Investigating authorities in India and globally previously examined input cost distortions as a particular market situation, which renders the domestic selling price unreliable for determination of normal value. As a result, the cost of production of the exporter was adjusted to reflect international prices of inputs. However, pursuant to a challenge, the WTO Panel in Australia – A4 Copy Paper (Indonesia) concluded that domestic selling price can be disregarded only where the particular market situation prevents a proper comparison between the domestic price and export price. Following the decision, the DGTR recently concluded in two investigations that a particular market situation existed in the exporting country, it did not conclude that it prevented proper comparison and thus, did not adjust input costs. Other jurisdictions such as Canada and European Union have amended laws and USA proposes to introduce a provision to address input cost distortions. Similar approach may be adopted in India.

In an anti-dumping investigation, the dumping margin is normally determined as the difference between the selling price of the goods in the home market of an exporter, referred to as normal value, and the export price of the exporter. The WTO Anti-Dumping Agreement lays down three situations wherein the domestic selling price of the exporter would be disregarded, and normal value would be determined on alternative basis.

One such situation is the existence of a "particular market situation" in the home market of the exporter, which prevents proper comparison with the export price. However, the Agreement does not define the term particular market situation. In broad terms, it is a situation unique to a particular market such as government control over prices, restrictions on import or export, distortions in input prices, etc., which render the domestic selling price unreliable, or not appropriate for determination of normal value.

Past findings of the DGTR regarding particular market situation

In India, the Directorate General of Trade Remedies (DGTR) has relied on provision of "particular market situation" in a few cases. For instance, in the anti-dumping investigation into imports of Polypropylene, the DGTR found that a particular market situation existed in Saudi Arabia, owing to distortion of prices of major input, propane, due to government intervention. The DGTR thus, constructed the normal value after substituting the international market price of propane in the cost of production of the producer.

Further, in case of Rubber Chemicals from China and South Korea, the DGTR rejected the price of raw material procured by the producer in South Korea from China, on the basis that China is a non-market economy. The findings of the DGTR were upheld by the CESTAT in case of Rishiroop Polymers Pvt. Ltd. v. Union of India [2016 (342) E.L.T. 573 (Tri.-Del.)] and by the Hon'ble Supreme Court in the Petition for Special Leave to Appeal (C) No. 3079 of 2017.

Findings of the WTO Panel

A number of disputes arose out of the issue of adjustments made by various investigating authorities to address alleged input cost distortions. In particular, the Panel in Australia – A4 Copy Paper (Indonesia) [WT/DS529/R] concluded that distortions in the price of inputs used to produce subject goods, whether sold domestically or exported, may constitute a particular market situation. However, in order to disregard domestic selling price, it must first be examined whether the particular market situation prevents a proper comparison of such price with the export price. Thus, a particular market situation which equally effects both domestic selling price and export price cannot lead to rejection of domestic selling price.

India's approach to particular market situation after such decisions

Post the decisions of the WTO Dispute Settlement Body, India has conducted two investigations wherein the existence of particular market situation was examined by the DGTR. In cases concerning imports of Low Density Polyethylene (LDPE) and Mono Ethylene Glycol (MEG) from Saudi Arabia, the DGTR found existence of cost distortion in key inputs. This led the DGTR to conclude that a particular market situation existed in Saudi Arabia. However, in both cases, the DGTR did not arrive at a conclusion that the particular market situation prevented proper comparison. Further, no cost adjustment was made to address the input cost distortions.

Possible solutions that can be adopted by India

In view of there being significant government interventions in many jurisdictions, with regard to prices of key inputs, it is imperative that the anti-dumping law and practice evolve to address the situation. In this regard, recourse can be made to Article of the WTO Agreement. The provision states that costs shall normally be calculated on the basis of records kept by the exporter. However, the use of the term "normally" implies that in exceptional situations, the costs as maintained by the exporter may be disregarded and cost other than those as per records can be considered to determine the cost of production, such as in a situation where input costs are distorted. Further, while various jurisdictions such as European Union and Canada have amended the law to incorporate provisions concerning input cost distortions, India is yet to incorporate the same in its law. USA has also proposed amendments to its law for this purpose. India could adopt a similar approach. An amendment in the law would guide the Authority on the factors that may be considered in order to determine the existence of a particular market situation and provide a vehicle to the Authority to determine costs or normal value on alternative basis in such situations.

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