This guest post is authored by Mr. Lokesh Bulchandani (Associate, Lakshmikumaran & Sridharan Attorneys) and Ms. Divya Swamy (Advocate, Delhi High Court).
Trade remedies are policy tools that governments can utilise against distortions caused by imports to the domestic industry through international trade.[i] The World Trade Organization recognises three main types of import restraints as trade remedies provided for in the Agreements on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the Anti-dumping Agreement); the Agreement on Subsidies and Countervailing Measures; and the Agreement on Safeguards, i.e., Antidumping duties, Countervailing duties and Safeguard duties. The number of anti-dumping investigations initiated in the last few years has been rapidly increasing with more than 85 ongoing investigations by the Directorate General of Trade Remedies.[ii] However, more recently, the discourse on the problem with the nature and characteristics of anti-dumping actions and their effect on restraint of trade, has been increasing.[iii]
2. INTERPLAY BETWEEN ANTI-DUMPING AND COMPETITION LAW
Anti-dumping measures and competition law, both have a significant role in furthering the cause of consumer welfare through the prevention of market distortions by focussing on the functioning of the domestic market. However, the approaches adopted by the two regimes are divergent. On one hand, anti-dumping laws seek to counter predatory dumping by remedying the effects of discriminatory and predatory pricing policies in the importing country;[iv] on the other hand, competition laws control unfair and restrictive trade practices by facilitating and sustaining fair competition in the economy to provide a level playing field to the producers. Both laws seek to protect the market from acts that deter fair trade and as a result, prevent actions that might adversely affect consumers.[v]
In Haridas Exports v. All India Float Glass Association,[vi] the Supreme Court acknowledged this divergence in approaches and independence in operation of both legal regimes, albeit in the context of the MRTP Act.[vii] However, the purpose of the antidumping duty is not to protect consumers, but to protect producers. It is an interventionist/ protectionist trade policy tool for the domestic industry.[viii] The scheme of competition law relies upon the self-correcting nature of the market and does not interfere in the market till a distortion has been established. It aims towards protecting competition and not competitors.
The difficulty arises because anti-dumping measures are usually imposed in oblivion of the impact on the end-user. Anti-dumping remedies have been considered as a Madisonian failure as they only serve the special interests of a faction of domestic producers, based on economic benefits at the expense of the entire economy.[ix]
The presence of a foreign competitor allegedly dumping its goods in the domestic market often proves beneficial to the end consumer as it compels the domestic producer to compete on the price by improving efficiency. In certain industries, anti-dumping duties may harm the end consumer as it neutralises the difference in prices by making imports expensive and consequently disincentivises price competition by inadvertently harbouring domestic collusions.
3. THE DICHOTOMY
Anti-dumping investigations are launched by the government of an importing country on the application of a domestic industry, following a two-stage process that investigates: (a) whether dumping has taken place, and if so (b) is there a “causal link” between the dumping and the alleged injury.[x]
The possibility of non-price predation[xi] to harass foreign competitors and maintain status quo dominance in the market has raised the question of whether the two legal regimes can continue to exist independent of each other. It highlights the need to reflect on the vast dichotomy in the understanding of ‘fair trade’ under both regimes. Such instances resulting from the mala fide intention of the domestic industry attempting to evade competition faced from international trade, defeat the pursuance of goals set by the competition law regime.
In certain cases, Regional Trade Agreements seek to address this problem, however, no consensus has emerged. The European Union (‘EU’) is driven by the goal of a single market to further the cause of trade. It has substituted Anti-dumping with Anti-trust for intra-union trade. In contrast, the North American Free Trade Agreement (‘NAFTA’) has not achieved such harmonization as it does not accept any supranational authority. However, binational panels have been established to ensure the correct application of the laws.[xii]
4. THE NEED TO RE-EVALUATE
To break this impasse, the interaction between the two regimes needs to be re-conceptualised and the communications between both the Directorate General of Trade Remedies and the Competition Authorities need to be provided a formal structure similar to that existing in Russia.[xiii] The means to harmonize the two regimes would be to check the distortion that presently exists or could be caused in the domestic market. The effect of this assessment would be that an act of dumping would be considered through the prism of a noticeable/ perceptible negative impact on the domestic market, and this standard is defined in the Competition Act 2002 as Appreciable Adverse Effect on Competition (hereinafter referred to as ‘AAEC’). Such an assessment would effectively lead to reduced consumer harm and shift focus to the welfare goal of a competitive market.
