I. Factual background
On April 4, 2019, the Israeli Minister of Economy and Industry ordered the imposition of an anti-dumping duty of 0.25% on portland cement imports from various Greek and Turkish cement producers. This duty was the result of approximately two years of complaints and investigations into the dumping of cement in Israel by these producers, which, as the claim went, caused injury to Israel’s domestic industry.
On April 6, 2017, an Israeli cement producer named Melet Hartuv submitted a dumping complaint to the Commissioner of Trade Levies and Safeguard Measures in the Israeli Ministry of Economy and Industry (each, respectively, the “Commissioner” and the “MOE”). According to the complaint, Melet was suffering injury as a direct result of dumping practices by certain Greek and Turkish cement producers. Melet’s complaint was soon backed by a second local producer, Nesher Israel Cement Enterprises, which, together with Melet, constituted the vast majority of Israel’s domestic industry. It is important to note that Israel’s cement industry is very concentrated and is controlled by these two players. According to the Commissioner’s post-investigation report, discussed below, Nesher constitutes [85-95%] of Israel’s domestic cement market and Melet between [5-15%] of that market. Thus, Nesher’s support was instrumental in the Commissioner’s justification for an investigation.
Melet’s dumping complaint was not surprising. The nature of cement production is that it requires an immense amount of energy (used for heating and processing raw materials) and a production line that functions 24/7. Shutting down and reigniting this production line can be very costly, therefore, cement factories generally have continuous output, and supply cannot easily react to changes in market demand. In this context, as certain regional markets closed their doors to Greek and Turkish cement producers in recent years (particularly, in Syria as a result of ongoing civil conflict and in Greece as a result of depressed building demand), these producers were forced to turn to alternative markets in order to sell off their cement supplies. Additionally, it is important to emphasize that cement has a relatively short shelf-life. Thus, cement producers who over-produce often are left with no choice other than to sell off supply at depressed prices or throw away that supply.
Under Israel’s Trade Levies and Safeguard Measures Law-1991 (the “AD Law”), which adopts into domestic legislation Israel’s obligations under the World Trade Organization Agreement on the Implementation of Article VI of the GATT 1994 (the “WTO Agreement”), after the submission of a dumping complaint, the Commissioner has twenty-one days to determine whether or not to begin an investigation. On May 18, 2017, the Commissioner chose this path and began investigating the alleged dumping practices of foreign cement producers in Israel’s market. Under the AD Law, once an investigation commences, the Commissioner has 240 days to complete the investigation and submit his or her findings to an “Advisory Committee,” which ultimately recommends to the Minister of Economy and Industry whether or not an anti-dumping duty should be imposed. This Minister has the authority to impose such a duty.
Below is a summary of the Commissioner’s report in the case of Melet, which was submitted to the Advisory Committee and then made available to the public. This is the final public document that describes the findings of the Commissioner’s investigation before a decision is made by the Minister of Economy and Industry about the imposition of a duty. It is noted that, subject to Articles 6 and 12 of the AD Agreement and Section 32.2 of the Law, much of the information contained in the report was summarized, provided in 'ranges', or removed in its entirety for reasons of confidentiality. For this reason, it is not possible to adequately check the Commissioner’s economic analysis of his findings with respect to dumping margins and injury.
II. Determination of Dumping
The first substantive section of the Commissioner’s report discusses dumping margins. After receiving information from foreign producers and conducting verification visits, the Commissioner concluded that foreign producers were dumping cement in the Israeli market in margins set forth below.
- Normal value: [$42-70]
- Export price: [$27-45]
- Dumping margin: 42.43% ($16.13)
In the report, the Commissioner noted that his findings concerning this dumping margin changed after he conducted a verification visit. Initially, in his preliminary decision (preliminary determination, pursuant to Article 7 of the WTO Agreement), the Commissioner had estimated a larger dumping margin.
- Normal value: [$24-36]
- Export price: [$20-35]
- Dumping margin: 16% ($4.28)
- Normal value: [$25-40]
- Export price: [$20-35]
- Dumping margin: 38% [$8-10]
- Normal value: [$34-50]
- Export price: [$25-40]
- Dumping margin: 24% ($9.03)
The following points should be noted with respect to the normal value. First, the Commissioner discounted Cimentas sales made to another company within the ‘Cimentas group’, because sales initially were made at higher prices. Only later accounts were settled based on the average price at which cement was sold to other routine customers. Second, the Commissioner discounted sales of CEM II/A-w 52.5 N (one of the cement types sold in Israel) because the amount of sales of this cement type were negligible. Third, Cimentas failed to provide information concerning necessary price adjustments, therefore, the Commissioner used data from Nesher for this purpose.
