Introduction
Article 2.1 of the WTO’s Anti-Dumping Agreement (‘ADA’) provides that a product is considered as being dumped into an importing country if the export price of the product is less than the normal value. The normal value, under the primary method, is the domestic selling price of like article in the exporting country.
However, Article 2.2 of the ADA allows an investigating authority to reject the domestic selling prices for calculating the normal value in cases where, because of a ‘Particular Market Situation’ (‘PMS’), such domestic sales do not permit a proper comparison with the export price. The provisions allow an investigating authority to determine the normal value in such cases through the secondary methods, namely, the export price to third country or the cost of production. Similar provisions have been incorporated into Section 9A(1)(c) of the Customs Tariff Act, 1975 (‘CTA’).
Therefore, determination of a PMS situation in the exporting country assumes paramount importance for an investigating authority as it alters the basis for determining the dumping. However, the phrase PMS has not been defined either in the ADA or under the CTA. Therefore, the law is silent regarding the appropriate approach to determine the existence of a PMS.
As the name suggests, a PMS is a situation existing in the ‘market’ of a product in the exporting country which is ‘particular’ or ‘distinct’ to the product in a manner that it can potentially distort its domestic selling prices and render them unfit for comparison with the export prices. One cannot exhaustively list out the situations in which a PMS can be found to exist, and a fact-finding exercise must be done on a case by case basis. Some of the situations may include Government interventions, cost distortions, etc.
The only thing which is clear from the provisions is that a mere existence of PMS is insufficient for discarding the domestic sales. After PMS is found, the investigating authority has to further determine whether the said PMS does not permit a proper comparison between the domestic sales and the export sales of like article from the exporting country. It is only when both these determinations are made can an authority discard the domestic sales for calculating the normal value.
We discuss below some of the recent cases wherein the Indian investigating authority undertook a PMS analysis.
Low Density Poly Ethylene (LDPE) from Saudi Arabia
In the LDPE case[1], the domestic industry alleged that there existed a PMS with regards to price of input raw materials such as ethane, propane and butane and utilities like natural gas in Saudi Arabia, Qatar and UAE, as the price of such inputs are distorted (lower than international prices) due to government interventions thereby distorting the costs and domestic prices of downstream LDPE produced from such inputs. The domestic industry also argued that the cost of production of LDPE producers should be adjusted to reflect the undistorted costs.
The other interested parties contended that the prices of the said inputs are lower in these countries due to their abundant availability in these countries. Nevertheless, they also claimed that PMS situation can be found only when the PMS prevents a proper comparison of domestic sales with the export price.
With respect to Saudi Arabia, the Authority noted that the prices of such inputs are fixed by the Government, which also regulated prices for domestic sales of certain upstream hydrocarbons, including ethane. In order to determine whether the distortions in the price of the inputs in production of LDPE can be considered as a PMS, the Authority referred to the WTO decision in Australia — Anti-Dumping Measures on A4 Copy Paper (DS529) where the panel considered whether the input price distortion can be construed as a particular market situation. The Panel had noted that ‘capable of preventing a proper comparison’ is not a necessary qualification for a situation to constitute ‘particular market situation’. The Panel had noted:
‘7.27 …….We find no functional purpose is served by incorporating into the meaning of 'particular market situation’ part of the function that will necessarily be served by the terms ‘because of and ‘not permit a proper comparison’. Accordingly, we find that ‘capable of preventing a proper comparison’ is not a necessary qualification for a situation to constitute the 'particular market situation’. Indeed, incorporating such a meaning into the term ‘particular market situation’ would alter the functioning of this provision. Thus, we find that the term ‘particular market situation’ does not require or contemplate an analysis relating to the capability of causing domestic sales to not permit a proper comparison in the abstract. Rather, the terms ‘because of and ‘not permit a proper comparison’ in Article 2.2 already properly and adequately fulfil this function.’
Basis the above, the Authority concluded that since the prices of the said inputs were found to be influenced by the government intervention, to that extent PMS exists in Saudi Arabia. The Authority also concluded that there did not exist a PMS in Qatar and UAE as no evidence was placed on record by domestic industry that raw material prices are fixed or regulated by the Government in Qatar or UAE.
After concluding that PMS exists in Saudi Arabia, the Authority went on to examine the second condition i.e. whether the effect of such PMS is such that it does not permit a proper comparison between the domestic selling price and the export price.
In this regard, the Authority again referred to the Panel report in Australia-Copy Paper which had observed:
‘7.73. Where a ‘particular market situation’ is found to exist, the investigating authority must examine whether ‘a proper comparison’ of the domestic and the export price is permitted or not. We consider that the ‘proper comparison’ language calls for an assessment in respect of the comparison of domestic and export prices.
