 Blackburn Croft said that LM Rankine should have used its own Korean contacts to obtain information. Blackburn Croft said that if LM Rankine had undertaken its own research in Korea then there would be contestable information. Blackburn Croft said that unfortunately LM Rankine has ignored the Ministrys often stated timetable, which is surprising given that its advisors are familiar with the processes of government and the Act. Blackburn Croft said that the public file shows the Ministry explained to exporters and importers (and Chen Palmer) the consequences of failing to provide information. Blackburn Croft said these consequences are also contained in the Act. Blackburn Croft said that to raise these issues around day 140 of a 180 day investigation is something that LM Rankine should explain. Blackburn Croft said that LM Rankines belief that it has been prejudiced because of not having access to confidential information, is incorrect. Blackburn Croft said LM Rankine knows what the provisional dumping margins are and through the public file is able to follow F&Ps methodology. Blackburn Croft noted that LM Rankine do not appear to have accessed public file documents which would assist its understanding of the findings of the investigation to date. Ministrys Consideration of the Issues Available Information 1.6.29 In its Provisional Measures Report, the investigating team relied on the provisions of section 6 of the Act, as referred to in the submissions above, to use information provided by F&P to establish normal values, in the absence of a response from the Korean producers. Section 6 of the Act reflects the provisions of Article 6.8 and Annex II of the Agreement. Article 6.8 of the Agreement states as follows:

1.6.27

1.6.28

1.6.30

Paragraph 1 of Annex II states in part:
The authorities should also ensure that the party is aware that if information is not supplied within a reasonable time, the authorities will be free to make determinations on the basis of the facts available, including those contained in the application for the initiation of the investigation by the domestic industry.

prices to establish normal values in relation to all export transactions between November 1999 and July 2000, the retail prices in May/June 2000 being as near as possible to the export sales from November 1999 to July 2000. Similarly, the December retail prices were used to establish base normal values in relation to all export transactions between August and October 2000. 3.3.8 For those washing machines where retail price information was unavailable, the investigating team estimated the base price by selecting a model, as near as possible in capacity and features, for which a retail price was available. The percentage difference in the FOB US$ or AUD C&F export prices for these two models was calculated. This percentage difference was then applied to the available retail price in order to estimate the previously unknown base price. Adjustments Value Added Tax (VAT) 3.3.9 F&P in its application advised that Korea currently has a 10 percent VAT on whiteware products and that base retail prices are inclusive of VAT. The investigating team has confirmed through the Korean Ministry of Finance and Economy internet site that a 10 percent VAT applies in Korea and there is no exemption for whiteware. An adjustment was made to deduct the VAT included in the retail price. Retailers Margin 3.3.10 In its application, F&P estimated a __ percent adjustment for retailers margin based on a discussion with _________________, a Korean retailer, during its independent research carried out in May 2000. The report on the December 2000 research noted that:
________________________________________________________ _____________________________________. _________________________________________________________ _________________________________________________________ _________________________________.

3.3.11

F&P has now stated that its estimate of the retailers margin of __ percent in its application was excessive and have submitted that an adjustment of ___ percent, which is based on the most recent information, should be used to deduct the retailers margin included in the VAT exclusive selling price. The investigating team information, that the retail comprehensive research, has been made to deduct exclusive selling price. Wholesalers Margin considers that, having regard to all available margin obtained by F&P from its most recent more is the best information available. An adjustment a ___ percent retailers margin included in the VAT

3.3.12

3.3.13
F&P has submitted that an adjustment should be made to the base retail price to take into account a wholesalers margin as its December research shows that the ______________________________ are made through wholesalers.
F&P has also submitted that sales from domestic manufacturers (Daewoo, LG and Samsung) in Korea to wholesalers who then on-sell to retailers are at the equivalent level of trade to the Korean manufacturers sales to NZ importers who also on-sell to retailers. 3.3.14 The investigating team considers that, having regard to all available information, that the information obtained by F&P on the need for an adjustment for a wholesalers margin, from its most recent more comprehensive research, is the best information available. An adjustment has been made to deduct a _ percent wholesalers margin included in the wholesale selling price. Warranty 3.3.15 F&P submitted in its application that there is likely to be a warranty cost in the domestic price which is not included in the export price. F&P has further stated that the accepted figure for warranty in the whiteware business is _ percent. The investigating team considers that, having regard to all available information, that F&Ps submission that an adjustment for warranty costs is required, is the best information available. An adjustment of _ percent of the wholesalers price has been made to take into account the warranty cost. Internal Freight 3.3.17 F&P submitted in its application that an adjustment be made to cover freight from the distributor/wholesaler to the retailer in Korea. F&P stated that information obtained by it suggests that washing machines are delivered to the end consumer either direct from the manufacturing site or through regional warehouses belonging to the manufacturer. F&P has estimated the internal freight cost on the basis of the costs it incurs in Australia. These costs are _ percent for delivery from warehouse to retailer plus a _ percent loading to cover delivery into the home and installation. The investigating team considers, having regard to all available information, that F&Ps submission that an adjustment for internal freight costs is required, is the best information available. An adjustment of _ percent on the wholesalers price has been made to take into account the internal freight costs. Normal Value Calculation 3.3.20 3.4 The adjustments outlined above have been deducted from base normal values. COMPARISON OF EXPORT PRICE AND NORMAL VALUE. Margins of Dumping 3.4.1 A comparison of export prices, as established in section 3.2 of this report, and normal values, as established in section 3.3 has been made. Dumping margins have been calculated on a transaction-to-transaction basis and are expressed as a percentage of export prices.

4.3.1.15

4.3.1.16

4.3.1.17

reasons apart from dumping would prevent it from doing so. F&P has also submitted that its profits for YEM 2000 should be adjusted to take account of some _______________ given in that year. Given the fluctuating nature of its profits over YEM 1998, 1999 and 2000, it is clear that profits have been affected by factors other than the ______________________ to by F&P. The investigating team therefore considers that it is not reasonable for F&P to suggest that in the absence of dumping, F&P would be able to duplicate its results year on year. The investigating team also notes that if it was to adjust F&Ps EBIT upwards in YEM 1998 and 1999 to account for the ___________ ________________________________ 1999, it could equally be argued that adjustments should be made for other factors which may have adversely affected the EBIT. The investigating team also notes that F&P has not previously claimed that it has been affected by dumping in YEM 2000, although in its response to the ef&c, F&P has now stated there was an injurious impact in that year as noted above. 4.3.1.18 For the reasons outlined above, the investigating team still considers that an average of the EBIT per unit of the 5.5kg and 7.5kg machines (excluding Quantum machines) over YEM 1998, 1999 and 2000 compared to that for YEM 2001, is the most reasonable approach. The average EBIT for 5.5kg machines for YEM 1998, 1999 and 2000 is $______. The difference between this EBIT per unit and that for 5.5kg machines for the YEM 2001 is $_____ which is ___ percent of the average 5.5kg selling price for YEM 2001. The average EBIT per unit for 7.5kg machines for YEM 1998, 1999 and 2000 is $_______. The difference between this EBIT per unit and that for 7.5kg machines for the YEM 2001 is $______ which is ___ percent of the average 7.5kg selling price for YEM 2001. The price suppression percentages calculated on this basis by F&P using YEM 2000 as the benchmark year were __ and ___ percent for 5.5kg and 7.5kg machines respectively. The investigating team has calculated percentages that are significantly lower than those calculated by F&P. The investigating team considers that the _________________ provide a reasonable basis on which to calculate the proportionate increase in prices model by model in order to calculate unsuppressed selling prices. On the basis of the analysis above, however, the investigating team considers that the increase in prices for 5.5kg and 7.5/8kg machines should be close to ___ and ____ percent respectively. (The percentage movement relating to the 7.5kg machines was also applied to the 8kg machines because 8kg machines were not produced prior to YEM 2001). The investigating team has therefore made an adjustment to the _____________________ based on the difference between the price suppression percentages calculated by F&P (__ and __ percent) and the price suppression percentages calculated by the investigating team (__ and ___ percent). In response to the ef&c F&P has pointed out an apparent error in the investigating teams calculation of the NIPs. As a result, the investigating team has checked its calculations and agrees that there was an error in its calculations and has re-calculated the NIPs accordingly. The revised calculations have resulted in an increase in the NIPs. Details of the NIPs are shown in the tables below under each importer.

