Report (Public Version) - Philippine Tariff Commission

1. TERMS OF REFERENCE
1. INTRODUCTION
1.1 The Initial Application of Definitive Safeguard Measure
The petitioner United Pulp and Paper Corporation (UPPC), representing
the domestic testliner board industry, submitted to the Department of Trade
and Industry (DTI) an application for the imposition of safeguard measure
against imports of testliner boards from various countries (AHTN Code Nos.
4805.24.00, 4805.25.10 and 4805.25.90). The Secretary of Trade and
Industry (hereinafter referred to as the “Secretary”) officially accepted the
application on 09 November 2009 and endorsed the same to the Tariff
Commission (hereinafter referred to as the “Commission”) for formal
investigation on 25 May 2010. The Commission’s investigation report was
submitted to the Secretary on 24 November 2010.
The Secretary, following the positive findings of the Commission, issued
a Department Order dated 15 July 2011 imposing a definitive general
safeguard duty against imports of testliner boards for a period of three (3)
years. The effective period of the safeguard measure, unless it is extended, is
up to 14 June 2013.
2012 AHTN
Code
4805.24 00
4805.25 10
4805.25 90
Product Description
Safeguard Duty (P/MT)
1 st year* 2 nd year** 3 rd year**
Testliner board 1,342.00 1,274.90 1,211.15
Sources: * DTI Department Order dated 15 July 2011
** DTI Department Order dated 27 March 2012
1.2 Monitoring of the Adjustment Plan
The Commission conducted a monitoring review with respect to the
adjustment plan submitted by UPPC, particularly on the progress and specific
efforts made to facilitate positive adjustment to import competition.
The Commission, in its report of findings submitted to the DTI dated 11
July 2012, determined that the domestic industry has complied substantially
with its commitments as stated in its adjustment plan.
1.3 The Petition for Extension of the Safeguard Measure
Philippine Paper Manufacturers Association Inc. (PPMAI), pursuant to
Section 19 of RA 8800, filed with the DTI on 09 November 2012 a petition for
the extension of the imposition of the safeguard duty on imported testliner
board.
Page 1 of 38

