By: Irma Venter
12th June 2006
This is while AEL has also filed a High Court application to force Itac to complete its abandoned investigation into the same matter, following a previous application the company brought to the commission in 2005.
Itac has indicated it will oppose the AEL suit.
Edwards explains that the company’s first submission to Itac on this matter was in 2004 – based on 2003 data. This submission was denied investigation owing to the fact that AEL had not yet suffered material damage.
The company again made a submission in 2005, based on 2004 data.
“We had indeed by then suffered material damage, and Itac agreed to open an investigation in July 2005.”
It is this investigation that has since been abandoned by Itac, citing that AEL had misled the commission.
Edwards explains that he believes Itac declined further investigation based on a technicality, rather than on just cause.
“We were supposed to describe the market in which we operate, as well as the companies active within this market.
“We noted Sasol Dyna Nobel as an importer of shock-tube product, as the Itac definition notes that, if a company adds less than 25% value, it is not a manufacturer, but an importer. We estimated Sasol Dyna Nobel’s value-add to be 24%.
“However, when Sasol Dyna Nobel made its submission on the matter to Itac, as requested by the commission, it noted that it is a manufacturer, with more than 25% value-add.
“On the basis of this, Itac then informed us that it was stopping the investigation.”
(AEL’s value-add in terms of shock tube is an estimated 60% to 70%.) The commission also reportedly noted that it did not approve of Ghana’s being noted as a surrogate economy by AEL in its application.
In its submission, AEL compared shock-tube prices in Ghana, South Africa and China, to indicate “too-low Chinese shock-tube prices in South Africa that would smack of dumping”, says Edwards.
He believes that it was impossible for AEL to be aware of the precise cost and value-add of its competitor, Sasol Dyna Nobel. Also, if using Ghana as a surrogate economy was problematic, Itac should have indicated so without necessarily halting the investigation.
“Besides, it is irrelevant what Sasol Dyna Nobel’s cost structure is. This application is about AEL, and the material damage being done to our company.
“We admit that our estimate of Sasol’s value-add was incorrect, but this is a technicality, and it should not have been a reason to stop the entire investigation.
“The process of applying to Itac is simply too difficult and too technical, making it impossible to prove anything.
“We are now taking Itac to court because we believe it has a certain authority and obligation to protect South African industry against dumping.
“We say that Itac has not fulfilled this obligation because it did not conduct an investigation to decide whether or not to impose import tariffs on Chinese shock-tube imports,” says Edwards.
AEL lodged its application last month. As Itac is opposing the explosives company’s application, the matter could take months to resolve.
Should AEL succeed, Itac would be forced to reopen its investigation. Should Itac prove successful in its opposition, the investigation would remain closed.
Edwards believes AEL is indeed suffering material damage from Chinese imports.
“We have a world-class cost base. We export to a number of countries success- fully, but we cannot compete with a Chinese State-subsidised product moving into South Africa as part of a Chinese State-sponsored logistics chain.
“The key issue is whether we are going to allow a world-class factory employing 2 000 people to close.”
Edwards says AEL has, as a direct result of Chinese imports, reduced the price on its shock-tube products by 20%, while also losing an estimated 5% to 10% market share over the last three years.
Between the capped fuse and shock-tube market – with both products often used for the same application – AEL currently has a 70% market share.
AEL produces around 100-million capped-fuse units a year and between 12-million and 15-million shock-tube products a year.
Edwards says the shock-tube market has, in fact, grown in volume terms for the company, as prices have dropped.
However, the capped-fuse market has declined by 5% to 10%, as it was always lower priced than the shock-tube market, which is no longer the case, owing to Chinese shock-tube imports.
This means clients are able to substitute capped-fuse with shock-tube products.
An independent analyst raises the question with Mining Weekly that should the court rule in AEL’s favour, and Itac resumes the investigation, “would it imply that the application starts afresh from the resumption date, or merely continues to run from its initiation date? This is important since Itac must complete an investigation within 18 months of its initiation.”
