ARTICLE
5 September 2024

Standing Of Applicant To Constitute Domestic Industry – Standard Of Discretion

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Lakshmikumaran & Sridharan

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Lakshmikumaran & Sridharan (LKS) is a premier full-service Indian law firm specializing in areas such as corporate & M&A/PE, dispute resolution, taxation and intellectual property. The firm, through its 14 offices across India works closely on litigation and commercial law matters, advising and representing clients both in India and abroad.
Anti-dumping investigations are most often initiated subsequent to applications filed by or on behalf of domestic producers. The investigation, and determination of injury...
India International Law

Introduction

Anti-dumping investigations are most often initiated subsequent to applications filed by or on behalf of domestic producers. The investigation, and determination of injury, is carried out in relation to the 'domestic industry'. It is important to note that while the term 'domestic producer' refers to any entity who produces the article that is like the product under investigation, the term 'domestic industry' is a term of art that is defined in most laws governing anti-dumping investigations. That is, in order for a domestic producer (s) to constitute the 'domestic industry', such domestic producer(s) must meet the legal criteria stipulated under the applicable anti-dumping legislations.

Under WTO law, the legal provisions concerning the qualification of the domestic producers to constitute the 'domestic industry' in an anti-dumping investigation is contained in the Anti-Dumping Agreement ('AD Agreement'). Article 4.1 of the AD Agreement defines the term 'domestic industry' as: referring to the domestic producers as a whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products. However, Article 4.1 disqualifies or excludes producers who are related to the exporters or importers or are themselves importers of the allegedly dumped product.

Under Indian anti-dumping law and practice, the qualification of the applicant domestic producers to constitute the domestic industry is sometimes a contested issue. Examination of relevant jurisprudence shows that there is no straight jacket formula to determine this issue, and this is often subject to the discretion of the Directorate General of Trade Remedies ('DGTR') This article discusses some of the relevant jurisprudence on the issue of the DGTR's discretion in determining the standing of a producer(s) under the relevant provisions.

Relevant provisions of the Indian anti-dumping rules

In India, the legal provisions concerning the qualification of the domestic producer(s) to constitute the domestic industry is contained in Rule 2(b) of the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 ('AD Rules').

Rule 2(b) of the AD Rules defines a 'domestic industry' as follows:

(b) 'domestic industry' means the domestic producers as a whole engaged in the manufacture of the like article and any activity connected therewith or those whose collective output of the said article constitutes a major proportion of the total domestic production of that article except when such producers are related to the exporters or importers of the alleged dumped article or are themselves importers thereof in such case the term 'domestic industry' may be construed as referring to the rest of the producers.

The Explanation to Rule 2(b) defines the situations where the domestic producer is said to be related to the importer or exporter of the alleged dumped article:

Explanation. - For the purposes of this clause, producers shall be deemed to be related to exporters or importers only if, -

(a) one of them directly or indirectly controls the other; or

(b) both of them are directly or indirectly controlled by a third person; or

(c) together they directly or indirectly control a third person subject to the condition that there are grounds for believing or suspecting that the effect of the relationship is such as to cause the producers to behave differently from nonrelated producers.

A small yet critical term that is relevant for determining the scope of the applicant domestic producer(s) to constitute the domestic industry under both Rule 2(b) and Article 4.1 of the AD Agreement is the use of the term 'may'. That is, while an applicant/domestic producer(s) related to the exporter or the importer or are importers themselves would otherwise be liable to be disqualified from constituting the 'domestic industry', the use of the term 'may' implies that this is not a mandatory disqualification but some discretion vests with the investigating authority in this regard.

It is pertinent to note that the above legal standard was not always the legal position. By an amendment brought about by Customs Notification No. 44/1999 dated 15 July 1999, the term 'shall' was replaced by the term 'may' in Rule 2(b).

In this regard, it would be pertinent to refer to the observation of the DGTR in the anti-dumping investigation on imports of Synchronous Digital Hierarchy transmission equipment from China PR (final findings dated 19 October 2010). In this investigation, the DGTR observed that:

46....As use of the word 'may' in Rule 2(b) suggests, the two types of producers in question, i.e. related producers and producers importing the alleged dumped product, are not automatically excluded from being part of the domestic industry. Rather, it is the consistent practice of the investigating authorities that the exclusion of such producers must be decided on a case-by-case basis, on reasonable and equitable grounds, and by taking into consideration all the legal and economic aspects involved.

Relevant jurisprudence

In Aluminium Foil (final findings dated 10 March 2017), the DGTR disqualified one of the producers, viz., Raviraj Foils, from constituting the domestic industry under Rule 2(b) for the reason that almost all goods imported by it were sold in the domestic market. However, in Caprolactam (final findings dated 27 September 2021), the DGTR refused to disqualify the applicant (GSFC) from constituting the domestic industry since the imports made by it were insignificant. The DGTR also held that the applicant's focus had not turned to imports and it was not behaving like an importer-trader.

In Soda Ash (final findings dated 17 February 2012), the DGTR refused to disqualify most of the applicant/producers therein for the reason that even though they were related to certain foreign producers exporting to India, these domestic producers had not benefitted from such relationship in the context of dumped imports. However, it disqualified one domestic producer based on the view that the volume of exports of the PUC by the related foreign exporter were significant.

The issue of standing was most recently discussed in Isobutylene Isoprene Rubber (final findings dated 29 June 2024). In this investigation, the standing of the sole domestic producer/applicant, Reliance Sibur Elastomers Pvt. Ltd., was heavily contested on the ground that the applicant was related to one of the Russian exporters as it was under the control of the ultimate holding entity. For this reason, it was urged that the applicant/producer should be disqualified from constituting the domestic industry under Rule 2(b).

In its examination, the DGTR agreed with the argument that the applicant/producer was under the control of the foreign producer and hence could be said to be 'related', for the purposes of Rule 2(b) of the AD Rules. However, the DGTR concluded that merely because there existed a relationship between a domestic producer and a foreign producer, this was insufficient to hold such a domestic producer ineligible under Rule 2(b). In its justification, the DGTR recalled the objective of providing such a discretion to the DGTR and noted that the AD rules were amended to provide a discretion to the DGTR to treat certain category of producers as eligible and certain category of producers as ineligible.

Conclusion

The standing of the domestic producers to constitute the domestic industry is essential to the success of the applicant/producer's case for the imposition of anti-dumping duty on imports of the PUC. This becomes critical where the applicant is the sole domestic producer, and such domestic producer is either importing the PUC for certain purposes or has been established with investment from a foreign exporter. At present, the DGTR seems to be exercising its discretion on a case-by-case basis. Since the DGTR most often takes the view that there is a need to balance the interests of the domestic industry with the interests of other parties, the DGTR most often leans in favour of upholding the qualification of sole domestic producers. However, it remains to be seen whether this practice will evolve.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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