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Non-Confidential Version

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DEPARTMENT OF TRADE AND INDUSTRY

SAFEGUARD MEASURES CASE NAME:

APPLICATION OF PHILIPPINE TESTLINER BOARD INDUSTRY

NON-CONFIDENTIAL VERSION

SGM CASE NO. : 01-2009 DATE : 05 May 2010

REPORT ON THE PRELIMINARY DETERMINATION ON THE APPLICATION FOR SAFEGUARD MEASURES AGAINST IMPORTATION OF TESTLINER BOARD

FROM VARIOUS COUNTRIES


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REPORT ON THE PRELIMINARY DETERMINATION ON THE APPLICATION FOR SAFEGUARD MEASURES AGAINST IMPORTATION OF TESTLINER

BOARD FROM VARIOUS COUNTRIES

I. INTRODUCTION

This is a report on the preliminary determination conducted by the Department of Trade and Industry (DTI) under Section 7 of Republic Act (RA) 8800, the Safeguard Measures Act, on the petition filed by the domestic testliner board industry represented by United Pulp and Paper Co., Inc. (UPPC) on testliner board classified under tariff headings/ASEAN Harmonized Tariff Nomenclature (AHTN) Code Nos. 4805.24.00, 4805.25.10 and 4805.25.90 imported from various countries. This report addresses the issue of whether the evidence submitted by the domestic industry, the importers, exporters and other interested parties show that increased imports are the substantial cause of, or threaten to substantially cause serious injury to the local industry.

The period of investigation (POI) for the import surge and injury to domestic industry is

from 2004 to 2008.

I.A The Philippine Industry's Petition

I.A.1 Parties to the Petition I.A.1.a DOMESTIC INDUSTRY/PETITIONERS

Section 4 (f) of RA 8800 defines "domestic industry" as referring to the "domestic producers, as a whole, of like or directly competitive products manufactured or produced in the Philippines or those whose collective output of like or directly competitive products constitutes a major proportion of the total production of those products". Rule 4.1 of the Implementing Rules and Regulations (IRRs) of RA 8800 further provides that: "(1) in the case of a domestic producer which also imports the product under consideration, only its domestic production of the like or directly competitive product shall be treated as part of the domestic production, or (2) in the case of a domestic producer which produces more than one product, only that portion of its production of the like or directly competitive product may be treated as part of such domestic industry".

The petitioner, United Pulp and Paper Co., Inc., accounts for 71% of the total Philippine

production in 2008. This satisfies the industry requirements under Section 4(f) of RA 8800.

On 02 December 1969, United Pulp and Paper Co., Inc. (UPPC) was registered with the

Securities and Exchange Commission (SEC). Its Articles of Incorporation were amended on 26 November 2008. UPPC is the largest producer of testliner boards and corrugating medium using 100% recycled paper. UPPC’s office is located in Makati City and its plant is situated at Calumpit, Bulacan.

UPPC is a subsidiary of the Siam Pulp and Paper Public Company Limited (SPPC), the

paper and packaging arm of the Siam Cement Group of Thailand. SPPC started its operations in the Philippines in 1996. In 2004, SPPC and Thai Union Paper Industry Co., Ltd. (TUPI) increased their shareholdings in UPPC. In 2005, SCG Paper provided additional investment for UPPC’s 30 megawatt Circulating Fluidized Bed (CFB) Boiler. SCG Paper reaffirmed its commitment to sustain and improve the industry’s performance through investment for improvement, efficiency and expansion in the near future.


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Other manufacturers of testliner board include Container Corporation of the Philippines (CCP), Bataan 2020, Milestone Paper Corp., Liberty Paper Mills, Makban Pulp and Paper Corp. (former Megapack Corp.) and Cascade Paper of the Philippines.

CCP informed DTI that it is not participating in the said petition. Bataan 2020, Inc.

stated that the company does not object to the application of UPPC but is not participating in the proceedings. Milestone Paper Products, Inc. submitted documents pertaining to their whole operations, i.e. both corrugating medium and testliner board. Pulp and Paper Manufacturers Association, Inc. (PULPAPEL) in behalf of Liberty Paper Incorporated stated that they support the petition of UPPC. Makban Pulp and Paper Corp. and Cascade Paper of the Philippines did not submit any position indicating support for or opposition to the petition of UPPC.

I.A.1.c IMPORTERS

The following importers of testliner boards provided by UPPC had no record of

importation in the Bureau of Customs-Import Entry Declarations (BOC-IEDs) database during the POI. Thus, they were not requested to answer the DTI Importer’s Questionnaire:

Name of Importer Nature of Business Address (Head Office/Plant)

Luzon Area 1. Basic Box Industry Corporation

Converter 8426 Dr. A. Santos Avenue, Parañaque, Metro Manila

2. Goodyear Container

Corrugator

5118 A. Don Benito Jao St. Mapulang Lupa, Valenzuela

3. Greenstone Packaging Corporation Corrugator

175 Tandang Sora Ext., Sta. Quiteria, Caloocan City

4. KC Packaging Corporation

Corrugator

C. Raymundo Avenue, Bo. Rosario, Pasig City

5. Koufu Color Printing Corporation

Converter

Lot 4-5 Blk. 3 Phase 2 Mountview Industrial Complex Bo. Carmona, Cavite

6. San Miguel Rengo Packaging Corporation

Corrugator Dr. A. Santos Avenue, Parañaque, Metro Manila, P.O. Box 251 MCC Phil.

7. Sunpack Container & Packaging Corporation

Corrugator

Molave St. Ceris II Subdivision, Canlubang Laguna

8. Triple Star Packaging Corrugator # 173 Cordillera St., Quezon City 9. Winner Ace Cardboard, Inc.

Corrugator

#842 Alvarado St., Unit 1007 Binondo Terrace, Binondo, Manila

Visayas-Mindanao Area 10. Davao Packaging Corrugator Bo. A.O. Floirendo, Panabo City 11. Dole Phils. Corrugator 12. Luzviminda Bonded Warehouse

Service

Inc. Fao Lapanday Foods Corporation CCBMW No. 107 Brgy. Mandug, Buhangin District, Davao City, Phlippines

13. Mindanao Corrugated Fibreboard Corrugator Bo. Sasa Davao City 1011 14. Phil. International Trading

Corporation

Trader

National Development Company Bldg. 116 Tordesillas Street, Salcedo Village, 1227 Makati City.


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The following importers of testliner boards provided by UPPC appeared in the BOC-IEDs database during the POI and were requested to accomplish and submit the DTI Importer’s Questionnaire:

Name of Importer Nature of Business Address (Head Office/Plant)

Luzon Area

1. Boxboard Containers Corporation Corrugator

# 8 Obrero St., Bagumbayan, Quezon City

2. Cavite Packaging Corporation Corrugator

1202 Galleria Corporate Center EDSA, Ortigas Ave., Quezon City

3. Central Corrugated Box Mfg. Corporation

Corrugator

Unit 20 Jollibee Plaza Ortigas Center, Pasig City

4. Dowell Container & Packaging Corporation

Corrugator

92 E Rodriguez Jr. Avenue, Ugong Norte, Quezon City

5. Jennson Packaging Corporation Corrugator

3210 Robinsons Equitable Tower, Ortigas, Pasig City

6. Malinta Corrugated Boxes

Corporation Manufacturing

Corrugator

1706 A Philippine Stock Exchange Centre, West Tower, Exchange Rd., Ortigas

7. Megapack Container Corporation

Corrugator

No. 18 General Tirona St., Bagong Barrio, Caloocan City

8. Packageworld Inc.

Corrugator

Fortune Tobacco Corp., Parang, Marikina, Metro Manila

9. Superior Packaging Corporation

Corrugator

No. 5 Tandang Sora Extension, Sta. Quiteria, Novaliches, Quezon City

10. Twinpack Container Corporation

Corrugator

Unit 3 Sunriser Industrial Village, Llano Road, Bo. Llano , Caloocan City

11. United Container Corporation

Corrugator

720-A Gen. Luis St. Barrio Kaybiga, Caloocan City P.O. Box No. 3224, Mla.

12. Valenzuela Packaging Corporation

Corrugator

1509 A. Mariano St., BagBaguin, Valenzuela, Metro Manila

Visayas-Mindanao Area 13. Republic Corrugated Cartons Corrugator PO-O Mandaue, Cebu City

The following importers have record of importations of testliner boards appearing in the

BOC-IEDs database during the period of investigation. They were notified of the investigation and requested to fill-up the Importer’s Questionnaire.

Name of Importer Address

1. Banner Plasticard, Inc. Manggahan Light Ind’l Part, Amang Rodriguez Av., Bo. Manggahan

2. Combox, Inc. 3 Bustamante St., Tinajeros Malabon City 3. Constant Packaging Corp. 49 Malac Street Masambong, Quezon City 4. Green Kraft Corp. 15 Rev Garcia St., Brgy Milagrosa, Proj. 4, Q.C.

5. Lamina Graphics Corp. 18 Gen. Tirona St. Bagong Barrio Caloocan City/Vic Mulawin Rd. Law

6. Mandaue Foam Ind’s Inc. Hernan Cortes St., Banilad, Mandaue City

7. Mondo Ventures, Inc. Paragon Plaza 162 A. Bonifacio Ave. Paang Bundok EDSA Mandaluyong City

8. MTEC Water Treatment Tech, Inc. Bldg. 3, LSL Compound, Diode St. Lisppi, Bo. Diezmo, Cabuyao Laguna

9. Papertech, Inc. Rm. 231 Cityland Bldg. 128 Pioneer St. Buayang Bato, Mandaluyong City

10. S.P. Mamplasan Packaging Corp. Solid St. Cor. Ganado St. Liip, Mamplasan Biñan Laguna 11. Takano, Inc. Manchester Indl Cmpd., Sauyo Road, Novaliches, Q.C. 12. Tamiya Phils., Inc. PEZA-MEPZ II 13. Veco Paper Corp. Concepcion St., Brgy. Buli, Muntinlupa City


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I.A.1.d EXPORTERS

The following identified exporters of testliner boards provided by UPPC had no recorded importations in the BOC-IEDs database during the POI. Thus, they were not requested to answer the DTI Exporter’s Questionnaire:

Name of Exporter/ Overseas Producer Address

Finland Stora Enso Kanavaranta 1 FIN-00100 Helsinki France CMA CGM GMBH 4, quai d”Arenc 13235 Marseille cedex 02 France Korea HM Trading Corp.

RM. 306 Daeng Bldg., 377-1 Shin Dae Bang 2-Dong, Dongjack-Ku, Korea

United States of America Canusa Corporation 1532 Thames Street Baltimore, MD 21231

The following are the names of the exporters of testliner boards identified by UPPC and verified by DTI through the BOC-IEDs database during the period of investigation. They were requested to accomplish the Exporter’s Questionnaire:

Name of Exporter/ Overseas Producer Address

Australia Amcor Australasia 14-28 Remount Road, Launceston TAS 7520 Australia Visy Paper

Level 2, 533 Little Lonsdale St., Melbourne Victoria, 3000 Australia

Chinese Taipei Ban Yu Paper Mill Co., Ltd. (former Peikang Paper Co., Ltd.)

# 265 Min Lo Rd, Peikang Chen 65149 Yunlin Hsien Taiwan

Sun Favorite Co., Ltd.

20F, No. 3 Min-Sheng Rd., Sec. 1, Panchiao City, Taipei Hsien, Taiwan

Indonesia Fajar Paper (Pt. Fajar Surya Wisesa TBK) Jin. Abdul Muis 30, Jakarta Pusat 10160, Indonesia Pt. Indah Kiat Pulp and Paper Corp. Gedung B Jalan Raya Serpong, Km 8 Tangerang Indonesia Japan

Itochu Pulp and Paper 5-1 Kita-Aoyama 2-chome, Minato-ku, Tokyo, 107-8077, Japan

Tsubonoya Shigyo Co. 566, ARAI Japan Malaysia Muda Paper Mills

391, Jalan Tasek, Simpang Ampat, 14120 Seberang Perai Selatan, Penang, Malaysia

New Zealand Carter Holt Harvey

Kinleith Mill State Highway, Private Bag 6, Tokoroa, New Zealand

People’s Republic of China and Hong Kong, China Kwok Fung

O/B Shenzhen Penhongji Import Export Co., Ltd. RM 1309, 13/F WE

Sojitz (China) Co., Ltd. 19th Floor Fortune Building, No. 5 Dong San Huan Bei Lu, Chaoyang District, 100004, Beijing China

Wang Kei (Macao Commercial Offshore) Trading Ltd., Avenida Da Praia Grande No. 517 Edific, Macao

Singapore Maersk Trading

200 Cantonment Road # 10-00 Southpoint Singapore 089763 Singapore

Thailand

Hiang Seng Fibre Container Co., Ltd. 389 Chongnansee Rd., Klong-Toey, Bangkok 10110, Thailand

TS Paper Tube Co., Ltd

Suchat Wongviboonrath 4/364 M.1, Soi Samaedum, Bangkhuntien, Bangkok 10150 Thailand

Panjapol Paper 323 United Center Building, Silom Road, Silom, Bangkok 10500, Thailand


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The following are other exporters of testliner boards identified by the DTI based on BOC-IEDs during the period of investigation that were also requested to accomplish the Exporters’ Questionnaire:

Name of Exporter Country

1. Trade House Corporation Chinese Taipei 2. Pacific Dragon Int’l. PTE Ltd. 3. Mondo Ventures Inc. Germany

4. PT Surbaya Mekabox Ltd. 5. PT Lestari Karya Makmur Jl Mastrip Indonesia

6. Chou Packaging Co., Ltd. 7. Daei Papers Int’l. Corp. 8. Maruzen and Co., Ltd.

Japan

9. Elof Hanson Singapore 10. Hansa International AB Sweden 11. Central National Gottesman, Inc. South Africa 12. Siam Kraft Industry Co., Ltd. 13. Thai Union Paper Industry Co. Thailand

14. Paperflex Ltd. United Kingdom I.B. Role of the DTI under RA 8800 (The Safeguard Measures Act)

I. B.1 The Findings of Prima Facie Evidence to Initiate Preliminary Investigation

In establishing whether a prima facie case exists, the Secretary was guided by the provisions of Section 6 paragraph 3 of RA 8800 and its IRR in establishing that there is sufficient evidence to justify the initiation of investigation. Said provision states that:

"the Secretary shall, within five (5) calendar days from the date of his letter of

acceptance of the properly documented application referred to in Rule 6.3d examine the accuracy and adequacy of the evidence submitted to determine the existence of a prima facie case that will justify the initiation of a preliminary investigation. In assessing the sufficiency of the evidence, the Secretary shall satisfy himself that based on the documents available to him, he can determine that the increased imports of the product under consideration are the substantial cause of the serious injury or threat thereof to the domestic producers of the product under consideration.”

I. B.2 The Meaning of Preliminary Investigation in the Context of the Safeguard Measures Law

In making a preliminary determination, Section 7 of RA 8800 states that:

“Not later than thirty (30) days from receipt of the petition…the Secretary, shall on the basis of the evidence and submission of the interested parties, make a preliminary determination that increased imports of the product under consideration are a substantial cause of or threaten to substantially cause, serious injury to the domestic industry. In the process of conducting a preliminary determination, the Secretary shall notify the interested parties and shall require them to submit their answers within five ‘(5) working days from the date of transmittal to the respondent or appropriate diplomatic representative of the country of exportation or origin of the imported product under consideration.”

Further, the law also states that:

“Upon a positive preliminary determination that increased importation of the product under consideration is a substantial cause of, or threatens to substantially cause, serious injury to the domestic industry, the Secretary shall, without delay, transmit its records to the Commission for immediate formal investigation.”


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Rule 7.1 of the IRR essentially restates the law to wit:

“Not later than thirty (30) calendar days from receipt of the properly documented application or a motu propio initiation of the preliminary safeguard investigation, the Secretary shall, on the basis of the petition, the answers of the respondents, and the respective supporting documents or information, make a preliminary determination that increased imports of the product under consideration are a substantial cause of, or threaten to substantially cause, serious injury to the domestic industry.”

II. THE PROCESS OF PRELIMINARY INVESTIGATION II. A. Acceptance of the Petition and Decision for Preliminary Investigation

In accepting the petition of the Philippine testliner board industry, the Secretary was guided by Rule 6.4a of the IRRs of RA 8800 which provides that:

“The Secretary shall, within five (5) calendar days from the date of his letter of

acceptance of the properly documented application referred to in Rule 6.3.d, examine the accuracy and adequacy of the evidence submitted to determine the existence of a prima facie case that will justify the initiation of a preliminary investigation. In assessing the sufficiency of evidence provided in the application, the Secretary shall satisfy himself that based on the documents available to him, he can determine that the increased imports of the product under consideration are the substantial cause of the serious injury or threat thereof to the domestic producers of the product under consideration .”

