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OTTAWA, February 5, 2001
4237-88 AD/1242
4218-10 CV/91
Concerning a final determination of dumping and subsidizing regarding
CERTAIN GRAIN CORN, ORIGINATING IN OR EXPORTED FROM THE UNITED STATES OF AMERICA, FOR USE OR CONSUMPTION WEST OF THE MANITOBA/ONTARIO BORDER
Pursuant to paragraph 41(1)(a) of the Special Import Measures Act, the Commissioner of Customs and Revenue has today made a final determination that certain grain corn, originating in or exported from the United States of America, for use or consumption west of the Manitoba/Ontario border, has been dumped and subsidized.
This Statement of Reasons is also available in French.
Cet énoncé des motifs est également disponible en français.
On August 9, 2000, the Commissioner of Customs and Revenue initiated an investigation into the alleged injurious dumping and subsidizing of certain grain corn originating in or exported from the United States. The investigation was initiated in response to a complaint filed by the Manitoba Corn Growers Association, Inc. of Carman, Manitoba. It concerns only imports for use or consumption west of the Manitoba/Ontario border.
On October 10, 2000, the Canadian International Trade Tribunal (Tribunal) made a preliminary determination that the evidence disclosed a reasonable indication that the dumping and subsidizing have caused injury. The Canada Customs and Revenue Agency (CCRA) subsequently made a preliminary determination of dumping and subsidizing on November 7, 2000.
Based on the results of the CCRA's investigation, the Commissioner of Customs and Revenue is satisfied that the subject goods have been dumped and subsidized and that the margins of dumping and amount of subsidy are not insignificant. Accordingly, the Commissioner has made a final determination of dumping and subsidizing in accordance with paragraph 41(1)(a) of the Special Import Measures Act (SIMA).
The Tribunal's inquiry concerning the question of injury to the regional Canadian industry is continuing. Provisional duties of US $1.58 per bushel will continue to be assessed until the Tribunal issues its finding.
The complainant is the Manitoba Corn Growers Association, Inc. (MCGA). The MCGA is designated under Manitoba's Agricultural Producers' Organization Funding Act to be the representative organization of Manitoba's corn producers. The complaint was filed on behalf of its over 400 members.
The CCRA has identified 133 exporters of subject goods.
The CCRA has identified 131 importers of subject goods.
For this investigation, the subject goods are defined as:
Grain corn in all forms, excluding white dent corn imported by snack food and tortilla manufacturers for use by them in the manufacture of snack food and tortillas, seed corn (used for reproductive purposes), sweet corn, and popping corn, originating in or exported from the United States of America, and imported into Canada for use or consumption west of the Manitoba/Ontario border.
Grain corn is harvested when kernels are dry and hard, usually in September through November. The corn kernels are separated from the husk at harvest, putting them into a marketable and transportable condition.
For greater clarity, "grain corn in all forms" within the scope of the investigation includes, but is not limited to, whole kernel corn and processed grain corn, such as cracked, crushed, ground or flaked. Also included is grain corn mixed with other products, including but not limited to millet, which can be separated from the grain corn after importation.
The most common variety of grain corn in North America is known as dent corn. It is also called field corn. Dent is a corn variety with a kernel that contains both hard and soft starches which is indented at maturity. A less common corn variety is flint corn, a grain corn having hard, rounded or short and flat kernels. It is used for the same purposes as dent corn.
The majority of corn grown in North America is grain corn. The main use is for animal feed. Grain corn is also used to make a wide variety of products, such as alcohol (including spirits and fuel ethanol), corn syrup and sweeteners, cornstarch, human and pet food and industrial products.
The subject grain corn is properly classified under the applicable following Harmonized System classification numbers:
1005.90.00.11On November 20, 2000, a disclosure meeting was held with representatives of the United States (U.S.) Government to discuss the results of the CCRA's preliminary determination. Subsequent to this meeting, formal representations on dumping, subsidy and procedural issues were made by the U.S. Government to the CCRA. Clarification of the representations was requested and a response received on January 9, 2001.
When the investigation was initiated, the CCRA requested information from Canadian importers and U.S. producers and exporters to determine if the goods shipped to Canada had been dumped. The information provided in the exporter and importer submissions, prior to the preliminary determination of dumping was insufficient for purposes of estimating margins of dumping. Exporters and importers did not provide any further information after the preliminary determination.
Normal Value for the Preliminary Determination
A normal value is usually based on profitable sales in the exporter's home market, or, in the absence of profitable sales, on the basis of all costs of the goods plus an amount for profit. As none of the submissions provided sufficient information, it was necessary to estimate normal values based on the facts available.
On the basis of information available, the CCRA concluded that selling prices in the U.S. could not be used to estimate normal values, as these prices were not profitable. Accordingly, normal values were estimated using all costs for the goods plus an amount for profit.
The CCRA used the most recent data from the Economic Research Service (ERS) of the United States Department of Agriculture (USDA) to estimate total costs. The estimated total costs were US $2.60 per bushel for 1998 and US $2.78 per bushel for 1999.
An amount for profit was determined based on the only field crop to earn a profit from 1996 to 1999. An amount for profit of 2.4% was earned on soybeans in 1997, and was used to estimate normal values for corn.
For purposes of the preliminary determination, normal values were calculated using the estimated total costs and an amount for profit of 2.4%. The estimated normal values were US $2.66 per bushel for the 1998 crop year and US $2.84 per bushel for the 1999 crop year.
Normal value for the Final Determination
As exporters and producers of grain corn from the U.S. did not provide any additional information during the final determination phase of the investigation, there was insufficient information to determine normal values pursuant to sections 15 to 28 of SIMA. As such, normal values were determined pursuant to subsection 29(1) of SIMA.
