Anti-dumping - relevance of cost information

COST CENTRE COST UNIT ALLOCATION APPORTIONMENT Anti-dumping - relevance of cost information The Institute of Cost Accountants of India (Statutory body under an Act of Parliament) www.icmai.in

First Edition : February, 2014 (Inaugurated in NCC 2014 at Bhubaneswar) Prepared by : Tax Research Department The Institute of Cost Accountants of India CMA Bhawan, 12, Sudder Street, Kolkata - 700 016 e-mail - taxresearch@icmai.in

CONTENTS 1 Introduction 2 Legal Framework 3 Determination of Dumping Dumping Normal Value Export Price Constructed Export Price Margin of Dumping Factors affecting Comparison of Normal Value & Export Price Like Articles 4 Injury to the Domestic Industry in India The Volume Effect The Price Effect Casual Link 5 Who can file an Application Domestic Industry 6 Relief to the Domestic Industry a) Anti-dumping Duties Lesser Duty Rule Injury Margin De Minimis Margins b) Price Undertakings 7 The Application Procedure Information required Period of Investigation Confidential information 8 Anti Dumping Investigation Process 9 Other Provisions under Anti-dumping laws in India Retrospective Measures Review Appeal Refund of Duty 10 Miscellaneous Imports by Exporters Anti-dumping Duty & Other Measures 11 Relevance of Cost Information The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1

1. Anti Dumping - Introduction Anti-Dumping Duties essentially deal with the price behaviour of exporters ; when goods are dumped at a price which is lower than the normal price at which such product was sold in the domestic market of that exporting country dumping exists only when normal price is more than the Export Price to cause material injury to a domestic industry in the importing country Injury and casual link are required to be proved With the opening of the economy since 1991 and rapid industrialization, increase in cross-border transactions of goods and services, the issue of anti-dumping is driving the fate of various industries - both foreign and domestic, who are doing or intending to do business in India. With more controversies and complexities arising out of cross-border transactions, there is an increasing debate and litigation arising out of these dumping actions/activities. Our country India, being a member of WTO, is also facing challenges to resolve the issue under the geo-socio-eco-political environment with strict reference to make proper compliance of prescribed norms by WTO, honour Trade Agreements and other bilateral agreements for trade or commerce or in respect of any other agreements of the like. International trade has liberalized under the WTO regime allowing free movement of goods and services between member countries. This was made possible by elimination of tariff and non-tariff barriers to the greatest extent. There is a marked increase in the number of regional preferential trade agreements which emanated from the sharp increase in cross-border trade and liberalization at regional levels. In the dynamic socio-geo-eco-political environment, with the elimination of majority of tariff and non-tariff barriers, there has been a sharp decrease in the rate of import duty. India has reduced its peak import tariff from as high as 150% in 1991-92 to 40% in 1997-98 and curving down further to a current peak level of 10% as an effect of the obligations incurred by it as a member of WTO. Pursuant to such, if there is even any slightest unfair trade practice on the part of exporter or subsidy extended of funded by exporting country, it would lead to create a discomfort environment for domestic industries to compete with imported products, which are like products to the products manufactured by domestic industries. WTO has made agreements as an exceptional measure, depending upon the situation permit product specific imposition of anti-dumping duty, safeguards duty and countervailing duty for protection of domestic industry from the injury caused by imported goods. These three duties are exceptional in nature and are meant for three different mutually exclusive situations. In India, The Directorate General of Anti-dumping and Allied Duties (DGAD) under the aegis of Department of Commerce, Ministry of Commerce and Industries, Government of India is entrusted to supervise the actions arising out activities leading to affect/cause material injury to domestic industry to initiate proper action under law in force in India. The General Agreement on Tariffs and Trade (GATT) lays down the principle to be followed by the Member countries for imposition of anti-dumping duties, countervailing duties and safeguard measures. Pursuant to the GATT 1944, detailed guidelines have been prescribed under the specific agreements which have also been incorporated in the national legislation of the member countries of the WTO. Indian laws were amended with effect from 1.1.95 to bring them in line with the provisions of the respective GATT Agreements. Anti-dumping is a measure to rectify the trade distortive effect of dumping and re-establish fair trade, which is achieved by imposition of a duty on dumped imports, not exceeding the margin of dumping. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2

