Docket:
A-487-12
Citation: 2013 FCA 284
CORAM:
MAINVILLE J.A.
WEBB J.A.
NEAR J.A.
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BETWEEN:
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HYUNDAI HEAVY INDUSTRIES CO., LTD and HYUNDAI CANADA INC.
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Applicants
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and
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ABB INC., CG POWER SYSTEMS CANADA INC., REMINGTON SALES CO.,
HYOSUNG CORPORATION, HICO AMERICA SALES AND TECHNOLOGY, INC. and ATTORNEY
GENERAL OF CANADA
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Respondents
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REASONS
FOR JUDGMENT
WEBB J.A.
[1]
On October 22, 2012 the President of the Canada Border Services Agency
made a final determination of dumping under paragraph 41(1)(a) of the Special
Import Measures Act, RSC 1985, c. S-15 (SIMA). This determination
was made in relation to certain power transformers (Power Transformers) which
are described in paragraph 26 of the decision of the President as follows:
Liquid dielectric transformers
having a top power handling capacity equal to or exceeding 60,000 kilovolt
amperes (60 megavolt amperes), whether assembled or unassembled, complete or
incomplete, originating in or exported from the Republic of Korea.
This is an application made under
section 96.1 of SIMA for judicial review of this decision. In particular
the issues raised in the application for judicial review relate to the
determination of the export price by the President.
[2]
The parties in this application did not agree on the standard of review.
However, as set out in the analysis below, nothing in this application turns on
the standard of review. There is consequently no need to address this issue
further. Indeed, I would reach the same conclusion regardless of whether the
standard of review is reasonableness or correctness.
[3]
Goods imported into Canada are “dumped” (as defined in subsection 2(1)
of SIMA) when the normal value of the goods exceeds the export price of
such goods. The margin of dumping is defined in subsection 2(1) of SIMA
as the difference between these two amounts. The normal value is determined in
accordance with the provisions of sections 15 to 23.1 and 30 of SIMA and
the export price is determined in accordance with the provisions of sections 24
to 28 and 30 of SIMA. If the normal value or export price cannot be
determined in accordance with these provisions, such amount is determined in
the manner specified by the Minister of
Public Safety and Emergency Preparedness (section 29 of SIMA).
[4]
Hyundai Heavy Industries Co., Ltd. (HHI) produces and sells Power
Transformers in the Republic of Korea and also exports Power Transformers to Canada. The importers of these goods are Hyundai Canada Inc. (HC) and Remington Sales Co.
[5]
In paragraph 71 of the decision of the President, it is noted that:
The subject goods produced by HHI are also
custom-made, produced to the specific needs of each of its customers and
therefore, there are no domestic sales of like goods. As such, it was not
possible to determine normal values pursuant to section 15 of SIMA based on
domestic sales of like goods. Normal values were, however, determined pursuant
to paragraph 19(b) of SIMA, based on an aggregate of the cost of
production, a reasonable amount for administrative, selling and other costs,
and a reasonable amount for profits.
[6]
The Applicants do not raise any issues in relation to the determination
of the normal value by the President.
[7]
The issue in this application is related to the determination of the
export price by the President. Section 24 of SIMA provides that the export
price is the lesser of the exporter’s sale price (subject to certain
adjustments) of the goods and the importer’s purchase price (subject to certain
adjustments) of those goods. If the President determines that this amount is
unreliable for the reasons as set out in paragraph 25(1)(b) of SIMA,
the export price is to be determined as provided in paragraphs 25(1)(c),
(d), or (e) of SIMA. In this case the President found that
the export price determined under section 24 of SIMA was unreliable and therefore
applied the provisions of paragraph 25(1)(d) of SIMA to calculate
the export price. The Applicants do not challenge the finding that the export
price as determined under section 24 of SIMA was unreliable, nor do they
submit that paragraph 25(1)(d) of SIMA was not the correct
paragraph to use to calculate the export price.
[8]
Under paragraph 25(1)(d) of SIMA, the export price is
determined by deducting from the price at which the importer sells the goods in
question to a person who is not associated with the importer, certain amounts
as set out in subparagraphs 25(1)(d)(i) to (v) of SIMA. The only
item in dispute in this application is the amount determined for profit for the
purposes of subparagraph 25(1)(d)(i) of SIMA. This subparagraph
provides that the following amount is to be deducted from the selling price of
the goods in question:
(i) an
amount for profit on the sale of the assembled, packaged or otherwise further
manufactured goods or of the goods into which the imported goods have been
incorporated.
