STATEMENT OF ESSENTIAL FACTS NO. 464 · 2019-04-16 · SEF 464 – Aluminium Road Wheels – Revocation Review – China 4 1 SUMMARY 1.1 Introduction This statement of essential facts

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SEF 464 - Aluminium Road Wheels - The People’s Republic of China

CUSTOMS ACT 1901 - PART XVB

STATEMENT OF ESSENTIAL FACTS

NO. 464

REVOCATION REVIEW

IN RELATION TO ALUMINIUM ROAD WHEELS

EXPORTED TO AUSTRALIA FROM THE PEOPLE’S REPUBLIC OF CHINA

September 2018

PUBLIC RECORD

SEF 464 – Aluminium Road Wheels – Revocation Review – China 2

CONTENTS

ABBREVIATIONS ........................................................................................................................................................ 3

1 SUMMARY ....................................................................................................................................................... 4

1.1 INTRODUCTION ................................................................................................................................................ 4 1.2 LEGISLATIVE BACKGROUND .................................................................................................................................. 4 1.3 FINDINGS AND CONCLUSIONS ............................................................................................................................... 5 1.4 PROPOSED RECOMMENDATIONS ........................................................................................................................... 5

2 BACKGROUND.................................................................................................................................................. 6

2.1 REVOCATION REVIEW PROCESS ............................................................................................................................. 6 2.2 HISTORY OF ANTI-DUMPING MEASURES .................................................................................................................. 7 2.3 INITIATION OF THE REVIEW .................................................................................................................................. 8 2.4 PARTICIPATION IN THE REVIEW ........................................................................................................................... 10 2.5 SUBMISSIONS BY INTERESTED PARTIES .................................................................................................................. 10 2.6 EXTENSIONS GRANTED TO SEF DUE DATE .............................................................................................................. 11 2.7 RESPONDING TO THE SEF ................................................................................................................................. 11

3 THE GOODS AND LIKE GOODS ........................................................................................................................ 13

3.1 LEGISLATIVE FRAMEWORK ................................................................................................................................. 13 3.2 THE GOODS SUBJECT TO THE ANTI-DUMPING MEASURES ........................................................................................... 13 3.3 TARIFF CLASSIFICATION ..................................................................................................................................... 13

4 AUSTRALIAN INDUSTRY PRODUCING LIKE GOODS ......................................................................................... 14

4.1 FINDINGS ...................................................................................................................................................... 14 4.2 BACKGROUND ................................................................................................................................................ 14 4.3 PRODUCTION PROCESSES .................................................................................................................................. 14 4.4 COMPOSITION OF THE AUSTRALIAN INDUSTRY ........................................................................................................ 17 4.5 SUBMISSIONS FROM THE AUSTRALIAN INDUSTRY..................................................................................................... 17

5 AUSTRALIAN MARKET FOR ALUMINIUM ROAD WHEELS ................................................................................ 19

5.1 FINDINGS ...................................................................................................................................................... 19 5.2 INTRODUCTION .............................................................................................................................................. 19 5.3 SUPPLY INTO THE AUSTRALIAN MARKET ................................................................................................................ 20 5.4 MARKET TRENDS FOR AFTERMARKET ALUMINIUM ROAD WHEELS................................................................................. 21 5.5 AUSTRALIAN INDUSTRY’S ABILITY TO SERVICE THE AFTERMARKET FOR ARWS .................................................................. 22 5.6 COMPETITION WITHIN THE AFTERMARKET FOR ARWS .............................................................................................. 22

6 ECONOMIC PERFORMANCE OF THE AUSTRALIAN INDUSTRY ......................................................................... 28

6.1 INTRODUCTION .............................................................................................................................................. 28 6.2 VOLUME EFFECTS ............................................................................................................................................ 30 6.3 PRICE EFFECTS ................................................................................................................................................ 30 6.4 PROFIT EFFECTS .............................................................................................................................................. 31 6.5 OTHER INJURY FACTORS .................................................................................................................................... 31

7 LIKELIHOOD THAT DUMPING, SUBSIDISATION AND MATERIAL INJURY WILL CONTINUE OR RECUR .............. 33

7.1 FINDINGS ...................................................................................................................................................... 33 7.2 LEGISLATIVE BACKGROUND ................................................................................................................................ 33 7.3 IS DUMPING AND/OR SUBSIDISATION LIKELY TO CONTINUE OR RECUR?.......................................................................... 33 7.4 IS MATERIAL INJURY LIKELY TO CONTINUE OR RECUR? ............................................................................................... 35

8 FINDINGS AND PROPOSED RECOMMENDATIONS .......................................................................................... 38

8.1 SUMMARY OF FINDINGS AND CONCLUSIONS ........................................................................................................... 38 8.2 PROPOSED RECOMMENDATIONS ......................................................................................................................... 38

9 LIST OF ATTACHMENTS .................................................................................................................................. 40

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ABBREVIATIONS

ABF Australian Border Force

the Act Customs Act 1901

ADN Anti-Dumping Notice

ADRP Anti-Dumping Review Panel

Arrowcrest or the applicant Arrowcrest Group Pty Ltd

ARWs or the goods aluminium road wheels

Bob Jane Bob Jane Corporation Pty Ltd

China People’s Republic of China

CNC computer numerical controlled

the Commission Anti-Dumping Commission

the Commissioner Commissioner of the Anti-Dumping Commission

CONT 378 Continuation Inquiry No. 378

CON 464 Consideration Report No. 464

CTMS cost to make and sell

Dragway Dragway Performance Engineering Pty Ltd

EPR electronic public record

Ford Ford Motor Company of Australia Limited

Holden GM Holden Ltd

ICD interim countervailing duty

IDD interim dumping duty

INV 181 Investigation No. 181

the Minister Minister for Industry, Science and Technology

the notices the dumping duty notice and countervailing duty notice applicable to the goods

OEM original equipment manufacturer

REP 181 International Trade Remedies Report No. 181

REP 204 International Trade Remedies Report No. 204

REP 263 Anti-Dumping Commission Report No. 263

REP 378 Anti-Dumping Commission Report No. 378

REV 263 Review No. 263

SEF statement of essential facts

Starcorp Starcorp Holdings (NSW) Pty Ltd

Toyota Toyota Motor Corporation Australia Ltd

USA United States of America

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1 SUMMARY

1.1 Introduction

This statement of essential facts (SEF) sets out the facts on which the Commissioner of the Anti-Dumping Commission (the Commissioner) proposes to base his recommendations to the Minister for Industry, Science and Technology (the Minister)1 in relation to a revocation review of the anti-dumping measures (in the form of a dumping duty notice and a countervailing duty notice, “the notices”) applying to aluminium road wheels (“ARWs”, or “the goods”) exported to Australia from the People’s Republic of China (China).2

This review is in response to an application by Arrowcrest Group Pty Ltd (“Arrowcrest”, or “the applicant”) seeking the revocation of the anti-dumping measures applying to the goods exported to Australia by all exporters from China.

1.2 Legislative background

Division 5 of Part XVB of the Customs Act 1901 (the Act)3 sets out, among other things, the procedures to be followed by the Commissioner in dealing with an application for a review of anti-dumping measures.

Division 5 empowers the Commissioner to reject or not reject an application for review of anti-dumping measures. If the Commissioner does not reject the application, he is required to publish a notice indicating that it is proposed to review the anti-dumping measures covered by the application.4

The Commissioner must, within 110 days after the publication of the notice or such longer period as allowed, place on the public record a SEF on which the Commissioner proposes to base his recommendation to the Minister in relation to the review.5

Pursuant to subsection 269ZDA(1A)(b), the Commissioner must make a revocation recommendation to the Minister in relation to the anti-dumping measures, unless he is satisfied that revoking the measures would lead, or would be likely to lead, to a continuation of, or a recurrence of, the dumping or subsidisation and the material injury that the measures are intended to prevent.

1 For the purposes of this review, the Minister for Industry, Science and Technology is the decision maker. 2 Further details regarding the anti-dumping measures is outlined in chapters 2 and 3 of this SEF. 3 All legislative references in this SEF are to the Customs Act 1901, unless otherwise specified. 4 Subsection 269ZC(4). 5 Subsection 269ZD(1).

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1.3 Findings and conclusions

Based on information currently available, the Commissioner’s findings and conclusions are that:

locally produced ARWs have characteristics closely resembling the goods subject to the anti-dumping measures and are ‘like goods’, as defined under subsection 269T(1);

there is an Australian industry producing like goods. The Australian industry consists of Starcorp Holdings (NSW) Pty Ltd (Starcorp)6 and Dragway Performance Engineering (Dragway);

the Australian market for ARWs is predominately supplied by imports, most of which are from China. A small proportion of the Australian market is supplied by the Australian industry; and

if the anti-dumping measures were to be revoked, it would lead, or be likely to lead, to a continuation of, or a recurrence of, the dumping or subsidisation that the anti-dumping measures are intended to prevent. However, the evidence does not support a conclusion that, if the anti-dumping measures were to be revoked, it would lead, or be likely to lead, to a continuation of, or a recurrence of, the material injury that the anti-dumping measures are intended to prevent.

