BINATIONAL PANEL REVIEW
PURSUANT TO
THE NORTH AMERICAN FREE TRADE AGREEMENT
Article 1904

Secretariat File No.
CDA-95-1904-04
October 9, 1996

IN THE MATTER OF:

Final Determination of Dumping regarding
Certain Refined Sugar, Refined from Sugar Cane
or Sugar Beets, in Granulated, Liquid and
Powdered Form, Originating in or Exported
from the United States of America

Before:

Brian E. McGill, Chair

Jane C. Luxton

Leonard E. Santos

Leon E. Trakman

Wilhelmina K. Tyler

MEMORANDUM OPINION AND ORDER

TABLE OF CONTENTS

I. STATEMENT OF JURISDICTION

II. ADMINISTRATIVE HISTORY AND PANEL PROCEEDINGS

III. ISSUES BEFORE THE PANEL

IV. STANDARD OF REVIEW

A. General

B. Positions of the Participants

C. Decision of the Panel

V. THE FRAMEWORK OF SAVANNAH'S SALES OPERATIONS

VI. DETERMINATION OF THE EXPORTER

A. Positions of the Participants

B. Decision of the Panel

VII. DETERMINATION OF COST OF PRODUCTION

A. Statutory Background and Revenue Canada Determination

B. Positions of the Participants

C. Decision of the Panel

1. Review under the reasonableness standard

2. Revenue Canada's rejection of Savannah's methodology

3. Revenue Canada's cost of production determination for inputs from sugar beets was reasonable

4. Remand of Revenue Canada's cost of production determination for inputs from commingled inventory

VIII. REVENUE CANADA'S DATE OF SALE DETERMINATION WAS REASONABLE

A. Factual Background and Revenue Canada's Determination

B. Positions of the Participants

C. Decision of the Panel

IX. CONCLUSION

REMAND INSTRUCTIONS

I. STATEMENT OF JURISDICTION  

This Binational Panel Review arises from a complaint filed by Savannah Foods & Industries, Inc. ("Savannah") on December 18, 1995, pursuant to Rule 39(1) of the Rules of Procedure for Article 1904 Binational Panel Reviews of the North American Free Trade Agreement ("NAFTA") and Part II (Section 77.15) of the Special Import Measures Act, R.S.C. 1985, c. S-15, as amended ("SIMA"). Savannah seeks a remand of the October 5, 1995 final determination of dumping by the Deputy Minister of Revenue ("Revenue Canada") concerning refined sugar, whether from sugar cane or sugar beets in granulated, liquid and powdered form ("subject goods") originating in, or exported from, the United States of America (Investigation File No. 4237-80-2) ("Final Determination") as that determination applies to Savannah.  

II. ADMINISTRATIVE HISTORY AND PANEL PROCEEDINGS  

On February 10, 1995 the Canadian Sugar Institute ("CSI"), a trade association composed of the Canadian producers ¹ of subject goods ² filed a complaint alleging dumping of refined sugar from the United States and other countries. CSI provided evidence of reduced profitability, margin depression, margin suppression and lost sales to demonstrate injury from unfair imports. In accordance with subsection 31(1) of SIMA, Revenue Canada opened an investigation into the matter on March 17, 1995. The Sugar Beet Growers Association filed a letter with Revenue Canada on April 24, 1995 supporting the complaint filed by CSI.

On October 5, 1995, Revenue Canada issued a final determination of dumping with respect to the subject goods exported from the United States. As a part of its dumping determination, Revenue Canada examined all of Savannah's exports of subject goods to Canada and calculated the margin of dumping applicable to such exports to be forty-four percent. ³ On November 6, 1995 the Canadian International Trade Tribunal released a final finding that the dumping of subject goods from the United States threatened to cause material injury to the Canadian industry producing like goods.

Savannah filed a request for Panel review with the Canadian Secretary for NAFTA on November 17, 1995. Savannah urged that the Final Determination of dumping be remanded by the Panel because Revenue Canada committed an error of law or fact with respect to the following issues: identification of the exporter, cost of production methodology, and the inclusion in price comparisons of shipments under a contract between Savannah and ED&F Man Sugar Ltd. ("ED&F"), a Canadian customer. On March 26, 1996, Savannah filed a Brief of Argument. Revenue Canada and CSI each filed a Brief of Argument on May 27, 1996. Savannah filed a Reply Brief on June 11, 1996. A Panel hearing was held in Ottawa, Canada on July 10, 1996, at which the Canadian Attorney General's Office, representing Revenue Canada, the CSI and Savannah presented oral argument.