[9]
Sections 21 and 22 of the Special Import Measures Regulations, SOR/84-927
provide directions to assist the President in determining this amount for
profit. These sections provide that:
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21. For the purpose of
subparagraph 25(1)(d)(i) of the Act, the expression “an amount for
profit”, in relation to any assembled, packaged or otherwise further
manufactured goods or any goods into which imported goods have been
incorporated, means the amount of profit that would be made in the ordinary
course of trade on the sale of the goods.
22. For the purposes of
sections 20 and 21, the amount of profit that would be made in the ordinary
course of trade on the sale of the goods is:
(a) the amount of profit
that generally results from sales of like goods in Canada by vendors who are
at the same or substantially the same trade level as the importer to
purchasers in Canada who are not associated with those vendors;
(b) where the amount
described in paragraph (a) cannot be determined, the amount of profit
that generally results from sales of goods of the same general category in
Canada by vendors who are at the same or substantially the same trade level
as the importer to purchasers in Canada who are not associated with those
vendors; or
(c) where the amounts
described in paragraphs (a) and (b) cannot be determined, the
amount of profit that generally results from sales of goods that are of the
group or range of goods that is next largest to the category referred to in
paragraph (b), by vendors in Canada who are at the same or
substantially the same trade level as the importer, to purchasers in Canada
who are not associated with those vendors.
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21. Pour l’application du sous-alinéa 25(1)d)(i) de la Loi, «
un montant pour les bénéfices » s’entend d’un montant égal aux bénéfices qui
seraient réalisés dans le cours ordinaire des affaires lors de la vente des
marchandises montées, conditionnées ou ayant fait l’objet d’une étape
ultérieure de fabrication, ou des marchandises dans la fabrication desquelles
des marchandises importées ont été incorporées.
22. Pour l’application des articles 20 et 21, le montant des
bénéfices réalisés lors de la vente des marchandises dans le cours ordinaire
des affaires est, selon le cas :
a) le montant des bénéfices qui découlent généralement de la vente
de marchandises similaires au Canada par des vendeurs se situant au même
niveau ou presque du circuit de distribution que l’importateur, à des
acheteurs se trouvant au Canada et qui ne sont pas associés à ces vendeurs;
b) s’il est impossible de déterminer le montant visé à l’alinéa a),
le montant des bénéfices qui découlent généralement de la vente de
marchandises de la même catégorie générale au Canada par des vendeurs se
situant au même niveau ou presque du circuit de distribution que
l’importateur, à des acheteurs se trouvant au Canada et qui ne sont pas
associés à ces vendeurs;
c) s’il est impossible de déterminer les montants visés aux alinéas
a) et b), le montant des bénéfices qui découlent généralement de la vente de
marchandises qui sont de la gamme ou du groupe suivant qui comprend la
catégorie visée à l’alinéa b), par des vendeurs au Canada se situant au même
niveau — ou presque — du circuit de distribution que l’importateur, à des
acheteurs se trouvant au Canada et qui ne sont pas associés à ces vendeurs.
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[10]
In this case it is clear from the decision of the President and from the
record that the President was having difficulty in obtaining information in
relation to the amount that should be used for profit. Although the President
stated in the decision at paragraph 74 that:
[t]he paragraph 25(1)(d) export prices were
based on… an amount representative of the average industry profit in Canada
pursuant to paragraph 22(c) of the SIMR
in Appendix 2 to the decision, the
President stated that only the profit amounts for three companies were actually
used. The three companies were the two complainants and HC.
[11]
The Applicants submit that the amount of profit realized by ABB Inc. and
CG Power Systems of Canada Inc. (the two complainants) should not have been
used without adjustments because one of these companies only sells Power
Transformers that it manufactures in Canada and the other company sells Power
Transformers that it manufactures in Canada and also sells Power Transformers
that it imports into Canada. The Applicants submit that the profit of these two
companies would reflect profit from the manufacturing operation as well as from
the selling operation. HC only sells Power Transformers that it imports into Canada.
[12]
The amount that is to be determined is the “profit on the sale of the …
goods” (subparagraph 25(1)(d)(i) of SIMA). The justification
of the President for using the profit amounts of the manufacturer and the
manufacturer / importer to determine the amount that should be used for the
profit of the importer of the Power Transformers is set out in Appendix 2 to
the decision:
In the Canadian Power Transformer market, the CBSA
considers the functions performed by manufacturers in selling to the end-users
are the same or substantially the same as the functions performed by
distributors in selling to the end-users. In effect, manufacturers and
distributors are considered at the same level of trade as they both compete
directly for the same customers.