On 09 November 2009, the Secretary officially informed the domestic testliner board

industry that their application has been accepted as a properly documented application. On 16 November 2009, the Secretary issued a report on the initiation of the safeguard measures investigation on testliner board.

II.A.2 Preliminary Investigation Proper

II.A.2.a Notice to Parties and Due Process

On 03 to 14 December 2009, individual notices were sent to the local industry, concerned importers, exporters and the appropriate diplomatic or official representatives of the concerned governments of the identified exporting countries. The importers and exporters were also requested to submit their responses to the questionnaires as well as evidences and information relevant to the said investigation within five (5) working days from receipt of notice as provided under Section 7 of RA 8800 and its IRR.

On 04 December 2009 Notices of Initiation were published at the Business Mirror and

Manila Standard Today as provided under Rule 6.5a of the IRR which states that:

“Within two (2) calendar days after the Secretary makes the decision to initiate a preliminary investigation, the Secretary shall cause the publication of the notice of initiation of preliminary investigation in two (2) newspapers of general circulation. The date of publication shall be considered as day one (1) of the initiation of investigation.”

II.A.2.b Submission of Evidence and Position Papers

As provided under Rule 6.5b of the IRR: “The respondents are required to submit within five (5) working days from the receipt of

such notice their responses or comment and other evidence and information to dispute all allegations contained in the petition. The notice shall be deemed to have been received five (5) working days from the date on which it was transmitted to the respondent or the appropriate diplomatic or official representative of the country of export or origin of the product under


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consideration. In cases where the number of known interested parties is so large that it is impractical to provide a non-confidential copy of the documents to each of them, a copy will be given to the government of the country of export or origin and/or to the representative organizations. These documents shall also be made available to other interested parties upon request.”

II.A.2.c Importer’s Response to the Questionnaire

Out of twenty-six (26) identified importers, only four (4) importers submitted their responses to the DTI Questionnaire, as follows:

1. United Container Corp. (UCC) On 17 December 2009, UCC requested for an extension of the deadline for the submission of response to the Importer’s Questionnaire. The deadline was extended to 08 January 2010. On 07 January 2010, the company submitted information on their organizational structure, function, distribution channels, imported products, import volume, comments on Philippine market, domestic market and claims on injury.

2. Takano Inc. On 21 December 2009, Takano Inc. submitted their response to the Importer’s Questionnaire and indicated that the company is engaged in paper core manufacturing and not in corrugated carton boxes. They imported minimal volume of sizes of testliner board which are not locally available (used for outer lining of paper cores). 3. Jennson Packaging Corp. On 25 January 2010, Jennson Packaging Corp. submitted information on company profile, imported product, sample invoice, import volume/value, Philippine market/serious injury, profitability and general comments. The company stated that they had been purchasing their requirements from the local paper mills. They expressed their concern on the lack of supply of quality testliners since they are only relying on one local mill. The imposition of the safeguard measure will be detrimental to the corrugators in case of an unforeseen shutdown or labor strike. Also, the safeguard measures will increase prices of paper and indirectly affect the consumers.

4. Republic Corrugated Cartons and Alcohol, Inc. On 13 February 2010, Republic Corrugated Cartons and Alcohol, Inc. responded to the Importer’s Questionnaire and stated their reasons for importing such as the lack of supply of the local product, uncompetitive price and savings in freight.

II.A.2.d Embassies

1. Taipei Economic and Cultural Office (TECO) On 07 December 2009, TECO requested for an extension of the deadline for the submission of responses to the Exporter’s Questionnaire. The deadline was extended to 08 January 2010. On 20 January 2010, TECO stated in its submission that Ban Yu Paper Mill Co., Ltd, has filed for bankruptcy. Also, Taiwan has no intention to dump due to minimal exports compared with other countries. Exports of Cheng Long Corp. and Sun Favorite Co., Ltd. were minimal and most of these products were not being manufactured by the local industry or customary i.e. manufactured to meet the demand of the client.


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2. Manila Economic and Cultural Office (MECO) On its 18 December 2009, MECO stated that Ban Yu Paper Mill Co., Ltd has closed its operations due to bankruptcy while exports to the Philippines of Sun Favorite, Ltd. are based on current prices of materials and market situation in Southeast Asia. 3. Embassy of the Federal Republic of Germany in the Philippines On its 18 December 2009 submission, the Embassy of the Federal Republic of Germany in the Philippines indicated that the exporter Pacific Dragon International PTE Limited is not listed in their official commercial directories. Hence, the Embassy did not forward the subject documents to Germany.

4. Ministry of Trade of the Republic of Indonesia On 27 December 2009, Ministry of Trade of the Republic of Indonesia gave the following observations: the robust performance of Philippine industry, minimal signs of serious injury, lack of analysis on the report of other factors that contributed to the serious injury, the increased imports attributable to Thailand only; and that the increase in imports was foreseen by the domestic industry. On 15 January 2010 they reiterated the following concerns: insufficient time to submit the positions from interested parties, late notification of public consultation, robust condition of the Philippine industry; imbalance in the supply and demand, losses attributable to increase in raw material costs, fluctuation of foreign exchange level of peso as against dollar as an important component of serious injury; other factors of serious injury; identification of exports from related parties in Thailand and that the safeguard measures should not be used as a company policy tool. 5. Embassy of Malaysia On 19 January 2010, Embassy of Malaysia submitted its position paper relevant to the public consultation on safeguard measures on testliner board. On 25 January 2010, they indicated that the minimal exports of Malaysia cannot be a contributing factor of injury. They also discussed their observations on local industry’s sales volume, capacity utilization, employment, wage, inventories, increased prices of raw materials that caused serious injury to the local industry and that the adjustment plan did not thoroughly explain their plans on how to be more competitive.

6. Royal Thai Embassy On 20 January 2010, Royal Thai Embassy stated in its letter the non-existence of causal link between importation and serious injury (in terms of local industry’s sales volume, market share, financial performance) and the non-existence of price undercutting and price suppression. 7. European Commission (EC) On its 02 February 2010 letter, EC emphasized the following: need to prove the existence of sudden, sharp and recent increase in imports, more detailed analysis of injury indicators and extension of the period of investigation to the most recent data available in 2009. EC also discussed its observations on local industry’s cost of production, domestic consumption, production, capacity utilization rate, revenues, profitability, return on sales, price undercutting, lack of competitiveness, absence of causal link and the inconsistency with the WTO Agreement on the adoption of the measure.


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II.A.2.e Associations

1. Confederation of European Paper Industries (CEPI) On 15 January 2010, CEPI submitted the following comments: minimal EU exports did not cause serious injury to the local industry , observations on local industry’s local market demand, domestic sales, capacity utilization, inventories, export sales, domestic selling price, price undercutting, difficulties experienced due to imported raw materials, tariff barriers, stronger Philippine peso, suspicion of dumping from domestic producers and the adjustment plan demonstrating weakness of local companies.

2. Pulp and Paper Manufacturers Association, Inc. (PULPAPEL) On 27 January 2010, PULPAPEL indicated their support to the petition for safeguard measure due to its positive impact on the following: employment, job generation, contribution to government revenue, solid waste, source of water for irrigation/farming, conservation of forest resources, paper supply assurance and foreign investors. 3. Gatherers and Dealers of Second Hand and Waste Paper On 27 January 2010, the Gatherers and Dealers of Second Hand and Waste Paper indicated their support for the petition for safeguard measure. They stated that the continued survival of the industry is vital to the livelihood of their members. 4. United Pulp and Paper Co., Inc. (UPPC) Employees Union On 28 January 2010, the UPPC Employees Union indicated their support to the petition for safeguard measure since UPPC’s main product is testliner board which their members source their livelihood. 5. Containerboard Manufacturers Association of the Philippines (CMAP) On 05 February 2010, CMAP requested for an extension of the deadline for the submission of response to the Questionnaire. The deadline was extended to 12 February 2010. On 10 February 2010, CMAP submitted the following documents: UPPC’s financial statement and SCG Economic Outlook, financial statement of other industry players, RISI report on regional capacity and average selling price of waste paper from the United States, price undercutting analysis, selected news item on the impact of 2008 global crisis to the paper industry, purchases of OCC from the United States and differential in prices, Department of Energy’s record on coal importation and Cementhai SCT (Philippines) Inc. financial statement. CMAP presented the following observations and positions: local industry imported from its parent company to serve the needs of its customers, no causality of imports to domestic production, local industry’s market share, sales volume, capacity utilization, gross profit, employment, other factors causing injury, exports, projected prices, impact on downstream industries, global shortage of packaging paper, capacity expansion of foreign mills, quality and normal operations.

II.A.2.f Other Manufacturers

1. Liberty Paper, Inc. On 20 October 2009, Liberty Paper, Inc. acknowledged the DTI letter of 15 October 2009 and stated that PULPAPEL will be submitting data for the industry relevant to UPPC’s application for safeguard measures. On 27 November 2009, DTI made a follow-up call with


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PULPAPEL regarding Liberty Paper’s submission. PULPAPEL stated that it did not receive any data from Liberty Paper, Inc. 2. Milestone Paper Products, Inc. On 13 November 2009, Milestone Paper Products, Inc. requested for an extension of the deadline for the submission of the accomplished Questionnaire for Applicants. The deadline was extended to 01 December 2009. On 19 January 2010, the company submitted their position stating that exports of waste paper and carton boxes should be curtailed by the government through the adoption of safeguard measures in view of economic, environmental, ecological, socio-political aspects. Furthermore, they stated that the pulp and paper industry will collapse and thousands of Filipino workers will join the ranks of unemployed if the measure will not be imposed.

The following importers cannot be located for lack of information on their addresses:

1. Papertech Inc. 2. Mondo Ventures, Inc. 3. Combox Inc. 4. Lamina Graphics Corp.

II.A.2.g Exporter’s response to the questionnaire

Out of thirty-five (35) identified exporters, only seven (7) exporters submitted their

replies to the DTI Questionnaire.

1. P.T. Indah Kiat Pulp and Paper Products, Indonesia

On 21 December 2009, P.T. Indah Kiat Pulp and Paper Products, Indonesia requested for an extension of the deadline for the submission of their responses to the Exporter’s Questionnaire. The deadline was extended to 08 January 2010.

On 06 January 2010, P.T. Indah Kiat Pulp and Paper Products, Tbk. of

Indonesia submitted by e-mail a confidential and non-confidential version of their response to the Exporter’s Questionnaire. Notarized hard copies of the said response were sent on 18 January 2010, authenticated by the Philippine Embassy in Jakarta, Indonesia with the following supporting documents:

- Organizational Structure - Annual report of Indah Kiat for period of 2008 - Specification sheet of subject product - Export sales data to Philippines and the supporting documentary

evidences - Income Statement of UPPC for period 2006-2007

According to the company, the total market in the Philippines exceeded domestic production. The demand and supply in Philippine market is balanced only with the help of imports. There will be a shortage in the Philippine market if imports will not be allowed or if safeguard measures will be applied which will lead to profiteering by the domestic industry.

They also stated the following observations:

- Employment, wages and productivity increased during the POI. - Price undercutting is manifested only in Thailand and there is no price

depression or suppression. - Philippine industry incurred profits in 2006 and 2007 based on their income

statements.


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- Capacity expansion of foreign mills is hardly unforeseen because they are well-documented and announced in advance.

- Global crisis in 2008 is global in nature and not restricted to the Philippines. - Philippine peso strengthened, from an average exchange rate of P56.00 in 2004

to P44.00 in 2008 versus US dollar which created an incentive for the local downstream production to source material from overseas market considering that the domestic production was not sufficient to cater to the domestic demand which led to the increased imports in 2007 to 2008.

2. P.T. Fajar Surya Wisesa Tbk. (Fajar Paper), Indonesia

On 22 December 2009, P.T. Fajar Surya Wisesa Tbk., Indonesia requested for

an extension of the deadline for the submission of their responses to the Exporter’s Questionnaire. The deadline was extended to 12 January 2010.

On 28 and 29 December 2009, DTI received by e-mail the confidential and non-

confidential version of their response. The official copy authenticated by the Embassy of the Philippines, Consular Section was received by DTI on 13 January 2010. P.T Fajar Paper stated that they did not export to the Philippines from 2004 to 2008 and has no plan to sell testliner board to the Philippines in the next two (2) years because the company projected that their production will be absorbed by the Indonesian market.

3. Muda Paper Mills Sdn Bhd, Malaysia

On 04 January 2010, Muda Paper Mills Sdn. Bhd submitted answers to the DTI

Exporter’s questionnaire. They stated that they produce various industrial papers: testliner, corrugated medium, laminated chip board, core board and grey chip board. The company exported corrugating medium and testliner in 2006 at 399/MT and 100 MT in 2007. Since 2008, the company had not exported testliner board to the Philippines since the selling price in the Philippines is “below expectation”. The Philippines is not their regular market since 70% of Muda Paper Mills products are mainly sold in Malaysia and only 30% are exported. 4. Ban Yu Paper Mill Co., Ltd., Chinese Taipei

On 21 January 2010, Ban Yu Paper Mill Co., Ltd. declared that the company

had begun bankruptcy procedures since November 2008. 5. Panjapol Paper Industry Co., Ltd., Thailand

On 23 December 2009, Panjapol Paper Industry Co., Ltd. sent through e-mail

their official position. It declared that the company exported kraftliner paper to the Philippines under HS Code 4804 with the description of: uncoated kraft paper and paperboard, in rolls or sheets as verified by Thailand Customs Dept. with corresponding Philippine Standard Commodity Classification (PSCC) Code 64141101 (kraftliner, uncoated, in rolls, unbleached). It was not the product under investigation.

6. Carter Holt Harvey Pulp & Paper, New Zealand

On 11 December 2009, DTI received the initial comments from Carter Holt Harvey through e-mail. The completed exporter’s questionnaire was received on 11 January 2010. The company reported that it is a producer of a number of kraft based grades and recycled medium but not testliner.

It also stated that the company is an exporter of unbleached kraftliner, semi

chemical medium and kraft white top to the Philippines over many years which is different product from testliner used to make corrugated cases. Kraft products are classified under HS Code 4804.11. According to Carter Holt, it did not produce testliner


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at any of their two facilities. Furthermore, in 26 June 2008, shipments to Manila was 151MT of unbleached kraftliner priced at $595 which was well above price of testliner.

7. Hiang Seng Fibre Container Co., Ltd., Thailand

On 28 December 2009, DTI received the official position of Hiang Seng Fibre

Container Co. Ltd which stated that it had not exported any testliner paper to the Philippines since the end of 2008 because market price of paper in the Philippines was very low and freight charge to Manila port was high - “low price and small margin”.

Two exporters that were not notified by the DTI, Trio Paper Mills and United Paper

Board (M) Sdn Bhd of Malaysia submitted responses. They stated that they did not export to the Philippines the product under investigation. The said exporters were not identified during the POI since there were no recorded imports from them based on the BOC-IEDs.

One of the identified exporters, Pacific Dragon Intl. PTE Ltd. cannot be located for lack

of information on its address. The Embassy of Germany in Manila stated that it is not listed in the official German commercial directories.

II.A.4.b Appreciation of available evidence Rule 6.5.c of the IRR states that: “Whenever any interested party fails to respond adequately or is unable to produce information requested, refuses access to, or otherwise does not provide any other information within the period allowed for the investigation, or otherwise significantly impedes the investigation, the preliminary determination of the conditions required in a safeguard investigation shall proceed on the basis of facts derived from the evidence at hand. Even though the information provided by interested party may not be complete in all respects, this shall not be disregarded provided the interested party is deemed to have acted to the best of his ability.” The following exporters did not respond to the DTI questionnaire:

1. Australia - Amcor Australasia - Visy Paper Pty Ltd.

2. Chinese Taipei

- Trade House Corporation 3. People’s Republic of China (PROC)

- Kwok Fung - Sojitz (China) Co., Ltd - Wang Kei (Macao Commercial Offshore)

4. Indonesia

- PT Surbaya Mekabox Ltd. - PT Lestari Karya Makmur Jl Mastrip

5. Germany

- Pacific Dragon Int’l. PTE Ltd. (cannot be located) - Mondo Ventures Inc.

6. Japan

- Chou Packaging Co., Ltd. (cannot be located) - Daei Papers Int’l. Corp. - Maruzen and Co., Ltd.


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- Itochu Pulp and Paper - Tsubonoya Shigyo Co.

7. Thailand

- Siam Kraft Industry Co., Ltd. - Thai Union Paper Industry Co. - TS Paper Tube Co., Ltd

8. Singapore

- Elof Hanson - Maersk Trading

9. Sweden

- Hansa International AB

10. South Africa - Central National Gottesman, Inc

11. United Kingdom

- Paperflex Ltd. II.A.2.f Additional Documents Requested from the Petitioner

From 10 February 2010 to 16 April 2010, UPPC submitted by e-mail the following

information:

- additional information on operation, supply to customer, demand and supply, capacity expansion of foreign mills etc.

