The mandatory application of Lesser Duty Rule debate in light of the India’s suggestion before WTO
The World Trade Organization has at its heart the principle of free and fair trade. Over the past twenty years various trade remedy measures such as anti dumping, countervailing measures and safeguard measures have been utilized to achieve this end. In anti dumping proceedings, measures are applied only when there is injury to the domestic industry which is producing the ‘like’ goods. Towards the purpose a dumping margin is calculated. This is the difference between the price of the product in the exporter’s home market i.e. normal value and the export price. If this dumping margin is positive then anti dumping duty is applied.
The lesser duty principle provides that if the injury to the domestic industry can be offset by a duty which is less than the dumping margin then the same may be applied. For the purpose, injury margin is also calculated globally by those jurisdictions who have adopted lesser duty law. In India, injury margin is the difference between the non-injurious price i.e. the price which the domestic industry is expected to have charged under the ordinary circumstances to earn reasonable profits and the landed value of the dumped imports in India. This article analyses the WTO Rule as it is in respect of lesser duty rule and the persisting communication by India for the mandatory application of this Rule at WTO.
Presently, the lesser duty rule comes as only an option for the various WTO members. The rule draws inference from Article 9.1 of the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (hereinafter referred to as Anti Dumping Agreement). It provides as follows:
Article 9: Imposition and Collection of Anti-Dumping Duties
9.1 The decision whether or not to impose an anti-dumping duty in cases where all requirements for the imposition have been fulfilled, and the decision whether the amount of the anti-dumping duty to be imposed shall be the full margin of dumping or less, are decisions to be made by the authorities of the importing Member. It is desirable that the imposition is permissive in the territory of all Members, and that the duty be less than the margin is such lesser duty would be adequate to remove the injury to the domestic industry.
Clearly one can say that it is desirable under WTO for members to opt for the lesser duty rule. However, interpretation in the legal world is often hinged upon words and grammar and in the legal provision at hand that word is ‘desirable’. Therefore, although it is desired however, it is still not mandatory. In spite of this there are many jurisdictions that have tried to apply the lesser duty rule in one way or the other.
India had suggested the application of the lesser duty rule in the US-India Plate. After noting India’s request the Panel expressed its disagreement by stating the following:
“India suggests that the USODC should have considered applying a lesser duty rule in this case, despite the fact that US law does not provide for application of a lesser duty in any case. We note that consideration and application of a lesser duty rule is deemed desirable by Article 9.1 of the AD Agreement, but is not mandatory. Therefore, a member is not obligated to have the possibility of a lesser duty in its domestic legislation. We do not consider that the second sentence of Article 15 can be understood to require a Member to consider an action that is not required by the WTO Agreement and is not provided for under its own municipal law.”
In another case, while the EC did consider the application of lesser duty, however it subsequently concluded that the duty won’t be absolutely appropriate as the injury margin exceeded the dumping margin for each company. This was the case of EC-Bed Linen. The Panel therefore did not accuse EC of failing to apply consistently with its obligations under Article 15 of Anti Dumping Agreement. The panel stated as follows:
‘..the failure of the European Communities to respond in some other fashion other than bare rejection, particularly once the desire to offer undertakings has been communicated to it, constituted a failure to explore possibilities of constructive remedies.
It can be observed from above that India has been in favour of the lesser duty rule. It is reflected from its communications as discussed further herein.
India completely supports and applies the lesser duty rule. Its application is mandatory in all situations including in case of non-cooperation. It circulated a communication namely, Proposal on Mandatory Application of Lesser Duty Rule, dated 9th February, 2005. In this proposal India has suggested the need to Amend Article 9.1 to the extent that the ‘anti-dumping duty shall not exceed the margin of dumping or injury margin whichever is lower.’ Like the Indian framework, India’s proposal has suggested existence of injury margins on the basis of a comparison on a weighted average basis of all comparable transactions or by a comparison on a transaction-to-transaction basis. It has also proposed that authorities should ensure that all negative values are taken into account.
The injury margin further indicates the lower duty that may be determined. India is the only WTO member which has introduced the non-injurious price law in Anti Dumping Rules to enforce lesser duty rule. This has been provided by way of Annexure III to the Anti Dumping Rules, 1995. The Authority calls for the costing information from the domestic industry in the prescribed proforma for the period of investigation and for three previous years. Various factors are taken into consideration while making this calculation. Every country that seeks to determine whether lesser duty suffices to remove the injury calculates injury margins. The modalities however differ. However, price undercutting and price underselling can be two main methods. For the European Commission the common practice entails calculating injury margin by comparing exporter’s price and target price of the community industry. Further, the Commission has not abolished the ‘zeroing’ practice in the injury margin calculations, specifically where there may be more than one transaction and more than one model is compared. The Indian methodology can be understood as follows.
