Under the WTO rules and the corresponding national laws, trade policy administrators view mere price discrimination to be "dumping", which is defined in terms of the difference between the "normal value" and the "export price". The WTO rules authorise antidumping action against injurious dumping affecting domestic industry. The WTO rules also provide for countervailing action against foreign subsidy on exports causing injury to domestic industry. This paper summarises the policy implications derived from an analysis of case studies relating to antidumping and countervailing duty cases against Indian exporters, after examining the scope for review of the relevant WTO rules under the ongoing Doha Round of multilateral negotiations.
Review of WTO Rules on Antidumping
and Countervailing Measures
Under the WTO rules and the corresponding national laws, trade policy administrators view
mere price discrimination to be “dumping”, which is defined in terms of the difference
between the “normal value” and the “export price”. The WTO rules authorise antidumping
action against injurious dumping affecting domestic industry. The WTO rules also provide for
countervailing action against foreign subsidy on exports causing injury to domestic industry.
This paper summarises the policy implications derived from an analysis of case
studies relating to antidumping and countervailing duty cases against Indian
exporters, after examining the scope for review of the relevant WTO rules
under the ongoing Doha Round of multilateral negotiations.
C SATAPATHY
I
n common parlance, “dumping” is taken to mean export sales at a price low enough to harm the interests of the importing country. However, economists prefer a definition of “dumping” linked to sales below marginal cost. There is scant support in the economic literature for antidumping action, as both price discrimination and below-cost sales can be justified by perfectly normal marketing behaviour under differing demand conditions in domestic and foreign markets. On the other hand, under the WTO rules and the corresponding national laws, trade policy administrators view mere price discrimination to be “dumping”, which is defined in terms of the difference between the “normal value” and the “export price”. The WTO rules authorise antidumping action against injurious dumping affecting domestic industry. The WTO rules also provide for countervailing action against foreign subsidy on exports causing injury to domestic industry. This paper summarises the policy implications derived from an analysis of case studies relating to antidumping and countervailing duty cases against Indian exporters, after examining the scope for review of the relevant WTO rules under the ongoing Doha Round of multilateral negotiations.
Scope for Effecting Changes in the
WTO Agreements
Post-Uruguay Round meetings at the WTO, which have provided a forum for continuing trade negotiations, have seen several rounds of discussions on implementation issues relating to the antidumping (AD) agreement and the agreement on subsidies and countervailing measures (SCM) among other things. Several proposals have also been put on the table, primarily by the developing country members, seeking changes in these agreements. We look at the possibility of future changes in these agreements against the backdrop of the limited mandate agreed upon at the WTO ministerial conference held at Doha in 2001.
The Doha ministerial declaration [WTO 2001a] sets out a broad work programme. Paragraph 12 of this declaration specifically adopts the decision on implementation-related issues and concerns [WTO 2001b]. Paragraph 7 of the Decision deals with issues relating to the AD agreement while paragraph 10 deals with issues relating to the agreement on SCM. Paragraph 28 of the Doha declaration spells out the terms of future negotiations in these areas in general terms:
In the light of experience and of the increasing application of these instruments by members, we agree to negotiations aimed at clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994 and on Subsidies and Countervailing Measures, while preserving the basic concepts, principles and effectiveness of these agreements and their instruments and objectives, and taking into account the needs of developing and least-developed participants. In the initial phase of the negotiations, participants will indicate the provisions including disciplines on trade distorting practices, that they seek to clarify and improve in the subsequent phase.
Paragraphs 7 and 10 of the decision on implementation-related
issues and concerns contain more specific recommendations
listed below:
(1) Investigating authorities shall examine with special care any application for the initiation of an AD investigation where an investigation of the same product from the same member resulted in a negative finding within the 365 days prior to the filing of the application and that, unless this pre-initiation examination indicates that circumstances have changed, the investigation shall not proceed.
(2) While article 15 of the AD agreement is a mandatory provision, the modalities for its application would benefit from clarification. Accordingly, the committee on AD practices is instructed, through its working group on implementation, to examine this issue and to draw up appropriate recommendations.
(3) Article 5.8 of the AD agreement does not specify a time frame to be used for determining the volume of dumped imports, and that this lack of specificity creates uncertainties in the implementation of the provision. The committee on AD practices is instructed, through its working group on implementation, to study this issue and draw up recommendations with a view to ensuring the maximum possible predictability and objectivity in the application of time frames.
(4) Article 18.6 of the AD agreement requires the committee on AD practices to review annually the implementation and operation of the agreement taking into account the objectives thereof. The committee on AD practices is instructed to draw up guidelines for
the improvement of annual reviews and to report its views and recommendations to the general council for subsequent decision.