1.4 Proposed recommendations

Based on the above findings, and subject to any submissions received in response to this SEF, the Commissioner proposes to recommend to the Minister that, in accordance with subsection 269ZDA(1A)(b), the notices be revoked in relation to all exporters from China generally.

It is proposed that any decision by the Minister in relation to this review take effect from 2 March 2018, a retrospective date allowed under subsection 269ZDB(6)(a), being the date of publication of the notice under section 269ZC indicating the Commissioner’s proposal to undertake the revocation review.

The effect of the proposed recommendations would be that interim dumping duty (IDD) and interim countervailing duty (ICD) would not apply to the goods entered for home consumption on and after 2 March 2018. If this recommendation is accepted by the Minister, importers who have paid IDD and ICD in relation to the anti-dumping measures on and after 2 March 2018 would be eligible for a refund.

6 Starcorp’s ARWs are sold under the Simmons Wheels branding.

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2 BACKGROUND

2.1 Revocation review process

An affected party may apply for a review of anti-dumping measures if there are reasonable grounds to assert that the anti-dumping measures are no longer warranted.

If an application for a review of anti-dumping measures is received and not rejected, the Commissioner has up to 155 days, or such longer time as allowed, to conduct a review and report to the Minister on the review of the anti-dumping measures.7

Within 110 days of the initiation of a review, or such longer time as allowed, the Commissioner must place on the public record a SEF on which he proposes to base his recommendations to the Minister concerning the review of the anti-dumping measures.8

After conducting a review of anti-dumping measures, the Commissioner:

must not make a revocation recommendation in relation to the measures unless a revocation review notice has been published in relation to the review; and

otherwise must make a revocation recommendation in relation to the measures, unless the Commissioner is satisfied as a result of the review that revoking the measures would lead, or be likely to lead, to a continuation of, or a recurrence of, the dumping and the material injury that the measures are intended to prevent.9

In making recommendations in his final report to the Minister, the Commissioner must have regard to:

the application for review of the anti-dumping measures;

any submission relating generally to the review of the anti-dumping measures to which the Commissioner has had regard for the purpose of formulating the SEF;

this SEF; and

any submission made in response to this SEF that is received by the Commissioner within 20 days of it being placed on the public record.10

The Commissioner may also have regard to any other matter considered to be relevant to the review.11

Where the Minister decides to revoke the anti-dumping measures, the Minister can declare that the notices be revoked either in relation to a particular exporter or to exporters generally or in relation to a particular kind of goods.12

7 Subsection 269ZDA(1). 8 Subsection 269ZD(1). 9 Subsection 269ZDA(1A). 10 Subsection 269ZDA(3)(a). 11 Subsection 269ZDA(3)(b). 12 Subsection 269ZDB(1)(a)(ii).

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Following the Minister’s decision, the Minister must give notice of the decision.13

2.2 History of anti-dumping measures

The full history in relation to the anti-dumping measures can be found on the Commission’s website at www.adcommission.gov.au. A summary of the main cases is outlined in the Table 1.

Report No. Case description

REP 181 and REP 204

The then Australian Customs and Border Protection Service initiated an investigation (INV 181), following an application from Arrowcrest. Following the investigation, the then Minister for Home Affairs published the notices (Trade Remedies Branch Report

No. 181 (REP 181) refers).14

Following a review by the former Trade Measures Review Officer, the then Minister for Home Affairs published a new notice under section 269ZZM, which revised the level of the anti-dumping measures for one exporter, YHI Manufacturing Co. Ltd. (International Trade Remedies Report No. 204 (REP 204) refers.)

REP 263 Jiangsu Yaozhong Aluminium Wheels Co. Ltd applied for a review of the anti-dumping measures as they applied to its exports of the goods to Australia from China (REV 263). The company applied for a review on the basis that certain variable factors in respect of the goods had changed. The application was not rejected and the review was extended to include all Chinese exporters of the goods subject to the anti-dumping measures.

Anti-Dumping Commission Report No. 263 (REP 263) found that the variable factors in relation to all exporters subject to the anti-dumping measures had changed. Following a review by the Anti-Dumping Review Panel (ADRP), a reinvestigation was conducted into certain findings made in REP 263. As a result of the ADRP’s review, the dumping and subsidy margins were revised in respect of Pilotdoer Wheels Co. Ltd and Zhejiang Yueling Co., Ltd.

REP 378 The Commissioner initiated an inquiry into whether continuation of the measures was justified after receiving an application from Arrowcrest for the continuation of the measures (CONT 378).

Following the continuation inquiry, the then Assistant Minister for Industry, Innovation and Science and the Parliamentary Secretary to the Minister for Industry, Innovation and Science published a notice securing the continuation of anti-dumping measures

for a further five years, (Final Report No. 378 (REP 378) refers.)15 The continuation inquiry also resulted in changes to the variable factors for all exporters subject to the anti-dumping measures.

Table 1 – History of the anti-dumping measures for ARWs

13 Subsection 269ZDB(1). 14 The dumping duty notice did not apply to Zhejiang Shuguang Industrial Co., Ltd (PDW). The dumping investigation, as it related to this exporter, was terminated in accordance with section 269TDA on 8 June 2012, on the basis that the dumping margin was negligible. The countervailing duty notice did not apply to PDW and CITIC Dicastal Manufacturing Co., Ltd. The countervailing investigation, as it related to these exporters, was terminated in accordance with section 269TDA on 8 June 2012, on the basis that the subsidy margins for both exporters were negligible. 15 The dumping duty notice was not continued in respect of PDW and CITIC Dicastal Co., Ltd (formerly CITIC Dicastal Manufacturing Co., Ltd). The countervailing duty notice was not continued in respect of PDW, Jiangsu Yaozhong and CITIC Dicastal Co., Ltd.

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

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Table 2 summarises the anti-dumping measures currently applying to ARWs exported to Australia from China.

Exporter Duty Applicable

Combined fixed component of interim duty

CITIC Dicastal Co., Ltd NA16 NA

Zhejiang Shuguang Industrial Co., Ltd NA NA

Jiangsu Yaozhong Aluminium Wheels Co., Ltd

IDD only 60.2%

Zhejiang Yueling Co., Ltd IDD and ICD 4.3%

Zhejiang Jinfei Kaida Wheel Co., Ltd IDD and ICD 8.8%

Taian Qicheng Wheel Manufacturing IDD and ICD 0.8%

Qinhuangdao Sinolion Wheel Co., Ltd IDD NA17

Lianyungang Yohun-Tech Alloy Co., Ltd IDD NA17

Residual exporters18 IDD and ICD 8.7%

All other exporters IDD and ICD 111.8%

Table 2 – Current anti-dumping measures

The current anti-dumping measures are due to expire on 4 July 2022.

2.3 Initiation of the review

2.3.1 Background

On 13 February 2018, an application was lodged by Arrowcrest requesting a revocation review of the anti-dumping measures as they apply to all exporters generally of ARWs to Australia from China.

Arrowcrest applied for a review on the basis that the anti-dumping measures are no longer warranted in relation to all exporters generally. Arrowcrest’s application claimed that it previously represented the vast majority of the Australian industry and that it had ceased, and will not resume, production of ARWs in Australia.

Following consideration of the application, the Commissioner decided not to reject the application and initiated a review of the anti-dumping measures. Notification of the initiation of the review was made in Anti-Dumping Notice (ADN) No. 2018/38, which was published on the Commission’s website on 2 March 2018. On the same day, Consideration Report No. 464 (CON 464) was published on the Commission’s website and provides the reasons for not rejecting the application.

16 NA means not applicable. 17 Both Qinhuangdao Sinolion Wheel Co., Ltd and Lianyungang Yohun-Tech Alloy Co., Ltd are subject to the floor price duty in relation to IDD, with no fixed interim duties payable. 18 Further details about the applicable duties can be found on the Dumping Commodity Register, available at www.adcommission.gov.au.


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The public record version of the application, CON 464 and ADN No. 2018/38 are available on the Commission’s website.19

2.3.2 Submissions received in relation to initiation of the investigation

Dragway submitted20 that Arrowcrest, as a former Australian industry member, did not meet the legislative definition of an affected party21 under the Act and was not entitled to make an application for a revocation review.22 The basis for the Commissioner being satisfied that Arrowcrest was an affected party is outlined in CON 464. CON 464 found that, on the basis of information before the Commissioner, Arrowcrest was entitled to make the application for the revocation review.23 In response to Dragway’s submission, the Commission has reviewed information provided by Arrowcrest, and other information available to it, including Australian Border Force (ABF) import statistics, in relation to Arrowcrest’s business activities after ceasing production of ARWs in Australia. The Commission is satisfied that Arrowcrest is a person who is directly concerned with the importation into Australia of the goods to which the anti-dumping measures relate. The Commission considers that Arrowcrest has also been previously directly concerned with the importation into Australia of like goods. Accordingly, the Commissioner remains satisfied that Arrowcrest is an affected party in accordance with subsection 269T(1) and that it was entitled to make the application for the revocation review.

