A study of overlaps and conflicts between Anti-Dumping Law and Competition Law

Introduction to Anti-dumping law:

The era of Globalization along with the sweet treats that it has given us has served the world economy with some omens as well. The issue of ‘Dumping' is one such predicament in the recent times.

Dumping is a process by which a company exports a product at a price lower than the price it charges in its domestic market. This is bad for the importing country's economy as the domestic industry of that country will not be able to compete with such dumped products in the market and will be forced to close shop.

An ‘anti-dumping duty' is a tariff that a domestic government imposes on foreign products which are, after due investigation, proved to be priced below the fair market value. These are termed dumped products.

In India, anti-dumping investigations are conducted by the Directorate General of Anti-dumping and Allied Duties (DGAD), which is a separate department under the Ministry of Commerce.

Legal framework:

Sections 9A, 9B, and 9C of the Customs Tariff Act, 1975 as amended in 1995 and the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 framed thereunder form the legal basis for anti-dumping investigation and for the levy of anti-dumping duties. These laws are based on the Agreement on Anti-Dumping which is in pursuance of Article VI of GATT 1994.

Section 9A of the Customs and Tariff Act (Amended) 1995 talks about the instances when the Central Government can impose anti-dumping duty on a certain product, it defines ‘margin of dumping', ‘normal value' and ‘margin of dumping'; and the methodology to determine them. It states that the Central Government, after inquiring all the key aspects, defined in the section, can, if it thinks that there is a discrepancy between the normal value and the price in which imported goods are sold, impose an anti-dumping duty after following due procedure

Section 9B of the Customs and Tariff Act (Amended) 1995 talks about the Central Government of India levying dumping duty or any additional duty only in cases of a material or substantial damage to the domestic market. The concerned authority can analyze the material damage in two ways. First, by analyzing the effect of the volume of dumped articles imported into the country, which includes analyzing the influx of dumped imports in comparison with the production and consumption in India and how this import is going to affect the domestic market of India. Then comes the analysis of the effect of dumped imports on the prices of ‘like articles' in the Indian market, this analysis includes analyzing the extent to which dumping is causing a decrease in prices in the Indian market or if in a way is preventing price increase which would've been possible otherwise.

Section 9C of the Customs and Tariff Act (Amended) 1995 talks about the procedure of appeal if any one of the parties in an anti-dumping investigation is aggrieved. Each application should be filed within the ninety days from the order of the appeal and the fees are Fifteen Thousand rupees. Every appeal shall be directed to Customs, Excise and Service Tax Appellate Tribunal constituted under section 129 of the Customs Act, 1962.

The justification for anti-dumping laws:

Let us consider a scenario where a monopoly in a closed economy practices price discrimination. In such a scenario the government would have intervened to stop consumer exploitation by enforcing an Act similar to MRTP Act in India.

Similarly, in a free international trade, firms are allowed to set their own rates and different markets can have different rates. The result of this would be that firms would charge lower prices in the foreign market and higher prices in the domestic market. This would create a very hostile environment for the domestic firms and would eventually shut them down. It is the anti-dumping laws which protect the domestic industry.

The justification for this is that in many industries, the start-up period is long and the costs are very high which would take a long time to come down as they scale their operation. If there is a foreign industry which has a similar business supplies goods at prices cheaper than their normal value then it would be very difficult for the domestic industry to survive. Once these firms are out of the market it is very easy for the foreign firms to dominate the market and acquire a monopoly. Thus it is on this ground that the anti-dumping duties have been justified. The main concern of the antidumping duty is the protection of domestic industry.

In ‘Reliance Industries v. Designated Authority' [2006 (10) SCC 368], the Hon'ble Supreme Court stated that:

"The Anti-dumping Law is, therefore a salutary measure which prevents destruction of our industries which were built up after independence under the guidance of our patriotic, modern-minded leaders at that time and it is the task of everyone today to see to it that there is further rapid industrialization in our country, to make India a modern, powerful, highly industrialized nation."

The conflict between Anti-Dumping and Competition Law:

The competition act of 2002 was passed by the parliament of India so as to form a commission to oversee the business operations of companies and individuals in the country following fair practices of competition and economic growth of the country. This act applies to the whole of Republic of India except for Jammu and Kashmir. It applies to agreement, acquisition or any cartel involving business transactions that has an economic impact on the country

The main objective of this Act was to ensure free and fair practices in the market, it allows healthy competition in the market as in a competitive environment would force businesses to innovate and improvise.

"Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity."  - Nancy Pearcey

The Conflict between Anti-dumping law and Competition law becomes evident when we pay a close attention to the issues they are focusing on. On one hand, the goal of competition law is to promote a healthy competition in the economy and it attaches sanction to only such price discrimination which adversely damage the competition in the market. On the other hand anti-dumping law does not concern itself with the fairness of the market while determining ‘price discrimination' and its main goal is to protect the ‘domestic industry'.