(5) Annex VII (b) to the agreement on SCM includes the members that are listed therein until their GNP per capita reaches US $1,000 in constant 1990 dollars for three consecutive years. This decision will enter into effect upon the adoption by the committee on SCM of an appropriate methodology for calculating constant 1990 dollars. A member shall not leave Annex VII (b) so long as its GNP per capita in current dollars has not reached US $1000 based upon the most recent data from the World Bank. If a member has been excluded from the list in paragraph (b) of Annex VII to the agreement on SCM it shall be re-included in it when its GNP per capita falls back below US $1,000.
(6) Subject to the provisions of Articles 27.5 and 27.6, it is reaffirmed that least developed country members are exempt from the prohibition on export subsidies set forth in Article 3.1(a) of the agreement on SCM, and thus have flexibility to finance their exporters, consistent with their development needs. It is understood that the eight-year period in Article 27.5 within which a least-developed country member must phase out its export subsidies in respect of a product in which it is export-competitive begins from the date export competitiveness exists within the meaning of Article 27.6.
Paragraph 13 of the decision also states that outstanding implementation issues are to be addressed in accordance with paragraph 12 for the ministerial declaration which in turn stipulates that such issues shall be addressed under specific negotiating mandate where provided or else by the relevant WTO bodies, which shall report to the trade negotiation committee.
A joint reading of the Doha declaration and the decision on implementation–related issues and concerns leads to the conclusion that only a few of the issues raised earlier before the seattle ministerial conference and subsequently before the Doha ministerial conference have been addressed at Doha as far as the AD agreement and the agreement on SCM are concerned. However, the declaration provides for a negotiating mandate for clarifying and improving disciplines under both the agreements, while stipulating that the basic concepts, principles and effectiveness of these agreements and their instruments and objectives are to be preserved. Therefore, the negotiating agenda under the agreed work programme may not permit fundamental changes to either the AD or the SCM agreements, but there does appear to be scope for suggesting changes under the mandated negotiations for clarifying and improving the rules under both the agreements.
The WTO ministerial conference subsequently held at Cancun in 2003 ended in a failure with no agreement reached on any issue. However, in July 2004 members reached a framework agreement to continue further negotiations. As a result of strong intervention by groups of developing countries at Cancun in 2003 and at Geneva in 2004, the framework agreement signed on July 31, 2004 [WTO 2004] emphasises development concerns, the need for operationalising special and differential provisions for the developing countries and early resolution of implementationrelated issues. In view of these developments, the prospect of negotiating changes in the AD and SCM agreements looks brighter than at any time earlier in the past.
Major Findings from the Case Studies
An attempt has been made by the author to closely look at as many as 12 AD/CVD cases against Indian exports of textiles and steel products. Analysis by such a selected case study method reveals several interesting features of the prevailing AD/ CVD regimes. The main conclusions drawn from the case study are summarised below:
(i) Lack of predatory intent: In none of the sample AD cases against the Indian exporters examined in this study was it established that any of them indulged in predatory dumping. None of the exporters has also been shown to have that kind of market power. Yet, AD duties were imposed against the Indian exporters in all these cases. There is no support in the economic literature to justify AD action in the absence of proof of predatory dumping. For example, Dixit (1988) finds no economic justification either under competitive conditions or under imperfect competition to impose AD duties. Lazar (1988) feels that only if a foreign firm engages in predatory action in order to dominate an export market, injury results from unfair competition warranting AD action. On the other hand, incidental dumping in a case where the exporting firm enjoys a competitive advantage should not attract AD action. He feels that a dumping complaint must be assessed on the basis of resulting injury to the domestic industry as well as the motivation underlying the act of dumping. In none of the AD cases under examination, the motivation underlying the act of dumping was examined nor was it established that the Indian exporters were engaged in predatory action in order to dominate the export market. However, it is also a fact that neither the AD agreement nor the AD laws of the US or the EC, under which AD action was taken in these cases, require determination of predatory intent. It will amount to changing the basic concepts and therefore will be beyond the negotiating mandate reached at the Doha ministerial conference in 2001, if AD action is to be subjected to prior determination of predatory intent. Howsoever justified it may be on economic considerations, such a move is also unlikely to gain consensus at the WTO negotiations. Determination of predatory intent will be a stricter test under which most AD cases will fail. Most counties presently using AD measures, often at the behest of powerful domestic industries and political lobbies, will not find it expedient to accept a new regime which will subject AD action to a finding of predatory intent.