The USDA produces a wealth of public information on the agricultural sector in the U.S. This information includes total operating costs, fixed costs and yields for most agricultural products grown in the U.S., including grain corn. Accordingly, the CCRA used information published by the USDA to determine normal values based on all costs and an amount for profit.
The majority of corn shipped to western Canada during the period from July 1, 1999 to June 30, 2000 (dumping period of investigation) originated in Minnesota, North Dakota and South Dakota. All, or a portion of each, of these three states belong to the Northern Great Plains resource region. Accordingly, normal values were estimated at the preliminary determination based on the Northern Great Plains region's total costs of producing grain corn.
However, a significant amount of corn shipped to western Canada originated outside the Northern Great Plains region. Accordingly, for purposes of the final determination, cost and yield data for all of the resource regions that are included in Minnesota, North Dakota and South Dakota were used. These resource regions are the Northern Great Plains, the Northern Crescent and the Heartland.
The CCRA used the ERS Farm Resource Region map and the National Agricultural Statistics Service (NASS) Crop Reporting District maps, in conjunction with state and county production and yield data, to adjust the total costs data. Using the specific yield data by county and district, for each farm resource region within the three states, a weighted average cost, based on total production, was calculated.
At the disclosure meeting with the CCRA, U.S. Government officials expressed concern with the use of "opportunity costs for land" in the determination of normal values. They stated that this cost represented the value of the land if the farmer were to rent the land to someone else for agricultural purposes. Further, it was stated that this cost was not an actual "cash" cost that would appear on a farmer's accounts.
The CCRA responded that these opportunity costs also include mortgage costs and farm rental costs, which should be properly accounted for in the total cost of the goods.
The U.S. Government subsequently provided information on the percentage of land fully owned and rented. Based on this information, the opportunity cost of land was reduced to account for the percentage of total acres operated for corn production, which were owned, with no mortgage debt and not rented out.
The revised total costs were US $2.34 per bushel for 1998 and US $2.40 per bushel for 1999. Based on the revised total costs, grain corn sales in the U.S. were still not made at a profit. Therefore, no change was made to the profit amount of 2.4% used at the preliminary determination.
For purposes of the final determination, the overall weighted average normal value, as determined pursuant to subsection 29(1) of SIMA, was US $2.39 per bushel for 1998 and US $2.46 per bushel for 1999.
Export Price for the Preliminary Determination
The selling price at which the goods are sold to the importer, resident in Canada, is generally considered to be the export price of the goods.
The CCRA did not receive sufficient information from any of the companies that submitted information to determine export prices for the preliminary determination. Accordingly, the CCRA relied on import data obtained from its internal information systems to estimate export prices under section 24 of SIMA, with deductions for freight and brokerage where warranted.
Where there were reporting errors that could not be verified and corrected, the export price was estimated using the average selling price for which reliable information was available.
Export Price for the Final Determination
Exporters and importers did not provide any further information after the preliminary determination. Therefore, the export prices, as estimated pursuant to section 24 of SIMA for the preliminary determination, have been used for the final determination.
USDA crop harvest data indicates that grain corn grown in Minnesota and South Dakota is typically harvested from mid-September to mid-November. Crop harvest data was not available for North Dakota. To correspond to the harvest periods, the margins of dumping for shipments to Canada from July 1, 1999, to October 31, 1999, were calculated using the 1998 crop year normal value. Margins of dumping on shipments to Canada from November 1, 1999, to June 30, 2000, were calculated using the 1999 crop year normal value.
Due to the large number of exporters, only shipments from exporters that accounted for the largest percentage of shipments to Canada that could reasonably be investigated, as provided in paragraph 30.3(1)(a) of SIMA, were reviewed to determine if the goods had been dumped.
Of the goods shipped to western Canada from the United States during the dumping period of investigation (POI), 89% were reviewed. The CCRA found 94% of these goods to be dumped. The margins of dumping ranged from 0.2% to 75%, expressed as a percentage of normal value. The average margin of dumping for all goods reviewed was 27%. This margin equals an amount of dumping of US $0.67 per bushel.
In making a final determination of dumping, the Commissioner must be satisfied that the margin of dumping is not insignificant. If the margin of dumping is less than 2% of the export price of the goods, it is considered to be insignificant. The overall weighted average margin of dumping was 38%, expressed as a percentage of the weighted average export price of the goods. The Commissioner is satisfied that the margin of dumping is not insignificant.
A Subsidy Request for Information (RFI) was sent to the U.S. Government at initiation with a supplemental RFI sent after the preliminary determination. The U.S. Government provided responses to both RFIs.
The subsidy investigation covered subsidies on U.S. grain corn during the period from January 1, 1998, to June 30, 2000 (subsidy POI).
Information from the U.S. Government's submissions and representations, along with publicly available information, was used in making the final determination.
In subsidy investigations, it is generally CCRA policy to determine if a subsidy is specific in relation to all economic sectors within the jurisdiction of the granting authority. However, as an administrative policy, we will determine if an agricultural subsidy is specific in relation to the agricultural sector as a whole, based on the criteria and conditions for non-specificity and the determination of specificity, which are provided for in subsections 2(7.1) to (7.4) of SIMA.
Appendix 1 provides information on the legislative basis for reviewing agricultural subsidies.
Based on the information available, the CCRA has determined that the following programs provide actionable subsidies:
Appendix 2 contains a detailed description of each program, the rationale used by the CCRA in making its final determination and the calculation of an amount of subsidy.
An amount of subsidy for the above programs was calculated for both the 1998 and 1999 crop years. The programs, in aggregate, provided an amount of subsidy of US $0.35 per bushel in 1998 and US $0.63 per bushel in 1999. Appendix 3 provides the amount of subsidy for each program.
The CCRA has determined that the following programs did not provide benefits to exporters or producers of grain corn shipped to Canada and as such, are not countervailable programs:
Appendix 4 contains a brief description of each of these programs and the rationale used by the CCRA in making its determination.