Meaning of Dumping - for a common man To general public, dumping as a misnomer, is often mistaken to mean availability of cheap or low priced imports. It sounds like an evil action where the foreign goods are made available at a very low price which may be an affordable price and impress upon the general buyers to shift their brand loyalty to foreign-made articles/product from their erstwhile choice and use of products manufactured within the country, i.e. domestic products. Dumping means selling goods in foreign market at a price lower than that in the domestic market. Article VI of GATT deals with dumping. DUMPING IS NOT ACTIONABLE until it causes Material Injury to the Domestic Industry Article VI of GATT disapproves the practice of dumping and stipulates that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, it is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry. The concept of dumping and subsidization has been the strategic decisions of business units/corporates/ multinational companies/ Governments of many countries. Further with the manufacturers also possess their logical desire of manufacturers/producers to produce more and more to gain the economies of large scale production. This helps in reducing their fixed cost per unit and thereby the cost of production. If the domestic market is saturated or with the desire of crossing the national customs frontiers, the businessmen may aim to access the global markets, which poses before them both challenges and opportunities. With the opening up of economies, there is an integration of world markets besides widening the trade horizon at the cost of leading towards intense competition where everyone desires to capture a considerable market share. The phenomenon of dumping is per se not condemnable as it is recognized that producers sell their goods at different prices in different market. It is also not unusual for prices to vary from time to time in the light of supply and demand conditions. It is also recognized that price discrimination in the form of dumping is a common international commercial practice. It is also not uncommon that export prices are lower than the domestic prices. Therefore, from the point of view of anti-dumping practices, there is nothing inherently illegal or immoral about the practice of dumping. However, where dumping causes or threatens to cause material injury to the domestic industry in India, the Designated Authority initiates necessary action for investigations and subsequent imposition of anti-dumping duties. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3

2. Legal Framework of Anti-Dumping Laws in India Sections 9A,9B and 9C of the Customs Tariff Act,1975 as amended in 1995 and the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 framed thereunder form the legal basis for anti-dumping investigations and for the levy of anti-dumping duties. These laws are based on the Agreement of Anti-dumping which is in pursuance of Article VI of GATT 1994. LEGAL FRAMEWORK Based on Article VI of GATT,1994 Customs Tariff Act, 1975 - Sections 9A,9B ( as amended in 1995) Anti-Dumping Rules [ Customs Tariff ( Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 Investigations and Recommendations are executed by Designated Authority, Department of Commerce, Ministry of Commerce and Industries, Government of India Imposition and collection of duty is done by Department of Revenue, Ministry of Finance, Government of India The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4

3. Determination of Dumping 3.1 Dumping Dumping occurs when the export price of goods imported into India is less than the Normal Value of 'like articles' sold in the domestic market of the exporter. Imports at cheap or low prices do not per se indicate dumping. Normal Value in the Exporting Market Export Price Margin of Dumping = Normal Value (-) Export Price Margin of Dumping means the difference between its Normal Value and its Export price. When the Exporting country export the goods at the price below its normal price, then it is called the dumping of product in the domestic country, where it has been imported. Example: Normal Value of a product in Country B is `100 ( equivalent to INR) is imported in India and sold in the ordinary course of trade at `80. Hence, the margin of dumping = Normal Value (-) Export Price = `(100-80) = `20. Example : Mr. X an importer imported certain goods CIF value was US $20,000 and quantity 1,000 Kgs. Exchange rate was 1 US $ = ` 50 on date of presentation of Bill of Entry. Customs Duty rates are (i) Basic Customs Duty 10%, (ii) Education Cess 2%, (iii) SAH Education Cess 1%. There is no excise duty payable on these goods if manufactured in India. As per Notification issued by the Government of India, anti-dumping duty has been imposed on these goods. The anti-dumping duty will be equal to difference between amount calculated @ US $30 per kg and landed value of goods. Compute Customs Duty liability and anti-dumping liability. Solution: Part I Amount in ` Total CIF Price US $ 20,000 x ` 50 10,00,000 Add: Landing charges @ 1% x `10,00,000 10,000 Assessable Value 10,10,000 Basic duty @ 10% 1,01,000 Sub total 11,11,000 Add: Education Cess 2% on ` 1, 01,000 2,020 Add: Secondary and Higher Education Cess [@1% on ` 1,01,000] 1,010 Value of imported goods 11,14,030 Total Customs Duty payable is ` 1,04,030 Part II Rate as per Anti Dumping Notification is ` 15,00,000 [US $ 30 per kg x 1,000 Kgs x ` 50] Part III Computation of anti-dumping duty Rate as per Anti Dumping Notification 15,00,000 Less: Value of imported goods as computed above (11,14,030) Anti Dumping Duty payable 3,85,970 The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 5

