DEMYSTIFYING ANTI-DUMPING DUTY: PROTECTING DOMESTIC MARKETS

Hello all…

Did you guys read that The Director General of Trade Remedies (DGTR) had initiated a probe against Chinese flasks and bottles? Earlier this month, India also imposed an anti-dumping duty (ADD) on Chinese steel for 5 years. Why does the government levy such duties on imports? If we want to know about it, we should deep dive into India’s trade deficit, import safeguarding measures, and much more.

Trade deficit

Let us decode the trade deficit first. A Trade deficit, also known as Trade Balance, is a term used when a country’s imports are greater than its exports. If the trade deficit is negative, it means that imports are greater than exports, and if it turns out to be positive, vice versa. India always imports more than it exports. Like every other country around the globe, India also has a major share of import from China. Let us see how India’s trade deficit has been for the past 10 years:

Over the years, apart from 2020, the trend seems to be increasing the gap of trade deficit. i.e., the dependency on imported goods has been increasing in the Indian markets. So is the dependency on Chinese goods. Let us see how imports from China plunged over the past 10 years in the following chart:

Apparently, import from China has more than doubled in the last 10 years. This significant surge in imports from China has sparked concerns related to trade imbalances and domestic industries' vulnerability in India as no other country has made such a strong presence in the Indian market.

Now that we know about trade deficits and how Chinese goods make a prominent presence in Indian markets, let us see what measures are taken to avoid the dumping of goods. This is when anti-dumping duty comes into play.

Anti-Dumping Duty

An anti-dumping duty is a trade remedy measure imposed by a country's government to protect its domestic industries from the dumping of goods by foreign producers or exporters. Dumping occurs when a foreign company exports its products to another country at a price lower than the fair market value of those goods in its home market (FMV> Export price). These will be imposed on complaints made by domestic companies that can harm their market share in the domestic economy.

ADD is generally an extra duty above customs duty that is levied on the dumped products, thereby making them less attractive in the local market. However levying such duty comes after a thorough probe and is governed under the Customs Act, 1962 in India.

How Anti-Dumping Duty is calculated?

Anti-dumping duty is lower of:

1. Margin of Dumping; or

2. Injury Margin

Margin of Dumping is nothing but Nominal value– Export Price,

Where Nominal value is the Sale price of the product in domestic market of exporting country/ Export price of like article to third country/ cost of production + profit; and export price is the price of article exported from the exporting country.

Injury Margin = Fair selling price – landed value of dumped imports.

Where, Fair selling price is the selling price in the domestic industry and landed value is the CIF value + customs duty.

ADD shall be imposed for a period of 5 years, which can be extended further up to maximum 5 years.

India’s Anti-dumping duty on China

China has been the major importer for India all these years. Please refer to the pie chart below, wherein the 10- year average of major importing countries is depicted.

It is evident from the above chart that China alone has made up around 15% (on an average) of total imports to India in last decade. Other countries like USA, UAE and Saudi Arabia is way behind China. The impact caused in various industries has lead the Indian government to safeguard the local industries and impose ADD on imported goods from China for all these years.

For the past several years, Chinese products have faced anti-dumping measures from the Indian government, and major among those are steel and steel products. Even in 2023, India has levied ADD on flat base steel wheels from China. India's dependency for steel from China when compared to the total steel imports for the past 10 years are as shown below:

From the above chart, we can conclude that India has imported more than 50% of its total steel imports from China alone every year. As per the latest reports, China has surpassed Korea to become the largest steel exporter to India. Such heavy reliance on Chinese steel has lead to price volatility, destabilizing the local industries and market distortion to a great extent and thus a need for levying ADD of $613 per tonne.

Let us see a few Chinese products that have faced anti-dumping duty during the last 10 years. It is however, not an exhaustive list:

India’s steel production has certainly surged over the years as shown in the graph below. But when the demand for steel in India is far above, and Chinese steel is flooded in the local market, the small and medium manufacturers are still producing way less than their total production capacity.

But, as per the FY 2022-23 report by the Trade Promotion Council of India, India lags behind the total steel production in the world (see the image down).

When the demand for steel keeps rising and Asia is the largest consumer of steel in the world, India should adopt an aggressive and sustainable manufacturing approach to meet its demand and reduce its dependency on various products from other countries.

Conclusion

There are various other industries, like chemical, textile, and tyre industries, that have faced unfair competition in the last 10 years from foreign countries. However, the Indian government sees ADD as a vital tool to maintain equilibrium between protecting local manufacturers and ensuring global economic cooperation.

By investing in domestic steel production with a reduced environmental impact, India can not only meet its steel requirements but also emerge as a responsible global player, contributing to both its economic growth and environmental sustainability and avoid the potential risk of strain trade relations with other countries.

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