The CCRA had identified other potentially countervailable programs at the initiation of this investigation. During the investigation, and as explained in the preliminary determination Statement of Reasons, it was found that these programs: (a) were non-actionable under the Agreement on Agriculture, or (b) did not result in subsidies on goods shipped to Canada. As such, the CCRA did not pursue these programs for purposes of the final determination.
In making a final determination of subsidizing, the Commissioner must be satisfied that the amount of subsidy is not insignificant. If the amount of subsidy is less than 1% of the export price of the goods, the subsidy is considered to be insignificant. Based on the investigation, the amount of subsidy represents approximately 35% of the weighted average export price of the goods for 1999. The Commissioner is satisfied that the amount of subsidy is not insignificant.
The Government of the United States provided representations to the CCRA on a number of procedural issues. They claimed that the CCRA:
Representations concerning the grain corn investigation were received from Petkau Ent. Ltd., on November 1, 2000, which questioned the legitimacy of the complaint made by the Manitoba Corn Growers Association (MCGA).
The MCGA is designated under Manitoba's Agricultural Producers' Organization Funding Act to be the representative organization of Manitoba's corn producers. In its complaint, the MCGA provided documents demonstrating that it had the authority to act as the representative of Manitoba corn growers. These documents were: (1) the MCGA's Charter that empowers the MCGA to make a complaint; and (2) a motion passed by the MCGA's Executive Committee, approving the filing of the complaint.
In a representation submitted by its counsel, Maple Leaf Foods Inc. (MLF) presented a number of arguments concerning this investigation. In summary, the issues presented were that:
In a representation submitted by its counsel, the Association of Canadian Distillers (ACD) presented a number of arguments concerning this investigation. In summary, the issues presented were:
Based on the results of the investigation, the Commissioner is satisfied that the subject goods have been dumped and subsidized and that the margin of dumping and the amount of subsidy are not insignificant. Accordingly, on February 5, 2001, the Commissioner has made a final determination of dumping and subsidizing pursuant to paragraph 41(1)(a) of SIMA.
The Canadian International Trade Tribunal's (Tribunal) inquiry concerning the question of injury to the regional Canadian industry is continuing. Provisional duty will continue to be assessed until the Tribunal issues its finding by March 7, 2001.
If the Tribunal finds that the dumping and subsidizing have not caused injury, or do not threaten injury, the proceedings will be terminated and all provisional duties collected will be refunded.
If the Tribunal finds that the dumping and subsidizing has caused injury, future imports released from customs will be subject to an anti-dumping and countervailing duty. The CCRA will then finalize the amount of duties payable on goods shipped during the provisional period (November 7, 2000 to March 7, 2001). Where the amount of provisional duty paid is more than the final amount of duty payable, a refund will be issued.
If the Tribunal finds that the goods threaten to cause injury, all provisional duties collected will be refunded and any security posted will be discharged. Future imports released from customs will be subject to an anti-dumping and countervailing duty.
Should these duties apply, they will be assessed on goods imported for use or consumption west of the Manitoba/Ontario border. The amount of anti-dumping duty will be equal to the margin of dumping established by comparing the export price to the normal value of US $2.46 per bushel. The amount of countervailing duty will be equal to the amount of subsidy, which is US $0.63 per bushel. The duties will become effective the day after the Tribunal's finding.
This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted at the Directorate's Internet web site. For further information, please contact the following officers:
Telephone -
R. A. Séguin
A/Director General
Anti-dumping and Countervailing Directorate
The Agreement on Agriculture embodies specific commitments by WTO members to improve market access and reduce trade-distorting subsidies in agriculture.
One feature of the agreement is that it places countries' domestic farm support programs into one of several broad categories, based on their relative likelihood to distort trade. Most major agricultural trading countries are required to limit total spending for their most trade-distorting policies.
The least trade-distorting programs, in the so-called "green box" category, are exempt from these spending limits. In addition, support programs that fall into this category are exempt under the "Due Restraint" clause (Article 13 of the Agreement) from various trade actions and are designated as non-actionable subsidies under subsection 2(1) of SIMA.
In order for domestic support programs to be eligible for green box status, there is a fundamental requirement that the programs have no, or at least minimal, trade-distorting effects or effects on production. This requires that all such programs conform fully with two basic criteria plus certain policy specific criteria. The two basic criteria are that programs be publicly funded and that they do not provide price support to producers.
For programs that do not meet the green box criteria, or which fall outside the provisions of the Agreement on Agriculture, the CCRA evaluated the program to determine if it results in a subsidy and if the subsidy is specific.
In general terms, SIMA defines a subsidy to exist if there is: (1) a financial contribution by a foreign government; (2) that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods.
A subsidy may also exist if there is any form of income or price support in the sense of Article XVI of GATT 1994 that confers a benefit.
The definition of a financial contribution is also explained in SIMA. In general terms, there is a financial contribution by a foreign government where:
A subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidy.
An enterprise is defined under SIMA to include "a group of enterprises, an industry and a group of industries". A prohibited subsidy includes an export subsidy which depends on export performance.
A subsidy may also be considered specific if:
Primarily in response to low field crop prices and the related drop in farm income, the U.S. Government introduced a series of emergency income relief measures (Marketing Loss Assistance payments) that are in addition to funds already designated through the Government's Production Flexibility Contract (PFC) program.
These payments have been made in each of 1998, 1999 and 2000, and have used the mechanism of the PFC program for providing program benefits. Effectively, these "emergency" payments resulted in a "top up" or increase in the PFC payments by 50% in 1998 and a doubling of PFC payments in 1999 and 2000 (i.e., a 100% increase in the PFC payments).
The CCRA ruled, for purposes of the preliminary determination, that the Marketing Loss Assistance (MLA) payments do not fully conform with the required criteria outlined in Annex 2 of the Agreement on Agriculture in order to claim "green box" status. The U.S. Government did not make any representations or arguments concerning this preliminary ruling.
