Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study WTO- ANTISUBSIDY AND ANTIDUMPING MEASURES PREFACE The WTO related issues have been in the forefront of key issues debated, discussed and deliberated upon by the industry, cost management profession and the Government over the past decade. The phase of discussions accelerated after 1st January, 2005, when the implementation phase has started. The WTO Era, which was in the background so far, has suddenly loomed large and we find ourselves in the beginning of a new era. Like the famous metaphor of the elephant and the blind men, each sector has its own views on whether it is a threat or opportunity. While there are plethora of arguments both for and against, only time will come out with the actual truth. It is a well known fact, that it will be an opportunity for those who understand the nuances and shape their business strategy to insulate the threats and take advantage of the opportunity. The Institute of Cost and Works Accountants of India have already come out with series of publications on WTO in the past. The intention of the Technical Committee of the Diamond Jubilee Celebrations is not to add one more publication in the list, but add value by providing practical case studies of how the contentious WTO issues were faced by the industry. A perusal of the myriad of technical materials (including websites), shows that plenty are available on the conceptual issues but very few on the practical or real life aspects. The CASB and WTO Committee has been deliberating on bringing out the key practical issues relating to the WTO matters, and in one of the first meetings, it was Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study decided to bring out a practical publication on textiles and any other industry, which is facing the anti-dumping or anti-subsidization threat. Although Textile Industry has been facing the anti-dumping issues for a long time, the anti subsidization issue is a topical issue, as EU imposed countervailing duties on bed-linen on exports from India, in the first quarter of 2004. It also gave a handle for the Government of India, to have a re-look at the subsidy policies and practices and make them WTO Compatible. This also shapes the business strategies, where the Industry has to stop looking at subsidies as a means of maintaining profitability and retune their cost structures for survival and growth. The anti dumping duty on shrimp industry virtually came as a bolt from the blue, as the industry does not boast of many large organized business houses. It is a test case of the ability of the industry to face the anti dumping levy and survive. There are many similar industries belonging to this type of products, where unorganized sector play a major role. Therefore, the shrimp industry became a natural choice for publication under ‗any other industry category‘. The procedure show cased under the investigation points out to the need for availability of a structured information base, both at the macro level and micro level for industries concerned. Often, these information are not available with the normal authenticated disclosure formats of the corporate (Eg: Annual Report.) For example, the product line capacity utilization, profitability, return on investment, cash flow and investments, required under any investigation under anti dumping/ subsidization authorities, requires a structured and authenticated format, which will stand the test of investigation. It is said, that Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study unstructured information has been the bane of many anti dumping investigation. The Institute of Cost and Works Accountants of India have been harping on the effective use of information base that is readily available under the Cost Accounting Records Rules and also the Cost Audit Report Rules for about 47 industries covered under cost audit. A ready source of information will be available to the users from the Cost Accounting Records maintained as per the rules as also the Cost Audit Report of companies in the industry. Even for those industries not covered under Cost Audit, the same information structure can be useful to provide key information that is required under the WTO issues. On this matter we owe our gratitude to Mr.A.K.Kapoor, Advisor Cost, Cost Audit Branch, Government Of India, who has vast experience in WTO matters, when he was handling the Anti Dumping issues in the Govt. of India, for providing vital clarifications on many technical issues. Identification of resource persons for the work was the most critical as the issues have to be retold from a practical angle. Fortunately, in-house talent was available within the Committee for textiles. For shrimp industry Sri.S.P.Kamath, Deputy General Manager of Amalgam Group, Kochi, who has been in thick of the anti dumping investigation on shrimp industry was the natural choice. We express our gratitude for having provided the write up on the shrimp industry. The Research and Journal Directorate and the Professional Development Directorate of the Institute has been providing invaluable support in the efforts of the Committee. We are happy to recognize their efforts. We also acknowledge the help rendered by S/Sri.A.S.Durgaprasad, S.Ganapathisubramanian, A.N.Raman, V.Arunagiri, J.S.Anand, Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study K.S.Subramanian and R.Narayanan as part of the Technical Committee, for providing valuable technical support for the publications. We are also grateful to Dr.H.R.Subramanya, President, ICWAI, who germinated the idea of bringing out special publications on topical issues and which will form the plank on which the future guidance notes and cost accounting standards will emanate. M.Gopalakrishnan Chairman- Technical Committee Diamond Jubilee Celebrations. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study WTO- ANTISUBSIDY AND ANTIDUMPING MEASURES INDEX Sl.No Topics 1 Introduction 2 Article XV of GATS 3 A Backgrounder- Textiles back in the mainstream 4 A case study on Countervailing Duty -Cotton Bedlinen. 5 Anti-Dumping on Shrimp Exports – A case study 6 The Uruguay Round Agreements and Management Accountants Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study WTO- ANTISUBSIDY AND ANTIDUMPING MEASURES Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study PART - I ANTI SUBSIDISATION MEASURES UNDER WTO REGIME INTRODUCTION: Textile Industry in India, have always been on the receiving end of the measures under WTO for a long time. With the expected dismantling of the quota regime from Jan 2005, the industry is gearing itself to face and meet the challenges, build, enhance and sustain the core competencies. The GOI has also been playing the role of an pro-active facilitator, in balancing between the need for providing the much needed relief in the form of lowering/doing away with the duty regimen, providing interest subsidies to compensate for the differential domestic interest rates as compared to the requirement under WTO regime. In the past the issues were more from the anti-dumping point of view for exports from India. A robust approach from the industry with facts and figures enabled it to present a convincing argument, which resulted in minimal counter-veiling effects in most of the cases. The cost records maintained by the industry provided an authenticated, verifiable and transparent cost data, which had to be accepted by the concerned authorities. A taste of the new front which is opening up has been experienced during the year 2002-03, when the European Union, initiated anti-subsidization action against the Indian exporters of cotton- type bed-linen. The following case study is a pointer to the measures that have to be faced by the industry, in the process of globalization of the free trade regime. The procedure applicable is common to any industry, which enters or already well entrenched in the global market. The Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study dismantling of the quota regime will further increase such measures by importing countries, as in this case, it was acknowledged that Community producers suffered material injury in spite of the presence of quota system. The approach followed will be a pointer to the gradual reduction of subsidies given by the GOI. The start has already been made in lowering of IT Exemption (Sec. 80 HHC), in a phased manner. GOI has already given enough indications on the thinking in other forms of subsidies. In future, the dependence on subsidies to maintain profitability will have to be reduced and internal cost competencies have to be built in for growth and sustenance. This is a global phenomenon. The WTO issue being a double edged sword can also enable industry to come together and initiate action against unwarranted subsidization by other countries exporting to India. The procedure followed by the initiators as well as responders to the investigation, will give a bird‘s eye view of the entire process of investigation. Nothing can be more explicit than going through a real life case study especially under the complicated provisions of the WTO. In most of the WTO cases, we find that the stables are secured after the horses have bolted. Once the damage is done, one has to reach level zero before climbing back into reckoning. In fact, it will be advisable for industries, which depend solely on subsidies to survive, to have a re-look at their business strategy, for survival and growth. The relevant article under GATS, covering subsidies is given below: Article XV of GATS Subsidies Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 1. Members recognize that, in certain circumstances, subsidies may have distortive effects on trade in services. Members shall enter into negotiations with a view to developing the necessary multilateral disciplines to avoid such trade-distortive effects. The negotiations shall also address the appropriateness of countervailing procedures. Such negotiations shall recognize the role of subsidies in relation to the development programmes of developing countries and take into account the needs of Members, particularly developing country Members, for flexibility in this area. For the purpose of such negotiations, Members shall exchange information concerning all subsidies related to trade in services that they provide to their domestic service suppliers. 