- Anti-absorption provisions were introduced vide the Union Budget 2021 to ensure effective implementation of trade remedial measures.
- Absorption has been defined as a situation when the export price declines without any commensurate change in the cost of production, among other situations.
- The anti-absorption provisions grant an expedited remedy and allow domestic industry to proceed with submission of only limited information.
- India has recently initiated its first anti-absorption review of anti-dumping duty on imports of PET Resins from China exported by Wankai New Material Co., Ltd.
- The review has been initiated based on the application filed by the domestic producers in India, namely, IVL Dhunseri Private Limited and Reliance Industries Limited.
The purpose of imposition of trade remedial measures is to prevent unfair trade practices by foreign exporters. Such measures are expected to result in an increase in the resale price of the imported product on the assumption that the duties imposed would be passed on to the customers in India. However, there may be a situation where, despite imposition of trade remedial measures, the price of the imported product does not increase and as a result, neutralizes the effect of the measures. To ensure the effective implementation of trade remedial measures, anti-absorption provisions have been introduced.
Introduction of anti-absorption provisions
Anti-absorption provisions were introduced in India vide the Union Budget 2021. Section 9(1B) and Section 9A(1B) were inserted in the Customs Tariff Act, 1975 ("Act") to incorporate the provisions of anti-absorption concerning anti-subsidy and anti-dumping duties respectively.
The meaning of 'absorption' has been provided through Explanations to Sections 9(1B) and 9A(1B) of the Act. Absorption of anti-dumping duty has been defined as a situation when the export price of an article declines without any commensurate change in -
- cost of production of the article; or
- export price of the article to countries other than India; or
- resale price in India of the article imported from the exporting country or territory.
Absorption of anti-subsidy duty has been defined only as a situation where the export price of an article declines without any commensurate change in the resale price of the article imported from the exporting country or territory. However, in both cases, it is additionally provided that absorption of duties may also take place under such other circumstances as may be provided by the Rules.
Rules and procedure for anti-absorption review
In pursuance to the amendments made in the Act, amendments were also made in the Anti-dumping Duty Rules, 1995 and Countervailing Duty Rules, 1995. Vide Notification No. 84/2021-Customs (N.T.), dated 27th October 2021, Rules 29-31 were inserted in the Anti-dumping Rules and vide Notification No. 83/2021-Customs (N.T.), dated 27th October 2021, Rules 25- 27 were inserted in the Countervailing Rules, to deal with absorption of duties.
Rule 29(1) of the Anti-dumping Rules defines 'absorption' of duties as the same three circumstances as provided under Explanation to Section 9A(1B) of the Act. Rule 30 deals with the initiation of an anti-absorption review and the prima facie requirements that must be satisfied by the Authority for initiating the review. Rule 31 provides for modification of form or basis of duty or the quantum of the duty or both, if the Authority concludes that imports of the subject goods have absorbed the anti-dumping duty imposed.
It must be noted that the Rules explicitly provide that the Authority must limit the investigation to re-determination of dumping and injury margin, since fair comparison between the normal value and export price, Australia made adjustments by comparing the four exported models with the export models of injury to the domestic industry and causal link were already established in the original investigation. Thus, the Authority is permitted to make only essential adjustments to the normal value and non-injurious price established in the initial investigation, suggesting a requirement for revision rather than fresh calculation. Therefore, the domestic industry is not required to give its own financial data for any injury determination.
Interestingly, under the anti-absorption provisions in India, absorption can only be considered when there is a reduction in the export price. However, it can be argued that the industry may face a situation where the export price has not increased commensurate to increase in the cost of production or the resale price of the imported product has not increased sufficiently after the imposition of duty – which ultimately leads to "a decline in export price". This would also result in the anti-dumping duty being ineffective, as the exporter or importer did not pass on the price increases to the consumer, as intended. As a result, the price in the market remains low, and does not allow the desired price increase in the market. Another challenge that may arise during an anti-absorption review is a situation where the export price decline is with respect to exports by an exporter which did not participate in the original investigation and was subject to residual duties. In such a case, the question that arises is whether such a practice can be considered as absorption of duties and whether a review can be initiated against such exporters?
Initiation of first anti-absorption review in India
The Directorate General of Trade Remedies ("DGTR") has recently initiated India's first anti-absorption review concerning imports of Polyethylene Terephthalate from China. The anti-dumping duties were imposed on imports of Polyethylene Terephthalate by the Ministry of Finance vide Notification No. 18/2021-Customs (ADD), dated 27th March 2021, for a period of 5 years.
The application requesting initiation of anti-absorption review was filed by IVL Dhunseri Petrochem Industries Private Limited and Reliance Industries Limited, against exports by Wankai New Materials Co., Ltd. The applicants alleged that the export price of Wankai New Materials Co., Ltd. decreased post imposition of anti-dumping duty, without a commensurate change in the cost of production of the product. While the prices of raw materials have also declined, the decline in export price was higher, thus showing that the exporter absorbed the anti-dumping duties. The application requesting initiation of review was filed two years after the imposition of anti-dumping duty. Rule 29(3) of the Anti-dumping Rules provides that an application requesting a review should normally be filed within two years from imposition of duty. However, Proviso to Rule 29(3) provides an exception to this and states that in specific cases, an application may be accepted at a later stage in view of special circumstances. In the present case, the applicants requested the Authority to make an exception as per the Proviso, based on the grounds that Wankai New Materials Co., Ltd expanded its capacity recently and has therefore, absorbed the duties to utilize the new capacities created.
Based on the information provided by the applicants, the DGTR initiated the review on 4th March 2024. The DGTR has considered that there is a decline in the export price of Wankai New Materials Co., Ltd without a commensurate decline in the cost of production in China, showing absorption of antidumping duties. The DGTR has also prima facie found that due to absorption of duties, there is a consequent increase in the dumping margin and injury margin with respect to exports by Wankai New Materials Co., Ltd. For the purpose of examining if the duties have been absorbed, the DGTR has noted that it will compare the prices in the absorption period to the prices in the period of investigation of the original investigation.
Conclusion
The introduction and implementation of the anti-absorption provisions is a much-needed change. Prior to the introduction of anti-absorption procedure, the Indian industry was forced to request a mid-term review or request a sunset review closer to expiration of duties. However, both the reviews provide for a detailed and lengthy investigation process. However, antiabsorption review provides the industry with a process to seek relief in an expedited manner. It should be noted that while there have been a number of instances where industries in the European Union and USA have taken recourse to anti-absorption reviews, such a review has been requested only for the first time in India. Thus, the utility of an anti-absorption is yet to be fully appreciated in India, particularly since such review is less time consuming and places a lesser burden on the industry.
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Originally Published April 2024
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