19 Electronic Public Record (EPR) 464, item nos. 1 and 2. 20 EPR 464, item no. 4. 21 Provided that certain requirements are met, in accordance with subsection 269ZA(1), an affected party may, by application lodged with the Commissioner, request that the Commissioner initiate a review. "Affected party", is defined under subsection 269T(1) to be:

(a) a person who is directly concerned with the exportation to Australia of the goods to which the measures relate or who has been directly concerned with the exportation to Australia of like goods; or

(b) a person who is directly concerned with the importation into Australia of the goods to which the measures relate or who has been directly concerned with the importation into Australia of like goods; or

(c) a person representing, or representing a portion of, the Australian industry producing like goods; or (d) the Government of a country from which like goods have been exported to Australia.

22 The Commission clarified with Dragway in an e-mail dated 26 April 2018 the grounds on which the Commissioner was satisfied that Arrowcrest was an affected party. 23 EPR 464, item no. 1.

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2.4 Participation in the review

2.4.1 Australian industry

Upon initiating the review, the Commission contacted Dragway directly and asked that it complete a questionnaire. The Commission received a complete questionnaire response from Dragway.24

Following initiation of the review, the Commission was contacted by Starcorp, who also identified themselves as a producer of ARWs.25 The Commission subsequently requested that Starcorp complete a questionnaire. The Commission received a partial questionnaire response from Starcorp.

The Commission conducted verification visits to Dragway and Starcorp.26 Findings in relation to these visits are discussed in the relevant sections of this report.

2.4.2 Importers

Following initiation of the review, the Commission identified the importers of ARWs using the ABF import database.

The Commission contacted several major importers, but received limited participation. The Commission met or held discussions with the following importers:

Mullins Wheels Pty Ltd;27

The Mag Wheel Centre;28 and

Starcorp.29

The Commission also met with another importer of ARWs who, while willing to discuss the revocation and the Australian market for ARWs, did not permit a summary containing sufficient detail to allow a reasonable understanding of the substance of the discussion to be placed onto the public record. As a result, the Commission has not had regard to the information obtained during this meeting in making findings relating to this review.30

2.5 Submissions by interested parties

To date, the Commission has received five submissions from interested parties prior to publication of this SEF. These five submissions have been considered by the

24 Dragway’s response to the questionnaire is on EPR 464, item no. 8. 25 The Commission held a tele-conference with Starcorp on 23 July 2018. A file note was published on the EPR 464, item no. 10. 26 Visit reports for Dragway and Starcorp can be found on the EPR 464 at item nos. 11 and 16 to, respectively. 27 EPR 464, item no. 13. 28 EPR 464, item no. 14. 29 It is noted that Starcorp is both a producer of ARWs and an importer of ARWs. 30 Section 269ZJ.

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Commissioner and are addressed within the relevant chapters of this SEF. Public record versions of all submissions received are available on the EPR.

2.6 Extensions granted to SEF due date

The SEF for this review was originally due to be placed on the public record by 25 June 2018. The Commission was granted two extensions to the deadline for the publication of the SEF. The SEF is now due to be published on 17 September 2018. The reasons for the extensions are outlined in ADN Nos. 2018/102 and 2018/124.31

2.7 Responding to the SEF

This SEF sets out the essential facts on which the Commissioner proposes to base his final recommendations to the Minister.

The SEF represents an important stage in the review as it informs interested parties of the facts established and allows them to make submissions in response to the SEF.

It is important to note that the SEF may not represent the final views of the Commissioner. The final report will recommend whether or not the notices should be varied, and the extent of any interim duties that are, or should be, payable.

Interested parties are invited to lodge written submissions in response to this SEF no later than the close of business on 8 October 2018.32 The Commissioner is not obliged to have regard to any submission made in response to the SEF received after this date if to do so would, in the opinion of the Commissioner, prevent the timely preparation of the report to the Minister.33

The Commissioner must report to the Minister on or before 30 October 2018.

Submissions should preferably be emailed to [email protected].

Alternatively, submissions may be sent to fax number +61 3 8539 2499, or posted to:

The Director – Investigations 3 Anti-Dumping Commission GPO Box 2013 Canberra ACT 2601 AUSTRALIA

Confidential submissions must be clearly marked accordingly and a non-confidential version of any submission is required for inclusion on the public record. A guide for making submissions is available on the Commission’s website at www.adcommission.gov.au.

31 EPR 464, item nos. 8 and 12. 32 The due date is 7 October 2018, however as this falls on a Sunday, the effective due date is the following business day, being 8 October 2018. 33 Subsection 269ZDA(4).

mailto:[email protected]


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The EPR contains non-confidential submissions by interested parties, the non-confidential versions of the Commission’s visit reports and other publicly available documents. The EPR can be viewed online at www.adcommission.gov.au.

Documents on the EPR for this revocation review (EPR 464) should be read in conjunction with this SEF.


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3 THE GOODS AND LIKE GOODS

3.1 Legislative framework

Subsection 269T(4) specifies that if, in relation to goods of a particular kind, there is a person or there are persons who produce like goods in Australia:

(a) there is an Australian industry in respect of those like goods; and (b) subject to subsection (4A), the industry consists of that person or those persons.

Therefore, in order for there to be an Australian industry in relation to ARWs, the Commissioner must be satisfied that ‘like goods’ to the goods the subject of the anti-dumping measures are produced by a person in Australia. In making this assessment, the Commissioner must first determine whether there are goods produced in Australia are “like” to the imported goods. Subsection 269T(1) defines like goods as:

“…goods that are identical in all respects to the goods under consideration or that, although not alike in all respects to the goods under consideration, have characteristics closely resembling those of the goods under consideration.”

Subsection 269T(2) specifies that for goods to be regarded as being produced in Australia, they must be wholly or partly manufactured in Australia. In accordance with subsection 269T(3), for goods to be considered as partly manufactured in Australia, at least one substantial process in the manufacture of those goods must be carried out in Australia.

3.2 The goods subject to the anti-dumping measures

The goods subject to the measures are:

Aluminium road wheels for passenger motor vehicles, including wheels used for caravans and trailers, in diameters ranging from 13 inches to 22 inches.

The goods include finished or semi-finished aluminium road wheels whether un-painted, painted, chrome plated, forged or with or without tyres.

The goods do not include aluminium wheels for go-carts and all-terrain vehicles.34

3.3 Tariff classification

The goods are classified to the following tariff sub-headings in Schedule 3 of the Customs Tariff Act 1995:

8708.70.91 (statistical code 78);

8708.70.99 (statistical code 80); and

8716.90.00 (statistical code 39).

34 Ministerial Exemption Instrument No 9 of 2017, also exempts goods subject to Tariff Concession Order 9314927 from IDD and ICD, with an effective date of 23 December 2016. This exemption is in relation to: Wheels, forged aluminium, having a rim diameter exceeding 445 mm.

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4 AUSTRALIAN INDUSTRY PRODUCING LIKE GOODS

4.1 Findings

The Commissioner finds that:

there are persons producing ARWs in Australia, consisting of Dragway and Starcorp;

ARWs produced by Dragway and Starcorp are ‘like goods’ as defined in subsection 269T(1); and

the like goods are produced in Australia. This is because they are either partly or fully manufactured in Australia by Dragway and Starcorp, with both undertaking a substantial process in the manufacture of the like goods in Australia.

Accordingly, the Commissioner considers that there is an Australian industry producing like goods, consisting of Dragway and Starcorp.

4.2 Background

CONT 378 found that there was an Australian industry producing like goods, with Arrowcrest being the largest manufacturer of ARWs in Australia. At that time, Arrowcrest produced ARWs for both original equipment manufacturers (OEMs) and aftermarket consumers. However, following the continuation inquiry, as outlined in the application, Arrowcrest ceased producing ARWs in Australia. Arrowcrest is therefore no longer a person producing like goods in Australia, for the purposes of subsection 269T(4).

In a submission received on 6 July 2018, the Victorian Automotive Chamber of Commerce, Victoria’s peak automotive industry association, stated that there was no longer any manufacturing of ARWs being undertaken in Australia and therefore it is no longer necessary for the anti-dumping measures against Chinese exporters to continue.35

However, CONT 378, and the application, identified one other Australian producer of ARWs, being Dragway, a supplier of ARWs to aftermarket consumers. Following initiation of the review, Starcorp also identified itself as an Australian producer of ARWs. The Commission’s findings in relation to Dragway and Starcorp are below.