III. ISSUES BEFORE THE PANEL

A. Savannah urges that the Panel review Revenue Canada's determination of the identity of the "exporter" subject to investigation under the standard of "correctness," or alternatively a standard of "reasonableness." Under either standard, Savannah asserts that Revenue Canada's determination that Michigan Sugar Company was an exporter subject to investigation was not supportable.

B. Savannah urges that the Panel review Revenue Canada's determination of the cost of production under the standard of "correctness," or alternatively a standard of "reasonableness." Under either standard, Savannah asserts that Revenue Canada's cost of production methodology was not appropriate for costing raw sugar inputs and was not supportable.

C. Savannah urges that the Panel review Revenue Canada's determination of the date of sale under the standard of "correctness," or alternatively a standard of "reasonableness." Under either standard, Savannah asserts that Revenue Canada's determination of date of sale, which had the effect of including shipments made pursuant to the ED&F contract, was not supportable.      

IV. STANDARD OF REVIEW

A. General

The law governing the applicable Standard of Review is provided under NAFTA Articles 1904(3), 1911, Annex 1911, SIMA, subsection 77.011 and the Federal Court Act, R.S.C. 1985 c. F-7, s. 18.1(4). The Panel must apply "the general legal principles that a court of the importing Party otherwise would apply to a review of a determination of the competent investigating authority." ⁴ General legal principles in the domestic law of NAFTA parties  include doctrines such as standing, due process, rules of statutory construction, mootness and exhaustion of administrative remedies. ⁵

Both the NAFTA and SIMA refer to the Federal Court Act, R.S.C. 1985 c. F.-7, s. 18.1(4) for the grounds upon which relief may be granted in Canada. ⁶ Specifically, the Panel  must examine whether Revenue Canada:

(a) acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;

(b) failed to observe a principle of natural justice, procedural fairness or other procedures that it was required by law to observe;

(c) erred in law in making a decision or an order, whether or not the error appears on the face of the record;

(d) based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it; 

(e) acted or failed to act, by reason of fraud or perjured evidence; or

(f) acted in any other way that was contrary to the law.

On questions of law, Canadian courts have recently adopted a spectrum of review that ranges from a "standard of patently unreasonable to correctness." ⁷ At one end of the spectrum, the patently unreasonable standard is applicable in limited situations, such as where there is a privative clause that protects the tribunal deciding a matter that falls within its jurisdiction. At the other end, the correctness standard is applied to unusual situations where there is both a statutory right of appeal that allows the reviewing court to substitute its opinion for that of the tribunal and where the tribunal has no greater expertise on the issue than the court. In between these extremes, a standard of reasonableness is applied where the statute lacks a privative clause, but the decision of the tribunal is within its area of expertise and with respect to a matter that falls within its jurisdiction.⁸

With regard to questions of fact, a higher degree of deference is ordinarily accorded the tribunal's findings than in respect of questions of law. This applies particularly where the tribunal has specialized expertise and discretion. A standard of reasonableness requires that a Panel will not interfere with the findings of fact unless the evidence, viewed reasonably, is incapable of supporting the finding in question. ⁹

Finally, the principles of natural justice and fairness are applicable to all cases and will vary according to the circumstances. Thus, a Panel may review whether Revenue Canada violated its duty to act fairly towards the person claiming to be aggrieved.¹⁰

B. Positions of the Participants

Savannah contends that the Panel, in ruling on the actions of Revenue Canada at issue here, should apply a "correctness" standard of review and, failing that, a "standard of reasonableness." ¹¹ Savannah alleges that Revenue Canada erred in both law and fact, that it  acted in a perverse and capricious manner, that its actions are not rationally nor logically supported by the evidence, that they are not protected by a privative clause and that the tribunal had no special expertise on the challenged issues. ¹² Savannah maintains that, while  Revenue Canada has expertise in antidumping law and policy, that expertise does not extend to the interpretation of the concepts at issue here. ¹³ Both Revenue Canada and the CSI maintain that the Panel ought to apply a "reasonableness," not a "correctness," standard of review to Revenue Canada’s determinations of law and fact. ¹⁴ They contend that Revenue Canada committed no errors of law or fact, that its determinations are reasonable in law, that they are logically supported by the evidence and that, while they are not protected by a privative clause, Revenue Canada has the requisite expertise and statutory authority to make findings that are entitled to substantial deference. ¹⁵

