International trade involves constant import and export of commodities from one country to another. With the evolution of trade and the breaking of trade barriers, fair trade becomes as essential as free trade. Freedom of trade ensures that buyers and sellers do not have hurdles and that there is a smooth transaction of commodities. On the other hand, fair trade ensures that producers in the developing countries are provided fair prices by businesses in developed countries so that unilateralism is reduced or eliminated.
One of the measures to ensure fair trade is Anti-dumping trade remedies. In order to understand anti-dumping, we must first understand dumping.
In this article, a brief history of anti-dumping remedies by countries as well as model anti-dumping provisions of GATT and Indian laws covering anti-dumping duty is discussed. In addition to that, the author also put forth view on whether anti-dumping duty is really apart of protectionism or genuine remedy to mitigate unfair trade.
Meaning of Dumping and Use of Anti-Dumping Remedies Like Duties
As per the World Trade Organization, dumping 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.”
As a result, dumping provides businesses in the exporting country, with the covert and opaque support of their government, unfair advantage of increased market share and harms and in some way even obliterate the domestic market of importing country as it is often the behavior of customer to look for cheap products and exporters exploit this inherent behavior by dumping their products in the market to gradually kill producers of importing country, whose prices are not as artificially derived or set.
Anti-dumping duty is a measure by the government to rectify the situation arising out of dumping. It is an instrument to restore fair competition. Despite being perceived as a protectionist measure, anti-dumping is essentially meant to provide relief to the domestic industries from the harm caused by dumping. These measures are meant to prevent foreign exporters from using predatory pricing to undermine domestic businesses. In furtherance of the same, the governments levy anti-dumping duties on the businesses not exceeding the margin of dumping in reference to any commodity.
It has been debated whether this practice is right or wrong over the years. The World Trade Centre does not take the high ground in declaring the validity of this practice but instead sets out the dos and don’ts of anti-dumping. Article VI of General Agreement on Tariffs and Trade, 1994 (hereinafter “GATT”) lays down the rules governing the practice of anti-dumping.
There has been a steady evolution of anti-dumping laws around the world. The origin of anti-dumping legislation can be traced to the declared illegality of manipulative trade practices in the late nineteenth century through the Sherman Anti-Trust Act, 1890 in the United States. The first usage of legislative measure can be traced back to Anti-dumping law, 1904 to thwart dumping of steel by the United States into Canada and to levy duties on American firms that were dumping commodities at discriminatory prices. In the decades that followed, many commonwealth countries had also resorted to this measure in order to protect their domestic businesses. Countries like Australia, Great Britain, New Zealand, and the United States implemented anti-dumping statutes which eventually served as the pillars for the inception of Article VI of GATT.
Anti-Dumping Laws in India
The first anti-dumping duty levied by India in 1993 on firms from Brazil, the Republic of Korea, Mexico, and USA. PVC Resin Manufacturers Association filed for an investigation in 1992. PVC resin was allegedly being dumped by these firms at discriminatory prices. In the following years, the Designated Authority received a large number of applications for anti-dumping investigations. From 1992 to 2004, 188 anti-dumping investigations against 35 countries including China PR, EU, Chinese Taipei, Korea RP, Japan, USA, Singapore, Indonesia, Thailand, and Russia were initiated by the Directorate General of Anti-dumping and Allied Duties (DGAD).
As per the working paper of Indian Council for Research on International Economic Relations, between 1995 and 2000, India initiated 176 cases (individual country-wise) which is 12% of the total cases initiated across the world. Article VI of GATT is known as the Anti-dumping Agreement. The code was formulated after the Uruguay Round of negotiations in 1994. This successfully put forward the international standards for the member nations to follow. India also altered the domestic laws after the anti-dumping code by GATT
The legal framework governing anti-dumping in India is composed of –
I. Customs Tariff Act, 1975- Sec 9A, 9B, 9C (as amended in 1995)
It is quite essential that a developing country, post freedom, has guidelines to ensure fair trade practices in order to protect its domestic industries from the harm caused by foreign businesses. The legal framework to prevent dumping and to impose countervailing measures was designed in 1982 by addition of Sections 9, 9A, 9B, and 9C to the Act of 1975.
Section 9A of the Act defines dumping as a practice by which products of a country are exported to India at less than its normal value. A product is considered as being exported at less than its normal value if its price:
a) is less than the comparable price for the like product in the exporting country, or
b) in the absence of such the domestic price is less than:
i. the highest comparable price for the like product for export to any third country, or
ii. the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit.
II. Customs Tariff (Identification, Assessment, and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995
India being the signatory to the Uruguay Round Negotiations under GATT which drafted and proposed for implementation Article VI of the GATT 1994, the Parliament inserted sections 9A to 9C in the Customs Tariff Act vide the Customs Tariff (Amendment) Act, 1995, No. 6 of 1995 which replaced the earlier provisions of Sections 9, 9A, and 9B. In order to bring the Custom Tariff Act in conformity with the provisions of Article VI of the GATT 1994 and the agreements on subsidies and countervailing measures, the amendments were introduced.
III. Investigations and Recommendations by Designated Authority, Ministry of Commerce
In India, anti-dumping and anti-subsidies & countervailing measures are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD) functioning in the Dept. of Commerce in the Ministry of Commerce and Industry which is headed by the “Designated Authority”. The Designated Authority’s function, however, is only to conduct the anti-dumping/anti-subsidy & countervailing duty investigation and make a recommendation to the Government for the imposition of anti-dumping or anti-subsidy measures.