- export sales, domestic sales, employment, machinery and equipment, impact of 2008 economic crisis, extensive capacity expansions of foreign mills, effect of safeguard measures, projected prices, production flexibility, source of raw materials etc.

- import data of kraftliner board, testliner board and corrugating medium for 2009 sourced from BOC Import Statistics

- scanned copies of BOC Import Entry and Internal Revenue Declaration gathered from PULPAPEL-ICE

- copy of Endorsement Letter from Philippine Chamber of Commerce and Industry (PCCI ) requesting Bureau of Customs (BOC) to provide copies of import entries to the Pulp and Paper industry

- data on the economic impact and cost contribution of packaging: injury summary, cost of production, comparison between landed cost of imports and cost of sales, domestic product, production output (for domestic and export), raw materials usage, sales volume and value, schedule of domestic sales and volume and value, schedule of export sales volume and value, domestic selling price, income statement on Testliner Board (Domestic), profitability ratios, return on investments, production capacity and utilization, inventory volume and value, productivity, salaries and wages and details and composition of factory overhead and inventory adjustment of UPPC

- injury – Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), depreciation and export sales (value in peso)

- copy of the Endorsement Letter from Philippine Chamber of Commerce and Industry (PCCI) requesting Bureau of Customs (BOC) to provide copies of import entries to the Pulp and Paper industry

- updated data on employment and productivity directly involved in the production of testliner board

- clarification regarding the machine in making corrugating medium and tesliner board - Inventory - financial statements - revenue vs. cost of sales - cost contribution of packaging as of March 2010 - linkage of SCG to UPPC - inventory volume for 2004


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- reasons why Thailand reduced their exports of testliner boards to the Philippines (comparison 2008 and 2009)

- date when SCG Paper Public Co., Ltd. (SPPC) acquired UPPC and reasons for UPPC’s buy-out

- breakdown of UPPC’s financial statement for corrugating medium and testliner board on quarterly basis for 2008 to 2009

- impact on UPPC’s operations re: economic recession in 2008 - UPPC’s capacity utilization and request for safeguard measure - reasons for inventory adjustments - relationship of Siam Kraft Industry Co. Ltd. To SCG and UPPC - UPPC stated that prior to 2004, SCG’s (SPPC at that time) share in UPPC is 34%. - financial ratio requirements in 2002 and what comprise other income of UPPC II.A.3 “Public Interest” provision for non-agricultural products

Rule 8.2 of the IRR states that: “in the case of non-agricultural products, the Secretary shall first establish that the imposition of the provisional safeguard measure would be in the public interest.” As provided under Rule 5.2 of the IRR: “The Secretary, when establishing that the application of a safeguard measure will be in the public interest, shall take into consideration the following factors, among others: i) whether the imposition of the provisional measure will result in a political or economic crisis; and ii) the extent to which such imposition will cause a shortage of the product under consideration in the domestic market.”

II.A.3.a Public Consultation

Public consultation was conducted on 19 January 2010. The notices for the public consultation were published on 11 January 2010 at the Manila Standard and the Business Mirror. Letters of invitation were sent on 05 January 2010 to the identified importers, foreign embassies of concerned countries, consumer groups, associations, Federation of Philippine Industries (FPI) and Philippine Chamber of Commerce and Industry (PCCI). All interested parties were given 15 days to submit their position papers. The public consultation was conducted to determine whether the imposition of a safeguard measure is in the public interest i.e. if there are consumers or certain sectors that will be affected.

From 07 January 2010 to 23 February 2010, DTI received responses from concerned parties regarding their position on whether the imposition of a provisional or final safeguard measure will be in the public interest.

The following were represented during the public consultation:

1. Asia Pulp and Paper (APP) 2. Cavite Packaging Corporation 3. Central Corrugated Box Corp. 4. Constant Packaging 5. Container Board Manufacturers Association of the Philippines 6. Department of Environment and Natural Resources – EMB 7. Dowell Container & Packaging Corp. 8. EU Delegation 9. Embassy of Germany 10. Embassy of Indonesia 11. Jennson Packaging Corp. 12. Embassy of Malaysia 13. Milestone Paper Products, Inc.


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14. Municipality of Calumpit, Bulacan 15. PCEPSDI 16. Pine Hurst 17. SP Mamplasan Packaging 18. Superior Packaging Corporation 19. Taiwan Economic and Cultural Office in the Philippines 20. Thai Embassy 21. TwinPack 22. United Container Corporation 23. United Pulp and Paper Co., Inc. 24. VOUD 25. WACC 26. Wong Consultant

The following presented their views during the consultation:

1. Municipality of Bulacan 2. United Pulp and Paper Co., Inc. 3. Government of Indonesia 4. Taiwan Economic and Cultural Office in the Philippines 5. Milestone Paper Products 6. Embassy of Malaysia 7. Embassy of Thailand 8. Container Board Manufacturers Association of the Philippines 9. Asia Pulp and Paper 10. European Union

Asia Pulp and Paper did not submit a written position paper but presented their views during the public consultation.

II.A.3.b Summary of Positions/Comments

II.A.3.b.1 In favor of the imposition of the safeguard measures

1. The imposition of the safeguard measures will not cause a shortage of testliner

boards in the country since the domestic industry has sufficient capacity to supply the market demand. The industry is composed of heavily invested manufacturing companies, technically advanced and one of the biggest recyclers.

2. The safeguard measures will allow the industry to adjust to competition vis-à-vis

their foreign counterparts.

3. The safeguard measures will prevent the closure of the industry. This would also avert the effects of increasing unemployment in the country. As such, the parties appealed to the government to consider the impact of a dying industry on the workers that will be affected by the loss of the industry.

4. The safeguard measures will sustain and develop the industry’s performance

through investments for improvement and efficiency.

5. The safeguard measure will enable investment for production improvements and raw material sourcing.

6. Various sectors would be affected if protection from safeguard measures to the

local industries would not be given.


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II.A.3.b.2 Oppositors to the imposition of the safeguard measures

1. Imposition of the safeguard measures will not benefit the public because the additional duty will be a burden to the consumers. The duty that will be imposed on the imported products will eventually reach the Filipino consumers.

2. There is a shortage of testliner boards on the domestic market. The inability of

UPPC to reliably supply testliners needed by the market has been in serious doubt for years.

3. Artificially increasing the cost of testliner through safeguard duties will impact on

the competitiveness of downstream industries, i.e. corrugators, box factories, etc. (around 50 in all) that use testliner board as a raw material. Any pass-on-cost will likely adversely affect these sectors.

4. There is currently a global shortage of packaging paper and any imposition of

safeguard duty will aggravate the situation of downstream industries.

5. All Philippine export products use recyclable packaging produced by the downstream industries. An artificial increase in packaging will seriously impact on export competitiveness.

6. The imposition of safeguard measure will have unfavorable effect on the

Philippine Corrugated Industry. The cost of local paper will also go up to match the high cost of imports. Once the corrugated boxes are charged higher, the food industry may import finished corrugated boxes from other countries. This would kill the corrugated industry employing thousands of employees. This would also result in increase in cost of other products such as food products since they are using corrugated boxes.

7. The grant of safeguard duty will shut down imports thereby granting UPPC a

virtual monopolistic position prescribed by law (Section 36, RA 8800).

II.A.4 The Evidence Presented By The Parties The issues raised during the public consultation and in the official position papers received from all interested parties on testliner boards were examined by DTI. After thorough evaluation, the following were considered in the analysis of the product covered by the investigation.

II.A.4.a The Product Subject to the Petition

II.A.4.a.1) Volume of Imports Excluded from the Investigation

During the preliminary determination, imports of Malinta Corrugated Boxes Mfg. from Carter Holt Harvey was excluded in the list after analyzing the position/comments submitted to the DTI. Carter Holt Harvey submitted that it did not export the product under protest (testliner board) and affirmed that it exported kraftliner board classified under Tariff Heading HS Code 4804.11. Upon verification, the Philippine domestic industry attested that the said exporter is not a manufacturer of testliner board but a supplier of kraftliner board.

– II.A.4.a.2) Verification of Volume of Exports Contested by the Respondent Exporters

The DTI verified the export data contested by the respondent exporters in their position papers submitted to the Department:


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1) P.T. FAJAR SURYA WISESA TBK., Indonesia

PT Fajar Surya Wisesa Tbk. claimed that it did not export testliner boards to the Philippines from 2004 to 2008. However, based on BOC – IEDs, the company exported testliner boards to the Philippines in 2005 and 2006, as follows:

Year Volume 2005 538.62 MT 2006 1,626.07 MT

There were no recorded exports of testliner board in 2004, 2007 and 2008.

2) PANJAPOL Paper Industry Co., Ltd., Thailand

Panjapol Paper claimed that it exported kraftliner paper to the Philippines under HS Code 4804 and not the product under protest. Based on BOC-IEDs, the company exported 1,000.21MT of paper which were described as testliner board and declared under HS Code 4805.2400 in 2006.

3) MUDA PAPER MILLS SDN BHD, Malaysia

Export data for 2006 and 2007 submitted by Muda in its reply to the Exporter’s questionnaire reflected the same information stated in the Philippine BOC-IEDs. The company exported 399.05MT in 2006 and 100.36MT in 2007. No exports of testliner board to the Philippines were recorded for 2004, 2005 and 2008.

4) PT. INDAH KIAT PULP & PAPER PRODUCTS

PT. Indah Kiat, declared exports of testliner board in 2005 at 102MT and 2,161MT in 2008. Based on BOC–IEDs, exports of testliner to the Philippines from PT Indah was recorded only in 2008 at 1,264.05MT. No export data was recorded for 2005.

5) HIANG SENG FIBRE CONTAINER CO., LTD., Thailand

The firm claimed that since the end of 2008, it did not sell testliners to the Philippines.

Upon verification, the following are the recorded testliner board exports of Hiang Seng Fibre to the Philippines from 2004 to 2008 based on BOC-IEDs:

2004 - 489.20MT 2005 - 3,963.63MT 2006 - 5,208.16MT 2007 - 8,978.03MT 2008 - 13,178.03MT II.A.4.a.3) Products Excluded from the Investigation

Products described in the BOC-IEDs verified by the DTI as reel ends discs, transparent matt, coreboard, kraftliner board, eskaboard and corrugating medium were excluded from the investigation since their application are different from the product subject to investigation.


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II.A.4.a.4) Other Issues II.A.4.a.4.i) Timeliness of Notice of Public Consultation

The Ministry of Trade of the Republic of Indonesia claimed that they did not receive the notice of public consultation on time. Thus, the concerned parties in their country were not notified on time. The Embassy of the Republic of Indonesia in the Philippines received the notice of public consultation on 12 January 2010. Notices were not sent to exporters since the purpose of holding the public consultation was to establish the effect of the safeguard measures on the consumers and the general public and not to discuss the merits of the case.

II.A.4.a.4.ii) Foreign Exchange

Ministry of Trade of the Republic of Indonesia stated that the foreign exchange between peso and the US dollar is an important component of serious injury to the domestic industry. During the POI, peso to dollar exchange rate declined from P56/dollar in 2004 to P40– P50/dollar in 2008. Thus, the peso strengthened by approximately 20% during the POI, which created an incentive for the local downstream producers to source materials from overseas market. According to the local industry, the local importers sourced materials from abroad (especially in 2007-2008) not because of insufficient local supply but due to low prices of imports coupled with the strengthening peso-dollar rate.

II.A.4.a.4.iii) Covered Countries

The European Commission stated that the choice of the safeguard instrument is questionable because any resulting measure would affect all imports, irrespective of their country of origin. There was no import surge from other countries and they did not cause injury to the domestic industry.

II.A.4.a.iv) Due Process

The Ministry of Trade of the Republic of Indonesia claimed that the obligations flowing from Article 3 of the Agreement on Safeguards was not met by imposing a five-day deadline. Comments from parties are hardly welcome under such prescribed deadlines. DTI does not strictly apply the five (5) day period within which the parties can reply to the questionnaire. Requests for extension to submit comments are usually granted to requesting parties. In the case of Indonesia, an additional fifteen (15) days was given for them to submit their comments. II.A.4.b Appreciation of available evidence

Rule 6.5.c of the IRR states that: “Whenever any interested party fails to respond adequately or is unable to produce information requested, refuses access to, or otherwise does not provide any other information within the period allowed for the investigation, or otherwise significantly impedes the investigation, the preliminary determination of the conditions required in a safeguard investigation shall proceed on the basis of facts derived from the evidence at hand. Even though the information provided by interested party may not be complete in all respects, this shall not be disregarded provided the interested party is deemed to have acted to the best of his ability.”


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The DTI evaluated and considered all the information provided by the interested parties. III. SAFEGUARD MEASURES: PARAMETERS FOR EVALUATION III.A. The Concept and Purpose of Safeguards

Section 2 of RA 8800 provides that "the state shall promote the competitiveness of domestic industries and producers based on sound industrial and agricultural development policies, and the efficient use of human, natural and technical resources. In pursuit of this goal and in the public interest, the state shall provide safeguard measures to protect domestic industries and producers from increased imports which cause or threaten to cause serious injury to those domestic industries and producers."

III.B. The Elements Required by Law

As stated under Section 5 of RA 8800 and its IRRs "the Secretary shall apply a general safeguard measure upon a positive final determination of the Commission that a product is being imported into the country in increased quantities, whether absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat thereof to the domestic industry; however, in the case of non-agricultural products, the Secretary shall first establish that the application of such safeguard measures will be in the public interest". III.B.1 Relevant Provisions

Rule 7.2 of the IRRs of RA 8800 states that "the Secretary shall essentially determine the following in the preliminary determination: (a) The volume of imports, in particular, whether there has been an increase, either in absolute terms or relative to production in the Philippines. The Secretary shall evaluate import data for the last five (5) years preceding the application to substantiate claims of significant increase in import volume. Provided, however, that in some cases, the period maybe adjusted to cover a shorter period, if necessary, in order to take into account other considerations that will ensure the appropriateness of the chosen period, e.g. seasonality of product, availability of data or facility in verification of data; (b) Presence and extent of serious injury or threat thereof to the domestic industry producing the like or directly competitive product; (c) Causal relationship between the increased imports of the product under consideration and the serious injury or threat thereof to the affected domestic industry and (d) The Secretary shall take into account the effects of the seasonality of products, whenever applicable, in the preliminary determination of whether or not the elements for the imposition of a provisional safeguard measure exist.”

Rule 7.3 a of the IRRs of RA 8800 further provides that "in a preliminary determination

under critical circumstances, the Secretary shall establish that there has been a substantial increase in imports taking into account their volume and whether or not there has been a rapid accumulation of inventories of the domestic product and a reduction in sales and profit margins of the domestic industry.”

IV. THE EVIDENCE PRESENTED BY THE CONCERNED PARTIES

IV.A. The Product Subject to the Petition

Section 4 (h) of RA 8800 defines like product as "a domestic product which is identical, i.e. alike in all respects to the imported product under consideration, or in the absence of such a product, another domestic product which, although not alike in all respects, has characteristics closely resembling those of the imported product under consideration".

Section 4 (e) of RA 8800 further states that "directly competitive product shall mean

domestically produced substitutable products".


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A comparison of the imported testliner board with the domestic product is necessary to determine whether they are like or directly competitive products. This is important in establishing whether the domestic industry can rightly claim relief or protection from the application of safeguard measures under the provisions of RA 8800.

IV.A.1 Domestic Product

During the initiation stage, DTI conducted thorough evaluation of the description, uses, application and production process of the domestic product. No additional information was received from the interested parties relevant to the domestic product during the preliminary determination.

Testliner board is the outer layer of the corrugated board glued to the peaks, thus making a liner-fluting – liner sandwich. Corrugated board is produced through a conversion process in which three or more layers of paper (or board) are laminated together. The middle ply, which is called fluting medium or corrugating medium, is corrugated during the process. Locally produced testliner boards, together with fluting medium, are converted into corrugated boxes which protect products from possible damage during shipment and storage. These corrugated boxes are also designed for piling or stacking to withstand top and side pressure, and for crush resistance. Testliner board can be stored in good condition for a period of three to five (3-5) years as long as it has not been directly exposed to sunlight and water.

Product Specifications

Paper Grade Basis Weight Super KR Testliner 185 gsm KR 125* Testliner 125 gsm KR 140 Testliner 140 gsm KR 150 Testliner 150 gsm KR 160 Testliner 160 gsm KR 175 Testliner 175 gsm KR 200 Testliner 200 gsm KR 230* Testliner 230 gsm

Keconomy* Testliner 150 gsm (lower quality than UPPC KR 150)

KV 140 Testliner 140 gsm (lower quality than UPPC KR 140)

Source: UPPC, Application Form *Note: Special grades that are not regularly produced (from 2004 to present) Testliner boards produced by Philippine manufacturers are sold directly to box-makers

and converters.