Thus, it would be necessary for the applicants calling for imposition of Anti-dumping duties to prove that they are bona fide producers of an established domestic industry, who have been adversely affected by the dumping of foreign goods. This may be established by obtaining from the Competition Commission of India, an approval certifying that the domestic market is neither distorted at present nor will the imposition of the duty facilitate future distortion. It would establish that the sole purpose of the imposition of a duty is to protect the domestic producers and the domestic industry from the harm caused due to dumping. The competition regulator would be obligated to assess that the imposition of a duty is not legalising a cartel or a collusion. Thus, a contemporaneous application would be filed before the competition regulator when filing the application for imposition of anti-dumping duty.
Unlike the ex-ante assessment of combination regimes, this mechanism would be an analysis of the actions of the domestic industry in the present as well as the scope of collusion in the future and if found harmful, the application for imposition of Anti-dumping duty would be rejected, thereby allowing foreign players to indulge in price competition. The domestic industry would thus be compelled to compete with international producers of like products by improving its efficiency.
Furthermore, it is proposed that while assessing such an application, the Competition Commission of India may utilise the standards laid down to assess AAEC. Thus, a scrutiny of the actions of the domestic industry may be undertaken with special reference to the applicant in the Anti-dumping petition.
For instance, the Commission may assess factors such as the nature and structure of the domestic industry and resultantly, determine the possibility of collusion or unfair behaviour, especially in an oligopolistic market. If the market appears to be closely knit, it would increase the probability of the formation of a collusive domestic market that aims at ousting foreign competitors. Alternatively, another factor that could be considered is the high barrier to entry in the market. If the relevant industry is one with high barriers, it would be difficult for domestic players to neutralise the ill-effects created by a foreign player. However, a market with low barriers to entry would have a self-corrective tendency since whenever the market is distorted, a new player may potentially enter and nullify or de-intensify the adverse impact on the market. The opportunity of accrual of benefits to the consumers may also be considered to permit certain domestic players to file the petition. Furthermore, factors such as the market share of the domestic enterprises along with the size and resources available at their disposal would be necessary factors to assess the likelihood of AAEC.
The independent and separate assessments through the anti-dumping and the competition regimes, and subsequent approvals, would then lead to the imposition of anti-dumping duties in such a manner that unfair trade mechanisms are discouraged and the end-consumer is benefitted.[xiv] Also, monitoring of the petitioners’ behaviour will act as a deterrent to the domestic producers from abusing the anti-dumping measures. Further, in doing so, the Competition authorities can achieve the same goal shared by trade and antitrust policies, “to remove barriers to the competitive process.” Administrative protections, such as anti-dumping measures, not only impede international commerce but also cause market distortions, which prevents growth and job creation both domestically and internationally. Anti-trust oversight of trade remedies will eventually bring forth the salutary effect of forcing domestic producers to become more innovative
Disclaimer: The expression of ideas contained in the blog/article are the authors’ personal views and are not attributable to any organizations that they may be affiliated with.
[i] See more: Trade Remedies: A Tool Kit, Asian Development Bank, https://www.adb.org/sites/default/files/publication/27526/trade-remedies-toolkit.pdf
[iii]P. J. Lloyd, Anti-Dumping and Competition Law, The World Trade Organization: Legal, Economic and Political Analysis 1666-1681 (2005).
[iv]See more: Aditya Bhattacharjea, Predatory Pricing and Anti-Dumping Revisited, 40 (5) Economic and Political Weekly 482-484 (Jan. 29 - Feb. 4, 2005).
[vi]Haridas Exports v. All India Float Glass Association, (2002) 6 SCC 600.
[vii] MRTP 1969 is the predecessor to the Competition act in India.
[ix]See: N. Gregory Mankiw & Philip L. Swagel, Antidumping: The Third Rail of Trade Policy, 84 Foreign Aff. 107, 107 (2005).
[x]See: Agreement on Implementation of Article VI, International Trade Administration available at https://enforcement.trade.gov/regs/uraa/saa-ad.html.
[xi] According to OECD, Non-price predation is a form of strategic behaviour that involves raising rivals' costs. It is potentially less costly and hence more profitable than predatory pricing. Typical methods include using government or legal processes to disadvantage a competitor.
[xii]Ian Wooton & CEPR Maurizio Zanardi, Trade and Competition Policy: Anti-Dumping versus Anti-Trust, GLA June 2002 (Revised October 2002), available at https://www.gla.ac.uk/media/Media_22263_smxx.pdf.