|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
Administrative Appeals Tribunal of Australia |
Last Updated: 18 February 1999
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V97/1392
GENERAL ADMINISTRATIVE DIVISION )
Re G.E. Plastics (Australia) Pty Ltd
Applicant
And Chief Executive Officer of Customs
Respondent
And Montell Australia Pty Ltd
Party Joined
Tribunal Deputy President B.M. Forrest Mr D.L. Elsum, AM, Member
Date 16 February 1999
Place Melbourne
Decision The decision under review is affirmed.
.........(Sgd. B.M. Forrest)...........
Deputy President
CATCHWORDS
CUSTOMS - Revocation of Tariff Concession Order (TCO) - polyphenylene oxide (PPO) resin - whether substitutable goods produced in Australia - polypropylene resin (PP) - whether corresponding use - decision affirmed.
Customs Act 1901 Part XVA subheading 3907.20.00; ss. 269B, 269C
Engineering Compounds and Resins Pty Ltd and Australian Trade Commission (Decision No 11,196, 23 August 1996)
Re G.E. Plastics (Australia) Pty Ltd and Others and Chief Executive Officer of Customs (1998) 27 AAR 258
16 February 1999 Deputy President B.M. Forrest Mr D.L. Elsum, AM, Member
The applicant, G.E. Plastics (Australia) Pty Ltd manufactures a range of engineering thermoplastic compounds.
In January 1994, the respondent, at the request of the applicant, made a Tariff Concession Order number 9605947 ("the TCO") under Part XVA of the Customs Act 1901 ("the Act") for goods described as:
"3907.20.00 POLYPHENYLENE OXIDE (PPO) RESIN, unmodified and uncompounded."
On 5 June 1997 Montell Australia Pty Ltd ("Montell") lodged with the respondent a request under s. 269SB of the Act for revocation of the TCO, claiming that polypropylene resin which it produced in Australia fell within the definition of "substitutable goods" in relation to the TCO goods.
Subsequently, on 4 August 1997, a delegate of the respondent made a decision to revoke the TCO, being satisfied that the terms of paras. (a) and (b) of s. 269SC(1) of the Act have been met.
"(a) that, on the day of lodgement of the request, the person requesting the revocation of the TCO is a producer in Australia of goods that are substitutable goods in relation to the goods the subject of the order; and
(b) that, if the TCO were not in force on that day but that day were the day on which the application for that TCO was lodged, the CEO would not have made the TCO."
Notice of this decision was published in the Government Gazette on 13 August 1997.
The consequence of revocation is that goods that fall to be classified to subheading 3907.20 of Schedule 3 to the Customs Tariff Act 1995 and which meet the terms of the TCO are, as from the date of lodgment of the request for revocation no longer eligible for concessional entry at 3% under Item 50 of Schedule 4 and pay the general rate of duty of 5%. outline resp sub para. 4
On 8 September 1997 the applicant's solicitors made a request under s. 269SH of the Act for reconsideration of the decision to revoke the TCO. On 3 November 1997 another delegate of the respondent affirmed the decision to revoke the TCO. From that decision the applicant has sought a review by the Tribunal.
The jurisdiction of the Tribunal in this matter is to be found in s. 273GA(1)(q) of the Act.
In its application for review the applicant stated:
"The goods which are the subject of the TCO at the relevant date met the core criteria as prescribed in the Customs Act and there was no basis in fact or law to revoke the TCO."(p2 t docs)
In other words the applicant claimed that the goods, produced locally by Montell, are not substitutable for the polyphenylene oxide resin imported under the TCO, in that they are not put or are not capable of being put to a use that corresponds with a use to which the TCO goods can be put.
On 22 May 1998 an application by Montell to be joined as a party to the proceedings and for an extension of time within which to make its application was successful. An application by PolyPacific Pty Ltd (a joint venture corporation of Montell and Mirlex Pty Ltd) to be also joined as a party to the proceedings was refused on 4 June 1998: see (1998) 27 AAR 258.
The issue for determination in this review is whether, on the relevant day, namely 5 June 1997 (the day on which the request for revocation of the TCO was lodged) PP as produced in Australia falls within the definition of "substitutable goods" in s. 269B of the Act in relation to the goods which are the subject of the TCO.
Written statements which were supplemented by oral evidence were made by Mr Denis Fieldhouse, Commercial Projects Manager, Polymer Technology Centre RMIT and Mr John Petschel, Consultant Design Engineer to the Plastics Industry on behalf of the applicant and by Professor David Solomon, Professorial Fellow, Department of Chemical Engineering, University of Melbourne; Professor Brian Cherry, Honorary Professorial Fellow, Department of Materials Engineering, Monash University and Mr Peter James, Export Development Manager, PolyPacific Pty Ltd on behalf of Montell. Oral evidence was also given by Mr Eric Dziegielewski, Commercial Manager of the applicant, and by Dr Ian Heritage Development Director, Asia Pacific of Montell. In addition to the documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") a large number of exhibits were tendered in evidence, some of which were received on a confidential basis for commercial reasons.
Significant legislative changes to Part XVA of the Act were made by the Customs Amendment Act 1986 No. 30 of 1996, relevantly the amendment of the definition of "substitutable goods" by adding the words "or are capable of being put" and the removal of the so called "market test" from the definition of core criteria by the addition of s. 269B(3) and the substitution of a new definition of "core criteria" in s. 269C. These provisions now read:
"269B (1) In this Part, unless the contrary intention appears:
...
substitutable goods, in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are put, or are capable of being put, to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put;
...