4.3.1.19

4.3.1.20
Differences in Size and Features 4.3.1.21 Radiola has submitted that differences in features between F&P washing machines and the Samsung machines it imports means the cost of manufacture differs and this cost difference should be taken into account when carrying out a price comparison for price undercutting purposes. Radiola has provided a comparison of the features found in all F&P models and those found in 2 Samsung models (the SW55AP and the SW65ASP). The comparison provided by Radiola showed differences such as a polypropylene bowl in the Samsung 5.5kg model and a stainless steel bowl in all F&P models; a direct drive electronic motor in the F&P machines but a belt drive only in the Samsung machines; variable spin speed in the F&P machines but a single spin speed in the Samsung machines; and automatic lint removal system in the F&P machines but lint bags only in the Samsung machines. Radiola has submitted that those features exclusive to F&P models add to the manufacturing cost. Radiola said it was not possible for it to quantify the cost imposition for these feature differences but they will in total be substantial. (We believe that Samsung effected an FOB cost reduction of __________ at least by fitting a polypropylene bowl to its 5.5kg model. This would translate into a New Zealand retail price saving of at least $_____). In view of the submissions made by Radiola, the investigating team asked F&P to look at the models that had been compared for price undercutting in the provisional measures report and to comment on the extent to which there were any differences in size and features of the models compared. The investigating team then asked F&P if there were such differences to comment on whether they affect the selling price at the level of trade at which the models were compared. The investigating team further asked F&P that if it considered any differences in size and features affected the selling price, to quantify the impact on the selling price. In response to the above request F&P provided a comparison of the features found in its models and the comparable Samsung and LG models. F&P said while there are different features in various models of washing machine sold in the New Zealand market, these features do not support any meaningful adjustment to either the domestically produced or imported models. F&P said, for example, all of the Korean washing machines are electronic and there are substantially more electronic features in a washing machine than a refrigerator. F&P said that although the Korean machines have a conventional motor drive system, in its view this drive system is comparable in cost to the direct drive system used in F&P models. F&P noted that while comment has been made about the Samsung polypropylene bowl, any perceived advantage/disadvantage of this feature is offset by ________________ _____________________________________________________________. F&P said that the stainless steel bowl in its machines is formed ___________ ______________________________________________________________ _______________. F&P said it is only the ___________________________ ___________, the outer bowl is polypropylene. F&P submitted that if it made a washing machine with the same features as the Samsung models, then the ___________________________________________. F&P submitted that

In the absence of the dumped imports the improvement in EBIT would have been higher as the price/volume effects of the dumping margin would not have impacted on F&P. The dumped imports have completely removed from F&P the opportunity to benefit from the cost reductions achieved in YEM 2000. It is reasonable to observe that these cost savings should be contributing to the profits of the business in YEM 2001.

4.4.26

4.4.27

4.4.28

In the YEM 2001 F&P has shown a _______________________ to that which was originally projected in its application which has had the effect of increasing the EBIT. F&P stated that this alteration has come about due to its decision to ____________________________________________________ ___________. F&P has stated that this decision was made as a direct result of the presence in the New Zealand market of dumped goods. In response to the ef&c, Davenports said that the Provisional Measures Report recorded a significant improvement in profit in the YEM 2000. Davenports submitted that This fact proves that there was not a significant decline in profit during the material for injury examination. [The investigating team assumes this means Davenports is submitting that there is no evidence of a decline in profit over the period examined for evidence of injury].

4.4.29

4.4.30
Davenports, in response to the ef&c, said that the Ministry did not sufficiently examine the impact on F&Ps profit for April December 2000 caused by the depreciation of the NZ dollar against the US dollar. Davenports said that the NZ dollar depreciated almost 20 percent against the US dollar from 1 April to 31 December 2000. Davenports submitted that the Ministry approached this depreciation only in terms of F&Ps exporting business and no consideration was given to the relationship between the depreciation of the NZ dollar and F&Ps profits. Davenports said that F&P imports a significant number of parts from other countries for the purpose of assembling its finished products. Davenports said that F&Ps business is therefore very vulnerable to exchange rate fluctuations. Davenports said that as the NZ dollar depreciates its costs increase and consequently its profits decline. Davenports said that F&Ps comments on its results for the 6 months ended September 2000 recognised that the erosion of earnings was attributable to a continued fall in the value of both the NZ and Australian dollars that increased the cost of overseas sourced materials. Davenports said that F&P reported that its EBIT margin for the whiteware segment reduced from 5.3 to 3 percent. Davenports submitted that considering the cost increase of overseas sourced materials owing to a 20 percent NZ dollar depreciation against the US dollar, this accounts for the 2.2 percent reduction in EBIT margin, without attributing it to other sources. It is unclear to the investigating team why an improvement in EBIT in the YEM 2000 should mean that there was no decline in EBIT over the period under review. As noted above, the improvement in EBIT in the YEM 2000 can be attributed to efficiency gains and could serve as a new benchmark profit rate against which subsequent performance could be measured. When the EBIT for April December 2000 and the YEM 2001 is measured against the result achieved in the YEM 2000 the decline in EBIT is particularly marked. Even if the EBIT recorded in all 3 previous years is used as a benchmark, the EBIT for the YEM 2001, in total, per unit and relative to sales, is significantly below that achieved in the 3 previous years. The investigating team has examined movements in the NZ dollar to US dollar exchange rate. The following is the NZ to US dollar inter-bank exchange rate taken from the OANDA internet currency converter (www.oanda.com/converter/classic) at 3 monthly intervals over the period under review: 1 April July October January April July October January April July October January April July October 2000 0.6970 0.6797 0.6424 0.5810 0.5499 0.5212 0.5034 0.5265 0.5356 0.5356 0.5174 0.5242 0.4970 0.4696 0.4133

material injury to F&P. Dumping does not therefore need to be the only cause of material injury, or even the major cause material injury, just a cause of material injury. Where economic indicators show that an industry has suffered injury, if factors other than dumping have been the real cause of the injury, it is important that such injury not be attributed to dumping. 4.5.2 When examining injury, the Ministry normally seeks to review data over a period both before and after the time period when injury due to dumping is alleged to have commenced. Data over a period before the commencement of injury then serves as a baseline against which subsequent performance can be measured. In dumping investigations it is usual that the onset of injury claimed by an industry occurs within a reasonably well-defined time period and this is demonstrated by declines in various economic indicators. If it is claimed that factors other than dumping are the cause of that injury then those other factors could be expected to have had a particular impact within the period when the economic indicators show the onset of injury. If there are factors other than dumping causing injury to an industry, but those other factors have been constant over the period under review, then it is unlikely that the onset of injury could be attributed to those other factors. Non-dumped Imports 4.5.3 Table 2.1 above shows the pattern of imports from sources other than Korea for the March years 1998, 1999, 2000 and 2001 year to December 2000. This table shows that total imports of washing machines from Australia have consistently increased throughout the period examined up to and including December 2000. When F&Ps own imports are deducted from the Australian totals, these figures show a pattern of static volumes up until YEM 1999 then a reduction in 2000. F&P has submitted that prior to the dumping of Korean product in New Zealand the Electrolux brands were not contributing to the effects of unfair trade. F&P has submitted that this is demonstrated by the large volumes of imports from Australia occurring in a period when F&P was not claiming to have suffered material injury. F&P has noted that there has always been a history of imports from Australia in periods when it was recording profits. F&P said that since January 2000 import volumes of washing machines from Korea have impacted on its ability to recover costs, and to ____________________ ___________________. F&P has pointed to Radiolas questionnaire response where Radiola stated in part it. had to set retail prices lower than it wanted in order to win floor space off Email in Pacific Retail Group shops. F&P has also pointed to another part of the same questionnaire response where Radiola stated in part that To get Samsung products accepted by Pacific Retail Group and its retail customers Samsung pricing has had to be lower than or close to Email. With improving brand awareness and proven product quality we are now able to price Samsung products much closer and on occasion above the Email brands. Imports from sources other than Korea and Australia have declined overall since YEM 1998 although an apparent recovery is evident in the year ended March 2000. This recovery does not appear likely to be sustained in YEM 2001.

