ANTIDUMPING: INDIAN PERSPECTIVE

CONTENTS

Introduction Anti-Dumping Law with reference to WTO and Anti-Dumping

Agreement Anti-Dumping Law in India Competition Law and Anti-Dumping Law – Areas of Overlaps

and Conflicts Criticism of Anti-Dumping Law and its effect on Competition Few Instances of Anti –Dumping & Competition with

reference to India Effect on trade flow due to imposition of anti-dumping duties Anti-dumping scenario of China Conclusion References

INTRODUCTION

MEANING OF DUMPING

Firm charges a lower price for exporting goods than it does for the same goods sold domestically

Price Discrimination: share of exports is usually lesser than the domestic demand

Capture new market

Condition mandatory for dumping to take place: Presence of an imperfect market (firms are price setters) Segmented markets

ANTIDUMPING

Antidumping duties: nullify the effect of market distortions created due to unfair trade practices (dumping)

Remedial in nature

Levied on the exporting country

Antidumping measures: Antidumping duty Price undertaking

JUSTIFICATIONS

Material injury to domestic producers

Long start up period and high start-up costs

Once these firms are forced out of the market as a result of dumping; difficult to restart

Intention of dumping is to wipe out the domestic industries and eventually acquire monopoly power in the foreign market

ANTI-DUMPING LAW WITH REFERENCE TO WTO AND

ANTI-DUMPING AGREEMENT

INTRODUCTION

GATT/WTO (1995) : promote free trade

Barriers to free trade: tariff barrier or non-tariff barrier (Antidumping, countervailing measures)

Article VI of the GATT, 1945

Agreement to give effect to Article VI (1994): provisions strictly followed during anti-dumping investigation

WTO AND ANTI-DUMPING AGREEMENT

The Agreement governs the application of antidumping measures by Members of the WTO

The provisions of the Agreement were first negotiated during the Kennedy Round (1967) of GATT negotiations

The Agreement lays the “sunset provision”

The Agreement applies to trade in goods only

Rules for the conduct of anti-dumping investigations initiation of cases, calculation of dumping margins, application of remedial measures, injury determinations, enforcement, reviews, duration of the measure and dispute settlement.

Dispute settlement: strengthens the ability of national governments to challenge anti-dumping actions by other member nations

“Public interest” requirement: Gains to the consumers from lower prices more than outweigh the losses suffered by the producers

ANTI-DUMPING LAW IN INDIA

LEGAL FRAMEWORK

Based on Article VI of GATT 1994 Customs Tariff Act, 1975 - Sec 9A, 9B (as amended

in 1995) Anti-Dumping Rules [Customs Tariff (Identification,

Assessment and Collection of Anti Dumping Duty on Dumped Articles and for Determination of Injury) Rules,1995]

Investigations and Recommendations by Designated Authority, Ministry of Commerce

Imposition and Collection by Ministry of Finance

DETERMINATION OF DUMPING

Difference between Normal Value and Export Price: Margin of dumping (% of export price)

Normal Value: comparable price at which the goods under complaint are sold, in the ordinary course of trade, in the domestic market of the exporting country

If the normal value cannot be determined by means of domestic sales, following two alternative methods : Comparable representative export price to an appropriate third

country Cost of production in the country of origin with reasonable

addition for administrative, selling and general costs and for profits

Export Price: price paid or payable for the goods by the first independent buyer

Like Articles: The article produced in India must either be identical to the dumped goods in all respects or in the absence of such an article, another article that has characteristics closely resembling those goods

INJURY TO THE DOMESTIC INDUSTRY The Indian industry must be able to show that dumped

imports are causing or are threatening to cause material injury to the Indian ‘domestic industry’

Injury analysis can broadly be divided in two major areas: The Volume Effect: The Authority examines the volume of the

dumped imports, including the extent to which there has been or is likely to be a significant increase in the volume of dumped imports, either in absolute terms or in relation to production or consumption in India

The Price Effect: Extent to which the dumped imports are causing price depression or preventing price increases for the goods which otherwise would have occurred

Causal Link: A ‘causal link’ must exist between the material injury being suffered by Indian industry and dumped imports

WHO CAN FILE AN APPLICATION A dumping investigation can be initiated only upon receipt

of a written application by or on behalf of the “Domestic Industry”

In order to constitute a valid application, there must be support of those who account for more than 25% of total domestic production, and more than 50% production by those supporting and those opposing the application

Domestic Industry: Indian producers of like articles as a whole or those producers whose collective output constitutes a major proportion of total Indian production. The following are excluded: Importers Those related to importers or exporters