Reasons cited for the petition were as follows:
i) to prevent or remedy the serious injury inflicted by imported testliner
board on the domestic industry; and
ii)
for the domestic industry to continue and/or complete the positive
adjustment it has undertaken to gain competitiveness vis-à-vis imports.
The petition for extension was endorsed by the Secretary to the
Commission for formal investigation on 29 January 2013.
1.4 Period Under Review
The period under review is the period when the safeguard measure was
put in place, i.e., starting from 2010 up to the present or where latest data is
available.
The Commission, in its evaluation, will compare the prevailing condition
of the domestic industry during the period under review with its condition under
the original period of investigation (POI).
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2. SAFEGUARD ACTION
2.1 The Safeguard Measures Act of 2000
Republic Act (RA) No. 8800, also known as the “The Safeguard
Measures Act”, provides for general safeguard measures to afford relief to
domestic industries suffering from serious injury or the threat thereof as a
result of increased imports.
Section 5 of RA 8800 states:
“The Secretary shall apply a general safeguard measure upon a
positive final determination of the Commission that a product is being
imported into the country in increased quantities, whether absolute or
relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry; however, in the
case of non-agricultural products, the Secretary shall first establish that
the application of such safeguard measures will be in the public
interest.”
Section 15 provides:
“The duration of the period of an action taken under the General
Safeguard Provisions of this Act shall not exceed four (4) years. Such
period shall include the period, if any, in which provisional safeguard
relief under Section 8 was in effect.
The effective period of any safeguard measure, including any
extensions thereof under Section 19 may not, in the aggregate, exceed
ten (10) years.”
2.2 The World Trade Organization (WTO) Agreement on Safeguards
Article 2 of the WTO Agreement on Safeguards provides that:
“A Member may apply a safeguard measure to a product only if that
Member has determined, pursuant to the provisions set out below, that
such product is being imported into its territory in such increased quantities,
absolute or relative to domestic production, and under such conditions as
to cause or threaten to cause serious injury to the domestic industry that
produces like or directly competitive products.”
Further, Article 7 of the same Agreement stipulates that:
“1. A member shall apply safeguard measure only for such period of
time as may be necessary to prevent or remedy serious injury and to
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facilitate adjustment. The period shall not exceed four years, unless
it is extended under paragraph 2.
2. The period mentioned in paragraph 1 may be extended provided that
the competent authorities of the importing Member have determined,
in conformity with the procedures set out in Articles 2, 3, 4 and 5 that
the safeguard measure continues to be necessary to prevent or
remedy serious injury and that there is evidence that the industry is
adjusting, and provided that the pertinent provisions of Articles 8 and
12 are observed.”
In order that a substantially equivalent level of WTO concessions and
other obligations to affected WTO Members is maintained, a country imposing
safeguard measures may offer “adequate means of trade compensation” to
affected exporting countries. If agreement is not reached on such
compensation, said exporting countries are given an opportunity to suspend
“substantially equivalent” concessions or obligations under GATT 1994 after
the measures have been in place for three (3) years, or immediately if the
safeguard action is taken against imports which have not increased in absolute
terms and the measure does not conform to the provisions of the Agreement
on Safeguards.
Disputes arising from the application of safeguard measures are subject
to WTO dispute settlement procedures.
Safeguard measures, if imposed, must be liberalized progressively. A
measure extended shall not be more restrictive than it was at the end of the
initial period, and should continue to be liberalized.
The Uruguay Round of Multilateral Trade Negotiations resulted in a new
Agreement on Safeguards which interprets and elaborates Article XIX.
Article XIX of GATT 1994 stipulates that an emergency action is
permissible only where the increase in imports (and the consequent serious
injury or threat thereof) is due to unforeseen developments and the effect of
GATT-WTO obligations, including tariff concessions. The Agreement on
Safeguards, when it provides for the conditions for the application of safeguard
measures (i.e., increased importation, serious injury or threat thereof, and
causal link) is, however, silent on the circumstances prescribed by Article XIX.
As mentioned in the original investigation, the circumstances provided
in Article XIX of GATT 1994 need not be demonstrated since testliner board
are not subject of any Philippine obligation or tariff concession under the WTO
Agreement. Nonetheless, such investigation is governed by the national
legislation (RA 8800) and the terms and conditions of the Agreement on
Safeguards.
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2.3 Association of Southeast Asian Nations Trade in Goods Agreement
(ATIGA)
Article 86 of the ATIGA provides that:
“Each Member State which is a WTO member retains its rights and
obligations under Article XIX of GATT 1994, and the Agreement on
Safeguards or Article 5 of the Agreement on Agriculture.”
Further, Article 11 of the same Agreement states that:
“1. Unless otherwise provided in this Agreement, Member States shall
notify any action or measure that they intend to take:
(a) which may nullify or impair any benefit to other Member States,
directly or indirectly under this Agreement; or
(b) when the action or measure may impede the attainment of any
objective of this Agreement.
2. x x x
3. A Member State shall make a notification to Senior Economic
Officials Meeting (SEOM) and the ASEAN Secretariat before
effecting such action or measure referred to in paragraph 1 of this
Article. Unless otherwise provided in this Agreement, notification
shall be made at least sixty (60) days before such an action or
measure is to take effect. A Member State proposing to apply an
action or measure shall provide adequate opportunity for prior
discussion with those Member States having an interest in the action
or measure concerned.”
Considering that testliner boards are covered by the ATIGA, notice of
any safeguard action shall be given to the Senior Economic Officials Meeting
(SEOM) and the ASEAN Secretariat before effecting any such action or
measure and adequate opportunity for consultation shall be accorded the
governments of the affected ASEAN Member States.
2.4 Other Free Trade Agreements (FTAs)
ASEAN-China Free Trade Area (ACFTA)
Article 9 of the ACFTA provides that:
“Each Party, which is a WTO member, retains its rights and obligations
under Article XIX of the GATT 1994 and the WTO Agreement on
Safeguards.”
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ASEAN-Korea Free Trade Area (AKFTA)
Article 9 of the AKFTA states that:
“Each Party which is a WTO member retains its rights and obligations
under Article XIX of GATT 1994 and the WTO Agreement on
Safeguards. Actions taken pursuant to Article XIX of GATT 1994 and
the WTO Agreement on Safeguards shall not be subject to the
Agreement on Dispute Settlement Mechanism under the Framework
Agreement.”
ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)
Article 9 (Relationship to the WTO Agreement) of the AANZFTA
provides that:
1. Each Party retains its rights and obligations under Article XIX of
GATT 1994, the Safeguards Agreement and Article 5 of the
Agreement on Agriculture. This Agreement does not confer any
additional rights or obligations on the Parties with regard to global
safeguard measures.
2. A party shall not apply a safeguard measure or provisional measure,
as provided in Article 6 (Scope and Duration of Transitional
Safeguard Measures) or Article 7 (Provisional Safeguard Measures)
on a good that is subject to a measure that the Party has applied
pursuant to Article XIX of GATT 1994 and the Safeguards
Agreement, the Agreement on Agriculture or any other relevant
provisions in the WTO Agreement, nor shall a Party continue to
maintain a safeguard measure or provisional measure on a good
that becomes subject to a measure that the party applies pursuant
to Article XIX of GATT 1994 and the Safeguards Agreement, the
Agreement on Agriculture or any other relevant provisions in the
WTO Agreement.
3. A party considering the imposition of a global safeguard measure on
an originating good of another Party or Parties shall initiate
consultations with that Party or Parties as far in advance of taking
such measure as practicable.”
ASEAN-Japan Comprehensive Economic Partnership Agreement
(AJCEPA)
Article 20 of the AJCEPA provides that:
“1. A Party which is a member of the World Trade Organization may
apply a safeguard measure to an originating good of the other
Parties in accordance with Article XIX of GATT 1994 and the
Agreement on Safeguards in Annex 1A to the WTO Agreement
(hereinafter referred to as “the Agreement on Safeguards”), or
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Article 5 of the Agreement on Agriculture in Annex 1A to the WTO
Agreement (hereinafter referred to as “Agreement on Agriculture”).
Any action taken pursuant to Article XIX of GATT 1994 and the
Agreement on Safeguards, or Article 5 of the Agreement on
Agriculture, shall not be subject to Chapter 9 of this Agreement.”
Philippines-Japan Economic Partnership Agreement (PJEPA)
Article 11 (Relation to Other Agreements) of the PJEPA reads:
1. The parties reaffirm their rights and obligations under the WTO
Agreement or any other agreements to which both parties are
parties.
2. In the event of any inconsistency between this Agreement and the
WTO Agreement, the WTO Agreement shall prevail to the extent of
the inconsistency.
ASEAN-India Free Trade Area (AIFTA)
Article 10(1) of the AIFTA states that:
“Each Party, which is a WTO member, retains its rights and obligations
under Article XIX of GATT 1994 and the Agreement on Safeguards in
Annex 1A to the WTO Agreement (Agreement on Safeguards) and
Article 5 of the Agreement on Agriculture in Annex 1A to the WTO
Agreement (Agreement on Agriculture). Any action taken pursuant to
Article XIX of GATT 1994 and the Agreement on Safeguards or Article 5
of the Agreement on Agriculture shall not be subject to the Agreement
on Dispute Settlement Mechanism under the Framework Agreement
(ASEAN-India DSM Agreement).”
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3. THE INVESTIGATION PROCESS
Section 19 of RA 8800 provides the legal basis for the Commission to conduct
formal investigations of petitions for extension of safeguard measure, to wit:
“1. Subject to the review under Rule 16, an extension of the measure may be
requested by the petitioner if the action continues to be necessary to
prevent or remedy the serious injury and there is evidence that the
domestic industry is making positive adjustment to import competition.
2. The petitioner may appeal to the Secretary at least ninety (90) days before
the expiration of the measure for an extension of the period by stating
concrete reasons for the need thereof and a description of the industry’s
adjustment performance and future plan. The Secretary shall immediately
refer the request to the Commission. Following the procedures required
under Section 9, the Commission shall then submit a report to the
Secretary not later than sixty (60) days from receipt of the request. Within
seven (7) days from receipt of the report, the Secretary shall issue an order
granting or denying the petition. In case an extension is granted, the same
shall be more liberal than the initial application.”
3.1 Notifications
In the course of its investigation, the Commission issued to
representatives of PPMAI and other concerned parties the following notices,
namely:
Commencement of Formal Investigation and Invitation to the Preliminary
Conference
Notice was published on 06 February 2013 in Manila Standard Today
and The Manila Times (Annexes “A” and “A-1”) and posted at the
Commission’s website http://www.tariffcommission.gov.ph. Individual notices
were sent to all identified interested parties (Annex “B”).
Schedule of Public Hearing
Notice was published on 22 March 2013 in The Manila Times and
Manila Standard Today (Annexes “C” and “C-1”) and posted on the
Commission’s website http://www.tariffcommission.gov.ph. Individual notices
were sent to all identified interested parties.
3.2 Preliminary Conference
The preliminary conference was held on 12 February 2013 at the Tariff
Commission to apprise the parties on the nature and procedure of the
investigation. In attendance were the counsel and/or representatives from
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the petitioner, Embassy of Malaysia, Taipei Economic and Cultural Office,
Indonesian Embassy and DTI-BIS.(Annex “D”).
On 14 February 2013, the Commission issued an Order (Annex “E”)
containing the matters taken and agreed upon by the parties during the
conference. All concerned parties were furnished a copy of said Order.
3.3 Ocular Inspection/Data Verification
The Commission, in the furtherance of its investigation, conducted
ocular inspection/data verification at UPPC’s plant located at Calumpit,
Bulacan on 20 February 2013 to confirm the accuracy of the information
submitted as well as to obtain further details vital to the investigation
(Annex “F”).
3.4 Issuance of Staff Report
Prior to the scheduled public hearing, the Commission issued on 11
March 2013 its Staff Report containing its initial findings on the determination
of volume of imports and serious injury or threat thereof. All concerned parties
were provided a copy of said report and were given until 22 March 2013 to
submit their comments and/or issues they want explored during the public
consultation.
3.5 Public Consultation
Public consultations were held on 01-02 April 2013 at the Tariff
Commission for parties to present their evidence, elaborate on their
submissions, and respond and seek clarifications on the presentations and
submissions of the other parties.
Attendees to the consultations are listed in Annex “G”.
3.6 Submission of Investigation Report
Under the law, the Commission has sixty (60) days from receipt of the
records of the case to complete its investigation and submit report to the
Secretary who will then make a decision based on the Commission’s
recommendation.
The Commission, after submission of its report to the Secretary, will
make said report available to the public sans confidential information and
publish a summary in two (2) newspapers of general circulation.
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4. THE PARTIES’ SUBMISSIONS
All position papers, affidavits and other documentary evidence submitted to
the Commission are tabulated in Annex “H”. A public file containing non-confidential
information/submissions is available in the Commission.
4.1 The Petitioner
Philippine Paper Manufacturers Association (PPMAI)
PPMAI made the following claims:
Safeguard measure has been effective in reducing the volume of
imports that causes serious injury to the industry.
The reduction in import volumes of testliner board benefitted the
industry in terms of increased market share; sales; production;
capacity utilization and productivity. These benefits, however, did
not translate to immediate profitability or financial improvement.
Reasons for the industry’s inability to gain financially from the
aforementioned benefits were beyond its control.
(a) UPPC was forced to sell its testliner boards at a price lower
than its cost to produce and sell
(b) Cost to produce testliner board increased, primarily due to a
substantial increase in the cost of raw materials
The adverse effect on the industry of adopting import parity
pricing policy and selling below cost as imported counterpart are
imported and sold at prices lower than petitioner’s cost to
produce and sell would have been graver were it not for the
safeguard measure and the adjustments made to global
competition initiated by the industry.
The industry invested time and resources to reduce the
difference between the price of imported testliner board and its
cost to produce and sell under its original adjustment plan.
These adjustments were not enough to fully close this gap. The
industry realized that further adjustments are necessary. The
industry implemented or planned further adjustments not
included in its original adjustment plan to further narrow the gap
– new investments were made; new products/applications were
introduced/developed; capacity utilization and cost
competitiveness were improved.
The industry needs more time to implement and complete these
further adjustments. It will not be able to complete these
adjustments without the benefit of the safeguard measure. It
would not be financially feasible.
The industry would not be able to afford to continue with its
adjustment without the safeguard – the industry would suffer
more losses.
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In the event that safeguard measure is terminated price
reduction of the imported testliner board would follow. The
industry would be forced to also lower its price to retain its
customers.
There exists the threat of serious injury from imported testliner
board to the industry – the landed cost with the safeguard is now
below the selling price of the industry. This gap would be even
larger if the safeguard measure is removed.
The current global oversupply of testliner board causes further
serious injury to the industry. Foreign manufacturers are facing
depressed prices in their own countries due to oversupply and
shall seek to export to get rid of their excess supply.
Also included in its submission is the adjustment plan the
industry has committed to be operational in 2013 and those
projects/efficiency measures that are under study or in the planning
stage which are scheduled for implementation in 2014 -2016.
4.2 The Oppositors/Other Interested Parties
Oppositors/other interested parties to the application for safeguard
action submitted the following arguments to support their positions:
4.2.1 Corrugators/Importers
No representative attended the preliminary conference and
public hearing nor was there submission of position paper despite
notices/invitations.
4.2.2 Foreign Governments
Department of Foreign Trade (DFT), Ministry of Commerce of Thailand
In its letter dated 20 March 2013, DFT requested for extension
on the submission of its position paper until 5 April 2013.
Embassy of Australia
The Embassy submitted its comments to the Commission’s Staff
Report on 18 March 2013. The following views were indicated:
The Australian Government’s Department of Industry, Innovation,
Science, Research and Tertiary Education (DIISRTE) does not
consider Australian export volumes to be significant enough to
be a major contributor to cause or threaten serious damage to
the industry
AANZFTA commitments on testliner board are not as liberal as
the commitments in ASEAN’s internal agreements or those with
other ASEAN + 1 partners. Australian exports of testliner board
are currently subject to a 5% duty which will be eliminated only in
2020.
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Australia’s historic exports of testliner board are comparatively
low, accounting only for 2.76% of total imports into the
Philippines over the period 2004-2012. In addition, Australian
exports have been sporadic, taking place in only four of the last
nine years.
Australian exports should be excluded from the measure.
Embassy of Indonesia /Government of Indonesia (GOI)
The Commission on 21 February 2013 and 26 March 2013
received an e-mailed position paper from the Embassy and GOI which
contained the following declarations:
The Embassy would like to draw the Philippine Tariff
Commission’s attention in regard to the notification by the
Philippines to WTO dated 20 April 2012 that Indonesia was one
of the countries excluded from the measure.
Several Indonesian exporters of testliner board stated that they
no longer export said commodity to the Philippines because of
the measure. Based on the data from the Indonesian Bureau of
Statistics, no exports were made on 6-digit code (480524 and
480525), however under 4-digit lines, there were exports to the
Philippines which shows drastic declines.
GOI will continue its cooperation in the remaining process of the
investigation and hope that the exclusion of Indonesia from the
measure shall be maintained until the conclusion of the case.
Embassy of Malaysia (Trade Office)
In its e-mail dated 15 February 2013, the Embassy simply
acknowledged receipt of the Preliminary Conference Order
furnished by the Commission.
Ministry of International Trade and Industry Malaysia (MITI)
In its e-mail dated 14 February 2013, MITI informed the
Commission of its interest in participating in the case.
Embassy of the Republic of Singapore
Singapore’s share of Philippines’ imports falls within the “de
minimis” threshold for the period under review.
Taipei Economic and Cultural Office (TECO)
TECO, in its e-mail dated 15 February 2013, requested for
extension on the submission of its position paper as the office
will be closed for Chinese New Year. However, no submission
was made to the Commission.
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4.2.3 Exporters
Confederation of European Paper Industries (CEPI)
CEPI submitted to the Commission on 01 April 2013 its
comments/arguments against the extension of the Safeguad Measure
on testliner board imports:
The application was filed by only one company – UPPC.
Although this company represents about 63% of domestic
production (compared to 71% in 2008), one can wonder why
other companies did not join this initiative as “co-petitioners”.
Imports from EU since 2006 have decreased dramatically and
represents only 2% of the total imports in 2008. In 2010,
European countries did not export to the Philippines.
During the original investigation and since the safeguard
measure was imposed, there has been some suspicion of
dumping by domestic producers: “UPPC was forced to sell its
testliner boards at a price lower than its cost to produce and sell”.
One should note that before the safeguard measure was
imposed, EU exporters already faced tariff barriers – 7% tariff is
applied for testliner board imports. This provided protection to
the local industry. EU markets have been fully open to imports
since 2004 at zero tariffs.
Foreign exporters are accused of dumping practices without
providing any evidence, while local producers have
acknowledged they have adopted this unfair practice.
Between 2010 and 2012, the domestic industry increased its
share of the local market from 87% to 95% and sales by 17%.
However, the industry’s low capacity utilization rate (75% to
80%) has contributed to financial losses.
The Philippines testliner board industry is structurally
uncompetitive. As noted in the context of the initial investigation,
most of the raw materials used are imported. This constitutes a
serious handicap in terms of competitiveness, which most
probably explains part or most of current difficulties faced by the
industry. The adjustment plan described and implemented by
the domestic producer (profitability improvement, strengthened
manufacturing capability and marketing improvements)
demonstrates its weakness due to uncompetitive situation.
Despite the implementation of the safeguard measure, CEPI is of
the opinion that the local industry has not been able to restore its
competitiveness, mainly because of structural factors. The lack
of supporting elements in the alleged injury and causality
analysis should be filled in. Any extension of the measure would
not help the local industry, particularly UPPC, to return to a
profitable situation. Hence, safeguard measure should not be
extended.
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5. THE DOMESTIC INDUSTRY AND MARKET
5.1 Domestic Industry Requirement
PPMAI is composed of twenty (20) paper manufacturers of which four
(4) produce testliner boards (Container Corporation of the Philippines, Liberty
Paper Mills, Bataan 2020, and UPPC). UPPC accounted for 75% of the total
domestic production in 2012 which satisfies the domestic industry requirement
under the law.
5.2 Market Participants
5.2.1 Other Domestic Producers (Non-PPMAI Members)
Name of Company
Milestone Paper Products, Inc.
Cascade Paper Corp. (formerly Trans-National Paper)
Plant Location
Cabuyao, Laguna
Tanza, Cavite
Year /
Rank*
5.2.2 Importers/Users
The major users of testliner board are companies engaged in
box making. The top importers/users of testliner boards for 2010 to
2012 are listed below:
Table 1. Top Importers/Users of Testliner Board 2010 – 2012
Names of Importer/User
Volume
(MT)
%
Share
Source Country
2010
1 Cavite Packaging Corporation 4,030 27 Korea and Thailand
2 Superior Packaging Corporation 2,195 15 Thailand
3 Jennson Packaging Corporation 1,911 13 Indonesia, Korea and Thailand
2011
1 Corbox Corporation 1,963 33 Australia, China and Chinese Taipei
2 United Container Corporation 1,340 22 Malaysia
3 S.P. Mamplasan Packaging Corporation 897 15 Malaysia and Thailand
2012
1 Jennson Packaging Corporation 3,073 45 Saudi Arabia
2 Corbox Corporation 1,120 16 Australia and Chinese Taipei
3 Central Corrugated Box Corporation 654 10 Saudi Arabia
Source: Bureau of Customs-Electronic Import Entry Declarations (BOC-EIED)
* In terms of Volume
Relative to the total volume of Philippine imports, the above
named importers/users of testliner board collectively constituted 55% in
2010 and 70% in 2011 and 2012.
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6. PRODUCT COVERAGE
2012
AHTN
Code
The application for extension of definitive safeguard duty covers imports of
testliner boards, one of the raw materials for the production of container board
structures. Made from 100% recycled paper, testliner board is the outside and inside
paper lining of the combined board structures, classified under 2012 ASEAN
Harmonized Tariff Nomenclature (AHTN) Heading Nos. 4805.24 00, 4805.25 10 and
4805.25 90 regardless of the weight in grams per square meter (gsm).
MFN
WTO
Bound
Rate
Table 2. Tariff Schedule on Testliner Board (2013)
Rate of Duty (%)
ATIGA ACFTA AKFTA PJEPA AJCEPA AANZFTA AIFTA
4805.24 00 7 U 0 0 0 0 0 5 7
4805.25 10 7 U 0 0 0 0 0 5 7
4805.25 90 7 U 0 0 0 0 0 5 7
AHTN - ASEAN Harmonized Tariff Nomenclature
MFN - Most Favored Nation
WTO World Trade - World Trade Organization
ATIGA - ASEAN Trade in Goods Agreement
ACFTA - ASEAN-China Free Trade Area
AKFTA - ASEAN-Korea Free Trade Area
PJEPA - Philippines-Japan Economic Partnership Agreement
AJCEPA - ASEAN-Japan Comprehensive Economic Partnership Agreement
AANZFTA - ASEAN-Australia New Zealand Free Trade Area
AIFTA - ASEAN-India Free Trade Area
U - Unbound
Page 15 of 38

