Being the world’s biggest exporter has its own issues. Chinese dominance of global manufacturing is today believed to be the main reason for Sinophobia.
Being the world’s biggest exporter has its own issues. Chinese dominance of global manufacturing is today believed to be the main reason for Sinophobia.
One of the main regulations that ensure protectionism – known as anti-dumping laws in global trade parlance – has been in force for over a century now, with Canada, New Zealand, Australia, and the United States adopting legislations during the first and second decades of the twentieth century, to make it possible. Anti-dumping laws were put in place to ensure that foreign products ‘dumped’ in the importing country, do not enjoy any unfair advantage or benefits over that of the domestic producers. The initial attempt to frame basic rules related to anti-dumping was incorporated in Article VI of The General Agreement on Tariffs and Trade (GATT). The GATT was a multilateral agreement regulating international trade. According to the GATT preamble, its purpose was “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.” It was signed in 1947, took effect in 1948, and lasted until 1994. It was then replaced by the World Trade Organisation in 1995.
The first real initiative to standardise rules and regulations in Article VI were made during the Kennedy round of trade negotiations. This was followed by a series of trade rounds culminating in the Uruguay round spanning eight years, i.e., from 1986 to 1994, and saw the formulation of yardsticks and benchmarks for imposing anti-dumping duties. The provisions contained in Article VI facilitates importing countries to initiate ‘dumping’ investigations to probe complaints made by the domestic industry that the goods imported were causing material or monetary injury to their businesses. It also allows the country to impose anti-dumping duties if the claims of the domestic industry are proved to be genuine and valid. Article VI also has provisions for dispute settlement through third party interventions at the WTO level.
Dump and pump
According to the World Trade Organisation (WTO), dumping, in general, is a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.Thus, in the simplest of cases, dumping can be identified by simply comparing the prices of a product in two different markets. However, the situation is rarely, if ever, that simple. In fact, in most cases, it is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country – something known as the ‘normal value’ – and the appropriate price in the market of the importing country – something known as the ‘export price’ – so as to be able to undertake an appropriate comparison.
But if one thought the plethora of provisions, rules, regulations and duties had created a sense of euphoria, then it is a misconception. In what can be viewed as a paradox, anti-dumping measures, very often, defeat the basic objective of opening up global markets. If the intent of the anti-dumping measures are to prevent importers from poaching the domestic market share and resort to ambush marketing strategies through predatory pricing and ‘dumping,’ then the existing consequences indicate that it was more oriented towards protectionism, than ushering in an open door policy.
Us and them
China has been the biggest target of Indian anti-dumping investigations...continued
The Dragon A majority of the anti-dumping cases initiated and investigated by India are against China, EU, Korea, Chinese Taipei, Thailand, US, Japan, Singapore and Malaysia. According to the Ministry of Commerce (GoI), out of the 506 complaints received against exporters in various countries, anti-dumping duties have been imposed in 402 cases. China, with 134 out of 166 cases, again leads the list of countries against whom India has imposed anti-dumping duties. Quite interestingly, a significant number of anti-dumping duties against China were imposed with it not showing any inclination to participate in the queries related to pricing in their domestic markets, proceedings, or play the part of the respondent. Does it mean China was prepared to continue ‘dumping’ products into India, despite the additional duties? Are there any remedies to such instances like burdening them with additional duties? Feeding the well fed An analysis of numbers put out by the Ministry of Commerce indicate that a majority of the complaints related to material and predatory pricing received by the DGAD (Directorate General of Anti-dumping & Allied Duties), are from single entities, i.e., one company. Out of a total of 82 complaints received from domestic players in the chemicals and petrochemicals segment, 58 were single company representations. Somewhat similar is the case with pharmaceutical and textile industries.
The gamut of restraints and regulations around anti-dumping investigations indicate just one agenda: shielding monopolies/dominant players from competition. Isn’t considering a single company’s application/complaint as that representing all manufacturers of ‘like products’ just simply wrong, even if the complainant accounts for over 25% of market/production share? Such an irrational parameter for taking up investigations against ‘material injury’ have already triggered widespread resentment among both importers and exporters because it has only facilitated dominant players in the industry controlling and monopolising production, pricing and the supply chain.
In fact, anti-dumping measures have, many a times, severely impacted the domestic industry, particularly those that have to import raw materials or procure them domestically to manufacture finished products. So, while the dominant domestic forces have the market in their stranglehold, imports end up becoming costlier due to the imposition of anti-dumping duties. Apart from those catering to domestic markets, exporting units that depend on raw material for manufacturing finished products have also become victims of the ‘irrational laws’ meant to benefit a select few.
