Introduction

Anti-dumping investigations are conducted to determine the existence of dumping which causes injury to the domestic industry in the investigating country. In simple language, dumping is the act of exporting the product at a price lower than the price at which the said product is sold in the domestic market of the exporting country, thus causing injury to domestic producers in the importing country. Once dumping, injury and relationship between the two is established by the investigating authority, the result is the determination of Anti-Dumping Duty (‘ADD’) to offset the impact of the said dumping.

Countries adopt different forms for levying ADD. The most common form of ADD is fixed duty, wherein duty is levied at a fixed rate per unit of import of the investigated article or an ad-valorem duty wherein the duty is levied as a percentage of the import price of the said article. There is yet another form of ADD which is reference-price based duty. This form of ADD is occasionally adopted in India when the situation warrants. In this article, the author first explains the basic working of a reference-price based duty in the Indian context by way of an example, thereafter the article focuses on various situations wherein this form of ADD is most desirable. The article concludes with reference to other jurisdictions wherein this form of ADD is levied, albeit with different names or methods of application.

Understanding the working of reference-price form of ADD in India

As the name suggests, under the reference-price form of duty, a benchmark price is fixed by the investigating authority and ADD is collected with reference to this benchmark price. The benchmark price is generally arrived based on the extent of dumping and injury determined during the investigation. If the landed value of imported goods (CIF price plus non-creditable custom duties) in India is lower than the benchmark price, ADD is imposed as the difference between the said landed value and the benchmark price. If on the other hand, the landed value is higher than the benchmark price, no ADD is levied. The following illustration will help in appreciating the reference-price form of duty and its difference in comparison with fixed duty and ad-valorem duty.

Product ‘A’ is being exported from USA to India, say, at CIF price of INR 65 per unit. The said product is being sold at INR 100 per unit in the domestic market of USA while the price at which the Indian domestic producer may reasonably be expected to sell the product (also known as non-injurious price) is say INR 90 per unit. ADD based on fixed rate, ad-valorem and benchmark price is tabulated as under:

Now let us assume three scenarios wherein importers ‘X’, 'Y’ and ‘Z’ import the product at CIF price of INR 50 per unit, INR 90 per unit and INR 120 per unit, respectively. The ADD payable by importer X, Y, and Z under fixed and ad-valorem methods is as under:

From the above, it is clear that ADD is leviable in all cases regardless of the export price under both fixed duty and ad-valorem duty methods. It is important to notice that even if importers Y and Z have imported the product at high CIF prices which may not cause any injury to the domestic producers in India, they still must pay the ADD. Further, the ad-valorem duty increases with the increase in CIF price.

Now let’s see how the reference-price duty works in the above three scenarios:

Therefore, under the reference-price form of duty, ADD is leviable only if the landed price is lower than the benchmark price. In other words, the ADD becomes Nil as soon as an importer imports at price which is sufficiently high to not be a matter of concern to the domestic producer in India and which may be an un-dumped or non-injurious price. 

Having understood the mechanism of the reference-price form of duty, it is relevant to hypothesize the situations under which the reference-price of duty is suitable to appreciate the utility of the reference-price form of duty.

Situations under which reference-price form of duty may be suitable

1. Protecting interest of downstream user industries dependent on imports

This form of duty is suitable to protect the interest of downstream industries which are dependent on the imports of the product investigated, from price increase beyond a certain level. Imposing ADD based on reference ensures that duty collected is not beyond the benchmark price, thus capping the price increase.

2. Discouraging further decrease in export price and tendencies to undervalue the imports

As discussed earlier, in case of ad-valorem form of duty, ADD is collected as a percentage of the CIF price. Thus, if the CIF price reduces, the duty also reduces. Similarly, under fixed duty, the ADD remains the same regardless of the extent of price decrease. In cases where exporters have room to further decrease their export prices, reference-price form of duty would discourage such price decrease since the difference between the landed value and benchmark price will have to be paid as ADD to the Government. 

3. Differentiating a high-priced from low-priced product type

Where the scope of the investigated product includes both high-priced and low-priced products, imposing duty based on fixed or ad-valorem methods may not be able to differentiate the product types, especially when volume of import tilts to higher priced products after the investigation period. In such a scenario, duty may be based on reference-price for the high-priced product and ad-valorem for the low-priced product. The European Commission, in one of the investigations[1] had recommended duty based on the said approach.

4. Price stability

The reference-price form of duty is also useful in situations where price stability in the industry is required. By adopting reference-price form of duty, the effective price including the ADD would be more or less stable.

