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SEZs whether eligible constituent of “Domestic Industry” under Indian trade remedial laws?


By Vikram Agarwal and Greetika Francis

A policy was introduced on 1st April 2000 by the central government for setting up of Special Economic Zones (“SEZ”) in the country with a view to provide an internationally competitive and hassle-free environment for exports. Units may be set up in SEZ for manufacture of goods or rendering of services. The SEZ Act, 2005 was introduced to provide the legal framework for establishment and operation of SEZs. A SEZ is conceived of as an engine to economic growth of the country with a view to attracting investment and generation of foreign exchange through export of goods and services. As per the SEZ Act, 2005, the SEZ units are considered to be producers situated “outside” the customs territory of India.

Thus, it is relevant to consider whether producers located in SEZ are eligible to constitute “Domestic Industry” for the purposes of Indian trade remedial investigations.

Rule 2(b) of Indian Anti-Dumping (AD) Rules defines the term “domestic industry” as “the domestic producers as a whole engaged in the manufacture of the like article and any activity connected therewith or those whose collective output of the said article constitutes a major proportion of the total domestic production of that article except when such producers are related to the exporters or importers of the alleged dumped article or are themselves importers thereof in such case the term ‘domestic industry’ may be construed as referring to the rest of producers.” Similar definition of “domestic industry” exists under the Indian Countervailing Duty (CVD) law as well.

Under the Customs Tariff Act, 1975, the definition of “domestic industry” for the purposes of the Safeguards investigation is ““domestic industry” means the producers- (i) as a whole of a like article or a directly competitive article in India; or (ii) whose collective output of a like article or a directly competitive article in India constitutes a major share of the total production of the said article in India”.

Based on the definitions for the purposes of trade remedial investigations as noted above, there appears to be no confusion regarding the inclusion of SEZ units as domestic producers and therefore, are eligible to constitute “domestic industry”.

However, provisions under the SEZ Act, 2005 hold SEZ units as “outside” India and thereby, not “domestic” producers. Specifically, Section 30 of the SEZ Act, 2005 provides that any goods removed from a Special Economic Zone to the Domestic Tariff Area (“DTA”) shall be chargeable to duties of customs including anti-dumping, countervailing duty and safeguard duties under the Customs Tariff Act 1975, similar to levy of customs duty on such goods when imported from foreign countries. Further, Section 53 of the Act provides that SEZ shall be deemed “outside” the customs territory of India for undertaking the authorized operations.

It is evident that Section 53 of the SEZ Act creates a “legal fiction” which deems a SEZ unit as “outside” the Indian custom territory. However, such a fiction is restricted to the authorised operations mentioned under the SEZ Act and do not extend to other Acts and the Constitution of India. All laws applicable in India, except for those specifically provided for by way of the SEZ Act and Regulations, apply equally to SEZs.

An important aspect is to be noted in the provisions of Section 53 of the SEZ Act, 2005 which do not provide that the SEZ is located outside ‘India’. Rather, the said provision refers to the expression ‘customs territory of India’ which though not defined in SEZ Act or the Customs Act, finds reference in the GATT Agreement. Under GATT 1994, ‘customs territory’ is defined to mean an area subject to common tariff and regulations of commerce. Thus, the term ‘custom territory’ cannot be equated to the territory of India. Various provisions of SEZ Act, 2005 itself would be redundant and unworkable if SEZ was to be considered an area outside India,[See endnote 1 ] which is constitutionally impermissible.[See endnote 2]

In view of the above facts, there is reason to believe that even though a SEZ unit is dominantly oriented towards serving export markets, it is ultimately a “domestic producer” in India.

Predominance of arguments also lie in favour of considering SEZ units as eligible domestic industry for the following reasons:
  1. The SEZ unit, though falling outside the ‘customs territory of India’, is a unit manufacturing and operating within the territory of India;
  2. The SEZ unit may be oriented towards export markets, but may also be serving the Indian market;
  3. As a business, the SEZ unit may equally require protection by imposition of duties against imports from certain sources as other Indian producers, especially to the extent that it serves the Indian market.
The issue arises in view of various trade remedy investigations undertaken by the DGTR, wherein the Authority has taken contrary positions with respect to the inclusion / exclusion of SEZ units as part of the “domestic industry”. In this regard, we note that in the anti-dumping investigation pertaining to Solar Cells (2014),[See endnote 3] the Authority considered claims pertaining to the exclusion of a domestic producer as it was situated in a SEZ and found that “there is no explicit exclusion of EOUs / SEZs from the scope of domestic industry[See endnote 4] and went on to include a SEZ unit as part of the eligible domestic industry. Similarly, in the Preliminary Findings with respect to Electrical Insulators (2014)[See endnote 5], the Authority noted that “Rule 2(b) nowhere provides that an SEZ unit shall not be considered as a part of the domestic producer/ domestic industry”.[See endnote 6] Per contra, in the Safeguard investigation pertaining to Solar Cells (2018)[See endnote 7], the Authority excluded the SEZ units from the scope of the domestic industry and concluded that domestic industry would constitute of other producers, excluding all the SEZ units.[See endnote 8] Similarly, even in the anti-dumping investigations concerning Non Woven Fabrics (2017)[See endnote 9], the Authority did not consider the SEZ producer to be eligible for the purposes of constituting domestic industry or for assessing its standing.

Thus, the debate with respect to SEZ as a domestic industry for trade remedial investigations remains a live one. It is hoped that over the course of upcoming investigations the Authority will concretize its stance with respect to the participation of a SEZ unit as “domestic industry”.

[Both authors are Principal Associates, in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]
 
Endnotes:

  1. Tirupathi Udyog Limited rep. by its Manager-Administration Shri D.V. Saradhy v. Union of India (UOI) through the Secretary, Ministry of Finance and Ors. [2011 (272) ELT 209 (A.P.)].
  2. Essar Steel v. Union of India [2010 GLH (1) 52].
  3. Anti-Dumping Investigation concerning imports of Solar Cells whether or not assembled partially or fully in modules or panels or on glass or some other suitable substrates, originating in or exported from Malaysia, China PR, Chinese Taipei and USA, Final Findings dated 22 May 2014.
  4. Id., at paragraph 19(xi).
  5. Anti-Dumping investigation concerning imports of Electrical Insulators originating in or exported from China PR, Preliminary Findings dated 1 July 2014.
  6. Id., at paragraph 40.
  7. Safeguard investigation concerning imports of “Solar Cells whether or not assembled in modules or panels” into India, Final Findings dated 16 July 2018.
  8. Id., at paragraph 27 (iv).
  9. Anti-dumping investigation concerning imports of Non-Woven Fabric, originating in or exported from Malaysia, Indonesia, Thailand, Saudi Arabia and China PR, Final Findings dated 2 September 2017.

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