(3) In determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding to a use to which goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first-mentioned goods compete with the second-mentioned goods in any market.
...
269C For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business."
Other amendments inserted by Act No 30 of 1996 include a provision that a description of goods for which a TCO is sought, in other than generic terms will be rejected: s. 269SJ(1)(a). Clearly, these amendments were designed to ensure that the tariff assistance to Australian manufacturers is not adversely affected by the operation of the tariff concession scheme: see Second Reading Speech, House of Representatives 30 May 1996.
Polyphenylene oxide ("PPO") and polypropylene ("PP") are examples of synthetic polymers consisting of long chain molecules made up of many repeating units of a comparatively simple chemical. The simple chemical from which the polymer is derived differs in the case of each polymer. The term applied to it is "monomer". Thus the monomer from which the simplest synthetic polymer is formed by the polymerisation process (i.e. polyethylene), is ethylene (C2H4). The next most complex polymer is polypropylene, the monomer from which it is produced by polymerisation being propylene (C3H6). The polymerisation process involves linking many monomer units together to form the long chain molecules which characterise a polymer; it involves chemical change resulting in the formation of a new compound whose molecular weight is a multiple of that of the original substance, the monomer. Thus the comparatively low molecular weight chemical which constitutes the monomer becomes a high molecular weight polymer. In general the polymer possesses the same chemical analysis as the monomer; for example the relative carbon and hydrogen content of polyethylene would be the same as the relative carbon and hydrogen content of the monomer ethylene from which it is made by polymerisation. Polypropylene falls into this category.
In some cases the monomer units are linked together to form the polymer by chemical reaction. For example, in the case of the production of PPO, the monomer is the chemical 2, 6-xylenol (2, 6-dimethyl phenol). The molecules of 2, 6-xylenol are linked together in the polymerisation process by oxidative coupling. In all cases the polymerisation proceeds under the influence of a catalyst system. In the case of PP this is a Ziegler Natta system; in the case of PPO it is a copper catalysed system.
Although in the polymerisation process long chain molecules are formed with molecular weights many thousands of times that of the monomer the length of the chains produced varies, depending on the polymerisation conditions, such that the final polymer can be made up of a mass of polymer chain having a range of lengths and thus a range of molecular weights (Ex. M13, para. 9.1). A measure of this range is described as the "molecular weight distribution" of the polymer and the molecular weight distribution and the "average molecular weight" are properties which can have a profound effect on the physical properties of the polymer and on the ease of the subsequent processing of the polymer.
In some instances a mixture of monomers can be polymerised together. The resulting product is termed a "copolymer". An example of this is when some ethylene is included during the manufacture of polypropylene, the product being an ethylene propylene copolymer.
Synthetic polymers form the basis of plastics, a group of materials with considerable commercial significance. It has become commonplace to refer to the polymers produced by the polymerisation process as "resins".
All polymers soften initially under the influence of heat. Some polymers subsequently set to a solid which cannot subsequently be softened by heat. This class of polymer or resin is termed the "thermosets" or thermosetting polymers or resins. The largest class of polymers is the "thermoplastic" polymers or resins; this class of polymer is characterised by the ability to repeatedly soften with the application of heat and to subsequently harden on cooling.
This attribute possessed by polymers, that of softening under the influence of heat, with the molten material so produced flowing with the application of pressure, is fundamental to the commercial application of plastics. Various polymers can be blended with other materials in a process termed "compounding" to produce "compounds". This is accomplished by using an extruder (or compounder). The cold ingredients of the compound are fed into one end of a horizontal cylinder in which one or two screws revolve. Under shear caused by the action of the screws and with the application of external heat the polymer melts and is intimately mixed with any other polymer present and with the other ingredients. The screw design used may vary from polymer to polymer and the Tribunal was told in evidence that generally screw designs tend to be commercially sensitive. The molten compound which results is forced (extruded) through small holes in a die plate at the other end of the cylinder (barrel) of the extruder and emerges as a number of continuous strands which are cooled so that the plastic compound so produced hardens and is chopped into pellets each 3-4mm long. The applicant operates nine such extruders. The pellets of compound produced represent the product sold by the applicant.
Useful articles can be formed from this pelleted compound using a process known as injection moulding. In this process the pellets are heated in a horizontal cylinder and the molten material injected by the application of a hydraulic ram into a cooled hollow mould in the shape of the desired article. The mould is opened and the article ejected.
A depiction of such an injection moulding machine is shown as Fig. 7.25 in Professor Cherry's witness statement, Ex. M13.