7. VOLUME OF IMPORTS
7.1 Volume of Imports in Absolute Terms
In the original investigation, the Commission concluded that testliner
boards are being imported in increased quantities, both in absolute terms and
relative to domestic production. The surge in imports started in the year 2005
and imports increased steadily through 2008.
Table 3. Import Volumes of Testliner Board: 2004 – Jan.- March 2013
Year Volume (MT) Growth Rate (%)
2004 850 -
2005 4,804 465
2006 9,446 97
2007 11,952 27
2008 18,305 53
2009 5,333 (71)
2010 14,893 179
2011 6,015 (60)
2012 6,909 15
Jan- March 2012 858
Jan-March 2013 2,306 169
Source: BOC-EIEDs
In 2009, when the domestic industry filed a petition for safeguard
measure with the DTI, imports of testliner board dropped significantly by 71%.
The substantial reduction in imports was brought about by the chilling effect on
imports from the filing of a safeguard petition by the domestic industry as well
as the effect of the global economic slowdown and the resultant decline in
demand.
In 2010, however, imports soared by 179% over the 2009 level. This
upsurge in imports was attributable to the preferential zero duties applicable to
testliner board sourced from Korea and from ASEAN Member States, under
the AKFTA effective 07 July 2009 (EO 812) and the ATIGA effective
01 January 2010 (EO 850), respectively. Imports during this period were
dominated by Korea (43%) and five (5) ASEAN member countries (55%).
It was further observed that around 80% of imports in the first 4 months
of 2010 came in prior to the implementation of the provisional measure on
05 May 2010 and only about 20% during the period of relief. Prompted by
the 1 st year imposition of definitive safeguard duty, the declining movement of
imports towards the later months of 2010 continued in 2011 as volume of
imports waned by 60%.
Imports increased by about 15% in 2012. Contributory to the growth
were low-priced testliner board from Saudi Arabia (a new entrant), which
accounted for 54% of total Philippine imports. Traditional exporters of testliner
Page 16 of 38

