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G/SG/N/8/IDN/17

G/SG/N/10/IDN/17

14 October 2014

(14-5867) Page: 1/8

Committee on Safeguards Original: English

NOTIFICATION UNDER ARTICLE 12.1(B) OF THE AGREEMENT ON


SAFEGUARDS ON FINDING A SERIOUS INJURY OR THREAT
THEREOF CAUSED BY INCREASED IMPORTS

NOTIFICATION OF A PROPOSAL TO IMPOSE A MEASURE

INDONESIA

(I and H Sections of Other Alloy Steel


Under HS. Codes 7228.70.10.00 and 7228.70.90.00)

The following communication, dated 10 October 2014, is being circulated at the request of the
Delegation of Indonesia

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1 GENERAL BACKGROUND

1. On 15 January 2014, the KPPI hereinafter referred as the "Investigating Authority", received
an application from PT. Gunung Garuda, hereinafter referred as the "Applicant", requesting for the
imposition of a safeguard measure on the such increased importation of "I and H Sections of Other
Alloy Steel" under Harmonized System (HS.) Codes 7228.70.10.00 and 7228.70.90.00, claimed to
be the cause of injury as incurred by the Applicant.

Based on the examination of the above mentioned application, the Investigating Authority initiated
an investigation on 12 February 2014, which was announced in the Ministry of Trade website. The
said initiation was notified in the WTO document G/SG/N/6/IDN/25, circulated on
13 February 2014.

2. Subject Good

a. I Section with a height or a width of 100 mm up to 600 mm, and H Section with
a height of 100 mm up to 350 mm, of other alloy steel, not further worked than hot-
rolled, hot-drawn or extruded, under HS. Code 7228.70.10.00;

b. I Section with a height or a width of 100 mm up to 600 mm, and H Section with
a height of 100 mm up to 350 mm, of other alloy steel, under HS. Code 7228.70.90.00,
excluding:

• I Section and H Section, of other alloy steel, cold-rolled; and

• I Section with a height or a width of 100 mm up to 600 mm, and H Section with a
height of 100 mm up to 350 mm, of other alloy steel, not further worked than
hot-rolled, hot-drawn or extruded.

3. Period of Investigation

The period of investigation covers 2010-2013.


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4. Major Proportion

The Applicant constitutes a major proportion of the total domestic production, which is 91%.

5. Views and Comments by Interested Parties

In accordance with the Article 3.1 WTO Agreement on Safeguards, during the said process of
investigation, the Investigating Authority has provided opportunities for interested parties to
submit their views, evidences, comments, and responses concerning the investigation. In light of
the aforementioned, a public hearing was also conducted on 21 March 2014, in order to meet the
requirement of transparency and procedural due process. During the public hearing, the interested
parties, as invited, were given the same opportunities to address their evidences and views.

2 DATA OF IMPORTS

1. Increased In Imports

a. Absolute Increased of Imports

Table 1: Volume of Imports

Description Unit 2010 2011 2012 2013

Volume of Imports Ton 20,331 104,083 348,477 395,814

Growth % 412 235 14

Trend % 175

Source: Indonesian Statistics/Badan Pusat Statistik (BPS)

As shown in table 1, there was a significant increased of the volume of imports of the Subject
Good in absolute terms, where the imports increased with the trend of 175%. The surge in imports
occurred significantly in 2011 by 412%, from 20.331 tons in 2010 to 104,083 tons in 2011. In
subsequent years, there also been a significant surge in imports by 235% and 14% respectively.

b. Imports Relative to Domestic Production

Table 2: Imports Relative to Domestic Production

Description Unit 2010 2011 2012 2013

Volume of Imports Ton 20,331 104,083 348,477 395,814


Domestic Production Indices 100 109 133 113
Imports Relative to
Indices 100 468 1,282 1,705
Domestic Production
Trend of Imports Relative to
(%) 160
Domestic Production

Source: Indonesian Statistics/Badan Pusat Statistik (BPS), Applicant, and processed.

As shown in table 2, during the period of investigation the volume of imported Subject Good
increased in relative term with the trend of 160%.
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2. Market Share

Table 3: Market Share

Year
Subject Unit Trend (%)
2010 2011 2012 2013
Market Share of
Indices 100 129 190 218 31
Imported Subject Good
Market Share of
Indices 100 95 77 71 (12)
The Applicant

Source: Indonesian Statistics/Badan Pusat Statistik (BPS), Applicant, and processed.

