Anti Dumping Duty in IndiaAnti-Dumping Duty: Creating a Level Playing Field

INTRODUCTION

Ever since the denouncement of the World War II, and the inception of the General Agreement on Tariffs and Trade, 1944 (GATT); the inclination towards a liberal trade market has been consequential and significant for the growth of industrial progress.

Along with the evolution and establishment of trade relations, it has become imperative in the current scenario to safeguard interests of the domestic industry. With the object to impose safeguards against exporting companies and protection against dumping of goods and articles in relation to the international trade, the World Trade Organization (WTO), in coalition with the Indian legal framework on Anti-Dumping measures; function to keep in check unfair international trade practices and maintain the economic balance within the country’s domestic market.

The WTO envisages applicability of binding tariffs equally on all trading countries to ensure smooth flow of trading across the globe. Nonetheless, the WTO grants exception to the imposition of equal tariffs, by way of actions taken by one country to prevent the dumping of goods in its domestic market by another country.

WHAT IS DUMPING?

Dumping refers to a situation of international price discrimination, wherein the price of the product when sold in the importing country is lower than the price of that product in the market of the exporting country.

This eventually tends to benefit businesses who export products to a country and are able to sell it at a comparatively lower cost as compared to the domestic entities offering the same product in that market. This often leads to heavy financial losses for the domestic businesses and drop in their market shares.

For example, if South Korea exports certain pharmaceutical drugs to India at the price of Rs. 3,000 and in the Indian market the same drug is manufactured and distributed at the market price of Rs. 5000, the consumer will eventually prefer buying the imported product from South Korea which is cost effective as compared to the home-grown product. This results in the occurrence of major economic disruption in the domestic market, and hence, Anti-Dumping measures are implemented to counter this predicament.

CLASSIFICATION OF PRICE DISCRIMINATION

The first major deliberation regarding the concept of Anti-Dumping was mentioned in a report published in the United States, namely the Report 01 the Attorney-General’s National Committee to Study the Antitrust Laws (the Report) of 1955.

The Report, on domestic price discrimination, stated as under:

“Price discrimination, in the economic sense, occurs whenever and to the extent that there are price differences for the same product or service sold by a single Seller, and not accounted for by cost differences or by changes in the level of demand, or when two or more buyers are charged the same price despite differences in the cost of serving them.  In order to know when there is or is not price discrimination, in the economic sense, between two or more buyers, it is necessary to know not only the price but also the total costs applicable to each class of transaction under comparison.”

Hence, the criteria for determining price discrimination are as follows:

1. Price difference in the same product or service sold by a single seller;
2. Two or more buyers are charged the same price despite differences in manufacturing cost.

ANTI-DUMPING MEASURES

Article VI of the GATT prescribes the rules governing the practice of Anti-Dumping. Initially, the object of the law was to secure a remedy and protection against predatory dumping.

An Anti-Dumping Duty is imposed by the Government as a measure to rectify the situation of dumping. The most often cited rationale for Anti-Dumping laws is based on the conviction that these laws deter monopolization through predatory pricing.

The monopolistic firm will charge high in the home market and will sell at a low price in the foreign market to eliminate competitors. Anti-Dumping measures operate in order to keep a check on the predatory pricing implemented by foreign exporters, which undermine domestic businesses. While it is true that Anti-Dumping tariffs deliver a protectionist effect, their role is primarily punitive.

According to Article 2.1 of the WTO Anti-Dumping Agreement (ADA), when a product is exported at less than the normal value into the trade of another country, such a product is considered as being dumped into that country.

Such measures are crucial to curb the discriminatory and predatory pricing tendencies as such pricing behaviours are unfair to the domestic producers of the importing country.

The objective of the WTO ADA and its instruments is to offset unfair pricing behaviours in order to level the playing field for the primacy and advantage of domestic producers.

LEGAL FRAMEWORK OF ANTI-DUMPING DUTY

The legal framework for Anti-Dumping investigation and duties thereunder is governed by:

• Article VI of the GATT;
• Customs Tariff Act, 1975 – Sections 9A, 9B, 9C (as amended in 1995);
• Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995.

