Finance Minister P Chidambaram may lower import duties this Thursday, but if the country's anti-dumping authorities have their way, this need not result in lower prices for the aam aadmi the Congress has been targeting ever since it began its election campaign. Because every time prices fall due to cheaper imports (the very raison d'etre of trade), the anti-dumping authorities get petitioned and, increasingly, they vote in favour of the company demanding protection " since 1997, the authorities have initiated action in 140 out of 160 petitions for anti-dumping. And, as compared to "safeguard duties" which have stringent standards, the rules for anti-dumping include a provision for determining threat of material injury to domestic players which is to be calculated by looking at "sufficient freely disposable" capacity abroad, or an "imminent, substantial increase in capacity of the exporter indicating the likelihood of substantially increased dumped exports to Indian markets"! In other words, if there is excess capacity in any part of the world, it should be pretty easy to "prove" that dumping is taking place. And that's precisely what companies have been doing. Just a few days ago (June 30), the Central Excise and Service Tax Appellate Tribunal (Cestat) came out with a stunning indictment of the anti-dumping authorities, reversing an anti-dumping duty of around 40 per cent imposed on imports of polyester staple fibre (PSF) close to two years ago. In June 2001, polyester producers like Reliance Industries and Indo-Rama Synthetics alleged PSF was being dumped, and after initial investigations, a provisional duty was imposed, and once this was confirmed in December 2002, the users of PSF appealed to Cestat. The petitioners argued that while the Directorate General of Anti-Dumping and Allied Duties (DGAD) had ruled PSF was being dumped and there had been a "material injury" to local PSF producers, this was done in a strange way. The DGAD had assumed, after examining profit data given to it, PSF producers required a 22 per cent return on capital employed in order to survive. Based on this a desirable domestic price was fixed, and anti-dumping margins levied to ensure this. Since fixing a 22 per cent margin is excessive by any standards, the Cestat asked the DGAD to re-work the returns that Reliance got on its PSF operations in January to September 2000, the period chosen to investigate if dumping took place. The results were an eye-opener " Reliance's return on capital employed was 40 per cent in 1993-94, fell to 33 the next year, to minus 3 in 1995-96, jumped to 10 the next year, fell to minus 0.1 in 1997-98, rose to 13 the next year, and was 22 per cent in 1999-00. That is, the margin depended on market forces which varied each year, and was negative in years when no one alleged dumping (this is critical since it was negative returns that clinched the argument for imposing anti-dumping duties). Indeed, Reliance's returns were 22 per cent in a year in a part of which dumping was supposed to have happened (January to March 2000 was part of the period in which the alleged dumping took place)! The Cestat also found it odd that, during this period of dumping, the domestic industry operated at 101 per cent capacity, its inventories declined, and prices rose 11 per cent. Also, while the DGAD said local firms had to lower prices to counter cheaper imports, from January to March, landed prices of imports were higher " so, local firms chose to keep their prices lower. While they rose and fell along with the landed prices, the correlation was unclear since local prices stayed relatively stable while landed prices rose (June to August 2000), but rose when landed prices remained stable (August to September). In any case, local producer prices remained higher than the landed price of imports from April to September. Clearly, the threat from imports that constituted just 2 per cent of local sales was overstated. Now that the Cestat has dismissed the case, the question is: are consumers who've paid more money for close to two years going to get their money back? Probably not. What's making matters worse is that, over the last year or so, DGAD counsel have increasingly been asking for extensions at Cestat appeals, during which period consumers continue to bear the burden of higher import duties. I sent a fax to the DGAD in February, and a reminder in March asking for comments on this issue, but still haven't got a reply. In the case of the anti-dumping duty on steel based on the petition by Jindal Strips, a case I cited, the hearings had to be postponed four times. While the Cestat had 11 appeals pending in April last year, today it has 48. A large part of the problem, it must be said, is not due to just the DGAD, but lies in the construction of the law. Apart from the "surplus capacity" argument I talked of earlier, the law allows the DGAD to almost never use cost-data supplied by the exporter, but to construct this on its own, and so reach almost any conclusion it wishes to. And it's not just the DGAD, most countries do the same. In the US, the Department of Commerce assumed a 26 per cent normal profit while constructing the price for dinnerware from Taiwan, for instance, while normal profits for US suppliers were a mere 5 per cent! If Finance Minister Chidambaram is serious about reducing duties to lower prices as well as force industry to get more competitive, he'd do well to try and curb the misuse of anti-dumping duties.
suniljain@business-standard.com
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