4.5.15

4.5.17
F&P. The tenor of these comments is that the EDA constitutes a restrictive trade practice on the New Zealand domestic market. The EDA and the comments made are discussed below. 4.5.18 The investigating team has no evidence that restrictive trade practices are having an adverse impact on F&P. Developments in Technology 4.5.19 4.5.20 F&P stated in its application that it considered there to be no evidence of technology developments relevant to the consideration of injury. The comments recorded above regarding aspects of the technology and features available on imported washing machines are considered relevant by importers and allegedly perceived by consumers as important considerations in the purchasing decision. There is no evidence, however, to suggest that the availability of these technological features has adversely affected F&P. Export Performance and Productivity 4.5.21 4.5.22 F&P has excluded its export business from its material injury analysis so that the export business does not impact on figures for its domestic business. The investigating team is satisfied that the financial data on which its assessment of injury is based reflects only F&Ps operation on the domestic market, i.e. production of washing machines in New Zealand and their subsequent sale into the New Zealand market. Radiola has submitted that by comparison with all of its competitors, F&P still operates a regional management structure and that this is an extremely inefficient way of operating in today's competitive environment. Radiola notes that it together with other whitegoods distributors eliminated these types of overheads eleven years ago. Radiola has also noted the announcement by F&P at the time this investigation was initiated that it would be making up to 200 nonmanufacturing staff redundant. Radiola suggests that this is "a staggeringly high level of surplus" to have been carried in sales and administration areas. Radiola summarises its submission regarding F&P productivity by stating that together with high R&D expenditure and (by world standards) low production volumes it considers excessive overheads to be a prime driver of F&P's pricing and by inference therefore of the material injury claimed by F&P to have been caused by dumped imports. The investigating team has no evidence to suggest that there has been any change in F&Ps productivity over the period from 1998. Any impact from low productivity is therefore unlikely to have contributed to the injury evident in April December 2000. Imports by the Industry 4.5.27 F&P imports automatic washing machines from its own factory in Australia. F&P has also imported front loading washing machines from _____ and __________ and has imported sample top loading models from ____, ____,

4.5.23

4.5.24

4.5.25

4.5.26
_________________________ and _________________. The Ministry notes that the washing machines F&P imports from countries other than Korea are not subject goods (not being from Korea) and consequently do not fall within the scope of section 8(2)(f) of the Act. 4.5.28 The volume of washing machines imported as samples from Korea are negligible (_ machines were imported by F&P from Korea over the period 1 April 1997 to 31 December 2000) and therefore have no significance on the analysis of the injurious impact of dumped imports from Korea. Other Factors Forward Exchange Contracts 4.5.29 F&P has forward cover on its foreign exchange earnings from its export operation. Several interested parties have pointed to publicly available reports on F&Ps results which highlight losses on exports by F&P through forward cover at rates which were higher than the actual value of the NZ dollar at the time the export earnings were repatriated. Various analysts reports on F&Ps first half 2001 results note that lower than expected earnings were partly attributable to the effects of forward cover, estimated to have reduced earnings by $4.8 million. The same reports note that export sales are covered for 2-3 years at US$0.50 and there is only limited cover on import costs. Interested parties have therefore submitted that management failure to properly manage forward foreign exchange cover has been a significant cause of injury to F&P. F&P accounts for its export earnings by converting those earnings at the hedged rate applying at the time those earnings are repatriated. Forward exchange impacts are therefore reflected in a reduction of revenue from export sales. There is consequently no impact from reduced export earnings through the effects of forward cover on the financial data used in the injury analysis which relates solely to product produced in New Zealand and sold on the New Zealand market. At a very late stage in the preparation of the ef&c report, Radiola provided information on its forward exchange contracts and stated that it shows that favourable forward exchange contracts assisted Radiola to hold prices in the period from June 2000 to the end of 2000. The information provided in cost schedules for each model imported shows the difference in the FOB costs using the exchange rate at the date of import and Radiolas forward exchange rate. In the limited time available, the investigating team has selected 2 models, the SW55APP and the SW65ASP and examined the impact on the per unit cost of the forward exchange contracts. The information provided by Radiola shows that forward exchange contracts have enabled Radiola to decrease its FOB cost by $____ and $____ per unit for the SW55APP and SW65ASP respectively. This cost saving has been related to the level of price undercutting (assuming the cost difference would translate directly into the exwarehouse selling price). At the forward exchange rate the price undercutting of the NIP of the equivalent F&P model by the SW55APP would increase from __ to __ percent and the SW65ASP from __ to __ percent.

A reference price duty is particularly appropriate for dealing with situations where a lesser duty is applicable. However, it has been argued that it is more easily evaded than the other forms of duty, by overstating the value for duty of the goods. Nevertheless, a reference price does have the advantage that it clearly signals to the exporter and importer what level of price is undumped or non-injurious, and provided it is carefully described, the problem of evasion can be dealt with. Because there are a range of different sizes and a variety of different models of washing machine that are imported into New Zealand, the washing machines have been divided into 5 different categories depending on their capacity. The categories are as follows: Table 6.1: Washing Machine Categories Category 5 Capacity (kg) Less than 4.5 4.6 - 5.5 5.6 - 6.5 6.6 - 7.5 7.6 - 10
There are a range of washing machines imported (from 4.5 8.5kg) and their dumping margins vary from 42 to 105 percent. Due to the range of dumping margins and sizes, a reference price method is therefore considered to be the best method for assessing and collecting anti-dumping duties in the circumstances presented in this case. AMOUNT OF ANTI-DUMPING DUTY Introduction
It was concluded above that injury to the New Zealand industry attributable to dumping could be removed by imposing a lesser duty. The investigating team considers that under a reference price approach, imposing an anti-dumping duty at a level below the full margin of dumping can best be achieved through a non-injurious free-on-board (NIFOB) method. In order to assess the extent of any price undercutting, prices of the imported and domestically produced washing machines must be compared at the same level of trade. It is essential that prices be compared at the same level of trade to ensure that the existence of any price undercutting, and its extent, is correctly assessed and that any remedy applied at less than the margin of dumping is calculated in such a way as to ensure that the prices of the dumped goods when imported do not undercut the F&P non-injurious prices. Calculation of F&P Ex-warehouse NIP
Following the release of the ef&c, F&P provided information on its sales volumes of washing machines in New Zealand on a model by model basis. The investigating team grouped these models in the 5 categories depending on their capacity and calculated a weighted average F&P NIP for the 5

503.36

Table 6.10: NIFOB for Samsung - Category 3 (5.6 - 6.5kg) NZ$/Unit F&P ex-factory NIP _____ _____ Less costs and Margin after FOB to Ex-Warehouse - Overseas Freight _____ _____ - Overseas Insurance - Customs Duty _____ - Port Clearance Fees _____ _____ - Cartage to Store - Devanning Fees _____ _____ - Other Import Costs (Bank Fees)
- Selling and Admin Costs - Store Costs - Reasonable Profit Margin Category 3 NIFOB 6.3.21

_____ _____ _____ 616.98

Samsung did not export washing machines in category 4 over the period of investigation. The Samsung category 4 NIFOB was based on the weighted average category 4 NIFOBs for LG and Daewoo, weighted on the volume of exports by the two companies in category 4. The following table shows the Samsung category 4 NIFOB calculation. Table 6.11: NIFOB for Samsung - Category 4 (6.6 - 7.5kg) $NZ LG Category 4 NIFOB _____ Daewoo Category 4 NIFOB _____ Samsung Category 4 NIFOB 604.62