4.3 Production processes

4.3.1 Verification

The Commission undertook verification visits to both Dragway and Starcorp. The verification visits included factory tours at Dragway’s facilities in Kinglake, Victoria and Starcorp’s facilities in Tempe, New South Wales.

4.3.2 Dragway

Dragway has the ability to manufacture ARWs in two distinct ways:

35 EPR 464, item no. 9.

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1. Producing composite wheels (either two or three pieces) by machining wheel inners (the outside look of the wheel) which are locked into the wheel outer via a heat lock method; and

2. Producing one piece cast aluminium wheels, where molten aluminium (typically made from scrap aluminium) is poured into moulds, cooled, heat treated for strength and then finished.

Notwithstanding that Dragway have the ability to produce cast wheels, in calendar year 2017 all sales of ARWs by Dragway were composite wheels.

Dragway’s manufacturing process for its composite wheels is as follows:

The company purchases aluminium billet to the sizes required for the inner part of the wheels;

The aluminium billet is machined via two machining operations to produce the inner wheel (centre) to the required design;

The centre is finished, which includes drilling the required bolt pattern;

Depending on the required finish are processed (e.g. the wheels are polished, powder-coated, sandblasted, or further machined);

Once complete, the centre is fitted to the outer rim through heat fix and/or welding processes;

Wheels are checked for balance and quality; and

Finished wheels are given a final clean and are boxed for despatch or sold ex-works.

Based on the above processes, the Commissioner is satisfied that:

the goods produced by Dragway are like to the imported goods;

at least one substantial process of manufacture is carried out in Australia;

the like goods were, therefore, wholly or partly manufactured in Australia by Dragway; and

there is an Australian industry for like goods in Australia, which includes Dragway.

4.3.3 Starcorp

Starcorp designs and produces a three piece composite wheel, by machining inner blanks36 which are bolted onto a two piece outer rim.

Starcorp’s manufacturing process is as follows:

Starcorp purchase raw cast centres (called blanks), from local and overseas suppliers;

Starcorp purchase outer barrels (outer barrels are the rim that the tyre is fitted to);

If the wheel is not going to be painted, then the wheel is polished to ensure the surface is suitable for a polish finish (to check for imperfections). Depending on the quality of the blank, even if the wheel is to be painted it may need to be polished;

36 A blank is a raw cast centre of the wheel.

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Wheels are machined via a computer numerical control (CNC) machine. CNC machining is a manufacturing process in which pre-programmed computer software dictates the movement of factory tools and machinery. The process can be used to control a range of complex machinery, from grinders and lathes to mills and routers. The machining involves smoothing and rounding the outer edge of the inner, machining the outer lip, machining the height of the centre (to ensure the correct offset for the vehicle), machining the centre hole and drilling the bolt holes;

The inner is then re-polished or sent for painting;

Assembly of a three piece wheel requires Starcorp to drill the inside lip of the two outer rims with the connection bolt patterns to match the inner. The wheels are then bolted together by Starcorp; and

Completed products are packaged and shipped or sold ex-works.

Based on the above processes, the Commissioner is satisfied that:

the goods produced by Starcorp are like to the imported goods;

at least one substantial process of manufacture is carried out in Australia;

the like goods were partly manufactured in Australia by Starcorp; and

there is an Australian industry for like goods in Australia, which includes Starcorp.

4.3.4 Australian industry’s claims regarding like goods

Both Dragway and Starcorp design and manufacture ARWs according to the purchaser’s required specifications. Both Australian industry members consider that the ARWs it produces are like goods to the ARWs that are exported to Australia from China.

Specifically, it is claimed that the like goods produced in Australia and the goods exported to Australia from China:

are physically alike;

are manufactured using similar raw material inputs;

are manufactured in a similar manner; and

have the same end-uses.

4.3.5 Commissioner’s finding – like goods

Based on the verification activities conducted by the Commission, and observations made in relation to the production processes undertaken in Australia by both Dragway and Starcorp, the Commission considers that the locally produced goods closely resemble the goods subject to the anti-dumping measures and are like goods given that:

the primary physical characteristics of the imported and locally produced goods are similar – being of similar shape and dimension, and being made from similar alloy material;

the imported and locally produced goods are commercially alike as they are sold to retailers and consumers;

the imported and locally produced goods are functionally alike as they have the same or similar end-uses; and

the imported and locally produced goods are manufactured in a similar manner.

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Accordingly, the Commissioner is satisfied that there is an Australian industry producing ARWs and that the Australian industry produces like goods to the goods the subject of the application, as defined in section 269T.

4.4 Composition of the Australian industry

Based on verified data, Starcorp is the largest Australian manufacturer of ARWs, selling

into both domestic and export markets and is also a significant importer and marketer of

ARWs.

Both Dragway and Starcorp have similar offerings and business models:

Both Dragway and Starcorp produce ARWs that are made to order or custom

made. Both companies have standard designs that the company can change to

suit the consumer’s technical requirements, or in Dragway’s case, fully customised

ARWs designed to the consumer’s specific design requirements (design of the

outer look of the wheel).

While both companies have standard designs, the required ARWs are typically

customised to suit the vehicle; noting that each vehicle may have different sizes

and off-sets.

Both companies primarily sell to consumers with customised cars (with flared

guards etc.), show cars, or legacy vehicles.

Relative to most retail priced ARWs, both companies charge premium prices for

their custom made ARWs.

Both Dragway and Starcorp sell direct to consumers and to a lesser extent, through

retailers. Sales are generated through general enquiries and typically negotiated on an

enquiry by enquiry basis, though both producers do have standard retail and wholesale

pricing. Retail sales are generated by consumers requesting a custom ARW or ARW that

is not standard through a retailer. When a retailer receives an enquiry, they contact the

manufacturer for a price, then seek to sell the custom wheel with a margin to the

enquiring consumer. If the consumer accepts the price, the retailer takes a deposit and

places an order with the manufacturer.

Both Dragway and Starcorp produce custom/made to order ARWs. Neither company maintains an inventory of stock and therefore do not offer “off the shelf” ARWs.

4.5 Submissions from the Australian industry

4.5.1 Dragway

In a submission dated 19 February 2018, Dragway submitted that it opposed the revocation of the anti-dumping measures and made the following key points:

Having the measures revoked would bring further injury to Dragway;

That as a former Australian industry member, the applicant to the revocation review does not meet the legislative definition of an affected party and considered the application ineligible; and

That Dragway currently represents 100 per cent of the Australian industry.

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The Commission understands that Dragway’s preferred outcome is that the measures not be revoked and has investigated Dragway’s claim that revocation of the measures would lead to further injury to Dragway, the findings of which are contained in chapter 7.

The Commission disagrees with Dragway’s view that Arrowcrest is not an affected party, for the reasons outlined above at section 2.3.2.

The Commission also finds that Dragway’s claim of representing 100 per cent of the Australian industry is not correct, as there are at least currently two Australian manufacturers of ARWs, Dragway and Starcorp.

4.5.2 Starcorp

In a submission dated 4 April 2018, Starcorp supported the application for revocation of the measures and made the following key points:37

a) The Australian industry is now so small as to be negligible; b) The Australian industry is not supportive of the measures; c) The Australian industry is no longer incurring any material injury; d) If there is material injury there is not a causal link to the imports of the goods; and e) The measures implemented in 2012 and reinforced in 2017 are no longer

warranted due to the proceeding points.

This SEF addresses points c) and d) above in chapter 7.

With regards to point a) it should be noted that the size of the Australian industry is in itself not a factor when considering whether the removal of the measures would cause a continuation or recurrence of material injury. It is also noted that point b) is incorrect, as part of the Australian industry (Dragway) is supportive of the measures not being revoked.

In a submission received 12 September 2018, Starcorp further outlined:

the substantial processes it undertakes in manufacturing ARWs in Australia;

their position that the anti-dumping measures ought to be revoked, because they have no effect on Starcorp; and

its views of the Australian market. In particular, it considers that the Australian market for imports and Australian produced goods are different in terms of price, quality and range. It describes the Australian market for imports as one based on mass produced, low cost ARWs provide to aftermarket purchasers who require a cheaper wheel option. In contrast, the ARWs produced by Starcorp are bespoke to the design requirements of the consumer. Each set of ARWs can be uniquely manufactured, which requires a substantial amount of time and is more expensive for the consumer.

The Commission has taken the above points into account in this SEF.

37 EPR 464, item no. 5

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5 AUSTRALIAN MARKET FOR ALUMINIUM ROAD WHEELS

5.1 Findings

The Commission estimates that the Australian market size for the 2017 calendar year was approximately 840,000 wheels.38

Due to the closure of passenger vehicle manufacturing in Australia in October 2017, and with the cessation of Arrowcrest’s local production of ARWs, the Australian market almost wholly consists of aftermarket ARWs. For this reason, the conditions of competition within the Australian market for ARWs has changed significantly since the measures were imposed and last continued, where the Australian industry, the majority of which was Arrowcrest, were predominately servicing the OEM segment.