- Normal value: [$25-45]
- Export price: [$22-40]
- Dumping margin: 21.86% ($5-8)
- Normal value: [$23-33]
- Export price: [$20-30]
- Dumping margin: 15.56% ($3-6)
- Normal value: [$30-44]
- Export price: [$32-45]
- Dumping margin: 1.25% ($0.47)
- Normal value: [$30-45]
- Export price: [$23-35]
- Dumping margin: 15.43% ($4-7)
With respect to normal value, the Commissioner noted that Sonmez only provided information for one type of cement, and that the normal price provided was below costs of production. Therefore, the Commissioner discounted Sonmez’s data and based its normal price on the ‘target price’ of cement. In the context of dumping investigations, ‘target price’ refers to the sum of costs of production with an additional 8% profit margin, which is the profit margin deemed reasonable by the MOE (as a matter of public policy). The report strengthens this position by stating that, even if the Commissioner had used the information provided by Sonmez (as minimal as it was), nevertheless, the normal value would have been calculated as [$27-40].
III. Determination of Injury
After discussing dumping margins, the report turns to the question of injury to the domestic market. It begins by recalling that Article 3 of the WTO Agreement and Section 32.5 of the AD Law require the analysis of certain parameters for determining injury. Moreover, where the Commissioner finds that injury was indeed suffered by the domestic market, if a given parameter negates such a finding, he or she must explain why it does not derogate from the overall finding of injury.
The parameters of injury analyzed by the Commissioner and his findings are set forth below.
Volume of Dumped Imports. This parameter looks at whether there have been significant increases in dumped imports, either in absolute terms or relative to production or consumption in Israel. In this regard, the Commissioner found that there was a significant increase in imports – particularly from Greece, but from Turkey as well. These findings were based on data from the United Nations (the UN Comtrade Database). It should be noted that the report also cites data from the Israel Customs Administration. However, this data was obtained on the basis of the HS code for cement, which includes all types of cement and does not isolate portland cement imports – rendering the data unhelpful.
Price Undercutting. This parameter considers whether the allegedly dumped imports undercut the prices of Israeli products. Price undercutting is determined by comparing the ex-factory export price to the ex-factory local price of a product – a comparison made at the same level of trade. According to the report, the Commissioner looked at this factor by comparing the domestic industry’s prices (ex-factory) with the foreign producer’s prices (ex-works), and considered adjustments for certain costs, including, inter alia, raw materials, electricity, fuel, clinker, direct labor, manufacturing, overhead, packing materials, maintenance, and depreciation. Based on this method, the Commissioner found the existence of price undercutting at a rate of [10-16%] to [45-65%].
Price Depression. This parameter looks at whether the allegedly dumped imports caused a depression in prices (i.e., whether export prices forced down local market prices). In this regard, the Commissioner found that Nesher’s prices were depressed by [4-7%] during the period of 2014-2017.
Price Suppression. Price suppression occurs when allegedly dumped imports prevent local prices from increasing. This is determined by calculating the target price (described above) as a yardstick for identifying reasonable market prices, which local prices should have risen to match. The Commissioner measured price suppression by finding the difference between the target price and actual local prices. In this case, the target price was established using Nesher’s data, and the Commissioner found that there was no evidence of price suppression.
Sales and Profits. This parameter considers how allegedly dumped imports affected actual and potential declines in sales and profits. In this regard, the Commissioner found that there was a downward trend in sales and profits for Israel’s domestic industry – sales dropped by [25-45%] over the course of 2017, and profits dropped from [8-13%] to [2-7%].
However, despite these findings, the report discusses an additional factor that would indicate Nesher’s financial health. According to the report, Nesher paid NIS 294 million in dividends to its shareholders in 2017, around NIS 50 million of which was the result of the sale of the ‘Melet Hartuv’ factory. In this vein, one foreign producer claimed that this large dividend payment undermines the injury claim since (i) it was a large dividend to pay in its own right, and (ii) it was a large dividend payment relative to dividends paid in past years. According to the report, Nesher responded to this claim by stating that the size of its dividend payments are irrelevant indicators of financial health. This is because the company’s operations are funded by shareholder investments and, therefore, cash remaining in the bank after expenses have been paid is returned to shareholders through dividends. In other words, the size of dividends paid reflects the amount invested by its shareholders.
