J.K. Dadoo and D.P. Mohapatra

The cardinal principle of the World Trade Organization (“WTO”) is trade promotion through the facilitation of the free flow of goods and services among member states with minimal tariff barriers and without non-tariff barriers. In a world where tariff and non-tariff barriers are decreasing rapidly, unfair trade practices like dumping, subsidization and sudden surges in exports,  continue to occur regularly. Thus, anti-dumping, anti-subsidy and safeguard measures are increasingly becoming major tools in the hands of member nations to protect their domestic industries against unfair trading practices. Such measures create a level playing field for domestic industries to compete more effectively in their domestic markets. Among these trade remedial measures, an Anti-dumping Duty is the most frequently used tool for the protection of the domestic industry from “dumping”, i.e. export of an article into the market of another country at a lesser price (normal value) than the price at which it is sold in the domestic market of the exporting country.

India has emerged as one of the frequent users of anti-dumping measures in recent years. The anti-dumping journey of India began in the year 1995. Over the years, India has experienced dumping of various products such as chemicals and petrochemicals, pharmaceuticals, textiles/fibers/yarns, steel and other metals, consumer goods, automotive components, plastics and plasticizers, electrical and electronic items.  Various countries, especially China, were found to be participating in these dumping practices. The anti-dumping investigations conducted by India were predominantly against China, EU member nations, Korea, and Taiwan; even though a large number of other countries were also found to be dumping goods in the Indian market.

Challenges

An anti-dumping investigation calls for a strict scrutiny of information provided by various stake-holders such as domestic producers, exporters, importers, users and involves onsite verification of information to the extent necessary. Being a quasi-judicial authority, the Designated Authority at the Directorate General of Anti-dumping and Allied Duties (DGAD) under the Ministry of Commerce, also hears the parties orally, as per the frame work prescribed in the anti-dumping rules. Investigations by the Designated Authority involve fresh as well as review investigations. Fresh investigations are those investigations which pertain to cases in which there is no earlier anti-dumping duty in force whereas review investigations are either mid-term reviews under Article 11.2 of the WTO Anti-dumping Agreement or sunset review under Article 11.3 of the WTO Anti-dumping Agreement and pertain to cases in which an earlier anti-dumping duty is in force. The anti-dumping duties once imposed may remain in force for the period of five years and are extendable for another period of five years through sunset reviews.

Recommendation of any anti-dumping duties by the Designated Authority requires confirmation and imposition by the Central Government to have an effect on dumped imports. The legal framework also provide Appeal provisions which enable the aggrieved party in an investigation to approach the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) upon imposition of duties by the Central Government. Apart from Appeal provisions, interested parties frequently challenge the anti-dumping investigation process under the aegis of Article 226 of the Constitution, wherein the legality of various aspects of an investigation has been a subject matter of litigation; even before the conclusion of investigation and imposition of any applicable anti-dumping duties by the Central Government. (Article 226 empowers the High Courts of India to issue to the government writs in the nature of habeas corpus, mandamus, prohibitions, quo warranto and certiorari.)

In recent times, the dumping of newer and wider range of products, newer business models involved in supply of subject goods, technological changes, and changes in market dynamics have added complexities to anti-dumping investigations, requiring more comprehensive and in-depth examination to address various issues.

The areas which have seen significant levels of complexity are:

a) Determination of “Product Under Consideration” and “Like Article,”

b) Determination of “Domestic Industry” and “Standing,”

c) Determination of “Individual Margins for Exporters/Producers,”

d) Confidentiality Aspect

e) Circumvention of Duties by modifying the goods or changing the country of production/export.

A detailed examination of the above issues in the context of various investigations can be elaborated as follows:

a) Determination of “Product Under Consideration” and “Like Article,”

Determination of Product Under Consideration (“PUC”) and like article in an anti-dumping investigation holds the key to establishing dumping and any fallacies in the same could make the entire investigation void. Intricacies generally arise when the PUC involves multiple types/grades/varieties, multiple technologies, multiple processes, or different raw materials. These aspects make the determination of PUC and like article highly technical; rendering the investigation itself very complex. The product complexities can delay and frustrate due remedies to domestic industry, irrespective of the magnitude of dumping and injury. Perhaps the most important issue involving PUC is establishing technical and commercial substitutability. Two products may look different in terms of technology of production or design or style or quality, but they are”like article” as long as they are functionally substitutable and replaceable in the market, due to similar end use and comparable cost and price.

b) Determination of Domestic Industry and Standing

The anti-dumping investigation to determine the existence, degree and effect of any alleged dumping can be initiated upon receipt of a well substantiated and written application by, or on behalf of, the”domestic industry.” The applicant can comprise of a single or a group of domestic producers or an association representing such domestic producers. Defining the “domestic industry” often involves difficulties when the applicant or applicants, have imported the subject goods from a subject country or are related to an exporter in a subject country or to the importers of the subject goods from a subject country. In such a situation, such an applicant should not qualify to be treated as domestic industry. In situations where the applicant domestic producer is a casual importer, the Designated Authority needs to examine the relationship between the magnitude of imports and the circumstances under which the applicant industry has taken recourse to importing the subject goods from the subject country. In such cases, the authority also examines whether the applicant domestic producer is directly or indirectly related to the concerned producer or exporter in the subject country. As settled by the Madras High Court in Nirma Limited vs. Saint Gobain Glass India Limited, 2012 (281) ELT 321 (Mad) (the “Soda Ash case”), the Designated Authority has full discretion and power to decide whether, despite such odds, the applicant can be included in the scope of domestic industry under the AD Rules. Further complexities in defining domestic industry arise when Export Oriented Units or companies located in Special Economic Zones approach the Designated Authority seeking protection under the anti-dumping schemes. Such developments have made the definition of domestic industry more complex and technical.