2. Any Member which considers that it is adversely affected by a subsidy of another Member may request consultations with that Member on such matters. Such requests shall be accorded sympathetic consideration. It may be also relevant to reproduce below the following backgrounder on Textiles from WORLD TRADE ORGANISATION “5. Textiles: back in the mainstream Textiles, like agriculture, is one of the hardest-fought issues in the WTO, as it was in the former GATT system. It is now going through fundamental change under a 10-year schedule agreed in the Uruguay Round. The system of import quotas that has dominated the trade since the early 1960s is being phased out. From 1974 until the end of the Uruguay Round, the trade was governed by the Multifibre Arrangement (MFA). This was a framework for bilateral agreements or unilateral actions that established quotas limiting imports Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study into countries whose domestic industries were facing serious damage from rapidly increasing imports. The quotas were the most visible feature. They conflicted with GATT‘s general preference for customs tariffs instead of measures that restrict quantities. They were also exceptions to the GATT principle of treating all trading partners equally because they specified how much the importing country was going to accept from individual exporting countries. Since 1995, the WTO‘s Agreement on Textiles and Clothing (ATC) has taken over from the Mulltifibre Arrangement. By 1 January 2005, the sector is to be fully integrated into normal GATT rules. In particular, the quotas will come to an end, and importing countries will no longer be able to discriminate between exporters. The Agreement on Textiles and Clothing will itself no longer exist: it‘s the only WTO agreement that has self-destruction built in. Integration: returning products gradually to GATT rules Textiles and clothing products are being returned to GATT rules over the 10-year period. This is happening gradually, in four steps, to allow time for both importers and exporters to adjust to the new situation. Some of these products were previously under quotas. Any quotas that were in place on 31 December 1994 were carried over into the new agreement. For products that had quotas, the result of integration into GATT will be the removal of these quotas. The agreement states the percentage of products that have to be brought under GATT rules at each step. If any of these products came under quotas, then the quotas must be removed at the same time. The percentages are applied to the importing country‘s textiles and clothing trade levels in 1990. The agreement also says the quantities of imports permitted under the quotas should grow annually, and that the rate of Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study expansion should increase at each stage. How fast that expansion should be is set out in a formula based on the growth rate that existed under the old Multifibre Arrangement. Products brought under GATT rules at each of the first three stages must cover the four main types of textiles and clothing: tops and yarns; fabrics; made-up textile products; and clothing. Any other restrictions that did not come under the Multifibre Arrangement and did not conform with regular WTO agreements by 1996 have to be made to conform or phased out by 2005. If further cases of damage to the industry arise during the transition, the agreement allows additional restrictions to be imposed temporarily under strict conditions. These ―transitional safeguards‖ are not the same as the safeguard measures normally allowed under GATT because they can be applied on imports from specific exporting countries. But the importing country has to show that its domestic industry is suffering serious damage or is threatened with serious damage. And it has to show that the damage is the result of two things: increased imports of the product in question from all sources, and a sharp and substantial increase from the specific exporting country. The safeguard restriction can be implemented either by mutual agreement following consultations, or unilaterally. It is subject to review by the Textiles Monitoring Body. Four steps over 10 years The schedule for freeing textiles and garment products from import quotas (and returning them to GATT rules), and how fast remaining quotas should expand. The example is based on the commonly-used 6% annual expansion rate of the old Multifibre Arrangement. In practice, the rates used under the MFA varied from product to product. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Step Percentage of products How fast remaining to be brought under GATT quotas should open up, (including removal of any quotas) if 1994 rate was 6% Step 1: 1 Jan 1995 16% 6.96% (to 31 Dec 1997) (minimum, taking 1990 per year imports as base) Step 2: 1 Jan 1998 17% 8.7% (to 31 Dec 2001) per year Step 3: 1 Jan 2002 18% 11.05% (to 31 Dec 2004) per year Step 4: 1 Jan 2005 49% No quotas left Full integration into GATT (maximum) (and final elimination of quotas). Agreement on Textiles and Clothing terminates. The actual formula for import growth under quotas is: by 0.1 x pre-1995 growth rate in the first step; 0.25 x Step 1 growth rate in the second step; and 0.27 x Step 2 growth rate in the third step. In any system where quotas are set for individual exporting countries, exporters might try to get around the quotas by shipping products through third countries or making false declarations about the products‘ country of origin. The agreement includes provisions to cope with these cases. The agreement envisages special treatment for certain categories of countries — for example, new market entrants, small suppliers, and least-developed countries. A Textiles Monitoring Body (TMB) supervises the agreement‘s implementation. It consists of a chairman and 10 members acting in their personal capacity. It monitors actions taken under the agreement to ensure that they are consistent, and it reports to the Council on Trade in Goods which reviews the operation of the agreement before each new step of the integration process. The Textiles Monitoring Body also deals with disputes under the Agreement on Textiles and Clothing. If they Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study remain unresolved, the disputes can be brought to the WTO‘s regular Dispute Settlement Body.‖ Reproduced from Understanding WTO – www.wto.org. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study PART - II A CASE STUDY ON COUNTERVAILING DUTY ON COTTON BEDLINEN ON THE GROUNDS OF SUBSIDISED IMPORTS. The following case study relating to imposing a definitive countervailing duty on imports of cotton-type bed-linen originating in India, by European Union, is a test case of anti subsidy measures under WTO regime. The study has been presented under various broad heads starting from the procedure, product, subsidization, domestic industry, injury, causation, domestic interest and countervailing measures. The investigation was initiated for the period (IP) was from 1st Oct 2002 to 30th Sep 2003, and the trends covered the period from 1999 to end of the IP. The case study details the procedure followed by the European Union against the subsidization practices of other countries. The same defence is available to domestic industry also which faces subsidization. The procedure detailed below will enable the domestic industry also to initiate anti subsidy measures to face any material injury to the industry due to subsidy practices of other countries. The external view will also enable the industry to suggest subsidy policies of the Government of India, to be WTO compatible. The case study represents the view point of the anti dumping authority of the EU and should be construed as such. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study A. PROCEDURE: 1. Product: The product under investigation was bed-linen originating in India, made of cotton fibres, pure or mixed with man-made fibres or flax, bleached, dyed or printed. 2. Initiation. The anti-subsidy proceeding was initiated on 18th Dec 2002, following a complaint from ―Eurocotton‖ (A Committee of the Cotton and Allied Textile Industries of the European Communities), which represent more than 25% of the total community production of cotton type bed-linen. The basis of the complaint contained prima facie evidence of subsidization and the resulting material injury. The due process of consultation, with Govt. of India (GOI) and the exporting producers and importers were also done. The possibility of arriving at a mutually agreeable settlement was also explored. 