For purposes of the final determination, the CCRA has determined that the Marketing Loss Assistance payments are not considered a green box subsidy and are not exempt from countervailing duty action.
The CCRA ruled, for purposes of the preliminary determination, that the MLA payments involve a financial contribution by the U.S. Government and these payments have provided benefits in the form of additional income assistance to U.S. corn producers. The U.S. Government did not make any representations or arguments concerning this preliminary ruling.
For purposes of the final determination, the CCRA has determined that the Marketing Loss Assistance payments meet the definition of a financial contribution as defined in paragraph 2(1.6)(a) of SIMA and confers a benefit as per paragraph (a) of the definition of subsidy in subsection 2(1).
The CCRA ruled, for purposes of the preliminary determination, that the legal framework explicitly limits access to the MLA subsidy benefits, to certain enterprises within the agricultural sector, and this restriction, by itself, indicates that the program meets the specificity provisions outlined in paragraph 2(7.2)(a) of SIMA.
Notwithstanding that the subsidy is specific in law, the CCRA ruled that the program is also specific, as per paragraph 2(7.3)(c) of SIMA, because a disproportionately large amount of these payments are made to a limited number of enterprises including producers of corn, wheat, other feed grains, rice and upland cotton.
Similarly, in estimating an MLA subsidy benefit to corn for purposes of the preliminary determination, the CCRA examined and determined that:
>Accordingly, consistent with the SIMA Regulations as outlined in subsection 27.1(1) and paragraph 27(a), the CCRA estimated an MLA subsidy benefit to corn for 1998 and 1999, based on the PFC percentage payment amount for this crop (46.2%), divided by total corn production.
The following is limited to those issues raised by the U.S. Government following the CCRA's preliminary determination ruling. This includes representations concerning the specificity of the Marketing Loss Assistance (MLA) payments and the related calculation of a subsidy benefit.
The essence of the U.S. Government's argument is that the Marketing Loss Assistance payments are not directly attributable to producers of any particular crop (including corn) in any given year.
Accordingly, the U.S. Government submitted that the CCRA must take into account all products eligible for MLA payments in evaluating "specificity", and in the event that the CCRA determined the payments to be specific, in the calculation of the subsidy benefit.
In responding to the U.S. Government's arguments, the CCRA has looked at the following issues (a number of which were also reviewed in making its preliminary determination).
1. Specificity:
2. Calculation of a subsidy benefit to corn:
(a) The restriction on fruit and vegetables
The Marketing Loss Assistance measures have used the PFC mechanism for providing program payments. Fruit and vegetable production is, generally, not eligible for payment benefits under the PFC scheme (Section 118(b) of the Agricultural Market Transition Act). Consistent with the PFC criteria, this same production (i.e., fruits and vegetables) is also ineligible for Marketing Loss Assistance payments.
The SIMA states that a subsidy is specific where it is limited to a particular enterprise2 within the jurisdiction of the authority that is granting the subsidy. As the legislative framework explicitly limits access to the MLA subsidy benefits to certain enterprises, this restriction, by itself, means that the subsidy meets the specificity provisions of paragraph 2(7.2)(a).
Notwithstanding this specificity determination, the CCRA examined this issue further because it has a direct effect on the subsidy calculation.
(b) The impact of "planting flexibility" on the historical planting practices of the major field crops
While the U.S. Government has argued that planting flexibility allows almost any crop or commodity to be produced on contract acreage, in fact and in practice, crop acreage generally continues to be planted to the same group of major field crops (i.e., wheat, corn, other feed grains, rice, cotton and soybeans) and aggregate crop acreage (including corn crop acreage) has generally been maintained when compared with historical crop planting activity.3
(c) Was the future pattern of major field crop activity anticipated and predictable when the 1996 FAIR Act was introduced?
The U.S. Government has argued that a subsidy can only be "tied" to a product or commodity if the intended use is known to the giver and that, in the case of the MLA payments, there is no definitive linkage between the payments and the production of specific commodities like corn.
Based on the CCRA's review of available information, it appears a predictable outcome, when the 1996 FAIR Act was introduced, that aggregate planting levels of the major field crops would generally remain similar to that which would have occurred under previous law.4 By extension, it was clear that both the PFC and related MLA payments would be largely going to producers who continue to grow this same mix of crops today.
(d) The intent of the Marketing Loss Assistance measures
Since 1997, the grains and oilseed supply "glut" has resulted in a dramatic drop in field crop prices from near record levels in the mid 1990s to the lowest in many years. In fact, prices for wheat, corn and soybeans have declined between 35-45% from previous highs.
Primarily because of this decline in prices, and related drop in farm income, the U.S. Government introduced the "emergency" MLA payments to provide financial relief to the growers of these major field crops.
This conclusion is supported by a range of U.S. agricultural authorities and agencies, many of which were cited in the CCRA's Statement of Reasons5 issued as part of its preliminary determination.
(e) Assistance measures on other crops
Separate income assistance measures have been specifically introduced for growers of other crops (i.e., outside the seven contract crops), including soybeans and the minor oilseeds, which have also suffered from low prices in recent years.
These separate assistance measures6, made specifically available to other crops, supports the conclusion that the MLA payments to PFC holders were directed towards the grains and cotton sectors and that oilseed production (and other crops and commodities) have not benefited, and were not expected to benefit, in any large measure, from this particular income assistance initiative.
(f) Specificity conclusions
Beyond the restriction relating to fruits and vegetables, the Marketing Loss Assistance payments, payable to PFC holders, can be clearly linked and associated with the current production of the seven contract crops.
