On 29 September 2023, the Directorate General of Trade Remedies (‘DGTR’) issued the Final Findings (‘FF’) in Anti-dumping investigation concerning imports of ‘Metronidazole’ originating in or exported from China PR. The domestic industry (‘DI’) was represented by Aarti Drugs Ltd., (‘ADL’) who was one of the major domestic producers of Metronidazole (‘Product under consideration’ or ‘PUC’) in India.
The investigation concluded that the DI was not facing any injury due to any alleged dumped imports from the subject country, the injury if any was due to other reasons. Regardless of the final determination, one of the moot points during the investigation, which is the focus in this article, relates to standing or eligibility of ADL as a DI to file the anti-dumping application for the PUC under the extant anti-dumping law.
DI’s standing and the two exceptions
This eligibility threshold stems primarily from the Article 4.1 of the Anti-Dumping Agreement (‘ADA’) and the corresponding domestic law contained in Rule 2(b) of the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995. It provides that ‘domestic producers as a whole’ engaged in the manufacture of like article or those whose collective output of the said article constitutes ‘a major proportion’ of the total domestic production of that article in India are eligible to file the application[1], subject to twin exceptions wherein the domestic producer(s) may be considered ineligible despite fulfilling the prescribed threshold. It is these twin exceptions which are subject matter of present article.
The following are the two exceptions:
- The Producer(s) in India are related to exporters or importers of the alleged dumped article. (The related party has been explained in the explanation to Rule 2(b) for domestic producers)
- The domestic producers are themselves importing PUC into India thereby self-benefiting from the dumping which is being complained against.
However, the exceptions are couched in the language ‘may’ which provide a discretion to the DGTR to determine ineligibility on a case-to-case basis depending upon the facts of each case. The past practices have varied from one investigation to the other. The yardsticks used to determine this aspect include quantum of imports (whether significant or insignificant); reasons for import (such as for testing the market, fulfilling the shortfall in production due to shutdown etc.). In some AD investigations, the DGTR has disqualified several domestic producers from constituting the domestic industry since their volumes of imports of the dumped PUC were found to be significant[2]. In other cases, the DGTR has used its discretion in considering a DI as eligible for the reason that the volume of such imports was insignificant[3] or that the imports were made under duty exemption scheme for manufacture of export goods[4]. In other instances, the Authority has examined the purpose of imports by a domestic producer to determine whether it should be disqualified.
Keys facts from the subject case
The applicant ADL had been importing the PUC from China, and more particularly from the exporter-producer from China who participated in the investigation before the DGTR. ADL claimed that these imports were made under advance authorization and were intended for fulfilling its export obligations in manufacturing finished goods for exports since none of it was cleared for domestic sales. Interestingly, ADL had been determined to be an ineligible domestic producer by DGTR in the 2nd sunset review anti-dumping investigation pertaining to the same product from China for the same reason.
Moreover, it was alleged that ADL continued to hold investments in a Chinese entity and was previously involved in a joint venture with the Chinese entity i.e., Huanggang Yinhe Aarti Pharmaceutical Co. Ltd., (‘HYAP’). Hence, DGTR had to rule on the twin exceptions under Rule 2(b) to decide on eligibility of ADL to file the application.
- Import of the PUC from China PR
Interpreting Rule 2(b) of the AD Rules, the DGTR clarified that the use of word ‘may’ therein provides the Authority a discretion to include the domestic producers who are importers of the subject goods into India or that are related to exporters or importers of the subject goods within the scope of the ‘domestic industry’. To supplement its interpretation, the DGTR referred to the Guwahati High Court decision in Century Plyboards[5], and relied on the WTO Panel decision of EC – Fasteners (China)[6], to hold that the Authority has some discretion ‘to include the producers related to the exporters or importers of the dumped article or the importers themselves in the concept of ‘domestic industry’.’
The DGTR also placed reliance on Hon’ble Calcutta High Court’s reasoning in the case of Gujarat Fertilizers & Chemicals Ltd[7], where it was held that the determination of the scope of DI under Rule 2(b) of the AD Rules must be examined based on the nature of activities carried out by the domestic producer vis-à-vis the imports of PUC made by it. It was held that the producer therein, which had imported 15% of its total production of the subject goods when its production was disrupted, qualifies as the domestic industry since such imports were made merely to meet its customers’ demands. The High Court observed that the domestic producer was not exclusively carrying on the business of import for trading purposes, and therefore there was no reason to exclude it from the scope of ‘domestic industry’ under Rule 2(b) of the AD Rules.