Output. This parameter considers how allegedly dumped imports affected potential and actual declines in output. According to the report, the Commissioner determined that while there was growth in output in Israel’s domestic industry, this growth was not as large as would otherwise have been expected considering the wider growth in demand in Israel’s cement market generally.
Market Share. This parameter considers how allegedly dumped imports affected actual and potential declines in the market share held by local producers. According to the report, there was a downward trend in market share. However, the report does not provide any data in this regard.
Use of Production Capacity. This parameter measures how allegedly dumped imports impacted potential and actual declines in the use of production capacity. It considers the relationship between actual output using installed equipment, and potential output which could be produced with the same equipment if production was at full capacity. With respect to this parameter, the Commissioner found that Nesher did not suffer diminished output for clinker production in 2014-2017, but did suffer diminished output for ground cement in 2015-2017.
Employment and Wages. This parameter looks at the potential and actual negative affects of allegedly dumped imports on employment and wages. According to the report, there was no useful data regarding changes in employment and wages from which conclusions could be drawn, particularly because Nesher sold its Melet Hartuv factory during the investigation period (and, therefore by definition, there was a drop in employment). Additionally, during this period, Nesher terminated a number of workers that became dispensable as a result of the factory’s increased efficiency. This termination of manpower led to increased wages among remaining employees (between 2015-2016 there was a [0-5%] rise, and between 2016-2017 there was a [0-5%] decline).
Returns on Investment and Ability to Raise Capital and Investments. With respect to the parameters of return on investments and the ability to raise capital, the Commissioner looked at the following financial indicators in the context of Nesher and Melet: (i) liquidity; (ii) profitability; (iii) capital structure; and (iv) efficiency and operations. With respect to Nesher, the Commissioner found that while the company’s financial situation is currently stable, this situation is worsening with respect to liquidity, profitability, inventory, and customer credit. With respect to Melet, the company’s financial situation is very poor in light of its liquidity, profitability, financial stability, efficiency, and ability to operate. It is important to note that these statements were made in the report without providing any supporting data.
Moreover, despite the title of this section in the report, it is unclear how these indicators directly impact and relate to the types of questions that traditionally are raised in the context of these parameters. In particular, with respect to the ‘return on investments’ parameter, investigating authorities generally consider whether allegedly dumped imports affected potential and actual declines in returns on investments. In this context, ‘return on investments’ refers to a producer's investments into the development of its own products, such as research and development, maintenance, and purchasing of new machinery or equipment. With respect to the ‘ability to raise capital’ parameter, this parameter usually looks at whether the domestic industry has been able to continue raising capital and investments despite its economic losses. This parameter recognizes that the fact that an industry suffers injury (regardless of whether such injury is the result of dumping or other factors), does not necessarily mean that its ability to continue raising capital and other forms of investment is inhibited.
Developments in the Cost of Raw Materials. While this parameter is not mentioned in either the WTO Agreement or the AD Law, the Commissioner chose to consider it because of its centrality to costs of production and importance for understanding the reasons behind the injury allegedly suffered by Israel’s domestic industry. In this regard, the Commissioner found that the costs of raw inputs, particularly, petcoke and mazut, decreased during the period of investigation.
Productivity. This parameter considers how allegedly dumped imports affected potential and actual declines in productivity. In this context, productivity is traditionally expressed as the output to input ratio used in a production process (i.e., output per unit of input). According to the report, the Commissioner found that productivity in the domestic industry declined by [0-10%] between 2014-2017. This data was based on an analysis of output per worker (both in tons and in shekel terms) during the period of investigation.
Cash Flow. This parameter looks at the effects of allegedly dumped imports on cash flow in the domestic industry. In this regard, the Commissioner found that cash flow increased by [20-30%] between 2014-2017. While these findings prima facie indicate financial health, Nesher explained that cash flow is not a good parameter for judging injury in its case – for example, a portion of its 2016 payments to suppliers was pushed off to January 1, 2017 since December 31, 2016 was a Saturday (not a business day). As a result, cash flow data for 2016 is skewed.
Returns on Equity. This parameter is similar to the standard investment-related parameters mandated by the WTO Agreement and AD Law discussed above, but this is a financial indicator that the Commissioner chose to consider on his own. In this regard, the Commissioner found a downward trend in Nesher’s returns on equity between 2014-2017 of [20-30%].