In his report Mr Fieldhouse provided a list of the major thermoplastic resins used by the Australian Plastics Products Industry:
Low Density Polyethylene (LDPE)
Linear Low Density Polyethylene (LLDPE)
High Density Polyethylene (HDPE)
Ultra High Molecular Weight HDPE
Polybutylene (PB)
Polypropylene Homopolymer (PP)
Polypropylene Copolymer (PP)
Polyvinyl Chloride (PVC)
Polyvinyl Acetate (PVA)
Polyvinylidene Difluoride (PVDF)
Ethylene Vinyl Acetate (EVA)
Polytetrafluoro Ethylene (PFTE)
Polystyrene (GPPS)
High Impact Polystyrene (HIPS)
Styrene Acrylonitrile (SAN)
Acrylonitrile Butadiene Styrene (ABS)
Polymethyl Methacrylate (PMMA)
Polyethylene Terephthalate (PET)
Polybutylene Terephthalate (PBT)
Polyamides (PA)
Polyurethanes (PU)
Polyacetal
Polycarbonates (PC)
Polyphenylene Oxide (PPO)
Polysulphones
Polyether Imides
Polyether Ketones"
The annual consumption of plastic resins in Australia is indicated in a table forming part of Ex. A1 as follows:
'000 tonnes'
MATERIALS 1993 1994 1995 1996 1997
ABS 14.6 16.4 16.9 17.0 17.5
Acetal 2.4 3.3 3.1 3.6 3.7
Acrylic 16.3 20.0 22.1 21.8 22.0
Alkyd 38.0 39.0 39.3 38.7 39.0
Aminos 43.8 44.8 45.5 46.0 47.0
Polyamides 7.1 13.0 13.7 14.2 14.5
Phenolic* 34.5 38.2 36 33.6 34.0
Polycarbonate 4.5 5.5 6.3 6.5 6.6
Polyester (Unsaturated) 28.5 30.0 30.0 29.5 30.0
HDPE 156.5 178.0 193.1 198.5 208.5
LDPE** 119.3 130.0 129.8 134.0 134.0
LLDPE 56.7 65.0 72.5 87.1 91.0
Polypropylene 149.0 161.0 175.0 173.6 191.4
Polystyrene 53.9 60.0 59.0 55.2 64.5
Polyurethane 41.2 42.6 43.4 45.1 46.5
PVA 15.3 16.0 15.7 16.0 17.0
Vinyl 183.8 195.0 186.8 91.9 191.5
PET & PBT 29.7 44.8 47.9 54.5 65.0
Not identified 75.3 97.4 83.9 116.4 99.0
TOTAL 1,070.4 1,200.0 1,220.0 1,283.1 1,322.7"
The Tribunal notes that the classification "Phenolic" represents thermosetting resins; the remainder are considered to be thermoplastic resins.
In terms of relative volume consumed there was evidence that approximately 1000 tonnes of PPO are imported into Australia annually. According to the table reproduced above, the volume consumed in Australia in 1997 of what the respondent and Montell, contend are substitutable goods, that is, PP was 191,400 tonnes. Thus the volume of PPO imported represents about 0.5% of the volume of PP consumed.
Evidence was also given as to the products' relative selling prices. According to Mr Dziegielewski, the compounds made from PPO by the applicant sell at prices ranging from $4.00 per kilogram up to $8.00 per kilogram, whereas PP base resin sells for $1.25 per kilogram with compounds ranging up to $4.00 per kilogram. While price comparisons and quantities imported are no longer relevant factors since the market test was abolished, they provide some background to the goods under consideration and their place in the plastics industry.
A further classification of thermoplastics divides the material into so-called commodity plastics and engineering plastics. Mr Dziegielewski described the applicant's business as the "compounding of engineering thermoplastics". In terms of volume he said:
"Engineering thermoplastics to our latest measurements represent about 30 to 35,000 tonnes and includes the range of nylons, acetals, which are classed as engineering thermoplastics and the total plastics industry in Australia is approximately 1.2 million tonnes, so the engineering thermoplastics represent a very small percentage of the total plastics industry in Australia."
The range of compounds made by the applicant from imported PPO bears the trade name "Noryl" (see Ex. A6), and according to the applicant, the compounds are engineering plastics as distinguished from commodity plastics. The terms "engineering plastics" and "commodity plastics" were discussed at some length by the Tribunal in Engineering Compounds and Resins Pty Ltd and Australian Trade Commission (Decision No 11,196, 23 August 1996). For present purposes commodity plastics have no relevance.
The polymerisation process by which a polymer is produced from a monomer is carried out in a reactor. The polymer in the condition in which it is discharged from the reactor has been termed in this case the "ex-reactor" polymer. Mr Dziegielewski told the Tribunal that the material used by the applicant as a raw material for the manufacture of Noryl is the pure ex-reactor polymer. It was the opinion of witnesses for both the applicant and Montell that ex-reactor polymers as such cannot be used to make commercial products in commercial machines. Professor Cherry said as much, as did Mr Fieldhouse. In relation to PPO Mr Fieldhouse said:
"Polyolefins, as a group, are particularly sensitive to ultraviolet attack and oxidation at high temperatures and so, if you attempted to process many of them with - without antioxidant protection and stabiliser protection, they would rapidly yellow and degrade, which is not only cosmetically poor - and you get a bad smell - but it degrades the physical properties very rapidly also. Even if you manage to get them processed as soon as you put them out in the sun, they would - they'd degrade extremely rapidly. I am not sure about polypropylene, but completely unprotected polyethylene has full sun exposure of about 24 hours before it starts to embrittle. And so there are absolutely mandatory additives in the case of polypropylene."
Professor Cherry said:
"I do not believe that there are many, and that really should be interpreted if any, ex-reactor resins which in the absence of any anti-oxidant or stabiliser can make a commercial product in a commercial machine. Basically almost every polymer will degrade at processing temperatures if there are no anti-oxidants added."
