Analysis of “Material Retardation”: A WTO jurisprudential perspective on DGTR’s recent findings

By Greetika Francis

            The Directorate General of Trade Remedies (DGTR) in India has had scant opportunity to address situations of injury in the form of “material retardation to the establishment of an industry”. In fact, since 1995, there have been less than twenty investigations into such situations, and of these, a majority were conducted and concluded during 2017 and 2018. We examine some findings of the DGTR in view of recent jurisprudential guidance provided by the WTO Panel in Morocco-Anti-Dumping Measures on Certain Hot-Rolled Steel from Turkey (DS 513) in a Panel Report issued on 31 October, 2018. Specifically, the Final Findings with respect to the following investigations are examined:

• Final Findings dated 13 February 2018 with respect to Veneered Engineered Wooden Flooring from China PR, Malaysia, Indonesia and European Union;
• Final Findings dated 2 September 2017 with respect to Non-Woven Fabrics from Malaysia, Indonesia, Thailand, Saudi Arabia and China PR;
• Final Findings dated 12 July 2017 with respect to Styrene Butadiene Rubber of 1500 Series and 1700 Series from European Union, Korea and Thailand; and
• Final Findings dated 23 May 2017 with respect to O-Acid from China PR.

The Panel in Morocco-AD measures on Steel from Turkey (DS 513) examines the situation wherein an Investigating Authority while assessing injury in the form of material retardation to the establishment of an industry, determines or relies on a determination that a particular producer is “unestablished”. The Panel holds that in relying on such a determination, in terms of Article 3.1 of the WTO Anti-Dumping Agreement, an investigating authority must base its assessment on positive evidence. It went on to note that while no specific methodology for such assessment is recorded, the same must be based on “substantiated” facts or inferences. In this regard, the Panel’s observations, as reproduced below, are relevant: [see Endnote1]

“Similar to the Appellate Body's views, our view is that Article 3.1 does not prescribe a particular methodology that an investigating authority must follow in assessing whether a domestic industry is established.²²⁹ While an investigating authority enjoys a certain degree of discretion in adopting a methodology to guide its analysis, it may, within the bounds of that discretion, have to rely on reasonable assumptions or draw inferences. The exercise of this discretion must nonetheless comply with the requirements of Article 3.1. Accordingly, when an investigating authority's determination rests upon assumptions, these assumptions should be derived as reasonable inferences from a credible basis of facts, and should be sufficiently explained so that their objectivity and credibility can be verified. An investigating authority that uses a methodology premised on unsubstantiated assumptions does not conduct an examination based on positive evidence. An assumption is not properly substantiated when the investigating authority does not explain why it would be appropriate to use it in the analysis.²³⁰

Original Footnote 229: Appellate Body Report, Russia – Commercial Vehicles, para. 5.52.

Original Footnote 230: Appellate Body Report, Russia – Commercial Vehicles, para. 5.52 (referring to Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, paras. 204-205

In light of this, an examination of the DGTR’s Final Findings in investigations involving claims of material retardation to the domestic industry displays a woeful lack of analysis with respect to the status of the domestic industry as “established” or “unestablished”. At the same time, the assessment of the injury parameters rely on a repeated and absolute reliance on the fact of “unestablishment”- often depicted in the form of an unachieved- but expected- import substitution or increased capacity utilization, etc.

This is particularly notable in the investigation pertaining to Veneered Engineered Wooden Flooring where the Authority’s injury examination opens with “The Authority has taken note of the submissions made by the interested parties and the Authority has examined the injury- both material injury and material retardation to the establishment of the domestic industry in accordance with the Anti-dumping Rules and considering the submissions made by the interested parties.” This is neither preceded nor followed by any determination regarding the status of the domestic industry under consideration. In response to claims regarding the nascency of the domestic industry, the Authority sets up a vague standard for determining the same, without any meaningful assessment or evidence to establish even such a vague standard. The Authority notes, at paragraph 78 therein, “As regards the contention that the petitioner’s business is not in nascent stage, the Authority notes that the domestic industry commenced its production of the subject goods in August, 2014 only and despite reporting capacity on one shift basis (as against three shift basis working for which capacities have been installed), the capacity utilization of the domestic industry is quite low. The domestic industry is not able to operationalize its production on three shift basis and utilising production capacities to the extent the petitioner had envisaged while setting up the plant based on its projection.” As such, the standard for nascency which can be devolved from a reading of this paragraph is:

• How long the domestic industry had been producing the domestic like product?
• Is the domestic industry able to achieve capacity utilization as projected?