As affirmed in table 3, the market share of imported Subject Good showed an increased with the
trend of 6%, whereas the market share of the Applicant showed a decreased with the trend
of 12%.

3. Share of Main Exporters

Table 4: Share of Main Exporters

Countries Share of Import 2010 (%) Share of Import 2013 (%)

People's Republic of China 59.78 96.62

Singapore 36.55 0.96

Total 96.33 97.58

Source: Indonesian Statistics/Badan Pusat Statistik (BPS), and processed.

Based on table 4, the total market share of the two main exporters in 2010 was 96.33% and
in 2013 the market share was increased to 97.58%. The highest increased in share is from the
People's Republic of China (PRC) which has increased significantly from 59.78% to 96.62%. On the
contrary, the market share of imports from Singapore has decreased from 36.55% to 0.96%.

3 EVIDENCE OF SERIOUS INJURY

The Investigating Authority examined all data and information available having a bearing on the
actual condition of the Applicant. The Investigating Authority also conducted on-site verifications to
the Applicant.

Table 5: Applicant Performance Indicator: National Consumption, Volume of Imports,


Market Share of Imported Subject Good, and Market Share of the Applicant

Year Trend
No. Subject Unit
2010 2011 2012 2013 (%)
1. National Consumption Indices 100 124 169 167 20

2. Volume of Imports Ton 20,331 104,083 348,477 395,814 175


Market Share of
3. Indices 100 95 77 71 (12)
the Applicant
Market Share of
4. Indices 100 73 57 40 (26)
the Non-Applicant
Market Share of
5. Indices 100 129 190 218 31
imported Subject Good

Source: Indonesian Statistics/Badan Pusat Statistik (BPS), Applicant, and processed.

1. During the investigation period, the national consumption of I and H Section experienced an
increased with the trend of 20%. The increased in national consumption occurred significantly
in 2012 by 45 points, although in 2013 has decreased slightly by 2 points if compared with the
previous year. On the other hand, imports of Subject Good experienced an increased with the
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trend of 175% during the period of investigation, which means increased in imports of Subject
Good are much larger if compared with the increased in the national consumption. During the
same period, the market share of imports increased with the trend of 31%, while the applicant's
market share decreased with the trend of 12%, thereby the non-applicant's market share also
decreased with the trend of 26%. This showed that increased in the national consumption could
not be utilized by the domestic producers to increase their sales.

Table 6: National Consumption, Production, Domestic Sales, and Applicant's Market Share

Unit: Indices
Year Trend
No. Subject
2010 2011 2012 2013 (%)
1. National Consumption 100 124 169 167 20
2. Production 100 111 138 120 8
3. Domestic Sales 100 118 131 118 6
Market Share of The
4. 100 95 77 71 (12)
Applicant

Source: As verified by KPPI.

2. As shown in table 6, the increased in production during the investigation period carried out
in line with the efforts of the Applicant to improve domestic sales due to the increase in the
national consumption. In the same period, domestic sales increased with the trend of 6%, but the
Applicant's market share experienced decreased with the trend of 12%. This happened because
the increase in the national consumption is filled with the imported subject goods.

Table 7: Profit/Loss
Unit: Indices
Year
Subject
2010 2011 2012 2013
Profit/Loss (100) 234 356 (383)

Source: As verified by KPPI.

3. As shown in table 7, the Applicant suffered the greatest losses in 2013 by (383) points,
because the applicant was forced to sell below the cost of production in order to compete with
imported subject good's prices.

Table 8: Applicant's Selling Price, Cost of Production, and Import's Price

Unit: Indices
Year
No. Subject Trend (%)
2010 2011 2012 2013
1. Applicant's Selling Price 100 119 121 111 3

2. Cost of Production 99 112 111 115 4


Imported Subject Good's
3. 116 112 94 101 (6)
Price

Source: As verified by KPPI.

4. Based on table 8, during the investigation period, the Applicant's selling price continues to
increase with the trend of 3% due to higher cost of production with the trend of 4%. At the same
time, the imported subject good's price has decreased with the trend of 6%. Although the
Applicant selling a higher price than the imported subject good's price in 2013, but the Applicant
was forced to sell below the cost of production due to the pressures of the cheaper imported
subject good's price.
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Table 9: Employment, Productivity, and Target of Productivity

Unit: Indices
Year
No. Subject Trend (%)
2010 2011 2012 2013
1. Employment 100 108 138 102 3
2. Productivity 100 103 101 118 5

3. Target of Productivity 106 111 99 153 11

Source: As verified by KPPI.