Ex. M7 was tendered as a sample of ex-reactor polypropylene. Ex. M8 was tendered as a sample of a stabiliser package. Dr Heritage said:
"These stabilisers do two major things: they provide antioxidant stability for the polymer during processing, both within our own processing facility and at our customers. They are - also the stabilisers are there to ensure that catalyst residues are neutralised. So this package of stabilisers is added after the reactor, and then homogenised in an extruder and melt-mixed, or melt-compounded to finish up with the pellets or the granules of the polypropylene which we sell."
Ex. M9 was tendered as a sample of these pellets or granules, sometimes called "Nibs". tr. 13/11/98, p4
The Tribunal notes that at T12, p50, the diagram shows the addition of "Additives and Stabilisers":
"Additives & Stabilisers are added to the PP powder to give the end product properties desired by the customer. All additives are brought preblended in bulk bags.
Peroxide can be added to further crack the polymer chains to increase the nib MFI."
The diagram shows the mixture of ex-reactor polymer and the "additives and stabilisers" passing to a symbol marked "Extrusion" and thence to "Nibs Storage". Against the symbol marked "Extrusion" there is the following text:
"Geelong has two identical W & F extruders capable of cutting a wide range of nib MFI."
The Tribunal understands MFI to stand for Melt Flow Index, a measure of the ease of flow of the molten polymer. Thus this process, the addition of peroxide with extrusion, increases the ease of the flow of the molten polymer.
Mr James said that PolyPacific use some ex-reactor powders in some of its operations rather than granules to make compounds which are then subsequently used to mould articles. tr 13/11/98, p71 This powder is obtained from Kemcor, the other manufacturer of PP in Australia. In answer to the Tribunal Mr James said:
"...I was asking you if you could give any specific example of an ex-reactor resin in a commercial usage. Are you able to give me a specific commercial example?---This was in terms of being used in our process to make a compound?
Well, it can be. I am not seeking to limit you to that?---Well, I think before we broke that I did say that we were able to process the powder and that formed part of our supply, and we also used the granules, polypropylene granules.
When you say you used the powder, what is the actual product that you then go on to make?---Polypropylene compound.
I see. So you do not use the ex-reactor resin straight off to make a commercial product in the sense of an end-use type of product?---It's not a moulded article, no. It is used for a compound, to make a compound."
(trans. 13/11/98, p77)
Mr Fieldhouse agreed that a compound could contain more than 99% of pure polymer (trans. 11/11/98, p77). At the other end of the range Mr Dziegielewski referred to Noryl compounds containing only 28% PPO (trans. 12/11/98, p31).
Clearly, the process described at (p50, T12) where "peroxide can be added to further crack the polymer chains to increase the nib MFI" is an example of what Mr Fieldhouse termed "reactive" compounding.
It is the Tribunal's view that whenever any substance is added to a polymer as such once it has been formed, whether such addition is an integral part of the manufacturing process or a separate process and whether by dry-blending or melt-mixing, that process is compounding and the product is a compound. The Tribunal notes that even when the additive is mixed with the polymer by dry-blending it is eventually incorporated by melt-mixing by the heating and operation of the screw in the injection moulding machine.
The Tribunal accepts that it is the properties of the polymer which gives the main essential character to the compounds and which determine the performance of the compounds which are made form it, albeit the properties of those compounds are also influenced by additives which are incorporated in order that the articles moulded from those compounds meet the use specifications.
The character and attributes are manifested only at the stage where articles have been formed (by injection moulding and other techniques) from compounds made from the polymer. The only way of observing and comparing the relative physical and mechanical properties of polymers and their fitness for use, as determined by specification, is to make the polymer into a compound.
Mr Petschel used the term "based on" when describing the relation between a polymer and compounds made from that polymer. It is the PPO which it contains which gives Noryl compounds their character; HIPS modifies the PPO, that is, it makes the compound made from PPO more processable and have a higher impact strength. The Tribunal does not accept the applicant's contention that in view of the fact that in some cases Noryl contains equal parts of PPO and HIPS it could be considered a compound of HIPS.
Mr Dziegielewski agreed that compounds based on PPO and compounds based on PP are available, as a choice, to the designer of the article to be moulded from such a compound. He also agreed that the operations to which PPO as imported and PP in powder form are put in the compounding process are very similar "in very simplistic terms, without going into the detail".
During cross examination he said:
"As a commercial manager, it's not important that I know what the formulations [of Noryl compounds] are. Only what the physical properties are to meet the customers requirements.
So it is only the physical properties that really matter?---In the case of Noryl extra the high heat performance, yes.
But it is the physical mechanical properties, of these compounds that really matter is it not, to the people who---?---To the customer, yes.
To the people who buy from you?---Yes.
Yes?---That's right.
And it is not chemical properties or chemical structure, that matters?---Generally the customers don't ask for the chemical structure of the product. They want to know what the physical properties of the particular grade are."
(trans. 11/11/98, p24)
In a report to the applicant's solicitors (Ex. A2) Mr Petschel stated that within the thermoplastic range of material, there are two primary classifications, either amorphous or semi crystalline. These two groups are distinctly different in general prospective processing characteristics and recommended applications for use. Some of the primary plastic resins that are produced from the two primary thermoplastic groups are:
"Amorphous Semi-Crystalline
ABS Acrylonitrile-Butadiene Styrene PE Polyethylene
PC Polycarbonate PP Polypropylene
PPO Polphenylene Oxide PA Polyamide (Nylon)
PS Polystyrene POM Polyacetal" Ex.A12, 4.7
Products that require rigid materials eg. plastic housing for a computer printer or a plastic head lamp lens for a motor vehicle would normally be selected from the amorphous group of polymers. "In these examples a PP compound that does not have a suitable molecular structure for this application cannot substitute a material such as Noryl that is manufactured using a base resin of PPO".