In summary, and as stated in the Statement of Reasons issued at the preliminary determination, beyond the specificity determination relating to the restriction on plantings of fruits and vegetables, the MLA benefits are also specific because a disproportionately large amount of these payments continue to be made to a limited number of enterprises, including corn, wheat, other feed grains (sorghum, oats and barley), rice and upland cotton as per paragraph 2(7.3)(c) of the SIMA.
(a) The U.S. Government Methodology
There is no doubt that, since introduction of the 1996 Farm Act, there have been acreage adjustments and shifts, and while aggregate corn acreage has been largely maintained, production adjustments, especially by individual growers and within individually defined growing areas, have likely been more significant. Similarly, there is no doubt that crops are frequently rotated, and from one year to the next, it's quite likely that a corn "contract acre" might be seeded or planted to a different competing crop.
Accordingly, the U.S. Government has stated that the more appropriate subsidy calculation would be to allocate an MLA benefit based on the relative value of corn production during the period of investigation (POI) to the total value of all farm products eligible for MLA payments during this same period.
(b) Products eligible for MLA benefits
The U.S. Government has stated that the total value of all crop and livestock production (except fruit and vegetables), which are all eligible, in principle, for MLA payments, should be taken into account in attributing an MLA benefit to corn.
Regarding livestock production, the CCRA would argue that the "planting flexibility" provisions were intended to encourage farmers to respond to market signals in making planting (i.e., crop) decisions. Even with the dramatic decline in market prices on the major field crops in recent years (which one might expect to lead - not only to reduced output - but to changes away from existing land use), available evidence demonstrates that aggregate crop acreage and productive capacity has been largely maintained.
In practice then, the MLA payments are clearly not associated with agricultural sectors outside of the major field crops and movement out of the contract crops into livestock, dairy, poultry etc. would be very small indeed.
Even within the wider field crop sector, it appears that producer decisions, in the face of low market prices across all the major field crops, are now being driven by expected returns from Government programs7 / 8- not planting flexibility. That is, Government incentives, particularly production specific incentives (i.e., marketing loans and loan deficiency payments), have encouraged producers to maintain production within the existing mix of contract crops or move production to other field crops which are also eligible for these Government payments (i.e., soybeans and the minor oilseeds).
In summary, the CCRA believes it is more reasonable to consider the total value of those crops most certainly receiving all, or almost all, of the MLA payments. This includes the total value of the contract crops, which clearly appear to be the intended beneficiaries of the MLA payments, as well as a portion of oilseed production, which taken together with the contract crops, are certainly the principal beneficiaries of the MLA payments paid out to PFC holders.
(c) Estimated portion of oilseed production receiving MLA payments
The CCRA has assumed that the total increase in oilseed and soybean production since 1995 relates to production changes and crop movement away from the contract crops and that all of this change in production has received and benefited from contract crop MLA payments. The total value of this production increase from 1995 to 1998 is estimated to be $4,000 million.
In 1999, almost all of the oilseed crops, including soybeans, experienced a drop in production - suggesting no further movement away from the contract crops to the oilseeds.
For purposes of the final determination we have assumed that the production increase in the oilseeds between 1995 and 1998 was maintained in 1999. The total value of this production increase is estimated to be $3,500 million (the dollar value of this same production decreases because of the continuing downwards movement of field crop prices).
(d) The CCRA calculation of a benefit for corn
If we attribute, as per the U.S. methodology, the MLA benefits to corn based on the relative value of corn ($18,922 million) to the total value of all the contract crops, plus the value of that portion of soybeans, oilseeds and ELS cotton production estimated to be receiving MLA benefits ($37,105 million in total), we get a percentage of 51% for 1998 - slightly higher than the percentage allocation used at the preliminary determination (46.2%).
Further, taking this percentage of total MLA dollars and allocating this dollar amount over total corn production in 1998 (as per the SIMA Regulations outlined in subsection 27.1(1) and paragraph 27(a)) gives a unit MLA benefit to corn of US $0.147 per bushel as compared to US $0.135 estimated for purposes of the preliminary determination.
In 1999, attributing the MLA benefits based on the relative value of corn ($17,950 million) to the value of all likely crops receiving MLA benefits - ($33,868 million including the $3,500 million relating to that estimated portion of soybeans, oilseeds and ELS cotton production receiving MLA benefits), gives a percentage of 53%.
Allocating this percentage of total MLA payments to total actual corn production in 1999 (9,437 million bushels) gives a unit benefit of US $0.308 per bushel of corn as compared to an amount of US $0.27 estimated at the preliminary determination.
(e) Conclusions
The calculation of a precise MLA benefit to corn is made particularly difficult because of the absence of specific information on the distribution of MLA benefits to current corn production.
While the CCRA is prepared to accept the U.S. Government proposal for calculating an MLA benefit to corn, it has concluded that it is not reasonable to take into consideration the total value of all crops and commodities "eligible", in principle, for MLA payments. Available information, together with the CCRA's analysis, clearly indicates that the MLA payments, distributed using the PFC mechanism, were not only intended, but almost certainly have resulted in the bulk of payments going to current producers of the contract crops (wheat, corn, other feed grains, sorghum, barley, oats, rice and cotton). Similarly, available information, including various USDA sources, indicates that MLA payments to crops outside the contract crops appear to relate to soybean production and the minor oilseeds.
These conclusions are well supported by the CCRA's research and analysis, and it is difficult to reach any other conclusion - especially in light of the U.S. Government's claims that it has no information, because of the nature of the program, on the distribution of MLA benefits to current corn production - or, by extension, the distribution of MLA benefits on other crops and commodities.
The loan component of this program allows farmers to borrow funds (based on a designated loan amount per unit of production) by pledging and storing a crop as collateral. The loan term is a maximum of nine months.
Farmers have the option to repay their loans with interest, or to forfeit their crops to the government and have the loan principal and interest forgiven. To discourage crop forfeitures, the U.S. Government allows farmers to repay the loans at lower amounts when market prices fall below the designated loan amount, resulting in a loan gain to the farmer.