RELIEF TO THE DOMESTIC INDUSTRY

ANTI-DUMPING DUTIES: Non-cooperative exporters are required to pay the residuary duty (highest of the co-operative exporters)

Lesser Duty Rule: Government is obliged to restrict the anti-dumping duty to the lower of the two i.e. dumping margin and the injury margin

Injury Margin: Difference between the fair selling price due to the domestic industry and the landed cost of the product under consideration

De Minimis Margins: Any exporter, whose margin of dumping is less than 2% of the export price and the volume of the dumped imports are below 3% of the total imports, shall be excluded from duties

PRICE UNDERTAKINGS: Exporter concerned must furnish an undertaking to revise his price

THE APPLICATION PROCEDURE

Made by or on behalf of the concerned domestic industry to the Designated Authority in the Ministry of Commerce

Period of Investigation: Not less than six months

Confidentiality

INVESTIGATION PROCESS

Preliminary Screening: Application scrutinized to ensure that it is adequately documented and provides sufficient evidence for initiation

Initiation: Public Notice issued initiating an investigation to determine the existence and effect of the alleged dumping. Diplomatic representative of the Government of the exporting country notified.

Access to Information: The Authority provides access to the non-confidential evidence presented to it

Preliminary Findings: Made within 150 days of the date of initiation

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

Oral Evidence: Interested parties can request the Designated Authority for an opportunity to present the relevant information orally

Final Determination: Made within 150 days of the date of preliminary determination

Disclosure of Information: The Designated Authority will inform all interested parties of the essential facts which form the basis for its decision

COMPETITION LAW AND ANTI-DUMPING LAW – AREAS

OF OVERLAPS AND CONFLICTS

COMPETITION ACT, 2002

An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.

The Act provides a very wide mandate for the Competition Commission of India to enforce.

The Act contains provisions which have rather become standard in the competition jurisdictions all across the globe.

The provisions relate to anti-competitive agreements, abuse of dominant position and regulation of combinations.

Dominance is not frowned upon by the Competition Act, 2002 but the abuse of dominance is frowned upon by the legislation.

Anti-competitive agreements and abuse of dominance are to be prohibited by the orders of the Commission whereas the mergers are to be regulated by the orders of the Commission.

CONFLICT BETWEEN ANTI DUMPING LAW AND COMPETITION LAW

Antidumping laws were initially enacted to address the situation of ‘international price predation’ .

They were considered as extension of competition laws.

Antidumping laws as they exist today do not seem to be concerned with the issue of predatory pricing.

They attach sanctions to every instance of international price discrimination which can be shown to cause injury to the domestic industry.

Objectives of Competition laws are• Promotion of competition and prevention of anti-

competitive practices• Protection and promotion of consumer interest• Achieving economic efficiency• Geographic/ regional integration• Public interest• Competition advocacy

Objectives of Anti dumping laws Remedying the injury to the domestic industry due to

dumping Public interest Address predatory pricing Consumer welfare

OVERLAPS

Competition laws are primarily aimed at protecting and promoting competition in markets.

Antidumping laws are aimed at remedying the injury to the domestic industry which may arise due to dumping.

PRICE DISCRIMINATION

Under competition law, only the price discrimination, which adversely affects competition in markets and thus has negative consumer welfare impact, is prohibited.

Under anti dumping law, every instance of price discrimination is prohibited.

PREDATORY PRICING

Under competition law ‘predatory pricing’ is understood as a deliberate strategy, adopted by a dominant firm, with an intent to drive competitors out of the market by setting very low prices.

Conditions to be met before imposing a sanction The firm should be in a position of dominance The sale of goods should be at a price below a relevant

measure of cost The firm should do so with the intent to reduce

competition or eliminate competitors.

Antidumping law does not specifically address the issue of predatory pricing.

Antidumping law is concerned only about the price at which the product alleged to be dumped is sold in the two markets and not directly about the cost of production of the product or intent behind the discrimination.

CRITICISM OF ANTI-DUMPING LAW AND ITS EFFECT ON

COMPETITION

From the economics point of view, there is no reason to support any anti-dumping law, since price differentiation across markets is a perfectly rational and legitimate profit-maximization action.

Domestic price discrimination normally is not penalized.

They do not afford effective assistance to the domestic industry they are intended to protect.

They protect producers at the expense of consumers, which results in higher prices, lower quality products, less consumer choice and a general lowering of the standard of living for the vast majority of people.

Domestic producers can enlist the help of government to prevent foreign competition even when there has been no dumping.