3. Sampling. a) Exporters/Producers in India. Since there were large number of exporters from India, the Commission requested the concerned exporters to make themselves known within three weeks of the initiation with key information on export and domestic turnover, specified subsidy schemes, and the activities and names of related companies. In response, about 80 companies representing more than 90% of the total exports identified themselves, with the requisite details. Due to large number of Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study participants to the proceedings, a sample set of producers were identified. Final Selection was based on the largest representative volume of exports that could be reasonably investigated on a time bound basis. This pre-supposes the availability of information relevant for investigation. The advantage of a robust information system resulted in a specific duty, which is normally lower than the peak duty levied under the investigation. Eight exporting producers (including three related companies) were selected (representing 55% of Indian Exports) in consultation with TEXPROCIL and GOI. The companies, which were not responding, were declared non-cooperating companies and had to consequently face a higher countervailing duty. b) European Community producers: In the same manner five producer companies in three member states were selected covering the most representative market size. All the producer companies supporting the complaint were asked to provide production and sales information of the product under reference. Here also companies which were able to provide partial information were considered as partially co-operating. 4. Investigation The investigation procedure followed was through a) Consideration of the views in writing submitted by exporting producers and community producers. Where deemed fit, some parties were also heard. b) Analysis of Questionnaire replies from eight exporting producers and from five sampled complainant community producers. In addition to Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study the eight exporting companies, three related exporting companies and one unrelated importer were also heard. c) Verification visits to eight exporting producers and five community producers were made. d) No provisional anti-subsidy measures were imposed given the need to examine further certain aspects of subsidy, injury, causality and community interest. B. PRODUCT CONCERNED AND LIKE PRODUCT 1. Product Concerned. The Product CN codes and TARIC codes of bed-linen made of cotton fibres, pure or mixed with man-made fibres or flax, bleached, dyed or printed were identified. The bed-linen included bed-sheets (fitted or flat), duvet covers and pillow covers, packaged for either separately or in sets. All similar product types with the same essential characteristics were considered as one product. 2. Like Product. The basic characteristics of products manufactured and sold in India and the products manufactured and sold in community were found to be the same physical characteristics and considered as like products. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study C. SUBSIDISATION 1. Introduction. The export subsidy schemes identified for consideration were (i) Duty Entitlement passbook (DEPB) Schemes, (ii) Duty-free Replenishment Certificate ( DFRC), (iii) Export Promotion Capital Goods (EPCG) Scheme, (iv) Advance License Scheme (ALS), (v) Export Processing Zones/ Export Oriented Units (EPZ/EOU) and (vi) Income Tax Exemption (ITES). 2. All the above schemes were analyzed individually under a) legal basis b) Eligibility c) Practical implementation d) Conclusions on the scheme and e) Calculation of subsidy under the scheme. 3. The views and presentations of producer exporters, Texprocil and GOI were heard. 4. The views of the authority for each of the above schemes are given below. These are very vital as they provide the basis on which the authority decides whether the subsidy is countervailable or come under legitimate substitution draw back schemes. Some of the views are common for all the schemes. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study a) Duty Entitlement passbook (DEPB) Schemes, 1. No obligation for the exporter to actually consume the goods imported free of duty, and duty free element is not calculated on actual inputs used. 2. No verification procedure whether duty free inputs are consumed in the production process. 3. Benefits available even without actual imports. 4. License freely transferable. b) Duty Free Replenishment Certificate (DFRC) , 1. No verification procedure whether duty free inputs are consumed in the production process. (One to one correspondence) 2. Certificate freely transferable, therefore becomes an actual grant. (No actual user condition). c) Export Promotion Capital Goods (EPCG) Scheme. 1. The capital goods do not constitute ―inputs‖ as they do not form part of the final products. d) Advance License Scheme. 1. The scheme is not countervailable and comes within the ambit of the basic regulation. e) Export Processing Zones(EPZ)/ Export Oriented Units (EOUs). 1. The granting of exemption from sales tax, customs duty, excise duty constitute financial contribution of GOI and therefore countervailable as subsidies. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 2. The enterprises can sell part of their production, which enjoy the concessions in the domestic market. f) Income Tax Exemption (ITES) 1. The GOI foregoes revenue by providing full or partial exemption from income taxes. (Note: This is only of academic relevance as the exemption is being phased out). The summary of the conclusions arrived by the Commission on the subsidisation are reproduced in the following table SCHEME DECISION QUANTUM OF SUBSIDISATION (Range) DEPB Schemes. Countervailable 1.45% to 8.44% DFRC Countervailable 3.08% to Nil EPCG Countervailable 0.38%, 2.0% and Nil ALS Not NIL Countervailable EPZ/EOU Countervailable Raw Matls- Nil Capital Goods – 6.85% Central Sales tax- 1.75% **ITES Countervailable 0.32% to 3.70% TOTAL 3.09% TO 10.44% ** Income Tax Exemption Scheme. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 5. Amount of contervailable subsidies The range of countervailable subsidies varied between 3.09% and 10.44% in total. The same for the sample producers, on the basis of the weighted average subsidy margin is 7.67%. Since there was a high level of co-operation from the Indian producers and exporters (above 90%), the residual subsidy margin for all other companies were set at the highest individual margin, i.e. 10.44%. The table provided below gives the individual margin for the companies where subsidy margin were fixed individually. u Coy/Type of DEPB/Pos DFRC EPCGS EPZ/EOU ITES TOTAL Subsidy n t Export Bombay 4.95% 0.38% 5.33% d Dyeing. e N.W.Exports Nowrosjee r Wadia & Sons i Brijmohan 5.93% 0.32% 6.25% Prushottamdas n Divya 3.47% 2.95% 6.42% v Jindal 1.45% 1.65% 3.09% e Worldwide s Texcellance 1.88% 3.08% 3.70% 8.65% t Mahalaxmi 7.02% 2.29% 9.31% Exports i Pasupati 8.59% 8.59% g Prakash 8.44% 2.00% 10.44% a Cotton Mills t Vigneshwara 4.46% 4.46% i Cooperating 7.67% o companies not in the sample All others 10.44% Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study D. COMMUNITY INDUSTRY The community industry is composed of 29 community producers who cooperated with the commission. The five sampled producer companies were also complainants. Community producers, other than the above, who were not complainants, did not cooperate. The commission considered all the above companies as community producers and they account for 45% of the Community production for cotton type bed-linen. E. INJURY The key factors for determination of injury were as follows. 1. Preliminary remarks: The trends concerning production, productivity, sales, market share, employment and growth for the entire Community Industry was collected. In case of sampled (five) Community Producers the trends concerning prices and profitability, cash flow, ability to raise capital and investments, stocks, capacity, utilization of capacity, return on investment and wages were considered. 2. Community Consumption: The Community Consumption during the previous period (1999) and Injury Period (IP) increased by 15%. 3. Imports from the country under investigation: (a) Volume and market share: Although, the volume and market share decreased from 9.1% from the previous period to 7.2% in the IP, the level of these imports were substantially above the levels set out in the Article Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 10(11) of the basic Regulations. The import volumes increased by more 11% in the first nine months of 2003 on a year to year basis. (b) Prices: The average prices dropped in the IP from a high of EUR 5.80 / Kg to EUR 5.50/Kg, i.e. by 5%. (C) Price Undercutting: The price undercutting was analyzed based on the weighted average sales price per product type of the Community industry to unrelated customers, as compared to corresponding weighted average export prices (CIF) of imports concerned, after deducting rebates, discounts and appropriate adjustments for customs duties and post importation costs. The percentage of the above import price as a percentage of Community industry‘s prices were between 26% and 77%. In more than 75% of the cases, the undercutting margins amounted to between 60% and 70%. 