oard to the Philippines accounted for 46% of total Philippine imports during
the same period which include South Korea, Australia, Malaysia, Chinese
Taipei and Thailand.
As a consequence of cheaper prices from the source countries as well
as the reduced definitive safeguard duty for the 3 rd year, the 1st quarter of
2013 showed total testliner board exports to the Philippines of 2,306 MT
which is about 34% of total imports in 2012 and 169% higher than the 858
MT of testliner board imported in the 1st quarter of the same year. It is likely
that imports in 2013 will either equal or surpass the 2012 level.
Figure 1. Actual Increase/Decrease in the Volume of Imports of
Testliner Board (MT): 2004 – 2012
Source: BOC-EIEDs
7.2 Volume of Imports Relative to Domestic Production
Throughout the POI, import volumes of testliner board relative to
domestic production were fluctuating (Table 4).
Table 4. Share of Imports to Domestic Production: 2004 - 2012
Year
Imports*
(MT)
Actual Production**
(MT)
Share of Imports to
Total Production (%)
2004 850 125,765 0.68
2005 4,804 121,635 3.95
2006 9,446 131,237 7.20
2007 11,952 141,506 8.45
2008 18,305 138,468 13.22
2009 5,333 86,510 6.16
2010 14,893 120,352 12.37
2011 6,015 128,766 4.67
2012 6,909 120,095 5.75
Source: */ - BOC-EIEDs
**/ - UPPC
Page 17 of 38

Country of
Origin
The share of testliner board imports to domestic production fell from
12% in 2010 to almost 5% in 2011 brought about by the initial imposition of the
safeguard measure. This gave an opportunity for the local industry to
introduce new lightweight testliner grades (KR 125), and continue
implementing efficiency measures to increase production. However the arrival
of low-priced testliner board from Saudi Arabia, combined with a decline in
production, caused the share of imports to increase slightly in 2012.
7.3 Country Suppliers of Imported Testliner Board
During the POI (2010-2012), South Korea was the top country supplier
of testliner board accounting for 30% followed by Thailand, Malaysia and
Saudi Arabia with 19%, 15% and 13% shares, respectively (Table 5).
Table 5. Imports of Testliner Board by Country of Origin (MT): 2004 – 2012
2004 2005 2006 2007 2008 2009 2010 2011 2012
Total
%
Share
to Total
2010-
2012
Jan.-
March
2013
Thailand 538 3,964 6,208 8,978 13,178 202 4,684 601 21 38,374 5,306 19.07 24
South Korea - - - - - 3,592 6,380 726 1,296 11,994 8,402 30.20 303
Chinese
Taipei 72 101 517 930 1,123 144 642 1,461 527 5,517 2,630 9.45 349
Malaysia - - 399 100 - 648 1,619 2,038 538 5,342 4,195 15.08
Indonesia - 589 1,803 - 1,744 52 811 - - 4,999 811 2.92
Saudi Arabia - - - - - - - - 3,727 3,727 3,727 13.40 1,625
Germany 240 100 249 948 383 487 - - - 2,407 -
Australia - - 270 - 787 - - 306 800 2,163 1,106 3.98 5
China - - - - 736 52 49 346 - 1,183 395 1.42
Japan - - - 695 113 156 - - - 964 -
Viet Nam - - - - - - 708 - - 708 708 2.55
Singapore - - - - 90 - - 537 - 627 537 1.93
2004 -
2012
2010 -
2012
Hong Kong - - - 259 - - - - - 259 -
New
Zealand - - - - 151 - - - - 151 -
United
Kingdom - 50 - - - - - - - 50 -
South Africa - - - 42 - - - - - 42 -
Total 850 4,804 9,446 11,952 18,305 5,333 14,893 6,015 6,909 78,507 27,817 100 2,306
Source: BOC-EIEDs
In 2012, Saudi Arabia supplied the bulk of country’s imports. This may
be attributable to its cheaper average landed cost which is about 24% lower
vis-à-vis UPPC’s selling price, aside from the fact that Saudi Arabia was
exempted from the imposition of safeguard measure during the original
investigation.
For the 1 st quarter of 2013, Saudi Arabia’s exports is almost 71% of
total Philippine imports.
Page 18 of 38

7.4 De Minimis Import Volumes
Rule 13.1(d) of the IRR of RA 8800 provides that “a general safeguard
measure shall not be applied to a product originating from a developing
country if its share to total Philippine imports of the said product is less than
three percent (3%): Provided, however, that developing countries with less
than three percent (3%) share collectively account for not more than nine
percent (9%) of the total Philippine imports of the product concerned.”
Based on the available data (i.e., 2010- 2012), volume of imports from
Indonesia, Viet Nam, Singapore and China were found to be de minimis
(Table 5). Their imports collectively accounted for less than 9% of the total
Philippine imports of testliner board.
7.5 Findings
The Commission finds that:
The imposition of the safeguard measure proved to be effective in
significantly reducing the entry of imported testliner board over the POI.
A new country supplier, Saudi Arabia, has emerged, supplying
testlinerboard that is 24% cheaper than the domestic industry’s testliner
board.
Imports started to increase anew in 2012 (as compared to 2011) with bulk
of imports coming from new entrant Saudi Arabia. Based on the volume
of imports for the 1 st quarter of 2013, there is a good likelihood that
imports in 2013 will either equal or surpass the 2012 level.
Page 19 of 38