Revenue Canada invokes section 18(1) of the Federal Court Act as authority that a reviewing authority is bound to defer to the reasonable determinations of law of Revenue Canada. ¹⁶ Revenue Canada points to the Binational Panel decision in Cold Rolled Steel Sheet, to support the proposition that greater deference ought to be accorded to determinations of fact than determinations of law, except where determinations of fact are perverse, capricious or rendered without regard to the material facts. ¹⁷ Finally, Revenue Canada notes that however reasonable, or even more reasonable, an alternative determination of law or fact proposed by a complainant might be, the Panel is still bound to uphold the reasonable determination of Revenue Canada. ¹⁸

C. Decision of the Panel

The Panel holds that, as Revenue Canada has both a statutory right and responsibility to interpret SIMA on an ongoing basis, a high degree of deference is owed to determinations made by Revenue Canada in the administration of SIMA. The Panel accords deference to the determinations of law of Revenue Canada on each issue presented here, employing a standard of reasonableness, on grounds that Revenue Canada's findings on these issues are within the scope of the responsibility expressly authorized under SIMA. As a result, the Panel rejects application of a correctness standard of review to the alleged errors of law and fact in issue here.

The Panel's decision to apply a reasonableness standard to questions of law is supported by the Supreme Court of Canada's holding that particular deference ought to be given to findings of law in areas where the decision-maker has particular expertise. ¹⁹ The Supreme Court of Canada in Pezim v. British Columbia (Superintendent of Brokers) explained this principle further, noting that:

...even where there is no privative clause and where there is no statutory right of appeal, the concept of the specialization of duties requires that deference be shown to decisions of specialized tribunals on matters which fall squarely within the tribunal’s expertise. ²⁰

Revenue Canada is a specialized tribunal and the matters at issue here are central to administration of SIMA. ²¹ Revenue Canada's determinations are entitled to due deference, despite the absence of a privative clause.

Review of the issues presented here under the reasonableness standard also is in accord with the spectrum of review adopted in CBC. While the deference accorded the determination of Revenue Canada does not extend to the point of patent unreasonability, we join with other Chapter 19 Panels in holding that a decision of Revenue Canada on questions of law within its expertise is subject to review as to whether it is a "reasonable interpretation." ²²

The Panel also rejects Savannah's urging to evaluate the correctness of Revenue Canada's fact findings. ²³ The Panel may not substitute its favored interpretation of the facts. As stated above, section 18.1(4)(d) of the Federal Court Act provides that fact-based decisions or orders of boards, commissions or tribunals can be set aside only when they are "based...on erroneous findings of fact that...[are] made in a perverse or capricious manner or without regard for the material before it." A Panel may well be compelled to defer to a decision of Revenue Canada where the Panel may have reached a different conclusion. ²⁴ Thus, the Panel accords greater deference to the decisions of Revenue Canada in regard to questions of fact than questions of law.

V. THE FRAMEWORK OF SAVANNAH'S SALES OPERATIONS

Some understanding of the business environment for the sugar industry and the scope of Savannah's sugar operations is necessary to a full evaluation of the issues presented. Savannah is a publicly held Delaware corporation, an operating company which refines raw sugar and markets the subject goods. Michigan Sugar Company ("Michigan Sugar") is a wholly-owned subsidiary of Savannah which produces subject goods from sugar beets. Michigan Sugar is incorporated in the state of Michigan and sells its products within the United States to Savannah, as well as to other customers.

In some transactions at issue here, Savannah purchased the subject goods, FOB Michigan Sugar's plants, and then arranged for shipment from Michigan Sugar's plants to Canada. Other exports to Canada at issue here involve export of subject goods processed from raw sugar from U.S. and non-U.S. sources which had been commingled in Savannah's inventories.

Sales of sugar in the United States are regulated by the U.S. government. Tariff-rate quotas restrict the importation of foreign subject goods. ²⁵ The effect of the import restrictions is higher sugar prices within the United States than in the world market. The U.S. Sugar to be Re-exported in Refined Form Program (the "Re-export Program") permits licensed U.S. refiners to import raw sugar at the low, prevailing world market price (#11 raw sugar) which is to be used in the production of subject goods destined for export.

The #11 raw sugar imported under the Re-export Program may not be sold in the United States except under the substitution provisions of the program. The substitution provisions of the Re-export Program permit exporters to substitute an equivalent amount of imported #11 raw sugar for exported sugar which was processed from domestic raw sugar (#14 raw sugar). Under the Re-export Program, substitution of imported #11 raw sugar for credit accrued from exports of #14 raw sugar may be accomplished through agency agreements, i.e. such agreements permit the exporter and importer to be different entities.