(ii) Repeated AD action on the same goods: In some cases, repeated AD action was taken on the same product after termination of earlier proceedings. For example, in the case of synthetic fibre ropes exported from India, the EC authorities terminated the AD proceeding in June 1997 on the ground that injurious impact of dumped imports was not sufficiently established to justify AD action. However, in July 1997 a new AD proceeding was initiated by the EC authorities on the same product exported from India. In the case of bed linen too, the EC authorities terminated the AD proceeding against Indian exporters in July 1996. However, fresh proceedings were initiated in September 1996 after two months. The Doha Decision [WTO 2001a] takes up this issue in paragraph 7.1. It states that the investigating authorities will examine AD proposals with special care if there was a negative finding in respect of the same product from the same country during the preceding 365 days and that unless the circumstances have changed, no fresh investigation shall be made. However, the decision may not provide an adequate safeguard against recurrence of repeated AD action. In the bed linen case, the earlier case was terminated as the complainants withdrew the complaint initially made in 1993 after nearly three years in 1996. Such a case may not satisfy the condition of negative finding and may not, therefore, prevent a fresh proceeding. Similarly, it can always be alleged
Economic and Political Weekly January 21, 2006
that circumstances have changed to restart a fresh proceeding as it was in the case of synthetic ropes. The exporters are put to a lot of hardship defending AD cases in a foreign country apart from the fact that their export interests suffer during the pendency of AD proceedings. Therefore, once an AD proceeding is terminated, either on account of a negative finding or on account of withdrawal of the complaint by the complainants, there should be no initiation of AD action on the same product from the same country for a specified length of time, say a year or two. Such a provision would also act as a restraint on the complainant domestic industries from filing repeated complaints on frivolous grounds.
(iii) Adverse consequences of non-participation by many Indian exporters in the AD proceedings: In several cases, many Indian exporters did not participate in the proceedings initiated by the US and the EC authorities. Such exporters were declared as noncooperative exporters and very high rates of AD duties were imposed on them. Non-participation in the AD proceedings initiated in a foreign country is mainly by small and medium enterprises and this may be attributable to non-familiarity with AD proceedings, lack of resources and uncertainty of the final outcome of such proceedings. Such enterprises may have developed the necessary expertise to engage in international commerce on a limited scale with the help of export promotion and trade promotion bodies but they find it difficult to find and engage suitable legal counsel to fight a legal battle abroad. In one case, one of the export promotion councils (TEXPROCIL) played a very proactive role ensuring participation of a large number of exporters in the AD proceedings and subsequently, the government of India also took the matter to the dispute settlement body of the WTO. Such concerted action paid rich dividends and the AD duties were removed after the WTO ruling.
(iv) Inability to meet the time and information requirement and consequent use of “the best information available”: In several cases, many Indian exporters could not provide the very detailed information required by the AD authorities. Some of the required information is not maintained by the enterprises in the regular course of business. Even some of the bigger enterprises found it difficult to supply such information readily as such information was required to be collected for the past period specifically for the AD authorities. Even where, such information was finally collected and submitted, it was done after the specified time limit and hence was not taken into account on that ground alone. In some cases, such information was provided after expiry of the specified time limit but before the AD determination was made. However, the AD authorities did not take into consideration such information while making the determination. The AD authorities are seen to make use of the “best information available” at the slightest pretext without giving sufficient time to the Indian exporters to furnish the required data. Very often, the best information available with the AD authorities is nothing but the data provided by the complainant domestic industry, use of which invariably results in affirmative AD determination in favour of such domestic industry.
(v) Arbitrary calculations: In most cases, the concerned exporters were aggrieved by the arbitrary calculations of the dumping and the injury margins, which resulted in affirmative AD determination against them. On representation by some exporters, on the few occasions when such representations were considered, the revised calculations resulted in totally different conclusions, which go to show the arbitrariness of the initial determination.
The rules for computing the margins lack clarity and are capable of ambiguous interpretation. Taking advantage of the same, the national authorities often compute the margins in a way that results in affirmative determination and higher AD duties are imposed than what is warranted. From the analysis of the cases examined in this study, it is seen that arbitrariness in computation mainly centre around selection and definition of like products, calculation of the normal price and disallowance of adjustments while comparing with the export price to arrive at the dumping margin and finally in the determination of injury to the domestic industry, its causal relationship with alleged dumping as well as computation of the injury margin. The following are the more commonly noticed examples of such arbitrariness:
(a) Differences in physical characteristics of the exported and domestically sold products were ignored. No differentiation was made between products meant for one application and products made for another application. No adjustments on account of such differences were allowed in the calculations. In one case, high value products sold in the domestic market was not excluded from the calculations.
(b) Negative dumping margins in respect of cases where export prices are higher than normal value were set to zero (called zeroing), thereby effectively increasing the average dumping margins. If negative margins had been allowed to be set off, in some cases, the dumping margins would have been either zero or would have remained within the de minimis margin of 2 per cent.