8. DETERMINATION OF SERIOUS INJURY
OR THREAT THEREOF
Rule 19.1 of the IRR of RA 8800 provides for the requirements for an
application for extension of safeguard measure, to wit:
“Subject to the review under Rule 16, an extension of the measure may
be requested by the petitioner if the action continues to be necessary to
prevent or remedy the serious injury and there is evidence that the
domestic industry is making positive adjustment to import competition.”
Likewise, Rule 9.4(c) requires the determination of the presence and extent of
serious injury or the threat thereof to the domestic industry that produces like or
directly competitive product.
The Commission, in its evaluation, shall compare the condition of the domestic
industry during the period under review against its condition during the original period
of investigation to determine if the action continues to be necessary to prevent or
remedy the serious injury and there is evidence that the domestic industry is making
positive adjustments to import competition.
8.1 Serious Injury Factors
8.1.1 Market Share
Prior to the imposition of the safeguard measure, the domestic
industry’s market share ranged from 88% to 99%.
Table 6. Apparent Domestic Consumption and Market Shares: 2004 – 2012
Year
Apparent Domestic Market Share (%)
Domestic
Consumption
Sales * Imports **
(MT)
% Domestic Imports
(MT) (MT)
Change
2004 122,368 850 123,218 - 99.31 0.69
2005 115,204 4,804 120,008 (2.61) 96.00 4.00
2006 109,379 9,446 118,825 (0.99) 92.05 7.95
2007 130,512 11,952 142,464 19.89 91.61 8.39
2008 128,306 18,305 146,611 2.91 87.51 12.49
2009 77,250 5,333 82,583 (43.67) 93.54 6.46
2010 103,344 14,893 118,237 43.17 87.40 12.60
2011 113,644 6,015 119,659 1.20 94.97 5.03
2012 120,608 6,909 127,517 6.57 94.58 5.42
Sources: * UPPC
**BOC- EIEDs
In 2010, notwithstanding the imposition of the safeguard measure, the
domestic industry’s market share fell to its lowest. This can be explained by
the pattern of importation during the year, with a mere 20% coming in
Page 20 of 38

Year
subsequent to the application of the safeguard measure in May, indicating the
effectiveness of said measure in regulating the influx of imports.
With safeguard measure in place coupled with the marketing strategies
undertaken by the domestic industry in 2011, market share of the domestic
industry almost reverted to the level sans import surge.
The implementation of customer relationship marketing (CRM)
programs and the introduction of lightweight testliner board (i.e., KR 140 and
KR 125) in 2010 and 2011, respectively, as part of its marketing improvement
initiatives contributed to the industry’s increased domestic sales and market
share.
These efforts have been instrumental in improving the industry’s
competitiveness. Domestic sales improved by almost the same rate as the
expansion in demand, allowing the domestic industry to maintain its market
share at 95%.
8.1.2 Production and Sales
The market shrank in 2009 due to the global economic slowdown. The
imposition of the safeguard measure in 2010 coincided with the recovery of
the market. However, production did not return to the levels of previous years
before the crisis as imports surged before May 2010 in anticipation of the
imposition of a provisional safeguard measure. With growing domestic
demand and the imposition of a definitive safeguard measure in November
2010, domestic sales subsequently recovered registering growth of 10% and
6% in 2011 and 2012, respectively.
Production
Volume
(MT)
%
Total
Table 7. Production and Sales: 2004 – 2012
Sales Volume
(MT)
Change
%
%
%
Domestic
Exports
Total
Change
Change
Change
2004 125,765 - 122,368 - 1,685 - 124,053 -
2005 121,635 (3.28) 115,204 (5.85) 17,861 960 133,065 7.26
2006 131,237 7.89 109,379 (5.06) 19,740 10.52 129,119 (2.97)
2007 141,506 7.82 130,512 19.32 12,916 (34.57) 143,428 11.08
2008 138,468 (2.15) 128,306 (1.69) 7,890 (38.91) 136,196 (5.04)
2009 86,510 (37.52) 77,250 (39.79) 12,349 56.51 89,599 (34.21)
2010 120,352 39.12 103,344 33.78 16,585 34.30 119,929 33.85
2011 128,766 6.99 113,644 9.97 10,092 (39.15) 123,736 3.17
2012 120,095 (6.73) 120,608 6.13 2,641 (73.83) 123,249 (0.39)
Source: UPPC
The domestic industry also undertook efficiency enhancing measures
such as installation of new generator and shredder machine and construction
of coal warehouse. They also introduced a lightweight testliner board to
augment its marketing initiatives during the period under review.
Page 21 of 38

8.1.3 Finished Goods Inventory
Due to a 56% increase in export sales relative to the previous year’s
level, the industry accumulated low inventory prior to the global economic
slowdown. Were it not for this circumstance, ending inventory levels could
have been greater.
Table 8. Finished Goods Inventory of Testliner Board: 2004 – 2012
Year Ending Inventory (MT) % Change
2004 13,475 -
2005 2,045 (84.82)
2006 4,163 103.57
2007 2,241 (46.17)
2008 4,513 101.38
2009 1,424 (68.45)
2010 1,847 29.71
2011 6,877 272.33
2012 3,723 (45.86)
Source: UPPC
The industry has managed to keep to its policy of maintaining a
monthly ending inventory of not more than 9,000 MT.
8.1.4 Capacity Utilization
The imposition of safeguard measure in 2010 enabled the domestic
industry to improve its utilization rate after this dropped to 54% in 2009 and
track changes in domestic market size. In 2012, however, utilization eased to
75% due to scheduled shutdown for the installation/fine-tuning of fractionation
system and substantially lower export sales.
Table 9. Capacity Utilization: 2004 – 2012
Year
Rated
Capacity
Actual
Production
Utilization
Rate % Change
(MT)
(MT)
(%)
2004 160,000 125,765 78.60 -
2005 160,000 121,635 76.02 (3.28)
2006 160,000 131,237 82.02 7.89
2007 160,000 141,506 88.44 7.83
2008 160,000 138,468 86.54 (2.15)
2009 160,000 86,510 54.07 (37.52)
2010 160,000 120,352 75.22 39.11
2011 160,000 128,766 80.48 6.99
2012 160,000 120,095 75.06 (6.73)
Source: UPPC
Page 22 of 38

8.1.5 Cost of Production (COP)
COP steadily increased for the period 2009-2011 due to higher prices of
major cost components, i.e., direct raw materials and coal/fuel (Tables 10 and
11). These price increases were beyond the control of the domestic industry
and reduced the effectiveness of the safeguard measure imposed in 2010.
Table 10. % Changes on Cost of Production of Testliner Board: 2009 - 2012
Cost Components
% Change
(P /MT)
2009-2010 2010-2011 2011-2012
Direct Raw Materials 41.26 10.16 (10.11)
Direct Labor 0.24 (6.87) 2.80
Manufacturing Overhead 16.17 4.50 (1.52)
Cost of Production 28.70 7.48 (6.43)
Selling, Admin & Gen. Exp 12.38 0.52 (19.47)
Cost to Produce and Sell 27.48 7.02 (7.24)
Source: UPPC
In 2012, the reduction in prices of direct raw materials and coal/fuel
together with the initiatives/projects undertaken to reduce paper rejects and
production downtimes and the establishment of nine (9) baling stations
resulted to an overall decline of 6% in COP. UPPC’s dependence on imported
waste paper was reduced by the additional baling stations as these generated
additional tons of waste paper at competitive prices (Table 12).
Table 11. % Changes on the Purchase Price of Direct Raw Materials
and Coal/Fuel: 2009-2012
Direct Raw Materials
% Change
(P /MT)
2009-2010 2010-2011 2011-2012
AOCC* 36.50 8.98 (25.19)
LDLK** 37.27 13.09 (26.18)
Trimmings 72.35 7.60 (8.00)
Mixed Waste 69.91 (1.31) (35.20)
LOCC*** 68.39 1.78 (17.32)
Coal/Fuel:
(P /BDT) (18.61) 26.26 (5.17)
Source: UPPC
BDT is Bone Dry Ton
*American Old Corrugated Cartons
**Local Double Lined Kraft
***Local Old Corrugated Cartons
Page 23 of 38