Glaring example
A few months back, the DGAD, acting on a complaint submitted by Reliance Industries Ltd. (RIL) and Mitsubishi’s MCC PTA India Corp. (MCPL), imposed anti-dumping duty on imports of Purified Terephthalic Acid (PTA) – a raw material used in producing polyester filament yarn. In FY2013 RIL alone accounted for 60% of domestic PTA production, while MCPL accounted for about 24% and the rest was produced by a company like Indian Oil Corp (IOC). Industry reaction to this rather hastened measure, as expected, was equally fast and furious. “The domestic user industries are struggling to survive due to the wide gap between the demand and supply of PTA. Domestic producers are engaging in ‘profit booking’ by producing naphtha and paraxylene (PX) in one plant, and then selling PX at artificially high rates to the other plant for manufacturing PTA. The anti-dumping investigation is also aimed at supplementing this practice by the imposition of anti-dumping duty and achieving double profit booking,’’ ASSOCHAM stated in a memorandum submitted to the government.
According to ASSOCHAM, currently PTA is being imported from China, the European Union, South Korea and Thailand. During FY2013, while the total domestic production was 34,76,144 metric tonne (MT), imports were 6,4,959 MT, against a total demand of 41,24,103 MT, excluding captive consumption by PTA producers. Pointing out the repercussions of such a measure, D. S. Rawat, Secretary General, ASSOCHAM, stated, “Anti-dumping duty will make imports extremely expensive and the user industry in India will become uncompetitive.” PTA is a crucial component in the production of polyester filament yarn, polyester staple fibre and synthetic textiles. The imposition of anti-dumping duty on PTA has acted to the detriment of exporters of these products across the textile spectrum. The big question making the rounds is, “How the DGAD had even accommodated the petition and imposed anti-dumping duty on PTA, despite being aware about its significance in textile exports from India? Would not such measures lead to a decline in exports?” B. Vijayaragavan, Managing Director of a leading manufacturer of garments B. S. Apparel, says, “Here, in India, polyester price is higher than the international price. Even if we have to import polyester from the international market, there is a catch. Government of India has imposed an anti-dumping duty on polyester imports. This means, we either procure domestically at a higher price or purchase it from the international markets by paying anti-dumping duties. Most garment manufacturers are subjected to these problems, resulting in high cost of production."
More to come
The Government of India, or the DGAD to be precise, is all poised to stage another farce with plans to impose anti-dumping duties on imports of solar cells. The DGAD has stated in its findings that solar cells, modules or panels have been exported to India from China, Chinese Taipei, Malaysia and US below the normal value. The proposed measures reflect a total lack of foresight or vision, since there are major projects in the pipeline to energise India through solar power which is considered as the most feasible and viable model.
Narendra Surana, Managing Director of Hyderabad-based Surana Ventures Limited, a major player in the solar modules segment points out, “In India, all project developers and most solar module manufacturers are against anti-dumping duty, since cell manufacturers have formed a cartel and have increased prices by over 40%. This will make all solar power projects unviable. If anti-dumping duty is imposed, 1 GW of projects may never see the light of the day as the project cost would go up by 50-60%. In fact, since the cost of production has come down, Indian solar power generation companies should actually take maximum advantage of the prevalent prices and help generate solar power at every village and town to reduce the shortage of power in India.”
Dump anti-dumping
The entire process for imposing anti-dumping duties lacks scientific basis and rational legal framework. The norms for investigations – predatory pricing and material injury is too perfunctory and superfluous. Firstly, it does not prevent imports from other countries when anti-dumping investigations are on against a subject country. Secondly, pricing patterns and structures at the domestic and international level are a function of several factors like cost of production, market forces, etc., and should not be considered as a basis for fixing and imposing anti-dumping duties. It is irrational to surmise that additional duties over the export price at landed cost – if it is less than that prevailing in the exporting country – would protect the domestic industry as whole. It would only lead to the closure of smaller players and consolidation of monopolies.
Moreover, anti-dumping measures have proved to be an antithesis to a competitive open market environment, with the consumers and end users left in the lurch, with little choice in terms of price and quality. The convoluted jargon emerging from the minds of the wise men of the world which went into the conception of anti-dumping laws contained in Article VI of General Agreement on Tariffs and Trade and our own Indian version of the same cannot camouflage the obvious. The outcome of these multiple rounds of brainstorming at GATT and WTO has only come full circle – invigorating the vicious cycle of protectionism, rather than the intended goal to create a level playing field for international trade and competition.
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Dr. V. Balakista Reddy, Professor of International Law, Nalsar UniversityCopyright @2024 The Dollar Business. All rights reserved.