Eligible producers who do not take out loans may, alternatively, receive direct payments called Loan Deficiency Payments that are equal to the difference between the designated loan amount and the repayment amount.
There were no formal representations or arguments from the U.S. Government concerning the CCRA's preliminary determination rulings9 regarding the Marketing Assistance Loans (MLs) and related Loan Deficiency Payments (LDPs).
Loan Deficiency payment benefits, for purposes of the preliminary determination, were estimated at US $0.103 per bushel in 1998 and US $0.211 in 1999 and are unchanged for purposes of the final determination. Market loan gain amounts (relating to the principal portion of the loan activity written off) were estimated at US $0.039 per bushel in 1998 and US $0.04 for 1999.
Accordingly, for purposes of the final determination, the CCRA has determined that:
Regarding the Marketing Loan component of this program, the subsidy benefit calculated by the CCRA for purposes of the preliminary determination related only to the loan principal amounts of the Marketing Loan activity written off by the U.S. Government.
For purposes of the final determination, information was requested on:
The total amounts of waived interest and corresponding quantities for each of the 1998 and 1999 crop years was provided by the U.S. Government as part of its response to the CCRA's Supplemental Request for Information.
Determination of subsidy
For purposes of the final determination, the CCRA has determined that the waived interest amounts constitute a subsidy, meeting the definition of a financial contribution in paragraph 2(1.6) of SIMA and confers a benefit as per paragraph (a) of the definition of subsidy in subsection 2(1).
Amount of subsidy
The CCRA has calculated a subsidy benefit for the waived interest, as per paragraphs 27.1 and 27(a) of the SIMA Regulations, by allocating the total amount of waived interest ($76.5 million in 1998 and $79.8 million in 1999) over total corn production, resulting in per bushel benefits of US $0.008 in both 1998 and 1999.
Concerning the 1999 crop year, the U.S. Government stated that any preferential interest rate benefit or crop forfeiture benefit relating to loan activity outstanding after June 30, 2000, (the end of the CCRA's subsidy POI) is beyond the scope of the investigation and, consequently, they declined to provide information on any such benefits beyond that date.10 Accordingly, the CCRA is unable to calculate a full subsidy benefit relating to these activities for the 1999 crop.
In the absence of this information, the CCRA has used data relating to the latest available period of activity for which subsidy information is available (i.e., the 1998 crop year) in determining amounts to be used in calculating the applicable countervailing duty rate for these two items.
In general terms, there is a subsidy benefit on loan activity where the actual interest rate charged on the loans is lower than the interest rate that would normally be applied on similar commercial loans to that industry sector.
Generally, when the U.S. Government (under the authority of the Commodity Credit Corporation or CCC) issues a marketing loan, the interest rate charged to the borrower is set at one percentage point above the CCC's cost of borrowing from the U.S. Treasury for the month in question.
Most of the loan placement activity occurs during or shortly after the harvest period (October to December) and the interest rate charged on the loan is adjusted only once, on January 1 of the next calendar year (i.e., if the loan was made prior to that date and remains outstanding at that time). The adjusted loan rate is based on the CCC's cost of borrowing on that date plus 1%.
Determination of subsidy
Based on the information provided by the U.S. Government, the CCRA is satisfied that this marketing loan activity is made at interest rates below typical commercial rates and that the benefits relating to these preferential interest rates meet the definition of a financial contribution as defined in paragraph 2(1.6)(b) of SIMA and confer a benefit as per paragraph (a) of the definition of subsidy in subsection 2(1).
Amount of subsidy
The U.S. Government has stated that it does not systematically collect any information relating to possible preferential interest rates, or related benefits, on the marketing loan activity. Similarly, the U.S. Government noted, in its September 14, 2000, submission, that the number of loan calculations could be in the hundreds of thousands.
Given the large volume of loan activity, the CCRA advised11 the U.S. Government that it might examine alternative methodologies/techniques for establishing a reasonable estimate of the benefits relating to preferential interest rates.
As part of its submission dated November 29, 2000, the U.S. Government provided a methodology for computing the total amount of subsidy benefits relating to preferential interest rates.
For purposes of the final determination, the CCRA has accepted the methodology used by the U.S. Government in calculating a total subsidy benefit relating to preferential interest rates on marketing loans to corn producers.
This information has also been used to calculate a unit subsidy benefit, consistent with the methodology spelled out in sections 28 through 31 of the SIMA Regulations, by allocating the total benefits calculated by the U.S. Government relating to the preferential interest rate activity for 1998 ($38 million) over total corn production in 1998. This results in a per bushel benefit of US $0.004.
Crop forfeitures are generally discouraged because of loan provisions, which allow producers the option of repaying the marketing loans below the original loan rate. Nonetheless, for various reasons, there may be crop collateral forfeitures at the end of the nine-month loan term, which results in a full discharge of the loan obligation.
According to the U.S. Government, after taking possession of a forfeited crop, it normally sells it back to private channels at market prices - usually within a few days of collection. Effectively, the cost to the government (and indirect benefit to the grower) appears to be the difference between the value of the loan and the "market value" of the corn received in forfeiture and subsequently disposed of by the U.S. Government.
Determination of subsidy
Crop forfeitures appear to result in the same net benefit to growers as the marketing loan gains in that the grower collects and benefits from the full loan amount and subsequently discharges the loan at a lower value; in this case, the lower market value of the crop collateral.
Accordingly, for purposes of the final determination, the CCRA has determined that the loan collateral forfeiture activity constitutes a subsidy - meeting the definition of a financial contribution in paragraph 2(1.6)(b) of SIMA and confers a benefit as per paragraph (a) of the definition of subsidy in subsection 2(1).