(c) For calculating profits under the cost construction method, sales made below cost in the exporter’s home market were excluded treating them as sales not made in the ordinary course of trade. This resulted in computation of a higher normal price and a larger margin of dumping.
(d) In some cases request for determination of normal value by cost construction method was rejected.
(e) In some cases claim for adjustment towards import duties received as drawback was rejected.
(f) Claim made in some cases for adjustment towards income tax paid in respect of domestic sales was rejected.
(g) No adjustment was allowed for difference in interest rates for financing domestic and export financing capital though claimed in some cases.
(h) Adjustment on account of devaluation of currency and use of monthly average exchange rate was not allowed.
(i) In one case, two exporters were clubbed together for the purposes of calculating margins though both were two separate legal entities.
(j) For injury determination, often artificial and high level of profit was built into the calculations.
(k) In some cases, all the 15 economic factors specified in article 3.4 of the AD agreement were not evaluated for determining injury to the domestic industry.
(l) Assessment of injury was invariably made in a subjective way in the absence of definite standards prescribed in the AD agreement. For example, even when the domestic industry showed increased production, productivity, investment and capacity in some cases injury was still established on the basis of a few other economic factors, mainly on the ground of reduced employment and profits.
(m) Injury analysis often ignored claims such as a decrease in employment on account of increase in productivity, loss of market share on account of home producers shifting to specialised products, decline in profitability due to increased overhead attributable to depreciation charges and interest expenses on new investments, and decrease in selling price of domestic producers
on account of decrease in raw material costs.
(n) In one case, one producer was included in the sample of domestic producers, who had suffered injury on account of severe fire and not on account of dumped imports.
(o) In one case, injury analysis was distorted by including an earlier year, ignoring the fact that during the investigation period the imports were stable and the performance of the domestic industry improved.
(p) Injury analysis did not also exclude effect of non-dumped imports.
(q) Injury was established at times ignoring increase in market share and price during the investigation period.
(r) Injury analysis did not consider the claim that it was caused by exports from other countries.
(s) Even when Indian exports were within the de minimis threshold of 3 per cent, exports from all countries under investigation were cumulated to make an affirmative determination.
(vi) Constructive remedies: Article 15 of the AD agreement recognises the need for special regard to be given to the developing country members and possibility of constructive remedies to be explored before imposing AD duties. In one case, where price undertakings were offered on behalf of the Indian exporters, the AD authorities did not respond to the same. This example points to a need to operationalise the special and differential provisions in the WTO agreements.
(vii) Lesser duty rule: The AD agreement does not mandate that the AD duty should be restricted to the extent of injury. Hence, national legislations do not contain uniform rules in this regard. In some cases, the Indian exporters were levied AD duty to the extent of dumping margin though injury margins were lower. The US law does not contain a lesser duty rule and authorises imposition of AD duty equal to the dumping margin irrespective of the injury margin.
(viii) Consumer interest: While imposing AD duties, claim by domestic consumers regarding non-supply or less supply by the domestic producers was rejected. Similarly, the claim that imposition of AD duties will make the downstream products manufactured by the user industry uncompetitive was also not taken into account.
(ix) Lack of provision to compensate even when levy held to be illegal by the WTO: In one case where India succeeded in the WTO against imposition of AD duty by the national authorities, it was not possible to obtain any relief for the Indian exporters for the unjust levy imposed on their exports and collected in the past. Lack of such provision encourages national authorities to use AD provisions as a protectionist measure and also to retain proceeds of such levy even when the same does not stand up to WTO scrutiny.
(x) Countervailing duty cases: In the countervailing duty cases, alternative systems of refunding domestic taxes have been considered as subsidy. The following export promotion schemes of the government of India have been examined by the US and the EC authorities and have been found to be countervailable:
(e) Export Oriented Units (EOUs), (f) Income Tax Exemption Scheme (ITES).
Such finding has been reinforced in the case of cotton type bed linen exports to the EC and countervailing duties ranging from 4.4 per cent to 10.4 per cent have been imposed on the Indian exporters with effect from January 13, 2004 (see Official Journal of the EC OJ L 12 dated January 13, 2004). The main finding is that these schemes cannot be considered as either drawback or substitution drawback schemes and that these confer financial benefit contingent upon export performance. The US and the EC authorities have also noted that there is no system or procedure in place to confirm that inputs imported are used in the production of export product or whether an excess payment of input duty has occurred. The benefits under the EPZ and EOU schemes have also been made countervailable particularly in respect of duty exemption to capital goods, which are not considered as inputs. By imposing CV duty on Indian exports, the benefits granted by the government of India under various export promotion schemes have been neutralised. The foreign buyer is made to pay a higher price thereby eroding the competitive advantage of the Indian exporter sought to be enhanced by these export promotion schemes. Countervailing these schemes, in effect, transfers precious revenue from the exchequer of a poor country like India to the coffers of rich countries. Moreover, in October 2000, the US Congress passed a law allowing petitioner domestic industry to receive proceeds of antidumping and countervailing duties imposed. This law known as the “Byrd Amendment” after its sponsoring senator has since been outlawed by the WTO, but under the same, large sums of money have already been paid to the US producers. Panagariya (2004) is emphatic that, “It makes no sense for a poor country like India to make income transfers to rich countries that result from export subsidies and countervailing duties. Exporters should be rebated fully the duty paid on inputs, but it should be done under the duty-drawback scheme or an equivalent programme that does not violate the WTO rules.”