Table 12. Relative Share of Domestic and Imported Recycled Paper
to Total Requirements: 2009-2012
Total
Recycled
% Share to Total
Source
Year Paper
Requirements
Requirements Domestic* Imported
(MT)
(MT)
(MT)
Domestic Imported
2009 204,008 185,916 18,092 91.13 8.87
2010 208,730 193,150 15,580 92.54 7.46
2011 221,170 203,960 17,210 92.22 7.78
2012 222,887 215,468 7,419 96.67 3.33
Source: UPPC
*From baling stations
8.1.6 Employment and Labor Productivity
While there was improvement in labor productivity in 2010 and 2011,
these were significantly lower than productivity levels attained before the
global economic crisis.
Year
Table 13. Employment and Labor Productivity: 2004 – 2012
Increase/ Actual Labor
Number of
Decrease Production Productivity
Employees
(Number) (MT) (MT/Employee)
%
Change
2004 377 n.a 125,765 334 n.a.
2005 393 16 121,635 310 (7.19)
2006 404 11 131,237 325 4.84
2007 415 11 141,506 341 4.92
2008 416 1 138,468 333 (2.35)
2009 411 (5) 86,510 210 (36.94)
2010 413 2 120,352 291 38.57
2011 410 (3) 128,766 314 7.90
2012 418 8 120,095 287 (8.60)
Source: UPPC
In 2012, the same dropped as a result of the decline in production due
to scheduled shutdown for the installation/fine-tuning of fractionation system
and slight increase in manpower.
8.1.7 Financial Performance/Profitability
Despite increasing net sales in 2009-2011, losses from operations were
incurred. To protect market share, domestic industry adopted an import parity
pricing strategy while efficiency measures are being completed.
Page 24 of 38

Table 14. % Changes on the Profit and Loss on Testliner Board Operations: 2009-2012
Particulars
% Change
(In Million P)
2009-2010 2010-2011 2011-2012
Net Sales 70.24 10.59 (0.87)
Cost of Sales 73.91 19.73 (1.79)
Gross Profit(Loss) 27.27 (135.71) (50.00)
Operating Expenses 29.27 10.69 6.25
Income/(Loss) from Operations 46.15 1,089 (6.19)
Other Income/(Expenses) Net (144.44) (183.33) (190.00)
Income/(Loss) Before Income Tax (82.50) 3,271 (14)
Provision for Income tax - (75.00) (100)
Net Income (Loss) (72.50) 2,055 (14)
Return on Sales (%) (13.98) 973.75 (5.36)
Source: UPPC
In 2012, loss from operations was lower despite continued adoption of a
competitive pricing strategy (which ranges from import pricing parity to selling
below cost) impacting on profitability. Loss from operations was lessened as a
result of lower cost of production (COP) due to some of the efficiency
measures going on stream.
Return on sales declined significantly in 2011 and 2012 brought about
by higher operating losses in a conscious effort to stave off erosion in market
share.
8.2 Recurrence of Increased Imports and Injury
There is a need to determine whether there is sufficient freely
disposable, or an imminent substantial increase in, production capacity of
foreign exporters, including access conditions they face in third country
markets, that would indicate likelihood of substantially increased exports to the
Philippines and would thence justify extending the general safeguard measure
given to the domestic industry pursuant to RA 8800.
8.2.1 Foreign Industry Developments
Global market for paper packaging materials is forecast to reach 223.88
million metric tons by the year 2015, spurred by increase in demand from enduse
markets and penetration into new applications areas. Significant
technological developments in paper packaging converting and manufacturing
processes will provide an added boost to growth prospects. 1
The economic situation is not as bleak as it was in 2008 when
companies were not prepared for the downturn in the market. However, there
are still uncertain times ahead in 2013, but market players made necessary
adjustments to face the challenges as the world economy is slowly returning
to growth path, many of the projects are being reactivated and new projects
are planned. 2
1 http://www.strategyr.com/Paper_Packaging_Materials_Market_Report.asp.
2
Global forest, paper, and packaging sector outlook
Page 25 of 38

Some of the new developments in the Asian region and other countries
are summarized below:
China 3
Long Chen Paper has unveiled its expansion plans to install a 250,000
tons per year of recycled linerboard machine at its mill in Wuxi City,
Jiangsu province, China. Its start-up operation is scheduled for October
2013. The company also aims to build another two recycled
containerboard machines with a planned combined capacity of 800,000
tons per year at the Pinghu facility in Zhejiang province.
Shandong Guihe Xianxing Paper has commissioned a 300,000 tons per
year of recycled testliner unit at its sole mill in Zibo City, Shandong
province. The unit, dubbed PM 5, was fired up on July 24 2012 and is still
being fine-tuned.
Henan Shengyuan Paper is carrying out civil engineering work for a new
400,000 tons per year recycled linerboard machine at a greenfield site in
Luoyang City, Henan province. Startup is scheduled for early 2014
Liansheng Paper Industry has commissioned the new 7.25 meter wide PM
5 at their Longhai site in Fujian province in China The machine has an
annual production capacity of approximately 350,000 tons of recycled
testliner on the basis weight range of 100 to 140 g/m2.
Anhui Shanying Paper Industry Co. is installing two (2) new
containerboard machines worth EUR 100 to 150 million in Anhui Province.
PM 5 will be equipped with three headboxes. The production speed will be
1,100 m/min. The line will produce kraftliner and testliner grades in the
basis weight range of 90-175 gsm. The daily production capacity will be
approximately 1,380 metric tons. Operation is set to begin in the third
quarter of 2013. PM 6, will be equipped with two winders. It utilizes gap
technology which enables a new, higher production speed category for
board. The production speed will be 1,500 m/min. PM 6 will produce
fluting and testliner grades in the basis weight range of 50-110 gsm. The
daily production capacity will be approximately 1,540 metric tons. Startup
operation is scheduled in the second quarter of 2013.
Dongguan Jianhui Paper Mill and Dongguan Jinzhou Paper commissioned
two (2) new recycled containerboard units each in Dongguan City,
Guangdong province. All four PMs were started up in March. Each
machine has a wire width of 4.8 meters and a design speed of 800 meters
per minute. Both make recycled linerboard and capacity of 200,000 tons
per annum.
3 www.pulpapernews.com
Page 26 of 38

Jiangsu Changfeng Paper has invested on new containerboard machine
at its mill in Zhenjiang City. Jiangsu Changfeng’s new unit, PM 3, will
produce 300,000 tons per annum of linerboard in the basis weight range
of 110-220 g/m². Start up will commence in July 2013.
Nine Dragons Paper (Holdings) is set to take over medium-sized recycled
containerboard manufacturer Hebei Yongxin Paper. Nine Dragons inked
an agreement with Hong Kong-based firm Wing Fat Printing to acquire its
78.13% stake in Hebei Yongxin for RMB 564 million ($85 million). Hebei
Yongxin operates four recycled containerboard machines at its mill in
Tangshan City, Hebei province, with a total capacity of 530,000 tons per
annum. The location is near Beijing and Tianjin. Nine Dragons is the
largest packaging producer in China, having a total recycled
containerboard capacity of 7.6 million tons per annum.
Indonesia 4
Indonesian packaging producer Fajar Surya Wisesa (Fajar Paper) is
moving forward with an investment in a 350,000 tons per annum recycled
containerboard machine. The company has decided to build the machine,
PM 6, at a greenfield mill in the vicinity of Surabaya, the provincial capital
city of East Java. The installation work for the scheme is expected to
begin in the second half of 2013, with startup scheduled for the second
quarter of 2015.
Vietnam 5
Lee & Man Paper Manufacturing will build a 400,000 tons per year
recycled linerboard machine at a greenfield mill in Hau Giang province,
Vietnam. The startup of the machine is scheduled for the end of 2013.
Australia 6
Amcor Packaging (Australia) has inaugurated a new $500 million recycled
paper machine at Botany Mill in Australia. The paper machine has the
capacity to produce about 400,000 tons of high-quality 100% recycled
testliner and fluting grades in the basis weight range of 80 to 200 g/m2.
The machine came on stream on Oct. 16, 2012. The production line was
officially opened in an inauguration ceremony held on February 1, 2013.
Thailand 7
Siam Kraft Industry Co., Ltd. in its Ban Pong Mill in Ratchaburi, Thailand
will have a 7.25-meter-wide PM 16 which have a design speed of 1,300
meter per minute and utilize a new sizing method to provide better
strength properties. Start-up of the new machine is scheduled for 2014.
The production capacity is approximately 400,000 tons of recycled board.
4 Pulp and Paper International-Asia, 2013
5
http://www.euwid-paper.com/news/singlenews/Artikel/lee-man-paper-increases-net-profit-continues-expansion.html
6
http://www.pulpapernews.com/2013/02/new-recycled-paper-machine-inaugurated-at-botany-mill-australia
7
http://www.fao.org/docrep/014/i2285t/i2285t00.pdf
Page 27 of 38