6.3.22

As Samsung does not export washing machines to New Zealand in category 5, the annual cost information used to calculate the LG category 5 NIFOB was used to calculate the Samsung category 5 NIFOB. The reasonable weighted average profit margin of __ percent was added to the annual cost figure. The following table shows the calculation of Samsung category 5 NIFOB. Table 6.12: NIFOB for Samsung - Category 5 (7.6 - 10kg) NZ$/Unit _____ F&P ex-factory NIP Less costs and Margin after FOB to Ex-Warehouse _____ _____ - Overseas Freight _____ - Overseas Insurance _____ - Customs Duty _____ - Port Clearance Fees - Cartage to Store _____ - Devanning Fees _____ _____ - Other Import Costs (Bank Fees) - Selling and Admin Costs _____ _____ - Store Costs - Customs Clearance Fees _____ - Documentation Fee _____ _____ - Reasonable Profit Margin Category 5 NIFOB Daewoo Electronics 764.19

6.3.23

Eurolife only imported washing machines in category 4 from Daewoo, therefore, the Daewoo category 4 NIFOB is based on Eurolife annual cost and profit information. For categories 1, 2, 3 and 5, LG and Samsung information was used wherever applicable to calculate NIFOBs for these categories.

6.3.24

The following table shows the calculation for Daewoo category 1 NIFOB. This NIFOB is based on the annual cost information used to calculate the LG category 1 NIFOB, as Daewoo did not supply washing machines to NZ during the period of investigation in this category. A reasonable weighted average profit margin of __ percent was used. Table 6.13: NIFOB for Daewoo - Category 1 (Less than 4.5kg) F&P ex-factory NIP Less Costs and Margin after FOB to Ex-Warehouse - Overseas Freight _____ _____ - Port Services Charge & Wharfage - Overseas Insurance _____ _____ - Customs Duty _____ - Customs Clearance fees - Cartage to Store _____ _____ - Devanning Fees - Other Import Costs _____ _____ - Documentation Fee - Storage and Handling Costs _____ - Selling and Admin Costs _____ _____ - Reasonable Profit Margin Category 1 NIFOB NZ$/Unit _____ _____

6.3.25

The following table shows the calculation for Daewoo category 2 NIFOB. This NIFOB is based on the Samsung annual cost information used to calculate the Samsung category 2 NIFOB, as Daewoo did not supply washing machines to NZ during the period of investigation in this category. A reasonable weighted average profit margin of __ percent was used. Table 6.14: NIFOB for Daewoo - Category 2 (4.6 - 5.5kg) F&P ex-factory NIP Less Costs and Margin after FOB to Ex-Warehouse _____ - Overseas Freight - Port Services Charge & Wharfage _____ _____ - Overseas Insurance - Customs Duty _____ _____ - Customs Clearance fees - Cartage to Store _____ - Devanning Fees _____ _____ - Other Import Costs - Documentation Fee _____ _____ - Storage and Handling Costs - Selling and Admin Costs _____ - Reasonable Profit Margin _____ Category 2 NIFOB NZ$/Unit _____ _____

6.3.26

Daewoo did not supply washing machines to New Zealand under category 3 during the period of investigation. Since LG and Samsung both exported washing machines in this category, their total weighted average annual cost information for category 3 was used. A reasonable weighted average profit margin of __ percent was applied to the total weighted average annual cost to calculate Daewoo category 3 NIFOB as shown in the following table. Table 6.15: NIFOB for Daewoo - Category 3 (5.6 - 6.5kg) NZ$/Unit F&P Ex-factory NIP _____ Less Costs and Margin after FOB to Ex-Warehouse _____ _____ Total Weighted Average Annual Costs Reasonable Profit Margin _____ Category 3 NIFOB 603.03

6.3.27

Eurolife only imported washing machines from Daewoo under category 4 over the period of investigation. Eurolife annual cost information was used to calculate the Daewoo category 4 NIFOB. _____________________________ ______________________________________________________________ _________________________________________________. The following table shows the Daewoo category 4 NIFOB calculation. Table 6.16: NIFOB for Daewoo - Category 4 (6.6 - 7.5kg) F&P Ex-factory NIP Less costs and Margin after FOB to Ex-Warehouse - Duty _____ - Overseas Freight _____ - Cartage(Wharf-Store) _____ _____ - Customs Clearance _____ - Port Services Charge _____ - Insurance - Freight to the Consumer _____ - Warranty _____ _____ - Other Operating Expenses & profits Eurolife Category 4 NIFOB NZ$/Unit _____ _____

DUMPING AND COUNTERVAILING DUTIES ACT 1988 DUMPING APPLICATION NON-CONFIDENTIAL
INITIATION REPORT WASHING MACHINES FROM KOREA

PROCEEDINGS

1.1 1.2 1.3 PROCEEDINGS INTERESTED PARTIES IMPORTED GOODS

NEW ZEALAND INDUS TRY

2.1 2.2 2.3 2.4 LIKE GOODS NEW ZEALAND INDUSTRY IMPORTS OF WASHING MACHINES NEW ZEALAND MARKET

EVIDENCE OF DUMPING

3.1 3.2 3.3 E XPORT PRICES NORMAL VALUES COMPARISON OF EXPORT PRICE AND NORMAL VALUE

EVIDENCE OF INJURY

4.1 4.2 4.3 4.4 4.5 IMPORT VOLUMES PRICE EFFECTS ECONOMIC IMPACT OTHER CAUSES OF INJURY CONCLUSIONS RELA TING TO INJURY
CONCLUSIONS RECOMMENDATIONS
Trade Remedies Group Ministry of Economic Development December 2000
ABBREVIATIONS The following abbreviations are used in this Report: Act (the) Amendment Act (the) Anti-Dumping Agreement (the Agreement) Chief Executive CIF EBIT F&P FOB INFOS LDC LG LLDC Ministry (the) _____ Pac Samsung VFD WTO Indicates confidential information Dumping and Countervailing Duties Act 1988 Dumping and Countervailing Duties Amendment Act 1994 WTO Agreement on Implementation of Article VI of the GATT 1994 Chief Executive of the Ministry of Economic Development Cost, Insurance and Freight Earnings Before Interest and Tax Fisher & Paykel Ltd Free on Board Information for Official Statistics Less Developed Countries LG Electronics Least Developed Countries Ministry of Economic Development ________________________________________ Forum Island Members of the South Pacific Regional Trade and Economic Co-operation Agreement Samsung Electronics Value for Duty World Trade Organisation _______________

1.1 1.1.1

PROCEEDINGS On 7 November 2000, the Ministry of Economic Development accepted a properly documented application from Fisher & Paykel Limited (F&P), alleging that imports of washing machines from Korea were being dumped and by reason thereof causing and threatening to cause material injury to the New Zealand industry. In accordance with section 10 of the Dumping and Countervailing Duties Act 1988 (hereinafter also referred to as the Act), the Chief Executive of the Ministry of Economic Development (Chief Executive) may, on receipt of an application from the industry, initiate an investigation to determine both the existence and effect of any alleged dumping of any goods on being satisfied that sufficient evidence has been provided that: (a) (b) the goods imported or intended to be imported into New Zealand are being dumped; and by reason thereof material injury to an industry has been or is being caused or is threatened or the establishment of an industry has been or is being materially retarded.
In considering an application, the Chief Executive is required to be satisfied that there is evidence going beyond mere assertion and of a nature and extent that indicates a likelihood of dumping and resultant material injury, and requiring investigation. The evidence is to be scrutinised with due scepticism, bearing in mind the commercial context, and the Chief Executive is to be satisfied of the sufficiency of the evidence, not of dumping or material injury. Basis for the Application
F&P claims that as a result of the alleged dumping, material injury is resulting from: increased volume of the allegedly dumped imports; price undercutting, price depression, and price suppression,
and is resulting in: decline in market share; and decline in profits;
and will result in: declines in output and sales; decline in return on investments; and possible adverse effect on employment.

