Trade Remedies: The Number Game

By Hansa Sinha

What comes to your mind when I say US and India to battle it out over the Solar Policy? Or for that matter when I say that India imposed duties on Chicken Legs from USA or EU? You imagine a lawyer who is arguing for the cause of Indian domestic industry, someone who is pointing out various case laws and world practices and news items and pleading before the relevant authorities that Indian Solar Policy has a gazillion benefits.

I am sorry to say that as a trade lawyer that will get you nowhere. That will not cut it for you. In law school we often miss this part about trade remedies. This game is so much more about the numbers before it is about the legal arguments. This is what I intend to tell you about. But… steps!

Let’s take Anti Dumping Law and its three basic calculations. These are Normal Value, Export Price and Dumping Margin.

Normal Value:

Remember the milk chocolate example from the earlier post? So Normal Value is the price of milk chocolates in country A which is Rs. 500. There are several ways to decide what should be your normal value. First is when you take the actual price in that country. There may be a situation where there are no sales of those milk chocolates in country A, or the country is going through some abnormal condition for instance depression, excessive inflation etc. In such a situation you can either take the price at which country A sells milk chocolates to other countries, or calculate what is known as “constructed normal value”. Constructed normal value is of course something that you construct normally by adding various parameters together, such as cost of production, administrative and selling costs the profits that have been incurred etc. In the Indian practice I have seen that normally the constructed normal value is adopted. This is because in many situations it is very difficult to gather the sale price and other such information prevailing in the other countries. While constructing normal value various International Reports come handy. These may be ICIS in case of chemical products or Platts Market Reports etc. These often give a good evidence of global position. In situations where you take the prices as prevailing in another country, you need to prove that it is an appropriate ‘third country’. In many situations it could be detrimental if it cannot be proved that it is an appropriate third country and that market situations etc are not comparable. This can become problematic in case of niche and highly sophisticated products which might not be produced in a lot of countries. Well, so that is normal value for you. This is determined separately for every country that may be involved in a particular investigation.

Export Price

Next is export price. This means price at which the products are handed over from the producer/exporter of milk chocolates in country A to the importer of chocolates in India. This again is not as simple as it sounds. For instance, the exporters might not give the relevant information to the investigating country. Further, it is possible that it is related company and the export transaction is an internal transfer or a barter exchange. It could be unreliable due to various arrangements between the buyer and seller. To illustrate try an appreciate a scenario where a milk chocolate exporter in country A agrees sells the chocolates at an appropriate price (i.e. comparable to Indian chocolates price so that dumping cannot be detected) at the time of exporting, but actually gets the difference price adjusted with probably another product like lollipops or magic pop candies also being exported to India but not within the purview of investigation at hand. It would be impossible to actually trace whether the milk chocolates are in fact coming at cheaper prices to India or not. Yet again our ‘constructed’ best friend helps us out. We calculate then the ‘constructed export price’. We act very smart and take the price at which the imported milk chocolates are first resold to an independent buyer. In case there is no such sale then there may be other basis which may be used. Here it would be relevant to mention the import data that we rely upon. This could be DGCI&S (Directorate General of Commercial Intelligence and Statistics) data or IBIS (International Business Information Services) data or any other source. These sources provide excellent and reliable information on import and export on the relevant chocolates (in this case) during the relevant period. Don’t worry we will do a separate post on import data, but for now this is what we rely on for calculating our export price.

An important aspect of export price is adjustments. When milk chocolates are produced in country A they of course have a set price but afterwards from the time they leave the factory and till the time the enter the Indian territory, there are many factors and charges that are incurred and these are subtracted from the final export price to arrive at the net export price which is further used in the calculations. These could be variety of adjustments such as ocean freight, marine insurance, commission, bank charges, port and inland freight expenses etc.

Dumping Margin

Finally we have the difference between normal value and export price by what we call as the dumping margin. Now get ready because I am going to throw another fancy term towards you! It is de-minimis. The dumping margin should be more than de-minimis and significant. Before you start fanning yourself of exasperation, please allow me to explain further. de-minimis simply means the minimum level of imports that should exist for the anti dumping case to survive and duties to be applied. In case of an exporter, the dumping margin should be more than 2% of its export price. In case of a country the dumping margin should be more than 3% and for countries, collectively it should be more than 7% of the export price. If the dumping margin so calculated is more than de-minimis and significant it builds the case for anti dumping duties.

This is the tip of ice berg. I will have to explain other basic calculations for anti-dumping and other trade remedies in another set of posts. However, this is to give you an idea that so many intricate calculations are involved in the trade remedies measures.

So long! And thank you for reading. Read more here.

P.S. Many thanks to Ms. Hema Rana for valuable inputs.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s