The firm’s parent company, Siam Cement, earmarked Baht 6,700 million
($229 million) for the expansion late last year.
The State of Kuwait 8
United Paper Industries Co., located in Shuaiba Industrial Area in Kuwait
have commissioned the 2.6 meter wide machine that produces sack kraft,
fluting and testliner mainly using local OCC. The project is expected to
improve production capacity . The start up of this project is scheduled for
the 4th quarter of 2013.
Kingdom of Saudi Arabia 9
There are three major expansion projects taking place in Saudi Arabia's
packaging sector this year. Firstly, Waraq (also known as Arab Paper
Manufacturing Company) is installing a new 100,000 ton per year
linerboard PM at its mill in Dammam. Secondly, Obeikan is building a
150,000 ton per year greenfield cartonboard plant in Riyadh. Thirdly,
Middle East Paper Company (MEPCO) is constructing a 100,000 ton per
year greenfield linerboard mill in Jeddah, by the Red Sea. MEPCO aims
to get the mill up and running by the end of July 2013.
Poland 10
Stora Enso is set to build a new lightweight recycled containerboard
machine at its Ostroleka mill in northeastern Poland. The Euro 285 million
($371 million) investment will see a 455,000 tons per year output to start
in the first quarter of 2013. The PM will be able to produce brown testliner
and fluting in a basis weight of 107 g/m².
8.2.2 Reduced FTA Tariff Rate
Reduction of tariffs under the various regional trade agreements
can pose further threats of injury to the industry. In addition to ATIGA,
ACFTA and AKFTA, imports of testliner board under the AJCEPA and
PJEPA are levied 0% effective 1 January 2013.
8.2.3 Price Comparison
The removal of the safeguard duty would widen the price gap
between the average landed cost and the average domestic selling
price of testliner board which may result to adverse effects on domestic
industry’s financial viability. Without the safeguard duty, domestic
selling prices will fall below levels not enough to recover cost to produce
and sell.
8 http://www.papnews.com/pmt-italia-to-upgrade-pm-1-at-united-paper-mill-kuwait/
9 http://www.risiinfo.com/
10
http://www.ksh.ca/en/news/
Page 28 of 38

8.3 Findings
The domestic testliner board industry, following the imposition of the
safeguard measure in May 2010, has shown improvements in its market
share, production, domestic sales, capacity utilization, employment and
labor productivity.
Without the safeguard duty, imported testliner board would have a price
advantage over the domestically produced product. The removal of the
safeguard duty will make it difficult for the domestic industry to price its
products at a level to even recover cost to produce and sell.
Leading exporters of testliner board to the Philippines have established
and continue to upgrade their capacities i.e., Thailand, Korea, Malaysia,
among others. These countries are major exporters to the Philippines.
There is reason to believe that the Philippines will continue to be a target
export market by these countries considering their proximity and the trade
relations established and strengthened under FTAs. Moreover, the
reactivation of other Asian countries’ investment plans/expansion and
implementation of new projects will likely increase exports to the
Philippines if and when the safeguard measure is terminated.
Kingdom of Saudi Arabia, an emerging exporter, poses a real threat to
the domestic market.
While the safeguard measure has proven to be effective, the threat of
increased imports remains.
Discontinuance of the safeguard measure will likely lead to the influx of
cheap imports which will cause the recurrence of significant impairment
on the overall market position, production and domestic sales, capacity
utilization, employment, productivity and profitability of the domestic
industry.
Threat of serious injury is imminent if the safeguard measure is
terminated at this time when the industry continues to implement the
efficiency enhancing measures in its adjustment plans to make itself
competitive.
Page 29 of 38

9. EFFORTS OF THE INDUSTRY TO ADJUST
TO IMPORT COMPETITION
Section 19 of RA 8800 provides that subject to the review under Section 16,
extension of the measure may be requested by the petitioner if the action continues
to be necessary to prevent or remedy the serious injury and there is evidence that the
domestic industry is making adjustments to import competition.
In case one or more firms of the benefiting industry which applied for
safeguard measure fails to comply with their commitments as reflected in the
approved adjustment plan, the safeguard measure shall continue to be in effect,
provided, however, that the firms which complied with their commitments constitute
the majority in accordance with the definition of the domestic industry under Section 4
of paragraph (f) of RA 8800.
9.1 Adjustment Plans
9.1.1 Original Petition
The Commission, in its monitoring report submitted to the Secretary on
11 July 2012, determined that the domestic testliner board industry had
complied substantially with its commitments as stated in its adjustment plan.
Among the specific efforts the domestic industry had undertaken to adjust to
import competition were the following:
1. Setting up an additional ten (10) baling stations nationwide which
assured reliability of supply of waste paper and generated additional
employment as well. These stations helped minimize the impact of
increasing raw material prices through sourcing of waste paper and
paperboard at competitive prices, making these readily available for
production. Additional wastepaper generated in 2010-2011 totaled
7,400 MT per month.
2. Sourcing of cheaper alternative raw materials (i.e., Local Double Lined
Kraft cartons and its trimmings) from Davao baling station which
reduced UPPC’s dependence on imports of American Old Corrugated
Carton (AOCC) from U.S.A. In 2011, total LDLK collected was more
than 2,000 MT. This measure reduced raw material and production
costs.
3. Bulk procurement of locally produced coal, accounting for about 80% of
the coal requirements for UPPC’s power plant, resulting in lower coal
prices and power cost.
Page 30 of 38

4. Installation of shredder equipment to shred the plastic rejects at Waste
Plant 2 to be fed to the Co-generation Plant as alternative fuel for power
generation. With this P 13 million project, consumption of coal was
reduced by close to 2,000 MT, equivalent to more than P 9 million
savings for the company in 2011.
5. Construction of coal warehouse that can store up to 4,000 MT of coal
for boiler fuel that resulted in the reduction of maintenance and
operating cost.
6. Installation of new generator which contributed to the improvement of
plant and power efficiency in 2011 as contribution loss for the purchase
of electricity from the grid was avoided.
7. Introduction of new products (i.e., KR 125 and KR 140), which led to
increased domestic sales, actual production, capacity utilization and
market share in 2011 and 2012.
8. Implementation of Customer Relationship Marketing (CRM) programs
such as conduct of technical trainings/seminars and other technical
support programs for customers. This efficiency measure helped UPPC
maintain market leadership. Average annual expenses for these
programs amounted to P 200,000.
9. Required the opening of Standby Letter of Credit (SBLC) to majority of
its customers. This initiative/effort was undertaken to achieve its goal of
minimizing credit risk exposure, reduce receivables and to have better
control of overdue sales. SBLC is for UPPC’s protection in case of
payment default. Customers who can open an SBLC can have the
advantage of increased monthly sales allocation due to higher credit
limit and some pricing advantage. On the other hand, customers who
cannot open SBLC due to their bank credit status are offered other
payment scheme such as cash advance and cash on delivery sales.
9.1.2 Additional Efficiency Measure/Projects
New Product Lines
UPPC has introduced new grades of testliner boards, the
Testliner Maximum Strength (TM) and Testliner Excellent Strength (TX)
grades, which they are currently producing as a replacement to their
former KR and KV grades. TM grades have gsm of 140, 175 and 200
while TX grades have gsm of 125, 140, 150, 175 and 200. The new
product specifications have higher ring crush and bursting resistance,
respectively.
Page 31 of 38