Initiation Report

F&P has stated in its application that the material injury resulting from the importation of allegedly dumped washing machines commenced in the AprilJuly 2000 period. F&P has requested the imposition of provisional anti-dumping duties to prevent material injury being caused during the investigation. Provisional anti-dumping duties may be imposed no earlier than 60 days after initiation of an investigation if the Minister has reasonable cause to believe that the imported goods are being dumped and are causing or threatening to cause material injury to an industry, and the Minister is satisfied that action is necessary to prevent material injury being caused during the period of investigation. It should be noted that the Ministry approaches investigations on the basis that injury and threat of injury are alternatives, i.e. an industry is either injured or threatened with injury, but both cannot apply at the same time. INTERESTED PARTIES New Zealand Industry

The application was lodged by F&P, the only producer of household automatic washing machines in New Zealand. F&P is a wholly owned subsidiary of the listed company Fisher & Paykel Industries Ltd. Importers and Exporters Exporters
F&P has identified the following exporters from Korea as allegedly dumping washing machines: LG Electronics (LG); and Samsung Electronics (Samsung).
Available Customs data for the year ended 31 October 2000 lists the following as suppliers of washing machines from Korea: Dae Hyun Agriculture & Fisheries Co Ltd Daewoo Corp Daewoo Electronics Corp Ltd Dong Nam Co Ltd Fisher & Paykel Pty Ltd GAE Asia Ltd LG Electronic Inc LG International Corp Samsung Aust Pty Ltd Samsung Electronics Importers
F&P states that several companies import automatic washing machines under different brand names. F&P believes the following companies are importers: Baigent & Daughters;
Washing Machines from Korea
Email New Zealand Ltd; Radiola Corporation; and LM Rankine Trading Corporation Ltd. 1.2.5 Customs data shows the following as importers of washing machines from Korea: Email Appliances (NZ) Ltd Eurolife Ltd Fisher & Paykel Ltd* Hagemeyer NZ Ltd LM Rankine Trading Co Ltd Radiola Corporation Ltd Sanford South Island Ltd South East Resources Ltd
* As noted in Section 4.4 of this Report, F&P has imported sample models from Korea.
Due to the number of suppliers and importers identified, should an investigation be initiated it is intended to specifically investigate those suppliers (and their associated importers) representing the top 99 percent of imports (by volume) of the subject goods over the year ended October 2000. In making this calculation the various Samsung, LG and Daewoo companies listed in the NZCS data have been treated as one entity. All other suppliers and importers will have the opportunity to provide submissions but these will not be directly solicited. Suppliers and importers falling into the above category are as follows: Exporters Samsung LG Daewoo Importers Radiola Corporation Ltd LM Rankine Trading Co Ltd Email Appliances (NZ) Ltd Eurolife Ltd
Any investigation will need to establish the extent to which the parties listed are importing the goods subject to this application. In addition, the investigation will need to establish whether such goods have any degree of manufacture in the country of export, or whether they are merely transshipped. IMPORTED GOODS The goods which are the subject of the application, hereinafter referred to as washing machines or subject goods, are:

2.1.10

2.1.11
Function and Usage 2.1.12 F&Ps top loading machines have the same end-use, namely washing of clothes for households, as the imported top loading and front loading machines. F&P considers that front loading machines are substitutable with its top loading machines. The company is preparing to release a top loading machine which replicates the features of a front loading machines and F&P considers this development is a strong indication of the substitutability of these machines. F&P identifies no differences between consumer perceptions of New Zealand and Korean washing machines. F&P states that consumer preferences indicate that top loading machines are more flexible [than front loading machines] because items can be added to the machine once the washing cycle has commenced. Top loading machines have a shorter washing cycle than front loading machines. F&P considers that front loading machines may use less water, depending on user behaviour, and less laundry powder than top loading machines. F&P explains that clothes are immersed in water in top loading machines whereas in a front loading machines the clothes are rotated through the water as the drum revolves. F&P states that there is a consumer perception that front loading machines have a gentle washing action, consume less water and are more eco-friendly. However, F&P points to Consumers Institute testing which shows that top loading machines have wash programmes that are as gentle as front loading machines. Pricing Structures 2.1.16 F&P notes that there is a perception that front loading machines are more expensive than top loading machines. F&P considers that this perception may be due European machines being distributed through specialist outlets for many years prior to The Warehouse securing distribution of the AEG brand. F&P provided retail price comparisons for a number of machines, including for LG machines which are sold in both front loading and top loading versions. LGs 6.5kg and 8kg top loading machines are sold at the same prices respectively as LGs lower and higher-priced 7kg models. F&P observes that the retail pricing of imported Korean front loading machines is similar to retail prices of F&P top loading machines. F&P considers that the proximity of the retail pricing demonstrates that price is not a barrier to substitutability. Marketing Issues 2.1.18 F&P observes that top loading machines and front loading washing machines are sold through the same retail outlets and are often placed together on the retail floor. F&P provided copies of Consumers Institute tests in which both front loading and top loading machines feature. F&P imports front loading machines from Italy and distributes them through the same retail outlets as its top loading models. F&P also states that promotional material from retailers includes both types of machines which is

The application was submitted by Fisher & Paykel Limited, the sole New Zealand producer of household automatic washing machines. The Ministry is aware that there is only one manufacturer of household automatic washing machines in New Zealand and research supports this fact. The applicant has advised that production closely follows sales. The applicant has provided sales volume and value information, representing its production, for the years ended March 1998 to 2000, and has provided forecast figures for the year ending March 2001. IMPORTS OF WASHING MACHINES The applicant provided INFOS data from Statistics New Zealand for the tariff items and statistical keys in section 1.3 above. The following table shows import volumes of washing machines. Table 2.1: Imports of Washing Machines (Units) Months to July 2000 Korea 5,729 5,813 Other Imports 42,174 39,749 48,054 15,134 Total Imports 42,180 40,437 53,783 20,947

2.3 2.3.1

Section 11(1) of the Act provides that where the Minister is satisfied in respect of some or all of the goods under investigation, that there is insufficient evidence of dumping or injury to justify proceeding with the investigation then the investigation shall be terminated. Section 11(2) of the Act provides that evidence of dumping shall be regarded as insufficient if the volume of imports of dumped goods, expressed as a percentage of total imports of like goods into New Zealand, is negligible, having regard to New Zealands obligations as a party to the Anti-Dumping Agreement. The Agreement deals with the negligibility of dumped imports under Article 5:8 as follows:
5.8 An application under paragraph 1 shall be rejected and an investigation shall be terminated promptly as soon as the authorities concerned are satisfied that there is not sufficient evidence of either dumping or of injury to justify proceeding with the case. There shall be immediate termination in
cases where the authorities determine that the margin of dumping is de minimis, or that the volume of dumped imports, actual or potential, or the injury, is negligible. The margin of dumping shall be considered to be de minimis if this margin is less than 2 per cent, expressed as a percentage of the export price. The volume of dumped imports shall normally be regarded as negligible if the volume of dumped imports from a particular country is found to account for less than 3per cent of imports of the like product in the importing Member, unless countries which individually account for less than 3 per cent of the imports of the like product in the importing Member collectively account for more than 7 per cent of imports of the like product in the importing Member.