Products that require tough impact resistant applications, eg plastic bumper bar for a motor vehicle or a plastic stadium seat, would be selected from the semi crystalline group of polymers. "In these cases the base resin of PPO is not suitable whereas the polymer structure of PP makes this material potentially suitable for this application." Mr Petschel described the molecular structure of PPO and PP as follows:
"Polyphenylene Oxide. PPO contains aromatic groups spaced with other groups such as HIPS (High Impact Polystyrene) to make processing practical. When the PPO resin is compounded to a practical formulation for processing (e.g., the addition of HIPS and other additives), a material of a Noryl type is produced. The molecular structure of Noryl types provide a material that is tough, stiff and copes with a wide range of application temperatures whilst maintaining good dimensional stability. This material has excellent dielectric properties, low coefficient of expansion and is rated as self-extinguishing and non-dripping when burnt. This particular molecular structure cannot be used as a substitute for PP.
Polypropylene. PP is a semi-crystalline polymer based on the ethylene molecule material containing only carbon and hydrogen atoms. As can be seen by Figures 2-4, PP has a substantially different molecular structure to PPO and PC. It is a relatively soft opaque material with a low impact strength, particularly at low temperatures. PP has excellent chemical resistance and its flexibility allows it to make excellent integrally moulded hinges. Given its molecular structure, regardless of additives, it cannot be used to produce a commercial mateial such as Noryl."Ex.A12
While acknowledging there is some overlap between uses of these products, Mr Petschel concluded that because the molecular structure of PPO and PP are different, the resultant applications of each product will differ. In his opinion the actual usage of the particular resin is product specific and cannot in any way be substituted, irrespective of whether it be the primary resins PPO or PP or the base materials after they have been compounded into products created for general manufacturing.
Mr Fieldhouse was in substantial agreement with Mr Petschel. It was Mr Fieldhouse's "unequivocal view" that no substitutability exists between PP resin and PPO resin. To accept otherwise, he opined would indicate a substantial lack of knowledge and understanding of the chemical structure and consequent properties and applicability of the respective plastics resin. In support of his argument he compiled the list referred to earlier of the major plastic resins used in Australia and contended that if PPO resin is substitutable for PP resin then equally each of the listed resins have a use which corresponds with a use that the other listed resins have which is, he said, "simply impossible".
In his report (para 19) Mr Fieldhouse wrote:
"Each of these [polymeric] resins has a combination of properties and price, which make it uniquely suitable for certain applications, thereby justifying its manufacture, marketing and use. This situation is completely analogous to other areas of materials technology, e.g. steel, where there is an even greater range of types, customised for specific applications. E.g. mild steel is soft and malleable and is used in wrought and structural applications. High speed steel is used for cutting tools and is extremely hard and tough and capable of maintaining a cutting edge even at high temperatures. The so-called "stainless steels" are relatively soft but are very corrosion resistant and are used where this property is important."
Professor Solomon said the "uniquely suitable" description of Mr Fieldhouse cannot be justified scientifically and is quite misleading. Often there will be significant overlap of properties between quite different polymers, he said.
Professor Cherry also joined issue with Mr Fieldhouse's use of the term "uniquely suitable" "...it would be a very rare situation indeed in which a polymer resin compound could not be substituted by any other polymer resin compound...[para. 11.6]". Very often, he said, far more than one polymer resin compound can be used to produce a given end product.
Mr Fieldhouse also referred to the different crystallinity characteristics of PPO and PP. He wrote:
"Since processing characteristics and suitability for applications is dependant on physical and chemical properties which in turn depend on molecular structure it can be seen from the above that [PC], PPO and PP are individual materials with distinct properties and characteristics. [PC] and PPO have a general similarity in structure which leads to some similarity in properties but PP is of a different class and character altogether."no. 37 Ex. A10
Professor Solomon queried the value of this kind of classification:
"...much overlap occurs, particularly after the addition of additives. At most, it might guide a compounder as to the types of materials he or she may wish to try adding. However one is to classify PP and PPO in terms of crystallinity or lack of it, both can be used in moulding compounds that can be used in the manufacture of the same parts, for example, for motor vehicles."no. 28 Ex M4
Professor Cherry while accepting the concept of amorphous polymers and crystalline polymers considered the issue irrelevant in the present context. He said:
"The crystallinity of a polymer resin compound strongly affects the shrinkage in the mould after cooling and must therefore be carefully controlled by compounding. The crystallinity of a polymer resin and even more so of a polymer resin compound is however controlled by a number of factors of which the molecular structure of the repeat unit of the polymer chain is only one. The crystallinity is also controlled by the nucleation process, the rate of cooking, the molecular weight distribution etc. ... These will all be markedly affected by the compounding process in any commercial resin. Thus whilst I agree that there are marked differences in the crystallinity of the different materials discussed by Mr. Fieldhouse, crystallinity is not relevant in the present context."no. 11.9 Ex m13
In cross examination of Mr Fieldhouse, the following exchange occurred:
"Do you agree - and I think you said it yourself twice, and it seems to be common ground - that ex-reactor PP resin, an ex-reactor PPO resin, are by themselves useless. That is correct, it is not?---Well, if by "useless" we presume that they cannot be converted into finished goods, correct.