IV.A.1.b. Uses and Applications

Locally produced testliner board, together with fluting medium, are converted into corrugated boxes which protect products from possible damage during shipment and storage. These corrugated boxes are also designed for piling or stacking to withstand top and side pressure, and for crush resistance. Locally produced testliner board is made from 100% recycled paper. It is being used as outside and inside lining material in the production of combined board structures. There are various basis weights of testliner board produced and made available to the local market to cater to different industries and specifications.


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Testliner boards can be applied to all uses depending on the structural design of the box and the weight of the products packed inside the box (e.g. the heavier products require higher basis weights while lighter products require lower basis weights). Boxes made of testliner board are used for packaging of general consumer products such as toiletries, noodles, canned goods and other grocery products.

IV.A.1.c Composition of Raw Materials

The raw materials used by the domestic industry in the production of testliner board are fiber (i.e. local old corrugated carton, local double lined kraft, mixed waste, Japan Old Corrugated Carton (JOCC), Singapore Old Corrugated Carton(SOCC), Middle East Old Corrugated Carton (MOCC), American Old Corrugated Carton (AOCC)), trimmings, liquid alum, dry strength, sizing agent, tapioca starch, modified starch, liquid dye and water.

IV.A.1.d Production Process

The paper manufacturing and operation of corrugating medium and liner board consist of five stages: stock preparation, sheet formation, pressing, drying and rewinding. STOCK PREPARATION

- Involves the preparation of the input fibrous raw materials which are normally secondary raw

material fibers. In this stage, the secondary raw materials, viz., recycled corrugated cartons, paper, etc. are fed into hydra pulper and repulped to a 5-6% consistency. After which it is processed through the waste processing plant to clean, screen, and remove contaminants such as plastics, adhesives, sand, ink, etc. which would deteriorate finished product quality. After cleaning the secondary feedstock, the fiber is passed through hot dispersion to disperse uniformly the micro stickies and pitches that are not removed in the system creating a cleaner stock. It is then passed through a series of deflakers and disk refiners to develop the requisite strength properties for the product paper.

The refined pulp is then metered and fed onto the paper machine. The blend of pulp and chemicals is then passed through a final screen wherein residual contaminants are further removed before being pumped into a pressurized headbox.

SHEET FORMATION

- The process starts after the refined pulp passes through the final screen and the pressurized headbox where it is spread uniformly across the width of the paper machine onto a continuously moving wire. As the water from the material on the wire drains, a fiber mat is formed thus forming the sheet that will eventually become the finished product.

PRESSING

- The fiber mat(s) is dried passing it through a computer controlled mechanical press; the process controls optimize the moisture profile of the sheet passing through the press section. The sheet moisture content after passing through the press will be reduced up to 50%.

DRYING

- The pressed sheet then passes through a series of steam heated cylinder dryers where the moisture content is further reduced to about 7%. The next step is calendaring which is necessary to achieve a uniform caliper and glossy finish. It is through here that smoothness requirement is achieved.


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REWINDING (final stage of the process)

- In this process, customer specification is taken into consideration. The customer specifies certain widths and weight requirement. The rewinding process fulfills this requirement where the full width of the paper exiting the paper machine is cut and wound per customer specifications. Final product weights ranges from 0.85 MT – 1.5 MT per roll. The finished rolls are sampled, weighted, inspected and tested for various physical properties in the on-site laboratory. If everything passes the specifications, it is then delivered to the finished goods warehouse where the delivery of the said rolls to the customers is arranged.

IV.A.2 Imported Product

Table 1: Classification under the Philippine Tariff and Customs Code

Rate of Duty (%) Heading No.

AHTN Code 2007

Description MFN CEPT

- Testliner (recycled liner board) 2000-2009

2010

4805.24.00 --Weighing 150 g/m2 or less 7% 3% 0% 4805.25 --Weighing more than 150 g/m2 4805.25.10 ---Weighing less than 225 g/m2 7% 3%

2008 to 2010

48.05 Other uncoated paper and paperboard, in rolls or sheets, not further worked or processed

4805.25.90 ---Other 7% 3%

0% Source: Tariff and Customs Code of the Philippines (The ASEAN Harmonized Tariff Nomenclature (AHTN)) According to the petitioner, imported testliner boards are distributed in the Philippines by local agents. These agents serve as middlemen between the exporters (foreign producers) and the importers (box-makers and converters). Box makers and converters process the testliner boards to produce corrugated boxes which are then sold to end-users. The respondents claimed that the buyers are forced to import testliner board because of quality considerations and other specification requirements of their clients. Furthermore, imported testliner board is cheaper and quality is superior than the local product. Some mills can also save on mileage costs for similar quality specifications. In addition, price is consistent and supplier is willing to commit on required quantity. Local mills have limitations on allocation and there is no commitment on prices. Moreover, some of the imported products were either not manufactured by the local industry or were customary made to meet the Philippine buyer’s special demand. IV.A.3. Comparison between Imported and Domestic Product

The industry claims that locally produced and imported testliner board are like and directly competitive products because of the following characteristics:

1. Both have the same use and application 2. Both have similar appearance and characteristics 3. Both are made from the same raw materials 4. Both use similar production processes 5. Both fall under the same tariff classification

The only difference between the locally produced testliner boards and the imported product is with respect to the marketing/distribution system. Domestically produced testliners are sold directly to box-makers and converters while imported testlners are distributed by local agents that serve as middlemen between exporters and importers. Containerboard Manufacturers Association of the Philippines (CMAP), commented that there are specific requirements needed by end users of carton boxes which UPPC found uneconomical to produce. Thus, they gravitated to imports. UPPC must be flexible to produce other types of testliner as required by the users.


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Jennson Packaging Corporation stated that they were forced to import because of the quality, lower price and other specifications of paper to meet the requirements of their client i.e. Alaska Milk Corp.

United Container Corp. (UCCP) submitted that buyers prefer the quality of the imported testliner board. Moreover, it is cheaper than the local product. They further stressed that local products are priced at least 10% higher than ASEAN paper mills suppliers. Moreover, UPPC/CCP refused to consider price competitiveness with other ASEAN paper mills.

Republic Corrugated Cartons & Alcohol, Inc. expressed that the price of domestic

product is not competitive with imported product. UPPC apply recent global price immediately whereas these prices only take effect two to three months after they book their orders.

According to the industry both imported and local products are made from the same raw materials and use similar production process. Based on the weighted average landed cost from all sources, imported testliner boards were cheaper by 4% in 2006 and 8% in 2007 than the local product. In 2008, landed cost is higher by 3% than the domestic selling price. The industry increased their selling price in 2008 due to increasing cost of raw materials. However, its selling price is still below its cost of sales to match the landed cost of imports. UPPC promptly reflect pricing according to regional costs. Adjustment to changes in regional pricing are made as long as it is the fair price in the market. IV.B. Period of Investigation

The period of investigation (POI) was established in the initiation of the investigation to cover imports which entered the Philippine market from 2004 to 2008. The domestic industry’s performance for the same period was also assessed to determine whether the increased imports are the substantial cause of the serious injury to the domestic industry. The local industry alleged that imports began causing injury in 2007 to 2008. In its position paper, the European Commission stated that the analysis of the DTI on the increase in imports stopped at the end of 2008, whereas the investigation was initiated in November 2009. They further said that the WTO Agreement on Safeguards requires the investigating authority to prove the existence of a sudden, sharp and recent increase in imports. The Safeguard Measures Agreement does not establish any specific period of investigation. However, there is a provision embodied in Rule 7.2 .a of the IRRs of RA 8800 that “XXX. The Secretary shall evaluate import data for the last five (5) years preceding the application to substantiate claims of significant increase in import volume. Provided, however, that in some cases, the period maybe adjusted to cover a shorter period, if necessary, in order to take into account other considerations that will ensure the appropriateness of the chosen period, e.g. seasonality of product, availability of data or facility in verification of data.” Rule 7.2a of the Philippine Safeguards law enumerates other considerations that can be taken into account in the determination of the POI such as availability of data and facility in the verification of data. In establishing the POI, the DTI considered the availability of pertinent data such as the official import data from the Bureau of Customs. DTI had established the POI during the initiation stage and this was made known to interested parties by way of the public notices and the initiation report. DTI also requested interested parties to provide data covering such period. The panel decision in United States – Line Pipe gave a substantial deference to the national investigating authorities on the determination of the increase in imports. The Panel found that competent national authorities may choose such methodology to determine the increase in imports as they consider fit, as long as the methodology chosen was not “inherently biased” or would have precluded the investigating authorities from “performing a reasonable evaluation of the facts in the investigation”. The increase in imports was also an important


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issue in a highly-publicized case, United States – Steel Products. With respect to increased steel imports, the Panel decided that the increase must indicate “a certain degree of recentness, suddenness, sharpness and significance”, following its own previous decision in Argentina - Footwear. Nonetheless, the Steel Panel, in agreement with the Panel’s view in United States - Line Pipe, also determined that the increase in imports need not continue up to the period immediately preceding the investigating authority’s determination, nor up to the very end of the investigation period. The DTI’s approach has been consistent with respect to the establishment of the POI from the initiation stage to the preliminary determination stage. The POI considered in the initiation stage was also taken into account in the preliminary determination. Hence, for the preliminary determination of the subject product, DTI established 2007 to 2008 as the POI for import surge and 2004 to 2008 as POI for injury determination. IV.C. Determination of the Increased Volume of Imports

Rule 7.2 a of the IRRs of RA 8800 provides that “the Secretary shall essentially determine whether there has been an increase in the volume of imports, in particular, either in absolute terms or relative to production in the Philippines, The Secretary shall evaluate import data for the last five (5) years preceding the application to substantiate claims of significant increase in import volume. Provided, however, that in some cases, the period maybe adjusted to cover a shorter period, if necessary, in order to take into account other considerations that will ensure the appropriateness of the chosen period, e.g. seasonality of product, availability of data or facility in verification of data.”

The domestic testliner board industry submitted import volume of testliner boards for the

period 2004 to 2008. DTI also verified submitted data against available Bureau of Customs (BOC) electronic Import Entry Declarations (IEDs).

IV.C.1. Absolute Terms

IV.C.1.a. Import Volume

During the initiation of investigation, DTI determined that testliner board are being imported in increased quantities, both in absolute and relative terms. This initial finding was further verified during the preliminary determination taking into consideration additional documents and information received by DTI from all interested parties (i.e. exporters, importers, associations, embassies etc.)

During the initiation and preliminary determination, there were import transactions during the POI which were excluded from the volume of imports of testliner boards covered by the investigation. These products were excluded from the definition of the product under investigation i.e. kraftliner board, corrugating medium etc.

The POI covers imports of testliner board to the Philippine market for the period 2004 to 2008 classified under Tariff Heading Nos: 4805.2400, 4805.2500, 4805.25.10 and 4805.2590. All infomation were sourced from the Bureau of Customs electronic Import Entry Declarations (IEDs). Table 2: Import Volume of Testliner Boards (2004 – 2008) in MT

Year Volume (in MT)

Absolute Increase/ (Decrease)

% Increase/ (Decrease)

2004 849.97 - -2005 4,803.60 3,953.63 465.152006 9,467.74 4,664.14 97.102007 11,803.09 2,335.35 24.672008 18,469.18 6,666.09 56.48

Source: Bureau of Customs (BOC-IED)


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In 2005, imports of testliner board was 4,804MT which is 465% above 2004 level. In 2006, the import volume increased to 9,468MT or by 97.10% over the previous year. Imports in 2007 increased to 11,803 or by 25% above 2006 figure. For 2008, import volume reached the highest level at 18,469MT. This was an increase of 6,666MT or 56% over 2007 level of imports and by 284% over 2005 level of imports. It should be noted that the import surge started to manifest in 2007 and 2008 with importation largely coming from Thailand and Indonesia.

It was observed that over the five-year period, imports of testliner board to the Philippines showed an upward trend which is recent, sharp, sudden and significant. IV.C.1.b. Percentage Share of Imports (by Country) By Country of Origin Table 3: Percentage Share of Imports (by Country) 2004 – 2008 in MT

Sources

2004

% Share

2005

% Share

2006

% Share

2007

% Share

2008

% Share

Major Sources Thailand

537.36 63.22

3,963.63 82.51 6,208.37 65.57 9,077.37 76.91 13,185.45 71.39

Indonesia - - 589.19 12.27 1,803.05 19.04 - - 1,851.29 10.02Chinese Taipei 72.32

8.51

101.06 2.10 516.43 5.45 681.72 5.78 1,122.43 6.08

Australia - - - - 270.35 2.86 - - 786.73 4.26People’s Republic of China - - - - - - - - 736.32 3.99 Sub-total: 609.68 71.73

4,653.88 96.88 8,798.20 92.93 9,759.09 82.69 17,682.22 95.74

Germany 240.30 28.27 99.71 2.08 248.83 2.63 947.80 8.03 383.20 2.07Japan - - - - 21.66 0.23 695.14 5.89 295.37 1.60Malaysia - - - - 399.05 4.21 100.36 0.85 - -United Kingdom - -

50.02 1.04 - - - - - -

Hong Kong, China - - - - - - 258.82 2.19 - -Sweden - - - - - - - - 18.15 0.10Singapore - - - - - - - - 90.24 0.49South Africa - - - - - - 41.88 0.35 - -

Sub-Total:

240.30

28.27 149.73 3.12 669.54 7.07 2,044.00 17.31 786.96 4.26Total Imports 849.97 100.00 4,803.60 100.00 9,467.74 100.00 11,803.09 100.00 18,469.18 100.00

Source: Bureau of Customs (BOC) Note: Ranking is based on 2008 import levels IV.C.1.b.i. By Country of Origin Thailand

Testliner board imports from Thailand consistently registered the biggest share to total

Philippine imports during the POI: 63.22% in 2004; 82.51% in 2005; 65.57% in 2006; 76.91% in 2007 and 71.39% in 2008.


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Indonesia

Indonesia started to export testliner board to the Philippines in 2005 which accounted for 12% share to total Philippine market. In 2006, imports from Indonesia increased to 1,803MT representing 19% share of total Philippine imports. In 2008, testliner board from Indonesia accounted for the second highest share at 1,851MT or 10% of total Philippine imports. According to the Ministry of Trade of the Republic of Indonesia the increase in imports is largely attributable to Thailand which ranged from 63%-83% during the POI. They further stated that imports from other sources are relatively small in volume. Thus, they are requesting the exclusion of imports from the other countries.

Chinese Taipei Imports from Chinese Taipei continuously increased during the POI. In 2004, imports from Chinese Taipei was 72MT or 8.51% of the total Philippine imports. In 2005, it increased to 101.06MT, representing 2.10% import share. It further increased to 516MT in 2006 and 682MT in 2007. Percentage share of testliner board from Chinese Taipei increased to its highest rate of 6.08% in 2008. Taipei Economic and Cultural Office in the Philippines (TECO) stated in their position that Chinese Taipei has no intention to engage in dumping since their exports were only 681.72MT in 2007 and 1,122.43 MT in 2008, compared to Thailand and Indonesia and the rest of the other suppliers. Australia There was no recorded importation of testliner board from Australia in 2004, 2005 and 2007. Imports of testliner board from Australia was recorded in 2006 at 270MT which increased to 787MT in 2008, accounting for 3% and 4% of total Philippine imports, for the respective years. People’s Republic of China There was no recorded importation of testliner board from People’s Republic of China from 2004 to 2007. Imports of testliner board from People’s Republic of China was recorded only in 2008 which accounted for 736MT or about 4% of total Philippine imports. Other Sources

Other sources of testliner board for the period of investigation include Germany, Malaysia, Japan, United Kingdom, Hong Kong, Sweden, Singapore and South Africa.

Testliner board imported from other sources exhibited a fluctuating trend during the POI:

240MT in 2004, 150MT in 2005 and 670MT in 2006. In 2007, it rose to its highest level of 2,044MT or 17.31% import share. In 2008, imports from other sources declined to 787MT accounting for 4% of total Philippine imports.

According to the Confederation of European Paper Industries (CEPI) (Brussels. Belgium), EU exports decreased by 60% in 2008 after a significant increase in 2007. Thus, exports from EU cannot be considered as the main cause of serious injury or threat thereof. Based on BOC-IEDs, Germany’s share to total imports was at 8.03% in 2007. In 2008, recorded share to total Philippine imports was 2.06% for Germany and 0.10% for Sweden.


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Embassy of Malaysia claimed that Malaysia’s exports cannot be the contributing factor to the injury claimed by the domestic industry since their exports in 2007 was a mere 0.85%, a reduction from the 4.21% share in 2006. Moreover, there was no import recorded for 2008. IV.C.2. Relative Terms Table 4: Comparison of Volume of Imports to Domestic Production Testliner board (MT)

2004 2005 2006 2007 2008

*Imports 100 565 1,114 1,389 2,173Imports as % of Local Production 0.68 3.95 7.21 8.34 13.34

Source: BOC-IEDs - Volume of Imports United Pulp and Paper Co., Inc. - Domestic Production *Indexed Figures

Total imports of testliner board was recorded as 0.68% of domestic production in 2004.