However, even on this perfunctory and basic standard, the Authority did not discuss nor disclose any evidence with respect to the reliability or underlying facts as contained in the projections put forward by the petitioner. This very issue, the confidentiality of certain projected “threshold”, was discussed by the Panel in its Report on Morocco-AD Measures on Steel from Turkey. Owing to limitations of the challenge raised by Turkey, the Panel limited the finding to the nature of evidence considered by the Moroccan Authority in its assessment of the status of the domestic industry in consonance with Article 3.1 of the WTO Anti-Dumping Agreement. The Panel noted:[see Endnote 2]

“In the underlying investigation, the MDCCE's finding that the domestic industry was unestablished, and that the establishment of the domestic industry was materially retarded, formed part of the MDCCE's inquiry into the impact of dumped imports on domestic producers. In particular, the MDCCE proceeded to examine whether the domestic industry had suffered injury in the form of material retardation of its establishment, rather than material injury, only upon finding that the domestic industry was unestablished.[original footnote omitted] Given that the MDCCE, in examining the impact of dumped imports on domestic producers, relied on its finding that the domestic industry was unestablished, we consider that Article 3.1 required the MDCCE to base that finding on positive evidence and objective examination. [original footnote omitted] In the event that the record of the underlying investigation shows that the MDCCE did not base that finding on positive evidence and objective examination, we will then conclude that the MDCCE acted inconsistently with Article 3.1.

Coming back to the facts and analysis of the DGTR in Veneered Engineered Wooden Flooring, we note that the Authority simply did not assess the status of the domestic industry at all, but rather, proceeded to injury assessment on the basis of both, “material injury” and “material retardation to the establishment of the industry”. The Authority did not consider or present any “evidence”, much less positive evidence, that the projected capacity utilization claimed by the domestic industry was reliable or the context pertaining to the same. In some sense, the temporal condition regarding how long the said producer had been producing the subject goods was considered. However, even then the Authority did not consider what the “start-up” period for producers in the subject industry was and whether the subject domestic industry was within that period or not.

It is noted that the Indian Anti-Dumping Rules, at paras. (i) and (vii) of Annexure II provide the principles for determination of injury and threat of material injury, respectively. However, no such principles exist for the determination of material retardation. Therefore, it is critical for the Authority to disclose the standard and mechanism it would rely on to examine material retardation in every case. Material Retardation is a unique standard in which neither actual injury nor threat of material injury is considered but the injury to the establishment of the domestic industry needs to be determined by the Authority.

Interestingly, while the Indian Authority does not enter into an assessment of whether or not the domestic industry is “established” or not, the assumed determination in this regard colours the entire injury assessment of the Authority. Similar trends can be noted in the other named Final Findings as well. In the Final Findings pertaining to Styrene Butadiene Rubber of 1500 Series and 1700 Series, the Authority split the domestic industry based on constituents, treating one part of the industry as established and examining “material injury” with respect thereto and the other part of the industry as unestablished and examining “material retardation to the establishment of the industry” with respect thereto.

Finally, while the Panel’s Findings in Morocco-Anti-Dumping Measures on Certain Hot-Rolled Steel from Turkey (DS 513) clear the murky waters, requiring investigating authorities to first examine the status of the domestic industry, the Panel Report itself has been appealed by Morocco. On 15 January 2019, the Appellate Body (AB) expressed its inability to issue the AB Report by 19 January 2019 and stated that the expected date of issue for the same will be notified to participants at a later date.[see Endnote 3]

[The author is a Principal Associate in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]