We look at the conclusions emerging from the analysis of existing literature as well as the case studies to suggest appropriate policy responses for the developing country trade negotiators, the government authorities, the export promotion councils, and the exporters:
Policy Implications for
the Developing Country Trade Negotiators
The developing country negotiators must seek changes in the WTO regime to ensure that antidumping and countervailing measures are not abused as protectionist tools in the hands of the developed countries. Some of the suggested areas of negotiation are the following:
(1) The Decision on Implementation-Related Issues and Concerns arrived at Doha in 2001 requires investigating authorities to examine with special care new applications for AD action filed within a year of negative finding in respect of the same product imported from the same country. The decision does not appear to adequately safeguard the interests of the developing country members. In respect of commodities like steel and textiles, the powerful domestic industry groups in the US and in the EU wield enough political pressure on the respective national authorities to initiate AD action. Mere requirement to “examine with special care” applications for fresh AD action may not deter fresh action. The WTO rules must clearly and specifically prohibit fresh AD action for a period of one or two years in case of a negative finding on an earlier application. Such a rule is essential as even mere initiation of AD action puts exporters from developing countries in great difficulty and export interests are harmed. Such a rule will also act as a deterrent on the domestic industry and the AD
Economic and Political Weekly January 21, 2006
authorities from making frivolous complaints and initiating frivolous investigations.
(2) The standard of review by the WTO Dispute Settlement Body (DSB) does not permit over-ruling a decision by a national authority and substituting the same with its own decision if the establishment of the facts was proper and the evaluation was unbiased and objective in terms of Article 17.6 of the AD agreement. Such a provision whittles down the standard of review by the WTO. Given the wide discretion enjoyed by the national authorities in determining various technical facts, inability of the DSB to alter national findings is frustrating to the exporting countries. Hence, there is a need to change the standard of review. The DSB should be allowed to over-rule the AD action taken by the national authorities if the same is not justified in the totality of the circumstances.
(3) It is also necessary to enable the exporting countries to take a dispute in exceptional circumstances to the WTO at the earlier stages of an AD proceeding if the national authorities initiate an AD proceeding or make unreasonable preliminary determinations in gross violation of the AD agreement instead of waiting till the final determination. Such a provision will deter the AD authorities from using AD provisions purely as a protectionist measure at the behest of the domestic industry. It will also provide faster relief to exporters faced with unreasonable AD proceedings.
(4) WTO rules must provide for refund of AD duty and compensation to the affected exporters if the levy is subsequently held to be illegal by the DSB. Such a provision needs to be carefully crafted. The importers in the imposing country pay the AD duty while the exporters lose market share. The levied amount is collected by the customs authorities of the importing country. In the US, it is now being reimbursed to the complainant industry under the Byrd amendment passed by the US Congress in October 2000, which has been held to be illegal by the WTO but the US has not repealed the law within the stipulated time limit of December 2003. On the contrary, during 2000-2003 US $700 million has been distributed to the complainant industry (Economist 2004). Such payments from the treasury will add further complications to the issue and make it difficult to refund the collected amount to the importers or to pay compensation to the affected exporters if a levy is held to be illegal subsequently.
(5) The demand from the developing country members for increase in the threshold limit and abolition of the system of cumulation of exports from different countries as well as increase in the de minimis dumping and subsidy margins merit consideration in the light of wide amplitude enjoyed by the national authorities in determining the technical factors. The present levels of threshold limit on import from an individual country are 3 per cent for initiating AD action and 4 per cent for initiating CVD action. Even when imports from a single country do not meet these threshold limits, imports are cumulated across several countries and action is initiated if the total exceeds 7 per cent and 9 per cent respectively. These limits are arbitrary and low. It would provide some relief to the developing country exporters if the threshold limits for AD and CVD action are raised to 5 per cent and 7 per cent respectively as being demanded by these countries. Moreover, there is no evidence that exporters from a number of countries are colluding to dump their goods in an individual country. Hence, it does not stand to logic that for AD and CVD action, the threshold limits on imports be applied by cumulating imports from several countries. In any case, for dealing with surge of imports, there is a separate provision for imposing safeguard
duty on all imports. There is also no reason as to why cumulation has to be done only in respect of countries named by the complainant domestic industry.
