4.267 Mexico asserts that, in the preliminary determination of threat of injury, the Ministry admitted as proof several statements and documents that are not adequate for the purposes of demonstrating the existence of stocks and the consequent shutdown of the kilns. These include: 

- the administrative inspection carried out by two officials of the Ministry; and 

- the notarial deed and the eight colour pictures and graph showing alleged inventories of clinker and cement. 

4.268 Mexico argues that these documents cannot be considered adequate since, in order to ascertain the existence of stocks and the shutdown of the kilns, technical inspections need to be made which, as emerges from the text of the preliminary determination itself, were not carried out. ⁹⁸ Mexico suggests that the mere observation of heaps of material is not enough to prove either the existence of stocks of grey clinker, or the volume or use to which they will be put, and neither is it therefore possible to deduce from the observation that the supposed accumulation of material was the result of imports from Cruz Azul. To illustrate the flaws in the analysis made by the Ministry, Mexico points out that in the cement industry, the accumulation of clinker is not such an important fact in itself as it may be attributable to a variety of reasons, as Cruz Azul informed the Ministry during the investigation. Mexico suggests that such reasons may include:

 - buffer stocks consisting of 14 days output from the principal kiln; 

- seasonality of demand; 

- imbalances within the production plant, as between clinker production and final milling; 

- strikes, power cuts and lack of fuel; and 

- rain (climatic factors). 

4.270 Guatemala repeats that it is not the function of the Panel to assess the admissibility and validity of the evidence examined by the Ministry. Moreover, the Ministry confirmed that the build-up of grey clinker was the result of an increase in imports from Cruz Azul and not the result of other factors such as seasonal demand, strikes or rain. Guatemala also notes that Cruz Azul did not communicate any arguments concerning alternative reasons for grey clinker inventories to the Ministry prior to the preliminary determination of threat of material injury dated 16 August 1996. 

4.271 According to Mexico, the arguments concerning alternative reasons for accumulation of grey clinker were raised by Cruz Azul on pages 13-16 of its submission to the Ministry dated 30 October 1996. Mexico states that these arguments were also put to Guatemala during bilateral consultations on 9 January 1997, as shown by the questions prepared by Mexico at that time. 

4.272 Mexico notes that the Ministry's preliminary determination of threat of injury makes no mention of the under-utilization of plant capacity, even though this is expressly included in the title of the corresponding section. ⁹⁹

4.273 Guatemala submits that the underutilization of capacity is clearly demonstrated by the shutdown of the three kilns. 

4.274 Mexico submits that, as indicated in the report on the inspection carried out at the Cementos Progreso plant, during the period subsequent to that investigated Cementos Progreso's production increased substantially from 1,687,024 sacks (71,697 tonnes) in January 1996 to an estimated 2,286,000 sacks (97,152 tonnes) in March 1996; that is to say, during the period when the Cementos Progreso kilns were closed, estimated production for the month of March 1996 was very close to 100% of the plant's effective production capacity. ¹⁰⁰ Mexico recalls that, despite closing kilns, Cementos Progreso continued to produce cement, and was expecting a high output in the month of March. ¹⁰¹ In these circumstances, Mexico asks the following questions: 

- Is it possible to consider that a company is actually confronted by a threat of injury caused by imports when during the months following the period investigated its output was increasing and when, in fact, Cementos Progreso itself was anticipating a record output in the month in which it was supposed to be so affected by imports from Cruz Azul that it even had to shut down its kilns? ¹⁰²

- How was it possible to build up such large stocks of clinker while recording such a high utilization of installed cement grinding capacity in the months subsequent to the investigation period? 

- Why did the Ministry not analyze the information on cement production subsequent to the period investigated if it was in the same document as that used to conclude that, because of imports from Cruz Azul, there had been a substantial increase in inventories of the raw material for the cement? 