They provide good for the minority i.e. producers at the expense of the greatest number i.e. consumers.

They reduce rather than enhance social cooperation and harmony.

They redistribute income in the wrong direction i.e. from the poor and middle classes to the rich.

Domestic producers can raise their prices with little fear of being underpriced by foreign suppliers.

Thus existence of antidumping law hurts competition both ways, by forcing exporters to sell at higher prices and by providing the domestic producers the freedom to

charge higher prices than what would be otherwise possible.

SHORTCOMINGS RELATED TO THE ENFORCEMENT OF ANTIDUMPING LAWS

Under current anti-dumping rules, national authorities are allowed to exercise enormous discretion.

Since the criteria for determining the export price and the normal value are neither stringent nor specific, the importing country can determine incidents of dumping at will.

It can lead to the protection of inefficient domestic industry.

A firm is likely to be subject to an anti-dumping investigation if it exports a product at a price lower than the normal value in the home market, regardless of whether there is a predatory intent or not.

SHORTCOMINGS RELATED TO THE ENFORCEMENT OF ANTIDUMPING LAWS

Anti-dumping rules allow exporters to avoid antidumping actions if exporters agree to raise their prices.

Such agreements are a means of suspending ongoing anti-dumping cases and can be used to promote anticompetitive behaviour.

FEW INSTANCES OF ANTI –DUMPING & COMPETITION WITH REFERENCE TO INDIA

ANTI-DUMPING CASES INITIATED BY INDIA

Source: http://www.wto.org/english/tratop_e/adp_e/adp_e.htm

Country No of cases initiated in year 1995-2009

India 596

United states 440

European Union 406

Argentina 270

South Africa 212

Australia 208

Brazil 179

China 178

Canada 151

turkey 144

Korean Republic 108

Source: http://commerce.nic.in/traderemedies/productprofile/cases_1.pdf

Sectors in Anti-dumping investigations 1995-2008

% of total anti-dumping cases initiated by India

Chemicals 33

Metals 28

Machinery 11

Textiles & Footwear 9

Paper & Wood 6

Agriculture 5

Other 8

SECTORS GETTING AFFECTED

ANTI-DUMPING DUTY ON POLY-PROPYLENE(PP) EXPORTED INTO INDIA

PP – used as a raw material in a variety of industries including packaging, woven sacks for cement, fertilizers, sugar and various consumer items such as house ware, auto components, pipes, water tanks, furniture, and medical appliances

Appeal by Reliance Industries, supported by Haldia Petrochemicals corporation Ltd. (HPCL), the only two producers of PP in the country, against PP imports from Saudi Arabia, Oman and Singapore.

Reliance industries• among the top 8 producers in world.• holds a 70 percent share of the domestic

market• caters to 3 percent of global consumption of PP

Directorate General of Anti-dumping and Allied Duties (DGAD) has imposed definitive anti-dumping duty of up to USD 323.5 per tone of PP imported from Saudi Arabia, Oman and Singapore.

Government's justification of the duty • imports from the subject countries have increased in

absolute terms as well as in relation to total imports, total demand and total production in India.

• the market share of the duopolistic domestic industry has come down, while the demand has increased.

• Despite increase in demand, the prices of the domestic industry have been suppressed.

However, according to the Indian Plastic Federation (IPF), imports from Saudi Arabia, Oman and Singapore have increased only marginally from 5% in 2005-06 to 6% in 2008-09.

It will lead to• a significant price rise of the raw material (PP); in some

cases the price may rise to almost double as the amount of duty is almost equivalent to the international market price.

• most of the units associated with processing industry are small and medium enterprises (SMEs) and there is a fear of hurting them in case of price rise in the domestic market.

CHINA ACCUSED OF ‘PREDATORY PRICING’ TACTICS

According to a survey conducted by Federation of Indian Chambers of Commerce and Industry (FICCI), majority of small and medium-sized manufacturers (SMEs) had suffered a serious erosion of their market share, because of cheaper Chinese products.

Chinese imports were 10 to 70 percent cheaper than comparable Indian products.

claimed that China is not a fair trading partner and is capturing Indian market at a very fast pace through anticompetitive trade practices such as ‘predatory pricing’.

Range of sectors included processed food, light engineering, building materials and heavy engineering, chemicals and textiles

Due to high rise in imports of Chinese toys, Government announced a six-month ban on the import of Chinese toys.

The ban was lifted after two months, when Beijing threatened to take the issue to the World Trade Organization (WTO).

In India, it takes 10 to 12 months for investigation which is more than enough for Chinese firms to damage the Indian industry.