4. Situation of the Community Industry There was no evidence that the Community industry was suffering from past subsidization or dumping effects. One of the reasons was the existence of quota system (legal basis provided by Agreement on Textile and Clothing), during the investigation period. (Note: This has been removed with effect from 1st Jan, 2005). It was conclude that the community industry did suffer material injury in spite of protection by the presence of quotas and although the Indian exporters were also not able to fully utilize the allocated quota. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study a) Data relating to the Community Industry as a whole: The production volume increased by 5% (Investigation period) Employment was stable and the employee productivity increased by 6%. Sales volume increased by 4% and turnover decreased by 5%. Community consumption grew by 15%. The Community industry‘s market share decreased by 1.5%. Effectively Community industry was not a beneficiary of the growth. (b) Data relating to the sampled Community Producers An analysis was made on the data relating to sampled companies. The data analyzed were stocks, capacity, capacity utilization, prices, investments and ability to raise capital, profitability, return on investment, cash flow and wages. Stocks: As the nature of the market is ―Made to Order‖, wide fluctuations exist on stock size. Therefore, it could not be considered as a relevant indicator of injury. Capacity/ Capacity Utilization: Due to heterogeneous combination of machinery it was difficult to come to a conclusion on the impact on capacity. In a specific case of printed bed-linen, the Capacity Utilization of Printing Department decreased from 90% to 82%, during the investigation period. Although this may not point to an Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study overall conclusion on the injury due to Capacity, the decline in printing capacity utilization was considered as an injury. Prices: The average prices (Import) during the investigation period increased from 13.30 EUR to 14.20 EUR. The domestic (community) industry prices went up from 11.30 EUR to 11.50 EUR and dropped to 11.10 during investigation period. This also might have been due to the shift from low value products to high value products. Therefore, the absence of injury on the price front was not accepted. Investments and ability to raise capital: There was a significant reduction of 41%, in the investments during the investigation period over the prior period. However, there was no indication of inability to raise capital. (Note: An analogy can be drawn from the Indian scenario, where some time back, textile industry was put on the watch list by financial institutions and banks. This can be considered as an indication of inability to raise capital). Profitability, return on investment and cash flow: There was a significant drop in the profitability from a high of 7.70% to 4.40% during investigation period. The ROI also fell from 10.50% to 5.90%. The various extraneous factors (other than cheaper imports), such as increase in labour costs, were considered to analyze whether they may be the main causal factor for the decrease in profitability. The ROI and cash flow are a corollary to the profitability and therefore, have to be treated on the same basis. Wages: The analysis of the wage costs did not point to injury. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Magnitude of countervailable subsidies: The significant size of subsidized import volume and price indicated that the actual margin of subsidy cannot be considered negligible. Relevance of Indicators: It was argued that the analysis of the abovementioned factors, do not lead to the establishment of material injury. The authority rejected the contention on the basis that the cumulative effect of numerous factors has to be considered, in addition to the above. 5. Conclusion on injury The situation of the Community industry deteriorated, due to significant decrease in profitability, decrease in market share (decrease by 9.10%, although the community consumption grew by 15%) and negative indicators on capacity utilization, profitability, return on investment, cash flow and investments. Based on these and various other factors, the Commission concluded that the Community industry suffered material injury. F. CAUSATION 1. General Remarks: The first factor to be examined by the Commission was whether the subsidized imports originating from India, can be considered as a causal material factor leading to injury to the community industry. Various factors such as market share of imports, average prices, the main elements of competition other than price and decrease in market share of domestic (Community) producers were considered before arriving at the conclusion. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 2. Effect of subsidized imports: Although there was some reduction in import volumes ranging from 9% to 7.2%, the overall market share was still substantial, during the investigation period. The average prices also dropped from 5.65 EUR to 5.50 EUR, representing a reduction by 5%. The products are mostly made to order, and the market determined the design, colour, quality, size, etc., and the price was the main basis for order quantity, when considering the many offers including from the domestic industry. The commission concluded that pricing was the main factor, which made the community producers withdraw from the low priced segment and switch on to high value segments. The volume of imports being substantial and made at low and subsidized prices, undercut the producers belonging to the community industry. The market share of Indian importers during the investigation period were also well above de minims levels. The shift to high profit niche products arising from competition in low end volume products could not compensate for the loss of market share, investments, profitability and return on investment of the Community industry. This factor established the causal link between the subsidised Indian imports and the injury suffered by the community industry. It may be noted that, this was said to be main cause of increase in average prices of domestic industry. 3. Effect of other factors: a) Impact of imports originating from Pakistan: The imports from Pakistan also face the same action, as the market share, average prices are in a range similar to India. In addition to anti- subsidy investigation, anti-dumping investigation has also been initiated against Pakistan, appropriate action is being taken. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study b) Imports originating from third countries other than India and Pakistan: The largest exporter among the group of countries other than India and Pakistan is Turkey. Turkey occupies a special place in the community due to corporate links between Turkish and Community Companies and the market integration in the form of inter-company trade between Turkish exporting producers and Community operators. The remaining countries‘ market share as well as the average price were not significant to influence market and affect the causal link. c) Contraction of demand: There was no evidence of contraction of EU demand for the product. Although the community producers have multiple product lines catering varying market segments, the high margin upper market segments, are sold in limited quantities. The low priced segments help cover the fixed costs production, by maximizing capacity utilization. d) Imports by the Community Industry: On the matter of imports of bed-linen by community industry itself, it was established that only one producer imported in value terms about 10% of the turnover. e) Export performance by the Community Industry: The exports formed a negligible part (0.5%) of the sales from the Community Industry and therefore not a relevant factor to be considered as a causal link. f) Productivity of the Community Industry: The productivity increased by around 6% for the community producers. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 4. Conclusion: It was concluded that the subsidized imports originating from India were of significant volume with a market share of 7.20% and they have been imported at lower subsidized prices. The imports caused material injury to the Community producers in the form of reduced market share, lower capacity utilization, reduced investments and profitability. The same situation prevails for imports from Pakistan also. But the substantial volume and low prices does not break the causal link between the Indian imports and material injury suffered by the Community Industry. G. COMMUNITY INTEREST 1. General Remarks: The pros and cons of imposing the countervailing measures, was tested on the community interest platform. The injury was proved material as a result of which, it was difficult for the Community industry to compete under fair market conditions. The non imposition would have resulted in cessation of established producers and correspondingly no investment in new production capacity. It was also pointed out that the measures are not to prevent the imports into the community in a bid to avoid injurious prices. 2. Community Industry: It was established that the community industry has been proved to be a viable industry capable of competing under fair market conditions. It faced the injurious situation due to low priced subsidized imports. The imposition of countervailing measures is expected to restore fair competition to the market and result in generation of profitability to justify continued investment in the production facilities. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 3. Importers and Users: The response from the importers and users were very limited. As can be seen else were in the report, the import volume was also very negligible. There were arguments that the full demand of the community cannot be met from the Community Industry. The commission was of the view that the measure is not to restrict the imports into the community but to ensure the injurious subsidized imports are discouraged. It was also felt that the moderate level of countervailing duties will not affect the supply from various origins. 4. Conclusion on Community Interest: It was concluded that the grounds of Community Interest cannot be considered as a major factor for non imposition of countervailing duties. H. COUNTERVEILING MEASURES 1. Injury Elimination level Once the decision to adopt countervailing measures were taken, the subsidy margins required to eliminate injury sustained by the Community industry was taken into account. The average level of profitability at 6.5% on turnover was taken as an appropriate expected minimum that can be obtained in the absence of injurious subsidization. Based on the above, the increase in price, as established for the price undercutting calculations, was determined. The non-injurious price was obtained by adjusting the sale price of the Community industry, by the actual profit/loss made during the IP and adding the average profit margin (6.5%). Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study 2. Definitive Measures As the injury elimination level was higher the definitive measure was based on the countervailing margins. Since the level of cooperation from India was high, the residual subsidy margin was set at the level for the company with the highest individual margin. Company Rate of Duty Bombay Dyeing and Mfg.. 5.3% N.W.Exports Limited Nowrosjee Wadia & Sons Limited Brijmohan Prushottamdas 6.2% Divya Textiles 6.4% Texcellance Overseas 7.8% Jindal Worldwide Ltd Mahalaxmi Exports 9.3% Pasupati Fabrics 8.5% Prakash Cotton Mills 10.4% Vigneshwara Exports 4.4% Cooperating companies not in the sample 7.6% All others 10.4% CONCLUSION: The above case study gives a bird‘s eye view of the entire process of imposition of countervailing duties under anti-subsidization measures. In case of anti-dumping, the framework relating to identification, local Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study producers, injury determination, causation etc. remains more less the same. The factors such as Normal value, Export Price, Costing Profitability and Specific adjustments in pricing is substituted for subsidy given in this case. The determination of the average level of profitability for the industry becomes a key factor in deciding the level of countervailing duty that has to be imposed to bring the imports at par with the local industry. This is to provide a level playing ground. It can be reasonably assumed that transparency, disclosure and logical presentation of information would have enabled the Commission to arrive at reasonable definitive measures. It only underscores the role professionals including those belonging to cost management stream can play under the post WTO era. (The views expressed in the above article are the personal views of the author) REFERENCES: 1. Official Journal of European Union – January 2004. 2. WWW.WTO.ORG Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study PART - III Anti-Dumping on Shrimp Exports – A Case Study Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Anti-Dumping on Shrimp Exports – A Case Study Anti-dumping has been one of the most talked about area of WTO in the recent times. There is extraordinary concern about areas of WTO in the recent times. This is mainly on two counts. First, India is one of the highest users of anti-dumping, second only to United States in the year 2001 according to the WTO sources. Second, India is also one of the main victims of anti-dumping action by foreign authorities. There are several reasons as to why dumping takes place across nations, but it needs to be underlined that the act of dumping per se is not the cause of concern. Only when dumping leads to material injury or threatens to cause material injury that the WTO Agreement on Anti-dumping allows imposition of anti-dumping duties. In other words, it must be clearly understood that anti-dumping duty is not a protection measure but is to be used only to remedy a particular trade distortion. Anti-dumping Agreement of the WTO is the basis on which various national authorities have formulated their own national legislations. The concepts and definitions, rights and obligations, and to a great extent the procedures followed by different national authorities remain identical flowing out of the same agreement. Therefore, this article attempts to discuss various aspects of anti-dumping with a view to give an insight into the basic concepts of anti-dumping mechanism. Before imposition of any anti-dumping measures, three main conditions are to be necessarily established by the anti-dumping authorities. These are: Existence of Dumping beyond de minimis limits Existence of Injury Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Causal link between dumping and injury To initiate an anti-dumping action, the domestic industry must be able to provide sufficient evidence to support the contention of ‘material injury’. Material injury or thereof cannot be based on mere allegation, statement or conjecture. Moreover, a ‘causal link’ must exist between the material injury being suffered by the Indian Industry and dumped imports. Related to all of the above is what is termed as, the De Minimis Margin. According to the provisions of the Agreement on Anti-dumping, 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 the existence of dumping injury as well as the causal link is established. The Directorate General of Anti-dumping and Allied Duties (DGAD) is the designated authority for filing and monitoring anti-dumping investigations in India. The DGAD applies the Lesser Duty Rule for making their recommendations regarding the amount of anti-dumping duty to be imposed. Going purely by the economic rationale behind anti- dumping, duties levied by most countries, several studies undertaken by various scholars suggest that antidumping legislation is economically inefficient and that antidumping practices do not conform to the economic explanation of protection. On the contrary, these studies seem to imply that a political economy motivation seems to be driving the imposition of anti-dumping levies in most countries. It must however be remembered that ‗anti-dumping is not a tool for protection of the weak. It is a tool for dealing with a situation where the strong may attack the strong.‘ As things stand, almost 90% of the total world imports are now entering countries in which anti-dumping laws are in place. In India also, there has been a spectacular growth of anti-dumping investigations in recent Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study years. The number of such investigations launched in 1999 was more than double that of those started in 1995. The national law on anti- dumping in India has been in place since 1985. The first Anti-dumping investigation in India was initiated in 1992. During the period from 1992 – 93 to 2003 – 2004, the DGAD received large number of applications for initiating the Anti-dumping investigations. After the examination of these applications, the anti-dumping investigations were initiated in 167 cases. Anti-dumping Duty on Shrimp On December 31, 2003, the United States Department of Commerce (DOC) received antidumping duty petitions on imports of certain frozen and canned warm water shrimps from Brazil, Eucador, India, the People‘s Republic of China, Thailand, and Vietnam filed in proper form by the Ad Hoc Shrimp Trade Action Committee (―Petitioner‖) on behalf of the domestic industry and workers producing frozen and canned warm water shrimp (―Petition‖) On January 8, 2004, the Department sent the Petitioner a deficiency questionnaire requesting clarifications of certain items in the petition. On January 12, 2004, the Petitioner submitted their deficiency questionnaire response. On February 17, 2004, the United States International Trade Commission (ITC) preliminarily determined that there is a reasonable indication that imports of certain frozen and canned warm water shrimp from India are materially injuring the United States Industry, On 20th February 2004, the Department selected Hindustan Lever Limited (‗HLL‘), Devi Sea Foods Limited (‗Devi‘) and Nekkanti Sea Foods Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Limited (‗Nekkanti‘), the largest exporters of shrimp to the US during the Period of Investigation (POI) as mandatory respondents. These companies submitted extensive information to DOC in their responses to DOC‘s questionnaires. During the period February to June 2004, various interested parties, including the petitioners submitted comments on the scope of this and concurrent investigations of certain frozen and canned warm water shrimp concerning whether certain other seafood products to be covered under the scope of the investigation. The mandatory respondents submitted their reply to the questionnaire by April 2004. A supplemental questionnaire was issued and the replies were received by July 2004. On May 3rd2004, the petitioners alleged that Devi, HLL made third country sales