They cannot be put to a practical commercial use in that state?---To produce finished articles by the normal process, that is correct.
So therefore what are the (sic) used for?---To manufacture plastics compounds.
In order to do that they are used to make compounds, whether they be alloys or ... or otherwise, is that right?---Yes.
PP resin, polypropylene resin, is used to make a class of compounds which are injection moulding or extrusion moulding or blow moulding compounds, are they not?---Amongst others, yes.
They get to be such compounds because modifers, fillers and other additives are added to the ex-reactor PP resin?---That's correct.
PPO ex-reactor resin is also used to make injection moulding, extrusion moulding and blow moulding compounds, is it not?---Well, some of those anyway, yes.
That is also done by adding to the ex-reactor PPO resin various additives?---Yes."
(trans. p60, 13/11/98)
Professor Solomon also disagreed with Mr Fieldhouse's statement that "PP is of a different class and character altogether" to PPO, observing that physical and chemical properties with polymer based systems depend in part on the chemical structure of the polymer, but also upon what is mixed with the polymers. In relation to the specific application of polymers different property requirements which polymers may be required to satisfy include rigidity, impact resistance, temperature resistance, resistance to oil, colour retention, resistance to water, durability and tensile strength. A given polymer can be rated in relation to the various properties which a manufacturer may require.
He stated that in making the end product it is possible to manipulate polymers to produce the desired range of characteristics. Typically this will involve varying the amount and type of fillers and additives to modify the physical and/or chemical properties. Often there is a need for a "trade off", that is, maximising one desired property may degrade another desired property for example to maximise hardness would generally compromise flexibility and vice versa. The process of achieving an acceptable mix of characteristics may be termed "balancing" and it is usual to describe polymeric systems as having a certain "balance of properties".
To achieve a particular balance of properties it is not necessary to start with the same polymers. Both PP and PPO can, when compounded, achieve a wide range of balance of properties and depending on the fillers and additives provided to each there can be a considerable overlap between the balance of properties obtained from the two.
Whilst these two sets of products (those based on PP and those based on PPO) are chemically different, the performance characteristics they can provide are in some cases the same. Each product, when mixed, will have a balance of properties, and where they aim for the same market, their properties will substantially overlap. The large area of overlap in relevant physical properties between Noryl and PP compounds is in the practical commercial area. Significant areas of overlap occur, for example, in relation to automotive production, as for example with various automotive parts. There will also be differences, he said.
In achieving these balances of properties for each set of products those working with each polymer may well use different formulation practices and different finished product design details. (For example, if using a PP based polymer to make a bumper, the thickness profiles of the item may be different to when Noryl is used.) Although the starting points differ, the end use is the same. The process involves looking at the end use and then designing a product and total design system to fulfil those requirements.
The chemical composition of the polymer is a factor in determining properties, but two chemically different polymers can frequently be and are made to produce products for the same use. This overlap of properties between moulding compounds of different polymers is experienced in various situations, and there are examples with PP and PPO. This is not to say that all polymers can be interchanged. Where, however, the overlap of properties is sufficient, more than one different polymer can satisfy the requirements for the same nominated use.
Annexed to Professor Solomon's statement were copies of trade promotional literature from the applicant "Noryl Properties Guide" and PolyPacific "Polypropylene Compounds". He wrote:
"It is clear from this material that both Noryl products and PP compounds serve very similar functions across a number of specific applications. The following four examples illustrate the points I have been making:
(a) The G.E. Plastics "Noryl Properties Guide" at page 47 offer for sale and promote the use of Noryl for instrument panels;
The PolyPacific "Polypropylene Compounds" brochure at paragraph 3.4.4 includes "instrument clusters" as one of many applications for the "Corton" range of products (Corton being a trade name for a range of PP injection/extrusion compounds);
(b) The G.E. Plastics "Noryl Properties Guide" at page 47 offer for sale and promote the use of Noryl for glove box doors;
The PolyPacific "Polypropylene Compounds" brochure at paragraph 3.4.4 includes glove boxes as an application for the "Corton" range of products;
(c) The G.E. Plastics "Noryl Properties Guide" at page 47 offer for sale and promote the use of Noryl for wheel covers;
The PolyPacific "Polypropylene Compounds" brochure at paragraph 3.4.4 includes wheel trims (I understand this to mean the same as "wheel covers") as an application for the "Corton" range of products;
(d) The G.E. Plastics "Noryl Properties Guide" at page 49 offer for sale and promote the use of Noryl for "interior trim";
The PolyPacific "Polypropylene Compounds" brochure at paragraph 3.4.4 includes "interior trim" as an application for the "Corton" range of products;" ex M4, 23(a)(b)((c)(d)
In Professor Solomon's view, Mr Petschel's conclusion that the usage of the particular resin is product specific and that it is not possible to have duplication of usage irrespective of whether it be the primary resins PPO or PP or after compounding, is one that cannot be supported scientifically. Professor Solomon also cited the example of the seating at the Atlanta Olympics which was based on high density polyethylene whereas for the seating at the Homebush stadium and the Melbourne Cricket Ground, PP compounds have been used. Mr Petschel's conclusion was also met with examples given by Mr James of instances where different chemicals have been used for the same end products in the automotive industry.