Raw sugar from purchases on the world market and raw sugar produced in the United States are fungible goods. Rather than physically segregating inventories, sugar purchased on the world market is usually commingled with inventories of U.S. produced raw sugar. In their accounting systems, U.S. sugar producers commonly assign costs depending on whether the goods are destined for domestic (#14 raw sugar) consumption or export (#11 raw sugar).

VI. DETERMINATION OF THE EXPORTER

A. Positions of the Participants

Revenue Canada determined that Savannah and Michigan Sugar were a single economic entity and that Michigan Sugar was an "exporter" for the purposes of determining the normal value of goods under section 15(e) of SIMA. As a result, Michigan Sugar costs were made part of the cost of production calculations for Savannah.

Savannah argues that there is no definition of exporter in SIMA and further that SIMA does not refer to related or associated parties in sections 15 through 20 (which pertain to calculation of cost of production). ²⁶ Savannah asserts that Parliament intentionally excluded the term exporter from the relevant sections of SIMA to ensure that separate corporations were not treated as a single entity in the calculation of normal value. Savannah also maintains that the common law treats corporations such as Savannah and Michigan Sugar separately, ²⁷ and that SIMA should not be interpreted to yield a different result, absent an explicit provision in SIMA. Finally, Savannah asserts that SIMA is a fiscal statute which should be construed in favor of taxpayer Savannah's position that Michigan Sugar should not be treated as the exporter. ²⁸

In response, Revenue Canada argues that Section 15(e) of SIMA permits it to treat separate corporations as one for the purposes of determining normal value. ²⁹ It states that while "exporter" is not defined in SIMA, the statute does not otherwise restrict investigation of a legally distinct entity, ³⁰ but permits investigation of "associated parties." ³¹ Finally, Revenue Canada maintains that construing the term "exporter" as encompassing both Savannah and Michigan Sugar is supported by evidence of record that Savannah and Michigan Sugar were engaged in a joint enterprise to export the subject goods to Canada. ³²

B. Decision of the Panel

The fact that SIMA does not itself define the term "exporter" does not detract from the responsibility of Revenue Canada to determine who is an exporter for the purpose of determining normal value. Designation of companies as subject to investigation (i.e. defining who is an exporter) is at the heart of administration of the antidumping law. Therefore, Revenue Canada's determination of which companies were exporters subject to investigation was reviewed by the Panel under the reasonableness standard rather than the correctness standard urged by Savannah.

In conducting an antidumping investigation, it is reasonable for Revenue Canada to give consideration to the nature of the relationship between the parties it considers to be participating in the process of exportation. The relationship between Savannah and Michigan Sugar was sufficiently substantial for Revenue Canada to reasonably conclude that both corporations were a single economic entity and that Michigan Sugar could be investigated as an exporter. Both Savannah and Michigan Sugar have the same Chief Executive Officer. ³³ [sic!] ³⁴ The financial reporting for both corporations, including the payment of federal income tax, is done on a consolidated basis. ³⁵

Equally important as the organizational factors, the specific details of the shipments at issue demonstrate the strong relationship between Savannah and Michigan Sugar. The exported subject goods were produced by Michigan Sugar and shipped from the United States to Canada directly from the Michigan Sugar plants. ³⁶ [sic!] ³⁷

In light of the character of the transactions and the nature of the relationship, the Panel finds it reasonable in law and fact that Revenue Canada determined that Savannah and its subsidiary, Michigan Sugar are part of a single economic unit subject to investigation as an exporter.

Continuation: VII. Determination of Cost of Production

¹ British Columbia Sugar Refining Company, Limited; Lantic Sugar Limited; and Redpath Sugars, a Division of Redpath Industries, Limited.

² The subject goods are refined from sugar cane or sugar beets and may be in granulated, liquid and powdered form including: (1) white granulated sugar; (2) liquid sugar including invert sugar; and (3) specialty sugars (soft yellow and brown sugar, icing sugar, demerara sugar and others). The subject goods are available in a broad range of shipping and packaging configurations.

³ Final Determination Decisions Respecting Refined Sugar from Certain Countries, October 5, 1995.

⁴ NAFTA Article 1904(3).

⁵ NAFTA Article 1911.

⁶ NAFTA Annex 1911(a); SIMA, subsection 77.011(5). IV.

⁷ Canadian Broadcasting Corporation v. Canadian Labour Relations Board, 1 S.C.R.157 (1995) (hereinafter CBC).