The DGTR in the present case took cognizance of the fact that the applicant had imported low volumes of PUC (in absolute and relative terms) as well as of the fact that all of its imports of PUC were made under the advance authorisation to meet its manufacturing requirement for export obligations. In view of the above, the Authority concluded that the nature of the operations of the applicant was that of a producer of the PUC and not that of a trader making it an eligible domestic producer under the rules.
- Relation with the Producer (HYAP) in China PR
The DGTR tested the relationship in light of the explanation under Rule 2(b)[8] which provides the circumstances in which the domestic producers shall be deemed to be related to exporters or importers. The DGTR relied on following key aspects of the alleged relationship:
- The alleged Chinese producer had not been reported as a ‘related party’ in the annual reports of ADL.
- A continuous reduction of investments in the producer had occurred over the years vis-à-vis previous investigations.
- There is no consolidation of books of accounts of the Chinese entity & ADL.
- There has been no direct export of PUC by the Chinese producer to India.
- None of the two entities hold any positions in the Board of Directors (‘BOD’) of the other entity.
- ADL has no right / power to exercise any control on the Chinese producer’s management.
- There are no common directors, senior management personnel or key managerial persons between the two entities.
- Neither of the two have any right to appoint any member in the BOD of the other entity.
In accordance with the prescribed circumstances under the rule and the discretion allowed to DGTR by use of the word ‘may’, it was concluded that the applicant’s relation to a producer of the PUC in China did not disqualify it from being considered as a ‘domestic industry’ in terms of Rule 2(b) of the AD Rules.
Conclusion
It is well settled that DGTR is a quasi-judicial authority. The judicial discretion given to DGTR under the rules to decide on the standing or eligibility of a domestic producer, particularly the two exceptions, and its practical application on facts of each case has been a vexed issue often subject to litigation in courts. In the present case, the Authority has attempted to provide a detailed reasoning replete with relevant domestic and WTO jurisprudence to justify its stand on the issue. Although the determination on this aspect is based on facts of each case, hopefully the present findings can be used to provide some broad principles or guidelines to follow for other cases. Given the vagaries of business exigencies, it can also provide relief to the domestic producers who are suffering injury from dumped imports but are apprehensive of the fact that their imports of the PUC can make them ineligible to seek protection under the law.
[The author is a Senior Associate in WTO and International Trade Division in Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] There are certain additional eligibility tests in Article 5 of ADA / Rule 5(3) of AD Rules which are not subject matter of present discussion.
[2] Anti-dumping investigation on the imports of ‘Glazed/Unglazed Porcelain/Vitrified tiles’ from China PR (Final Findings dated 8 April 2017)
[3]AD investigation concerning imports of ‘Natural Mica based Pearl Industrial Pigments’ from China PR (Final Findings dated 8 June 2021) or in AD investigation concerning imports of ‘Caprolactam’ from European Union, Korea RP, Russia and Thailand
[4] sunset review investigation on imports of ‘2 Methyl (5) Nitro Imidazole’ from China PR (Final Findings dated 29 June 2007) or in the AD investigation on imports of Purified Terephthalic Acid from China PR, Iran, Indonesia, Malaysia & Taiwan (Final Findings dated 9 June 2016)
[5] Century Plyboards (I) Ltd. v. Union of India and Ors., 2022 SCCOnLine Gau 643
[6] WTO Panel Report, European Commission - Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (DS 397), adopted on 28 July 2011, WT/DS397/R
[7] State of Gujarat Fertilizers & Chemicals Ltd. v. Designated Authority and Ors., 2012 SCCOnLine Cal 8071
[8] Explanation. - For the purposes of this clause, producers shall be deemed to be related to exporters or importers only if, -
(a) one of them directly or indirectly controls the other; or
(b) both of them are directly or indirectly controlled by a third person; or
(c) together they directly or indirectly control a third person subject to the condition that there are grounds for believing or suspecting that the effect of the relationship is such as to cause the producers to behave differently from non-related producers.
Note: For the purpose of this Explanation, a producer shall be deemed to control another producer when the former is legally or operationally in a position to exercise restraint or direction over the latter.