Share of imports relative to local production continuously increased from 2005 to 2007, i.e. 3.95% in 2005, 7.21% in 2006 and 8.34% in 2007. In 2008, share of imports relative to production rose to its highest level of 13.34%.

Imports of testliner board relative to domestic production significantly increased during

the POI. Jennson Packaging Corporation stated that during the POI, 80% to 90% of their testliner board requirements were purchased from the local suppliers: United Pulp Paper Inc. and Bataan Paper Mill. BOC-IED import data, however, showed that Jennson imported testliner board during the POI, specifically: 1,656MT in 2005, 3,194MT in 2006 and 1,342MT in 2007. Takano Inc. claimed that they imported testliner board at a very minimal volume and only if it is not available locally. The imported product is used as outer lining for their paper cores. Based on BOC-IEDs, Takano imported testliner boards from 2004 to 2008 accounting for 1% to 9%.of the total Philippine imports. The Containerboard Manufacturers Association of the Philippines (CMAP), alleged that UPPC also imports testliner board from their parent company, SCG Thailand and SCG Vietnam to serve the needs of its customers. However, based on BOC-IEDs there was no recorded importation of UPPC during the period of investigation. IV.D. Serious Injury

Rule 3.1 of the IRRs of RA 8800 provides that “a general safeguard measure under Chapter II of these IRRS shall apply where there is an increase in the quantity of a product being imported, whether absolute or relative to the domestic production, which is determined to be a substantial cause of serious injury or threat thereof to the domestic industry”.

Section 4 (o) of RA 8800 also provides that “a serious injury shall mean a significant

impairment in the position of domestic industry after evaluation by competent authorities of all relevant factors of an objective and quantifiable nature having a bearing on the situation of the industry concerned. In particular, the rate and amount of the increase in imports of the product concerned in absolute and relative terms, the share of the domestic market taken by increased imports, changes in levels of sales, production, productivity, capacity utilization, profit and losses, and employment”.

Section 12 of RA 8800 further provides that “in reaching a positive determination that the increase in the importation of the product under consideration is causing serious injury or


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threat thereof to a domestic industry producing like products or directly competitive products, all relevant factors having a bearing on the situation of the domestic industry shall be evaluated. These shall include, in particular, the rate and amount of the increase in imports of the products concerned in absolute and relative terms, the share of the domestic market taken by the increased imports, and changes in the level of sales, production, productivity, capacity utilization, profits and losses, and employment.

Such positive determination shall not be made unless the investigation demonstrates on the basis of objective evidence, the existence of the causal link between the increased imports of the product under consideration and serious injury or threat thereof to the domestic industry. When factors other than increased imports are causing injury, such injury shall not be attributed to increased imports.” IV.D.1. Allegations IV.D. 1.a Petitioner’s Allegations

The following allegations were made by the domestic industry: • claimed losses as imports increased which resulted to negative figures due to low

sales volume at selling prices below cost; • the local industry was forced to sell below cost to match import prices and preserve

their market share; • as production and sales declined, the domestic industry was forced to borrow from

the bank to finance their operations which compounded their financial situation. • will not be able to recover if the government will not act to regulate the excessive

entry of imported testliner boards in the country. IV.D.2. Respondents’ Allegations (Foreign Embassies / Importers / Exporters /

Associations)

IV.D.2.a European Commission (EC)

• All the indicators clearly show that the WTO standard of the presence of ‘serious’ injury in safeguard proceedings was not met in this case. Causal link is missing in the initiation report. The domestic industry has improved in 2007 while imports increased and slightly worsened thereafter. The reasons for the injury maybe attributed to other factors not to the increase in imports.

• The industry was unable to improve its productivity and production processes, to cut its structural costs of production and to source raw materials more cheaply during the booming years, thus, they suffered from the recession.

• Lack of competitiveness in the international market and the analysis of the impact of the economic and financial crisis seems as the main cause of this worsened situation rather than the increased imports of testliner boards.

• DTI should refrain from adopting safeguard measures, since this would be inconsistent with the WTO Agreement on Safeguards and would amount to an unjustified protectionist measure in favor of the domestic industry which is apparently suffering from inefficiency and inability to compete in the international markets

IV.D.2.b CONTAINERBOARD MANUFACTURERS ASSOCIATION OF THE PHILS. (CMAP)

• Significant impairment of the overall position of the domestic industry or current serious injury or threat of serious injury and causal link are non-existent.

• A non-attribution analysis shows that several factors have injured UPPC particularly in 2008, which are unrelated to any import surge. UPPC failed to disclose or separate these unrelated factors.


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IV.D.3. Share of the Domestic Industry IV.D.3.a Market Size Table 5: Total Apparent Philippine Market (in MT) Year Imports

(MT) % Increase/ (Decrease)

*Domestic Industry

Sales Volume

(MT)


*Total Apparent Philippine

Market (MT)


2004 850 - 100 - 100 -2005 4,804 465.15 94 (5.85) 97 (2.61)2006 9,468 97.10 89 (5.06) 96 (0.97)2007 11,803 24.67 107 19.32 115 19.752008 18,469 56.48 105 (1.69) 119 3.13Sources: Bureau of Customs (BOC-IEDs) Volume of Imports United Pulp and Paper Co., Inc. – Domestic Sales Volume

*Indexed Figures

Table 5 shows that apparent Philippine market for testliner board registered an erratic trend from 2004 to 2008.

The apparent Philippine market for testliner board decreased by 3% in 2005 due to the

6% decline in sales of the domestic product, despite the 465% increase in imports. In 2006, apparent Philippine market slightly decreased by 1% due to the 5% decline in domestic industry sales. Imports increased by 97% in 2006.

In 2007, the apparent Philippine market increased by 20% due to the 25% increase in

imports and 19% increase in domestic sales. In 2008, the apparent Philippine market increased further by 3%. However, domestic industry sales declined by 1.70% indicating that it was not able to capture the increased demand despite the pricing strategy adopted to compete with imports. The Ministry of Trade of the Republic of Indonesia stated that the imbalance between supply and demand would intensify competition on the domestic market irrespective of imports.

According to the petitioner, the economic downturn in 2008 resulted to the decline in

total Philippine market in spite of the increase in imports. Consequently, production output, capacity utilization and sales declined due to the decline in demand. To maintain or regain market share, the domestic industry was forced to sell below cost to match the landed cost of imports.


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IV.D.3.b Market Share Table 6: Volume of Imports of Testliner Board vis-à-vis Domestic Sales (in MT)

Country 2004 2005 2006 2007 2008 Imports by Country Thailand 537.36 3,963.63 6,208.37 9,077.37 13,185.45Indonesia - 589.19 1,803.05 - 1,851.29Chinese Taipei 72.32 101.06 516.43 681.72 1,122.43Australia - - 270.35 - 786.73People’s Republic of China - - - - 736.32

Sub-Total : 609.68 4,653.88 8,798.20 9,759.09 17,682.22Other Sources Hong Kong, China - - - 258.82 -Germany 240.30 99.71 248.83 947.80 383.20United Kingdom - 50.02 - - -Japan - - 21.66 695.14 295.37Sweden - - - - 18.15Singapore - - - - 90.24Malaysia - - 399.05 100.36 -South Africa - - - 41.88 -Sub-Total: Other Sources 240.30 149.73 669.54 2,044.00 786.96Total Imports 849.97 4,803.60 9,467.74 11,803.09 18,469.18*Domestic Sales 100 94 89 107 105*Total Philippine Market 100 97 96 115 119% Share to Phil. Market Imports Thailand 0.44 3.30 5.22 6.38 8.98Indonesia - 0.49 1.52 - 1.26Chinese Taipei 0.06 0.08 0.43 0.48 0.76Australia - - 0.23 - 0.54People’s Republic of China - - - - 0.50Other Sources: 0.19 0.12 0.57 1.43 0.54Total Imports 0.69 4.00 7.97 8.29 12.58Domestic Sales 99.31 96.00 92.03 91.71 87.42Sources: Bureau of Customs (BOC-IED) - Volume of Imports United Pulp and Paper Co., Inc.- Domestic Sales

*Indexed Figures

Domestic sales relative to the Philippine market for testliner board exhibited a downward trend, i.e. 99.31% in 2004, 96% in 2005, 92.03% in 2006, 91.71% in 2007 and 87.42% in 2008.

Share of imports relative to apparent Philippine market continuously increased from

2004 to 2008. In 2008, share of imported testliner board to total Philippine market registered its highest level of 12.58% compared to less than 1% in 2004.

Market share of local product started to decline in 2007 and decreased to its lowest level in 2008 as the share of imports to Philippine market increased from 0.69% in 2004 to 13% in 2008. The Confederation of European Paper Industries (CEPI), Brussels, Belgium, stated that an increase in local market demand by 20% in 2007 and by 3% in 2008 showed a potential growth for consumption of paper and board which benefited the domestic industry. Containerboard Manufacturers Association of the Philippines (CMAP) stressed that based on trends the domestic industry was increasing its market share in 2006 and 2007. They further claimed that the average share of imports (during the POI) at 3.95% of the total market is miniscule which could not at all constitute a threat nor cause serious injury.


31

Republic Corrugated Cartons & Alcohol, Inc. claimed that the supply of local testliner is not enough to serve the corrugated box industry. They stated that the local industry experienced shutdowns and prioritize bigger clients. Thus, they cannot supply their accounts on time. United Container Corp. (UCCP) also commented that the local industry (UPPC/CCP) refused to serve or give them allocation for the duration of their contract with corrugated box producers. According to UPPC, they can very well supply the requirements of the local box manufacturers. Furthermore, they were able to serve the local box manufacturers requirements since they started their operations. Operational difficulties encountered are temporary and had never occurred in the past. At present, UPPC is running at its normal capacity. They claim that they have never refused to supply paper to loyal/regular customers who continuously purchase from the company. UPPC always gives high priority to loyal customers while giving least priority to customers who always import paper. These heavy importers endanger the paper and box industries in the country by distorting the price in the local market. UPPC added that the market for the Philippine brown paper industry is generally driven by price more than quality. Local customers may easily trade-off better quality paper to low-priced paper. With the absence of high tariff rates, exporters easily penetrate the market with their prices lower than domestic prices. Influx of cheap imports from other countries resulted to a decline in domestic production and sales. Thus, the local industry was forced to sell below cost to match import prices and preserve market share.

IV.D.4 Sales of Local Product

IV.D.4.a Domestic Sales Table 7: Domestic Sales Volume and Value of Testliner Board Year *Sales Volume

(in MT) % Increase/ (Decrease)

*Sales Value (in Million Pesos)


*P/MT

2004 100 - 100 - 100 2005 94 (5.85) 106 5.93 112 2006 89 (5.06) 103 (2.98) 115 2007 107 19.32 121 17.64 113 2008 105 (1.69) 129 6.88 123

Source: United Pulp and Paper Co., Inc. *Indexed Figures

The volume of domestic sales decreased by 5.85% in 2005 while the sales value

increased by 5.93%. In 2006, sales volume and value dropped by 5% and 3% respectively. However, in 2007 sales volume increased by 19.32% as sales value increased by 17.64%. In 2008, sales volume declined by a mere 1.69% with a 6.88% increase in sales value. The domestic industry increased its selling price by 8.74% in 2008 due to the increasing cost of raw materials. However, its selling price is still below its cost of sales to match the landed prices of imports.

Positions received from various respondents: a) domestic sales increased by 19.32% in

2007 and by 18% in terms of value; and at the height of the increase in imports, domestic sales only registered a minor decline of 1.87% while value increased by 7%; b) The drop in sales volume could be due to wrong pricing of the industry since they increased their selling price by 8.74% in the period when their sales volume dropped by 1.69% (in 2008) but increased by 19.32% in 2007; c) A slight decrease of 2% in sales volume in 2008 but the domestic sales performance showed an increase in overall sales revenue; d) The increase in imports must be seen in a context of substantial increase of the domestic consumption. This also led to an increase of the volume of the domestic sales of up to 7% during the investigation period. There was a remarkable 20% increase in domestic sales in 2007 followed by a consolidation of 1.69% in 2006.


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According to the Containerboard Manufacturers Association of the Philippines (CMAP) the minimal decline in domestic sales volume can be attributed to the decreased demand in 2008 as a result of the global crisis, hence, no causality between increased imports and domestic sales. The insignificant decline in domestic sales of testliner board in 2005 and 2006 can be explained from the data provided by DTI with regards to export sales of testliner. UPPC uses the same machine to produce testliner and corrugating medium whether for export or domestic sales. CMAP commented that UPPC does not provide projected prices beyond one or two months making it difficult for box factories to plan and financially program their purchases. Box factories enter into one-year contract or more with end-users. While Confederation of European Paper Industries (CEPI), Brussels, Belgium, claimed that the increase in domestic selling price from P100/MT in 2004 to P123/MT in 2008 reflects an increase on input cost which prove that the Philippine industry is uncompetitive. UPPC claims that it has not been an industry practice to provide projected prices because of erratic cost of raw materials, from both regional and local sources. UPPC promptly reflect recent pricing according to regional costs. Adjustments based on regional pricing are made as long as it is the fair price in the market. The local manufacturers are seeking help from the Philippine government to assist the industry to become competitive in both domestic and regional platform. Based on the available data, total Philippine demand for linerboard increased in 2008 in spite of the global recession. Sales volume and market share of the domestic industry were also eaten up by imports. Increased sales volume in 2007 was due to the increased Philippine market demand for linerboard for the same year. However, the market share of imports increased since 2006 while market share of domestic industries have gone down. IV.D.4.b Export Sales Table 8: Export Sales Volume and Value of Testliner Boards

Year *Sales Volume (in MT)


*Sales Value (US$’000)

*Sales Value (in million

Pesos)


*P/MT

2004 100 - 100 100 - 100 2005 1,060 960 1,036 997 896.67 94 2006 1,172 10.52 1,222 1,097 10.03 94 2007 766 (34.57) 873 700 (36.17) 91 2008 468 (38.91) 678 530 (24.29) 113


Export sales volume of the domestic testliner board industry increased from 2005 to 2006, from 1,685MT in 2005 to 19,740MT in 2006. However, in 2007 export sales volume significantly dropped by 35% as sales value declined by 36%. In 2008, sales value further declined to 25.09% with a corresponding decrease in sales volume of 39%. Oppositors to the measure noted that Philippines export sales have decreased by 35% in 2007 compared to 2006 and by 39% in 2008 compared to 2007, despite the Philippine peso weakening against the Euro and other currencies. This is an evidence of the lack of competitiveness of the domestic industry. It was also alleged that UPPC was exporting testliners and corrugating medium not because they cannot sell to the Philippine market but because they were instructed by their parent company which will operate a new paper mill in Vietnam. The import surge may therefore be correlated to the dramatic increase in the volume of exports in 2005-2006.


33

Various respondents have noted that exports declined significantly in 2007 to 2008. The increase in domestic sales and production were good indicators even if there was a substantial decrease in export sales by the domestic producer at 35% in 2007 and 25% in 2008. According to UPPC, export sales volume dropped in 2007 and 2008. This is one of the reasons for seeking assistance from the Philippine Government to be competitive in both domestic and regional markets. Furthermore, import surge occurred in 2007 and 2008. According to the local industry, it is not true that SCG has given UPPC such instructions. UPPC was forced to export because they cannot sell locally due to competing low-priced imports. The decreasing trend in exports does not correspond with the increasing trend in imports. IV.D.4.c Production IV.D.4.c.1 Domestic Production Table 9: Domestic Production of Testliner Boards (in MT)

Year *Actual Production (in MT)


2004 100 2005 97 (3.28)2006 104 7.892007 112 7.822008 110 (2.15)


Actual production of testliner boards declined by 3.28% in 2005. However, the level continuously increased for the period 2006 to 2007. In 2008, UPPC’s production slightly declined by 2.15%. The Ministry of Trade of the Republic of Indonesia stated that the decline in production is relatively small in 2008. Thus, the applicant did not suffer any serious injury. According to the Containerboard Manufacturers Association of the Phils. (CMAP), comparing the increased imports to domestic production as an injury factor would result to conclusion of no causality. They further stated that despite the import surge in 2006 to 2007, domestic production still increased. Jennson Packaging Corporation stated that the capacity of the local paper mills cannot support the volume required by the end users. According to UPPC, they only utilized 76% to 88% of their rated capacity from 2004 to 2008. Thus, they have extra capacity to supply Philippine demand. Import surge was recorded in 2007 and 2008. Production declined by 2% in 2008. Decline in production is not the only basis to determine causality.