3.2 Normal Value The Normal Value is the comparable price at which goods under consideration/alleged dumped articles are sold, in the ordinary course of trade, in the domestic market of the exporting country or territory. The Price of the product in the domestic market of the Exporting Country; in ordinary course of trade, when destined for consumption in the exporting country. Normal Value Comparable price of the like article when meant for home consumption in the ordinary course of trade or commerce Indian laws refer to domestic price in the exporting country or territory If Normal Value cannot be determined by means of domestic sales, the Act provides for the following two alternative methods: Comparable representative export price to an appropriate third country; Cost of production in the country of origin with reasonable addition for administrative, selling and general costs and for profits. The Ordinary course of Trade means when the Sales price is above the cost of Production of the Product in exporting country. When Sales Price in domestic market of exporting country is below its cost, it is said that sales is not in the ordinary course of trade, and thus may be disregarded in determination of the Normal Value. Example: Cost of a product in Country A is `100 (equivalent INR) per unit. Selling price per unit is `150. Then the normal value is `150, being the price at which the product is ordinarily sold in the domestic market of that foreign country. Example: Say, with reference to the above example, if the sale price of the product per unit was `90, then, that sales price shall not be considered to be in the ordinary course of trade, hence, shall not be the normal value. From the above two examples, it is apparent that in order to qualify to be a "normal value", there should be a price which is over and above the cost price and also includes an reasonable/proper return on investment, termed as profit/gain. In certain circumstances, for e.g, when there are no sales in the domestic market, or there are insignificant sales in the domestic market or sales are not in the ordinary course of trade, then alternative methods are adopted for determining the Normal Value. There are two methods for determining the Normal Value of the Product under investigation:- a) The price at which the product is sold to a third party; b) The constructed value of the product, which is calculated on the basis of cost of production, plus selling, general & administrative expenses and profits. Example: Computation of Normal Value Domestic Sales 60 units at ` 120, 40 units at ` 105 Export Sales 200 units at Rs 110 Cost of Production ` 108 In the above example, the average domestic Sale price works out to: = (60*120+40*105)/100 =` 114 but the sales of 40 units at ` 105 being below cost and being more than 20 percent will be ignored. The remaining sale of 60 units being more than 5 percent will be considered for determining normal value as ` 120. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 6

Example: Domestic Sales 90 units at ` 120, 10 units at ` 100 Export Sales 200 units at ` 110 Cost of Production ` 108 In the above example, the average domestic Sale price works out to = (90*120+10*100)/100 =` 118. In this case, the sales of 10 units at ` 100 is being below cost and but sale being less than 20 percent will be considered for determining Normal Value. So, the weighted average Normal Value is 118. Determination of Normal Value Y Sales in Domestic Market YES NO Product is a "Like Product" YES NO Make Adjustment for differences Sales in Ordinary Course of Trade YES NO Sales are Representative YES NO Normal Value Construct Normal Value Constructed Normal Value When Domestic sales or third country sales of like product are not in the ordinary course of trade or when because of the particular market situation or the low volume of sales in the domestic market of the exporting country, normal value cannot be determined on that basis, it needs to be constructed. The Agreement requires that the constructed normal value to be based upon the costs of production in the country of origin and not in the country of export if the two are different. Besides the cost of production (Fixed and Variable), the other major components of constructed normal value are selling, administrative and general expenses (SGA) and profits. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 7

Paragraph 2.1 & 2.2 of Article 2 in this regard provides that the calculation of costs and the amount of selling, administrative and general expenses and profits shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration. It is imperative to note that cost records as maintained by the stakeholders/interested party/domestic industry should be as per the generally accepted cost accounting principles and cost accounting standards, duly authenticated by a Cost Accountant. These records in turn would also equip the domestic industries/ stakeholders to substantiate evidential documents in case of litigation as relates valuation or ascertaining cost of a product under consideration or an article under investigation. 3.3 Export Price The Export price of imported goods into India is the price paid or payable for the goods by the first independent buyer. Export Price If there Export Price and is Reliable If there is no Export Price or if the Export Price is not Reliable Constructed Export Price Export Price - The Export Price is the transaction price at which the foreign producers sell the product to an importer in the importing country. both values/prices shall be taken in respect of sales made at the same level of trade; normally at the ex-factory level; sales made at as nearly as possible the same time; Arm's Length Transaction; resale price to an Independent buyer; on a reasonable basis; due allowances for factors affecting comparison; Weighted Average Normal Value with Weighted Average Export Price; Normal Value (-) Export Price on a transaction to transaction basis Example: Cost of a product in Country A is `100 (equivalent INR) per unit. Selling price per unit is `150. Immediately after the goods are being imported to India, about 80% of the goods are sold in the domestic market of the importing country for `250 per unit. While the remaining goods were sold after a month at a price of `220 per unit. In this given case, the "Export Price" shall be `250 per unit based on the price at which the 'product under consideration' was sold in the Indian market, i.e. domestic market. In certain circumstances, there may be no Export price for a given product, for instance, if export transaction is an internal transfer, or if Product is exchanged in a barter transaction. In some cases, the transaction price may be unreliable because of an association or compensatory arrangement between the exporter and importer or a third party. In these cases, where the export price cannot be determined, then alternative methods may be adopted. This method is Constructed export price, which is calculated on the basis of the price at which the imported products are first resold in an independent buyer. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 8