Professor Cherry also made the point that in general terms it may not be possible to duplicate all the characteristics of one material by another. Appropriate compounding with modifiers and additives can bring about the overlap of physical properties to produce compatible polymer moulding resins.
Mr James gave evidence of a number of products in the automotive and the whitegoods industries which have been made from both Noryl and PP compounds. Mr Dziegielewski disagreed with some of the examples mentioned by Mr James and was uncertain about some others, but did agree that compounds of PPO and of PP have each been used in the manufacture of the housing for domestic fan heaters, and in the automotive industry for the interior trim in station wagons and mouldings for the exterior cowl vent grill and the air defrost grill.
Mr Gross, solicitor for the applicant, submitted that the only use for PPO is in the production of proprietary Noryl compounds, which are defined as compounds containing PPO and therefore PP is not substitutable for PPO.
Mr Gross emphasised that the TCO is for PPO resin and not for Noryl. In urging a strict interpretation of the definition of substitutable goods, Mr Gross said the description of the TCO goods "...is PPO resin unmodified and uncompounded"; it is not expressed as "PPO thermoplastic moulding/extrusion compound". He submitted there is nothing in the amended definition of substitutable goods that allows or provides any basis for going beyond the actual use of the TCO goods.
By reference to the diagrams (Exs. A2 and 3) Mr Gross submitted that in preparing the ex-reactor polymers for injection moulding into articles there are two compounding steps in the case of PP and only one in the case of PPO and in the terms of assessing substitutability, this is impermissible. The evidence of Montell's witnesses, according to Mr Gross, suffers from the fallacy that they are looking at "downstream substitutability" - at products made from compounds and not the TCO goods to which the substitutability has to relate. Thus his argument ran, their conclusions of some corresponding uses between PP compounds and PPO are flawed.
Mr Lyons QC, Senior Counsel for Montell put his case in two ways. Firstly, that it is sufficient to satisfy the statutory definition of substitutable goods if PPO and PP have one use, which in each case is to make a range of injection moulding compounds which have physical and mechanical properties which overlap to the required practical degree to enable these compounds to be available as choices to moulders, designers and specifiers to be used for the injection moulding or extrusion moulding of the same or similar or analogous parts or components, particularly in the automotive industry. day 4 tr p51Secondly, that a range of PPO compounds both in the Noryl and Noryl GTX range have been used, are being used and are promoted for future use in the same or similar or analogous applications, particularly in the automotive industry, where a range of PP compounds have also been used, in some cases are being used and are also being promoted for future use. day 4 tr p51
Mr Hegarty for the respondent submitted that the evidence disclosed a whole range of uses in the automotive industry and also in the whitegoods industry, where components or goods were made from PPO one year and PP the next - "It's actually identical, not simply a corresponding use but identical use." tr p38 day 5
In considering the submissions, the Tribunal has proceeded on the basis that it is unable to detect in the language of the definition of substitutable goods any indication that the words are used in other than their ordinary and natural meaning. It was not suggested by any party the words have any other meaning.
In examining the uses of the TCO goods, the description of the goods in the TCO as "unmodified and uncompounded" as Mr Hegarty suggested, implies a use in compounding.
Irrespective of any question of implied use, in the view of the Tribunal, the applicant's submission as to the scope of the definition of "substitutable goods" if accepted, would confine the inquiry into the use of the TCO goods in a manner not in conformity with or intended by the ordinary meaning of the language of the definition. It would impose a test of immediacy whereas in our view the test necessarily involves an identification of the locally produced goods, and an examination of the purposes for which they are used in order to give "use" its ordinary meaning.
The applicant's submission that PP is not substitutable for PPO on the basis that the only use for PPO is in the manufacture of proprietary Noryl precludes any inquiry as to the use of Noryl. The Tribunal does not accept this contention as providing an answer to the test of substitutability. This approach is to incorrectly inhibit the scope of the definition particularly when read with the requirements imposed by the amended s. 269SJ on the description of TCO goods. In saying that, the evidence of Mr Dziegielewski that some PPO resin was used, not in the manufacture of Noryl but sold to a corporation called Martogg, also a manufacturer of engineering plastic compounds, is put to one side.
While it is true that PP is different chemically from PPO and cannot be substituted for PPO in the manufacture of Noryl because Noryl requires PPO and polystyrene and also has trademark protection, both PPO and PP are used in the production of thermoplastic moulding compounds. The evidence was clear that the use to which PPO, the TCO goods, are put is as a component, together with additives and modifiers, in the production of thermoplastic moulding compounds under the trade name Noryl. It is not simply a question of substituting PP for the TCO goods. Whether compounds are based on PP or the TCO goods or on any other polymer resin or combination of polymer resin the value of those compounds lies in their capacity to be moulded into articles meeting certain performance specifications.
In terms of the definition, in examining usage, it is necessary to consider whether the locally produced goods have a corresponding use to the TCO goods. Counsel accepted the relevant meaning of the word "correspond" to be the Macquarie Dictionary definition "to be similar or analogous".
Thus, the question to be answered may be paraphrased: is PP put, or capable of being put to a similar or analogous use to which PPO can be put. As mentioned earlier, the evidence established that PPO and PP, that is pure ex-reactor polymers as such, do not have a direct commercial use without further compounding so that determining the use of these polymers necessarily involves not only an examination of their use in the manufacture of compounds, but of the commercial application of the manufactured compounds.