34

IV.D.4.c.2 Capacity Utilization Table 10: Capacity Utilization Rate (%)

Year Capacity Utilization (%) % Increase/ (Decrease) 2004 78.60 - 2005 76.02 (3.28) 2006 82.02 7.89 2007 88.44 7.83 2008 86.54 (2.15)

Source: United Pulp and Paper Co., Inc. UPPC utilized a major percentage of its rated capacity from 2004 to 2008 ranging from 76% in 2005 to as high as 88% in 2007. However, capacity utilization slightly declined by 3.28% in 2005 and by 2.15% in 2008. The Ministry of Trade of the Republic of Indonesia claimed that the capacity utilization peaked in 2007 at a more than respectful rate of 88% and reflected successive increases in production over the period 2005 to 2007. The Embassy of Malaysia and the European Commission noted the increases in capacity utilization in 2006 and 2007. The Containerboard Manufacturers Association of the Philippines (CMAP) stated that the capacity utilization increased in 2006-2007 with the occurrence of import surge while the decline in 2008 was brought about by global downturns in September 2008 to 2009 and cannot be attributed to the import surge. The Confederation of European Paper Industries, Brussels, Belgium claimed that a decrease in UPPC’s capacity utilization rate to 86.54% in 2008 from 88.44% in 2007 was slight due to the crisis during the fourth quarter of 2008. According to the petitioner, the increase in capacity utilization from 2006 and 2007 was due to increased Philippine market demand for linerboard. Optimum utilization rate of a paper mill should be at 90%-95%. However, the domestic industry cannot increase its utilization rate to an economical level due to tight competition with imports. IV.D.4.d. Inventories Table 11: Finished Goods Inventory of Testliner Boards (in MT)

Inventory Year *Value

(in Million Peso) *Volume (in MT)


2004 100 100 - 2005 13 14 (85.95) 2006 26 30 111.67 2007 17 15 (48.67) 2008 39 32 107.97

Source: United Pulp and Paper Co., Inc. *Indexed Figures UPPC’s volume and value of inventory showed a fluctuating trend from 2004 to 2008. Inventory level declined by 85.95% in 2005. The level increased by 111.67% to 4,007 MT in 2006 but declined again by 48.67%. In 2008, inventory level increased to 107.97% over 2007 level despite the 2% decline in production. According to UPPC, the decline was due to the increased volume of imports. The Embassy of Malaysia stated that the erratic trend in inventories from 2004 to 2008 did not sufficiently reflect serious injury attributable to import surge.


35

The Confederation of European Paper Industries (CEPI), Brussels, Belgium, commented that increasing inventories were considered as a consequence of rising imports and the impact of financial crisis and economic crisis was simply ignored. IV.D.4.e Cost of Goods Manufactured Table 12: Cost of Production of Testliner Board (P/MT)

Particulars 2004 2005 2006 2007 2008 *Raw Materials 100 92 97 105 126 *Conversion Cost 100 123 69 84 118*Direct Labor 100 63 81 126 141*Factory Overhead 100 105 111 115 123 Inventory Adjustment - Negative Negative Increased Increased*Total Cost to Produce 100 102 92 102 126

% Increase / Decrease - 2.21 (9.82) 10.38 23.49 Source: United Pulp and Paper Co., Inc. *Indexed Figures

Domestic industry’s cost to produce increased by 2.21% in 2005 but declined by 9.82% in 2006 and increased again by 10% in 2007. Cost of production increased by 23% in 2008 due to the increase in raw materials by 20%, factory overhead by 7% and inventory adjustment by 4,325%.

The respondents stated that serious injury was not caused by increased imports but by the increased raw material prices which affected production costs. Furthermore, they also alleged that the losses incurred in 2008 were mainly due to cost pressures from increases in raw materials, factory overhead and inventory adjustment. The European Commission commented that the total cost of production showed an increase of about 23% over the investigation period which is due not only to the increase in raw materials, but also to conversion costs and increased labor costs. The incidence of increased cost of production should also be analyzed as it seemed to have an impact on profitability. The Confederation of European Paper Industries (CEPI), Brussels, Belgium, also commented that most of the raw materials used by UPPC are imported which constitutes a serious handicap in terms of competitiveness and most probably explains part of most current difficulties of UPPC. According to UPPC, on average, 85% of its raw materials are sourced locally. UPPC claims that they purchase raw materials from sources offering the lowest prices. The cost of production is not the sole factor to be considered in determining serious injury to the domestic industry. The Tariff Commission during the formal investigation, may verify further the accuracy of the information submitted by the petitioner and the allegations of the other parties.


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IV.D.4.f. Profits and Losses IV.D.4.f.1 Profit and Loss Table 13: Income Statements for Testliner Board (in Million Pesos)

Particulars 2004 2005 2006 2007 2008 Revenue x x x Increased Decreased Increased IncreasedLess: Cost of Sales x x Decreased Decreased Increased IncreasedGross Profit / (Loss) x Increased Increased Decreased DecreasedLess: Selling and Admin x Decreased Increased Decreased IncreasedEarnings Before Interest and Tax (EBIT) x Increased Increased Decreased DecreasedSource: United Pulp and Paper Co., Inc.

Sales revenue increased from 2004 to 2005. In 2006, a slight decline of 2.98% in sales revenue was recorded. Sales revenue increased by 18% in 2007 and further by 6.88% in 2008.

Cost of sales showed an erratic trend from 2004 to 2008. In 2005, cost of sales declined by 2% and further declined by 13% in 2006. In 2007, cost of sales increased by 33% and further by 27% in 2008. The increase in cost of sales was due to the increase in raw materials and factory overhead.

From 2004 to 2008, domestic industry’s gross profit recorded a fluctuating trend. In 2004, domestic industry’s income statement reflected a gross profit. In 2005, it increased by 136% and further by 65% in 2006. However, domestic industry’s gross profit declined by 34% in 2007. In 2008, loss was incurred due to the increase in cost of sales. This showed that the industry was selling below cost in 2008.

In 2004 to 2006, domestic industry’s earnings before interest and taxes (EBIT) recorded a profit. In 2007, EBIT declined by 52% compared to 2006 level. In 2008, the industry incurred a loss of 301% from 2007 level.

According to the Ministry of Trade of the Republic of Indonesia, losses in 2008 were

attributable to the increase in raw material costs and it takes time to transfer cost into selling prices. The European Commission stated that the revenues also increased over the POI at a substantial rate of 18% in 2007 and a further 6.88% in 2008. Thus, profitability improved by a remarkable 136% in 2005 and additional 65% in 2006. The injury was not caused by imports.

The Container Board Manufacturers Association of the Philippines (CMAP), commented that UPPC had a gross profit of P166,921,626 or 4.16% of net sales and yet in the initiation report it claims a gross loss of 3.89% for testliners. UPPC was able to increase sales from P3.8 billlion in 2006 to P3.9 billion in 2007 and further to P4.0 billion in 2008. UPPC had a net income of P281 million in 2006 and P191 million in 2007. A minimal net loss occurred in 2008 which at all is attributable to the global economic crisis, as admitted by SCG Thailand itself in its report. They added that all information submitted to DTI could have been manipulated to show loss and put all blame on the dismal performance of one product that is testliner.

According to the petitioner, profitability data submitted to the DTI is based on Financial Statements specific to testliner boards only since the safeguard measures is only for that specific product. UPPC claims that from 2004 to 2008, the domestic industry’s gross profit recorded a fluctuating trend. In 2004, domestic industry’s income statement reflected a gross profit. In 2005, it increased by 136% and further by 65% in 2006. However, domestic industry’s gross profit declined by 34% in 2007. In 2008, loss was incurred due to the increased cost of sales. Losses from operations were attributed to decline in sales volume and the adoption of selling prices which did not allow the industry to recover its cost of production and operating expenses.


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IV.D.4.f.2 Return on Sales Table 14: Return on Sales (in Million Pesos)

Particulars 2004 2005 2006 2007

2008

Sales Revenue x x x Increased Decreased Increased IncreasedGross Profit x x Increased Increased Decreased DecreasedEarnings Before Interest and Taxes (EBIT) x Increased Increased Decreased DecreasedReturn on Sales Gross Profit/Loss Rate 6.03 13.41 22.75 12.82 (3.89)Earnings Before Interest and Taxes (EBIT) Rate 0.71 8.89 13.96 5.74 (10.81)Source: United Pulp and Paper Co., Inc.

Return on sales or profit margin relates the profit to the amount of sales generated by the company. The basic calculation of return expressed as a percentage of sales is income or profit over sales. A company’s gross profit or net profit may be used as the numerator in the basic return on sales formula. Gross profit ratio indicates the average mark-up obtained on products sold. Net profit ratio is widely used as a measure of the over-all profitability of the operations. For a more accurate profit margin rate on the company operations for the purpose of safeguard measures investigation, EBIT was used instead of net income/loss.

As reflected in the table above, domestic industry realized a net income rate of 0.71% in 2004, 9% in 2005, 14% in 2006 and 6% in 2007. However, the industry incurred net loss in 2008, resulting to a net loss rate of 11%. These ratios indicate that for every peso supposedly earned by the company, the domestic industry actually lost approximately eleven centavos in 2008.

From 2003 to 2007, domestic industry registered gross profit rates of 6.03% (2004); 13.41% (2005); 22.75% (2006) and 12.82% (2007). In 2008, gross loss rates of 3.89% was incurred. The figures indicate that for every peso of sales, the domestic industry generated in 2004, 94 centavos represented cost of sales while mark-up on cost was only six centavos (6¢). In 2008, the industry was selling below its cost of sales.

According to the European Commission, the indicator of return on sales also showed a

positive trend from 2004 to 2007 (increase of almost 14% in 2006 and almost 6% in 2007), with a contraction of 10.8% in 2008. IV.D.4.g Employment and Wages

IV.D.4.g.1 Employment Table 15: Employment

Year Number of Employees Absolute Increase/ (Decrease) 2004 377 - 2005 393 16 2006 404 11 2007 415 11 2008 416 1

Source: Domestic Industry data For the period 2005 to 2008, total number of employees of the domestic industry for testliner board production showed an increasing trend. In 2005, the industry hired 16 more employees. From 2006 to 2007, number of employees increased by 22 personnel. In 2008, the industry hired one employee. The Embassy of Malaysia claimed that there is no evidence of injury as the applicant was still able to increase its employment and wages.


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The Containerboard Manufacturers Association of the Philippines stated that despite the increased imports, the industry was able to stabilize and post modest increase in employment disputing import surge as the cause of the serious injury. According to the petitioner, as imports rose from 2004 to 2008, UPPC tried to improve productivity and efficiency by increasing the number of employees. In spite of this, the index of productivity in 2008 came back to the same level as in 2004. Productivity has likewise been affected due to this surge in imports.

IV.D.4.g.2 Wages

Table 16: Salaries/Wages

Salaries/Wages (Person/Month) Year

*Supervisor % Increase/ (Decrease)

*Operator


2004 100 - 100 - 2005 105 5.26 110 9.68 2006 111 5.26 119 8.24 2007 119 7.53 124 4.90 2008 115 (3.46) 134 7.91


The domestic industry’s salaries/wages for supervisor continuously increased during the

POI, except in 2008 when it declined by 3.46%. Salaries/wages for operator continuously increased from 2005 to 2008. According to the industry, salaries and wages for supervisor increased from 2005 to 2007 due to annual merit increases. The decrease in salary in 2008 was due to the retirement of supervisors and replacement by new ones. IV.D.4.g.3 Productivity Table 17: Productivity

Year

*Actual Production (In MT)

Number Of Employees

*Productivity (MT/Employee)


2004 100 377 100 - 2005 97 393 93 (7.19) 2006 104 404 97 4.84 2007 112 415 102 4.92 2008 110 416 100 (2.35)

Source: United Pulp and Paper Co., Inc. *Indexed Figures Productivity was derived by dividing the actual production by the number of employees

involved in the production of testliner boards during the POI. Productivity of the domestic industry dropped by 7% in 2005 due to the decline in actual

production and the hiring of additional employees. It increased by 5% in 2006 and further by 5% in 2007. Productivity declined by 2% in 2008 due to the decline in production. IV.D.5. Prices Examination of prices in the safeguards investigation is not as significant as in the case of anti-dumping, wherein, price undercutting, depression and suppression are adequately discussed. Unlike in an anti-dumping investigation, wherein the effects on prices is of paramount importance, the major consideration in a safeguard measures investigation is the increased level of imports in conjunction with other relevant factors as the cause of serious injury. No definition on price effects is included in RA 8800 except in its IRR wherein price is


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included as a factor of injury. In the safeguard measures determination, the issue on price was only discussed relevant to the market conditions that may influence the local industry’s level of sales and profitability. These factors depend on the prices of domestic and imported product and only in this context evaluation of prices become relevant. The issue of the analysis of price competition between domestic and imported like products has been specifically addressed by the Panel on Korea – Dairy which held that:

“Although the prices of the imported products will most often be a relevant factor indicating how the imports do, in fact, cause serious injury to the domestic industry, we note that there is no explicit requirement in Article 2(62), that the importing Member perform a price analysis of the imported products and the prices of the like or directly competitive products in the market of the importing country.”

The Panel on US – Wheat Gluten also adopted an approach to price analysis as a non-mandatory, but potentially relevant point of analysis:

“Price is not expressly listed in Article 4.2(a) [of the Agreement on Safeguards (“SA”)] as a ‘relevant factor’ having a bearing on the situation of the domestic industry. However, this is not to say that ‘price may not be a relevant factor in a given case. An imported product can compete with a domestic product in various ways in the market of the importing country. Clearly, the relative price of the imported product is one of these ways, but it is certainly not the only way, and it may be irrelevant or only marginally relevant in a given case. Therefore, in the context of safeguard measures, the relevance of ‘price’ will vary from case to case, in light of the particular circumstances and the nature of the particular product and domestic industry involved. Given that this is the nature of the ‘price’ factor under the Agreement on Safeguards, we consider that the phrase ‘under such conditions’ does not necessarily, in every case, require a price analysis.’

However, as the Panel Report in Argentina – Footwear (EC) reveals, a price analysis may be required in the specific circumstances of a particular case:

“Therefore, in the present dispute, while the phrase ‘under such conditions’ does not require a price analysis per se, it nevertheless has an implication for the nature and content of a causation analysis, which may logically necessitate a price analysis in a given case. Moreover, the absence of an analysis of the conditions of competition in the domestic market for the product in question, in which the interaction of the imported with the domestic product is explained in the report on the investigation (including inter alia a price analysis where relevant), results in an incomplete analysis of the causal link.”

In US – Wheat Gluten, the Appellate Body expressed its agreement with the Panel’s analysis. Like the Panel, the Appellate Body considered the phrase “under such conditions” to refer to the analysis to be performed under Article 4.2. The Appellate Body also referred to the phrase “under such conditions” in Article 2.1 as support for its view that Article 4.2 contemplates an analysis of whether increased imports, in conjunction with other relevant factors, cause serious injury:

“Article 2.1 reflects closely the ‘basic principles’ in Article XIX:1(a) of the GATT 1994 and also sets forth ‘the conditions for imposing a safeguard measure, including those relating to causation. The rules on causation, which are elaborated further in the remainder of the Agreement on Safeguards, therefore, find their roots in Article 2.1. According to that provision, a safeguard measure may be applied if a ‘product is being imported … in such increased quantities … and under such conditions as to cause … serious injury. Thus, under Article 2.1, the causation analysis embraces


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two elements: the first relating to increased ‘imports’ specifically and the second to the ‘conditions’ under which imports are occurring. Each of these two elements is, in our view, elaborated further in Article 4.2(a). While Article 2.1 requires account to be taken of the ‘increased quantities’ of imports, both in ‘absolute’ terms and ‘relative to domestic production’, Article 4.2(a) states, correspondingly, that ‘the rate and amount of the increase in imports of the product concerned in absolute and relative terms, [and] the share of the domestic market taken by increased imports’ are relevant. As for the second element under Article 2.1, we see it as a complement to the first. While the first element refers to increased imports specifically, the second relates more generally to the ‘conditions’ in the marketplace for the product concerned that may influence the domestic industry. Thus, the phrase ‘under such conditions’ refers generally to the prevailing ‘conditions’, in the marketplace for the product concerned, when the increase in imports occur. Interpreted in this way, the phrase ‘under such conditions’ is a shorthand reference to the remaining factors listed in Article 4.2(a), which relate to the overall state of the domestic industry and the domestic market, as well as to other factors ‘having a bearing on the situation of [the] industry’. The phrase ‘under such conditions’, therefore, supports the view that, under Article 4.2(a) and 4.2(b) of the Agreement on Safeguards, the competent authorities should determine whether the increase in imports, not alone, but in conjunction with other relevant factors, cause serious injury.”

IV.D.5.a Price Undercutting Table 18: Average Selling Price of Domestic Product vs. Landed Cost of Imports for 2007

(P/MT) Country Wtd. Ave.