IV. Imposition and Collection by the Ministry of Finance
Once the Designated Authority conducts an investigation and recommends anti-dumping or anti-subsidy measures, the Ministry of Finance imposes such measures by the means of a notification. Director General (Safeguard) who functions under the Ministry of Finance administers the safeguard measures.
Significance of Anti-Dumping Laws
The anti-dumping laws and regulations are meant to further the idea of fair trade between buyers and sellers in the international market. While the freedom of trade is essential, it is also important that the countries protect domestic industries from harm caused by discriminatory trade practices. Discriminatory means under the garb of free trade can lead to exploitation and can cause harm to develop economies.
The practice of dumping is not wrong per se depending upon the market conditions and the freedom of traders to fix the desired price. This is why WTO does not condemn dumping or anti-dumping. The practice of dumping might not harm the domestic industries in all cases and hence the domestic legislations allow the country to impose anti-dumping duties only when a causal link is established between the dumping practices and the injury caused.
The paramount purpose of anti-dumping regulations are to set a level playing field for the industries. These laws and regulations are based on the principle that one or more industries should not have an unfair advantage at the cost of loss to the other industries.
Anti-dumping helps domestic industries flourish. When India was a newly independent country and there was a need for steady industrialization, it was important that the developing domestic industries be protected from harm. Even today, for the Indian industries to catch up with the rest of the world, they must be protected from predatory pricing of products. After the removal of trade barriers, the domestic industries face tough competition which might lead to their downfall. Since the industries take time to develop and get a stronghold of the market, the initial protection is important if there is a serious threat of injury from any firm from an exporting country. Once the domestic industries are wiped out, it is very difficult for them to start over.
In the practice of free trade, the firms are in the power to charge the desired price, high or low, to the consumers. But this freedom must have restrictions. Any form of liberty must be exercised without causing harm to others. These firms by charging lower prices of the like products, cause material injury to domestic industries. Predatory pricing leads to domestic firms losing their business and consequently the foreign firms monopolizing the market. To protect the domestic industries from monopoly power, anti-dumping duties act as a measure of protection.
The anti-dumping regulations and countervailing duties are beneficial to the economies of developing countries like India. If the industries of the importing country have to survive, the practice of anti-dumping is a necessity. The domestic industries obtain the market share back using anti-dumping practices. Dumping gives an unfair market share to the exporting firms. It also leads to a decline in sales, selling price, and profits for the domestic industries. If there is a general decline in sales, the economic growth of a country slows down. These measures are meant to remedy the market distortions originated due to unfair trade practices and unequal pricing of goods.
Anti-Dumping: Protectionism or Trade Remedy?
The measures which actively curb the foreign firms from flourishing in domestic markets can be termed as protectionist measures. When there is an uncontrolled operation of anti-dumping regulations, tariffs, and countervailing duties, the measures become closer to protectionism than trade remedies. Their purpose shifts from the protection of the domestic market from predatory pricing to an aggressive protectionist measure meant to work for the unfair advantage of domestic industries.
Article 11 of the WTO Anti-Dumping Agreement is a legal framework to address the overuse of an anti-dumping measure. If Article 11 is followed by the member countries in the letter and spirit of the WTO agreement, then the operation of anti-dumping duties can be effectively controlled by the international trading system which aims to prevent protectionist trade actions. Article 11.1 states that “an anti-dumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury.” Article 11.2 states that “the authorities shall review the need for the continued imposition of the duty after a reasonable period of time has elapsed.” Article 11.3 states that “any anti-dumping duty shall be terminated on a date not later than five years from its imposition unless the authorities determine that the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury.”
It is imperative that the governments do not overuse anti-dumping duties as a protectionist measure. They must make sure that there is a case of dumping and that such a practice has caused material damage to the domestic industry. Furthermore, the margin of dumping should not be negligible such that it becomes inconsequential in a larger scenario.
The available data indicates that there has been a substantive rise in anti-dumping cases in India as well as abroad. But this is not enough to draw the hypothesis that anti-dumping is being used as a protectionist measure.
Anti-dumping has multiple advantages as mentioned previously but there is no dearth of disadvantages. Although it is a much-needed measure to regulate discriminatory pricing and monopoly, it has drawbacks in the long run. The said measure is justified on the ground that it would help domestic industries to flourish and would prevent foreign monopoly. However, it has been proven that anti-dumping measures have been unsuccessful in restoring the ‘normal’ price of the products. Although, the main motive is to foster fair competition, the same is denied to the foreign firms as the domestic firms are free to underprice one another.
Nonetheless, anti-dumping measures are important to safeguard the developing economies. Different countries are at different stages of development with a different pace of development. They have different sizes of economies and varying internal market conditions. With this, equity becomes as important as equality. Hence, anti-dumping measures are justified to the extent that they are remedial to domestic industries and further economic growth of the countries.
- Technical Information on anti-dumping
- Anti-Dumping – Meaning and Concept
- Anti-Dumping – Meaning and Concept
- WTO Analytical Index
- Custom Tariff Act, 1975
- Anti-Dumping & Anti Subsidy measures: FAQs
- Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, art 11
- Anti-Dumping Regulations: Boon or Bane? Radhika Joshi, CCS Working Paper No. 169.
- Choi, Nakgyoon, Economic Effects of Anti-Dumping Duties: Protectionist Measures or Trade Remedies? (December 30, 2016)
This article has been written and submitted by Ms. Shiwangee Chandrakar during her course of internship at B&B Associates LLP. Ms. Shiwangee is a third year law student of Hidayatullah National Law University, Raipur.