The Anti-Dumping law was initially considered to be a counterpart of the Competition law and they were thought to be complementing each other. But now Anti-Dumping is considered as an instrument to protect the competitors and therefore it is in direct conflict with the Competition Law.

The WTO Anti-Dumping Agreement defines domestic Industry as:

Referring to the domestic producers as a whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products, except that: when producers are related to the exporters or importers or are themselves, importers of the allegedly dumped product, the term "domestic industry" may be interpreted as referring to the rest of the producers.

By definition, it means that a group of domestic industries have to come together to initiate an anti-dumping investigation. This pooling of industries to some extent is a collusive conduct and thus anti-competitive

Areas of Overlap between Anti-Dumping laws and Competition Law:

The Anti-Dumping laws were enacted as a counterpart of the Competition law, so it is natural for them to overlap at different stages. They interpret the same aspects with different definitions according to their respective legislation. The two key ways in which they overlap with each other are:

Predatory Prices:

Antidumping laws come into action when an exporter sells an article at ‘prices lower than those charged to domestic buyers, taking into account the conditions and terms of sales'. Section 9A of Customs and Tariff Act states that if any article is exported to India at a price lower than what it charges at the domestic market then the Central Government can impose an anti-dumping duty on the exporter.

Competition laws, on the other hand, deals with ‘predatory pricing' which is defined as a deliberate strategy, which is adopted usually by the dominant firm to capture over the market and to make the market unhealthy for smaller firms and to make it undesirable to enter the market. The investigation under competition law takes into account the ‘intention' and the position of the firm, that is, whether it is operating from a dominant position or not. Once the predator has successfully driven out the competitors and deterred entry to new firms, it can act as if it is a monopoly and be the price maker.

Antidumping laws are not concerned with the requirements of ‘intention' and ‘dominance', unlike competition law.

Price Discrimination:

Both the laws address the issue of ‘price discrimination'. But whereas Antidumping laws seek to address all forms of price discrimination which can cause material injury to the domestic industry, the competition law seeks to address only such price discrimination which is ‘unfair' in nature and has adversely effects the market

The main objective of Competition law is to maintain a scenario of healthy competition in the market and that is why action is taken only on those price discrimination which is unfairly obtained. There are instances where price discrimination under Competition law was allowed because it was shown that they were adopted to meet the competition and does not adversely affect the competition in the market.

But in antidumping law ‘price discrimination' and ‘dumping' are synonyms. According to Article VI, GATT 1994, a product is said to be dumped when its export price is less than its normal value, that is, less than the price of like products in the domestic market. The anti-dumping laws examine ‘price discrimination' with narrow parameters such as ‘injury to domestic industry' and once dumping and injury is established then it is a valid ground for issuing antidumping duty whereas in competition law the ‘intention' of the firm under scrutiny is considered.

Since the antidumping laws attach sanction to every instance of price discrimination which causes injury to domestic industry, to this extent anti-dumping laws are in conflict with competition law as competition law does allow price discrimination which does not adversely affect the competition in the market.

Antidumping has a narrower concept than Competition law as it is just concerned with the price aspect of the product and not the intention behind it. This can lead to it being used as just a protectionist tool. The aim of competition policy is to promote consumer welfare and productive efficiency, which in part depend upon market contestability, wherein import competition often plays a key role. On the other hand, the anti-dumping law is a trade remedy that addresses issues of industries injured due to import competition/ trading across national borders. Antidumping rules allow practices such as price undertakings and quantitative trade restrictions that are forbidden under competition law.

Conclusion:

After in-depth research of Anti-dumping legislation, it can be concluded that Anti-dumping laws were enacted as a counterpart to the Indian Competition Act, to protect the domestic industries from foreign competition in their start-up period, its main focus was to make the competition in the market fair by nullifying the ‘unfair’ advantage, if any, that the exporter has obtained in its home country. Both the legislation had the same objective, to create a healthy economy. But the ground reality is that Anti-dumping duty has been used as a protectionist tool to give domestic industry an unfair advantage, which does give a boost to the domestic industry but in the long run it will hurt the overall economic growth of the country by not giving the domestic industry an incentive to adapt and innovate.

The Designated Authority should consider aspects such as the intention of the exporter during an investigation before coming to the decision of whether or not anti-dumping duty should be imposed upon them and also every instance of ‘price discrimination’ should be scrutinized keeping in mind the facts of the particular case.

By: Mr Navin Kumar Jaggi and  Mr Kiratraj Sadana

 

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