Landed Cost (P/MT)

(a)

% Share to Total

Imports

Domestic Selling Price

(P/MT) (b)

% Undercutting

(b-a)/b*100

Major Sources: Thailand x x 76.90 x x 8.41 Germany x x 8.03 x x (6.20) Japan x x 5.89 x x 34.07 Chinese Taipei x x 5.79 x x 22.99 Average of Major Sources x x 90.82 x x 14.82 Other Sources: Malaysia x x 0.85 x x 0.27 Hong Kong x x 2.19 x x (39.88) South Africa x x 0.35 x x (12.16) Average of Other Sources x x 9.18 x x (17.26) WTD. AVERAGE x x 100.00 x x 8.39 Sources: BOC IED – Wtd. Ave. Landed Cost Domestic Industry – Domestic Selling Price

Based on BOC Import Entry Declarations for 2007, the major source countries of

testliner board to the Philippines are Thailand, Japan and Chinese Taipei. Average landed cost of imports from the major sources showed a price undercutting of 15% compared to the selling price of domestic testliner board. However, no price undercutting was reflected for the other major source (Germany).

Average landed cost of imports from other sources is 17% higher than the selling price

of the domestic product. The average landed cost of imported testliner board from all sources is lower by 8%

than the average selling price of local testliner board.


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According to the respondents, significant price undercutting is manifested only on shipments coming from Thailand, Japan and Chinese Taipei in 2007. Table 19: Average Selling Price of Domestic Product vs. Landed Cost of Imports for 2008

(P/MT) Country Wtd. Ave.

Landed Cost (P/MT)

(a)

% Share to Total Imports

Domestic Selling Price

(P/MT) (b)

% Undercutting

(b-a)/b*100

Major Sources: Thailand x x 71.39 x x (1.73) Indonesia x x 10.02 x x (8.78) Chinese Taipei x x 6.08 x x 13.11 Average of Top 3 Major Sources x x 87.49 x x 0.87 Other Major Sources: Australia x x 4.26 x x (19.00) PROC x x 3.99 x x (20.33) Average of Other Major Sources x x 8.25 x x (19.66) Other Sources Germany x x 2.07 x x (27.46) Japan x x 1.60 x x 40.05 Singapore x x 0.49 x x 7.82 Average of Other Sources x x 4.16 x x 6.80 WTD. AVERAGE x x 99.90 x x (2.80)

Sources: BOC IED – Wtd. Ave. Landed Cost Domestic Industry – Domestic Selling Price In 2008, the top three (3) major source countries of testliner board to the Philippines are Thailand, Indonesia and Chinese Taipei. Average landed cost of imports from the major sources showed a price undercutting of 1% compared to the selling price of domestic testliner board. Landed cost of imports from Chinese Taipei are 13% lower than domestic selling price. Imports from Thailand and Indonesia, however, reflected no price undercutting for the period.

Among the other sources, only Japan and Singapore registered a price undercutting of

40% and 8%, respectively. Average landed costs of imports from other sources are lower by 6.80% than the price of the local product.

The total weighted average landed cost of imports from all sources is higher by 3% than the selling price of the domestic product. Hence, no price undercutting was reflected for imports from all sources in 2008.

According to the respondent, price undercutting is insignificant for the top three (3)

major sources.


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IV.D.5.b Price Depression Price depression reflects the extent at which the domestic producer decreases its selling price in order to compete with the imported product. Table 20: Domestic Selling Price of Locally Produced Testliner Board (P/MT)

Year *Average Selling Price of Domestic Industry

(P/MT)


2004 100 - 2005 112 12.54 2006 115 2.18 2007 113 (1.42) 2008 127 11.78


In 2005, selling prices of domestic product increased by 12% and further by 2% in 2006.

Domestic industry suffered a price depression of 1.42% in 2007. Domestic industry increased their domestic selling price in 2008 by 11.78% to try to recover the increases in their cost of production. The respondents noted that there was no recorded price depression in 2008.

IV.D.5.c Price Suppression Price suppression refers to the extent by which the imported product prevents the domestic producer from increasing its selling price to a level that will allow full recovery of its cost of production Table 21: Price Suppression of Locally Produced Testliner Board (P/MT)

Year *Ave. Selling Price of Domestic

Industry (P/MT)

*Cost of Production

(P/MT)

Difference

(P/MT)

% Price Suppression

2004 100 100 (306) 1.76 2005 112 102 1,443 8.11 2006 115 92 3,613 22.54 2007 113 102 1,665 9.41 2008 127 126 (801) (3.66)


The table above shows that there is a price suppression of 3.66% in 2008.

According to the domestic industry, it was forced to sell below cost to match the landed cost of imports and maintain its market position. The Royal Thai Embassy stated that the industry’s assertion that domestic selling price was suppressed to sell below cost in 2008 to match the landed cost of imports and maintain its market position was misleading and illogical since the average price of imported testliner board from major sources and all sources in 2007 was lower than the average selling price of local industry by 15% and 8%, respectively.


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IV.E. Other Causes of Injury According to the petitioner, the market of the Philippine brown paper industry is generally driven by price more than quality. Local customers may easily trade-off better quality paper to low-priced paper. With the absence of high tariff rates, exporters easily penetrate the market with their export prices lower than Philippine domestic prices. a. Transfer Pricing Containerboard Manufacturers Association of the Phils. (CMAP) commented that other factors such as transfer pricing arising from unrelated party transactions continuously injured UPPC and these factors are unrelated to import surges. UPPC could have lowered its cost of sales in 2008 and generate more profits had it not for factors attributable to the economic crisis in 2008 (highest fuel prices in the first half and plummeting prices in the last half) and the “transfer pricing scheme”. UPPC explained that the economic crisis in 2008 have indeed caused regional and local prices of raw materials to shoot up. Nevertheless, all of UPPC’s materials are sourced at the best available prices. All transaction with all suppliers are at arm’s length – fair value and neutral. Suppliers and products are selected on the basis of reasonable pricing, superior quality and excellent service. They adhere to quality and fairness and deal with suppliers with impartiality. Transfer pricing is illegal both in the Philippines and Thailand. Therefore, it is by no means that the transfer pricing scheme will be used in business transactions between UPPC and affiliate companies. Imports suppressed domestic selling prices. UPPC was forced to sell below cost to match the landed cost of imports in order to maintain its market share. b. There is no oversupply in the International Market CMAP stated that UPPC’s claim that “With this, imports found an opportunity to dump their testliner boards in the Philippines due to oversupply in their local market as local demand in their country has depleted” is also not true. Based on UPPC’s submission, announcements of capacity expansions of foreign mills can be obtained from reliable regional paper industry publications (such as RISI, PPI, etc.). However, the capacities those foreign mills publish for local and regional consumption differs from their actual statistics. UPPC stated that the extensive capacity expansions of these foreign mills are among the major culprits why these foreign producers resort to unfair trade practice. As their local demand drop, these foreign mills dump their excess capacity to other countries such as the Philippines. c. Insufficient Supply CMAP alleged that UPPC will resume normal operations only in March 2010 and could not supply test liners to the Philippine market. UPPC has intermittent power and internal problems that caused them to stop operation. UPPC claims that it has always been able to serve domestic industry requirements since it started its operations. The operational difficulties encountered by UPPC were temporary and had never occurred in the past. At present, UPPC is operating normally. d. Monopoly CMAP cited that the grant of safeguard duty will shut down imports thereby granting UPPC a virtual monopolistic position prescribed by law (Section 36, RA 8800).


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UPPC rebuts the claim as importers will still be allowed to bring in testliner board. Safeguard measures will only level the pricing between the domestic product and the landed cost of imports. In addition, UPPC is not the only paper mill in the Philippines producing testliner boards. Therefore, it cannot monopolize the local market. e. Capacity expansion of foreign mills CMAP cited that the extensive capacity expansions of foreign mills as among the major culprits why the foreign producers resort to unfair trade practices is inaccurate. Safeguard measure conditions assume a fair trade scenario not unfair trade. UPPC explained that the extensive capacities of these foreign mills are among the major culprits why these foreign producers resort to unfair trade practices. As their local demand drop, these foreign mills dump their excess capacity to other countries such as the Philippines. IV.F. Unforeseen Development

As a WTO Member, the Philippines is bound by Article XIX GATT 1994 and the Safeguards Agreement. The applicant domestic industry must therefore allege and prove that unforeseen developments and the effect of obligations of the Philippines under the WTO Agreement, including tariff concessions, have led to the increase in importation as well as the presence of the resulting serious injury or threat thereof.

Although the product under investigation is not a bound item, the local testliner board

industry stated that the following unforeseen developments resulted to increased imports of the said product from 2004 to 2008:

• The extensive capacity expansions of foreign mills are among the major culprits

why the foreign producers resort to unfair trade practices. As their local demand dropped, foreign mills dump their excess capacity with aggressively low prices to other countries such as the Philippines.

• The advent of the global economic crisis in 2008 resulted to increase in costs

regionally and locally. Box-makers in the Philippines looked for alternative suppliers who offered lower prices, much lower than what the domestic industry can offer. With this, imports found an opportunity to dump their testliner boards in the Philippines due to oversupply in their local market as local demand in their country has depleted.

The Containerboard Manufacturers Association of the Philippines (CMAP) stated that the allegation of the domestic industry that extensive capacity expansions of foreign mills are among the major culprits that the foreign producers resort to unfair trade practices is inaccurate. Safeguard measure conditions assume a fair trade scenario not unfair trade. UPPC explained that the extensive capacities of these foreign mills are among the major culprits why these foreign producers resort to unfair trade practices. As their local demand drop, these foreign mills are forced to sell their excess production to other countries such as the Philippines, thus, resulting to increased imports. IV.G. Public Interest

Public interest dictates that the imposition of safeguard measure may eventually result

to a political or economic crisis. During the public consultation, parties in favor of the imposition of the safeguard measures on testliner board stated that the measure will not result to political and economic crisis and will even avert such a crisis.


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It should be emphasized that public interest refers to the “common-well being” or “general welfare” of society and is a substantial factor in determining the necessity of imposing safeguard duties. Public interest takes into consideration the welfare of the consumers including the downstream industries using testliner board as their input. Parties supporting the imposition of the measures claim that the imposition of the provisional safeguard measures will not cause a shortage of supply because the domestic industry has enough capacity to meet the demand in the country. UPPC claims that the imposition of tariffs will have a minimal or even no effect on domestic or exporting box-user industries, corrugators. The price increase will be minimal and insignificant as the percentage of packaging cost to total production cost is only at 1%-2%. The safeguard measures will bring about reasonable pricing and fair competition in the market as it will level pricing of domestic products and the landed cost of imports. National interest will be more adversely affected if the paper manufacturing industry will perish as employment, communities and other industries and sectors are contingent to the industry. UPPC emphasizes that importers will still be allowed to bring in testliner board. Safeguard measures will only level the pricing between the domestic product and the landed cost of imports. In addition, UPPC is not the only paper mill in the Philippines producing testliner boards. Therefore, it cannot monopolize the local market. V. FINDINGS AND CONCLUSIONS V.A. Volume of Imports V.A.1. In Absolute Terms

Increase in imports is recent, sudden, sharp and significant. Imports in 2008 increased by 56% over 2007 level. Imports in 2008 increased by 284% over 2005 level. Thailand, Indonesia, Chinese Taipei, Australia and People’s Republic of China

are the major suppliers of the imported product in 2008. V.A.2. In Relative Terms

Share of imports relative to domestic production continuously increased during the period of investigation.

Share of imported testliner boards to local production rose to its highest level of 13% in 2008, from 8.34% in 2007.

V.B. Serious Injury In defining the scope of serious injury, previous decisions of the WTO Appellate Body are instructive and guiding. Thus, in the Argentina Footwear case, the definition of serious injury was stated to mean a significant overall impairment in the position of the industry. In the said case, the Appellate Body emphasized that “an evaluation of each listed factor will not necessarily have to show that each factor is ‘declining’. In one case, for example, there may be significant declines in sales, employment and productivity that will show ‘significant overall impairment’ in the position of the industry, and therefore will justify a finding of a serious injury. In another case, a certain factor may not be declining, but the overall picture may nevertheless demonstrate ‘significant overall impairment’ of the industry”.


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Thus, it was held that although an evaluation of all the listed factors is necessary to determine serious injury, it was also clarified that the Agreement on Safeguards does not specify what such an evaluation must demonstrate. Instead, the Appellate Body in the said Argentina Footwear case ruled: “any such evaluation will be different for different industries, in different cases, depending on the facts of the particular case and the situation of the industry concerned.” It is therefore, the nature of the industry that would dictate on what factors should be given greater weight. V.B.1 Market Size

Total apparent Philippine market registered an erratic trend from 2004 to 2008 with the lowest level recorded in 2006.

Apparent Philippine market decreased by 3% (2005) and 1% (2006) but increased by 20% (2007) and 3% (2008).

V.B.2. Market Share

Share of imports to total Philippine market increased to 8.29% in 2007 and further to 13% in 2008.

Market share of domestic testliner boards exhibited a downward trend during the period of investigation, i.e. from 99.31% in 2004 to 87.42% in 2008.

V.B.3 Sales

V.B.3.a. Domestic Sales

V.B.3.a.1 Sales Volume

Domestic sales volume decreased in 2005 by 5.85% and by 5.06% in 2006. In

2007, it increased by 19.32% but again declined by 1.69% in 2008. V.B.3.a.2 Sales Value Domestic sales value increased by 18% in 2007 and further by 7% in 2008.

Domestic industry increased its selling price by 8.74% in 2008 due to increasing cost of raw materials.

V.B.3.b. Export Sales

V.B.3.b.1 Sales Volume

Export sales volume increased from 2005 to 2006 but significantly dropped by

35% in 2007 and by 39% in 2008. V.B.3.b.2 Sales Value Export sales value declined by 36% in 2007 and by 25% in 2008 due to the

decrease in sales volume. V.B.4. Production V.B.4.a. Domestic Production

Domestic production showed an erratic trend from 2004 to 2008. It declined by 3% in 2004 and continuously increased from 2005 to 2007.

In 2007, highest production was recorded which again dropped by 2% in 2008.


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V.B.4.b. Capacity Utilization

Capacity utilization declined by 3% in 2005 to 76% from 79% in 2004. It increased in 2006 to 82% and reached its highest at 88% in 2007. In 2008, it declined by 2% to 86%.

V.B.4.c. Inventories

Finished goods inventory showed an erratic trend from 2004 to 2008. Ending inventory went up to 108% in 2008 over 2007 level.

V.B.4.d. Cost of Goods Manufactured

Cost of production increased by 23% in 2008 due to the increase in raw materials of 20%, factory overhead by 7% and inventory adjustment by 4,957%.

V.B.5. Profits and Losses

Realized net gains from 2004 to 2006 but net profit declined in 2007 by 52%. Recorded a net loss of 301% in 2008 over 2007 level.

Sales revenues increased from 2004 to 2005 but declined by 3% in 2006; increased by 18% in 2007 and further by 7% in 2008.

Gross profits increased from 2004 to 2006 but declined by 34% in 2007. Gross losses were recorded in 2008 due to increasing cost of sales.

V.B.5.a. Return on Sales

Realized net income rate of 0.71% in 2004, 9% in 2005, 14% in 2006 and 6% in 2007 Net loss rates of 11% in 2008

Gross profit rates from 2004 to 2007. Gross loss rates of 4% in 2008. V.B.6. Employment and Wages

V.B.6.1 Employment

Employment showed an increasing trend during the period of investigation. V.B.6.2 Wages

Salaries/wages for supervisor increased from 2005 to 2007 but decreased by

3.46% in 2008 due to retirement of old employees and hiring of new ones. Salaries/wages for operator continuously increased from 2005 to 2008.

V.B.7. Productivity

Productivity dropped by 7% in 2005 but increased by 5% in 2006 and 2007. It declined by 2% in 2008.

V.B.8. Prices

V.B.8.1 Price Undercutting

In 2007, average landed cost of imports from all sources is lower by 8.39% than the average selling price of locally produced testliner board. Average landed cost of imports from the major sources showed a price undercutting of 15%.

In 2008, average landed cost of imports from all sources is higher by 3.07% than the average selling price of locally produced testliner board. Average landed cost of imports from the major sources showed a price undercutting of 0.87%.


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V.B.8.2 Price Depression

A price depression of 1.42% was recorded in 2007. No price depression in 2008 since domestic industry increased their domestic

selling price in 2008 to recover the increases in their cost of production.

V.B.8.3 Price Suppression

Price suppression of 3.66% in 2008. Domestic industry was forced to sell below cost in 2008 to match the landed cost of imports and maintain its market position.