‘7.74 …………The function of the 'permit a proper comparison’ test is to determine whether the domestic price can or cannot be used as a basis for comparison with the export price to identify the existence of dumping. It is implied here in Article 2.2 that the words ‘a proper comparison’ refer to the comparison between the domestic price and the export price. Thus, the purpose of an investigating authority's examination under the second clause of Article 2.2 of the Anti Dumping Agreement is to determine whether domestic sales of the like product in the ordinary course of trade do not permit a proper comparison between the export price and the domestic sales price because of the particular market situation or the low volume.’
‘7.75 …………We therefore consider that the ‘proper comparison’ language calls for an assessment of the relative effect of the particular market situation on domestic and export prices. We understand that, in certain circumstances, as a result of this assessment, the investigating authority may conclude that the particular market situation has no effect on the export prices.’
The Authority examined all the available evidences on record viz. the cost of production of LDPE, the domestic selling prices and the export prices of LDPE as reported by the responding producers from Saudi Arabia and concluded that there was no sufficient evidence to conclude that the PMS in Saudi Arabia had specifically impacted only the domestic selling price of LDPE in such a manner that a proper comparison between domestic selling price and export price is not permitted. A tacit conclusion of the Authority was that even if inputs costs were distorted in Saudi Arabia, it had equally impacted the domestic selling prices and export prices of LDPE, thereby permitting a proper comparison of two variables.
Thus, the Authority concluded that that there was no sufficient evidence on record to reject actual cost of raw materials and the domestic selling prices of producers/exporters from Saudi Arabia for determining the dumping margins under Article 2.1 and 2.2 of the ADA.
Uncoated Copier Paper from Indonesia
A somewhat similar reasoning was adopted by the Authority in the recently concluded sunset review investigation of Uncoated Copier Paper from Indonesia (Final Findings dated 26.11.2021). The domestic industry had alleged existence of PMS in Indonesia on account of various policies and actions of the Government of Indonesia which allegedly influenced and artificially lowered the prices of input material (wood pulp).
The Authority finally concluded that even if it is considered that the prices of raw material wood pulp are artificially lowered due to Government interventions, the domestic industry did not give any evidence to show that this has led to lower prices only in the domestic market and not the export price.
Glass Fibre from Egypt
Recently, in the Anti-dumping investigation concerning imports of ‘Glass Fibre and Article thereof' originating in or exported from Bahrain and Egypt (Final Findings dated 30.11.2021), the domestic industry had alleged a PMS with respect to one of the producer / exporter of glass fiber from Egypt viz. Jushi Egypt as it was established and operating in the SETC zone in Egypt (similar to an SEZ in India). It was alleged that the domestic sales of the producer from SETC to the domestic tariff area in Egypt are subject to various terms and conditions, by virtue of being in the zone. It was also contended that the SETC zone in Egypt was allegedly established with the various investments and infrastructural support from the Chinese government and the said producer, having a Chinese parent company, had numerous advantages such as cheap raw material, tax and utilities benefits rendering the costs and domestic prices in Egypt as unreliable.
The Authority, by referring to the Australia-A4 Copy Paper ruling, observed that a PMS can be understood as those situations, although not exceptional, lead to price distortions in the domestic market rendering the normal value unfit for comparison with the export price. To examine whether a PMS exists in the domestic market of an exporting country, the Authority noted that the issues needed to be conclusively established in that case were:
- Whether the price of the like article in domestic market is fair and reliable and is representative especially when it emanates from a unit situated in SEZ with various tariff, fiscal and logistics concessions and also investments from China?
- What is the extent of price variation between the transactions occurring between the related and unrelated parties?
However, the Authority did not go into a detailed examination of above issues to determine the existence of PMS as the issue of PMS was raised at a belated stage and on the basis of the facts available it was not able to conclusively establish the existence of a PMS in domestic market of Egypt on account of the SETC operations of Jushi Egypt.
Conclusion
PMS issues have recently been raised in number of Indian anti-dumping investigations. It has become a new tool in the hands of the domestic industry to allege distortion in costs and domestic selling prices in the exporting country. However, as a long as PMS does not create hindrance in a proper comparison between domestic selling price and export price, its impact is neutral.
There are no clear guidelines to determine the kind or type of situations that can result in a PMS. Considering its importance, some developed countries like Australia and USA have amended their regulations to provide standard guidelines and approaches to determine whether a PMS occurs in the trade practices of exporters. Although it is recognized that PMS situations cannot be exhaustively defined, it is high time that Indian Authority also issues some guidelines for determining existence of PMS in anti-dumping investigations.
[The author is a Principal Associate, WTO and International Trade Division, Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] Ministry of Commerce and Industry (Department of Commerce) (Directorate General of Trade Remedies) - Final Finding (Case No. AD (OI) 25/2020) 31 March 2022