4.275 Guatemala states that based on its comparisons of information for each month with information for the same month during successive years (to account for the seasonal factors in the demand for cement in Guatemala), the Ministry determined that during the period from January to June 1996, cement production was 14% lower than during the same period in 1995. In order to eliminate inflation-related distortions, the Ministry evaluated the sales trends on the basis of quantity instead of value. According to Guatemala, during the period September to December 1995, the volume of Cementos Progreso's sales increased by 17% as compared with the same period in 1994. 

4.276 Mexico noted that as its comparisons had been made on a month-to-month basis, there was no need to make seasonal adjustments. 

4.277 The Panel asked Guatemala to explain its remarks that three of Cementos Progreso's four kilns had been closed down, whereas Cementos Progreso stated at the time of the verification visit that its actual capacity was about 85% of the installed capacity, despite an alleged increase in imports from Mexico of 45,859 tonnes during the same month. Guatemala explained that installed capacity refers to the theoretical maximum capacity of a cement plant assuming that work continues every day of the year. Real capacity reflects a downward adjustment of installed capacity to take into account the fact that a cement plant will be closed for regular maintenance and during the year will only operate for less than 365 days. Cementos Progreso thus declared that its installed capacity was 1.5 million metric tonnes, but that its real capacity, taking into account stoppages for maintenance, was 85% of 1.4 million metric tonnes. According to Guatemala, if three of the four kilns had been stopped for stock control purposes, the plant could not have been using all its actual capacity at the time of the visit. Guatemala emphasizes that, at the time of verification of Cementos Progreso on 27-29 November 1996, the Ministry confirmed that Cementos Progreso had not produced clinker at La Pedrera plant from March to May 1996 and had reduced clinker production by half at the San Miguel plant in March and April 1996. 

4.278 Guatemala also notes that the evidence concerning the build-up of inventories and the underutilization of capacity includes the Ministry's inspection at the La Pedrera and San Miguel plants on 29 March 1996. In the course of the inspection of the La Pedrera plant, Cementos Progreso provided evidence demonstrating that, as a result of Cruz Azul imports, Cementos Progreso's sales had declined by 22% despite the fact that March is a peak month for demand; that Cementos Progreso had accumulated 99,500 tonnes of clinker stocks by 28 February 1996; that this build-up of surplus clinker stocks made it necessary to suspend the operation of two kilns at the La Pedrera plant on that date and one kiln at the San Miguel plant on 2 March; that although the kilns were shut down, on 29 March the San Miguel and La Pedrera plants still had clinker stocks of 51,875 tonnes and 10,530 tonnes respectively. During the inspection of the San Miguel plant, Cementos Progreso provided a computerized report by the Production Department substantiating its estimate of 51,875 tonnes of clinker stocks, which was the equivalent of approximately 65,665 tonnes of cement. The Ministry saw for itself that the two kilns at the La Pedrera plant and one of the kilns at the San Miguel plant were shut down. It also saw the large quantity of clinker in stock at the San Miguel plant. In addition, a notary recorded that there were 76,252 tonnes of clinker one day after the kilns had stopped operating. 

(c) Reduced sales 

4.279 Mexico raises several issues concerning the Ministry's preliminary determination that imports from Cruz Azul caused a reduction in sales by Cementos Progreso during the month of September 1995 and in the first three months of 1996: 

(i) Mexico notes that according to the preliminary determination, sales by Cementos Progreso fell during September 1995. Nevertheless, as the preliminary determination itself recognizes, that fall could not be attributed to imports from Cruz Azul, since that month saw a contraction of demand on the preceding month on the Guatemalan market, which meant that the fall in Cementos Progreso's sales was parallel to a decline in Mexican exports, itself the result of a contraction in domestic demand, and not of other factors related to exports by Cruz Azul; 

(ii) as regards the pattern of sales for the first quarter of 1996, Mexico argues that the said sales do not fall within the period of investigation and should therefore not be considered. What is more, Mexico asserts that the Ministry failed to collect information on the increase in imports during the first quarter of 1996. Therefore, information on reduced sales outside the period of investigation cannot be validly included in an examination of the link between Cementos Progreso's sales and imports from Cruz Azul, because of failure to mention other factors (i.e. imports outside the period of investigation) that should also have been taken into account; and 

(iii) imports from Cruz Azul cannot be linked to the downturn in sales for the first quarter of 1996 since such imports remained constant as from January of that year. 