V.C. Causation Rule 12.5 of the IRR of RA 8800 states that the Secretary shall demonstrate

“on the basis of objective evidence, the existence of the causal link between the increased imports of the product under consideration and serious injury or threat thereof to the domestic industry. Any known factors, other than the increased importation of the products under consideration, which at the same time injure the domestic industry, shall also be examined and the injuries caused by these factors must not be attributed to the increased importation of the product under consideration.” In the case of United States-Definitive Safeguard Measures on Imports of Wheat

Gluten from the European Communities, it was categorically ruled that the “causal link” requirement does not suggest that the increased import be the sole cause of the serious injury but on the contrary, the language of Article 4.2(b) of the Agreement of Safeguards, as a whole, suggest that the ‘causal link’ between the increased imports and serious injury may exist, even though other factors are also contributing, ‘at the same time’, to the situation of the domestic industry. In the said case, the Appellate Body stated that:

“We begin with our reasoning with the first sentence of Article 4.2(b). That sentence provides that a determination ‘shall not be made unless the investigation demonstrates….the existence of the causal link between increased imports…and serious injury or threat thereof. Thus, the requirement for a determination under Article 4.2(a), is that ‘the causal link’ exists. The word ‘causal’ means ‘relating to a cause or causes’, while the word ‘cause’, in turn, denotes a relationship between, at least two elements, whereby the first element has, in some way, ‘brought about’, ‘produced’ or ‘induced’ the existence of a second element. The word ‘link’ indicates simply that imports have played a part in, or contributed to, bringing about serious injury so that there is a causal ‘connection’ or ‘nexus’ between these two elements. Taking these words, together, the term ‘causal link’ denotes, in our view, a relationship of cause and effect such that increased imports contributed to ‘bringing about’, ‘producing’ or ‘inducing’ the serious injury. Although that contribution must be sufficiently clear as to establish the existence of the ‘causal link’ required, the language in the first sentence of Article 4.2(b) does not suggest that the increased imports be the sole cause of the serious injury. To the contrary, the language of Article 4.2(b), as a whole, suggest that the ‘causal link’ between the increased imports and serious injury may exist, even though other factors are also contributing, ‘at the same time’, to the situation of the domestic industry .” V.C.1 Increased Volume of Imports in Absolute Terms and Relative to Domestic

Production Imports continuously increased during the POI. Import surges were noted in 2007 and

2008. In 2007, import volume increased by 25% and further by 56% in 2008. Imports significantly increased both in absolute terms and relative to domestic production. The increase


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in imports is recent, sudden, sharp and significant which is enough to contribute serious impairment to the local industry.

V.C.2 Economic Factors

There are indications that the significant increase in the volume of imports in 2007 and 2008 greatly affected the over-all performance of the local industry. Net profit declined in 2007 by 52% and local industry subsequently incurred net loss in 2008. Losses from operations were attributed to decline in sales volume since market share was eaten up by imported testliner board. To compete with imports, the industry adopted selling prices which did not allow them to recover cost of production and operating expenses contributed to the financial losses. During the surge in imports, the industry suffered declining production, sales, capacity utilization, profitability and productivity. Prices of domestic products were also suppressed due to the inability to recover increasing production costs.

There are also other factors that contributed to the injury such as: • the absence of high tariff rates which allowed exporters to easily penetrate the

market (which is driven by price more than quality) with lower export prices than the domestic price;

• foreign mills dump excess capacity to other countries such as the Philippines; • the global economic crisis in 2008 greatly affected the local industry’s production

and operation costs just like all businesses in Asia. V.C.3 Public Interest The DTI takes into account public interest in deciding whether or not to impose

safeguard measures. DTI considers other factors that will assist the local industry and will benefit the consumers and end users. The provisional safeguard measure will only be at a level sufficient to redress or prevent further serious injury to the domestic industry while the case is under formal investigation.

Considering that the domestic industry cannot increase utilization to an economical level

due to tight competition with imports, the provisional safeguard measure will provide them breathing space or temporary relief from the import surge, which will give them the opportunity to continue their operations and production of testliner board to reach the optimum utilization rate of a paper mill between 90%-95%.

Further, taking into account the domestic industry’s sufficient capacity to supply the local

demand in the country, there will be no shortage of testliner in the market. The local industry’s production data showed that during the period of investigation, their highest capacity utilization rate was at 86% which was recorded in 2008. The local industry has sufficient capacity to supply the Philippine demand.

The impact of the safeguard measures on both the long term and short term should be

taken into consideration. It is acknowledged that the implementation of the safeguard measure may cause an initial surge in prices for the downstream industries and the consumers. However, the effect of said measures on the consuming public and the downstream industries will be negligible, thus, will not result in a political or economic crisis. In the long run, it will turn out to benefit the Philippine economy as a whole if the domestic industry is given the opportunity to implement adjustment measures to be competitive with its foreign counterparts. Further, users of the local testliner boards retain their option to choose between the local and imported testliner board since imports will still be allowed.


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V.D. Imposition of Provisional Safeguard Measures Section 8 of RA 8800 and its IRR states that:

“in critical circumstances where a delay would cause damage which would be difficult to repair, and pursuant to a preliminary determination that increased imports are substantial cause of, threaten to substantially cause serious injury to the domestic industry, the Secretary shall immediately issue, through the Secretary of finance, a written instruction to the Commissioner of Customs authorizing the imposition of a provisional general safeguard measures, such measure shall take the form of a tariff increase, either ad valorem or specific, or both, to be paid out through a cash bond set at a level sufficient to redress or to prevent serious injury to the domestic industry x x x The cash bond shall be deposited with a government depository bank and shall be held trust for the importer who posted the bond. The duration of the provisional measure shall not exceed two hundred (200) days from the date of imposition xxx”.

Rule 7.3 of the IRR of RA 8800 states that:

“In a preliminary determination under critical circumstances, the Secretary shall establish that there has been a substantial increase in imports taking into account their volume and whether or not there has been a rapid accumulation of inventories of the domestic product and a reduction in sales and profit margins of the domestic industry”.

Rule 6.2c and 6.2cii of the IRR of RA 8800 states that:

“If the provisional safeguard measures are sought, petitioner must show that critical circumstances exist which warrant the imposition of such provisional relief. In addition to the information mention above, the petitioner must also submit the impact on the domestic industry if imports continue within the next sixty (60) days of the filing of the petition”. V.D.1. Recommended Measures

The global recession which started in the last quarter of 2008 was largely felt in 2009. This global situation exacerbated the injury attributed to the surge in imports being suffered by the domestic testliner board industry. Regardless of the global economic condition, there is therefore a need to impose a safeguard measure which will provide the domestic industry, that is badly hurt, a temporary relief and protection from the effects of the global market condition and the surge in imports. The effect of the increased imports are continuing in 2009 since import levels are still higher than in 2004 to 2007. The existence of a causal link between the increased imports of the product under consideration and serious injury to the domestic industry have been established in the investigation. The evidence submitted by all interested parties justify the imposition of the provisional measure to prevent further injury to the local industry which is difficult to repair. Based on the evidence on the surge in imports and the injury suffered by the domestic industry, it is deemed necessary to afford opportunity to the testliner board industry for the conduct of a formal investigation by the Tariff Commission. It must be emphasized that a formal investigation by the Commission is wider in scope as it includes marathon public hearings to give all parties directly affected and such other interested parties the opportunity to be heard and to present evidence including the opportunity to respond to the presentations of other parties and to submit their views.


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Considering the above premises, the Department thereby recommends a P1,480.00/MT provisional safeguard measure in the form of a cash bond on imported testliner board with basis weight of 125gsm, 140gsm, 150gsm, 160gsm, 175gsm, 185gsm, 200gsm and 230gsm, classified under AHTN Codes 4805.2400, 4805.2510 and 4805.2590 while it is under formal investigation by the Tariff Commission. The measure shall be effective for a period of 200 days from the date of issuance of BOC of the relevant Customs Memorandum Order or fifteen (15) days after the publication of the DTI Order in two (2) newspapers of general circulation, whichever comes earlier.

VI. ADJUSTMENT PLAN According to the domestic industry, to facilitate positive adjustment of the industry’s position to import competition, they undertake to implement the adjustment plan as follows: 1. Profitability Improvement (Cost Reduction and Power Efficiency) 2. Strengthen Manufacturing Capability 3. Marketing Improvements VII. THE WORLD TRADE ORGANIZATION AGREEMENT ON SAFEGUARDS

Article XIX (Emergency Action on Imports of Particular Products) of the General Agreement on Tariffs and Trade (GATT) 1994 provides that: “If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.”

The Uruguay Round of Multilateral Trade Negotiations resulted in a new Agreement on Safeguards which interprets and elaborates Article XIX.

Article 2 of the Agreement provides that: “A Member may apply a safeguard measure to

a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.”

Article XIX of GATT 1994 stipulates that an emergency action is permissible only where the increase in imports (and the consequent serious injury or threat thereof) is due to unforeseen developments and the effect of GATT-WTO obligations, including tariff concessions. The Agreement on Safeguards, when it provides for the conditions for the application of safeguard measures (i.e. increased importation, serious injury or threat thereof, and causal link) is, however, silent on the circumstances prescribed by Article XIX.

The WTO Appellate Body in Argentina – Footwear and Korea – Certain Dairy

Products established that safeguard measures may be applied only when the prerequisites of Article XIX of GATT 1994 and the conditions of the Agreement on Safeguards (both Multilateral Trade Agreements and as such are integral parts of the WTO Agreement) are clearly demonstrated.


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As a WTO Member, the Philippines is bound by Article XIX of GATT 1994 and the

Safeguards Agreement. The applicant domestic industry must therefore allege and prove that unforeseen developments and the effect of obligations of the Philippines under the WTO Agreement, including tariff concessions, have led to the increase in importation as well as the presence of the resulting serious injury or threat thereof.

In relation to the current application, the product under consideration (testliner board) is not the subject of any Philippine obligation or tariff concession under the WTO Agreement. Nonetheless, such application is governed by the national legislation (RA 8800) and the terms and conditions of the Agreement on Safeguards.

VIII. ARTICLES 6 & 8 OF THE ASEAN AGREEMENT ON THE COMMON EFFECTIVE

PREFERENTIAL TARIFF (CEPT) SCHEME

Article 6 of the Agreement on the CEPT Scheme for the ASEAN Free Trade Area (AFTA) provides Emergency Measures in cases of increased importation which injures or threatens to injure an industry in the importing Member States. Said provision reads as follows:

“Article 6, Emergency Measures

If, as a result of the implementation of this Agreement, import of a particular product

eligible under the CEPT Scheme is increasing in such a manner as to cause or threaten to cause serious injury to sectors producing like or directly competitive products in the importing Member States, the importing Member States may, to the extent and for such time as may be necessary to prevent or to remedy such injury, suspend preferences provisionally and without discrimination, subject to Article 6(3) of this Agreement. Such suspension of preferences shall be consistent with GATT.”

Article 6.3 of the ASEAN-CEPT Agreement states that “where emergency measures are

taken pursuant to this Article, immediate notice of such action shall be given to the council referred to in Article 7 of this Agreement and such action maybe the subject of consultation as provided for in Article 8 of this Agreement”.

Interpretative Notes to Article 6.3 states that “where imports of particular products

eligible under the CEPT cause of threaten to cause injury to sectors producing like or directly competitive products in the importing Member States, the importing Member States may suspend preferences provisionally and without discrimination, and send an immediate notice to the Council through the ASEAN Secretariat”.

Article 8, on the other hand, provides for the consultation requirement.

Article 8. Consultations

1. Member States shall accord adequate opportunity for consultations regarding

any representations made by other Member States with respect to any matter affecting the implementation of this Agreement. The Council referred to in Article 7 of this Agreement, may seek guidance from the AIM in respect of any matter for which it has not been possible to find a satisfactory solution during previous consultations.

2. Member States, which consider that nay other Member State has not carried out its obligations under this Agreement, resulting in the nullification or impairment of any benefit accruing to them, may, with a view to achieving satisfactory adjustment of the manner, make representations or proposals to other Member States concerned, which shall give due consideration to the representations or proposals made to it.”


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It was noted that Thailand, Indonesia, Malaysia and Singapore were the ASEAN

countries which exported the product to the Philippines during the period of investigation. The Philippines will notify the Ministerial Level Council pursuant to Article 6 of this Agreement and as provided under Article 8 to initiate and provide adequate opportunity for consultations with affected member countries.

On 16 November 2009, the ASEAN Secretariat was officially informed of the initiation of

investigation of the application for safeguard measures against imported testliner board. IX. WTO AGREEMENT ON SAFEGUARDS

Article 12.1 of the WTO Agreement on safeguards states that a Member shall immediately notify the Committee on Safeguards upon:

(a) initiating an investigatory process relating to serious injury or threat thereof and the reasons for it;

(b) making a finding of serious injury or threat thereof caused by increased imports; and

(c) taking a decision to apply or extend a safeguard measure.

On 16 November 2009, the Philippine Permanent Mission in Geneva was officially informed of the initiation of investigation of the application for safeguard measures against imported testliner board. X. RECOMMENDATIONS While DTI recognizes that there are other factors which contributed to the serious injury suffered by the domestic testliner board industry, the increased volume of imports, both in absolute term and relative to domestic production, was found to be the substantial cause of the over-all impairment in the local industry’s operation. Given the unusual global market situation in 2008 and 2009, the purpose of the safeguard measure is to provide the local industry, that is badly hurt, a temporary relief and protection from the continuing surge in imports exacerbated by the global economic conditions. The Department of Trade and Industry, acting under Section 8 of RA 8800, authorizes the imposition of provisional safeguard measures in the form of a cash bond amounting to P1,480.00/MT on imported testliner board with basis weight of 125gsm, 140gsm, 150gsm, 160gsm, 175gsm, 185gsm, 200gsm and 230gsm, classified under AHTN Codes 4805.2400, 4805.2510 and 4805.2590 for a period of two hundred (200) days from the date of issuance of the Bureau of Customs of the relevant Customs Memorandum Order (CMO) or fifteen (15) days after the publication of the DTI Order in two (2) newspapers of general circulation, whichever comes earlier. However, imports originating from developing countries covered by Rule 8.8 of the IRR of RA 8800 shall not be subject to the provisional safeguard measure. Attached as Annex A is the list of said developing countries.


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ANNEX A

List of Developing Countries and Separate Customs Territories Excluded from the Imposition of Provisional

Safeguard Measure on Testliner Board

East & Southern Africa

West Africa North Africa South Asia

Angola Bostwana Burundi Comoros Congo. Dem. Rep. Djibouti Eritrea Ethiopioa Kenya Lesotho Madgascar Malawi Mauritius Mozambique Namibia Reunion Rwanda Seychelles Somalia South Africa Sudan Swaziland Tanzania Uganda Zambia Zimbabwe

Benin Burkina Faso Cameroon Cape Verde Central African Rep. Chad Congo, Rep. Cote d' Ivoire Equatorial Guinea Gabon Gambia, The Ghana Guinea Guinea, Bissau Liberia Mali Mauritania Niger Negeria Sao Tome & Principe Senegal Sierra Leone Togo

Algeria Egypt, Arab Rep. Libya Morocco Tunisia

Afghanistan Bangladesh Bhutan British Indian Ocean Territory East Timor India Maldives Nepal Pakistan Sri Lanka


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Europe & Central Asia

Middle East Americas East Asia & Pacific

Albania Armenia Azerbaijan Belarus Bosnia & Herzegovina Bulgaria Croatia Cyprus Czech Republic Estonia Georgia Greenland Hungary Kazakhstan Kyrgyz Republic Latvia Lithuania Macedonia, FYR Malta Moldova Poland Romania Russian Federation Slovakia Slovenia Tajikistan Turkey Turkmenistan Ukraine Uzbekistan Yugoslavia, Fed. Rep.

Bahrain Iran, Islamic Rep. Iraq Israel Jordan Kuwait Lebanon Oman Qatar Saudi Arabia Syrian Arab Rep. United Arab Emirates West Bank & Gaza Yemen, Rep.

Anguilla Antigua & Barbuda Argentina Aruba Bahamas Barbados Belize Bermuda Bolivia Brazil British Virgin Is. Cayman Is. Chile Colombia Costa Rica Cuba Dominica Dominican Rep. Ecuador El Salvador Falkland Is. (Malvinas) French Guiana Grenada Guadaloupe Guatemala Guyana Haiti Honduras Jamaica Martinique Mexico Montserrat Netherland Antilles Nicaragua Norfolk Is. Panama Paraguay Peru Puerto Rico St. Helena St. Kitts & Navis St. Lucia St. Pierre & Miquelon St. Vincent & the Grenadines Suriname Trinidad & Tobago Turks & Caicos Is. Uruguay US Virgin Is.. Venezuela

American Samoa Brunei Darussalam Cambodia Christmas Is. Cocos (Keeling) Is. Cook Is. Fiji French Polynesia Guam Hong Kong, China Johnston Is. Kiribati Korea, Dem. Rep. Korea, Rep. Lao PDR Macao, China Malaysia Marshall Islands Micronesia, Fed. Sts. Midway Is. Mongolia Myanmar Nauru New Caledonia Niue Northern Marianas Is. Palau Pitcairn Is. Papua New Guinea Samoa Singapore Solomon Islands Tokelau Tonga Tuvalu Vanuatu Viet Nam Wake Is. Wallis & Futuna Is.