Constructed Export price Where there is no export price or where it appears to the authorities concerned that the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of : the price at which the imported products are first resold to an independent buyer, or if the products are not resold to an independent buyer, or not resold in the condition as imported, on such reasonable basis as the authorities may determine, or allowances for costs, including duties and taxes incurred between importation and resale, and for profits accruing, should also be made. Export price - sale at arm's length Sale at arm's length means the sale having been made in the ordinary course of trade, either by the producers in the country of Production or by the exporters in the country of export, when either the price is not affected by any association or relationship or the sale price is not lower than the cost of production. Two or more persons are considered to be related : a) if one of them directly or indirectly controls the other; b) if both are directly or indirectly controlled by a third enterprise; or c) if together they directly or indirectly control a third enterprise, provided that there are grounds for believing or presuming that the effect of the relationship is such as to cause the producer concerned to behave differently from non-related producers or exporters Adjustments and Comparison Normal Value Adjusted Normal Value Make Adjustment for differences in: Physical Characteristics Import Charges and Indirect expenses Level of trade Discounts, rebates and quantities Transport, insurance, handling and ancillary costs Packing Terms of credit After Sales costs Commissions Currency Conversions Adjusted Normal Value (-) Adjusted Expert Price (=) Dumping Margin Export Price Adjusted Export Price Currency Conversions: Where the comparison of normal value and export price requires conversion of currency, the Agreement provides specific rules governing that conversion the exchange rate used should be that in effect on the date of sale (date of contract, invoice, purchase order or order confirmation, whichever establishes material terms of sale). If a forward currency sale is directly linked to export sale, the exchange rate of forward currency sale must be used. Moreover, the Agreement requires that exchange rate fluctuations be ignored, and that exporters be allowed at least 60 days to adjust export prices for sustained exchange rate movements. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 9

3.4 Margin of Dumping Margin of Dumping refers to the difference between the Normal Value of the like article and the Export Price of the product under consideration. The Margin of Dumping is generally expressed as a percentage of Export Price Margin of Dumping - normally established on the basis of Comparison of weighted average Normal Value with a weighted average of prices of comparable export transactions Comparison of normal values and export prices on a transaction to transaction basis A Normal Value established on a weighted average basis may be compared to prices of individual export transactions if the Designated Authority finds a pattern of export prices that differ significantly among different purchasers, regions, time period, etc. It is significant to note that the alternative method of comparing the normal values and export prices is a major change introduced after the Uruguay Round. Calculation of Margin of Dumping Transaction Normal Value Export Price Dumping Margin Determination Unit Value Unit Value Wt. av. NV-Wt. av. EP Wt. av. NV- Individual EP NV-EP I 25 80 15 70 (87-84) = 3 27 10 II 40 100 35 80 17 20 III 15 90 40 100-13=0-10=0 IV 20 70 10 60 7 10 Weighted Average Dumping Margin in %age Weighted Average Normal Value (Wt. av. NV) = (25*80+40*100+15*90+20*70)/100= 87 Weighted Average Export Price (Wt. av. EP) = (15*70+35*80+40*100+10*60)/100= 84 Weighted Average Dumping Margin- * 3/84 = 3.57% **(15*27+35*17+40*0+10*7)/100 = 11% ***(15*10+35*20+40*0+10*10)/100=9.5% 3.57% * 11% ** 9.5% *** It would be seen from the above example that a comparison of weighted average normal value with individual export price has resulted in a higher dumping margin than that obtained on a comparison of weighted average normal value with weighted average export price or of normal value with export price on transaction-to-transaction basis. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 10

3.5 Factors affecting Comparison of Normal Value and Export Price The Export Price and the Normal Value of the goods must be compared at the same level of trade, normally at the ex-factory level for sales made as near as possible in time. Due allowance is made for differences that affect price comparability of domestic sale and export sale. These factors, inter alia, include: physical characteristics; levels of trade; quantities traded; taxation; conditions and terms of sale; capacity utilization; other factors which may affect the price comparability, as decided/considered by the Designated Authority. Like Articles The anti-dumping duty is to be imposed on the article under investigation and as identified and notified by the investigating authorities and not on any other article. In case the tariff heading under which the goods are classified is mentioned for identifying the goods, the classification of the goods also assumes importance in attracting or avoiding the imposition of anti-dumping duty. In the case of import of lead acid batteries, the Hon ble Tribunal in its order 2005 (186) E.L.T. 415 (Tri. Del.), observed that the bare perusal of the notification showed that the anti-dumping duty was leviable on the industrial and automotive batteries of Chinese origin imported from Hong Kong and not on any other category of batteries. The batteries imported by the appellants did not fall under these categories. Those were Lead Acid Batteries meant for UPS. The Hon ble Tribunal, therefore, held that no anti-dumping duty was leviable on the batteries imported by the appellants and that the demand for anti-dumping duty in respect therefore was not justifiable. Apples Capsicum Roses Like Articles: Identical in all respects; or If not alike in all respects, having closely resembling characteristics The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 11