Situations under which reference-price form of duty may not be suitable

There may be some situations where the reference-price form of duty may not more suitable as compared to traditional forms of fixed and ad-valorem duties:

a. Where the raw materials used in the manufacture of the product investigated are subject to wide price fluctuations

Where the price of raw materials is subject to price fluctuations, the cost of production and the price of the product investigated may witness significant changes post the investigation period making the benchmark price fixed during investigation as irrelevant. If the price of the raw material increases, the reference-price form of duty may result in diluting the protection to the domestic industry. On the other hand, if the price of the raw material decreases, reference-price form of duty will grant undue and additional protection to the domestic industry at the cost of user industries who import the product for their downstream manufacturing needs.

b. Possibility of misuse

Under reference-price, since no ADD is leviable when the landed values are higher than the reference-price, exporters may tend to structure their exports of the product at a high price to the related parties in India to avoid ADD. Subsequently the related entities may tend to sell the product at a low price to the actual users in India thereby making the protection of ADD redundant for the domestic industry. 

c. Where the product investigated consists of multiple varieties of product with different prices

The reference-price form of duty may not be suitable where the product investigated consists of several grades and the price difference between each grade is significant. In such a scenario, determining one single reference-price for all grades may not reflect the correct picture. In such situations, multiple reference prices will have to be devised which may make the task of investigating authority complicated.

Therefore, while determining the form of duty to be levied, it is necessary, for the investigating authority to consider the underlying situation and, for the interested parties (domestic industry, foreign exporters, and importers) to bring to the attention of investigating authority all relevant facts for deciding the form of duty.

How reference-price form of duty in applied in other jurisdictions

Having understood the working and utility of reference-price form of duty, it may be relevant for readers to know how this duty is adopted in different countries and its difference in application methods as compared to India.

In the European Union (‘EU’), the reference-price form of duty is known as Minimum Import Price (‘MIP’). Like the reference-price, the European Commission determines the MIP of investigated product. ADD is leviable when the export price is lower than the MIP. MIP as a form of duty is usually adopted in the EU in the following situations:

• Where a particular product type has a high export price (resulting in no dumping for that product type) vis-a-vis some others which have lower export price (resulting in dumping for such product types). In such situation, MIP is adopted to differentiate such product types under investigation.
• Where the domestic producers in the EU have dominating market power or high market share, the market price may be higher which would be unfavorable to the user industry. In such cases, MIP is adopted to ensure that import prices do not exceed a certain level in order to protect the user industry’s interest in the EU market

EU also has the practice of imposing a combination duty i.e., MIP for certain product type and ad-valorem for other product types[2] or MIP for certain categories of exporters and fixed duty for other categories of exporters[3]. Further, to address the issue of subsequent price volatility, the European Commission also sometimes recommends adjustments to MIP to take into account the price fluctuations post the investigation period[4].

In Australia, similar to the mechanism of reference-price, the ‘floor price’ duty is levied whereby a floor price is fixed and exports made lower than the floor price is subjected to ADD. The mechanism is similar to the reference-price method. Like the EU, Australia also levies mixed duty whereby reference-price may be determined for certain types of products while fixed / ad-valorem duty is levied on other types of goods in the same investigation. 

In Canada, the Canada Border Services Agency undertakes periodical reviews of the reference price to ensure that the price determined is not outdated.

In USA, the reference-price form of duty is generally not recommended. However, like other jurisdictions, the US may suspend the imposition of anti-dumping duties against exporters who provide price undertakings to the investigating authorities.

Conclusion

Reference-price as a form of duty has been used across various jurisdictions. Recently, the Directorate General of Trade Remedies (‘DGTR’) in India has recommended imposition of ADD based on reference-price in two investigations[5]. As discussed above, while the reference-price form of duty is useful in certain situations, it suffers from the shortcoming of becoming outdated due to price fluctuations. To address this limitation, duties are sometimes levied for a short period of time, say 1.5 to 2 years, so that the reference-price may be reviewed at periodical intervals. Recently, the DGTR recommended duty based on reference-price for a period of 2 years in the investigation on ATS-8 (a pharmaceutical drug intermediate) so that the duty levied can be reviewed after 2 years. Possibly, the Indian authority in future may also adopt the EU’s practice of linking the reference-price / benchmark prices to certain indices which would take into account the subsequent price fluctuations. This would ensure that the benefits of reference-price system are fully derived while overcoming the shortcomings.

[The author is a Senior Associate in WTO and International Trade Division in Lakshmikumaran & Sridharan Attorneys, New Delhi]

1. [1] Anti-Dumping investigation on imports of certain ring binder mechanisms from Malaysia and China PR (Council Regulation (EC) No 119/97 of 20 January 1997)
2. [2] Anti-Dumping investigation on imports of certain ring binder mechanisms from Malaysia and China PR (Council Regulation (EC) No 119/97 of 20 January 1997)
3. [3] Anti-Dumping investigation on imports of melamine from China PR (COUNCIL IMPLEMENTING REGULATION (EU) No 457/2011 of 10 May 2011)
4. [4] In September 2017, the European Union had decided to lower the MIP for China-made crystalline silicon photovoltaic products on a quarterly basis to keep up with the global average. The MIP was determined by international prices indicated in the Bloomberg database (BNEF spot price index).
5. [5] Final Findings dated 2 August 2022 in the Anti-Dumping Investigation on imports of ATS-8 from China PR; Preliminary Findings dated 4 July 2022 in the Anti-Dumping Investigation on imports of UDCA from China PR and Korea RP