(6) Under the present WTO rules, the de minimis margin of dumping and subsidy, below which no AD and CVD can be imposed is 2 per cent. Considering the fact that computation of the margins are often arbitrary and unsound, there is a case for increasing the limit to at least 5 per cent, so that no action is taken on borderline cases.
(7) WTO rules need to make provision for simplifying the process of investigation, reducing costs and uncertainties, and allowing sufficient time to developing country exporters for furnishing required information. Since the aim of these investigations is to determine whether there is actual dumping or grant of subsidy and consequent injury, the national authorities should not discard any information that may lead to a correct finding merely on the ground that it is supplied beyond the stipulated time. There are genuine problems faced by the developing country exporters meeting elaborate data requirements and stipulated time requirements, which need to be recognised.
(8) Removal of ambiguities in WTO agreements, which have given rise to differences in national laws and practices will go a long way in uniform application of AD and CVD measures. Similarly in areas where the WTO rules are silent, the national laws enact provisions which are not in harmony with the WTO rules. An attempt needs to be made to write out elaborate rules under the WTO agreements so that all countries may follow a uniform code.
(9) There have been objections to the application of harmonised rules of origin for AD purposes. There is a need to specifically clarify that harmonised rule of origin shall apply for all purposes including AD and CVD purposes for transparent administration of these measures.
(10) Operationalising special and differential treatment for developing countries is of vital importance. It must be made mandatory for developed countries to explore constructive remedies before imposing AD and CV duty. Price undertaking offered by developing country exporters must not be rejected.
(11) Since the WTO rule allows discretion in applying the lesser duty rule, some countries impose duty equal to the injury level, while others like the US impose duty equal to the dumping margin/ subsidy level. It is necessary to make the lesser duty rule mandatory for all countries, as there can be no reason to impose duty in excess of the injury level except for purely protectionist purposes.
(12) There are many countries like India, which do not have an integrated goods taxation system like VAT and the same goods are taxed by different authorities at the national, state and local level. It is difficult to rebate all these duties in a diverse system of taxation and hence a need arises to devise alternative systems of refunding domestic taxes. The practice in countries like the US and the EC to take anti-subsidy action against such alternative schemes of refunding domestic taxes is unreasonable and the same must be outlawed under the WTO rules.
(13) The main issue that needs to be tackled through specific WTO rules is the standardisation of calculation methodology. As pointed out in the previous section, arbitrariness abounds in determining the scope of like product, in determining normal value, in making adjustments in the export price, in determining injury as well as its causation and level. The WTO rules were patterned on the existing national rules of the US and other traditional users of AD and CVD. Hence these rules allow a lot of discretion to the national
administrators. When these rules were written into GATT/WTO rulebook, the developing country members had very limited or no experience in administrating these measures. This is an appropriate time to take a fresh look at the existing rules and devise specific rules so as to curtail the wide discretion available to national administrators and to ensure that AD and CVD measures are not taken purely for protectionist purposes nullifying gains made by way of liberalising trade.
(14) The WTO rules also need incorporation of wider national/ consumer interest as a factor to be taken into account before imposing AD and CVD measures. After all, such measures cannot be taken merely to sub-serve the limited interest of a section of the domestic industry ignoring the larger interests of the down stream producers and the consumers.
Policy Implications for Government Authorities and Export Promotion Councils
(1) It is difficult and costly for individual exporters to defend themselves against antidumping action initiated in foreign countries. The department of commerce as well as the export promotion agencies must step in to assist the exporters by arranging expert legal assistance and also by reimbursing the costs.
(2) In all suitable cases, where antidumping and countervailing action taken against Indian exports are perceived to be incompatible with the relevant WTO agreements, the government must at the earliest opportunity raise a dispute at the WTO instead of waiting for individual exporters to go through appeal procedures at the national levels which often tend to confirm the official determinations.
(3) The countervailing duty cases arising from export promotion schemes formulated by the government must be directly defended by the department of commerce on behalf of all the affected exporters. Since most of the major schemes have been held to be countervailable by the national authorities in the US and in the EC, it is appropriate that the government challenges such national determinations at the WTO or makes suitable modifications in these schemes. In fact many of these schemes are reported to be misused to drain the government coffers by inflating value of exports and at times by exporting junk or nothing. Multiple export promotion schemes are not amenable to proper control and tend to be misused. Many of these, in any case, have been held to be countervailable by the authorities abroad. These require urgent phasing out and replacement by one WTO compatible scheme such as a robust drawback scheme. It will be easier for monitoring a single scheme to prevent its abuse as well as disbursing drawback amounts timely.