5. Due to huge losses in 2013, the Applicant did efficiency by reducing the employment by 36
points from the previous year as shown in Table 9. The reduction in the employment in 2013 led to
an increase in productivity by 17 points from 101 points in 2012 to 118 points in 2013, but the
rate of productivity in 2013 was still far from the target of productivity which was 153 points.

Table 10: Inventory, Production, and Market Share

Unit: Indices
Year Trend
No. Subject
2010 2011 2012 2013 (%)
1. Inventory 100 61 168 201 36
2. Production 100 111 138 120 8

3. Market Share of The Applicant 100 95 77 71 (12)


Market Share of Imported
4. 100 129 190 218 31
Subject Good

Source: As verified by KPPI.

6. As shown in table 10, the Applicant's inventory has increased with the trend of 36% over the
investigation period. The inventory increased because the production process cannot be sold
entirely due to the Applicant's market share that has been eroded by the market share of imported
subject good.

Table 11: Installed Capacity, Production Target, Production, and Capacity Utilization

Unit: Indices
Year Trend
No. Subject
2010 2011 2012 2013 (%)
1. Installed Capacity 100 100 100 100 -
2. Production Target 106 119 136 157 14
3. Production 100 111 138 120 8
4. Capacity Utilization 100 111 139 121 8

Source: As verified by KPPI.

7. As shown in table 11, during the investigation period, there is no additional installed
capacity undertaken by the Applicant. Production during the 2010 to 2012 has increased, but
in 2013 has decreased by 18 points compared to the previous year. Applicant's target of
production cannot be achieved except in 2012. This is because of the cost of production during the
years have increased, while in 2012 target of production may be exceeded due to a decline in the
cost of production. On the other hand, the selling price of imported subject good during the
investigation period decreased with the trend of 6%, and in 2012 and 2013 the price of imported
subject good was below the cost of production, so that in 2013 the applicant was forced to make
an adjustment to sell their goods below the cost of production, which in turn causing a serious
injury. In general, Applicant's production increased with the trend of 8%, however, the increase is
still not able to meet its production target except in 2012.
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4 UNFORESEEN DEVELOPMENT

PRC is the world's largest steel producer with a production volume of 779 million tons in the
year 2013. Meanwhile, Japan is the second largest producer with production volume amounted
to 110.6 million tons. Hence, the PRC has potential to remain as a country with the world's largest
supplier of steel production with the trend which continues to increase.

With the high volume of PRC's steel production and also shadowed by increased inventories,
increased production capacity, and declining capacity utilization in the PRC. This resulted that the
PRC looks for overseas markets to reduce the supply of steel in the domestic market.

At the same time, in the year 2010-2013 the largest importing countries of section steel
experienced a shifting due to the economic slowdown. The importation of steel section which was
originally dominated by a few countries in the Americas and Europe turn to be dominated by
several countries in Asia, which one of them is Indonesia. This can be seen in alteration of the
position of the largest importing countries of section steel in 2010 that Indonesia was still in eighth
position, then in 2013 Indonesia already ranked in the first position as the biggest importer of
steel section.

As a result of increased in production capacity and production volume in the PRC, which is
oversupply in their domestic market, causing PRC to seek overseas markets, including Indonesia.
This led to a surge in imports of I and H Section of Other Alloy Steel in Indonesia, which is cannot
be foreseen.

5 OTHER FACTORS THAT MAY CONTRIBUTE TO INJURY

In order to find whether there are other factors existed to cause or threaten to cause serious
injury to the Applicant other than the increased volume of imported Subject Good, the
Investigating Authority has also analyzed the following known factors:

1. The Impact of Export Sales

From the results of the verification, the Applicant is also known to export their sales during the
period 2010-2013, as shown in the table below.

Table 12: Domestic Sales and Export Sales

Unit: %

Year
No. Description
2010 2011 2012 2013
1. Domestic Sales 96 94 99 99
2. Export Sales 4 6 1 1
3. Total Sales 100 100 100 100

Source: As verified by KPPI.

