Centre is All for Self-reliance; What Explains Strong Rejection of Anti-dumping Duties?

Centre is all for self-reliance; what explains strong rejection of anti-dumping duties?

By Urvashi Kaul

The alarming rate at which the recommendations of the Directorate General of Trade Remedies (DGTR) for the imposition of anti-dumping duty (ADD) have been rejected in recent years raises serious concerns. The trend contradicts the Centre’s assertions of striving for self-reliance and raises important questions.

ADDs are imposed on imported goods to compensate for the difference between their export price and their normal value. This is done if ‘dumping’ by foreign entities impacts producers of competing products in the importing country. Trade remedy measures such as ADD are essential both for protecting domestic industry from unfair competition and for creating a level-playing field.

The DGTR, under the Ministry of Commerce and Industry, is a quasi-judicial body that is responsible for investigating all anti-dumping cases in India. It makes recommendations to the Ministry of Finance regarding trade remedial measures, such as anti-dumping duties, countervailing duties, and safeguard measures.

Sharp rise in rejections

The countries that prominently figure in anti-dumping investigations are China, the EU, Taiwan, Korea, Japan, the US, Singapore and Russia, among others. The major product categories on which anti-dumping duty has been levied are chemicals and petrochemicals, pharmaceuticals, glass and glassware, steel and other metals, and consumer goods.

Out of 1,052 cases recommended by the DGTR, only seven recommendations were rejected by the Finance Ministry between 1991 and 2020. However, the rejection rate for DGTR’s recommendations has now risen significantly, from 0.61 per cent between 1991 and August 2020 to 61 per cent between September 2020 and October 2022. During the latter period, only 44 out of 120 recommendations were accepted.

Such a large-scale rejection of these recommendations indicates a lack of coordination between government departments, which hampers effective decision-making and exacerbates the difficulties faced by domestic industry.

Indian industry faces significant challenges due to the continuous ‘dumping’ of products by foreign companies at costs lower than their respective domestic markets. Considerable damage has been done to the local manufacturing sector.

How ADD helps local firms

An illustrative example of the consequences of such practices can be seen in the case of the import of vitrified tiles from China. Anti-dumping duties were imposed in 2002. These continued till 2013, after which they lapsed. However, the DGTR recommended the imposition of provisional anti-dumping duties on imports of vitrified tiles from China on March 11, 2016. These recommendations were accepted and imposed by the Finance Ministry on March 29, 2016. The definitive anti-dumping duties were recommended in April 2017 and were imposed on June 14, 2017.

This imposition of anti-dumping duties led to a significant transformation in the domestic tiles industry. In 2005, there were only five producers of tiles, but due to the duties in force, the number of producers crossed 242 by 2021. The capacities of the industry also increased from 3 million sq m to more than 1,000 million sq m. Investments made by the tiles industry surged from Rs 100 crore in 2000 to Rs 50,000 crore in 2021.

In another case, the DGTR discovered that penicillin-G was being unlawfully imported from China and Mexico into India. This resulted in a significant decline in the performance of the domestic pharmaceutical industry across various aspects, such as production, sales, capacity utilisation, market share, profits, and return on investments. Surprisingly, despite DGTR’s recommendations on January 20, 2011, the Finance Ministry did not impose any anti-dumping duties on these imports from China and Mexico.

Consequently, the excessive dumping of penicillin-G caused all domestic producers in India to cease operations, thereby leading to complete reliance on imported supplies by consumers. This dependency on imports created an unfavourable situation for the domestic industry.

Similarly, an anti-dumping investigation was conducted on the imports of newsprint from several countries, including Australia, Canada, the EU, Hong Kong, Russia, Singapore, and the UAE. Newsprint is an uncoated paper primarily used for printing newspapers. However, due to the global shift towards digitisation, the demand for newspapers and newsprint had declined worldwide, resulting in overcapacities in many countries.

Various countries were found to be engaged in dumping newsprint into the Indian market. This practice had a detrimental effect on the performance of the Indian paper manufacturing industry. Despite DGTR’s recommendations in January 2021, the Finance Ministry chose not to impose any anti-dumping duties. This decision resulted in an acute shortage of newsprint in 2022 as mills either closed down or shifted to alternative products, leading to a substantial decline in domestic production.

The failure to address these instances of dumping by taking appropriate measures had severe consequences for the Indian industry, causing a decline in production, shortages, and an over-reliance on imports.

Dumping: A global overview

Globally, the protection extended by governments to their domestic industry has significantly increased. Trade remedy laws are time-tested. The first instance of such a measure can be traced back to Canada, when it received the Royal Assent on 10 August 1904.

Highly developed economies, including Europe and the US, have been proactive in utilising trade remedy laws even now to safeguard their industries. These economies are not only among the world’s most advanced, but also promote an open market with a free flow of products.

Despite its extensive use for decades, there are few instances of significant adverse effects of ADD on the general public. The consistent and strategic use of trade remedy laws by global economies reflects their commitment to maintaining fair competition and protecting domestic industries.

Even Japan, a country that has traditionally exhibited limited utilisation of trade remedy laws, has demonstrated remarkable resilience when faced with instances that seriously threatened its domestic industries. Japan, known for its open market, had recently initiated an anti-dumping investigation. This move came in response to a concern that despite no imports of a product from the country in question during the review period, Japan’s domestic industry continued to face hardships. Consequently, Japan imposed necessary duties to address the persisting challenges.

The case of Japan serves as a compelling testament to the evolving dynamics surrounding trade remedy laws. It underscores the fact that even countries well-known for their openness to competition and limited utilisation of trade remedy laws acknowledge the need for such measures under certain circumstances.

Strengthening India’s digital journey

In an anti-dumping matter, the Supreme Court noted, “Anti-dumping Law is … a salutary measure which prevents destruction of our industries which were built up after independence under the guidance of our patriotic, modern-minded leaders at that time and it is the task of everyone today to see to it that there is further rapid industrialisation in our country, to make India a modern, powerful, highly industrialised nation.”

In the case of India, the need to impose anti-dumping duties for securing its supply chains for becoming self-reliant is all the more pressing, specifically in its digital journey.

The continued dumping of foreign goods also endangers India’s digital transformation. To ensure a robust and competitive digital industry, India needs to secure its own digital supply chains and the ability to manufacture basic digital infrastructure.

Optimising India’s optical fibre manufacturing capacity would be a good way to start, since optical fibre is literally the backbone of the digital industry. But here again, dumping by foreign players, particularly China, is a big threat. Though Indian manufacturers have four times the capacity than the domestic demand, imported optical fibre and optical fibre cables – often of unverified quality – are pushing the domestic industry into a difficult spot.

It is just one of the many instances where anti-dumping duties could come to remedy the ‘injuries’ inflicted upon the Indian industry by rampant dumping. The ADD would ensure a level-playing field and help domestic industry realise its full potential. This explains the greater need to relook at the growing rejection rate of DGTR recommendations and ensure the Indian industry is not deprived of a remedy.

(The author is an independent journalist, and Policy Manager with the Centre For Digital Economy Policy Research.)

This article first appeared in The Federal, https://thefederal.com/business/centre-is-all-for-self-reliance-what-explains-strong-rejection-of-anti-dumping-duties/