(4) It is imperative that the Indian AD authorities do not adopt similarly flawed practices and calculation methodology adopted by their counterparts abroad, which the Indian exporters find objectionable and trade restricting. Incidentally, Aggarwal (2002) finds that AD action initiated in a majority of cases in India cannot be justified on economic grounds. She further observes that AD action in India has given protection to highly concentrated industries and that instead of ensuring fair competition and improving economic efficiency, such action may in fact have reduced them. Panagariya (2004) has also commented on the abuse of AD provisions in India. It is apparent that the answer to such a proliferation of AD investigations in India also lies in having stricter and more transparent rules at the WTO and in the national laws, which will reduce the discretion of AD authorities everywhere and make them less amenable to domestic pressure.
(5) The Indian authorities also need to take a re-look at exemptions from AD duty granted to materials imported for use in export production under various schemes as it discriminates against domestic supply of materials for similar use. Such exemption may also be held as an act of subsidisation. There is also the possibility of misuse of such exemption and circumvention of AD measures by way of subsequent clearance for home consumption from the EOUs and EPZs as well as by way of clearance under transferred licences under various export related duty exemption schemes.
(6) AD duties imposed by the Indian authorities are sometimes expressed in terms of fixed amounts in Indian rupees or in US dollars and sometimes in terms of the difference between a fixed sum representing non-injurious price and the landed cost. Variable AD duties based on difference between a fixed sum and the landed cost are prone to anticircumvention by upward manipulation of the invoiced value. It is desirable that the AD duty is imposed in terms of an ad valorem percentage calculated as per the formulae used by the developed country administrations.
(7) It will be useful for the Indian government to create a repository of all AD and CVD orders (including preliminary and interim orders) issued against Indian exporters country-wise and product-wise at one place and the same should be made publicly available. This will encourage and enable researchers to analyse past cases, which will provide valuable inputs to exporters, export promotion bodies as well as government authorities including our negotiators at the WTO. A similar database of Indian AD orders in the public domain will also facilitate useful research and transparency.
Policy Implications for the Exporters
(1) The Indian exporters need to be educated regarding the basics of the WTO regime on antidumping and countervailing measures so that they adopt an appropriate pricing strategy for domestic and export sales so as not to invite antidumping and countervailing action. They also need to maintain accounts of production, sales and export incentives in a way, which would enable them to furnish detailed information in a short time in case antidumping action is initiated against their exports. The concerned export promotion agencies as well as institutions such as the Indian Institute of Foreign Trade and the World Trade Centre, etc, can be funded to impart such practical training.
(2) It is in the interest of the exporters to cooperate with the investigating authorities abroad so that they are not slapped with the highest duties as non-cooperative exporters as has happened in the past. It is also more effective and cost efficient to fight the AD and CVD action as a body of exporters through common lawyers and consultants.
(3) It also seems easier to enlist support of the export promotion bodies and obtain government assistance when AD and CVD action is fought collectively by a group of exporters.
Conclusions
Abolition of antidumping provisions altogether from the WTO rules and the corresponding national statutes does not appear to be an acceptable solution. Strong business lobbies with sufficient political clout in the developed countries like the US often tend to clamour for protection to domestic industry. It is the existence of contingent trade protection remedy such as antidumping rules that has enabled national governments in such countries to
Economic and Political Weekly January 21, 2006
support a freer international trading system by reducing tariff and non-tariff barriers. Even the developing countries like India are now making greater use of antidumping provisions in the era of trade and tariff liberalisation. The discussions at Doha and the subsequent WTO ministerial conferences have not supported doing away with contingent trade remedy rules. On the contrary, there is an explicit agreement to preserve the basic concepts, principles and effectiveness of such rules.