4.280 Mexico concludes from the foregoing that the reduced sales identified by the Ministry were not caused by imports from Cruz Azul, but by other factors, as expressly recognized by the Ministry in its own preliminary determination. Therefore, the determination in question does not reflect an objective and impartial analysis of the factual elements which were at the disposal of the Ministry when issuing the preliminary determination. Mexico submits that Guatemala therefore violated its obligations under Article 3.7 of the ADP Agreement. 

4.281 According to Guatemala, the Ministry found that as a result of increased imports, sales of the like domestic product declined as of September 1995 by comparison with the preceding year. They continued to decline over the first quarter of 1996. Guatemala submits that Mexico's objections to these findings are unfounded. 

4.282 Guatemala recalls Mexico's assertion that the reduction in sales was caused by a contraction of demand in September and not by increased imports. Guatemala suggests that, while it is true that demand did contract in September 1995, the Ministry observed that there was a steady decline in sales from July 1995 to March 1996 by comparison with sales for the preceding year. 

4.283 With regard to Mexico's argument that the Ministry should not have considered sales for the first quarter of 1996 as those sales fell outside of the investigation period, Guatemala states that the ADP Agreement does not prohibit the investigating authority from considering the most recent information available. According to Guatemala, this is in fact a better practice, especially in analysing the threat of material injury. 

4.284 Guatemala suggests that Mexico contradicts itself by alleging that imports from Cruz Azul cannot be related to the downturn in sales for the first quarter of 1996 because those imports remained constant from January of that year. Guatemala submits that imports continued to increase through 1996 and peaked at 45,859 tonnes in March. Guatemala submits that the increase in imports is even more significant when the comparison is made with the first quarter of 1995, when there were no imports from Cruz Azul. 

4.285 Mexico asserts that, according to the information provided by Cementos Progreso in its questionnaire response, despite the fall in demand for the product investigated during the month of September 1995, during the investigation period its sales increased by 12.37% in value and 0.01% in volume as compared with the same period in the previous year. Furthermore, according to Cementos Progreso's income statement, net sales increased by 21.90% over 1994 and net profits increased by 22.80%. 

4.286 Guatemala submits that the ADP Agreement does not require the investigating authorities to take into account the value of sales and profits when making a preliminary determination of threat of consequent injury. Article 3.7 of the ADP Agreement does not refer to the producer's sales and profits when determining a threat of material injury. According to Guatemala, the only reference to profits is that in Article 3.4 of the ADP Agreement, which concerns a determination of present injury. 

4.287 Guatemala recalls that the Ministry stated in its preliminary determination of threat of injury that the volume of " ... sales of the domestic product fell from September 1995 onwards in comparison with sales during the previous year and this situation continued throughout the first quarter of [1996] ... ". According to Cementos Progreso's questionnaire response, the volume of its domestic sales fell by 17% from September-December 1994 to September-December 1995. The fact that the value of sales increased from 1994 to 1995 in nominal Quetzales, not adjusted for inflation, does not contradict this fact. Guatemala notes that during the first half of 1996, the company's sales fell by 14% compared with the same period in 1995, while growth in demand over the same period was 15%. Guatemala submits that the 17% decrease in Cementos Progreso's sales corresponds to 67,099 metric tonnes. Cruz Azul imports rose from zero in June-November 1994 to 61,279 metric tonnes in June-November 1995. Guatemala alleges that Cementos Progreso's sales fell at the same time as the rapid increase in Cruz Azul imports and the rise in consumption in Guatemala. From June 1995 to November 1995 the share of Cruz Azul imports on the Guatemalan market rose from 0.15% to 23.54%, while Cementos Progreso's market share fell from 99.85% to 75.42%. As further evidence of the causal link between increased dumped imports and threat of injury, Guatemala recalls that the Ministry took into account evidence that Cementos Progreso lost customers to Cruz Azul, that there was significant price undercutting by dumped imports and that, in the towns and cities where the dumped product was marketed, the price of Cementos Progreso's cement fell despite increased energy prices, which are the greatest cost factor in cement production. 

