In Budget 2021-22, the Finance Minister announced the introduction of statutory provisions to check absorption of anti-dumping duty (‘ADD’) and countervailing duty (‘CVD’) measures imposed by the Central Government. These provisions were inserted into Section 9 and Section 9A of the Customs Tariff Act, 1975.

Recently, the Ministry of Finance has notified the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Second Amendment Rules, 2021, and the Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Second Amendment Rules, 2021 detailing the procedure for determination and imposition of anti-absorption measures.

This article intends to give a brief overview of the anti-absorption provisions that have been introduced vide these provisions.

What is Absorption?

The basic objective of applying ADD or CVD measures is to correct the unfair import prices, and thereby ensuring that the unfair price advantage to the foreign exporters from dumping or unfair subsidization is negated. The measures generally lead to increase in the domestic selling prices due to increased landed value of imported goods which creates a level playing field for the domestic producers.

However, the imposition of ADD / CVD measures is not a guarantee that it will lead to increase in the price levels. With the objective of ensuring that the ADD or CVD imposed does not remove the unfair advantage to exporter, an exporter may reduce its export price so as to absorb the price effect of the applied measure. In effect, this will prevent any increase in the landed prices of imported goods and hence lead to absorption of the ADD or CVD. It is to curb this practice that the Central Government has introduced the anti-absorption provisions to reinforce the effectiveness of applied measures and thereby protect the domestic industry from continuation of unfair practices.

It is important to note that before enactment of the anti-absorption rules, the DGTR had published the draft version of the Anti-Absorption Rules under both the ADD and CVD frameworks. The DGTR had also invited comments from all stakeholders of these draft rules. It would seem that the DGTR has factored comments as most of the anti-absorption provisions of the ADD and CVD rules across have been harmonized with each other. 

Overview of anti-absorption provisions

Rule 29(1) of the AD Absorption Rule stipulates that ADD may be considered to be absorbed if the export price of the article decreases without a commensurate change in –

• the (producer’s) cost of production; or
• export prices to third countries; or
• resale price of the imported article in India.

Under Rule 25(1) of the CVD Absorption Rules, CVD may be considered to be absorbed if the export price of the article decreases without any significant change in the resale price of the said imported article in India.

Both the ADD and CVD anti-absorption rules provide for an expedited structure for reviewing the applied trade remedial measures. They stipulate that an investigation should be completed within six months of its initiation and only an extension of three months can be granted[1]. Even while the investigation is underway, the rules empower the Authority to recommend provisional assessment of imports till the Authority has reached its conclusion[2]. On such a recommendation being made, the Central Government may order provisional assessment of imports and may ask the importers to furnish bank guarantees covering the differential duty payable, if any, upon the final decision. This would provide interim relief to the domestic industry while the Authority is conducting the investigation.

The rules have limited the scope of anti-absorption review to the reassessment of the dumping/subsidy and the injury margin[3]. This would mean that while the export price and normal value and the non-injurious price of the domestic industry would be recomputed, the injury and causal link need not be re-established.

This limitation in the scope of review distinguishes an anti-absorption review from a sunset or mid-term Review. In a mid-term review, if the domestic industry or any other interested party is aggrieved by the absorption of duties, it could have approached the Authority and requested for a mid-term review. But during a mid-term review, the Authority can neither recommend provisional assessment nor restrict the scope of the review only to the reassessment of dumping/subsidy and injury margin.

Further, while a mid-term review can take no longer than twelve to eighteen months to conclude an anti-absorption review cannot take more than six to nine months for completion.

Anti-absorption provisions allow any interested party to apply for initiation of a review within two years of the imposition of an ADD or CVD measure[4]. The Authority may even accept an application after two years by recording reasons for its decision, but there is a complete prohibition on acceptance of an application in cases where less than twelve months remain for the ADD/CVD to expire. This provision has been inserted since during this period the Authority may have already initiated a Sunset Review. A similar practice is followed by the Authority in case of new shipper reviews; the Authority does not accept NSR applications filed twelve months before the expiry of the ADD/CVD measure.

It has been Authority’s general practice to recompute the dumping/subsidy and injury margins during a sunset review. The reassessment allows the Authority to recommend the continuation of the measure based on the reassessed margins. Therefore, if the imposed duties are being absorbed even a sunset review could remedy it during the last twelve months.

Like a mid-term review, even anti-absorption provisions allow any interested party and not just the domestic industry to file for a review. So, if an exporter is of the view that its exporting competitors are undercutting it by absorbing the ADD/CVD after imposition, then even such exporters it may approach the Authority for an anti-absorption review.

If after the conclusion of its investigation the Authority concludes that the imposed measure was being absorbed then it may recommend[5] -

• Modification in the form or basis of ADD/CVD
• Change in quantum of ADD/CVD

The modification to existing duties can be made retrospective from the date of initiation of the absorption review.

Conclusion

The inclusion of anti-absorption provisions in India’s ADD and CVD Rules is a welcome step for strengthening the framework of trade remedial measures. The ADD and CVD Rules now provide an additional mechanism for the domestic industry to ensure ADD/CVD imposed are not negated by absorption practice of the exporters.

WTO provisions neither expressly prohibit nor provide for a review mechanism to check absorption of duties. Therefore, apart from India, only a handful of countries like the EU, UK and USA have anti-absorption provisions in their legislations. While the European Union has detailed procedures for an anti-absorption review, the U.S checks absorption of duties through administrative reviews. Both South Africa and Australia, unlike India, consider absorption as a form of circumvention. The Indian provisions seem to be largely modelled around the European Union. 

[The author is an Associate in WTO and International Trade practice team at Lakshmikumaran & Sridharan Attorneys, New Delhi]

1. [1] Rule 30 (7) of the AD Rules and Rule 26(7) of the CVD Rules.
2. [2] Rule 30(5) of the AD Rules and Rule 26(5) of the CVD Rules.
3. [3] Rule 29(2) of the AD Rules and Rule 25(2) of the CVD Rules.
4. [4] Rule 29(3) of the AD Rules and Rule 25(3) of the CVD Rules.
5. [5] Rule 31(1) of the AD Rules and Rule 27(1) of CVD Rules.