[13]
Although there is no reference to the SIMA Handbook, language very
similar to that used by the President appears in that Handbook. The SIMA
Handbook is the President’s internal policy statement on the investigative and
decision-making process in anti-dumping and subsidy investigations under SIMA.
Beginning on page 314 of the SIMA Handbook, under the heading “Trade Level”,
the Handbook provides that:
In considering the terms “same” or
“substantially the same trade level” a firm should not arbitrarily be dismissed
from the data base simply because of its designation, i.e. distributor or
manufacturer. Rather, care should be taken to examine the functions performed
in that industry, particularly those relating to sales and distribution. In
most industries, it would be appropriate to utilize data from both
manufacturers and importers in that their sales and distribution functions will
likely have significant similarities. It is recognized that, in some cases, it
may be reasonable for firms at different trade levels to anticipate different
profit levels. For instance, a manufacturer who performs its own distribution
function, (as opposed to a distributor who purchases from the manufacturer and
then resells the goods), could reasonably expect a larger profit margin than a
distributor since part of the profit could reasonably be attributed to the
manufacturing operation.
Nevertheless, it may still be
appropriate to include such a manufacturer and hold that the manufacturer is at
substantially the same trade level as a distributor/importer based on the
actual functions performed. Companies in Canada are generally considered to be
at “substantially the same trade level” when they sell to the same customers
and compete directly in the marketplace for the same customers. In any case where the above trade
level considerations exist, the file should clearly explain the rationale for
the decision.
[14]
The Respondents argue that the above passage was approved by a decision
of a Bi-national Panel conducting a review pursuant to the North American Free
Trade Agreement and dated April 15, 2002 in the matter of Certain top-mount
electric refrigerators, electric household dishwashers, and gas or electric
laundry dryers, CDA-USA-2000-1904-003. While the Bi-national panel did
quote the above passage (except the last sentence of the first paragraph and
the first sentence of the second paragraph) in its decision, there is no
explicit indication that this panel approved the parts of this passage that it
did quote. Immediately before quoting the excerpt from this passage the panel
stated that:
As to whether the sales that were
taken into account were made by vendors at substantially the same trade level,
to purchasers not associated with the companies investigated, the Commission
explained that it sought to obtain profit information from numerous Canadian
sources during the course of the investigation, and that the resulting profit
figure used was based on the best information available. In this context, the
SIMA Handbook, part 5.10.2.3, stipulates that…
[15]
Immediately following the quoted extract, the Panel stated that:
The Commissioner has argued that
all the companies investigated sold to the same customers and competed for the
same market; consequently, they should be considered of the same trade level.
This panel was not directed to any evidence on the record, and it is the
Commissioner’s submission that it had no evidence before it at the
investigation stage which would indicate that the sales made were to associated
companies. This panel is not convinced of Camco’s arguments in this matter. If
the sales contested by Camco were those made by Camco to associated purchasers,
then it should have pointed that fact out to the Commissioner at an earlier
stage. Instead, Camco provided the Commissioner with figures, only to complain
about the use of those figures following the Final Determination.
[16]
The argument in that case was related to whether certain amounts should
be used because the sales were made to associated persons. There is no
indication that any challenge was made to the use of the amount for profit for
a company that manufactures and sells to end users in determining the amount
for profit of an importer who only distributes the product.
[17]
The amount that the President is attempting to determine in this case is
the amount for profit of the importer, which amount is used to calculate the
export price. The export price is only determined by calculating an amount
based on the importer’s selling price, profit and costs (as set out in section
25 of SIMA) if the export price determined under section 24 of SIMA
is unreliable. The export price under section 24 of SIMA is the lesser
of the exporter’s selling price (subject to certain adjustments) and the
importer’s purchase price (subject to certain adjustments). The amount
calculated under section 25 of SIMA is, therefore, meant to be a
reasonable estimate of the amount that the importer would have paid for the
product if the importer would not have been associated with the exporter. It
seems to me that in calculating this estimated amount care should be taken in
determining whether the amount for profit of a company that both manufactures
and sells to end users should be used to determine the amount for profit of a
company that only imports and sells to end users.
[18]
In Canderel v. The Queen, [1998] 1 S.C.R. 147,
Justice Iacobucci, writing on behalf of the Supreme Court of Canada,
stated that:
30 What, then, is the true nature of "profit" for tax
purposes? While the concept has been variously expressed, perhaps the clearest
and most concise articulation of the term is to be found in the oft-quoted
decision of this Court in M.N.R. v. Irwin, [1964] S.C.R. 662, at p. 664,
where profit in a year was taken to consist of "the difference between the
receipts from the trade or business during such year ... and the expenditure
laid out to earn those receipts" (emphasis in original). This definition
was echoed by Jackett P. in Associated Investors of Canada Ltd. v. M.N.R.,
[1967] 2 Ex. C.R. 96, where he stated at p. 102:
Ordinary
commercial principles dictate, according to the decisions, that the annual profit
from a business must be ascertained by setting against the revenues from the
business for the year, the expenses incurred in earning such revenues.