As per WTO Law, criteria for the determination of like products are based on the following parameters: (i) the physical properties of the products; (ii) the extent to which the products are capable of serving the same or similar end-uses; (iii) the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and (iv) the international classification of the products for tariff purposes. The subject goods produced by the domestic industry and imports from subject countries should be comparable, technically and commercially substitutable in terms of physical, technical specifications, functions or end-uses. Anti-Dumping can be taken only when there is an Indian Industry which produces "Like Articles" when compared to the allegedly dumped imported goods. The article produced in India must be either identical to the dumped goods in all respects or in absence of such an article, another article that has characteristics closely resembling those goods. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 12

4. Injury to the Domestic Industry in India The Indian Industry must be able to show that dumped imports are causing or are threatening to cause material injury to the Indian 'domestic industry'. Material retardation to the establishment of an industry is also regarded as injury. The material injury or threat thereof cannot be based on mere allegation, statement or conjecture. Sufficient evidence must be provided to support the contention of material injury. The authorities have to consider the following factors which helps in determining any possibility of a threat of material injury : (i)these are developments in the market share of dumped imports, (ii)expansion in capacity of production and capacity utilization of the exporters, and (iii)inventories and effect of prices of dumped imports, particularly on the growth of demand for future imports. Material Retardation A determination of injury in relation to an existing industry can be made through the determination of material injury or a threat of material injury to it but in the case of a domestic industry to be established, the test of injury to be applied is that of material retardation. The factors that may indicate material retardation are as follows : (i)in case of 'developing industry', the flight of investment in the industry, or (ii)in case of 'nascent industry', its inability to achieve a satisfactory level of capacity utilization and to finds its due place in the market. Injury analysis can broadly be divided in two major areas: Injury Determination Volume Effect Price Effect Significant Increase - Absolute Measure - Relative Measure Depression Undercutting Suppression The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 13

The Volume Effect Designated Authority examines the volume of dumped imports; review of the extent to which there has been or is likely to be a significant increase in the volume of dumped imports; expressed in absolute terms or in relation to production or consumption in India; impact of such change on the domestic industry. Volume of Dumped Imports The Designated authorities need to consider whether there has been a significant increase in the volume of dumped imports either : In absolute terms, i.e., an increase in the quantum of imports in the absolute terms, or An increase in the quantum of dumped imports relatively compared to: -The Production in the importing Member, or -Consumption (market share) in the importing member. It may, however, happen that while the dumped imports might not have increased in quantitative terms, for example from 100 units to 110 units, but in a shrinking market, in spite of a lesser quantum of imports, the share of such imports may have still increased relatively as a percentage of production or market share, for example the imports may have decreased by 10 percent but the domestic production or consumption may have decreased by 20 percent, in which case also, it may result in a findings of increase in the volume of the dumped imports in comparative terms. The Price Effect Both Price Undercutting or suppression of prices in the domestic market of the importing country would mean that either the dumped imports are entering the market at a price lower than the price of the like articles in the domestic market or the prices of the dumped imports is preventing a price increase of the like articles, which otherwise would have occurred. This would, in other words mean that if the prices of dumped imports compare well with the prices of the like products of the domestic producers, or with the prices of nondumped imports of the products it may be argued that dumped imports have not caused price undercutting. The authorities, however, may still have to examine whether dumped imports have prevented an increase in price which otherwise would have occurred. effect of the dumped imports on prices in the Indian market for like articles; review/examination of price undercutting; or extent to which the dumped imports are causing price depression ; or extent to which preventing price increases for the goods which otherwise would have occurred. The consequent economic and financial impact of the dumped imports on the concerned Indian industry can be demonstrated, inter alia, by: decline in output loss of sales loss of market share reduced profits decline in productivity decline in capacity utilization reduced return on investments price effects adverse effects on cash flows, inventories, employment, wages, growth, investments, ability to raise capital or investments, etc. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 14