A retailers margin of ____ percent has been allowed for both Samsung and LG. F&P advises that this margin is based on an analysis of the margins taken by __________________________________________, on a sample
of washing machine models sold by ______ in June and October 2000. F&P provided details of this margin analysis in its application. Distributors Warranty 3.1.8 An amount of __ percent for distributors warranty costs has been allowed for both Samsung and LG. F&P states that this is the accepted figure for warranty provision in the whiteware business. Freight from Distributor to Retailer 3.1.9 Amounts of _____ percent and ____ percent have been allowed for Samsung and LG respectively. F&P has allowed a nominal amount for Samsung, for freight from wharf to distributor, as it states that the Samsung distributor, Noel Leeming, warehouses and ships to its own stores and the cost of freight is therefore covered by the retailers margin. F&P states that the freight cost for LG is based on its freight costs in Australia, ________________________ ______________________________________________________. F&P has deducted more for freight for goods distributed by Rankine as Rankine appears to have a more expensive overhead and distribution structure. Distributors Advertising 3.1.11 An amount of ___ percent has been allowed for advertising for both Samsung and LG. F&P states that it is an industry norm for distributors to contribute ___________ percent towards retail advertising. In addition, F&P states that distributors also advertise the brand generally and support retail promotions which makes up the remainder. F&P considers the amount allowed is probably conservative given the low volume of sales and the need for a certain dollar spend to have an impact. Distributors Selling and Administration Overhead 3.1.12 Amounts of _____ percent and ____ percent have been allowed for Samsung and LG respectively. F&P states that this cost is to cover local (New Zealand) sales representation and administration costs. F&P has made a lower deduction for Samsung as product is received directly by the retailer. F&P states that the figures are based on a conservative view of its known costs. Distributors Net Profit 3.1.13 An amount of _____ percent has been allowed for both Samsung and LG models. F&P states that This is a conservative estimate of the net profit that a distributor would expect to make for their role in the transaction. In support of this estimate, F&P has provided a copy of a report _________________ ____________________________________________________. Sea Freight Korea to New Zealand 3.1.14 F&P states that this is based on known costs for shipment of 40 foot, cube containers from Korea to New Zealand of US$______. F&P calculated the cost per washing machine on the basis of the number of equivalent models that are able to be fitted into this type of container. high has F&P The

3.1.10

Ministry has made some adjustments to these calculations to ensure they are consistent with the numbers of washing machines per container shown in calculations for port service charges. Port Service and Customs Charges 3.1.15 F&P has calculated port service and Customs charges on the basis of flat fees per container divided by the number of washing machines of each size capacity that is able to be packed into a container. Insurance 3.1.16 An amount for insurance has been allowed at ____ percent for both Samsung and LG. F&P states this is based on known costs for a shipment of whiteware (refrigerators) from Korea. Import Duty 3.1.17 An amount for import duty has been allowed at the current rate for imports of the subject goods from Korea of five and a half percent. Inland Freight to Port of Export 3.1.18 An amount of ______ percent of ex-factory value has been allowed for freight from the Korean factories to the port of export. Exchange Rates 3.1.19 In its application F&P converted the NZ dollar FOB price to Korean won at the Customs exchange rate effective on 18 September 2000 of 1NZ$ = 470.07 Korean won. Since then the won has appreciated against the NZ dollar which would have the effect of further reducing the export price in won. For the purposes of initiation the exchange rate at 18 September has been used. Export Prices 3.1.20 The calculation of constructed export prices on the basis set out above is shown in the tables below. Samsung 3.1.21 The following table shows export prices calculated from retail prices in October and November 2000.
Table 3.1: Constructed Export Prices Samsung Top Loading Oct Nov Oct Capacity (kg) 5.5 5.5 6.5 Korean Model No. SEW-80W NZ Model No. SW55AP SW65ASP SW65ASP Advertised price 749.95 799.95 949.95 Less: GST (12.5%) 83.33 88.88 105.55 666.62 711.07 844.40 Less: Retailer's margin (____) Invoice price ex-distributor to retailer Less: Warranty (__)
Less: Freight (____) Less: Advertising (__) Less: Selling & admin. Overhead (__) Less: Profit (__) Landed cost Less: Freight to NZ Less: Port Service Charges Less: Customs charges Less: Insurance (_____) Less: Import duty (5.5%) FOB (NZ$) Less: Freight to wharf (____) Ex-Factory Export Price (NZ$) Convert @ NZ$ = 470.07 won (Customs rate @ 18/9/00)

Top Loading Capacity (kg) Korean Model No. NZ Model No. 4.5 WFJ55N WFT452 6.5 WF-J85B WFT652 8.5 WF-WS133G WFT852
Retail Price (Won) Less Discount (__) Net Retail Price (VAT incl) Less VAT (10%) Net Retail Price (VAT excl) Less Retailer's Margin Price to Retailer Less Inland Freight (__) Less Warranty (__) Ex-factory Normal Value Front Loading Models 3.2.16

308,271

410,000

552,000

200,208

266,276

358,499
F&P states that a selling price in Korea for the two front loading LG models was not reasonably available. The two front loading models each have a 7kg capacity. For those two models, after discussion with the Ministry, F&P has used the normal value established for a Korean top loading domestic LG model, and, to obtain an estimated normal value for the higher specification model, has adjusted that value by the difference in New Zealand retail prices between lower and higher specification models. The retail selling price in New Zealand of LGs top loading 6.5kg model, $1,099, is the same as the retail price of the lower-specification 7kg front loading machine. It would seem reasonable, therefore, to use the normal value established for the LG top loading 6.5kg model for comparison with the lower specification 7kg front loading model. To assess a normal value for the higher-priced 7kg front loading model, it would also seem reasonable, given the limited information reasonably available to the applicant, to adjust the normal value of the lower-priced 7kg model by the relativity between the retail pricing of the two models in New Zealand. The calculation of normal values for LG, on the basis set out above, is shown in the table below. Table 3.6: Normal Values LG Top Loading Capacity (kg) 7.0 7.0 Korean Model No. WF-J85B WFWS133G NZ Model No. WD8050FH WD1021W Retail Price (Won) 266,276 302,620 Conclusion on Normal Values

3.2.17

3.2.18

3.2.19

The Ministry considers that, for purposes of initiation, the information provided by F&P is sufficient evidence of normal values for the subject goods.

3.3 3.3.1

COMPARISON OF EXPORT PRICE AND NORMAL VALUE F&P notes that it has calculated dumping margins on the basis of information reasonably available and states that information on other brands has not been available and estimates have not been made for all brands because sufficient evidence of dumping has been shown for initiation. F&P notes that its research indicates that models exported to New Zealand are not identical to models manufactured for the Korean market. In particular, F&P notes that claimed capacities in Korea are not the same as those used on the New Zealand market due to the use of different standards in each market. F&P states that the Korean standard (KS C9608-96) is based on the Japanese standard JISC 9606. F&P notes that this standard is based on an old wringer machine as the standard and is rather primitive. Capacity claims under this standard need to meet an electrical safety benchmark and the standard does not have a wash performance requirement. F&P states that F&P model sizes 5.5kg, 6.5kg and 7.5kg, easily rate as 10kg under the Korean standard. At the same time, F&P has attempted to take a conservative approach to the calculation of comparative normal values. For example, in calculating LG top loading normal values, F&P states The lowest domestic price has been used so that the normal value calculation is conservative. For example, a 10kg domestic model could be compared with the 6.5kg export model but this would result in a substantially higher dumping margin. F&P has compared New Zealand models of specific capacities with Korean domestic models with claimed capacities as follows: Table 3.7: Comparison of Capacities Capacity (kg) Samsung LG Models Model exported to NZ 6.5 4.5 6.5 Model sold in Korea 8.0 5.5 8.5

8.5 13.0

Based on the information provided to the Ministry, the following is the evidence of dumping:
Samsung Top Loading Capacity (kg) Korean Model No. NZ Model No. Normal Values Export Prices Dumping Margins As % of Export Price LG Top Loading Capacity (kg) Korean Model No. NZ Model No. Normal Values Export Prices Dumping Margins As % of Export Price
Table 3.8: Dumping Margins Oct Nov Oct 5.5 5.5 6.5 SEW-80W SW55AP SW65ASP SW65ASP 258,353 258,353 287,059 173,190 185,980 224,349 85,163 72,373 62,710 49% 39% 28% 4.5 6.5 WF-J55N WF-J85B