The table shows that export sales during the period of investigation was rather small, which was
only about 1% to 6% of the total sales during the years. It can be concluded that the injury
suffered by the Applicant is not caused by the export sales.
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2. Impact of Competition with the Other Domestic Industry

Table 13: Share of Imported Subject Good, Share of Applicant, Share of Non-Applicant

Unit: Indices
Year
No. Description
2010 2011 2012 2013
1. Share of Imported Subject Good 100 129 190 218
2. Share of Applicant 100 95 77 71
3. Share of Non-Applicant 100 73 57 40

Source: BPS Statistics Indonesia, Applicant, Non-Applicant, and processed

As seen in the table above, it is clear that the share of both Applicant and Non-Applicant has
decreased while the share of imports continued to increase during the investigation period. This is
proved that the competition between the Applicant and the Non-applicant is not causing the injury
suffered by the Applicant.

3. Quality

The Applicant produces goods which is directly competitive with the Subject Good which based on
same standard quality such as Indonesian National Standard (SNI) and the Japan International
Standard (JIS). Thus, the domestic products are able to compete with imported products in terms
of quality, because it is in conformity with standards that are recognized nationally and
internationally.

Based on the aforesaid findings, the Investigating Authority is of the view that there are no other
factors contributing to the serious injury as suffered by the Applicant, beside the increased volume
of imports of the Subject Good.

6 STRUCTURAL ADJUSMENT

The Applicant's structural adjustments are as follows:

1. Reducing Cost of production by selling existing inventory in the warehouse, maximizing the
capacity utilization by optimizing all of production line, and installing new production capacity when
the current production line already have reached the maximum level of utilization.

2. Increasing sales by cooperating with logistic companies to facilitate the delivery of goods to
customer, opening the new marketing office, and discount for purchases in a certain amount.
Therefore, production goods as mentioned above can be absorbed by the domestic market.

7 CAUSAL LINK

In accordance with the findings as duly elaborated in Sections 3 and 5, the Investigating Authority
concluded that there is a strong evidence of a causal link between the increased volume of imports
of the Subject Good and the serious injury suffered by the Applicant.

1. There is a surge increased in imports both in absolute or relative term during the
investigation period.

2. Trend of national consumption has increased during the period of investigation, but it could
not be optimized by the Applicant. In fact, the trend of the Applicant's market share was declining
due to the Applicant's market share eroded by imports.

3. Due to a surge increased in imports, there has been a decline in domestic sales, which also
resulted in decreased production and increased inventories. This resulted in a decrease in the
Applicant's market share in national consumption.
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4. The decline in domestic sales and in the Applicant's market share caused the Applicant
suffered significant financial losses in 2013, which forcing the Applicant to reduce the number of
their employees.

5. There were Price Undercutting, Price Depression, and Price Suppression experienced by the
Applicant as a result of the surge increased in imports.

Table 14: Price Undercutting

Unit: Indices
Year
No. Description
2010 2011 2012 2013
1. Imported Subject Good's Price 100 97 81 87
2. Applicant's Selling Price 86 103 104 96
3. Price Undercutting 14 (6) (23) (9)

Source: BPS Statistics Indonesia, Applicant, and processed.

In the period of 2011 to 2013 the price of imports has always been under the Applicant's selling
price. Import prices continued to experience a significant decline from 2010 to 2013 with the trend
of 6%, and import prices are still far below the Applicant's selling price, except in 2010.

Table 15: Price Depression and Price Suppression


Unit: Indices
Year
No. Description
2010 2011 2012 2013
1. Imported Subject Good's Price 116 112 94 101
2. Applicant's Selling Price 100 119 121 111
3. Cost of Production 99 112 111 115

Source: Applicant, and processed.

In 2013 the Applicant's selling price was under pressure of import prices which makes the selling
price fell by 8 points, so it can be concluded that the Applicant experienced a price depression
during the year. In the same year, the Applicant also experienced Price Suppression which led the
Applicant to sell goods below the cost of production.

8 PROPOSED MEASURE

1. In view of the aforementioned conclusion of the Causal Link, the Investigating Authority has
proposed to the Government of the Republic of Indonesia a Safeguard Measure to be imposed on
the importation of the Subject Good for a period of three years.

2. The imposition of the Safeguard Measure will be carried out in accordance with the
Article 2.2 and Article 9 of the WTO Agreement on Safeguards.

3. Pursuant to Article 12.3 of the WTO Agreement on Safeguards, Indonesia is prepared to


consult with those Members having a substantial interest as exporters of the products concerned.

THE INDONESIAN SAFEGUARD COMMITTEE


(Komite Pengamanan Perdagangan Indonesia/KPPI)
Jl. M.I. Ridwan Rais No. 5, Building I, 5th floor, Jakarta 10110
Telephone/Facsimile: (+62-21) 385 7758
Email: kppi@kemendag.go.id

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