India: Chamber for Foreign Trade

India: Chamber for Foreign Trade

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  • Hemant Batra
    Hemant Batra    Group moderator
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    Anti-Dumping Story - Indian Context
    Copyright: Hemant Batra

    Introduction

    Paragraph 1 of article 2 of the Agreement on Anti-dumping stipulates that a product is to be considered as being dumped, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade for the link product when destined for consumption in the exporting country. Dumping of goods in the most common economic sense means to send goods unmarketable at a high price in the home market to a foreign market for sale at a low price, to keep up the price at home and to capture a new market. Dumping is thus a situation of price discrimination, a policy adopted with the intention to capture a foreign market. Dumping occurs when the price at which the goods are exported to a country is lower than their normal value. The difference between this export price and the normal value is known as the margin of dumping. It is generally expressed as a percentage of the export price. Anti dumping, in common parlance, is understood as a measure of protection for domestic industry. However, anti dumping measures do not provide protection per se to the domestic industry. It only serves the purpose of providing remedy to the domestic industry against the injury caused by the unfair trade practice of dumping. In fact, anti dumping is a trade remedial measure to counteract the trade distortion caused by dumping and the consequential injury to the domestic industry. Only in this sense, it can be seen as a protective measure. It can never be regarded as a protectionist measure.
    Before proceeding ant further, it is indispensable to define a few important terms. The normal value is the comparable price at which goods under complaint are sold in the domestic market of the exporting country or territory. If the normal value cannot be determined this way, the following two alternative methods are provided for:
    (i) Comparable representa¬tive export price to an appropriate third country, (ii) Constructed normal value i.e. cost of production in the country of origin with reasonable addition for administrative, selling and general costs and for profits.

    The Export price of the goods allegedly dumped into a specific country means the price at which it is exported to in that country. It is generally the CIF (Cost, Insurance, and Freight) value minus the adjustments on account of ocean freight, insurance, commission, etc. so as to arrive at the value at ex-factory level.

    Dumping is a function of two variables, namely Normal Value and Export Price, which must be compared at the same level of trade i.e. at the ex-factory level.

    The margin of dumping or Dumping Margin is the difference between the Normal value and the export price of the goods under complaint. It is generally expressed as a percentage of the export price.

    Illustration: Normal value US$ 110 per kg.
    Export price US$ 100 per kg.
    There is dumping in this case as export price is lower than normal value and dumping margin in this case is US$ 10 per kg i.e. 10% of the export price.

    The phenomenon of dumping is per se not condemnable as it is recognized that producers sell their goods at different prices to different markets. It is also not unusual for prices to vary from time to time in the light of market Supply and Demand conditions. It is also recognized that price discrimination in the form of dumping is a common international commercial practice. It is also not uncommon that the export prices are lower than the domestic prices. Therefore from the point of view of anti-dumping practices, there is nothing inherently illegal or immoral about the practice of dumping. However, where dumping causes or threatens to cause material injury to the domestic industry of India, the designated Authority initiates necessary action for investigations and subsequent imposition of Anti-Dumping duties.

    The following are the essential parameters for initiating an anti dumping investigation: -

    a) Sufficient evidence to the effect that ;

    b) There is dumping;

    • there is injury to the domestic industry; and
    • a causal link between the material injury being suf¬fered by the importing industry and the dumped imports must be established. The ability of the importing country to do so depends on proper environmental monitoring, database and procedural familiarity. Material retarda¬tion to the establishment of an industry is also regarded as injury.

    c) The domestic producers expressly supporting the anti dumping application must account for not less than 25% of the total production of the like article by the domestic industry.


    The application is deemed to have been made by or on behalf of the domestic industry, if it is supported by those domestic producers whose collective output constitute more than 50% of the total production of the like article produced by that portion of the domestic industry expressing either support for or opposition as the case may be, to the application.

    The economic and financial impact of the dumped imports on the concerned Indian industry can be demonstrated, inter alia, by decline in output, loss of sales, loss of market share, reduced profits, decline in productivity, decline in capacity utilisation, reduced return on investments, price effects, and adverse effects on cash flow, inventories, employment, wages, growth, investments, abil¬ity to raise capital etc.

    Anti-dumping action is not applicable if the margin of dumping is insignifi-cantly small (less than 2 per cent of the export price) or the volume of imports is negligible (i.e., the volume from one country is less than 3 per cent of the total imports of that product), provided the aggregate imports from such countries do not account for more than 7 per cent of total import. Anti-dumping duty shall not exceed the margin of dumping. It is suggested that it would be desirable if the appropriate government authorities impose a lesser duty, which is adequate to remove the injury to the domestic industry. Anti- dumping action may be suspended or terminated if the exporter concerned furnishes an undertaking to revise the price to remove the dumping or the injurious effects of dumping.

