- Post reduction in Customs duties in the 1990s, India saw an increased influx of imports, on account of global excess capacities, price sensitiveness of the Indian market and lower production costs in countries such as China, where significant government support was being extended.
- In view of the increased imports, Indian producers were forced to seek remedy under anti-dumping or anti-subsidy laws. The number of trade remedial investigations has increased steeply over the period.
- However, the imposition of trade remedial measures cannot be considered as protectionism. Such measures are only price correction mechanisms against unfair pricing.
- While it has often been argued that such high number of investigations suggests that Indian industry is incompetitive versus foreign producers, the law is intended to safeguard the legitimate rights of domestic producers, even in the face of higher cost of production.
- Further, India follows the lesser duty rule, due to which the anti-dumping or antisubsidy duty imposed in India is much lower than that normally imposed in other jurisdictions, such as USA, the European Union or Canada.
The umbrella of WTO Agreements envisages free and fair trade. While WTO member countries are expected to allow free market access to other members, free trade cannot mean unfair trade. Thus, while the WTO encourages free market access by each member, it has allowed its members to invoke actions and impose anti-dumping or anti-subsidy duties in case goods are exported at dumped or subsidized price and such exports cause injury to the industry in the importing country.
Over the period, Indian imports have continued to multiply, owing to several factors, including steep reduction in Customs duties following India's commitments under the WTO framework, price sensitiveness of Indian purchasers, global excess in production capacities, increased knowledge about global market, and lower production costs in countries such as China owing to substantial direct and indirect government support. Resultantly, a large number of products witnessed significant surge in imports or significant reduction in prevailing prices, which forced the Indian producers to resort to price reductions or loss of volumes.
Such trend of imports, leading to adverse impact on the industry, resulted in the Country witnessing a large number of trade remedial investigations, particularly after 1997. This, in turn, saw India emerge as one of the largest users of trade remedial measures in the World, notwithstanding the fact that India started implementing trade remedial measures only from 1993. From only one investigation being initiated in 1993-94 or 5 in 1996-97, India initiated 28 to 30 investigations per year in the early 2000s. The number has now reached 60 to 80 investigations in a year in the recent period. By now, India has imposed or extended more than 1,000 measures on various products.
As India emerged as one of the largest users of trade remedial measures, the trend observed was that majority of the investigations in India involve products belonging to the Chemicals & Petrochemicals sector. Such a trend is logical considering that India saw big boom in this sector in the early 1990s, which is also the period when the Customs duties were reduced, from a peak of as high as 150% to as low as 0-10% at present. The reduction in duties saw an influx of increased volume of imports, which caused a concern for Indian producers that had set up plants, by resorting to heavy borrowings. To compound their problems further, while the newly set up plants were normally smaller in size, most of their counterparts in other countries were much bigger and older companies, with a lower cost structure. Further, while Indian producers looked at Indian market and demand, their counterparts looked at world market and world demand. Many of these countries attracting measures have domestic demand much lower than existing domestic capacities. This resulted in increased instances of dumping of the products in other countries. In this regard, the producers in developed countries seem to be facing equal heat.
While it is considered by some that India is an aggressive user of trade remedies, others would advocate that such measures are the need of the hour. The following aspects need to be considered in this regard.
Whether trade remedial measures constitute protection granted
The first aspect to be considered is that an anti-dumping duty or anti-subsidy duty can be imposed, only after there is evidence of dumping or subsidy. Such dumping or subsidization in itself is an unfair pricing practice. The imposition of duty is intended to offset such pricing behaviour. Therefore, the imposition of trade remedial measures is a price correction, and not a protection afforded to the industry.
The countries and parties facing such measures often argue that the foreign producers have little incentive to dump. It is also contended that the foreign producers are not incurring losses, while exporting at lower prices; and that the exports were being made at "international prices". Needless to say, such arguments would not cut ice with any investigating authority world over.
Is Indian Industry really incompetitive
A question frequently raised is whether Indian producers are competitive against the imports, or are the provisions of trade remedial measures being abused to gain undue remedy. In this regard, "competitiveness" can be defined in several ways, including the following parameters:
- Level of plant utilization and whether Indian producers had to resort to production cuts;
- Whether input efficiencies of the Indian industry are much adverse as compared to their global competitors;
- When Indian producers were suffering financial losses, whether foreign producer earned profits;
- Whether Indian producers suffered losses before interest and depreciation.
In a majority of cases, particularly those belonging to the Chemicals & Petrochemicals sector, it was found that the level of plant utilization of the Indian producers was reasonably high, and sometimes higher than the foreign producers that were resorting to dumping their products in India. In such a situation, it cannot be considered that the Indian producers are not competitive. Further, if Indian producers are rendered incompetitive due to higher costs being incurred by them on account of higher cost of utilities, interest or cost of conducting business in India, it should be considered that it would be the legitimate right of the producers to seek protection under trade remedial laws. Further, this is also the intent of the law, which requires injury to be examined for the industry as it exists.
Is India imposing an inordinately high quantum of duties
Under the WTO Agreements, anti-dumping and anti-subsidy duties can be imposed to the full extent of dumping or subsidy margin. In fact, developed countries such as USA and Canada, and countries such as China impose duty upto the full extent of dumping or subsidy margin. By contrast, developing countries such as India impose lower quantum of duty if it is found that such lower duty would be sufficient to redress injury to the Indian producers. This is referred to as the lesser duty rule, which provides for determination of duty based on lower of dumping margin / subsidy margin, and injury margin. The injury margin is based on an assessment of the price at which the Indian producers would be able to earn a reasonable return. Therefore, while the duty is lower than dumping margin / subsidy margin in most of the cases in India, the duty is to the full extent of dumping margin / subsidy margin in majority of the cases in other countries. Further, an analysis of findings where the same products and same subject countries were investigated by India and other countries reveals that the level of duties imposed by India were much lower than the level of duties imposed by its counterparts in the European Union, USA or Canada in almost all cases.
It can, in fact, be concluded that India is restricting the quantum of duty and is granting remedy to a much lower extent than other countries. Therefore, it would be a misconception that India is an aggressive user of trade remedial mechanisms, offering protection to its industry. On the contrary, as any other country, India has taken robust steps aimed at correcting the unfair pricing behaviour of the exporters and allowing its industry a level playing field.
- Mr. A. K. Gupta,
Founder and Managing Director
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.