Since Itac started the investigation in July 2005, a continuation from the initiation date would mean there remains little time to complete it, since a High Court decision is not viewed as imminent.
As for China, he remarks, should Itac eventually recommend the imposition of a dumping duty, and China is then dissatisfied with this outcome, it may approach the World Trade Organisation seeking a resolution to the dispute between the two countries.
International Trade Administration Commission (Itac) chief commissioner Nomonde Maimela says the commission will oppose AEL’s application to the High Court for the reopening of theinvestigation into alleged shock-tube dumping from China.
Itac was launched in 2002, replacing the Board on Tariffs and Trade (BTT). It falls under the Department of Trade and Industry. Itac – like the BTT before it – is charged with conductinginvestigations into unfair international trade practices initiated by Southern African Customs Union companies and industries, and may also consider applications for safeguard measures, aimed at protecting companies or industries in the region against a sudden surge in imports which threatens to affect their profitability or viability.
The unfair practices include dumping, which is defined as “the introduction of goods into the commerce of the Republic and the common customs area at an export price which is less than the normal value of the goods” in the exporting country.
Why did Itac discontinue the investigation?
After initiation, Itac became aware that AEL submitted incorrect information which thecommission used for the initiation of the investigation.
The incorrect information, among others, related to the statement by AEL that it was the only producer of the subject product.
Had Itac been provided with this information at the time of initiation, it probably would have come to a different decision. In order for Itac to impose measures, it must have information to indicate that the dumped imports and not other factors, for example local competition, caused material injury to the Southern African Customs Union industry.
In instances where there are only two major producers, Itac has to investigate whether the injury experienced by one producer is indeed from dumped imports, and not the result of competition in the domestic market with the other producer. Itac had information indicating that Sasol is indeed a producer and this information was shared with AEL.
Itac proposed that AEL incorporate this information in its application, without success.
On termination of the investigation, Itac invited AEL to submit a new application that included the information that was initially not made available to the commission for consideration.
AEL can at any time submit a new application for the commission’s consideration.
AEL notes that the process to apply to Itac may be too technical – what is your response to this? Antidumping is a technical instrument governed by World Trade Organisation (WTO) rules, which were agreed to by all participating countries, including South Africa. These rules govern every part of an investigation, from receipt of an application to the termination of an investi-gation, or the implementation of an antidumping duty.
Itac has been given a mandate to administer this WTO antidumping agreement, and must do so in full compliance with WTO principles, rules and procedures.
An importer of Chinese products comments
Master Blaster was established in Botswana in 1998 as a supplier of explosives and accessories. Today, the company deals exclusively with Beijing Auxin Chemical Technology, and has the exclusive distribution rights for the range of Maxnel products in Southern Africa.
All products are imported, with some shock-tube assembly taking place in Botswana.
Plans are well advanced to also assemble shock-tube products in South Africa, says MD Mark Davies.
“Master Blaster started out as the exclusive distributor for Sasol Accessories (detonators) in Zimbabwe and Botswana, while acting as the agent for the Chinese for fuse product.
“Sasol took away our exclusivity, resulting in our being forced to compete with their South African distributors in Zimbabwe and Botswana, while being excluded from competing in the South African market.
“We opted (instead) for an exclusive arrangement with our Chinese suppliers.”
Thus, in December 2001, Master Blaster signed a memorandum of understanding with the Chinese for the design, erection and commissioning of a shock-tube plant in Botswana. This plant was commissioned in 2003.
In return, Master Blaster was given exclusive rights by its Chinese supplier.
The Chinese market is more than ten times the size of the total Southern African market. This means the Asian country’s economies of scale result in greater efficiencies and this,“combined with a highly-educated and productive workforce, has resulted in a quality and price-competitive product”, says Davies.
Master Blaster has clients in Zimbabwe, Zambia, Botswana and South Africa.
“Our sales have increased tenfold in the last five years,” notes Davies.
As for the case AEL has brought before the International Trade Administration Commission, he believes that it “has nothing to do with shock tube. It is all about preserving the fuse and igniter cord monopoly currently enjoyed by AEL”.
Edited by: Irma Venter