    Under invoicing of goods, should not be confused with dumping. In cases of under invoicing, deliberately the full transaction value is not reflected in the invoice with a view to avoid payment of customs duties of the goods. Dumping on the other hand reflects the full value in the invoice, but the value itself is lower than the normal value. Although anti dumping duty is levied and collected by the Customs Authorities, it is entirely different from the Customs duties not only in concept and substance, but also in purpose and operation.
    The following are the main differences between the two: -

    1. Conceptually, anti dumping and the like measures in their essence are linked to the notion of fair trade. The object of these duties is to guard against the situation arising out of unfair trade practices while customs duties are there as a means of raising revenue and for overall development of the economy.
    2. Customs duties fall in the realm of trade and fiscal policies of the Government while anti dumping and anti subsidy measures are there as trade remedial measures.
    3. The object of anti dumping and allied duties is to offset the injurious effect of international price discrimination while customs duties have implications for the government revenue and for overall development of the economy.
    4. Anti dumping duties are not necessarily in the nature of a tax measure inasmuch as the Authority is empowered to suspend these duties in case of an exporter offering a price undertaking. Thus such measures are not always in the form of duties/tax.
    5. Anti dumping and anti subsidy duties are levied against exporter / country in as much as they are country specific and exporter specific as against the customs duties which are general and universally applicable to all imports irrespective of the country of origin and the exporter.
    Thus, there are basic conceptual and operational differences between the customs duty and the anti dumping duty. The anti dumping duty is levied over and above the normal customs duty chargeable on the import of goods in question.

    The levy of anti dumping duty is both exporter specific and country specific.
    • It extends to the imports from only those countries in respect of which dumping has been alleged and the complaint has been filed and duty recommended.
    • Such duty will not apply to the imports from other countries in respect of which the domestic industry has not alleged dumping.
    • However, the anti dumping duty is not payable on imports against the Advance License scheme or on imports by the 100% EOUs /EPZ units, even if such imports are from the countries under complaint.

    Sections 9A, 9B and 9C of the Customs Tariff Act, 1975 and the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995, form the legal basis for anti-dumping investigations and for the levy of Anti-dumping duties. These laws are based on the Agreement on Anti-dumping, which is in pursuance of Article VI of GATT 1994, which basically disapproves of the practice of Dumping and stipulates that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry. The provisions governing the application of Article VI are, however, contained in the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, 1994 ( i.e. the Agreement on Anti-dumping).

    Although the reason for which dumping may be said to occur is a pricing policy adopted by the exporter concerned, the exporter may have to do so, inter-alia, out of market compulsions, which may arise due to various factors. One such factor may be the compulsion to export at comparative prices in the foreign market due to the fact that other exporters supply the product in that market at low prices (whether or not dumped), which may well, set the market price.

    A lower cost of production may occur due to setting up of plants with very high production capacities and low incidence of per unit fixed costs. The cost may be lower due to the age of the plant, which may be already depreciated substantially and, therefore, has a lesser incidence of per unit depreciation cost. A third reason could be low cost of raw materials or other factors of production etc. For example, gas is virtually free to the petrochemical producers in the Gulf. Producers elsewhere have to incur as much as 50 percent of the cost on natural gas alone. Geographical nearness may cut down on the cost of transportation and, therefore, may result in a reduction of the CIF price of imports. Similarly, a preferential tariff treatment may also result in reduced landed cost in the hands of importers. Other exporters who lack these advantages, may have to cut down on their FOB export prices so that the landed cost in the hands of importers compares favourably with those of other exporters.

    Another factor that may lead to price discrimination may be the desire of the exporter himself to maximize the production by pushing incremental sales at prices above the variable cost but not adequate enough to recover all costs and a reasonable amount of profit. The domestic producers, especially those reared in protected economies, may charge high price from the domestic consumers and resort to cross subsidization. This involves charging higher prices on domestic sales and using this higher profit to promote export sales in international markets at comparatively low price.

    Exporters may be said to be resorting to predatory prices when they reap supernormal profits in domestic market and cross subsidize their exports sales to shutting down competitors in the importing country and thus monopolize the market.

    Anti dumping, in common parlance is understood as a measure of protection for domestic industry. However, anti dumping measures do not provide protection per se to the domestic industry. It only serves the purpose of providing remedy to the domestic industry against the injury caused by the unfair trade practice of dumping. In fact, anti dumping is a trade remedial measure to counteract the trade distortion caused by dumping and the consequential injury to the domestic industry. Only in this sense, it can be seen as a protective measure. It can never be regarded as a protectionist measure.

    The interested parties to an anti dumping investigation include:
    1. The domestic industry on whose complaint the proceedings are initiated;
    2. The exporters or the foreign producers of the like articles subject to investigation;
    3. The importers of the same article allegedly dumped into the importing country;
    4. The Government of the exporting country/ countries.
    5. The trade or business associations of the domestic producers/importers/user industries of the dumped product.