WFT452 WFT652

8.5 WFWS133G

WFT852

200,208 157,316 42,892 27%
266,276 238,100 28,176 12%
358,499 283,724 74,775 26%
LG Front Loading Capacity (kg) Korean Model No. NZ Model No. Normal Values Export Prices Dumping Margins As % of Export Price
7.0 7.0 WD860R WD860R WD8050F WD1021 H W 266,276 302,620 225,471 276,866 40,806 25,754 18% 9%
The evidence provided shows that the alleged margins of dumping range from 9 percent to 49 percent and are not de minimis in terms of Article 5.8 of the Agreement as set out above in paragraph 2.3.2. The Ministry is satisfied on the basis of the information provided that the comparison of export prices and normal values provides sufficient evidence of dumping for the purposes of initiation in respect of the importation of washing machines from Korea. Any investigation will need to give consideration to the provisions of section 4 (export price) and section 5 (normal value) of the Act as they should apply, and in particular to the application of the appropriate adjustments required by section 4(1)(a)(i) and (ii) and section 5(3).
The basis for considering material injury is set out in section 8(1) of the Act:
8. Material injury to industry(1) In determining for the purposes of this Act whether or not any material injury to an industry has been or is being caused or is threatened or whether or not the establishment of an industry has been or is being materially retarded by means of the dumping or subsidisation of goods imported or intended to be imported into New Zealand from another country, the [Chief Executive] shall examine (a) The volume of imports of the dumped or subsidised goods; and (b) The effect of the dumped or subsidised goods on prices in New Zealand for like goods; and (c) The consequent impact of the dumped or subsidised goods on the relevant New Zealand industry.

4.2.3.5

4.2.3.7
increases in prices is the main indicator of price suppression, the Ministry will consider any other factors raised as positive evidence of price suppression. 4.2.4.2 F&P states that it has in recent times been lowering its prices to maintain competitiveness and import volumes and that it has been unable to increase prices to recover increased costs. F&P refers to increased costs of imported raw materials due to the fall in value of the New Zealand dollar. The transfer of production of F&Ps 6.5kg model to Australia in March 1999, means that comparison of financial information over the years 1998 to 2000 will be distorted, making interpretation of any trends problematic. For purposes of assessing whether there is price suppression, F&P has compared financial information (excluding 6.5kg sales) for the four months April to July 1999 with the same months in 2000. From the financial information provided by F&P, the Ministry has prepared the following table. Table 4.5: Price Suppression (NZ$ per Unit) (5.5kg & 7.5kg models only) Apr-Jul 1999 Ave Selling Price Cost of Production Gross Margin Selling & Admin. EBIT GM as % of Sales EBIT as % of Sales 4.2.4.4

4.2.4.3

Apr-Jul 2000
As F&P noted, average cost per unit increased at the same time as average prices decreased. In discussing price depression, the Ministry noted that prices had decreased and had also recently increased. The Ministry also compared financial information for washing machines (excluding 6.5kg models) for the full financial years 1998 to 2000. The following table, which was calculated from actual and projected financial data provided by F&P, shows gross margin and EBIT as a percentage of sales for washing machines (excluding 6.5kg models) over the past three years and for the year ended March 2001. Table 4.6: Price Suppression (NZ$ per Unit) est. 2001 est. With Price Without Increase Increase Ave Selling Price Cost of Production Gross Margin Selling & Admin. EBIT GM as % of Sales EBIT as % of Sales

4.2.4.5

Gross margin and gross margin as a percentage of sales declined significantly in 1999, recovered in 2000 and is forecast to decline significantly in 2001. Per unit cost of production declined in 1999 and again in 2000, but is
forecast to increase significantly in 2001. EBIT per unit and as a percentage of sales declined significantly in 1999, recovered in 2000 and is forecast to decline significantly in 2001. Per unit selling and administration costs remain relatively steady throughout the period. The declines in gross margin and EBIT in 1999 occurred before F&P claims that allegedly dumped imports began to cause material injury. 4.2.6 The Ministry notes that F&P increased prices in October 2000, but is __________________________________________________. Nonetheless, based on F&Ps projected figures, there is evidence that, __________ ____________________, F&P will be unable to increase sufficiently prices in 2001 to recover increased costs of production. The Ministry also notes that financial data for the four months to July 2000 shows that per unit gross margin and EBIT, and gross margin and EBIT as a percentage of sales revenue, have declined significantly. There is sufficient evidence that prices are being suppressed. Conclusion on Price Effects 4.2.8.1 There is sufficient evidence of price undercutting and price suppression. There is not sufficient evidence of price depression. ECONOMIC IMPACT Section 8(2)(d) of the Act provides that the Chief Executive shall have regard to the economic impact of the dumped or subsidised goods on the industry, including (i) Actual and potential decline in output, sales, market share, profits, productivity, return on investments, and utilisation of production capacity; and (ii) Factors affecting domestic prices; and (iii) The magnitude of the margin of dumping; and (iv) Actual and potential effects on cash flow, inventories, employment, wages, growth, ability to raise capital, and investments. 4.3.1 4.3.1.1 Output and Sales F&P advises that ______________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ _________. Output 4.3.1.2 4.3.1.3 F&P has advised that production closely follows sales and, therefore, separate production figures have not been provided. F&P transferred manufacture of its 6.5kg model to Australia in February 1999, but retains the capability to manufacture this model in New Zealand.

Sales Volume 4.3.1.4 F&P states that its strategy in meeting price undercutting by the dumped goods "is to protect volume sales as much as possible". The following table shows volumes of units sold by the New Zealand industry. Table 4.7: Volume of Sales (Units) Months to July 2000 F&P 4.3.1.5 The New Zealand market has been supplied by F&P from Australia with its 6.5kg machine since March 1999. A small volume of Australian-made 6.5kg machines is included in the NZ industry sales figures for 1999. Interpretation of trends in the above table is difficult because it is not possible from the table figures to identify the extent to which the decline in sales in 1999 is due to F&P ceasing production in New Zealand of its 6.5kg model. F&P provided sales figures, therefore, that exclude 6.5kg washing machines and these are included in the following table. Table 4.8: Volume of Sales (Units - Excluding 6.5kg) Months to July 2000 F&P 4.3.1.7 The table shows that sales increased significantly in 1999 and returned to the 1998 level in 2000. If the figure for four months is annualised, the annual figure shows that sales for 2001 are static. F&P has estimated its sales for the year ended March 2001 on the basis of the expectation that some volume loss is inevitable given the extent of price undercutting. F&P has estimated sales of _____ for 2001, which represents a significant decline from the sales volume in 2000. F&P states that This forecast of the threat of loss of sales has taken into account the provisions of Article 3.7 of the Agreement: - A significant rate of increase of dumped imports into the domestic market indicating the likelihood of substantially increased importation. - Increased demand through the price depressing and suppressing effect of the imports. 4.3.1.9 F&Ps forecast sales volume is based on sales of ________________ ______________________________________________________________ ______________________________________________________________ _____________________________________. F&P notes that the forecast effect of the loss of volume due to dumping is understated ___________ ______________________________________________________________ _____________. F&P states that the volume impact of the dumping ___________________ _______________________________ in particular are forcing prices in the market to where F&Ps forecast sales revenue is no longer sufficient to