Injury analysis is a detailed and intricate examination of all the relevant factors It is not necessary that all the factors considered relevant should individually show injury to the domestic industry Price Undercutting The difference between Sales realization of domestic Industry at factory gate net of taxes and Landed Value of Imports is referred to as Price Undercutting by imports. Example: (a) on Positive price undercutting Particulars Amount (Rs) Gross Sales 140.00 Including VAT of `14 (say) Less: VAT included in sales 14.00 *Sales realization of domestic Industry net of taxes 126.00 Landed Value of Imports 110.00 **Positive Price Undercutting (b) on Negative Price Undercutting Particulars Amount (Rs) 16.00 ** Indicates pressure on domestic industry from imports. Gross Sales including VAT (say) 100.00 Including VAT of `10 (say) Less: VAT included in sales 10.00 *Sales realization of domestic Industry net of taxes 90.00 Landed Value of Imports 110.00 **Negative Price Undercutting 20.00 ** Indicates comfortable position for domestic industry. Price Underselling The difference between NIP of Domestic Industry and Landed Value of Imports is referred to as price underselling by exporters Example: (a) on Positive price underselling Particulars Amount (Rs) Non Injurious price (NIP) 100.00 Landed Value of Imports 90.00 **Positive Price Underselling Example: (b) on Negative Price underselling Particulars Amount (Rs) Non Injurious price (NIP) 100.00 Landed Value of Imports 120.00 **Negative Price Underselling 10.00 ** Indicates the inability of domestic industry to sell its products at a price which is non-injurious to it on account of pressure from imports 20.00 ** Indicates comfortable position for the domestic industry where it can sell its products without suffering injury from imports and can earn profit on its sales. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 15

Injury Margin The difference between Non Injurious price and Landed Value of Imports is referred as injury margin for the domestic industry. Example: Non-Injurious Price `100; Landed Value of Imports `90. Injury Margin = `100 - `90 = `10 Example: An importer imported Description of goods: Mulberry Raw Silk (not thrown) (HS Code 5002 00) from People s Republic of China. CIF value was US $ 20,000 and quantity 1,000 Kgs. Exchange rate was US $ =` 44 on date of presentation of Bill of Entry. Customs Duty rates are (i) Basic Customs Duty 10%, (ii) Education Cess 2%, (iii) SAH Education Cess - 1%. There is no excise duty payable on these goods if manufactured in India. As per Notification No. 106/2003-Cus dated 10-7-2003, anti-dumping duty has been imposed on these goods imported from China, manufactured by any producer in People s Republic of China. The anti-dumping duty will be equal to difference between amount calculated @ US $31.69 per Kg and Landed value of goods. Compute Customs Duty liability & anti-dumping liability. Solution : (a) Computation of Customs Duty : Total CIF Price US $ 20,000 CIF @ Rs 44 per 1 US $ ` 8,80,000.00 Add Landing charges @ 1% ` 8,800.00 Assessable Value ` 8,88,800.00 Basic duty @ 10% ` 88,880.00 Education Cess @ 2% on 88,880.00 ` 1,777.60 SAH education Cess 1% ` 888.80 Total Customs Duty payable (Basic + Education Cess) ` 91,546.40 Rounded off ` 91,546.00 (b) Computation of landed value Assessable Value Under Customs Act ` 8,88,800.00 Add: All Duties of Customs ` 91,546.40 Landed Value as per Anti-Dumping Notification ` 9,80,346.00 (c) Computation of anti-dumping duty Rate of Silk Yarn as per Anti-Dumping Notification (US $ 31.69 per kg) 1000 kgs = US $ 31,690 Value @ ` 44 per US $ = (31,690$ x ` 44) ` 13,94,360 Less : Landed value as per Anti-Dumping ` 9,80,346 Anti-Dumping Duty Payable ` 4,14,014 The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 16

Landed Value of Imports Total cost of the material purchased; Includes all the expenses incurred during the course of importation upto the port; should include basic customs duty plus landing charges. Example: An importer imported some goods for subsequent sale in India at $12,000 on CIF basis. Relevant exchange rate as notified by the Central Government and RBI was ` 45 and ` 45.50 respectively. The item imported attracts basic duty at 10% and education Cess as applicable. If similar goods were manufactured in India, Excise Duty payable as per Tariff is 14% plus education Cess of 2% and SAH 1%. Arrive at the Assessable value and the total duty payable thereon. State eligibility of CENVAT credit to buyer. Solution: Assessable Value ` 5,45,400 Add: Basic Customs Duty = 10% x 5,45,400 ` 54,540 Total ` 5,99,940 Add: CVD 14% on ` 5,99,940 ` 83,992 Add: Education Cess 2% on 54,540 + 83,992 ` 2,771 Add: SAH 1% on 54,540 + 83,992 ` 1,385 Total value of imported goods ` 6,88,088 Working Note: CIF Value 12,000 US$ Total CIF in ` @ 45.00 per US $ ` 5,40,000 Add: Landing Charges @1% of CIF ` 5,400 Assessable value ` 5,45,400 Casual Link A Casual link must exist between the material injury being suffered by the domestic industry (i.e. Indian industry) and the dumped imports. In addition, other injury causes have to be investigated so that they are not being attributed to dumping. Some of these are volume and prices of imports not sold at dumped prices, contraction in demand or changes in the pattern of consumption, export performance, productivity of the domestic industry, etc. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 17