below the cost of production (COP), and therefore requested that department initiate a sale-below-cost investigation of these respondents. On May 28, 2004, the department initiated a sales- below-cost investigation for Devi and HLL. On 18th May, 2004, the department determined that the case was extra- ordinarily complicated and postponed the preliminary determination until no later than July 28, 2004 . On June 8, 2004 the petitioners alleged that HLL made below cost sales to Italy and therefore, requested that the department initiate a sales- below-cost investigation. However, because Italy was not selected as HLL‘s comparison market in this case, the department did not consider this allegation. On 15th June 2004, the petitioners objected to Devi‘s use of Canada as its third country comparison market and they requested that the Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study department to obtain sales data for their company‘s second largest third country market, Japan. In July 2004, the department determined that it is appropriate to use the third country market initially reported by Devi. On July 12, 2004, HLL requested that the department find that one of its third country sales was made outside the ordinary course of trade. The department expressed its inability to consider this request for the preliminary determination however, assured HLL that it would be considered for the final determination. In June 2004, pursuant to section 735(a)(2) of the Act, the Seafood Exporters Association of India (SEAI) and the individual respondents in this investigation, requested that, in the event of an affirmative preliminary determination in this investigation, the department postpone the final determination until not later than 135 days after the date of the publication of the preliminary determination in the Federal Register and extend the provisional measures to not more than six months and the department considered this request favourably. Statutory Requirements Section 732(b)(1) of the Tariff Act of 1930, as amended (―the Act‖) requires that before the Department may initiate an anti-dumping investigation by petition, the Department must determine whether the petition was filed on behalf of the domestic industry. Section 771(4)(A) of the Act defines the ―industry‖ as the producers of a domestic like product. Thus to determine whether a petition has the requisite industry support, the Act directs the Department to look to producers and workers who produce the domestic like product. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study The International Trade Commission (―the Commission‖), which is responsible for determining whether ―the domestic industry‖ has been injured, must also determine what constitutes a domestic like product in order to define the industry. The Act defines the domestic like product as a product which is like or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this title.‖ The scope of the investigation included certain warm water shrimp and prawns whether frozen or canned or wild caught or farm raised, head on or head less, shell on or peeled, cooked or raw or otherwise processed in frozen and canned form. The petitioner in the US ascertained that the industry‘s injured condition is demonstrated by (1) reduced sales; (2) reduced prices; (3) declining employment; (4) declining market share; and (5) Significant financial losses. It is important to note that these duty margins do not imply that the Indian exporters are selling their products in the US market below cost. Rather these margins are the result of certain complex calculations by which primarily a range of products sold in the US and a pre-selected third country are matched by product specifications and adjusted selling prices. There is no Shrimp Aquaculture in the US and US Shrimp resources are only from the wild. It is known phenomenon that Shrimp catches from the oceans are declining and it is becoming increasingly more expensive to catch shrimp from the ocean. Whereas aquaculture has made tremendous progress in farming technology as well as production yields and as a result, Asian and Latin American Countries can today produce shrimp more efficiently at lower costs of production. Therefore, these countries are able to offer Shrimp at more competitive prices. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Consequently, shrimp that was once a luxury item is now available to the average American consumer at competitive prices. On July 29, DOC made affirmative preliminary determination and imposed provisional antidumping duty (‗AD duty‘) as follows : Exporter DOC‘s Prelim Rate Devi Sea Foods Limited 3.56% Nekkanti Seafoods Limited 9.16% Hindustan Lever Limited 27.49% All others 14.20% DOC made the mandatory ‗disclosure‘ of adjustments made to each company‘s data in arriving at the margins; and relevant details of software program they used for margin calculations. It was noticed during the course of the investigation that DOC made several adjustments to HLL‘s data, some of which are prima facie not warranted. This was brought to DOC‘s notice pointing out that the adjustments made were ‗ministerial errors‘ that could be rectified immediately. The margin calculations were performed making several adjustments to the data submitted by the Companies. Most of these adjustments are unique to the US anti-dumping law and do not conform to normal commercial methods of determining profit or loss. Period of Investigation The department fixed the period of Investigation (POI) as 1st October 2002 to September 2003. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Scope of Investigation The scope of this investigation includes certain warm water shrimp and prawns whether frozen or canned, wild caught or farm raised, head on or head off, cooked or raw form. In accordance with the preamble of the regulation, the department set side a period of time for parties to raise issues regarding product coverage and encouraged all parties to submit comments within 20 calendar days of publication of the Initiation Notice. Throughout the 20 days and beyond, the department received many comments and submissions regarding a multitude of scope issues. On May 21, 2004 the department determined that the scope of this and the concurrent investigations remains unchanged. Fair Value Comparisons To determine whether sales of certain frozen and canned warm water shrimp from India to the United States were made at Less Than Fair Value (LTFV), the department compared the export price (EP) to the normal value (NV) on the weighted average basis for the period of Investigation. For the preliminary determination, the Department determined that Devi, HLL and Nekkanti did not have viable home markets sales during the POI. Therefore, as the basis for NV, the department used third country sales to Canada (Devi), Spain (HLL) and Japan (Nekknati) when making comparison in accordance with the act. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Product Comparison In accordance with the Act, the department considered all products produced and sold by Devi in Canada, HLL in spain and Nekkanti in Japan, appropriate, during the POI that fit the description in the ―scope of Investigation‖ for determining appropriate product comparison to United States sales. Where there were no sales of identical merchandise in the third country made in the ordinary course of trade to compare to U.S.Sales to sales of the most similar foreign like product made in the ordinary course of trade. Where there were no sales of identical or similar merchandise made in the ordinary course of trade, we made product comparisons using constructed value (CV). In making the product comparisons, the department matched foreign like products based on the physical characteristics reported by the respondents in the following order of importance: processed form, cooked form, head status, count size (on an ―as sold‖ basis), shell status, vein status, tail status, other shrimp preparation, frozen form, flavouring, container weight, presentation, species, and preservative. For determining whether there were sales at less than fair value, DOC compared the sales made in the US during POI with: Sales made in home market during POI If there is no home market, then sales made in largest third-country market during POI; and If there are no comparable sales in largest third-country market, with the cost of manufacturing products sold in the US, after adding profit derived in line with the U.S. regulations. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Accordingly, DOC determined that there was no home market for any of the Indian mandatory respondents. Therefore DOC selected the largest third country market for them as follows: HLL : Spain Devi : Canada Nekkanti : Japan For making product comparisons, DOC carried out an exercise called ‗model matching criteria‘ for which comments were obtained from all interested parties. The SEAI actively participated in this process. DOC then determined that fifteen product characteristics in a particular order of priority were important from Industry‘s stand point and hence were relevant for its analysis. Each attribute within a characteristic was assigned code numbers. (Example: the status of head of a shrimp is identified as a characteristic, which can have only one of two attributes: head-on or headless. Head on is given code 1 and headless is given code 2) When the fifteen characteristics are taken together in respect of any product, a unique control number is created. All sales in the U.S. and the third country markets during POI were grouped together based on these control numbers and then the weighted average selling price, selling expenses and cost of manufacturing for each product were calculated. Then DOC matched each unique product sold in the US with any of the unique products sold in the third country market applying a set of criteria mandated in the regulations governing the US anti-dumping proceedings (‗regulations‘). Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Where there is a match, the net selling price of unique US product is compared with net selling price of matching unique product of the third country market. In the process, certain adjustments are made to ensure that both products are on comparable basis. If the US price is higher than third country price, then there is no dumping margin. This excess of US price over third country price is ignored for dumping margin calculation purposes. If the US price is lower than third country price, there is dumping margin to the extent of price difference. This dumping margin is multiplied by the unique product‘s sales quantity to arrive at the dumping amount for that particular unique product. Where there is no match, the net selling price of unique US product is compared with CV (the unique product‘s cost of manufacture plus an element of profit that is calculated as mandated in the regulations). If the US price is higher than CV, then there is no dumping margin. This excess of US price over CV price is ignored for dumping margin calculation purposes. If the US price is lower than CV, there is dumping margin to the extent of difference. This dumping margin is multiplied by the unique product‘s sales quantity to arrive at the dumping amount for that particular unique product. The sum of dumping amounts is divided by the total sales to the US to arrive at the anti-dumping duty rate for each Company. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study The dumping amounts of all three companies are totaled and divided by the US sales quantities of these three companies to arrive at the weighted average anti-dumping duty rate for ‗All Others‘. The process followed and the methods adopted by DOC and ITC in this investigation so far are consistent with their past practices and in conformity with their regulations. In respect of Indian determination, there is no reason to believe that DOC‘s subjective judgement on any issue is prejudicial. Nevertheless the SEAI felt that certain subjective decisions of DOC do not reflect the ground realities in the global shrimp industry and decided to take aggressively at a later stage of determination. The following are the rates of duty in the preliminary determination for the six countries: Country and Number Duty for mandatory Duty for all others of mandatory respondents respondents Thailand (3) 5.56% to 10.26% 6.39% Ecuador(3) 6.08% to 9.35% 7.30% India(3) 3.56% to 27.49% 14.20% Vietnam (4) 12.11% to 19.60% 16.01% China (4) 0.04% to 98.34% 49.09% Brazil (3) 0.00% to 67.80% 66.91% The duty imposed on India is unlikely to create any short term dislocation in business for two reasons: one, imports from China were much larger than from India and these would be disrupted immediately; two, non-tariff countries are not in a position to step up exports to the Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study US for some time to come. However, there may be some impact in longer term which needs to be carefully assessed. Change in Rates of Duty – Final Determination DOC has released amended notice of final determination on 27th January 2005 after correcting ministerial errors. The duty rates for India are as under: Company Amended Final Margin As on 27.01.2005 Devi Sea Foods Limited 4.94% Nekkanti Seafoods Limited 9.71% Hindustan Lever Limited 15.36% All others 10.71% These rates will be applicable from the date the amended notice is published in Federal Register i.e., w.e.f. 31.01.2005. The rates for other countries have also varied marginally. Concluding events relating to Investigation ITC Final Determination Notice in Federal Register:- ITC informed DOC of its final determination on 21st January 2005, much ahead of earlier schedule. Therefore, the conclusion of the investigation was advanced from 7th February 2005 to 28th January 2005. The notice of final determination of ITC was published in Federal Register on 31.01.2005 Consequently: Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study The deposit cap ends as on 26th January 2005. Thus if a Company‘s duty rate: Increases in an Administrative Review (‗AR‘), then the difference between: (a) What is paid from 4th August 2004 to 26th January 2005; and (b) what is due based on higher rate will not be collected. Decreases in an AR, then the difference between: (a) What is paid from 4th August 2004 to 26th January 2005; and (b) What is due based on higher rate, will be refunded. For rest of the first AR period (from 27th January 2005 to 31st December 2005), the difference is either collected or refunded as the case may be, together with interest. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study DOC Antidumping Duty Order DOC has already published the Antidumping Duty Order in Federal Register. The Order: Signifies conclusion of investigation Sets the anniversary month for ARs. Since the Order will be published in January, the anniversary month for Shrimp ARs will be January of each following year. Therefore, first AR will cover the period from 4th August 2004 to 31st December 2005; second AR from 1st January 2006 to 31st December 2006 and so on. Requires anti-dumping duty to be paid by cash deposit only. U.S. Customs will not accept bond or any other security from this date. Appeals to CIT Any appeal arising from any decision of DOC of ITC can be made to the Court of International Trade (‗CIT‘), New York within 30 days of the Anti- dumping Duty Order. The proceedings before CIT normally take 8 months to one year. The CIT remands the case with its opinion back to DOC for fresh determination. In case DOC recalculates the duty margin, the revised margin applies prospectively until completion of AR. DOC may take few months for this. Refund of Duty The duty paid from 4th August 2004 will remain as deposit until the first AR is concluded. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study First Administrative Review As mentioned above, the first AR will cover the period from 4th August 2004 to 31st December 2005. DOC will publish Notice of Opportunity in January 2006. The following are important points relating to ARs: An interested exporter may write to DOC seeking AR of his case before 31st January 2006. The AR will be initiated in normal course in February 2006 An exporter who applied to DOC may withdraw his application within 3 months of initiation. Then there will be no AR for that exporter. The petitioners may also ask for AR of any exporter or exporters. The petitioners only can revoke the request for AR in respect of any such exporter or exporters within the 3 month period. An importer may also ask for any of his exporters. There will be a preliminary determination and a final determination in AR. The normal time limits are 240 days and 120 days respectively, extendable to 360 days and 180 days. Thus an AR may take 12 months to 18 months. DOC will conduct verifications before preliminary determination. If there are more applicants for AR than what DOC can handle, then DOC selects the requisite number of exporters as mandatory respondents for AR based on volume of shrimp exports. The review exporters get individual rates The exporters who: (a) requested for review; or (b) were referred to DOC by petitioners or importers to be reviewed, but were not selected by DOC for review, will get the weighted average rate of the reviewed exporters. For all other exporters, the margin rates at which duties are being deposited will apply. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study At the end of AR, DOC will instruct US Customs to liquidate entries from 4th August 2004 to 31st December 2005 at the applicable rates as mentioned above. From the date of publication of AR final determination in Federal Register, the rates determined in AR will be new Cash deposit rates. Tenure of Anti-dumping Duty Order (‘ADO’) The ADO will be in force for five years unless it is revoked in a changed Circumstances Review (CCR) initiated by DOC or ITC. The CCR should not normally be initiated for atleast two years after ADO is issued unless sufficient reasons exist for its initiation. In the fifth year, a ‗sunset review‘ will be initiated by DOC. Then DOC and ITC will conduct the sunset review mostly like the way investigation is conducted, to determine whether duties can be withdrawn or should be continued for another five years. Changed Circumstances Review (CCR) In an unprecedented move, ITC decided to invite comments on whether they should initiate, on their own, a ‗changed circumstances review‘ for frozen shrimp imports from Thailand and India on account of destruction caused by tsunami. Once initiated, the CC review and determination will conclude in 120 days. Contrary to what we heard from media reports, ITC did not initiate CC review but only decided to call for public comments to decide whether to initiate such review. It is not yet clear how ITC propose to collect required information or how they intend to obtain information from SEAI to facilitate their decision making in this regard. As mentioned earlier, this is an unprecedented move and there is no procedure outlined in the ITC manual for this measure. Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study Conclusion After more than a year of hectic action of arguments and analytical computations, the dust has finally settled down on the US shrimp antidumping investigations. Though the final ruling of the US DOC on the petition of the Country‘s domestic shrimpers has upheld the ‗dumping‘ charges on the shrimp imports from India, the magnitude of margins as such has steeply fallen below the allegation of the petitioners and by implication their expectations as well. The numbers tell a tale of their own. The petitioners had alleged dumping margins ranging from 82.3% to 110.90% for India. We hope that SEAI would be able to convince ITC the effect of Tsunami which may bring down the duties to lower level. (The views expressed in the above article are the personal views of the author) Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study The Uruguay Round Agreements and Management Accountants The Cost and Management Accountancy profession has taken on new dimensions with the WTO's new rules and regulations coming into force in the global markets. Their role will no more be limited to developing cost consciousness and advising managers on how to manage and reduce costs so that the firm can produce goods at lower prices and maintain/ sharpen the competetive edge in the globalised market place. Apart from key cost advisory function, the, management accountants would be increasingly called upon to provide critical information inputs in the company's growth plans as well as survival strategy. The three Uruguay Round agreements discussed in the earlier chapters deal with the measures which governments take to protect industrial interests in a regime of low tariff levels. The domestic industry will face a twin challenge when these measures are used. At one level for protection of domestic market they will have to be aware and informed about how they can use the measures. At another level when investigations are started overseas against their exports they will have to be active and vigilant in protecting their interests. To understand the accounting implications of the issues involved in safeguard/ anti-dumping/ countervailing measures we discuss below the crucial information inputs in each case. Safeguard Duty: An application for safeguard duty will have to be supported by hard data to prove Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study (a) (i) increased imports; (ii) serious injury or threat of serious injury to the domestic industry; (iii)a causal link between imports and alleged serious injury or threat of serious injury, and (b) a statement on the efforts being taken, or planned to be taken, or both to make a positive adjustment to import competition. Anti-dumping duty: Agreement on anti-dumping provisions stipulates that an application shall include evidence of dumping and a causal link between the dumped imports and the alleged injury. Simple assertion ,unsubstantiated by relevant evidence, cannot be considered sufficient. The application must contain such information as is reasonably available to the applicant regarding the following: The identity of the applicant and a description of the volume and value of the domestic production of the like product by the applicant. Where a written application is made on behalf of the domestic industry, the application shall identify the industry on behalf of which the application is made by a list of all known domestic producers of the like product(or associations of domestic producers of the like product)and,to the extent possible, a description of the volume and value of domestic production of the like product. A complete description of the allegedly dumped product, the name(s) of the country or countries of origin or export in question, the identity of each known exporter or foreign Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study producer and a list of known persons importing the product in question. Information on prices at which the product in question is sold when destined for consumption in domestic markets of the country or countries of origin or export(or,where appropriate, information on the prices at which the product is sold from the country or countries of origin or export to a third country or countries, or on the constructed value of the prod uct) and information on export prices, or where appropriate, on the prices at which the product is first resold to an independent buyer in the territory of the importing member. Information on the evolution of the volume of the allegedly dumped imports, the effect of these imports on prices of the like product in the domestic market and the consequent Impact of the imports on prices of the like product in the on the domestic industry as demonstrated by relevant factors and indices having a bearing on the state of the domestic industry. Subsidies and countervailing measures: An application requesting initiation of an investigation regarding subsidisation should include sufficient evidence of the existence of (a) a subsidy and, if possible its amount;(b) material injury or threat of a material injury to a domestic industry or material retardation of the establishment of such an industry; and (c) a causal link between the subsidised imports and the alleged injury. The application should also incorporate other details regarding the applicant, domestic production of like product by the applicant, list of domestic producers and their production ,complete description of the Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study allegedly subsidised product, exporters, country of origin ,existence and amount of subsidies ,evidence that subsidised imports are causing injury etc. Accuracy and Adequacy of Evidence: The investigating authorities are required to examine the accuracy and adequacy of the evidence provided in the application to determine whether there is sufficient evidence to justify the initiation of an investigation. This is intended to contain trivial applications for investigations. Thus, only if the authorities find sufficient evidence to justify the initiation of an investigation they shall initiate such an investigation. Further during the course of investigation both applicants and those opposing the action will have to supply information to investigating authority to decide for or against the applications and make recommendations. Accounting issues: Establishment of increased imports/ dumping / subsidy injury,(material or serious) and their causal link not only require a strong data support but also massive objective analysis There are various areas like the methodology required in determining cost of production of the product both in the importing as well as in the exporting country ,impact of financial and non-financial para meters - capacity utilisation, productivity, profitability, cash flow etc., in specially multi-product organisations, impact of duties-local customs allocation of various expenses, establishing appropriate amortization and depreciation periods, allowances for capital and other development expenditures quantum of profits considered reasonable on sale, net worth or capital employed, the basis of comparison-normal value vis-a-vis export price etc., pose a great challange to the accounting profession. Pricing policy under excess-capacity and th.at under full-capacity utilisation are likely to differ. In a variable -technology industry capital intensive firm may Monograph on WTO – Antisubsidisation and Anti Dumping- Case Study have lower average variable costs than more-labour intensive firms. There is need to analyse such situations, systematically. Cost-structures in different countries are different due to varying social, economic and legal factors. These different circumstances have led to the use of a variety of definitions of the elements of account statement for example assets, liabilities, equity, incomes and expenses. There are different basis of measurement of items of costs. In fact, if one looks at the scope of accounting system in operation in less developed countries ,there may be many areas where it is quite difficult to observe any consistency, notwithstanding the concept of 'generally accepted accounting principles' Differences in global practices of business processes also cause structural differences in the cost structure of products. A simplistic approach in the evaluation of inputs by looking at the generally accepted accounting principles will not be able to capture the true significance of these differences. It is therefore imperative, that a comprehensive model is evolved for the evaluation of inputs into the investigation process and thereby provide transparency. Such a comprehensive model will only evolve after an empirical survey of safeguard/dumping/subsidy cases across the globe to identify practices as well as assess how far non-availability of transparent and comparable information is impairing the fairness of such proceedings. References: 1. Glossary of Management Accounting Terms. ICWAI Publication. 2. Cost Accounting Standards 1 to 4 - ICWAI Publication. 3. Terminology of Management Accounting – CIMA Publication. 4. “Official Journal Of the European Union” 5. Accounting Standards issued by ICAI. 6. Management Accountant Journal of ICWAI. (Various Issues).
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