Inventory. This final parameter considered by the Commissioner looks at the effects of allegedly dumped imports on company inventories in Israel’s domestic industry. In other words, it seeks to understand whether cement inventories have grown or if the domestic industry has succeeded in selling its supply. In this regard, the Commissioner found that there were increases in inventory. However, the Commissioner emphasized that large inventory may not fully capture the extent of injury since, depending on the storage circumstances, ground cement is only stored in silos for up to 7 days or 3 months. Thus, inventory will still remain relatively low since every 7 days or 3 months, as the case may be, cement producers are forced to dispose of a portion of their unsold supply.
As opposed to the final cement product, clinker can be stored for much longer before being ground into cement, therefore, increased clinker inventories are a better measure for injury. The report insinuates that Melet saw an increase in its clinker inventory, however, there are two problems with this data: first, all relevant data for Melet is blacked out in the report and the Commissioner does not explicitly state in his conclusion that there was growth in Melet’s clinker inventory (it remains an insinuation); and second, there is no discussion of Nesher’s clinker inventory, therefore, the report only analyzes a minor portion of the domestic industry.
In light of the above analysis, the Commissioner reached the conclusion that injury was suffered by the domestic industry during the investigation period. In order to determine the level of injury suffered by the domestic industry, the Commissioner determined the difference between the target price of cement (the ideal price for the domestic industry) and actual export prices (the actual price at which the domestic industry is forced to sell). Using this method, he found the following dumping margins (based on weighted average for cement-type):
- Heracles (Greece): 20.3%
- KCS (Turkey): 16.9%
- Cimko (Turkey): 11.6%
- Cimentas (Turkey): 8.3%
- Cimsa (Turkey): 33.6%
- Goltas (Turkey): 19.2%
- Medcem (Turkey): 19.5%
- Sonmez (Turkey): 15%
It is important to note that, within the context of injury, the report does not address the parameters of domestic prices (i.e., how allegedly dumped imported impacted domestic prices) or dumping margin (i.e., the magnitude of alleged dumping margins). While these two particular issues are addressed by the report more globally, the Commissioner should have dedicated a more proper analysis within the specific context of injury. Additionally, the report does not discuss properly the parameter of growth.
Furthermore, the Commissioner’s analysis of many of the parameters leaves much to be desired. His discussion of returns on investment and the ability to raise capital indicates that Nesher, the vast majority of Israel’s domestic industry, is stable and in no immediate financially danger. Moreover, the parameters of output and employment and wages were not adequately discussed and lead to conflicting conclusions of whether, in this regard, injury was suffered in practice.
Finally, many of the parameters discussed in the report are indicative of financial health and, therefore, prima facie negate the Commissioner’s finding that Israel’s domestic industry suffered injury at all. This is the case with price suppression, production capacity, and developments in the cost of raw materials (a parameter that the Commissioner elected to consider). The Commissioner should have included in the report explanations as to why he made a finding of injury despite certain injury factors showing a positive trend (for more on this issue, see the WTO Panel Report, Thailand – H-Beams).
IV. Threat of Material Injury
In addition to analyzing the standard parameters of injury within the period of investigation as required by law (i.e., the three years preceding the submission of the complaint), the Commissioner reviewed certain economic indicators of injury that occurred after the close of the investigation period as well.
In this regard, the Commissioner determined that the current situation of dumped imports constitutes a threat of material injury to the domestic market, in light of the following findings:
- There was a marked increase in imports from Greece and Turkey.
- Due to the fact that Nesher has a monopoly over Israel’s domestic cement production, its cement sales are subject to price controls set by the MOE. Even though input prices rose over the period of investigation and, therefore, the MOE should have allowed Nesher to raise its cement prices, Nesher was forced to lower its prices in the face of competition.
- During the period of investigation (i) sales fell; (ii) profits fell; (iii) the domestic industry’s market share shrunk; (iv) production capacity fell; (v) productivity fell; and (vi) returns on equity fell.
Based on the above findings, and in light of Nesher’s Altman Z-Score, the Commissioner determined that there is a threat of material injury to Israel’s domestic market, which, in the long-run, it is unlikely to survive.
V. The Causal Link
The final criterion reviewed by the report is the causal link between dumping and injury. The report begins by stating that, in order to justify the imposition of an anti-dumping duty, the investigating authority must show that injury was caused by dumping, as opposed to other factors. Thus, it is critical that other relevant factors that could plausibly have caused injury be considered as well in order to determine that the injury, indeed, was the result of dumping. In particular, under Section 32.6 of the AD Law, the following five parameters must be considered: (i) the volume of imports of other similar goods that were imported at normal prices; (ii) negative changes in local demand for similar goods or a change in the consumption patterns of those goods; (iii) the existence of an arrangement between foreign and Israeli producers to limit competition; (iv) developments in technology and export performance that would cause a drop in prices; and (v) a decrease in export performance or in the productivity of the domestic industry’s production.