    The anti-dumping investigations in India are conducted under the national law as enshrined in the Customs Tariff Amendment Act, 1975, as amended in 1995, which is in harmony with the provisions of WTO. The anti-dumping action initiated by the Authority is governed by our national law and rules framed there under. The law provides that an order of determination of existence degree and effect of dumping is appealable before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). However, as per the judicial view, only the final findings/order of the Designated Authority/Ministry of Finance can be appealed against before the CEGAT. No appeal will lie against the Preliminary findings of the Authority and the provisional duty imposed on the basis thereof. The Appeal to the CEGAT should be filed within 90 days.

    An application for investigation into any alleged dumping filed by the aggrieved domestic industry must contain sufficient evidence (like Bill of Entry, Invoices, letter from the Indian Mission in the subject country/ies, data from secondary sources like specialized commodity journals etc.) as to the existence of dumping in relation to the goods imported from the subject country/ies and the fact that such dumped imports are causing or threatening to cause material injury to the Indian Industry producing the like goods or are materially retarding the establishment of an industry. Further, the information relating to the standing of the petitioner as domestic industry must be contained in the anti dumping application. The application containing the requisite information for the proceedings must be made in the prescribed format devised by the Directorate General of Anti Dumping and Allied Duties and available in the said Directorate. Guidelines for filling in the application proforma and for completing the prescribed questionnaire are formulated and incorporated in a user-friendly manner in the application proforma itself.

    An Application received by the Designated Authority is dealt with in the following manner:

    A. Preliminary Screening:
    The application is scrutinized to ensure that it is fully documented and provides sufficient evidence for initiating an investigation. If the evidence is not adequate, then a deficiency letter is issued. Unless deficiencies are rectified, the submission made before the Authority cannot be construed as an application pending before the Authority.

    B. Initiation:
    Designated Authority determines that the application has been made by or on behalf of the Domestic Industry. It also examines the accuracy and adequacy of the evidence provided in the application and when satisfied that there is sufficient evidence regarding dumping, injury and causal link, a public notice is issued initiating an investigation. The Initiation notice will be issued normally within 5 days from the date of receipt of a properly documented application.

    C. Access to Information:
    The Authority provides access to the non-confidential evidence presented to it by various interested parties in the form of a public file, which is available for inspection to all interested parties on request after receipt of the responses.

    D. Preliminary Findings:
    The Designated Authority will proceed expeditiously with the conduct of the investigation and shall, in appropriate cases, make a preliminary finding containing the detailed information on the main reasons behind the determination. The preliminary finding will normally be made within 60-70 days from the date of initiation.

    E. Provisional Duty:
    A provisional duty not exceeding the margin of dumping may be imposed by the Central Government on the basis of the preliminary finding recorded by the Designated Authority. The provisional duty can be imposed only after the expiry of 60 days from the date of initiation of investigation. The provisional duty will remain in force only for a period not exceeding 6 months, extendable to 9 months under certain circumstances.

    F. Oral Evidence & Public Hearing:
    Interested parties who participate in the investigations can request the Designated Authority for an opportunity to present the relevant information orally. However, such oral information shall be taken into consideration only when it is subsequently reproduced in writing. The Authority may grant oral hearing anytime during the course of the investigation. Besides the above, the Authority holds a public hearing inviting all interested parties to make their submissions before it. All oral submissions made during the hearing need to be reproduced in writing for the Authority to take the same on board.

    G. Disclosure of information:
    Based on these submissions and evidence gathered during the investigation and verification thereof, the Authority will determine the basis of its final findings. However, the Designated Authority will inform all interested parties of the essential facts, which form the basis for its decision before the final finding is made.

    H. Final Determination:
    The interested parties submit their response to the disclosure and the final position of the Authority taken therein. The Authority examines these final submissions of the parties and comes out with final findings.

    I. Time-limit for Investigation Process
    Normal time allowed by the statute for conclusion of investigation and submission of final findings is one year from the date of initiation of the investigation. The above period may be extended by the Central Government by 6 months.

    The anti dumping proceedings being quasi judicial in nature, the Designated Authority meticulously follows the norms of natural justice before making the final recommendation of duty. The interested parties to the investigation are given adequate opportunity to represent their case at several stages of investigation. The first opportunity is provided after the initiation of proceedings. The Authority duly considers the submissions of all interested parties in response to the initiation while giving its Preliminary findings.
    After the imposition of provisional duty, the interested parties file their responses to the Preliminary findings and opportunity is provided to them to submit the facts and figures to the Authority at the stage of verification of their information if the same has been already filed in response to the initiation. A formal Public hearing is held providing opportunities to all interested parties to make their submissions before it. All oral submissions made during the hearing need to be reproduced in writing for the Authority to take the same on board. All these submissions of the different interested parties are given due consideration and on that basis the Authority issues a disclosure of essential facts which are proposed to form the basis of final findings.
    The parties to the investigation are also given the final opportunity to respond to the disclosure and represent their case before the final findings are notified.

    Copyright: Hemant Batra
    • 01 Dec 2008, 08:32 am