Identify the extent of casual relationship - and demonstrate Consider other relevant factors like : Volume and price of other imports; Demand contraction; Productivity; Technology Casual link between dumped imports and injury The demonstration of a casual relationship between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports, which at the same time are causing injury to the domestic industry, and the injury caused by those factors must not be attributed to the dumped imports. Factors which are relevant in this regard include : (i)the volume and the prices of imports not sold at dumping prices, (ii)contraction in demand or changes in the patterns of consumption, (iii)trade restrictive practices or competition between the foreign and domestic producers, (iv)developments in technology and the export performance, and (v)productivity of the domestic industry. Injury During Anti-dumping Investigation, the designated authority concludes injury to the domestic industry, if : (i)the quantum of imports from the subject countries has increased in absolute as well as in relative terms, (ii)the market share of the domestic industry has gone down, (iii)the domestic industry has been forced to sell at reduced prices that have resulted in losses, (iv)imports are significantly depressing the prices of the domestic industry, (v)there has been significant decline in the sales volume of the domestic industry, (vi)the domestic industry faces a threat or material injury from the alleged dumped imports. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 18

5. Who can file an Application Normally dumping investigation can be initiated only upon receipt of written application by or on behalf of the "Domestic Industry" - who claims to have been materially injured in the course of such alleged importation of goods into India. In order to constitute a valid application, the following two conditions shall have to be satisfied: The Domestic producers expressly supporting the application must account for not less than 25% of the total production of like article by the domestic industry in India; and The domestic producers expressly supporting the application must account for more than 50% of the total production of the like article by those expressly supporting and those opposing the application Domestic Industry Domestic industry means the domestic producers as a whole of the like products or those producers whose collective output of the like products constitutes a major proportion of the total domestic production of like products. Although, the investing authorities can also on their own initiate an investigation, it is generally the domestic industry, which requests the authorities to investigate against dumped imports. But, in considering the producers that comprise domestic industry, the investigating authorities may exclude producers who are either related to the exporters or importers or who are themselves importers of the allegedly dumped imports. This is a discretion given to the authorities, which needs to be exercised keeping all circumstances in view. In view of the above, producers deemed to be related to exporters or importers only if : (i) One of them directly or indirectly controls the other, or (ii) Both of them are directly or indirectly controlled third person, or (iii) Together they directly or indirectly control a third person. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 19

6. Relief to the Domestic Industry Relief may be extended/provided to the domestic industry pursuant to final findings of any investigation only in the form of trade remedy measures by imposing counter-productive duties ( anti-dumping or countervailing or safeguard) or price undertakings. Relief to Domestic Industries Trade Remedy Measures (Imposing duties of customs ) Price Undertakings Anti-dumping Duty Countervailing Duty Safeguard Duty The Trade Remedy Measures under WTO can be classified and diagrammatically represented as: Trade Remedy Measures Anti-dumping Duty Countervailing Duty Safeguard Duty These three duties are charged as a duty of customs on the imports over and above the normal import duty in order to give a level playing field and to remove injury to domestic industries in the country of import. Anti-Dumping Duty If an exporter, exports a product at a price lower than the price it normally charges on its own home market, it is said to be dumping the product and an application for imposition of Anti-dumping duty can be moved in the country of import by Domestic producers of the product which is being dumped. Dumping of product is not actionable, but forms the grounds to cause/initiate action, only if such dumping causes material injury to any established industry in India or materially retards the establishment of any industry in India. Anti-dumping duty can be levied in any one of the following forms:- (i) Fixed duty. (ii) Ad valorem duty, and (iii) Variable duty The fixed duty is the amount equal to the difference between the normal value and export or the difference between the non-injurious price and the landed cost of the article, whichever is lower. Ad valorem duty is expressed as percentage of CIF value of imported goods. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 20

Example : X Inc. is a manufacturer in country "Y" manufacturers and sells a product in their domestic market for `650 (INR equivalent) per unit in the normal course of trade. The said manufacturer is now exporting the goods to India and then selling the product for `490. There is an Indian manufacturer who manufacturers a 'like product' and sells the goods in Indian/domestic market for `550. There is an element of dumping, since the export of the product is at a price which is lower than the price it normally charges on its own home market. Anti Dumping Duties Duties are imposed on a source specific basis - either ad valorem or specific basis Non co-operative exporters are required to pay the residuary duty - which in general is the highest of cooperative exporters Anti Dumping Duty Lesser Duty Rule Injury Margin De Minimis Margins Lesser Duty Rule Only the amount of duty which is sufficient to remove the injury to the domestic industry. Under the GATT provisions, the national authorities cannot impose duties higher than the margin of dumping desirable if the appropriate Government authorities impose lesser duty which is adequate to remove injury to the domestic industry Under the Indian laws, the Government is obliged to restrict the anti-dumping duty to the lower of the two, i.e. dumping margin and the injury margin. Injury Margin = Difference between the Fair Selling Price and the Landed Value Designated Authority should calculate the margin of dumping along with the injury margin Landed Value = Assessable Value under Customs (+) Basic Customs Duty De Minimis Margins De Minimis Margins Margin of Dumping Volume of Dumped Imports Exporter Specific Less than 2% of Export Price Country Specific Less than 3% from individual country and cumulatively more than 7% Outside the purview of Anti-dumping Net if : Any exporter whose margin of dumping is less than 2% of the export price shall be excluded from the purview of anti-dumping duties even if there is an existence of dumping, injury as well as the casual link are established, or Investigations against any country are required to be terminated if the volume of dumped imports from that particular source (i.e. exporting foreign country) are found to be less than 3% of total imports, provided the cumulative imports from all those countries who individually account for less than 3% are not more than 7%. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 21

