China: a look at an anti-dumping probe

Updated: Mar 22 2005, 05:30am hrs
China today is the preferred investment destination, yet not quite recognised as a market economy by most developed countries. The reality is that 70% of Chinas industrial enterprise is still state-controlled, compliance with accounting and corporate governance standards are poor and the bankruptcy framework is virtually non-existent. Chinas main grouse is that the non-market economy status imposed on it causes substantial trade discrimination against Chinese exports, especially in anti-dumping cases, where the investigating authority relies on the available data of an appropriate third country to arrive at the product cost and determine dumping and injury, with Chinese manufacturers having very little say. Very often that surrogate country is India, whose data is used to determine the real cost which, if higher, forms the basis of determination.

What about the cheap Chinese goods flooding Indian markets What happens when anti-dumping investigations are initiated against a Chinese exporter in India The Supreme Court recently had the occasion to examine this issue.

Section 9A of the Customs Tariff Act provides that in determining the normal value of a product, if its sales in the exporters domestic market do not permit a proper comparison, then the benchmark is the comparable representative price of an appropriate third country. The relevant rules initially applied to all countries, on the assumption that they operate on market economy principles. These were amended in 1999, requiring that in case of non-market economy nations, normal value would be determined on the basis of the price or constructed value in a market economy third country.

The second amendment, in 2001, listed various non-market economies, including China, and prescribed conditions for rebuttal of the presumption of status by the designated authority (DA), subject to certain considerations. Among them, that the decision of the concerned exporters costs of inputs and outputs reflect market values, whether exporters are subject to accounting distortions carried over from the former non-market system etc.

China says its non-market economy status leads to trade discrimination
The US has not even given China the status of an economy in transit
A complaint was filed and proceedings for anti-dumping initiated against import of lead- acid batteries into India from various countries, including China. Of the 11 exporters in China, only three responded, including the appellant. The DA declined to rely on the selective and incomplete information provided by the Chinese firms, relying instead on constructed cost of production. Provisional duty was recommended and imposed. In the final investigation stage, the appellant changed its stance, probably as the 2001 notification had come into effect and provided further information. The DAs officers visited its manufacturing facilities. The final finding held the dumping margin to be negative, hence the duty was not applicable.

The complainant challenged the DAs order before the tribunal, demanding that the case should have been determined on the basis that China was a non-market economy and applying the amended Rules 1999 and 2001. The tribunal passed an interim order to that effect. The DA, in its report, reiterated its earlier findings, and that market economy principles would apply. But the appeal was dismissed on the ground that the DA had failed to determine the normal value in accordance with the amended Rules, and the tribunal imposed final duty on the appellant.

Interestingly, in the SC, the complainant argued that the appellant could not be accorded the benefit of the 2001 notification, as the period of investigation was of an earlier date. The SC disallowed this as being inconsistent with its stand before the tribunal, and held the tribunals finding against the DA of non-verification of data to be factually erroneous. The tribunals order was reversed but the SCs decision stood forestalled by a mid-term review.

What this case could have laid down is methods of application and evaluation of the criteria to be followed by the DA for according market economy status under the 2001 notification, to ensure transparency, so that the Rules are not made a mockery of. Ultimately, China is the most perceived perpetrator of dumping. Precisely why the US has not even accorded it the status of an economy in transit, which the 2001 notification has.

The writer is a partner in Rajinder Narain & Co, a Delhi-based law firm