The Commissioner finds that the aftermarket segment for ARWs is primarily supplied by imports. The imports originate from a number of countries with the largest exporting country being China.

The proportion of the Australian market comprised by the Australian industry is small, and is likely to remain this way.

5.2 Introduction

5.2.1 Overview

ARWs are used in passenger motor vehicles, including four-wheel drives, caravans and trailers. In almost all cases, the ultimate consumer of ARWs is the owner or purchaser of a vehicle. Accordingly, sales of ARWs by the Australian industry and by exporters are largely aligned to the existing supply chains that promote and support vehicle ownership. Based on observations made in previous investigations, reviews and inquiries, historically, there have been two distinct markets for ARWs in Australia, being:

the OEM segment; and

the aftermarket segment.

5.2.2 OEM segment

The OEM segment previously comprised of:

ARWs placed on vehicles manufactured in Australia by Ford Motor Company of Australia Limited (Ford), Toyota Motor Corporation Australia Ltd (Toyota) and GM Holden Ltd (Holden); and

38 This includes an estimate of Arrowcrest’s production for part of the year (the estimate of Arrowcrest’s production is extrapolated from previously verified data for REP 378). It is noted that the estimated size of the Australian market is lower than the estimated size of the Australian market for the financial year 2016, as stated in REP 378. This is because the Commission has refined its estimate of the size of the Australian market for this review using ABF import statistics which have been filtered extensively based on the description of each of import transaction.

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ARWs to modify high performance vehicles prior to sale, such as those sold under the Holden Special Vehicles and Ford Performance Vehicles brands.

All three vehicle manufacturers ceased manufacturing operations in Australia by October 2017. In light of this, current and future demand for ARWs in the OEM segment has significantly reduced since CONT 378 was finalised in June 2017. This has led to a substantial shift in demand towards sales in the aftermarket segment, which in turn has meant that the conditions of competition have changed since the measures were introduced in 2012 and continued in 2017. Further discussion regarding the implication of this shift in demand is outlined throughout this chapter.

5.2.3 Aftermarket segment

In the Commission’s view, the aftermarket segment encapsulates any ARW that is not placed on a new vehicle manufactured in Australia, or is not used to modify a new high performance vehicle in Australia prior to its sale. Broadly, this includes ARWs used on caravans and trailers, as well as spare parts and accessories for passenger motor vehicles.

Demand for ARWs sold in the aftermarket segment is mostly driven by the replacement of existing wheels on a vehicle, either because the existing wheel is worn or damaged, or because the consumer seeks to upgrade. Demand can also be driven to a lesser extent by caravans and trailers.

5.3 Supply into the Australian market

Sales of aftermarket ARWs are made primarily to consumers through tyre and wheel retailers. There are also some sales being made directly to consumers from importers or the Australian industry, and to a lesser extent, a consumer may purchase directly from exporters. Figure 1 below outlines the usual sales channels.

Figure 1- Sales flow diagram

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Prior to this review, as discovered during the continuation inquiry, the Australian industry consisted of Arrowcrest (the applicant to this review) and Dragway.

At the time of the continuation inquiry, Arrowcrest manufactured significant volumes of ARWs primarily for the OEM segment with low sales volumes into the aftermarket for ARWs. Dragway did not participate in the continuation inquiry.

Since the continuation inquiry, and following the cessation of passenger vehicle manufacturing in Australia, Arrowcrest is no longer manufacturing ARWs for the OEM segment and has ceased manufacturing ARWs altogether.

The aftermarket for ARWs is now serviced primarily by imports and a small amount of Australian production.

Figure 2 below shows that the top 5 countries exporting ARWs to Australia are: China, Thailand, Taiwan, Japan and the United States of America (USA).

Figure 2 - Import volumes by country

5.4 Market trends for aftermarket aluminium road wheels

Based on discussions with importers and the Australian industry, the Commission considers that, while general economic and other conditions affect demand for aftermarket ARWs, total vehicle registrations and new vehicle sales are the key drivers of demand.

Car registration data has shown year on year growth over a number of years. Forecasts suggest that this trend will continue. Car registrations in Australia are expected to reach 14.2 million by the end of 2018, according to Trading Economics global macro models and analysts’ expectations. In the longer-term, Australian car registrations are projected to trend to around 14.35 million by 2020, according to the Australian Bureau of Statistics econometric models.

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Figure 3 - Australian car registration history and forecast – 2008 to 2017

Based on the above projections, the Commission considers that demand for aftermarket ARWs is likely to continue.

5.5 Australian industry’s ability to service the aftermarket for ARWs

Notwithstanding the strong demand for ARWs, the Australian industry, producing high quality custom and made to order ARWs, currently produces less than one percent of the estimated Australian demand.

While the Australian industry has spare capacity, at maximum capacity it would still only be able to service less than one percent of the estimated Australian demand. Conversely, there will remain a heavy reliance on imported ARWs to service the estimated Australian demand.

5.6 Competition within the aftermarket for ARWs

5.6.1 Product differentiation

Notwithstanding the importance of the design of the inner part of the wheel (the visible outer surface which gives the wheel much of its aesthetic appeal), ARWs are defined by wheel size, offset (the distance from the hub mounting surface to the center line of the wheel), bolt pattern and build type (single piece cast wheels versus two or three piece composite wheels).

Each vehicle make and often model has a particular configuration of these elements and off the shelf ARWs are made specifically to suit certain vehicles.

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Some ARW manufacturers, particularly at the higher end of the market producing for brands such as Mercedes, Porsche, Maserati, Jaguar, BMW etc. specialise in manufacturing solely, or primarily, for such brands.39

Other ARW manufacturers, typically those with higher volumes and lower price points produce wider ranges of ARWs, including for more widely available vehicles such as Holden, Ford, Toyota, Hyundai etc.

One of the challenges being faced by importers and retailers of ARWs over the past decade or more has been the introduction of many new vehicle brands and models. Because each brand and model may have different technical specifications for the size and fitment of the wheels, general importers and retailers who are not specialising in a particular brand are needing to hold much more stock than previous years.

Some retailers are taking the risk and cost associated with higher stock levels, while others are turning to wholesale distributors in order to manage the financial and logistical needs required to hold greater volumes of stock.

As custom ARW manufacturers, both Dragway and Starcorp can produce ARWs to suit most vehicles, however their primary target markets are consumers who have customised cars (with flared guards etc.) requiring alterations to the off-sets on the wheels, show cars, or legacy vehicles (older classic cars that are no longer manufactured and for which few if any new off the shelf ARWs would be available).

5.6.2 Price competition

As outlined in REP 378, the Commission acknowledges that there are a range of factors relevant to any purchasing decision, including (but not limited to) price. However, the Commission is of the view that the importance placed on price will vary depending on the circumstances of the purchase.

Prices for aftermarket ARWs vary greatly. Cheaper entry level ARWs manufactured via a high volume casting operation can sell from as little as $150 per wheel. More specialised ARWs manufactured in lower volumes to suit high end brands, or custom made ARWs to suit unique consumer specifications, can cost $1,200 or above. In addition, there are ultra-high premium ARWs that can cost up to $5,000 (or sometimes more) per wheel to suit the very top end vehicles such as Ferrari or Lamborghini.

Based on the verified data from this review, ARWs produced by the Australian industry are priced at the premium end of the market, being of high quality, two or three pieces, custom and made to order ARWs. Conversely, based on verified data from previous investigations, reviews and inquiries, the goods subject to anti-dumping measures from China are likely to be at the cheaper entry level end of the market.

An analysis of exporting countries volumes and unit values identifies that typically, the higher priced ARWs are being exported from the USA and Europe. Both Dragway and

39 See https://www.victorequipmentwheels.com/ Porsche https://www.mandruswheels.com/ Mercedes https://www.beyernwheels.com/ BMW etc.

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Starcorp identified the USA sourced ARWs to be their main competition, being of a similar quality and competing price point.

The Commission was not provided with sales data that it requested from importers in relation to this review or CONT 378. Therefore, the Commission does not have contemporaneous Australian retail sales data pertaining to the goods subject to anti-dumping measures.

Notwithstanding, the Commission has modelled the relative price points in Australia of goods being sourced from various countries. This modelling utilises data from the ABF import database, which has been compared to the verified sales data the Commission has obtained from the Australian industry members.

To estimate the price points of imported goods to consumers in Australia, the Commission has had regard to the landed, duty paid costs.

The result of this analysis indicates that, the goods originating from the USA and Europe are at the higher end of the imports and are more likely to be competing with the Australian produced goods, rather than goods originating from Asian countries, such as China. This is in line with views expressed by the Australian industry.

The charts below demonstrate that the Chinese and Thailand goods have the lowest estimated landed, duty paid costs per wheel. China and Thailand are also the two largest exporters of ARWs into Australia.