⁸ Id.; see also Pezim v. British Columbia (Superintendent of Brokers), 2 S.C.R. 557 (1994), (hereinafter Pezim).

⁹ Lester v. U.I.J.A.P.P.I., Local 790, 3. S.C.R. 644 (1990) at 669; In the Matter of: Certain Corrosion Resistant Steel Sheet Products Originating in or Exported from the United States of America (Injury) CDA-94-1904-04 at 8.

¹⁰ Martineau v. Matsqui Institution Disciplinary Board, 1 S.C.R. 602 (1980).

¹¹ Reply Brief of Savannah Foods & Industries, Inc. (hereinafter Savannah's Reply Brief) at 14.

¹² Id. at 14; Transcript of the Public Hearing, July 10, 1996, (hereinafter Public Hearing Tr.) at 4-6.

¹³ Public Hearing Tr. at 9 (Pearson).

¹⁴ Id. at 148, 150 (Thomas).

¹⁵ Id. at 162 (Thomas). 

¹⁶ Brief of the Investigating Authority the Deputy Minister of National Revenue (hereinafter Revenue Canada's Brief) at 38-40.

¹⁷ Certain Cold-Rolled Steel Sheet Originating in or Exported from the United States of America, (Dumping) (1993) CDA-93-1904-08 (Binational Panel); In the Matter of: Certain Machine Tufted Carpeting Originating in or exported from the United States of America, Panel No. CDA-92-1904-01 (hereinafter Tufted Carpeting Panel); Public Hearing Tr. at 250 (Woyiwada).

¹⁸ Public Hearing Tr. at 251 (Woyiwada).

¹⁹ See e.g., Canada (Attorney General) v. Mossop, 1 S.C.R. 554, 670 (1993) (hereinafter Mossop); United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 2 S.C.R. 316, 415 (1993) (hereinafter Bradco) 415. See also, L’Heureux-Dube J., dissenting, in Zurich Insurance Co. v. Ontario (Human Rights Commission) 93 D.L.R. (4th Cir.) 346, 373 (1992), cited with approval in Mossop at 670.

²⁰ Pezim at 591.

²¹ Revenue Canada has particular expertise in relation to issues of law as they apply in anti-dumping decisions. See In the Matter of: Final Determination of Dumping Made by the Deputy Minister of National Revenue, Customs and Excise, Regarding Gypsum Board originating in or exported from the United States of America, Panel No. CDA-93-1904-01 (hereinafter Gypsum Panel) at 17, 48 fn. 41 citing University of British Columbia v. Berg, (1993), 102 D.L.R. (4th) 665, at 676-77.

²² See In the Matter of: Certain Beer Originating in or exported from the United States of America by G. Heilman Brewing Company, Inc. Pabst Company, and the Stroh Brewery Company for use or consumption in the Province of British Columbia, Panel No. CDA-91- 1904-01, at 10 (hereinafter Beer Panel); Tufted Carpeting Panel at 6; see also, Gypsum Panel where panel advised against automatically deferring to Revenue Canada on questions of law, but nevertheless applied a reasonableness standard of review in evaluating Revenue Canada’s treatment of certain interest expenses.

²³ Savannah's Brief at 33.

²⁴ Certain Cold-Rolled Steel Sheet Originating in or Exported from the United States of America, CDA-93-1904-08 (Binational Panel) (1993).

²⁵ Non-Confidential Brief of the Canadian Sugar Institute (hereinafter CSI Brief) at 2.

²⁶ Savannah's Brief at 47-48.

²⁷ Savannah invokes the cases of Goodyear Tire & Rubber Co. Of Canada v. T. Eaton Co., 4 D.L.R. (2d) 1, 6 (1956) and R. v. T.(V.), 1 S.C.R. 749 (1992) in support of this contention.

²⁸ Savannah's Brief at 48.

²⁹ Revenue Canada's Brief at 56.

³⁰ Id. at 55.

³¹ Id. at 56. Similarly, the Canadian Sugar Institute maintains that the absence of a statutory definition of exporter indicates that Parliament left it to the discretion of Revenue Canada to determine who is an exporter in the circumstances of each case. CSI's Brief at 44.

³² Revenue Canada's Brief at 60.

³³ Revenue Canada's Brief at 58.

³⁴ Revenue Canada's Confidential Brief at 58.

³⁵ Revenue Canada's Brief at 58.

³⁶ Id. at 61.

³⁷ Revenue Canada's Confidential Brief at 59.