Price Undertakings The Designated Authority may suspend or terminate investigation if the exporter concerned furnished an undertaking to review his price to remove the dumping or the injurious effect of dumping as the case may be; No undertaking can be accepted before completion of preliminary findings; No anti-dumping duties are recommended on such exporters from whom price undertaking has been accepted; No price undertaking may, however, be accepted in case it is found that acceptance of such undertaking is impracticable or is unacceptable for any reason Countervailing Duty In contrast to Anti-dumping Duty, an application for countervailing duty can be moved when the exporting government is giving subsidy to its export which causes injury to the domestic industry of the country of import. Example : Y Inc. is a manufacturer of country "B" sells a product in its domestic market for `200(INR equivalent). Now that the said manufacturer is offered a 'subsidy' to the tune of `90 per product, by its Government (i.e. Government in country B), if products are exported to India. Now, Y Inc. is exporting goods to Indian market. In this case, the exporting government in country B is providing subsidy to its export/exporter, which is causing injury to the domestic industry in India. This shall be tried under levy of imposing Countervailing Duty. Safeguard Duty An application for safeguard measures can be moved when there is a sudden and sharp increase in imports as a result of unforeseen developments causing injury to domestic industry. Safeguards duty is imposed purely for the protection of domestic industry on a no fault principle where domestic industry is temporarily unable to compete with imported products on account of unforeseen developments. Example : Z Corporation, in country M is engaged in exporting goods to India. Its present sale price of the product is `20 and selling at that price does not cause injury to the domestic industry. However, there had been a sudden development, leading to increase in volume of imports of that product into India by Z Corporation. Resulting to this increase in volume of imports, the price of the same product is slashed down to `13 per unit. This is causing injury to the domestic industry, who are producing and selling 'like products' at `18 per unit. In this situation, there shall attract the invoking of the provisions for imposition of 'safeguard duty'. A Comparative Analysis Anti Dumping Countervailing Duty Safeguard Duty Product specific and Exporter Specific Duty Continue forever as long as dumping continues There is an alleged foul play on the part of the exporter Product specific and Country specific duty Continue forever as long as subsidy continues There is an alleged foul play on the part of the exporting country Product specific duty imposed against imports coming from all sources irrespective of exporter and country of origin Continue only for a temporary period not exceeding 10 years No alleged foul play on the part of exporter or exporting country in case of safeguards duty The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 22

7. The Application Procedure Concerned domestic industry should apply to the Designated Authority in the Ministry of Commerce & Industries for an investigation of any alleged dumping. The Designated Authority may initiate an investigation when there is sufficient evidence that dumped imports are causing or are threatening to cause material injury to the Indian industry producing like articles or are materially retarding the establishment of an industry. Application to Designated Authority Determining Period of Investigation Identify 'Product under Consideration' or 'Article under Investigation Submission of Information - Confidential information and Non-confidetial information in prescribed form and manner Designated Authority The Designated Authority is the person appointed by the Government of India to investigate the dumping margin in relation to import of any article. The Authority has to identify the existence, degree and the effect of any alleged dumping for imposition of the Anti Dumping duty. The Concerned Official has to communicate his findings to the Central government as to what amount of Anti Dumping duty would remove the injury of the domestic country. And it also needs to review the continuance of Anti Dumping duty which is already imposed. The present office of "Designated Authority" vide Notification in "The Gazette of India" on October 10,2012, Ministry of Commerce and Industry, Department of Commerce, Trade Policy Division, order no.14/3/91 dated New Delhi, 10th October,2012: Shri J. S. Deepak. Additional Secretary to the Government of India in the Department of Commerce, Ministry of Commerce and Industry shall discharge the functions of the Designated Authority with effect from 8 October, 2012, for the purpose of :- (i) The Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidised Articles and for Determination of Injury) Rules, 1995 as amended. (ii) Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 as amended. Period of Investigation (POI) Period of investigation is the specific time period for which all information and evidence is furnished in the application of dumping, injury having a casual link. POI should not be any case, less than six months and more than eighteen months. For the purposes of injury analysis, the domestic industry has to furnish the relevant data for the past three years preceding the POI. The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 23