The report begins by stating that it is within the right of each state and its investigating authority to adopt its own methodology for analyzing the causal link, as long as injuries caused by other factors are not attributed to the dumped imports. In this vein, the Commissioner adopted the approach that regardless of other injury-causing factors, any causal link that exists between the injury and dumped imports would suffice for fulfilling this condition. In fact, dumping does not have to be the main contributing factor to injury. The Commissioner justifies this approach by claiming that in a small economy like that of Israel, it is nearly impossible to distinguish between the various factors that cause injury.
Turning to the report’s analysis, the five parameters described above were reviewed. The Commissioner found that:
- During the investigation period, there were major imports from Cyprus. However, imports from Cyprus were not sold at dumped prices – as opposed to Greek and Turkish imports.
- There was no drop in local Israeli demand for cement during this period which would have caused a drop in prices.
- There was no evidence of any arrangements intended to prevent competition.
- There were no new or unique technological developments that would have lowered production costs and therefore prices.
- There was a drop in export performance since 2017.
Moreover, the Commissioner found that the domestic industry lost part of its market share, which led to a decrease in productivity (i.e., productivity was below 100% during the investigation period), and there was also a drop in sales. Additionally, during the investigation period, Turkish prices fell to match Greece’s dumped prices, and after the investigation period, there was a dramatic increase in Turkish imports. Finally, the Commissioner noted that this final point is further evidence of the threat of material injury to the domestic industry.
In addition to the above economic indicators, the Commissioner took account of certain public policy considerations that, under Section 32.18 of the Law, must be considered when contemplating the imposition of an anti-dumping duty. In this regard, the Commissioner noted the following points in his report:
- In reality, cement is a small and negligible factor in the cost of building apartments in Israel. Thus, any duty imposed would have a very low impact on housing costs. According to the Commissioner’s estimates, cement costs account for approximately 0.50% of overall building costs. Moreover, the Commissioner doubts that the rise in cement costs would be shifted to end consumers.
- As part of a general government-wide effort to address the rapid increase in the cost of living in Israel, a committee led by Gal Hershkovitz, a civil servant from the Ministry of Finance, was chosen to help liberalize the centralized cement-production sector. One of the committee’s findings was that cement production is a strategic aspect of the Israeli economy, and around 80% of Israeli cement should be produced locally – this is an accepted standard around the world. The Commissioner emphasized that dumping poses a long-term existential threat to this threshold of locally produced cement.
- As discussed above, considering the centralization of the vast majority of cement production in Israel in the hands of Nesher, the company’s cement prices are controlled by the MOE. While the cost of inputs of production were generally on the rise (and, therefore, the MOE had reason to raise controlled prices), Nesher was forced to lower its prices over the past few years because of an influx in supply.
- Imposing an anti-dumping duty in Israel’s current economic climate will not lead to a shortfall of cement in the Israeli market. This is due to the large and ever-increasing local demand. Moreover, following a discussion with Ciment (Israel’s largest importer of cement and a respondent to Melet’s dumping claim) it is clear that an anti-dumping duty would simply mean an increase in prices charged by importers. In other words, importers will simply shift the cost to consumers and will continue to import and sell within Israel.
- Finally, Israel’s economic and trade ties with Turkey are strong, and the imposition of an anti-dumping duty is commonplace between friendly countries (e.g., numerous trade remedy investigations are conducted between the United States and Canada).
VI. Suggested Duty
In light of the above analysis, the Commissioner concluded that an anti-dumping duty is justified in the case of Melet, since Greek and Turkish producers of portland cement are dumping cement in the Israeli market in a manner that has caused injury to Israel’s domestic industry.
In this respect, the Commissioner recommended the imposition of an anti-dumping duty on the basis of the “Lesser Duty” rule – the lower of dumped prices and the duty required to rectify injury.
The Commissioner provided the following comparison between dumped prices and duties required to rectify injury:
In light of the “Lesser Duty” rule, the Commissioner proposed the following anti-dumping duties:
In his report, in line with Section 32.21 of the AD Law, the Commissioner suggests that duties be imposed for 5 years.