OTHER CASES

“green veneer tape” from Taiwan phosphoric acid from Korea acetone from Japan and Thailand CTV picture tubes from Indonesia for five years

from March 2009 onwards Definitive duty was imposed on dry battery cells,

Sports Shoes, measuring tapes, plastic ophthalmic lens, non- brass metal flashlights from PR China

ANTI-DUMPING DUTIES AGAINST INDIA

Country No of cases initiated in year 1995-2009

China 761

Korean Republic 264

United States 205

Taipei, Chinese 198

Indonesia 156

Japan 155

Thailand 150

India 145

Russia 119

Brazil 108

Malaysia 97 Source: http://www.wto.org/english/tratop_e/adp_e/adp_e.htm

CASE OF INDIAN SHRIMP EXPORTS TO US

US has raised the average anti-dumping duty to 2.67% up from 0.79% – a near 300% increase that follows the Fourth Administrative review by the US authorities.

puts seafood exporters of India into trouble There is a provision for these small producers to

challenge the duty imposed by the US, if they think they are not dumping

Though doing so might prove to be very expensive and time consuming

Since there is not much local market it is difficult to identify the normal price

Also, due to lower operational or transportation or labor costs, low cost could be fair

EFFECT ON TRADE FLOW DUE TO IMPOSITION OF ANTI-DUMPING DUTIES

A decline in the aggregate annual import of about 7% in the year 1993 from a growth of 17.4% in imports arising due to trade liberalization in 1992.

In general, trade from the subject country is restricted when the anti-dumping duties are levied.

Right after the case is filed and during the duration of investigation, imports drop by a large amount (91%) from pre-petition level.

by the next year after the case has been filed, imports start going up again (rise by 53%).

However, they never again regain their pre-petition high.

anti-dumping investigations have restrictive impact on imports from the subject Countries, other countries benefit by increasing their sales.

This diversion of trade from subject to non-subject countries can offset the restrictive effects of anti-dumping.

the existence of trade diversion does not necessarily imply that anti-dumping duties have no effect at all on overall import trade.

Overall imports fall in response to anti-dumping duties, by a small but considerable amount.

ANTI-DUMPING SCENARIO OF CHINA

Anti-dumping export ratio (ADER), defined as economy’s share of anti-dumping cases in the world divided by economy’s share in world exports,

If ADER>1, then that economy is targeted more than its share in the exports.

China’s ADER = 4. Also the ADERs of Korea, India and South Africa

are more than 1,

WHY DOES CHINA TOP THE LIST?

1) After 1992, when Foreign Direct Investments (FDI) into

China was allowed, many companies have invested heavily in China

Started exporting from China rather than from the home country.

As the labor and transportation costs in China were relatively very low

Exporting the produce from these firms was seemed to be economical

There were instances of anti-dumping duties on these companies which seem to have Chinese origin.

reduced cases against other countries as opposed to increased cases against China.

2) Also, China is considered as a non-market economy liberty to the investigating economy to calculate cost

incurred by referring to costs of some neighboring countries like India where labor, transportation and other factors determining price of a commodity is comparatively high

unfair calculation of normal prices and the injury calculation in domestic market, might result in more number of antidumping measures against China.

3) In first decade of facing anti-dumping investigations

Chinese enterprises have not coordinated well in dealing with anti-dumping cases in an effective manner.

This reflects the weakness in the Chinese enterprises in terms of backward corporate governance practice and also the overall weakness of nationwide legal infrastructure.

This applies to Indian context in some instances as well. We are not effective in defending the anti-dumping

duties being imposed against our domestic exporters, especially with the small and medium size enterprises (SMEs) as in the shrimp exporters case.

CONCLUSION

It can be agreed that overall the anti-dumping policy of India helps to check unwanted imports and hence might qualify as “effective”.

Do little when it comes to the trade diversion that takes place during the initiation of an anti-dumping case against a certain country

Re-initiation and re-investigation on the potential similar imports from a different country is time consuming

REFERENCES http://www.wto.org/english/tratop_e/adp_e/adp_e.htm Anti-Dumping and competition law: An Indian perspective – by

Naveen Chugh http://www.atimes.com/atimes/South_Asia/KE15Df01.html http://www.blonnet.com/ The Trade Effects of Indian Antidumping Actions - Bodhisattva

Ganguli http://commerce.nic.in/traderemedies/ The Reasons for and the Impact of Antidumping Protection:

The case of People's Republic of China – Prusa Article VI, GATT (General Agreement on Tariffs and

Trade)1994 Global Trade Protection Report 2009 -

antidumpingpublishing.com

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