Figure 4 - Pricing comparison

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Figures 4 and 5 - Pricing comparison

In regards to the imported goods from China, a significant volume, approximately 41 per cent, is sourced from exporters that are not subject to the anti-dumping measures.

Additionally, the majority of imported goods from China which are subject to the anti-dumping measures, are exposed to relatively low IDD and ICD.

The largest five Chinese exporters of ARWs that are subject to measures account for 78 per cent of all ARWs subject to the anti-dumping measures. The Commission has calculated that the removal of the anti-dumping measures would add minimal cost per wheel to the goods exported by these five exporters.

The combination of:

the volume of low priced goods that are either not subject to the anti-dumping measures, or are subject to relatively low levels of IDD and ICD;

the associated impact of the IDD and ICD on the overall cost to import the goods that are subject to the anti-dumping measures;

the lower retail price point that the goods from China are likely to be sold at in Australia in comparison to goods produced by the Australian industry, as can be seen from Figures 4 and 5; and

Dragway and Starcorp’s claims that they are predominantly competing with ARWs manufactured in the USA,

support a conclusion that the Australian industry, by producing a high-end custom products, are not directly competing with the goods subject to the anti-dumping measures. Removal of the anti-dumping measures is likely to have an immaterial impact on goods produced by the Australian industry.

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5.6.3 Economies of scale

The nature of Dragway and Starcorp’s business model, which is to produce high quality custom and made to order ARWs on an order by order basis means that neither company can take advantage of economies of scale. This is in contrast to the Commission’s observations of the business models of Chinese exporters that have participated in previous investigations, reviews and inquiries.

Dragway mainly produces high quality two piece ARWs, a process that involves taking a billet (a block of aluminium) and machining it using CNC millers to carve out the finished inner wheel. This is then fitted to the one piece outer rim and finished.

The advantage of producing ARWs from billet rather than by casting is that the billet is a solid piece of metal of certified strength and quality, rather than liquid metal poured into shape. In addition, the CNC machines have the advantage of being able to be produce an ARW to any computer generated design. The trade-off for such quality and flexibility of design is cost and time. Production of ARWs from billet is more expensive as the production process requires much more time to be programmed, handled, machined, assembled and finished.

Starcorp produce three piece custom wheels through machining blanks of the inner wheel using CNC millers to finish the outer rim. This is then bolted to the two piece outer rim.

The advantage of machining the cast or forged blanks of the inner wheel is that the wheel can be customised to suit the wheel offset and bolt pattern required by the consumer. The trade-off for such flexibility is in time and cost. Like Dragway, the process requires significant work in programming, machining, polishing, painting and assembly.

Most low cost, high volume ARWs are produced using a casting technology.

Casting is performed by pouring molten metal into a mould shaped more or less like the finished wheel, and letting it cool. Some polishing and finishing is then done to complete the wheel. There is a slight variant to this called pressure casting where the metal is pumped into the mould creating a less porous structure. The vast majority of ARWs sold into the Australian market are cast. The benefits of casting include the ability to produce high volumes, the low scrap losses and the low overall cost. The trade-off being that wheel casts do not offer flexibility to change design easily.

The Commission notes that the operating models of the Australian industry are unlikely to compete with the high volume, low cost production method of casting, typically used by Chinese producers.

5.6.4 Order fulfilment

The Commission notes that most ARWs are sold into the Australian market from stock. Retailers will typically sell products that they have in stock or have ready local access to, such that fulfilment of the order if not immediate, would usually be within a few days.

As custom or made to order manufacturers of ARWs, neither of the Australian industry participants have stock available for standard vehicles. A typical order enquiry to sale cycle for custom or made to order ARWs is anywhere from three to six weeks.

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5.6.5 Summary – Competition within the aftermarket for ARWs

The Commission concludes that the Australian industry is unlikely to be in direct competition with the imports subject to anti-dumping measures due to the following differentiating factors:

the Australian industry produces high quality, high priced ARWs relative to the Chinese imports, which are likely to be sold at a much lower price point;

higher quality Australian produced ARW’s are manufactured using time consuming and expensive manufacturing processes, the cost of which inhibits the Australian industry from competing at the lower price points;

the Australian industry builds to order to meet specific technical and other consumer requirements, some of which cannot be met by off the shelf ARWs;

the Australian industry does not hold stock and therefore cannot compete for day to day retail sales of ARWs; and

the Australian industry does not have the production capacity to service the higher volume (lower priced) end of the market.

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6 ECONOMIC PERFORMANCE OF THE AUSTRALIAN INDUSTRY

6.1 Introduction

6.1.1 Australian industry’s claims

As previously noted, the composition of the Australian industry has changed significantly since Arrowcrest ceased manufacturing ARWs in Australia.

The remaining two Australian industry members (Dragway and Starcorp) have different views regarding the economic performance of the Australian industry.

Starcorp is not claiming that the goods subject to anti-dumping measures are impacting on its business. In contrast, Dragway has claimed that the goods subject to anti-dumping measures are adversely affecting its business, across multiple injury factors.

6.1.2 Verification of Australian industry financial data

The Commission invited both Dragway and Starcorp to complete an Australian industry questionnaire.

Dragway

Dragway completed the questionnaire and the Commission conducted an on-site verification visit in July 2018. The Commission was able to verify Dragway’s sales data upwards to their accounting system and financial statements, and downwards to source documents. The Commission considers that Dragway’s sales listing is a reasonably accurate representation of its sales volumes and values in relation to ARWs.

The Commission was unable to verify the completeness and relevance of Dragway’s cost to make and sell (CTMS) spreadsheet by reconciling the CTMS data through the accounting system and financial statements, and downwards through the transactional and source documentation. During the verification, the Commission reviewed Dragway’s business model, inspected its production facilities, discussed their views on the Australian market for ARWs, their injury claims and their view that the Australian industry would suffer a recurrence of material injury if the measures were to be revoked.

Starcorp

While invited to complete a full Australian industry questionnaire, Starcorp was only willing to complete the sales listing. It was not willing to complete the CTMS and other related worksheets associated with the questionnaire. The Commission conducted an on-site verification visit in September 2018. The Commission was able to verify Starcorp’s sales listing upwards to its financial statements and downwards through selected transactional and source documentation. The Commission considers the sales listing to be a reasonably accurate representation of Starcorp’s sales volumes and values in relation to ARWs.

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During the verification, the Commission also reviewed Starcorp’s business model, inspected its production facilities, discussed their views on the Australian market for ARWs, and discussed their views that the Australian industry would not suffer a recurrence of material injury if the measures were to be revoked.

Suitability of the Australian industry’s financial data

Noting the difficulties associated with obtaining and verifying financial data from both Dragway and Starcorp, the Commission’s assessment of the current economic condition of the Australian industry as a whole, is limited to sales volumes, market share and selling prices.

6.1.3 Approach to analysis

This chapter considers the material injury that was found to be occurring when the anti-dumping measures were first put in place, as well as the Australian market conditions since that time. The Commission notes that the anti-dumping measures were first applied in the first quarter of the 2013 financial year. The anti-dumping measures were continued in financial year 2017 following REP 378.

The Commission has examined the Australian market and the economic condition of the Australian industry from 1 July 2006 for the purposes of its injury analysis. This is an aggregate analysis that combines consideration of both the OEM and aftermarket segments. Where necessary, the Commission has undertaken a segmented analysis (based on the information available) to consider the economic performance of the Australian industry in the OEM and aftermarket segments separately.

The injury analysis detailed in this chapter is based on verified financial information submitted by:

Arrowcrest, for the purposes of REP 181 and REP 378;

Dragway and Starcorp, where possible, in relation to this review; and

data from the ABF import database.

It is noted that, prior to this review, Dragway and Starcorp were not visited by the Commission. Dragway’s sales volumes were previously considered to be immaterial relative to Arrowcrest, who represented the vast majority of the Australian industry for the purposes of REP 181 and REP 378. Starcorp were not previously identified to be part of the Australian industry. Therefore, for the purposes of REP 181 and REP 378, the Commission utilised data provided by Arrowcrest in assessing of the economic performance of the Australian industry.

Consideration of whether it is likely, in the absence of the anti-dumping measures, that material injury caused by dumping and subsidisation (as opposed to other factors) will continue or recur is considered in chapter 7 of this report.

The data supporting the Commission’s analysis of the Australian market and the economic condition of the Australian industry is at Confidential Attachment 1.

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6.1.4 Previous findings in relation to injury

In REP 181 it was found that the Australian industry had experienced material injury in the form of:

price suppression;

lost sales volumes;

lost revenue;

lost profits and profitability;

reduced capacity utilisation;

reduced employment; and

reduced return on investment.

