Anti-Dumping Duty Vs Countervailing Duty (CVD)

countervailing duty
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Context: India has started an anti-dumping investigation into imports of vitamin C from China in the wake of the domestic manufacturers making a case for imposition of the levy.

Analysis

  • Binding tariffs, and applying them equally to all trading partners (most-favoured-nation treatment, or MFN) are key to the smooth flow of trade in goods.
  • The WTO agreements uphold the principles, but they also allow exceptions — in some circumstances.
  • Three of these issues are:
  • Actions were taken against dumping (selling at an unfairly low price);
  • Subsidies and special “countervailing” duties to offset the subsidies;
  • Emergency measures to limit imports temporarily, designed to “safeguard” domestic industries.       

Countervailing Duty (CVD)

  • It is an additional import duty imposed on imported products (by the importing country) when such products enjoy benefits like export subsidies and tax concessions in the country of their origin.
  • The objective of CVD is to nullify or eliminate the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactures.
  • The WTO permits member countries to impose countervailing duty when the exporting country gives export subsidy.  

Anti-Dumping Duty

  • Dumping is a process where a company exports a product at a price lower than the price it normally charges on its own home market.
  • An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
  • Typically, anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country.
  • Anti-dumping duty is imposed on the basis of margin of dumping which can vary across countries, producers or exporters.
  • Accordingly, there are variable rates of anti-dumping duty on different exporting countries, producers or exporters. 
  • The use of anti-dumping measure as an instrument of fair competition is permitted by the WTO.
  • The WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry.
  • In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and show that the dumping is causing injury or threatening to do so.
  • Disputes in the anti-dumping area are subject to binding dispute settlement before the Dispute Settlement Body of the WTO.

Anti-Dumping and The Customs Duty

  • Although anti-dumping duty is levied and collected by the Customs Authorities, it is entirely different from the Customs duties not only in concept and substance, but also in purpose and operation.
  • The following are the main differences between the two:
  • Anti-dumping and the like measures in their essence are linked to the notion of fair trade.
  • The object of these duties is to guard against the situation arising out of unfair trade practices while customs duties are there as a means of raising revenue and for overall development of the economy.
  • Customs duties fall in the realm of trade and fiscal policies of the Government while anti-dumping and anti-subsidy measures are there as trade remedial measures.
  • Anti-dumping duties are not necessarily in the nature of a tax measure inasmuch as the Authority is empowered to suspend these duties in case of an exporter offering a price undertaking. Thus, such measures are not always in the form of duties/tax.
  • Anti-dumping and anti-subsidy duties are levied against exporter/country in as much as they are country specific and exporter specific as against the customs duties which are general and universally applicable to all imports irrespective of the country of origin and the exporter. 

Extent of anti-dumping duty

  • Under the WTO arrangement, the National Authorities can impose duties up to the margin of dumping i.e. the difference between the normal value and the export price.
  • The Indian law also provides that the anti-dumping duty to be recommended/levied shall not exceed the dumping margin.
  • The anti-dumping duty cannot be levied retrospectively beyond 90 days from the date of issue of Notification imposing duty.

Authority for Anti-Dumping

  • Anti-dumping and anti-subsidies & countervailing measures in India are administered by the Directorate General of anti-dumping and Allied Duties (DGAD) functioning in the Dept. of Commerce in the Ministry of Commerce and Industry and the same is headed by the “Designated Authority”.
  • The Designated Authority’s function, however, is only to conduct the anti-dumping/anti-subsidy & countervailing duty investigation and make recommendation to the Government for imposition of anti-dumping or anti subsidy measures.
  • Such duty is finally imposed/levied by a Notification of the Ministry of Finance.
  • Thus, while the Designated Authority (in the Department of Commerce) recommends the anti-dumping duty, provisional or final, it is the Ministry of Finance, Dept. of Revenue which acts upon such recommendation within three months and imposes/levies such duty.
  • Safeguard measures, on the other hand, are administered by another Authority namely, Director General (Safeguard), which functions under the Dept. of Revenue, Ministry of Finance.
  • The Standing Board of Safeguards (chaired by the Commerce Secretary) considers the recommendations of the DG (Safeguards) and then recommends the impositions of the Safeguard Duty as it deems fit, to the Ministry of Finance which levies the duty.

Minimum Level of Imports

Individual exporter:

  • 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.

Country: 

  • Further, investigation against any country is required to be terminated if the volume of the dumped imports, actual or potential, from a particular country accounts for less than 3% of the total imports of the like product.
  • However, in such a case, the cumulative imports of the like product from all these countries who individually account for less than 3%, should not exceed 7% of the import of the like product.

Appeal

  • The law provides that an order of determination of existence degree and effect of dumping is appealable before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT).
  • However, as per the judicial view, only the final findings/order of the Designated Authority/Ministry of Finance can be appealed against before the CEGAT.
  • The appeal cannot lie against the Preliminary findings of the Authority and the provisional duty imposed on the basis thereof.
  • The Appeal to the CEGAT should be filed within 90 days.

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