4.288 Guatemala submits that, according to Cementos Progreso's financial statements, Cementos Progreso's net profits after tax in fact rose by 22.8% from 1994 to 1995 in nominal Quetzales, not adjusted for inflation. It is important to note, however, that in 1995 Cementos Progreso's net profits after tax only amounted to 2.6% of sales. Guatemala suggests that this profit margin is not sufficient for an industry like the cement industry which has such substantial capital needs. Moreover, as explained in the final determination, Cementos Progreso made no profits during the second half of 1993 and all 1994 because, as a result of plant expansion at San Miguel, it had to import clinker instead of using its own clinker. Guatemala argues that, in 1995, the San Miguel plant replaced imported clinker by the clinker it produced. The reduced cost of clinker allowed profits to increase. According to Guatemala, the comparison of profits in 1994 and 1995 made by Mexico was thus distorted by the high cost of production (and therefore lower net profit) in 1994 during the expansion of the San Miguel plant. 

4.289 Guatemala submits that, because Cementos Progreso is the only producer of grey portland cement in Guatemala, each tonne of cement imported from Cruz Azul took the place of one tonne of cement that would have been sold by Cementos Progreso. Moreover, Guatemala notes that Cementos Progreso's 17 May 1996 questionnaire response shows that sales of Cementos Progreso cement in Guatemala fell in October, November and December 1995 by 10.5%, 16.0%, and 11.7% respectively, in relation to the same months in the previous year. 

4.290 Mexico states that the information available to the Ministry in conducting its analysis of threat of injury reveals no correlation between the volume of imports and the volume of sales, and that each tonne of cement from Cruz Azul cannot have taken the place of a tonne that would have been sold by Cementos Progreso. 

4.291 Mexico refers to Guatemala's argument that Cementos Progreso's sales fell by 14% in the first half of 1996, compared with the same period in 1995. Mexico notes that this is a period subsequent to the period under investigation, and secondly, that according to the information supplied by Cementos Progreso (which is the only information available to Mexico and to the members of this Panel) during the first quarter of 1996 production increased by 11% with respect to the preceding year and, at the time of the alleged closing down of the kilns, cement production was expected to reach a record of approximately 97,152 tonnes. Mexico notes that this figure comes very close to the real production capacity of Cementos Progreso, according to the statement of the company's General Manager in the record of the inspection visit to Cementos Progreso. 

4.292 Mexico refers to Guatemala's argument that the ADP Agreement does not require the investigating authorities to take into account the value of sales when making a preliminary determination of threat of injury under Article 3.7 of the ADP Agreement. Mexico considers this argument odd, since it was Guatemala itself that introduced sales in its analysis of threat of injury. Nor should it be forgotten that under Article 3.5, the demonstration of a causal link between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. In this regard, Mexico notes that the information on both sales and profits was in the file and available to the authorities in question. 

(d) Depressed domestic producer prices 

4.293 Mexico asserts that, pursuant to Article 3.7(iii) of the ADP Agreement, in order to determine the existence of a threat of injury the investigating authority should have considered, inter alia, whether imports were being made at prices that would depress or significantly suppress domestic prices and whether this would perhaps lead to increased demand for further imports. Instead, the Ministry simply asserted that "as a consequence of dumped imports, there was a fall in the price of cement in those cities where ... [it] ... is sold", stating that this had been borne out by an investigation by Guatemala's Directorate of Economic Integration ("DIACO"), information supplied by Cementos Progreso, and "the relationship between these prices and those that might have been established in keeping with the Government formula for setting a maximum sale price". According to Mexico, the Ministry's conclusion contains the following inconsistencies: 