Amount of subsidy
In its initial submission, the U.S. Government stated that it did not track or record database information on local market prices at the time when quantities are forfeited12 and subsequently disposed of by the U.S. Government. In the absence of such information, the U.S. Government was asked to examine other methodologies13 for purposes of providing a reasonable estimate of the benefit relating to forfeit quantities.
The U.S. Government indicated that corn loans mature on the last day of the ninth month following the month in which the loan is made. An estimate of the benefit relating to forfeitures was subsequently determined by the U.S. Government using the average marketing loan gain realized during the last week of the month when specific quantities would have been forfeited. This average marketing loan gain reflects the difference between the original loan rate and the local market price when the loan is discharged.
On the assumption that the U.S. Government is able to dispose of the forfeit quantities within a few days of collection and the disposal value is the "market price", then the month end marketing loan gain figures appear to provide a reasonable estimate of the benefit relating to crop forfeitures.
Taking the total benefits relating to forfeiture gains ($12.3 million for 1998), and dividing by total 1998 corn production, as per SIMA Regulations 27.1(2) and 27(a), yields a subsidy benefit of US $0.001 per bushel.
As with the benefits relating to preferential interest rates, the U.S. Government declined to provide information on benefits relating to loan collateral forfeiture activity occurring beyond June 30, 2000. Accordingly, the CCRA is unable to calculate a full subsidy benefit for this activity relating to the 1999 crop year.
For purposes of the final determination, the market loan gain amount relating to the loan principal written off has been adjusted slightly (US $0.038 per bushel in 1998 and US $0.039 in 1999) to reflect the cost of service fees and assessments incurred in obtaining the loans.
In aggregate, for purposes of the final determination, the subsidy benefits relating to the Marketing loan activity are US $0.051 per bushel in 1998 and US $0.052 per bushel in 1999.14.
The Federal Crop Insurance Act (Act) is the legislative basis for the Federal crop insurance program. The purpose of the Act is "...to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance." The Act establishes the Federal Crop Insurance Corporation (FCIC), which controls the direction of the program. The day-to-day administration of the program is the responsibility of the USDA's Risk Management Agency (RMA).
The majority of crop insurance policies are sold and serviced by private insurance companies that are then "reinsured" by the FCIC. A Reinsurance Agreement between the FCIC and the private insurance company provides the specific terms and conditions of the reinsurance. Under the Act and these agreements, the Government agrees to pay the insurance company a subsidy for a portion of its administrative and operating expenses (A&O subsidy), a subsidy for a portion of its total policy premiums (risk subsidy), and to reinsure policies. Reinsurance means that underwriting gains or losses are shared between the private insurance company and the Government.
Only eligible commodities are reinsured and subsidized by the federal Government. Crop insurance can be offered for an "agricultural commodity" as defined in Section 1518 of the Act. The definition identifies 35 specific crops or crop categories (such as nursery crops) and explicitly excludes livestock. It further states that other agricultural commodities may be added based on an annual report by the FCIC to Congress or based on recommendations to the House and Senate agricultural committees by the FCIC resulting from pilot programs.
Eligibility is also a function of the Code of Federal Regulations, Title 7, Chapter IV. Under these regulations, certain Federal crop insurance products are available to the crops and counties designated by the Manager of the FCIC from those approved by the Board of Directors.
The CCRA ruled, for purposes of the preliminary determination that the Federal Crop Insurance program did not fully conform to the criteria in Annex 2 of the WTO Agreement on Agriculture. The U.S. Government did not make any representations or arguments concerning this preliminary ruling.
For purposes of the final determination, the CCRA has determined that the Federal crop insurance program is not considered to be a green box subsidy, and is not exempt from countervailing duty action.
Based on subsection 1508(e) of the Federal Crop Insurance Act, which provides for the payment of policy premiums by the FCIC and subsection 1508(k), which provides for the reimbursement of administrative and operating expenses and reinsurance, the CCRA has determined that the U.S. Government provides a financial contribution as defined under paragraph 2(1.6)(d) of SIMA.
Further, these government financial contributions confer a benefit to agricultural producers in the form of reduced or eliminated premiums. Accordingly, the Federal crop insurance program is a subsidy pursuant to subsection 2(1) of SIMA.
Specific in Law
The U.S. Government has made representations that while the Code of Federal Regulations indicates that crop insurance is available to crops and counties designated by the Manager of the FCIC, the mere presence of administrative discretion in the operation of the insurance program is not as important as "the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy" (Article 2.1(c) of the SCM).
Under the SIMA and the SCM, a subsidy is specific where it is limited pursuant to a legislative, regulatory or administrative instrument or other public document, to a particular enterprise within the jurisdiction of the authority that is granting the subsidy. An enterprise includes a group of enterprises, an industry and a group of industries.
The CCRA normally examines specificity in respect of agricultural subsidies within the agricultural sector as a whole. Within the agricultural sector, the crop insurance program is limited to those commodities specifically named in the Act, or those added based on the recommendation of the FCIC. This definition explicitly excludes livestock, which accounts for the greatest value of production within the agricultural sector. Further, the Regulations limit access to the program to only those crops and counties designated by the Manager of the FCIC.
Accordingly, based on the Federal Crop Insurance Act and the Code of Federal Regulations, the Federal crop insurance program is limited, in law, to a group of enterprises within the agricultural sector pursuant to paragraph 2(7.2)(a) of SIMA. These legislative and regulatory documents limit access to the crop insurance program to specific crops, in specific counties and to specific policies.
Specific in Fact, or Usage
The U.S. Government's representation stated that over seventy products were insured under the Federal crop insurance program. Further, they state that an examination of the total value of crops eligible for crop insurance supports the contention that there is little, if any, exercise of administrative discretion in limiting eligibility or usage.
The U.S. Government provided information to show that in 1998, there were 51 insurable crops or crop categories that accounted for 78% of the total value of production for all crops grown in the United States. In 1999, 46 crops or crop categories accounted for 74% of the total value of production.
