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Injury in computing `non-injurious price'
September, 23rd 2006
The real world today is cruel and harsh. "It respects power, not poverty or weakness, and power comes from a high level of industrialisation. Hence, if we wish to get respect in the comity of nations, we must make India a modern, powerful, highly industrialised state." Thus said the apex court on September 11, when concluding its decision in the Reliance Industries Ltd vs Designated Authority case. Story behind the case traces back to October 1998, when Reliance filed an application seeking the imposition of anti-dumping duty on PTA (pure terephthalic acid) imported from Japan, Malaysia, Spain and Taiwan. PTA, for starters, is used in the manufacture of polyester yarn, which in turn is used for manufacture of textiles. Section 9A of the Customs Tariff Act, 1975 is on anti-dumping duty on dumped articles. Dumping, in international trade, occurs "when one country exports a significant amount of goods to another country at prices much lower than in the domestic market," as defines. Anti-dumping duty is "intended to discourage importation and sale of foreign-made goods at prices substantially below domestic prices for the same items." The Central Government can impose such a duty `not exceeding the margin of dumping in relation to such article.' The Designated Authority or the DA in the Ministry of Commerce took up Reliance's application, and conducted investigations. In April 2000, the DA arrived at `findings', on the basis of which the Central Government imposed anti-dumping duty on PTA from Spain at the rate of Rs 521 per tonne. "No duty was imposed on exports from the other countries," informs the text of the Supreme Court's judgment. Reliance averred that the DA had `reached its findings' upholding the contention that exports from Japan and Malaysia were also at dumped prices, and that the domestic industry had suffered injury. "Yet no anti-dumping duty was recommended in respect of imports from Japan and Malaysia on the ground that the imports from these countries were above the `non-injurious price' and, therefore, there was no causal link between the dumped imports from these countries and the injury to the domestic industry." This was "the result of faulty determination of the fair landed value in respect of the imported goods and non-injurious price in respect of the domestic manufacturer," argued Reliance. Landed value had been determined at an inflated amount and that was the reason for the incorrect determination that the landed value of imports was more than the non-injurious price, pointed out Reliance. Antidote to unfair competition Justices Ashok Bhan and Markandey Katju of the Supreme Court studied the purpose of Section 9A and said, "Our industries, which had been built up after Independence with great difficulties must not be allowed to be destroyed by unfair competition of some foreign companies." Dumping is a well-known method of unfair competition adopted by foreign companies, they noted. Dumping is done by selling goods at a very low price for some time so that the domestic industries cannot compete and are, thereby, destroyed, and after such destruction has taken place, prices are again raised, they explained. The text of the verdict speaks of terms used in anti-dumping law. Such as: `margin of dumping', which is the difference between `normal value' (that is, price in the domestic market of the foreign exporter, or if there are no domestic sales, the price at which it is exported to another country or the constructed cost of production) and the `export price' at which goods are exported to India. A `positive dumping margin' arises when goods are exported to India at prices below the `normal value'. To determine this margin, the DA has to ascertain whether the dumping of goods is causing injury to domestic industry. For this, there are `injury parameters' mentioned in the Rules. Margin of injury Another phrase is `margin of injury', which is `the difference between the landed value of exports and the fair selling (notional) price of the domestic manufacturer,' which in turn is usually called the `non-injurious price' or NIP. To compute NIP, the DA considers cost of production (less interest); selling, general and administrative expenses (SG&A); and a fixed rate of return on the capital employed of the domestic industry. Though anti-dumping duty can legally be levied up to the full extent of `margin of dumping', in practice it is restricted to `margin of injury' if the injury is lower than the margin of dumping. One learns from the text of the judgment that the DA had found the margins of dumping for manufacturers from Japan was between 29 per cent and 34.26 per cent. For Malaysia it was 68.20 per cent, and in the case of Spain, 15 per cent. The DA also found `material injury to the domestic industry in India on the basis of reduction in the sales realisation and decreases of profitability'. However, the DA held `there was no causal link between dumping and injury as regards Japan and Malaysia.' Joseph Vellapally argued for Reliance. One of the points he mentioned was that the DA had not given any reasoning for coming to its conclusion about NIP. `Disclosure Statement issued by the DA' did not state what elements of cost were being disallowed and what the reasons for doing so were. Why confidentiality from Reliance in NIP computation, he asked. Wrong approach The court was of the view that the DA had `clearly erred in law' by determining injury and computing NIP for a particular company or enterprise, instead of the domestic industry as a whole. "The approach adopted by the DA, in our opinion, will lead to a situation where an artificial discrimination will be created between the integrated and non-integrated companies to the peril of the smaller plants with no backward integration (that is, a factory which also produces its own raw materials, etc)," reasoned the court. The DA's work came in for further criticism thus: "The DA has failed to appreciate that once dumping and injury is established, the existence of an unfair trade practice by the exporters is undisputed and a restrictive view in computing an unduly low NIP would lead to granting a premium to the erring exporters at the cost of the domestic industry, which is suffering injury." And there was more: "For the purpose of computing the NIP, the DA appears to have taken the best capacity utilisation (which is in excess of 100%) over the past three years for the purpose of apportionment of the fixed expenses in preference to the actual capacity utilisation during the period of investigation. In our opinion, this has led to an unusual reduction in the fixed expenses per unit and a consequent reduction in the NIP. This again is clearly untenable." Nothing confidential The court ruled that the DA should be directed not to misuse the Rules `by keeping confidential its findings and that too from the person who has supplied the information to it.' There was nothing confidential in the matter, said the court. Rule 7, which the DA's counsel Nagendra Rai had relied on, "specifically provides that the right of confidentiality is restricted to the party who has supplied the information, and that party has also to satisfy the DA that the matter is really confidential," explained the court. "Excessive and unwarranted claim of confidentiality defeats the right to appeal. In the absence of knowledge of the consequences, grounds, reasoning and methodology by which the DA has arrived at its decision and made its recommendation, the parties to the proceedings cannot effectively exercise their right to appeal either before the Tribunal or this Court," reads a forceful snatch in the judgment. Although the verdict may not benefit Reliance for the past period, the court thought it necessary to lay down the law in this connection "since anti-dumping law operates continuously and on a day-to-day basis." Anti-dumping law is extremely important for the country's industrial progress and hence there should be total transparency and fairness in its implementation, emphasised the court. Tailpiece "The main advantage of e-filing is... " "That it is fast?" "And we don't have to see the tax officials!" D. Murali
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