(i) the preliminary determination does not explain the procedure (i.e. the methodological steps and the circumstances) followed in establishing that the fall in prices was caused by dumped imports, but simply asserts that this was so; 

(ii) the conclusion and the study by DIACO refer only to some Guatemalan cities, as though the anti-dumping investigation had been conducted on the basis of a regional investigation under Article 4.2 of the ADP Agreement, when in fact it was a national investigation; 

(iii) the preliminary determination fails to indicate how the comparison was made between the price of imported cement from the exporting company and Cementos Progreso's sales price, nor does it state whether the prices are compared at the same level of trade, whether the transactions were under the same commercial terms, if the products involved were comparable, the dates of the comparisons, and whether the prices were the result of simple or weighted, moving or progressive averages; 

(iv) the comparison with the prices that might have been established in keeping with the Government formula for setting the sale price ceiling is completely irrelevant from the standpoint of the ADP Agreement. The formula could furthermore distort the entire exercise, because it does not correspond to the market prices that would result in a situation of free competition. In any case it is a price ceiling, and not a price that must necessarily be reached; and 

(v) the prices of the type I (PM) grey portland cement under investigation were not significantly lower than those of the cement produced by Cementos Progreso. According to Mexico, the likelihood that they increased the demand for further imports was also therefore negligible. Mexico recalls that exports from Cruz Azul remained stable as from the first quarter of 1996. 

4.295 Guatemala notes that Article 12.2.1 of the ADP Agreement regulating the information that must be contained in the public notice of a provisional measure does not require the investigating authority to describe the methodology used to arrive at a factual conclusion. Article 12.2.1 only requires that the notice should contain the findings, conclusions and "sufficiently detailed explanations for the preliminary determinations ...". Guatemala recalls that Mexico does not claim a breach of Article 12.2.1. Guatemala suggests that, in any case, the methodology used by the Ministry emerges clearly from a reading of the preliminary determination. The Ministry found that Cruz Azul imports were undercutting cement from Cementos Progreso, thereby forcing Cementos Progreso to reduce its prices in those cities where cement from Cruz Azul was being sold. This led to a widening gap between the maximum prices authorized by the Government and the prices actually charged by Cementos Progreso. 

4.296 Guatemala states that, because of the low price-weight ratio and high transport costs of cement, Cruz Azul concentrated its sales efforts on the western part of Guatemala closest to the border. DIACO therefore focused its attention on the towns nearest to the Mexican border where Cruz Azul sales were concentrated. The existence of price undercutting in the most affected area in Guatemala clearly pointed to a threat of injury to Cementos Progreso, Guatemala's only cement producer. Guatemala asserts that the Ministry did not investigate injury on a regional basis. 

4.297 Guatemala states that the price comparison is explained in detail in the DIACO reports. DIACO officials visited businesses selling cement in several towns and identified those selling cement from Cruz Azul and from Cementos Progreso. This allowed a direct comparison of selling prices at the same level of trade, under the same sales conditions, on the same date and with the same buyers. Guatemala suggests that in almost all instances, Cruz Azul cement undercut cement from Cementos Progreso. Moreover, several such businesses stated that cement from Cruz Azul had brought down the price of cement in Guatemala. 

4.298 Guatemala asserts that Article 3.7 of the ADP Agreement requires investigating authorities to consider whether imports are entering at prices that will have a significant depressing or suppressing effect on domestic prices. The evidence showed that before the influx of imports from Cruz Azul, Cementos Progreso's prices were generally as high as permitted under the Government formula. During the investigation period, Cementos Progreso was unable to charge the maximum price allowed in those towns where cement from Cruz Azul was being sold, but could in fact do so in cities far away from the Mexican border where Cruz Azul cement was not present. According to Guatemala, this is strong evidence that imports from Cruz Azul were entering at prices that were depressing and suppressing the prices of the like domestic product. 