• Article VI of the GATT

The WTO Committee on Anti-Dumping Practices (the Committee) established the ‘Informal Group on Anti-Dumping’ which was open to all members, who can make recommendations for consideration by the Committee.

The ADA, officially known as the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, 1994 executed by the Secretariat of GATT at the Uruguay Round of Trade Negotiations held from 1986-1994, was adopted internationally by various countries for the imposition of Anti-Dumping Duty.

The provisions of Article VI of the GATT empower the Members of the WTO, to impose Anti-Dumping Duties along with additional tariffs as negotiated between the Members. Under the ADA, the WTO Members are authorized to depart from the principles of GATT, such as the Most-Favoured Nation (MFN) Principle, while taking action to curb the dumping of goods.

The ADA stipulates the Rules for Anti-Dumping Investigation by the Domestic Government, its procedures and methods for determining dumping, normal value, export price and injury. Article 1 of the ADA prescribes for the adoption of Anti-Dumping measures only after conducting thorough investigations in accordance with the provision of the ADA.

The national Investigating Authority (IA) is subject to multiple substantive and procedural obligations under the ADA when determining the abovementioned terms. Through the ADA, a fair comparison standard is established which is to be complied by the IA while conducting investigations on dumping.

The Indian legal framework was amended to comply with the obligations under GATT, through amendments to the Customs Tariff Act, 1975 which became effective from 01.01.1995.

• Customs Tariff Act, 1975

Sections 9A, 9B and 9C of the Customs Tariff Act, 1975, form the legal foundation for Anti-Dumping investigations and for the levy of Anti-Dumping Duties in India.

To promote fair trade practices in India and guard the domestic industries, Section 9A of the Customs Tariff Act, 1975, defines the act of dumping where the domestic products of a country is exported at a price which is much less than the original price of the products.

Section 9A of the Customs Tariff Act, 1975 states that in case any article is exported from any country to India at less than its normal value, the Central Government on such importation may, by notification in the Official Gazette impose an Anti-Dumping Duty conditional upon it; not exceeding the computed margin of dumping.

• Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 (“Customs Tariff Rules”)

Rule 3 of the Customs Tariff Rules provides for the appointment of a Designated Authority (DA) by the Central Government, who shall be any person above the rank of a Joint Secretary or any person the Government thinks fit to be appointed as the DA. The DA is the head of the Directorate General of Anti-Dumping and Allied Duties, under the Ministry of Commerce and Industry.

Rule 5 of the Customs Tariff Rules stipulates the conditions for the initiation of an Anti-Dumping investigation. The DA is required to conduct the investigations in an expeditious manner and record the preliminary findings on the export price, normal value, margin of duty and injury.

Then, the Department of Revenue, Ministry of Finance is empowered to impose a provisional duty on the offender on the basis of preliminary findings, under Rule 13 of the Customs Tariff Rules. However, the Provisional Duty cannot exceed the margin of duty. Thereafter, the DA shall submit the final findings to the Central Government within one year from the date of initiation of investigation in accordance with Rule 17 of the Customs Tariff Rules.

Rule 18 of the Customs Tariff Rules provides for the imposition of Anti-Dumping Duty by the Central Government within three months from the date of receipt of final finding from the DA. It further provides that the Anti-Dumping Duty shall be the dumping margin or injury margin, whichever is lower.

DETERMINATION OF DUMPING

The principle behind determination of dumping is based on the factor that the export price of a good is valued at lesser than the domestic price of the same good in the exporting country.

Article 2 of the ADA lays down the provisions to determine the margin of dumping. Firstly, the IA determines the “normal value” and the “export price”.

The price at which the product is issued is considered to be its normal value, when destined for consumption in a foreign market. It is pertinent to note that, in few cases, there may have been no sales in the domestic market and thus it becomes difficult to determine the normal value.

According to the Ministry of Commerce and Industry, the two main elements essential for the determination of margin of dumping are:

• Normal value is the price at which the like product is sold in the exporting country during the ordinary course of trade;
• Export price is ordinarily based on the transaction price at which the producer in the exporting country sells the product at issue to an importer in the importing country.