c) Determination of individual margins for exporters/producers

It is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country (known as the “normal value”) and the appropriate price at which the goods are exported by the exporting country (known as the “export price”) so as to be able to undertake an appropriate comparison. Of late, the instances of issues around determination of individual margins for exporters/producers cooperating with the Designated Authority have increased, as companies often seek individual margins without providing information about complete channels involved in the production and export of subject goods to India. The determination of individual margin has serious implications and any error can render the entire duty meaningless. A comprehensive and consistent approach to such issues must be an area of focus.

d) Confidentiality

Confidentiality remains an issue between stake holders involved in an investigation. Availability of adequate non-confidential information is critical in providing adequate rebuttals in an investigation by the stake-holders, which improves the overall quality of an investigation. Hence, a balance between the commercial interests of the interested parties, safeguarding their confidential information and fair and adequate disclosure to interested parties to ensure compliance with the principles of natural justice is a thorough challenge to the Designated Authority. The Designated Authority is required to scrutinize all the claims of confidentiality made by every interested party and allow the cases in which the claim of confidentiality is justified.

e) Circumvention of duties

Circumvention of duties remains an area of concern as the complaints of measures to circumvent the applicable anti- dumping duties often arise from the domestic industry. India is yet to initiate any investigation into this aspect.

Other lesser stumbling blocks are determination of the type of anti-dumping duty as a fixed reference price based or ad-valorem duty. There are associated problems with each type and generally, the Directorate of Anti-Dumping in India feels that a fixed duty is appropriate in most circumstances.

Transfer pricing policies with respect to domestic industry and the exporter also bring several challenges before the costing data can be accepted. This is because some companies adopt cost of production of the PUC as the transfer value for captive production, while other companies adopt its market value.

In multi-product companies, allocation of expenses poses difficulties as certified output is not used only by PUC, but other products produced by the domestic industry, which are not subject to investigation. In such circumstances, domestic producers tend to allocate the common cost of utilities, overheads and common raw materials more to the PUC, and less to the non-PUC, which distorts the data.  As a result, DGAD Officers have to scrutinize in detail the methodology of values adopted by the exporters/domestic industry, so as to ensure that the methodology of values adopted by them is reasonable and consistent. If there are variations in this methodology, it is discarded and instead, a more appropriate and reasonable methodology is adopted in determining the cost of production of the PUC.

Lastly, sometimes, the FOB/CIF price claimed by the exporter does not match with the data of the Indian Customs Authorities. In such cases, scrutiny of data becomes necessary to check whether payment for the invoice has been received by Indian importers through normal banking channels. If the answer is negative, these export prices are rejected and officials have to call for data from the concerned importer, cross check the figures reported by the exporters and the importers, and then make a final decision in the matter.

Thus, DGAD Officers are faced with a myriad set of challenges in each case, ranging from accurate technical and commercial understanding of the product under consideration and “like article,” to determination of the “domestic industry.” The comprehensive nature of the data that is required to be examined for correctly determining individual margins and verifying the same within the limited time available in the course of the investigation for complete trade channels is a major challenge. The issue of determination of product under consideration and “like article” is also closely related to the possibility of circumvention of duties and hence, the Designated Authority is faced with an additional challenge to ensure that no abuse of the anti-dumping process is facilitated wherein the remedial effects of the anti-dumping duties are easily eroded.

In conclusion, although, the earliest sign of anti-dumping legislation emerged in United States, various developing countries like India and Brazil became the prominent users of the trade remedial measure. Such transformation was noticed since the formation of WTO and the reason is quite clear. The Uruguay round of negotiation revised an Anti-dumping code to form an Anti-Dumping Agreement. The Anti-dumping Agreement has dealt with the various complexities of Article VI of GATT in detail, which has benefitted various developing countries with respect to their rights under the WTO.

Anti-dumping investigations are intricate, demanding and time consuming. The increasing complexities of current transactions, technological advancement and globalization of production and conducting intricate anti-dumping investigations within prescribed timelines are challenges before the Anti-dumping Authorities in all countries, including India. Therefore, capacity building of the human resources involved in anti-dumping investigations is the key requirement for all WTO member countries.

 

J.K. Dadoo is Joint Secretary in the Department of Commerce, Ministry of Commerce, Government of India, responsible for Fair Trade matters with Australia, New Zealand, Fiji and Papua New Guinea.  His responsibilities include Trade Promotion (National Center for Trade Information, Indian Institute of Free Trade), Export Promotion (Electronic and Computer Software), the Council for Leather Exports, Telcom Equipment & Services EPC, the Footwear Design & Development Institute, the Sports Goods Export Promotion Council, Director General of Trade Remedies dealing with Anti-Dumping and Subsidies, Board of Safeguards.  Mr. Dadoo is a former Administrator (similar to a Governor) of the Indian Union Territory of the Lakshadweep Islands in the Arabian Sea.  He holds a B.A. (Hons.) in Economics from St. Stephens College, in New Delhi, a M.B.A. from the Indian Institute of Technology, Ahmedabad, and a L.L.B. from Delhi University.  He is about to complete his Ph.D. on Carbon Credits, at the Indian Institute of Foreign Trade.

D.P. Mohapatra is Director, Directorate General of Anti-Dumping & Allied Duties (DGAD), Department of Commerce, Ministry of Commerce Industry, New Delhi.  He has been Joint Director General of Foreign Trade and Additional Secretary, Industrial Department, Government of Orissa.  He holds a M.A. in Political Science from Delhi University, and is an officer of the Indian Trade Service.