That both PPO and PP are used in compounding does not of itself provide an answer to the question of similar use. For instance, thermoplastics may be subdivided into engineering and commodity plastics chemically different and with a diversity of applications, depending on the properties of the polymer including the physical and mechanical properties specified for particular products. Mr Fieldhouse's evidence, the material tendered in evidence and a cursory examination of Chapter 39 in Schedule 3 of the Customs Tariff Act 1995, illustrates some of the diversity of applications.
In the opinion of the Tribunal a "corresponding use" in the present circumstances means a use whereby the locally made polymer can be substituted for the imported polymer to produce a compound which can be used for the production of an article for the same end use application meeting the same functional specifications without change to the processing conditions or processing equipment used for the production of that article from a compound containing the imported polymer. In evidence the Tribunal was provided with examples of similar motor vehicle components that have been made from compounds using either the TCO goods or the locally produced goods.
Noryl GTX is also a use to which PPO "can be put". In terms of the definition the use of the verb "can" has the effect of including possible or potential uses of PPO, not in some abstract or theoretical sense, but in the sense, of being a real possibility. Evidence was given that the applicant manufactures Noryl GTX overseas and needless to say has the know how to be able to produce Noryl GTX in Australia if it chose to do so. Noryl GTX is a product which could potentially be manufactured by the applicant in Australia; however, the applicant contends that the demand, (estimated by Mr James to be about 1000 tonnes per annum and economically viable), is less than would justify the capital cost necessary for local production, according to Mr Dziegielewski. The Tribunal notes that this volume of Noryl GTX represents a smaller volume of PPO than is currently imported to produce Noryl and represents an even smaller fraction of the polypropylene market that the 0.5% which the PPO imported for the manufacture of Noryl represents. In the view of the Tribunal, in terms of the use to which the TCO goods can be put, Noryl GTX, contrary to Mr Gross' submission, is not quarantined from consideration.
Thus the question is: are there compounds of PP which are substitutable for compounds made from PPO, that is, Noryl (a blend of PPO and HIPS plus additives and made in Australia) and Noryl GTX (a blend of PPO and polyamide plus additives and not currently made in Australia).
The evidence of the various witnesses has to be evaluated from the way they approached the issue of substitutability. Professors Solomon and Cherry essentially comparing substitutability of compounds. Mr Petschel basically from the viewpoint (consistent with Mr Gross' primary submission) that PPO has one use, and Mr Fieldhouse from his view of substitutability which is encapsulated in an answer he gave in cross examination:
"The substitutability I am referring to and describing is the technical equivalence of materials, and my position is that these materials are not technically equivalent and they do not have equivalent usages and are therefore not substitutable. The difficulty I have, and it is expressed in that paragraph, is the difference between how I would use the term technically and how it might be defined legally in that context.
...
The argument that I am developing in the report is that the materials are different and therefore - I mean, if you wish to use the word "correspondent," they do not correspond.
But have you considered whether they have corresponding uses, similar or analogous uses?---I mean, I find that so broad as to be unanswerable because the usage is not defined. I mean, all thermoplastics are used in injection moulding process, then the extrusion process, and that does not mean that they are substituted or corresponding."
(trans. p58 and 59)
The standpoint from which both Mr Petschel and Mr Fieldhouse approached the matter, in considering the terms of the statutory definition of substitutable, detracts from the value of their evidence. Despite his view that PPO has one use, Mr Petschel did acknowledge that depending on design specifications there may be overlap of properties between the two polymers, which when compounded, produce a range of physical and mechanical properties adequate for the particular product. (XXN p.87) The fact that the molecular structure of PPO and PP is different does not mean the resultant applications also differs in all cases, which Mr Petschel in effect acknowledged in conceding there is an overlap between uses.
Further, in determining substitutability the test is not "technical equivalence" of materials to quote Mr Fieldhouse's expression as he understood the concept of substitutability to require.
A number of Tribunal decisions were referred to in submissions but it is plain from a reading of these decisions that ultimately all were decided on their own particular facts. Thus they are of limited assistance in determining the present issue, essentially one of fact, which the Tribunal is required to address, that is, whether a use to which the locally produced goods are put or capable of being put corresponds with a use of the TCO goods.
Although notions of marketplace competition are now irrelevant in determining whether goods are substitutable (see s. 269B(3)) of the Act, the evidence also established that thermoplastic moulding compounds, one containing PPO as a component and the other containing PP compete with each other in the marketplace. Product and advertising material reveal that each is promoted in the manufacture of similar products in the automotive industry.
Having considered all the evidence and submissions the Tribunal is satisfied that "substitutable goods" as that expression is defined in the Act were at the relevant date produced in Australia in the ordinary course of business.
For these reasons the decision under review is affirmed.
Deputy President B.M. Forrest
Mr D.L. Elsum, AM, Member
Signed: .....................................................................................
Associate
Date/s of Hearing 11, 12, 13, 16 and 17 November 1998
Date of Decision 16 February 1999
Solicitor for Applicant Mr L. Gross,
Louis Gross & Associates
For the Respondent Mr G. Hegarty, departmental advocate
Counsel for Party Joined Mr J. Lyons, QC and Mr B. Walters
Solicitor for Party Joined Blake Dawson Waldron
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/AATA/1999/88.html