4.299 Guatemala recalls Mexico's argument that because the prices of the type I (PM) grey portland cement produced by Cruz Azul were not significantly lower than those of the cement produced by Cementos Progreso, the lower prices could not significantly increase the demand for further imports. Guatemala emphasises that Mexico thereby recognizes that the imports were undercutting the prices of the domestic product. According to Guatemala, because cement is a fungible item, even a small margin of undercutting can lead to a significant loss in market share. In this case there is, according to Guatemala, no doubt that the imported cement undercut the local cement, capturing 23% of the market share of the domestic industry in only six months. Guatemala suggests that proof of undercutting was therefore powerful evidence that the demand for cheap imports would increase, at the expense of the domestic producer. 

4.300 Mexico maintains that, according to the information provided by Cementos Progreso, the prices charged by Cementos Progreso (the only producer of cement in Guatemala and hence the best reference point for exploring the general behaviour of prices across Guatemala, outside of a few cities) reveal a situation completely different from that described by the Ministry in its preliminary determination, since prices increased by almost 8% as compared with the previous half-year, and by 18% as compared with the same period during the previous year. 

4.301 Guatemala notes that Mexico ignores the fact that cement demand in Guatemala is seasonal. The demand is higher during the dry season (October-May) than in the rainy season (June-September). The Ministry therefore properly evaluated the trend in Cementos Progreso's sales by comparing the sales volume to that for the same month the previous year. This comparison showed that Cementos Progreso's sales fell at the end of 1995 and during the first half of 1996 in comparison with the same period the previous year. Guatemala submits that according to Cruz Azul's own submission of 13 May 1996, the import of Cruz Azul cement caused prices in Guatemala to drop by between Q 6.00 and Q 8.00 per sack. This submission also provided that the price of Cementos Progreso cement fell by 22% in the south?west of the country. Moreover, the data cited by Mexico neither contradicts, nor detracts from the value of the evidence presented, which clearly demonstrates that dumped imports from Cruz Azul had a depressing effect on Cementos Progreso's prices. The prices shown in the information provided by Cementos Progreso were not adjusted for inflation, and represent an average for all of Guatemala. Evidence has shown that Cementos Progreso's prices decreased in the cities where Cruz Azul's cement was sold and that their prices in those cities were lower than the ceiling prices authorized by the Government. 

(e) Loss of customers 

4.302 Mexico recalls that the Ministry made a preliminary determination that Cementos Progreso lost some of its customers, without ascertaining the accuracy of the claim or the accuracy of the list of alleged lost customers submitted by the claimant. Thus, Mexico argues that the Ministry accepted that the alleged customers switched from domestic to imported cement, though it did not ascertain the existence of these clients and the effect of substitution of the domestic product by the imported product. The list in question shows only the names of alleged customers and no further data supporting the claimant's affirmations. According to Mexico, the Ministry should also have considered that the list might have contained customers who had been driven out of Cementos Progreso's market as a result of its own intimidatory, exclusive and monopolistic policy, as was found by the Ministry itself through DIACO studies of the grey portland cement market. 

Continue on to IV. Main Arguments of the Parties, Section 4.303

Notes:

98. Mexico suggests that the decision to shut down the kilns could have been planned or may have resulted from a very critical situation within the industry. In any case, the Ministry does not explain how the shutdown of the kilns came to result from alleged imports and how this effect came to be a case of threat of injury.

99. Mexico recalls that in the application for initiation of the investigation, Cementos Progreso stated that its utilization of plant capacity was 100%.

100. With reference to a report attached to Guatemala's first submission to the Panel, Mexico asserts that the installed capacity of Cementos Progreso was 1,400,000 tonnes per year and the effective capacity approximately 85% thereof (that is, 1,190,000 tonnes per year). Thus, the plant had an effective installed capacity of approximately 99,167 tonnes per month.

101. Mexico notes that the inspection in question was carried out at the end of March (29 March) so that the Ministry cannot claim that these were estimates made at the beginning of the investigation period.

102. Mexico notes that the kilns were shut down in February, although in that month Cementos Progreso's production increased by more than 10% relative to the previous month, rising from 1,687,024 sacks to 1,967,175 sacks, i.e. from 71,697 to 83,603 tonnes.