Introduction
Background
Anti-dumping legislation and administration
Combination duties
Comment


Introduction

In the complex and ever-evolving world of trade, it is common for manufacturers to sell their products through trading houses. The reach of trading houses facilitates the expansion of business for manufacturers and producers. On the other hand, a trading house can, with minimal investment, use its presence in markets otherwise inaccessible to the manufacturer. More often than not, the trading house is involved in invoicing only (ie, the trading house does not take possession of the goods at any point in the transaction).

This update briefly examines the effect of such trade arrangements with regard to the Indian anti-dumping regime and the interesting dichotomy observed therein.

Background

As per Article VI of the General Agreement on Tariffs and Trade (GATT) and the Agreement on Implementation of Article VI of the GATT 1994, when a product is introduced into the commerce of another country at less than its normal value (ie, domestic selling price) it is considered to be 'dumped'. If a member county determines that such dumping is causing material injury to its domestic industry, it is entitled, pursuant to Article VI of the GATT and the anti-dumping agreement, to apply an anti-dumping duty to offset or remedy the dumping or consequent injury faced by the domestic industry manufacturing that product.

Anti-dumping legislation and administration

Anti-dumping investigations in India are governed by Section 9A of the Customs Tariff Act 1975 and the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules 1995.

The directorate general of anti-dumping and allied duties is the designated investigating authority in India.

Combination duties

India levies anti-dumping duty in a combination format (ie, duties are levied specifically for various cooperative producer-exporter combinations), whereby the applicable rate is specifically named in the duty table for the producer-exporter combination, with a residual rate for all other producers and exporters. The directorate general calculates a weighted average of the margins of all channels of export for a single producer. Thereby, a producer and all its exporters have a common anti-dumping duty rate.

Typically, the duty table contains the following information:

  • the Harmonised System Tariff Codes;
  • a description of goods;
  • the country of origin of the goods;
  • the country of export of the goods;
  • the name of the producer;
  • the name of the exporter;
  • the duty amount;
  • the unit; and
  • the currency.

Country of export and individual margins under anti-dumping agreement
'Country of export' is not per se defined in the Anti-dumping Agreement. However, its meaning becomes clear on examining certain provisions of the agreement. Typically, an examination of dumping involves the comparison of a product's normal value with the price at which the product is exported to India. In certain cases, products are not shipped directly from the country of origin to India, but through an intermediate country. This situation is dealt with under Article 2.5 of the agreement, which indicates that the country of export is the country from which the goods are shipped to India; thus, in some cases the country of export may not be the same as the country of origin.

Country of export and situs of exporter under anti-dumping law
As per Section 9A(1) of the act, the exporting country is the country where the article is exported to India – the exporter being the entity responsible for exporting the product to India and the producer being the entity manufacturing the product. In most of the cases, the exporter performs a mere invoicing role with no involvement in physical shipment.

"Section 9(A)(1): Where any article is exported by an exporter or producer from any country or territory (hereinafter in this section referred to as the exporting country or territory) to India at less than its normal value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose an anti-dumping duty not exceeding the margin of dumping in relation to such article."

County of export is country of physical export of goods
The country of origin denotes the country where the goods originate and the country of export denotes the country where the goods are physically shipped. If goods are physically shipped or even transhipped through an intermediate country, the place of origin is specified as the country of origin and the intermediate country is specified as the country of export.

This principle, with regard to country of export, remains unchanged irrespective of where the exports are invoiced. In other words, the country of export will remain the country where the goods are physically shipped to India, even though the invoicing of those goods and transactions (ie, the location of the exporter) may take place in a third country altogether.

In the majority of cases, the directorate general has adhered to the principle that the situs of the exporter is immaterial for the purposes of an individual anti-dumping duty margin whereby the country of export is actually the country of physical export. An example of this practice would be as follows.

Pencils – produced by producer 'A' in Mexico and invoiced by exporter 'B' in Taiwan – are shipped to India directly from a port in Mexico. The duty table will accordingly indicate Mexico as the country of origin and the country of export since the physical shipments were made from Mexico itself. The duty table will also list A as the producer and B as the exporter.

Product

Country of origin

Country of export

Producer

Exporter

Duty ($ per piece)

Pencils

Mexico

Mexico

A

B

***

County of export is country where exporter is located
In some cases, the directorate general has deviated from the practice explained above and has determined the country of export based on where the exporter is located. The immediate implication of this is that the country of export is determined on the basis of where the transaction is invoiced, rather than from where the goods are exported. Therefore, the above example would accordingly be modified as follows.

Pencils – produced by producer 'A' in Mexico and invoiced by exporter 'B' in the Taiwan – are shipped to India directly from a port in Mexico. In this case, the duty table will indicate Mexico as the country of origin and Taiwan as the country of export since the exporter is located in Taiwan. The duty table will also list A as the producer and B as the exporter.

Product

Country of origin

Country of export

Producer

Exporter

Duty ($ per piece)

Pencils

Mexico

Taiwan

A

B

***

On the basis of recent anti-dumping levies in India, it is observed that both practices introduced above are prevalent, thereby leading to a dichotomy in the definition of 'country of export'. Further, apart from the inconsistency with the definition, the above practices have had an interesting and far-reaching practical implication.

Physical exports of goods versus situs of exporter
In order to understand the actual effect of this change, Customs' process for the clearance of goods in India must be examined. Once goods are imported to India, they can enter the commerce of the country only after being 'cleared' at the customs port (ie, by paying for the basic customs duty and additional taxes payable as well as anti-dumping duty if payable).

For anti-dumping duty, Customs interprets the duty table of the relevant notification as one consistent practice (ie, reading country of export as the country where goods are physically shipped). Therefore, irrespective of how 'country of export' is defined in the directorate general's recommendation (or customs notification levying duty), Customs continues to read country of export to mean the country of physical export of the goods.

Therefore, in the second example above, if the country of export is determined to be Taiwan, producer A and exporter B will be able to avail on their individual margin (as determined by the directorate general) only if the goods are physically shipped from Mexico to Taiwan and then to India. Even if the producer-exporter combination receives a low duty rate this practice may render it commercially unviable for them to compete in the Indian market.

Comment

It is evident that the dichotomy observed in practice has the potential to create inconsistencies with regard to participating export channels and margins allocated therein. In fact, with the advent of anti-circumvention laws and a tightening of customs practices, the issue of circumvention is no longer a concern to the parties addressed in the duty table. In light of this, the Finance and Commerce Ministry should contemplate doing away with the country of export in the duty table altogether. The advantage would be immediate in the sense that the assessment and clearance stage would be considerably less complicated, thus sparing cooperating producers and exporters from any potential and undue hardship.

For further information on this topic please contact Ambarish Sathianathan or Vikram Naik at Economic Laws Practice by telephone (+91 22 6636 7000), fax (+91 22 6636 7172) or email (ambarishsathianathan@elp-in.com or vikramnaik@elp-in.com.)