The prime beneficiaries of the anti-dumping law have been producers, not the economy
KESAR Petro Products is an Indian manufacturer of Bisphenol-A, a life-saving drug intermediary. In 1994, it petitioned the government against dumping of Bisphenol-A by Japans Mitsui & Co. On investigation, the government felt Mitsui was indeed dumping the chemical, that is, selling it at lower than its production cost. On March 13, 1994, the government slapped a duty of Rs 7,477 per tonne against Mitsui. This was the second anti-dumping investigation in India.
By imposing a duty, did the government succeed in protecting the country's interests from the greed of multinational companies, as is usually made out in dumping cases? Let's look a little behind the news. Kesar is the sole producer of Bisphenol-A in India. Unfortunately, Kesar has a production capacity of just 5,000 tonnes, while domestic demand for the product is close to two lakh tonnes. By imposing anti-dumping duties against Mitsui - and later against Brazilian and Russian firms in 1995, and then a US firm in 1997 - and thus making imports of Bisphenol-A costlier, whom did the government benefit? Not its citizens. All it succeeded in was in protecting the interests of a monopoly producer of a vital drug input.
Similarly, the seventh anti-dumping investigation relates to the imports of acrylonitrile butadine rubber, a rubber products intermediate. On November 14, 1995, the government imposed a duty of Rs 19,306 per tonne against Nippon Zeon and Japan Synthetic Rubber Co, and later in 1997, against two firms from Germany and South Korea. All through, the monopoly of the Indian producer Gujarat Apar was maintained.
In fact, 10 out of the 27 anti-dumping cases settled since January 1994 have gone in favour of an Indian monopoly or duopoly. Most of the remaining products have three producers. Does this mean that the anti-dumping mechanism in the country is not only unfair but also ill-equipped to meet the challenges of international trade? Yes. Let alone Indian rules, even the wto framework is grossly inadequate to tackle the complex issue of anti-dumping.
The Uruguay Round of world trade talks made imposing anti-dumping duty mandatory for all 132 signatories. Under the wto, anti-dumping duties are product-specific or source-specific, imposed on dumped imports causing harm to the domestic industry. So, while levying a duty, most nations are only interested in safeguarding their own producers, without going into the rationale behind the imposition of duty. In most developed countries, such duties act as weapons of protection even when dumping may not have occurred. Now most developing countries are following suit, India included.
Says Bibek Debroy, director, Rajiv Gandhi Institute of Contemporary Studies (RGICS): Even after revision at the Uruguay Round, the anti-dumping code is imperfect. In fact, its implementation is a problem for most. For instance, even if a case of dumping is proved, it's near-impossible to establish that it has led to injury to the domestic industry. The entire world is taking advantage of this loophole.
A recent study carried out by the RGICS shows that in most cases where anti-dumping duties have been levied, the consumers have actually been hurt and market forces tampered with. The study, based on 23 out of 27 anti-dumping cases in India, also shows a distinct favouritism towards big corporates with clout.
Says director general, anti-dumping, Rati Vinay Jha: We have to operate within the principles of the wto and the provisions of the agreement. And theres nothing one can do under the rules if the imposition of the duty promotes a monopolist.Adds a top official from the directorate: One has to work with blinkers on. The in-built inefficiencies and loopholes in the rules are never looked into. Whether it harms the domestic industry or not, or whether it results in protecting monopolies, you just have to follow rules.
Although the principle first made its appearance in the Customs Tariff Act of 1975, it was not until September 1985 that the legal provisions for anti-dumping were in place. Before the reforms of the 90s, dumping was rare as imports were restricted. Then, in 1994, two cases of dumping were taken up, followed by six in 1995, three in 1996 and four in 1997. The Directorate of Anti-Dumping was set up under the commerce ministry only in April 1998, which gave a fillip to such proceedings. In that year, 12 cases were decided.
Even in its latest avatar, the set-up is primitive. In the US, autonomous departments, each with substantial staff strength, look after petitions, investigations, data collection and duty imposition separately. The anti-dumping directorate in India has just eight people who have to do it all.
Such a backdrop makes light of the quality of the homework that could have been done. In most cases, the RGICS study finds that action was initiated at the plea of the producer petitioners, irrespective of the fact that the market could absorb more players or imports. Says RGICS Nilanjan Banik, who conducted the study: Before imposing duty, the government must do a cost-benefit analysis, which has not been done in almost all cases. As a result, users have been hit while producers benefited. The government too would bear higher opportunity costs if the duties are imposed on inputs for the priority sector. In the US, anti-dumping and countervailing duties caused a net loss of $1.59 billion in 1991 and prices rose by 8 to 10 per cent on an average.
Debroy sees a big problem in the fact that the rules are based on western situations, which do not always fit in the Indian scenario. Says he: Indian firms are nowhere near international norms. Globally, anti-dumping duties protect firms where they account for a specified percentage of the market that has several players. In India, not only are they monopolies, they also produce far less than needed.
The government differs. Says Jha: The rules leave a lot of room for interpretation and the wto wants conventions to be established. If there is a prima facie case of dumping, we will set a convention by imposing duty. The rules do not bar monopolists from petitioning even if it is against the local markets interest. Indeed, the rules provide that if a country against which proceedings have been initiated does not respond, the government has the right to impose duties at its discretion on the basis of the information provided by the petitioner. In many cases, the government has actually asked the petitioners to reconstruct the case giving them a free hand to sway decisions in their favour.
Another loophole in the wto rules pertains to circumvention of anti-dumping duties where a country could continue dumping through its subsidiaries in other countries when duties are imposed on the parent firm. This happened when Union Carbide started exporting to India through its Italian and Spanish subsidiaries as India imposed anti-dumping duty on it. Says Jha: Technically, wto has no answer to circumvention. This is happening in India today and can happen to others as well. The rules of origin and assembly are so complex that nothing can be proved. Consider this: Thailand (on which India imposed anti-dumping duty) is exporting acrylic fibre at one per cent duty to Nepal which, in turn, re-exports the same to India at zero duty under a saarc trading arrangement. Neither the wto nor the Indian government can do anything about it.
The RGICS study also finds that anti-dumping proceedings in India take an unbelievable 18 months to two years per case, while the average time taken in the US is 35 to 40 days. Here too, the government hides behind wto rules'a 40-day notice followed by a hearing and a 50-day gap between hearing and reply. Of course, powerful petitioners can speed things up. Duties were levied on pta imports within 24 hours of a complaint by manufacturers Bombay Dyeing and Reliance.
Is there a solution? Jha advocates flexibility in the rules so that they could be adopted to local situations and genuine cases are benefited. Debroy, on the other hand, feels that there is a case for the government to lobby at the wto to scrap the agreement or reframe the rules. This, he says, will lead to more gains than short-term losses although the protectionist lobbies will suffer. But with no country ready to compromise on their advantageous position, a change in the present system does not seem likely.
Even as the wto has continued to try for freer trade among nations, a faulty framework and manipulative governments have ensured that trade remains anything but free. And that may continue until individual governments realise the importance of free trade to grow faster and better.