In REP 378 the Commissioner was satisfied that the expiration of the measures would lead, or would be likely to lead, to a continuation or recurrence of the material injury40 that the anti-dumping measures were intended to prevent.41

6.2 Volume effects

6.2.1 Sales volumes

Of the two Australian industry members, Starcorp is significantly larger than Dragway in terms of sales volumes. Based on Dragway and Starcorp’s financial data, the Australian industry’s sales of ARWs represent a small fraction of those previously found as part of REP 181 and REP 378, when the Australian industry included Arrowcrest.

In REP 378, it was found that, in financial year 2016, Arrowcrest’s sales to the OEM market accounted for approximately 95 per cent of all domestically produced ARWs. Arrowcrest’s sales to the OEM segment have now ceased. In addition, with the exit of Arrowcrest as an Australian industry member, the Australian industry’s sales to the aftermarket segment has also fallen by approximately 95 per cent.

6.2.2 Australian market share

Both Dragway and Starcorp are manufacturers of custom and made to order ARWs. Their combined sales volume is less than one per cent of the total Australian market for ARWs.

6.3 Price effects

Price depression occurs when a company, for some reason, lowers its prices.

Price suppression occurs when price increases, which otherwise would have occurred, have been prevented. An indicator of price suppression may be the margin between revenues and costs.

40 The Commissioner also found that the expiration of the measures would lead to or would be likely to lead to the continuation or recurrence of the dumping and subsidisaton that the anti-dumping measures were intended to prevent. 41 However, it is unlikely that this material injury will continue or recur as a result of goods exported to Australia by CITIC Dicastal Co., Ltd.

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Dragway claims that it is experiencing injury in the form of price suppression. The company submitted standard price lists which showed that standard pricing remained the same over the three previous years. Dragway, were unable to provide any evidence demonstrating that it had lost sales or been forced to reduce its prices in response to the goods subject to the anti-dumping measures.

The Commission was also unable to verify Dragway’s CTMS to its satisfaction. In addition, Starcorp is unwilling to supply its CTMS data. Consequently, the Commission is unable to make a fully informed judgement as to whether the Australian industry as a whole is suffering price suppression. Noting the relative size of Dragway’s production compared to Starcorp, and considering that Starcorp have not claimed price suppression injury, the Commission concludes that any price suppression injury suffered by Dragway is unlikely to be material to the Australian industry as a whole.

It is noted that, comparatively, Dragway and Starcorp’s unit selling prices in calendar year 2017 are significantly higher than those previously obtained by Arrowcrest, in both the OEM segment and the aftermarket segment, as verified in REP 181 and REP 378.

6.4 Profit effects

As noted above, the Commission was unable to verify Dragway’s CTMS data to its satisfaction. In addition, Starcorp was unwilling to supply its CTMS data. The Commission is unable to make a fully informed judgement as to the current profitability of the Australian industry.

Noting the relative size of Dragway’s production compared to Starcorp, and considering that Starcorp have not claimed profit related injury, the Commission concludes that any profit injury suffered by Dragway is unlikely to be material to the Australian industry as a whole.

6.5 Other injury factors

6.5.1 Dragway’s claims

Dragway claimed that it is experiencing injury in the form of other injury factors, including:

reduced capacity utilisation; and

reduced employment numbers.

6.5.2 Reduced employment

Employment numbers within Dragway’s business have decreased over the past three years. In addition, the company claims that, as a family operated business, it has faced material injury in the form of family members working longer hours and not being paid for extra hours worked.

The Commission was not provided with employment numbers for Starcorp. As such, the Commission is unable to make a fully informed judgement as to the current employment numbers of the Australian industry for ARWs.

The Commission has considered Dragway’s claims of material injury in the form of reduced employment. However, noting the relative size of Dragway’s production

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compared to Starcorp, and considering that Starcorp have not claimed injury of this nature, the Commission concludes that any injury suffered by Dragway is unlikely to be material to the Australian industry as a whole.

6.5.3 Reduced capacity utilisation

Dragway has claimed to have significant excess capacity. The Commission was not provided with capacity utilisation data for Starcorp. As such, the Commission is unable to make a fully informed judgement as to the current capacity utilisation of the Australian industry as a whole.

The Commission has considered Dragway’s claims of material injury in the form of reduced capacity utilisation. However, noting the relative size of Dragway’s production compared to Starcorp, and considering that Starcorp have not claimed injury of this nature, the Commission concludes that any injury suffered by Dragway is unlikely to be material to the Australian industry as a whole.

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7 LIKELIHOOD THAT DUMPING, SUBSIDISATION AND MATERIAL INJURY WILL CONTINUE OR RECUR

7.1 Findings

The Commissioner’s findings are that revoking the anti-dumping measures:

would lead to, or be likely to lead to, the continuation or recurrence of the dumping and subsidisation that the measures are intended to prevent; but

would not lead to, or be likely to lead to, the continuation or recurrence of the material injury that the measures are intended to prevent.

7.2 Legislative background

Pursuant to subsection 269ZDA(1A), after conducting a revocation review of the anti-dumping measures, the Commissioner must make a revocation recommendation, unless satisfied that revoking the measures would lead, or be likely to lead, to a continuation of, or a recurrence of, the dumping or subsidisation and material injury that the measures are intended to prevent.

7.3 Is dumping and/or subsidisation likely to continue or recur?

7.3.1 Continuation or recurrence of dumping?

The Commission notes that INV 181, REV 263 and CONT 378 each separately examined whether dumping of the goods had occurred in relation to exporters of the goods from China for the periods 1 July 2010 to 30 June 2011, 1 July 2013 to 30 June 2014 and 1 July 2015 to 30 June 2016 respectively. In each of these matters dumping was identified.

The following table outlines the dumping margins found in each of these matters.

Exporter INV 181 REV 263 CONT 378

Zhejiang Shuguang Industrial Co Ltd -2.0% NA NA

YHI Manufacturing Co Ltd 25.5%42 Not examined Not examined

CITIC Dicastal Wheel Manufacturing Co Ltd 6.3% 8.4% 8.4%

Pilotdoer Wheel Co Ltd 19.9% 2.7%43 Not examined

Zhejiang Jinfei Kaida Wheel Co Ltd 5.6% 7.8% 7.8%

Zheijiang Yueling Co Ltd 9.9% 8.3%44 3.2%

Jiangsu Yaozhong Aluminium Wheels Co Ltd Not examined NA45 Not examined

Residual exporters No category of residual exporters

8.4% 7.5%

Uncooperative exporters 29.3% 40.3% 60.2%

Table 3 - Outline of dumping margins identified

42 Modified upon reinvestigation. REP 204 refers. 43 Modified as a result of ADRP Report No. 33. 44 ibid. 45 This company did not export the goods during the review period examined and received a floor price.

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In CONT 378, it was found that if the anti-dumping measures were not continued, there was sufficient evidence to suggest that the dumping of ARWs from China would be likely to continue. In reaching this conclusion the following factors were considered:

dumping by identified exporters had continued during the inquiry period;

there was substantial excess capacity in China;

measures had been implemented against Chinese exporters in other markets, including the European Union and India;

import volumes from both before and after the measures were imposed, including the export pathways and distribution channels into the Australian market had been maintained; and

exporters in China that supply aftermarket retailers do not experience the same limitations in switching destination markets as those supplying the OEM segment.

Given that the anti-dumping measures were altered in June 2017, the Commission did not consider it necessary to recommend extending this review to include a review of the variable factors. The Commission has relied on previous findings established in REV 263 and CONT 378 as well as contemporaneous import statistics from the ABF import database in relation to this review. The contemporaneous import statistics indicate that imports of the goods are continuing in significant volumes, demonstrating that export pathways and distribution channels into the Australian market continue to exist.

The Commission considers that, based on all available evidence, dumping will continue if the anti-dumping measures were to be revoked. No submissions have claimed otherwise.

7.3.2 Continuation or recurrence of subsidisation

INV 181, REV 263 and CONT 378 each separately examined in detail whether countervailable subsidies were received by exporters in respect of the goods from China for the periods 1 July 2010 to 30 June 2011, 1 July 2013 to 30 June 2014 and 1 July 2015 to 30 June 2016 respectively. The following table outlines the subsidy margins found.

Exporter INV 181 REV 263 CONT 378

Zhejiang Shuguang Industrial Co Ltd 1.3% NA NA

YHI Manufacturing Co Ltd 11.7% Not examined Not examined

CITIC Dicastal Wheel Manufacturing Co Ltd

1.3% NA NA

Pilotdoer Wheel Co Ltd 4.4% 2.5% Not examined

Zhejiang Jinfei Kaida Wheel Co Ltd 2.8% 3.4% 2.4%

Zheijiang Yueling Co Ltd 5.1% 3.0%46 1.1%

Jiangsu Yaozhong Aluminium Wheels Co Ltd

Not examined 2.2% Not examined

Residual exporters No category of residual exporters

6.7% 2.6%

Non-cooperating exporters 58.8% 57.6% 53.1%

Table 4 - Outline of subsidy margins identified

CONT 378 examined 34 subsidy programs, including 32 programs found to be countervailable in REV 263 and two additional programs after receiving information from

46 Modified as a result of ADRP Report No. 33.

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exporters examined in CONT 378. Two programs found to be countervailable in REP 263 expired prior to the review period for REP 378. In total CONT 378 found 32 programs to be countervailable in relation to the review period for CONT 378. CONT 378 also identified that a number of programs had continued from the original investigation through to the continuation review and that additional programs had also been identified over time. CONT 378 concluded, based on these factors, that there was no evidence to suggest that the Government of China will cease offering subsidises in some form, to manufacturers of ARWs.