Article 2.4 of the ADA stipulates that comparison between the normal value and export price shall be made:

1. At the same level of trade;
2. Towards sales made at nearly same time;

• Due consideration to be accorded to differences which affect price comparability.

Establishment of Injury:

The ADA provides for the imposition of Anti-Dumping Duty only when the IA has the evidence to firstly, prove the dumping of goods in the importing country; and secondly, to prove that the dumping has resulted in injury to the competing domestic industry.

Hence, sufficient evidence must be taken into account to determine injury. There should be sufficient proof indicating causality between dumping and injury and that the injury does not potentially arise from other factors not associated with dumping of goods in the importing country.

INVESTIGATION

Rule 5(1) of the Customs Tariff Rules stipulates that the investigation on dumping can only be initiated upon a receipt of written application to the DA either by or on behalf of the domestic industry.

The Proviso to Rule 5 of the Customs Tariff Rules stipulates that for the initiation of investigation, the application shall be expressly supported by not less than 25% of the total domestic production of the Like Article by the Domestic Industry in India.

The DA on proceeding with the investigation shall record preliminary findings under Rule 12 of the Customs Tariff Rules with respect to export price, normal value, margin of dumping and injury. It is mandated that the final findings shall be submitted to the Central Government within one year from the date of initiation of investigation.

RELIEF PROVIDED

The Custom Tariff Rules prescribes two forms of relief to the domestic industry upon publication of the final findings:

• Anti-Dumping Duty may be imposed by the Central Government within 3 months of the date of publication of the final findings from the designated authority under Rule 17 of the Custom Tariff Rules, imposed by way of notification in the Official Gazette. It can be levied on dumping margin or injury margin, which is lower.
• The exporter may be required to furnish a price undertaking in writing to revise the prices so that exports are not made of the said Article to India at dumped prices, under Rule 15 of the Custom Tariff Rules. In such a case, the DA may suspend or terminate investigation and not impose Anti-Dumping Duties if the concerned exporter furnishes the undertaking.

JUDICIAL PRECEDENTS

1. INDIA

• Reliance Industries Ltd. v. Designated Authority [(2006) 10 SCC 368]

The Appellant, a multi-product company had various business activities including the manufacture of Pure Terephatalic Acid (PTA) which was used for the manufacture of polyester yarn. Apart from the manufacture of PTA, the Appellant had a captive power plant from which it used to draw electricity. The Appellant was also drawing electricity from the grid for the manufacture of PTA. The cost of electricity formed a significant part of the cost of production.

The Appellant filed an application seeking the imposition of Anti-Dumping Duty on PTA originating in or exported from Japan, Malaysia, Spain and Taiwan. The DA initiated investigation and fixed a Non-Injurious Price (NIP) based upon specific advantages regarding electricity that the Appellant processed. On the basis of the findings of the DA, the Central Government imposed Anti-Dumping Duty on PTA originating or exported from Spain.

However, no duty was imposed on exports from the other countries. On appeal to the Customs, Excise & Gold (Control) Appellate Tribunal (the CEGAT), the Tribunal upheld the findings of the DA regarding dumping and injury and the method adopted by the DA for computation of the NIP. Therefore, the Appellants presented this Appeal before the Supreme Court.

The Supreme Court held that for apportionment of fixed costs, DA should consider the actual production achieved by the domestic industry instead of computing on the basis of the best capacity utilization achieved in the preceding three years.

The Supreme Court noted that there was no established practice of the DA in this regard and the level of capacity utilization taken into account by the DA varied from case to case, leading to arbitrariness and unguided use of power. The Supreme Court opined that actual production would be the most appropriate method for arriving at the cost of production.

Computation of actual cost resulted in reducing the losses to the domestic industry and, hence, non-levy of duty against Japan and Malaysia; as the landed value of imports from these countries came to be above the NIP. The Supreme Court held that NIP should be calculated on the basis of domestic industry as a whole; and, the method adopted by the DA was prejudicial to small enterprises which were not vertically integrated.

