Global trade and anti-dumping

Global trade’s importance can hardly be overemphasised. After the ravages of the Second World War, a new architecture for world trade was erected. The General Agreement on Tariffs and Trade (GATT) was the centrepiece of these new trade arrangements. Developed countries lowered their tariffs. The emerging markets, especially Japan and Taiwan, took full advantage of this and were recently followed by China, Malaysia, Vietnam and Thailand. No country in post-World War history has grown by 7 per cent or more without its export growing by 10 per cent. But like all good things unfettered trade may sometimes harm countries, especially those dependent on commodity exports or one or two product lines. The World Trade Organization (WTO), which was a successor institution of the GATT, recognised this principle.

As one of the exceptions to the general objectives of the WTO, Anti-dumping Agreement (AD Agreement) provides for the right of the contracting members to apply anti-dumping measures to safeguard their domestic industry against the dumping and its injurious effect.

The broad principles enunciated under the framework of the AD Agreement are that no country shall export a commodity to another WTO member country at a price that is lower than the price at which like commodity is traded in the ordinary course of business in the exporting country. In other words, an export sale of a commodity at a price lower than the normal value (the price at which like goods are ordinarily sold) prevailing in the exporting country is construed as dumping. On the contrary, if such export sales are affected, the country of export or an exporter from such exporting country is said to have been engaged in dumping. However, the AD Agreement provides that dumping is not actionable per se. A country can exercise trade remedial action against dumping only if dumping is causing injury or threat of injury to its domestic industry and it is factually established that injury has been actually caused due to dumping. The purpose of the trade remedy action against dumping is to provide a level playing field to the domestic industry by imposing additional duty against an unfair competition created by dumped imports. Therefore, the WTO AD Agreement disciplines the member countries as to how they can or cannot react to dumping.

Fair Play: Genuine competitive disadvantages should not be masked by the cloak of anti-dumping duties

Member countries, however, adopted a different set of anti-dumping laws which allowed them a considerable amount of flexibility and subjectivity to determine the quantum of injury and therefore the appropriate rate of dumping to be applied. Disputes arising due to the imposition of unfair anti-dumping duties are resolved either through mutual consultation or through the mechanism of the dispute settlement body of the WTO. India has been one of the countries which have tended to use the anti-dumping instrument in a number of cases not always successfully.

The main principle which is followed in any anti-dumping investigation conducted by affected countries involves the construction of what is termed as the “non-injurious price”. To do this the authorities call for costing information from the complainant and undertakes detailed analysis of relevant factors such as best utilisation of raw materials, utilities, production capacities, propriety of expenses/cost charged to production of commodity, extraordinary or non-recurring expenses, apportionment of depreciation, allocation of direct expenses, apportionment of common overheads and other administrative and general expenses.

In order to disprove the assertion that dumping has harmed the importing economy, producers/exporters have an uphill task of convincing the customs authorities. In this task collation of data becomes important. They need to demonstrate that the export price is higher than the price at which they themselves sell the same products in their own domestic market.

It is seen commonly that many of the producers/exporters are unable to satisfy the investigating officials of the importing economy about levying either a nil or lower anti-dumping rate. This allows the authority to compute the anti-dumping duty based on the cost data provided by the complainant and in the manner they think appropriate.

To sum up, member countries of the WTO have the responsibility to exercise restraint in invoking the anti-dumping provisions. Unfairly invoked duties can unleash a trade war and diminish growth in the world economy. Genuine competitive disadvantages should not be masked by the cloak of anti-dumping duties. These should be used in the rarest of rare cases and should be the exception rather than the rules.

The author is national leader, Tax & Economic Policy Group, EY India