4.3.1.6

4.3.1.8

4.3.1.10

generate an acceptable EBIT. F&P provided sales volume figures for each washing machine capacity. These show that sales of _____ machines have declined significantly since 1998. Annualisation of the figures for the four months to July 2000, indicates that sales of _____ machines will decline slightly, sales of _____ machines will increase and sales of _____________ machines will remain relatively static. 4.3.1.11 There is no evidence of an overall actual decline in the industrys sales volume. F&P has forecast a sales volume decline for the year 2001 but detailed calculations have not been provided in support of that forecast. Sales Revenue 4.3.1.12 4.3.1.13 F&P advises that, as a result of the imports, it has been regularly discounting prices to dealers _________________________________________. To overcome the problem of interpretation of trends caused by inclusion of 6.5kg washing machines, F&P has provided the sales revenue figures for washing machines excluding 6.5kg machines. The following table shows that sales revenue has remained relatively steady from 1998 to July 2000. Table 4.9: Sales Revenue (Units - Excluding 6.5kg) 2000 F&P 4.3.1.14 F&P has estimated sales revenue for the year ended March 2001 to be _____________________________________________. This represents a significant decline in sales revenue. F&P states that _______________ ______________________________________________________________ ______________________________________________________________ ______. The Ministry has also examined figures provided by F&P in respect of each capacity of washing machine. These show that sales revenue from _____ machines has declined significantly since 1998. Annualisation of the figures for the four months to July 2000, indicate that sales revenue from _____ machines will decline slightly, sales revenue from _____ machines will increase slightly and sales revenue from ____________ machines will increase slightly. There is no evidence of an overall actual decline in the industrys sales revenue. F&P has forecast a sales revenue decline for the year 2001 but detailed calculations have not been provided in support of that forecast. Market Share The analysis of market share must take account of changes in the growth of the market as a whole. A decline in the share of the market held by the domestic industry in a situation where the market as a whole is growing will not necessarily indicate that injury is being caused to the domestic industry, particularly if the domestic industrys sales are also growing. The table below shows actual market share and changes in market share.

4 Months to July 2000

4.3.1.15

4.3.1.16

4.3.2 4.3.2.1

4.3.2.2

Table 4.10: Market Share (Units) NZ Market NZ Industry Sales Korean Imports Other Imports % Share Held By: NZ Industry Sales Korean Imports Other Imports 4.3.3

Months to July 2000

6 42,174

688 39,749

5,729 48,054

5,813 15,134

The figures in the table show that market share held by the New Zealand industry fell significantly in the year ended March 2000, and has declined further in the four months to July 2000. The Ministry notes that F&P transferred manufacture of its 6.5kg washing machines from New Zealand to Australia in February 1999, and a decline in New Zealand industry sales and market share in the year ended March 2000 is to be expected. F&Ps market share for machines other than 6.5kg is shown in the following table. Table 4.11: Market Share (F&P Units - Excluding 6.5kg) Months to July 2000 F&P Sales F&P Market Share
The table shows that F&Ps market share increased slightly in 1999, decreased slightly in 2000 and declined in the first four months of 2001. There is evidence of a slight decline in market share in 2000 and a decline in the first four months of this year. On the basis of F&Ps forecast sales volume in 2001, market share would fall significantly to __ percent. However, as noted above in considering sales volume, detailed evidence has not been provided in support of the forecast sales. Nor has detailed evidence been provided in support of a growth in the size of the market. F&P states that in the absence of dumping F&P would be in a position to share in the growth of the market through maximising and enhancing its very strong brand. There is sufficient evidence that the New Zealand industry has experienced some decline in market share. Profits Changes in net profits reflect changes in prices, sales volumes or costs. Dumped or subsidised imports can impact on any or all of these. If possible, the extent of any decline in profit will be measured against the level achieved in the period immediately preceding the commencement of the dumping.

4.3.8 4.3.9 4.3.9.1

4.3.9.2
In an investigation, the Ministrys assessment of the impact of dumped imports is based on an examination of trends in actual profits in order to establish whether or not there is an actual or potential decline in profits. In some circumstances it may be possible to determine that injury is being caused where profits are not declining, but that would depend on the circumstances of the case, and would need to be based on positive evidence. Such an impact would also need to be attributable to the dumping of imports. The table below shows an analysis of the earnings before interest and tax achieved for washing machines. Table 4.12: Earnings Before Interest and Tax (Units NZ$) Months to July 2000 EBIT on all NZ Sales - Per Unit - As % of Revenue EBIT (Excluding 6.5kg) - Per Unit - As % of Revenue

4.3.13

4.3.14
There is evidence that profits have declined significantly. Profits have declined due to price suppression and the price undercutting analysis indicates that price suppression is due to the allegedly dumped imports. Productivity F&P considers that, because it is seeking to maintain volume market share, productivity is expected to remain constant but at a cost to F&P. Return on Investments A decline in return on investments will result from a decline in returns with or without a relative increase in the investment factor being used. Movements in the return on investments affect the ability of the industry to retain and attract investment. F&P has commented that it has not yet completed the apportionment of fixed assets to the washer business to allow a meaningful comment at this stage. It is evident, however, that the rapid reduction in EBIT will result in the return on investment being substantially less. Utilisation of Production Capacity The utilisation of production capacity reflects changes in the level of production, although in some cases it will arise from an increase or decrease in production capacity. In either case, a decline in the utilisation of production capacity will lead to an increase in the unit cost of production, and a consequent loss of profit. F&P states that utilisation of production capacity is not expected to change given F&Ps move to protect volume market share. Data provided by F&P shows that factory utilisation was fairly static over the 1998, 1999 and 2000 financial years at __% to __%, but declined to __% in the year to July 2000. Other Adverse Effects In considering other adverse effects, the Ministry considers actual and potential effects on cash flow, inventory, employment, wages, growth, ability to raise capital, and investment. F&P recognises that dumped imports can have a measurable impact on the above factors and considers these factors can be examined in an investigation. Apart from in respect of employment, F&P has provided no information on other adverse effects and considers that these effects will become evident during an investigation. Employment
4.3.15 4.3.15.1 4.3.16 4.3.16.1

4.3.16.2

4.3.17 4.3.17.1

4.3.17.2 4.3.17.3

F&P is nevertheless significantly constrained by its competitors. It has lost significant share of the market as a result of tariff and import barriers being removed; it is facing fierce competition in the marketplace because normal barriers to entry are low and there are now no longer any artificial barriers to entry, at least for Australian imports. In the absence of unofficial barriers to entry, EDC (exclusive dealing clause) can have positive pro-competitive effects on a market.

4.4.14

4.4.15
F&P notes that _________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________. Any investigation should examine whether F&Ps exclusive dealer policy has been a cause of injury to F&P. Forward Exchange Rate Cover

4.4.16

4.4.17
The Ministry is aware of comment by various parties reported in the media, that F&P has suffered injury through not obtaining forward exchange rate cover for the cost of imported materials used in manufacturing process. Any investigation should examine whether exchange rate cover issues have been a cause of injury to F&P. CONCLUSIONS RELATING TO INJURY There is evidence that import volumes of the subject goods have increased significantly in absolute terms and relative to production and consumption in New Zealand.

4.4.18

4.5 4.5.1

4.5.2 4.5.3 4.5.4 4.5.5

There is sufficient evidence that prices are being undercut, and that prices are being suppressed. There is insufficient evidence of price depression. There is sufficient evidence that there has been a consequent economic impact in the form of a decline in profits. There is no evidence of an overall actual decline in the industrys sales volume and revenue. The industry considers there is no evidence that factors other than dumping have contributed to the injury suffered by F&P but other parties have commented in the media that F&Ps exclusive dealer arrangement and forward exchange contracts (or lack of forward exchange contracts on import costs) have had an adverse impact on F&P.

CONCLUSIONS

On the basis of the information available, it is concluded that, for the purposes of initiation, there is sufficient evidence that: (a) (b) Automatic washing machines from Korea are being dumped; and By reason thereof material injury to the New Zealand industry is being caused.

RECOMMENDATIONS

It is recommended on the basis of the conclusions reached and in accordance with section 10 of the Dumping and Countervailing Duties Act 1988: (a) that the Chief Executive of the Ministry of Economic Development formally initiate an investigation to establish whether imports of automatic washing machines from Korea are being dumped and are causing or threatening to cause material injury to the New Zealand industry producing like goods; that the Chief Executive sign the attached Gazette notice, and give notice to interested parties in accordance with section 9 of the Act.