9.2 Findings
Equipment, Parts and Accessories
To further enhance efficiency in its production processes, UPPC
has infused huge investments on projects/efficiency measures
committed to be operational by 2013. These include among others
machine improvements to optimize production.
Aside from these initiatives, several efficiency measures are
under study or in the planning stage for possible implementation in
2014-2016. These measures not only aimed at increasing machine
speed and reducing paper rejects that will result to increased production
output but also to reduce steam consumption and fibrous and chemical
costs to lower production cost of testliner board.
The Commission finds that the domestic testliner board industry is
making positive adjustment to import competition.
The positive impact of the efficiency measures was negated in 2011
due to the escalation in costs of external factors that are beyond the control of
the industry (i.e., prices of waste paper and coal/fuel). Without the
initiatives/efforts that the industry undertook, the increase in production cost
would have been higher.
Through improvements in production processes, the industry was able
to achieve economies of scale, maximize output, and reduce cost of
production in 2012.
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10. CONCLUSION
The Commission, in accordance with RA 8800 and the WTO Agreement on
Safeguards, concludes that:
1. The production output of the domestic industry, represented by UPPC,
constituted a major proportion of the total domestic production of testliner
board. The domestic industry has undertaken serious efforts to comply with its
adjustment plan and there is evidence that the industry is making positive
adjustment to import competition.
2. The current safeguard measure is effective. The volume of imports reverted to
its pre-surge level. The domestic testliner board industry has shown
improvements in its market share, production, domestic sales, capacity
utilization, labor productivity, employment, and cost of production.
3. While the safeguard measure has proven to be effective, the threat of
increased imports that can cause serious injury to the domestic industry
remains.
4. The Philippines will continue to be a target market for testliner board.
Discontinuance of the imposition of the safeguard measure will likely lead to
the recurrence of imports in increased quantities that would cause serious
injury to the domestic industry
5. The removal of the safeguard duty will make it difficult for the domestic
industry to price its products at a level to at least recover cost to produce and
sell.
6. Without the safeguard measure, the positive gains made by the domestic
industry may be negated as it still needs time to fully put in place its
commitments in the adjustment plan and effectively face import competition.
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11. RECOMMENDATION
The Commission finds that the extension of the action continues to be
necessary to prevent serious injury while the industry is making adjustments to
import competition given the elimination of tariff rates in various FTAs and the
oversupply as a result of the expansion in capacity and implementation of new
projects in various countries.
In view of the foregoing, the Commission recommends that the safeguard
measure be extended for another three (3) years for the industry to continue its
implementation of the adjustment plans. The completion of the efficiency measures
by the industry to reduce cost will create a favorable environment to make the
industry highly competitive against imports.
Adoption of the recommendation requires the following:
i) Notification and consultation requirements in accordance with Article 12 of the
WTO Safeguard Agreement and Rule 17 of the IRR to RA 8800;
ii)
iii)
Notification and consultation requirements pursuant to the provisions of Article
11 of the ASEAN Trade in Goods Agreement (ATIGA); and
Continued imposition of the safeguard duty on imports originating from
countries not identified in the Order of the Secretary dated 15 July 2011 as de
minimis.
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12. DEFINITIVE SAFEGUARD MEASURE
Section 13 of RA 8800 provides that:
“Upon its positive determination, the Commission shall recommend to
the Secretary of Trade and Industry an appropriate definitive measure,
in the form of:
1. an increase in, or imposition of, any duty on the imported product;
2. a decrease in or the imposition of a tariff-rate quota (MAV) on the
product;
3. a modification or imposition of any quantitative restriction on the
importation of the product into the Philippines;
4. one or more appropriate adjustment measures, including the
provision of trade adjustment assistance;
5. any combination of actions described in subparagraphs (a) to (e).”
The WTO Agreement on Safeguards provides that a measure extended under
paragraph 2 shall not be more restrictive than it was at the end of the initial period
and should continue to be liberalized.
Section 15(3) of RA 8800 provides that an action described in Section 13 (a),
(b) or (c) that has an effective period of more than one (1) year shall be phased down
at regular intervals within the period in which the action is in effect.
12.1 Recommended Definitive Safeguard Measure
The WTO Agreement on Safeguards and the domestic law contains
provisions as to the reckoning of the extended measure and the intervals of its
phase down. Rule 13.1.c of the IRR to RA 8800 further provides that “the
general safeguard measure shall be limited to the extent of redressing or
preventing the injury and to facilitate adjustment by the domestic industry from
the adverse effects directly attributed to the increased imports.” The
Agreement and the IRR to RA 8800 do not specifically provide how the
measure is progressively liberalized.
The Commission recommends the extension of the imposition of the
safeguard measure by another three (3) years. The Commission further
recommends a safeguard duty of P1,150.60/MT for the first year of
implementation, which represents another 5% reduction in the current
safeguard duty of P1,211.15/MT following the DTI formula of progressively
reducing the safeguard duty by 5% per year of implementation. The
recommended extension will allow time for the domestic testliner board
industry to fully implement its adjustment plan to positively adjust to import
competition.
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12.2 Review of the Definitive Safeguard Measures
Rule 15.6 of the IRRs to RA 8800 provides that:
“The decision of imposing general safeguard measure, the duration of
which is more than one (1) year, shall be reviewed at regular intervals
for purposes of liberalizing or reducing its intensity. The industry
benefiting from the application of a general safeguard measure shall be
required to show positive adjustment within the allowable period. A
general safeguard measure shall be terminated where the benefiting
industry fails to show any improvement, as may be determined by the
Secretary.”
that:
On the other hand, Rule 16.1 of the same IRR to RA 8800 provides
“So long as any action taken under Rule 13 remains in effect, the
Commission shall monitor developments with respect to the domestic
industry, including the progress and specific efforts made by workers
and firms in the domestic industry to make a positive adjustment to
import competition.”
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13. EFFECTS OF THE AFFIRMATIVE RECOMMENDATION
Section 14 of RA 8800 provides that:
“The report (of the Commission) shall also include a description of the
short and long-term effects of the affirmative or negative
recommendation, as the case may be, on the petitioner, the domestic
industries, the consumers, the workers, and the communities where
production facilities of such industry are located.”
The likely impact of the Commission’s affirmative recommendation is
discussed below:
13.1 On Competition
● Consumer welfare is not prejudiced since users have the option to choose
between locally-manufactured or imported testliner board.
● Since the proposed measure is only temporary and will be progressively
liberalized, competition will return to its normal level in due time.
13.2 On the Domestic Testliner Board Industry
● Imports will revert to the pre-surge level.
● Domestic industry will be afforded opportunity to complete the efficiency
measures in its adjustment plan to attain global competitiveness.
● Increases in output and sales will allow the industry to reduce cost of
production, thereby enhancing the domestic product’s price
competitiveness vis-à-vis imports.
● Reasonable margins will be generated.
● Market shares will be maintained allowing the industry to introduce new
products.
.
13.3 On User Industries and Consumer Welfare
● Consumers are guaranteed of the reliability of supply.
● With the domestic industry’s full implementation of efficiency measures,
consumers are assured of a wider range of quality products at competitive
prices.
The safeguard measure has a negligible impact on prices of basic
commodities, e.g., corned beef, sardines, soy sauce, because packaging
constitutes only about 1% of the total cost to produce and sell these
commodities.
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13.4 On Employment
● Increases in production and sales would ensure the tenure of employment
in manufacturing sector as well as in allied services.
13.5 On Community Development
● Extension of the definitive safeguard measure will sustain social
development in communities where manufacturers are located.
22 May 2013
EDGARDO B. ABON
Chairman
MARILOU P. MENDOZA
Commissioner
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