Under the SIMA and the SCM, it is stated that notwithstanding that a subsidy is not limited in law, a subsidy may be specific if there is exclusive use of the subsidy by a limited number of enterprises; there is predominant use of the subsidy by a particular enterprise; disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.
Notwithstanding that the CCRA has determined the Federal crop insurance program to be specific in law, a review of the usage of the program was conducted to give due consideration to the U.S. Government's argument.
Most of the major crops such as wheat, corn, other feed grains, cotton and rice are eligible to participate in the program in nearly every county in which they are grown. However, eligibility for fruits, vegetables and other specialty crops varies by region. In addition, while many crops may be "eligible" to participate, it is public information that the rate of participation, or usage, is not universal nor is the level of participation at the level desired by the Government.
Furthermore, a review of the crops that are both eligible to participate and are actually participating shows that in 1998 and 1999, three crops accounted for over 50% of the total cost to the Government.15 The value of production for these three crops, (corn, wheat and cotton) accounted for only 33% of the total value of all U.S. crop production. Accordingly, producers of these three crops received a disproportionate share of the subsidy granted by the U.S. Government for the Federal crop insurance program. As such, the subsidy is specific pursuant to paragraph 2(7.3)(c) of SIMA.
Special Import Measures Regulation 36 states that where the Government subsidizes the provision of goods or services, the amount of the subsidy will be an amount equal to the difference between the fair market value of the goods or services and the price at which the goods or services were provided, estimated over the total quantity of the subsidized goods.
A fair market value for insurance products and services would normally be the commercial cost of doing business, plus an amount for profit. According to the Economic Research Service of the USDA, most private insurance companies will operate on the assumption that the revenue generated from premiums and administrative fees will cover expected indemnities, administrative costs and an amount for profit. To calculate an amount of subsidy based on the "fair market value", the financial contributions by the Government to the private insurance companies normally included in premiums and administrative fees were used.
The U.S. Government submitted that the actual costs for insuring corn should be used where possible. The actual costs for subsidized premiums and net indemnities are gathered on a crop-by-crop basis. Accordingly, the actual costs for corn premiums and net indemnities, as provided by the U.S. Government were used.
Subsidies for administrative and operating expenses, as well as shared underwriting gains and losses, are based on a percentage of premiums and cannot be calculated on a crop specific basis. In the U.S. Government's submission of December 15, 2000, it was proposed that any allocation of these financial contributions be allocated to corn based on the percentage of corn premiums to total premiums. This percentage, as calculated by the U.S. Government and used by the CCRA, was 28.5% for 1998 and 26.2% for 1999.
An additional amount for profit was not included as the insurance companies currently earn a profit based on the subsidies and reinsurance provided by the U.S. Government.
The total corn expenses were then distributed over the total corn production for the crop year.
The amount of subsidy for the Federal crop insurance program for 1998 is US $0.051 per bushel and US $0.065 per bushel for 1999.
1998 |
1999 |
|
---|---|---|
Marketing Loss Assistance Payments |
0.147 |
0.308 |
Loan Deficiency Payments |
0.103 |
0.211 |
Marketing Assistance Loans16 |
0.051 |
0.05217 |
Federal Crop Insurance Programs |
0.051 |
0.065 |
Total U.S. Dollar Per Bushel |
$0.352 |
$0.636 |
The CCC is a Government owned and operated entity that was created to stabilize, support and protect farm income and prices. As part of its duties, the CCC maintains supplies of agricultural commodities in commercial warehouses. These supplies may be goods that have been forfeited under the loan program or purchased under the CCC Act. The commodities become the property of the CCC and are used in both domestic and international programs.
Under section 5(d) of the CCC Act, it has the authority to remove and dispose of surplus agricultural commodities. The U.S. Government stated that no grain corn was disposed of under section 5(d) during the period of investigation; however, publicly available information stated that corn would be removed during the 2000 fiscal year.
The U.S. Government provided additional information that showed 138,100 metric tons of corn had been removed under the surplus removal function between July 15, and October 14, 2000 (outside the period of investigation). The corn was shipped to Angola, Kenya and the Sudan. This program was not used to sell low priced or surplus grain corn to importers in Canada.
The removal of surplus corn to Africa did not confer a benefit to producers or exporters of grain corn shipped to Canada. Nor were there any commercial benefits passed through to the goods imported into Canada. As such, this program is not countervailable.
The MAP is a cost-sharing program between the U.S. Government and various associations and other businesses. The intent of the program is to create, expand and maintain foreign markets for U.S. agricultural products. This program is authorized under section 203 of the Agriculture Trade Act of 1978 and is administered by the Foreign Agriculture Service (FAS) of the USDA.
The U.S. Government provided information to illustrate that no funds were provided to associations dealing with promoting grains (including corn) to Canada from 1997 to June 30, 2000.
The CCRA is satisfied that no funds were paid to associations promoting grain corn in Canada during the period of investigation. As such, it is determined that the MAP did not confer a benefit to producers or exporters of grain corn shipped to Canada, nor were there any commercial benefits passed through to the goods imported into Canada. Therefore, this program is not countervailable.
The FMD, also known as the Cooperator Program, is authorized under Title VII of the Agricultural Trade Act of 1978 and is administered by the FAS of the USDA. This program provides Government funding to non-profit commodity or trade associations or cooperatives to help create, expand and maintain long-term export markets for U.S. agricultural products.
The U.S. Government provided information to illustrate that associations promoting various grains, including corn, did not receive funds for Canadian market promotion from 1997 to June 30, 2000.
The CCRA is satisfied that no funds were paid to associations promoting grain corn in Canada during the period of investigation. As such, it is determined that the FMD did not confer a benefit to producers or exporters of grain corn shipped to Canada, nor were there any commercial benefits passed through to the goods imported into Canada. Therefore, this program is not countervailable.