Contemporaneous import statistics obtained from the ABF import database show that imports of the goods are continuing in significant volumes, demonstrating that export pathways and distribution channels into the Australian market still exist for subsidised ARWs.

The Commission considers that, based on all available evidence, subsidisation of ARWs from China is likely to continue. No submissions have claimed otherwise.

7.4 Is material injury likely to continue or recur?

7.4.1 Material injury findings in CONT 378

CONT 378 found that the expiration of the measures would lead, or would be likely to lead, to a continuation of the material injury that the measure were intended to prevent.47

The Commission also considered that the significant reduction in volumes going to the OEM segment in Australia as the result of local car manufacturing ceasing would have a serious impact on the business model of the Australian industry. As a result, the Commission considered that after 2017 the Australian industry consisting mainly of Arrowcrest at the time) would enter a period of major transition, during which time it would be particularly susceptible to material injury in the aftermarket segment from dumping and subsidisation, as well as other factors.

The Commission was also of the view in CONT 378 that conditions of competition between imported and domestically produced ARWs (consisting mainly of Arrowcrest at the time) were similar in the aftermarket segment. In particular, the Commission established that importers were selling goods to the same customers as Arrowcrest, and that domestically produced ARWs could be substituted with imported goods.

7.4.2 Australian industry and market findings in CONT 378

CONT 378 identified that the Australian industry consisted of two manufacturers, Arrowcrest and Dragway. In its application for CONT 378 Arrowcrest estimated that Dragway accounted for five to 10 per cent of local production and that they accounted for the remaining 90 to 95 per cent of local production.

47 CONT 378 also found that it is unlikely that this material injury would continue or recur as a result of goods exported to Australia by one exporter, CITIC Dicastal, who exclusively supplied the OEM segment in the Australian market.

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Two key market segments were identified in CONT 378, these being the OEM segment and the aftermarket segment. The Commission also identified the key channels to market were direct to consumer, sales to the OEM segment and sales to aftermarket retailers.

In relation to purchasing decisions, the Commission was of the view that there were a range of factors relevant to any purchasing decision, including (but not limited to) price. The Commission was of the view that the importance placed on price will vary depending on the circumstances of the purchase.

7.4.3 Changes in the Australian ARW market and Australian industry subsequent to the findings in CONT 378

As noted in section 4.2 above, at the time of CONT 378, Arrowcrest claimed that it represented the vast majority of the Australian industry. Arrowcrest produced ARWs for both OEM and aftermarket consumers.

Arrowcrest supplied Toyota in the OEM segment and supplied a range of major and independent retailers in the retail segment. Data available to the Commission indicates that Arrowcrest were not selling through the direct to customer sales channel.

Following CONT 378 and following the closure of the Australian passenger vehicle industry in Australia, Arrowcrest ceased producing ARWs in Australia in October 2017.

The remaining Australian industry members, Dragway and Starcorp, are now predominantly selling ARW’s direct to consumers and, to a lesser extent, through retailers.

It is also noted that as a result of the closure of Arrowcrest, the production capacity of Australian industry has reduced substantially.

7.4.4 Impact of changes in the Australian ARW market and the Australian industry in relation to the continuation or recurrence of material injury

With the remaining Australian industry consisting of Dragway and Starcorp, the domestic competitive situation has changed considerably. Arrowcrest was a high volume and low cost producer of ARWs to the OEM and aftermarket segments for standard vehicles. Both of the remaining Australian industry members’ business models are not based on high volume. Both Australian industry members offer high quality custom and made to order ARWs. The nature of this model is that it is low volume and high cost, servicing a smaller market segment.

As outlined in section 5.6.5, it is the Commission’s assessment that the Chinese produced ARWs sold to wholesalers and retailers as off the shelf finished goods are not competing with the custom and made to order market targeted by the Australian industry by virtue of differences in quality, price, availability, flexibility in design and custom fitment.

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7.4.5 Submissions regarding material injury if the measures were revoked

Bob Jane Corporation Pty Ltd (Bob Jane), an importer of ARWs exported by Zhejiang Shuguang Industrial Co., Ltd from China, made a submission48 regarding imported goods. Bob Jane expressed that, should the measures be revoked, it would have safety concerns around the importation of cheap Chinese made ARWs, suggesting that some imported ARWs may not meet Australian safety standards.

While the Commission acknowledges the importance of maintaining strong consumer safety standards, such matters are not within the scope of this revocation review’s recommendations.

Starcorp submitted49 that its wheels are produced on a bespoke basis for its clients and the market for the imported goods is a market which is based on mass produced, low cost wheels provided to aftermarket consumers who require a cheaper option of ARW. Starcorp stated that the ARWs it produces are a more expensive option for consumers purchasing ARWs. Starcorp maintain that these two markets were completely different in pricing, quality and range.

Dragway submitted50 that it was able to categorically state that injury would recur if the current anti-dumping measures were revoked. Dragway submitted that CONT 378 had been finalised less than a year ago and that nothing had changed since then in terms of the price of dumped imports or the fact that price was one of the key considerations to consumers of ARWs.

As mentioned above, the Commission has found that the nature of the Australian industry and Australian market has changed substantially subsequent to CONT 378. The Commission’s finding is that Chinese produced ARWs are not directly competing with the custom and made to order market targeted by the Australian industry.

7.4.6 Materiality of any injury if it was to continue or recur

The Commission’s assessment, and the view of Australian industry members is that the Australian industry is not directly competing with ARWs imported from China.

In addition, as outlined in section 5.6, it is likely that revocation of the measures would have little to no impact on Australian selling prices of the goods imported from China.

The Commission’s assessment is that revocation of the measures is likely to have an immaterial impact on the Australian industry as a whole.

49 EPR 464, item no. 15. Starcorp also made an earlier submission (EPR 464, item no. 5.) which discussed aspects of its views regarding material injury. 50 EPR 464, item no. 4.

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8 FINDINGS AND PROPOSED RECOMMENDATIONS

8.1 Summary of findings and conclusions

Based on information currently available, the Commissioner’s findings and conclusions are that:

there is an Australian industry producing like goods, consisting of Dragway and Starcorp;

the Australian market for ARWs is predominately supplied by imports, most of which are from China. A small proportion of the Australian market is supplied by the Australian industry;

if the anti-dumping measures were to be revoked, it would lead, or be likely to lead, to a continuation of, or a recurrence of, the dumping and subsidisation that the anti-dumping measures are intended to prevent; however

if the anti-dumping measures were to be revoked, the evidence does not support a finding that, it would lead, or be likely to lead, to a continuation of, or a recurrence of, the material injury that the anti-dumping measures are intended to prevent. This is because the Australian industry is unlikely to be in direct competition with the imports subject to anti-dumping measures, noting that:

the majority of the Australian industry (namely Starcorp as the largest producer) does not believe that they would suffer material injury if the measures were revoked and are supportive of the measures being revoked;

the Australian industry does not have the capacity to fully service the Australian market. Even at full capacity, Dragway and Starcorp’s combined Australian production could service less than one per cent of the Australian market for ARWs. This means that there will remain a significant reliance of imported goods to service the Australian market;

both Australian industry members operate different business models to that of exporters subject to the anti-dumping measures. Producing custom and made to order ARWs means that the Australian industry do not maintain stock and do not compete for retail sales on a day to day basis;

the manufacturing methods and resultant cost profile for producing custom and made to order ARWs is such that it does not allow either Australian industry member to compete at the lower or mid points of the ARW market, which is typical of the ARWs being exported from China;

based on information provided by Dragway and Starcorp, and based on pricing analysis conducted by the Commission, Australian industry members are more likely to be competing with goods from the USA and Europe; and

most imports from China currently attract little to no IDD or ICD; and

revocation of the measures is unlikely to have any impact on the Australian industry as a whole.

8.2 Proposed recommendations

Based on the above findings, and subject to further submissions, the Commissioner proposes to recommend to the Minister that the notices be revoked in relation to all exporters generally.

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It is proposed that any decision by the Minister in this matter take effect from 2 March 2018, the date of publication of the notice indicating the Commission’s proposal to undertake the revocation review.

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9 LIST OF ATTACHMENTS

Confidential Attachment 1 Analysis of Australian Market