The Supreme Court held that:

“The Anti-dumping legislation is meant for protection of the domestic industries as a whole against unfair practice of dumping, irrespective of whether they are backwardly integrated or not. The Anti-Dumping Law is, therefore, a salutary measure which prevents destruction of our industries which were built up after independence under the guidance of our patriotic, modern minded leaders at that time and it is the task of everyone today to see to it that there is further rapid industrialization in our country, to make India a modern, powerful, highly industrialized nation”.

• Volznsky Pipe Plant v. Designated Authority [2001 (75) ECC 207]

The Association of Seamless Tubes Manufacturers filed a petition before the DA, Ministry of Commerce, Government of India; alleging dumping into India of seamless tubes originating in or exported from Austria; Czech Republic, Russia, Romania and Ukraine.

Upon satisfaction that there was sufficient evidence regarding dumping, the DA initiated Anti-Dumping investigation against the imports from these countries in respect of seamless tubes, where the Authority recommended levy of Definitive Anti-Dumping duties as its finding. The complaint of the Appellant was that the DA relied on constructed normal value even though they submitted full data of their domestic sales prices and cost of production. The Appellant contended that even that after submission of full data relating to domestic sales prices and cost of production, the DA had relied on normal value.

The Customs Excise and Service Tax Appellate Tribunal (the CESTAT) held that in accordance with Annexure I of the Customs Tariff Rules, the normal value was to be determined by the DA, relying on the domestic sale price, provided such domestic sales prices were not below per unit cost of production plus administrative selling and general cost as provided in Annexure-I.

• Jujo Thermal Ltd. v. Designated Authority [MANU/CE/0701/2000]

Anti-Dumping Duty was imposed on the imports of Thermal Sensitive Paper (the TSP) from the European Union through a Notification, which was challenged by M/s. Jujo Thermal Ltd. of Finland.

In the preliminary findings, no Anti-Dumping Duty was imposed on imports from Finland as during the period of investigation, TSP was not exported to India from Finland. However, in the final findings, imports from Finland were included in the Anti-Dumping Duty Notification. It was challenged by the exporters in India.

The CEGAT held that Finland was part of the territory of European Union and manufacturers from Finland began to export goods to India subsequently. The CEGAT also rejected the contention of the Appellant that if exports from Finland were less than 3%, then they should have been excluded from the purview of Anti-Dumping Duties. The CEGAT held that although Finland was a separate country, it was nevertheless part of the territory of European Union.

• Rishiroop Polymers (P) Ltd. v. Designated Authority & Ors. [(2006) 4 SCC 303]

The Appellant imported oil resistance rubber from Germany and Korea for almost a decade in consonance with the laws and regulations. The Respondent (M/s Apar Industries Limited) filed a complaint against such import, which was causing injury to its productions in India.

The DA concluded in favour of Respondent and imposed an enhanced Anti-Dumping Duty on imports from Germany and reduced duty for imports from Korea. After carefully considering all the factors, the difference was of more than 2% of price in Germany and 3% in Korea, which caused a difference in price and hence an injury to local industry.

The CESTAT ordered for the payment of Anti-Dumping Duty in US Dollars, without any prayer or cross appeal by the Respondent. The  Supreme Court held that the issue of non-consideration of various parameters under the law were not raised before the CESTAT and hence, would not be entertained in the present appeal.

The law states the imposition of Anti-Dumping Duty for a period of five years. Post tenure, a review shall be conducted to assess the impact of the duty on dumping and injury, in the light of the prevailing circumstances. The DA duly performed its duty and conducted a sunset review.

Upon the investigation of the facts and evidences available on record, the DA concluded that an Anti-Dumping Duty is necessary for another five years. The CESTAT dismissed the appeal against such sunset review, which led to filing of another appeal. The Supreme Court held that the Appellant only contended the non-consideration of all parameters, which was already rejected by the Court and thus the Appeal was dismissed with costs.