[19]
There is nothing in section 25 of SIMA or sections 21 and 22 of
the Special Import Measures Regulations that would suggest that profit
should mean anything other what would be determined by ordinary commercial
principles and therefore profit, for the purposes of these sections, would be
the amount determined by subtracting expenses from revenues. The use of an
amount for profit, without any adjustment, of a company that manufactures and
sells to end users in determining the profit of a company that simply imports
and sells a product to end-users is not justified if the only rationale for
using such amount for profit (without any adjustment) is that both companies
are competing for the same customers. By focusing only on the customers to whom
products are sold (and hence on the revenue component of profit), the expense
component of the profit equation (which is also important) is not explicitly
considered. While the functions related to the sale of goods may well be
similar, the company that also manufactures goods is carrying on the
manufacturing function that the company that is only importing the goods that
it sells, is not. A further explanation that addresses the reasons why it would
be appropriate to use the profit of the company that manufactures and sells in
such circumstances would be required to justify the use of such an amount in
determining the amount for profit of a company that only imports the products
that it sells. The SIMA Handbook provides for this in the last sentence of the
excerpt referred to above as it states that “[i]n any case where the above
trade level considerations exist, the file should clearly explain the rationale
for the decision”.
[20]
In this case, as noted above, the President calculated the normal value
under paragraph 19(b) of SIMA by adding to the cost of production
for HHI certain amounts, including a reasonable amount for profit. Therefore an
amount for profit attributable to the manufacturing function was included in
the normal value (and increased the normal value). If an amount for profit that
would reasonably be attributable to a manufacturing function is also deducted
in determining the export price for HC, then the amount for profit attributable
to the manufacturing function would be counted twice – once in calculating the
normal value for HHI and again in determining the export price for HC. There is
no indication that any adjustment was made to the amount for profit of the two
complainants (both of which manufactured Power Transformers) before their respective
amounts for profit were used to determine the export price for HC, nor was any
rationale provided to explain why no adjustment was made. The only explanation
that was provided as to why these amounts for profit were used was that the
companies were competing for the same customers.
[21]
Since the margin of dumping is the difference between the normal value
and the export price, it does not seem to me that it would be a reasonable (nor
a correct) result in this case, without any further explanation, to both
increase the normal value by including an amount for profit attributable to the
manufacturing function and also decrease the export price by deducting an
amount for profit attributable to the manufacturing function.
[22]
It should also be noted that only three amounts were used to determine
the average profit amount. One of the amounts represented the profit realized
by a company that only sells Power Transformers that it manufactures in Canada and another represented the profit realized by a company that sells Power Transformers that
it manufacturers in Canada and Power Transformers that it imports into Canada. Therefore, two thirds of the samples used to determine the amount for profit of a
company that only sells Power Transformers that it imports into Canada would presumably reflect an amount for profit attributable to a manufacturing
function.
[23]
The Applicants also raised certain issues with respect to the procedures
followed by the President. I would note that while the Applicants only referred
to the President not obtaining segregated profit information from one of the
complainants in their Notice of Application, other issues were also raised in
the Applicants’ Memorandum of Fact and Law. Since I would refer the matter back
to the President for determination, I will not address these issues related to
the procedures followed by the President.
[24]
It should be noted, however, that SIMA sets out strict time
limits within which the amounts must be determined by the President. Under
subsection 38(1) of SIMA, the President must make a preliminary
determination of dumping within the 30 day period that commences 60 days after
the initiation of an investigation under section 31 of SIMA (unless the
President extends the time by 45 days as provided in subsection 39(1) of SIMA
for the reasons as set out in that subsection). Within 90 days after the
preliminary determination of dumping is made under subsection 38(1) of SIMA,
the President must make the final determination of dumping under section 41 of SIMA.
Since the President has strict deadlines to meet, the President must be given considerable
discretion to determine how best to obtain the necessary information within
these relatively short time limits.
[25]
As a result I would allow the application for judicial review, with
costs, set aside the final determination of dumping, and refer the matter back
to the President for determination in accordance with these reasons.
“Wyman
W. Webb”
“I agree,
Robert
M. Mainville J.A.”
“I agree,
D.G. Near J.A.”
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