A more practical solution to the vexed problem of misuse of antidumping and countervailing duty provisions for protectionist purposes seems to lie in making the provisions stricter and less amenable to the wide discretion presently enjoyed by the national authorities to make multiple interpretations. The discussions at the Doha ministerial conference held in 2001 support clarifying and improving the trade remedy rules. Subsequent discussions at the WTO ministerial conferences held at Cancun in 2003 and at Geneva in 2004 have also raised the pitch for operationalising the “special and differential provisions” for the developing countries. It is, therefore, an opportune time for the developing country negotiators to press for changes in the WTO rules to do away with ambiguous provisions and to clearly spell out and standardise methods of calculations. Such changes will reduce the discretionary powers enjoyed by the national authorities and will also make them less amenable to pressures from business and political lobbyists to initiate antidumping proceedings indiscriminately or to hand down affirmative findings unjustifiably. There is a strong case for introducing the test of public interest in the antidumping rules so that affirmative action is not initiated merely to protect the interests of a section of domestic producers ignoring the interests of consumers and downstream producers. There is also a case for improving the standard of review by the WTO and building in provisions for refund/compensation so that it becomes empowered to set aside illegal affirmative action on appeal and to do complete justice by awarding compensation to affected exporters/countries. Special and differential provisions for developing countries need to be negotiated to ensure that there is no repeated antidumping action, the threshold limits are increased without cumulation, the de minimis margins are enhanced and that the procedure is simplified and made transparent allowing exporters from developing countries reasonable time to comply with the data requirement in an investigation. Such changes will help the exporters from developing countries to a large extent against frivolous dumping complaints. Making alternative constructive remedies and lesser duty rule mandatory will also help exporters from the developing countries substantially.
There can be opposition to making such changes in the WTO rules mainly on the ground that such changes will make antidumping administration burdensome and ineffective depriving the authorities the discretion which they need to timely conclude complex antidumping investigations that are intensely fact-based [e g, see Stewart 2003]. It is also argued that it is the developing countries pursuing liberalisation programmes who are now making greater use of antidumping rules and given the resource constraints including lack of trained manpower, making the rules stricter will adversely impact on their ability to protect their domestic producers against cheaper imports. If making the rules more detailed and transparent and their application stringent takes away a large chunk of the discretionary powers hitherto enjoyed by the national administrators and consequently the number of successful cases shows a decline, such an outcome should be welcomed rather than allowing a rampant use of antidumping measures reducing the gains for trade resulting from tariff negotiations at the WTO. Moreover, in genuine cases of a sudden surge in imports of a particular product creating temporary difficulties for the domestic industry, the provision of an alternative and non-discretionary solution exists in the WTO rules in the form of safeguard measures, application of which is preferable to exporter and country specific antidumping measures.
AD and CVD cases against two product sectors i e, steel and textiles taken up for study appear to be more prone to trade remedy action than other commodities. In the case of both the sectors, the complainant domestic industries are highly organised and they yield great political clout over the national governments. In the case of steel, there is overcapacity throughout the world, which has been built over the years. Steel is considered strategic to national defence and no country is willing to close its steel mills even if imports are cheaper. Steel mills also provide large-scale employment to local people, whose jobs will be at stake if cheaper imports force the mills to close down. These factors have contributed to a large number of trade remedy cases against steel imports.
In the case of textiles, the producers of developed countries have been able to ward off stiff competition from developing countries in the past by way of a quota regime under the Multi Fibre Agreement. With the quotas being removed in phases under WTO rules, this sector also has seen a large number of trade remedy action. The quota regime has been abolished from January 1, 2005. It is reasonable to expect more trade remedy cases against textile products from the developing countries unless WTO rules are made more transparent and stringent as suggested above.
Agricultural products are also subject to antidumping action under the WTO agreement on antidumping whereas they are outside the purview of the WTO agreement on subsidies and countervailing measures since agricultural subsidies are dealt under the WTO agreement on agriculture. Current negotiations at the WTO in the area of agricultural trade are likely to reduce subsidies and increase market access. However, it can be reasonably apprehended that greater liberalisation in agricultural trade will give rise to demands for protective antidumping and countervailing action from the domestic lobbies as has been the case in the steel and textile sectors. Such apprehension provides further justification for the suggested changes in the WTO rules on antidumping and countervailing measures.
EPW
Email: chitta@vsnl.com
[The views expressed here are personal]
References
Aggarwal, A (2002), Antidumping Law and Practice: An Indian Perspective,
Working Paper No 85, ICRIER, New Delhi. Dixit, A (1988): ‘Antidumping and Countervailing Duties under Oligopoly’,
European Economic Review, Vol 32, pp 55-68. Lazar, F (1988): ‘Structural/Strategic Dumping: A Comment on Richard
Boltuck’s An Economic Analysis of Dumping’, Journal of World Trade,
Vol 22, No 3, pp 91-93. Panagariya, A (2004): ‘Moving Trade Policy Forward’, The Economic Times,
August 26. Stewart, T P (2003): Maintaining Effective Rules in a Rule-based WTO:
Why Like Minded Group Countries Should Care?, Mimeo. The Economist (2004): ‘Trade Politics: Byrd-brained’, September 4. WTO (2001a): Doha Ministerial Declaration, Document No WT/MIN (01)/
DEC/1adopted on November 14.
– (2001b): Decision on Implementation-Related Issues and Concerns, Document No WT/ MIN (01)/17 dated November 14.
– (2004): Draft General Council Decision, Document No WT/GC/W/535 July 31.
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