II. UNITED KINGDOM

• Ikea Wholesale Limited v. Commissioners of Customs & Excise, United Kingdom (Intervening) and Ors (Intervening), [Judgment, Case C-351/04]

Ikea, the Appellant, filed an appeal on 10.06.2002 against an Order passed in a matter of an Anti-Dumping Duty of US Dollars 300,208.83. Ikea claimed repayment of the said amount paid as Anti-Dumping Duty on imports of cotton-type bed linen from Pakistan and India during the period from 5.12.1994 to 30.01.2002.

The Commissioner rejected the claim stating the amendment in the contested Regulation (EC) No. 160/2002 does not provide for repayment of the duties paid. Subsequently, Ikea applied for a departmental review whereby it was held that the Regulation does not contain any provision of retrospection; and that the amount was duly owed within the ambit of Article 236 of the Council Regulations 2913/92.

The Government of India then intervened and the matter was set before WTO Dispute Settlement Body (DSB). The DSB referred to the Appellate Body Report and the Panel Report both, which concluded that the Commissioner acted inconsistent to the WTO Agreement. Following this, a suspension of Anti-Dumping Duty was announced on the products from India and Anti-Dumping Duty was terminated on the products from Pakistan. Subsequently, the Appellant moved to the European Court of Justice (ECJ).

The issues in question before the ECJ were the validity of the Council Regulation (EC) No. 2398/97 which imposes a definitive Anti-Dumping Duty on imports of cotton-type bed linen from India, Pakistan, and Egypt; and in relation to the council regulation (EC) No 384/96. The question was raised in light of Article VI of the GATT.

The ECJ held that Article 1 of Council Regulation (EC) No. 2398/9 is invalid; and directed repayment of duties under Article 236(1) of Council Regulation (EEC) No. 2913.

III. UNITED STATES

• Borden, Inc., Gooch Foods, Inc. and Hershey Foods Corp. v. The United States [4 F. Supp. 2d 1221 (United States Court of International Trade)]

Borden Inc. sought the imposition of Anti-Dumping Duty against pasta imported from Italy under 19 U.S.C. § 1677f-1(d)(1)(B). Demonstrating the average weekly retail prices for the Italian exports in various regions of the United States of America (USA), it submitted that the results suggest targeting and showed just cause for transaction-specific export prices instead of weighing averages to pick out dumping of products.

Based on the letter from Borden Inc. the US Department of Commerce started an investigation on sales at less than fair value (LTFV) of the pasta from Italy. The Department did not find sufficient reason in Borden’s letter to change its methodology from weighted averages to transaction-specific. In the investigation run by the Department, it found a 2.8% dumping gap using the weighted average method.

Thereafter, Borden Inc. moved to the US Court of International Trade for a decision on agency record. It contended that the Department failed to conduct an investigation using the transaction-specific method, which would have resulted in a dumping gap of 6.14%

The question before the Court was whether the Department faltered in refusing Borden’s targeted dumping contentions due to insufficiency of evidence presented by Borden.

The Court held that the Department did fail in articulating the method or standards for judging the targeted dumping allegations. It also failed in assigning substance of production and analysis in the context of targeting. For the above reasons, the Court remanded the Department to continue its investigation in the matter of targeted dumping using general or case-specific standards.

AMLEGALS REMARKS

The concept of Anti-Dumping Duty and the necessity to establish a level playing field in the market has been discussed and analysed above. Anti-Dumping measures are a major safeguard for developing economies like India, particularly considering its foreign trade dependency. Hence, Anti-Dumping measures cannot be avoided by exporters indulging in dumping of goods.

To bolster and fortify the domestic businesses, the imposition of Anti-Dumping Duty must be enforced with adequate care and caution. The mechanism and legal framework of Anti-Dumping Duty embedded in the Customs Tariff Act, 1975 and Customs Tariff Rules can certainly help empower the domestic market by reducing its exploitation by foreign exporters. Nevertheless, in order to prevent the misuse of law for protectionist purposes, the competitive merits of Anti-Dumping requests should be scrutinised with a stringent approach by the DA.

– Team AMLEGALS assisted by Mr. Adinath Lokhande, Mr. Rohan Bangia and Ms. Raashi Goyal (Interns)

For any query or feedback, please feel free to get in touch with chaitali.sadayet@amlegals.com or riddhi.dutta@amlegals.com.