India considers the calculation of injury margin along with dumping margin during original investigations as well as review investigations and price undertakings. The Investigating Authority i.e. the Designated Authority performs the lesser duty rule. They are provided with assistance of accounting experts to determine cost of production and non-injurious price for the product under consideration. India adopts a cost + return on capital employed approach for injury margin determination. Instead of actual cost of production, the authority determines an optimum/normated cost of production. For the purpose, elements of raw material, utilities and fixed costs are scrutinized in detail in order to ascertain whether the per unit cost in the investigation period was higher on account of higher consumption of raw materials or utilities or higher overhead costs (higher overhead costs as a result of lower production). India has followed this principle in view of the consideration that it is objective, un-biased, well codified, well understood and just & fair to all parties.
When it comes to the basis for adopting prices from un-dumped sources, India considers it inappropriate. This is because it may be fraught with unnecessary complexities. For instance the volume of imports may be negligible, the import price from un-dumped sources may also be affected by dumped import prices or the product mix as such may not permit adoption of import price.
Further India also does not adopt pre-dumping period price for the reason that it might be highly subjective to decide the pre-dumping period. As far as the price underselling is concerned, the agreement does not however specify how it should be determined. Price underselling may be determined with reference to cost of production and/or NIP or may be considered as difference between non-injurious price and net selling price.
The information is gathered depending upon respective situations. Since India calculates injury margins for non-cooperating exporters as well, the methodology of information collection for both may differ. As far as cooperating exporters are concerned, the Authority proceeds based on information provided by the responding exporters. As regards the non-cooperating exporters, the price may be based on either the customs statistics relating to imports in India or the response of cooperating exporters or a combination of the two, depending on facts and circumstances of individual case.
Perhaps the reason for the debate on application of mandatory lesser duty rule in today’s time can be traced to the origin of anti dumping laws in various jurisdictions. For instance as per the first anti dumping act that was enacted in Canada in 1904 and various other anti dumping laws at the time considered dumping itself sufficient for imposition of remedies. There was no requirement to show that injury has been suffered by the domestic industry.
In response to the India’s communication on lesser duty rule, many other communications have flown between the members and the WTO. Significant among these are the USA’s communication and Brazil’s Communication. The USA Communication because it completely opposes application of the lesser duty rule and the Brazil’s Communication because it takes into consideration the concerns raised by the USA and countering them highlights the actual advantages of the lesser duty rule mandatory application.
The USA Communication has highlighted the following disadvantages with the mandatory application of the lesser duty rule:
- If a lesser duty rule were required by the Anti-Dumping Agreement that would create onerous new obligations and procedures.
- There is no common practice among WTO members that have implemented such a rule.
- A lesser duty rule would fundamentally change the form of remedy currently provided.
- Even if a lesser duty rule were to be implemented, there is no guarantee that the duty amount would be sufficient to offset the injury, and there might be no way for injured parties to appeal or ask for an increased duty amount.
- Any lesser duty proposals would fail to address the threat of material injury, for which the ADA also provides relief.
- If the investigated parties know that the duty amount charged would be minimal, it could create an incentive for targeted exporters not to participate in the investigation which would make it even harder for authorities to make AD duty determinations.
The Advantages that have been highlighted through Brazil and other supporting countries’ communications and proposals are as follows:
- It leads to fewer distortions to market competition.
- Non-application of lesser duty rule tends to protect the injured domestic industry of the importing Member more than what is adequate.
- From exporter’s perspective, a lower duty will always be better than a higher duty and trade flows will benefit from lower duties.
- From the view point of authorities, the mandatory application of the lesser duty rule will avoid excessive and unnecessarily high level of protection to the domestic industry flowing from an application of a duty based on the full dumping margin. In applying the duty at a lower level, authorities manage to eliminate the injurious effects of dumping, at the same time that they ensure a certain degree of healthy competition in the domestic markets.
- From the standpoint of the domestic industry, a duty applied at a lesser duty level will ensure that the injurious effects of dumped imports will be removed. Since what triggers an application under Article 5.1 if the ADA is an injurious state that the domestic industry may be experiencing because of the effects of dumped imports, it seems logical to apply a duty precisely at the level necessary to remove the injurious effects caused by dumped imports.
- Finally a mandatory lesser duty rule has to be analysed from the perspective of the society as a whole. Its application will minimize/mitigate the impacts of an antidumping duty, without giving up the role of any antidumping duty of removing the injurious effects of dumped imports.
Some problematic aspects with countries that are following the lesser duty rule
The lesser duty rule is applicable in many countries. This certainly gives the impression that lesser duty rule is a success. However, although the efforts to apply this are laudable, it is not without its challenges. This could be presumably due to the lack of regulation in the Anti Dumping Agreement. The practices naturally vary widely both between countries and within countries at times.
Some of the problematic aspects have been signalled by various researchers of specific countries. In this regard the wide range of situations has been observed. In case of Brazil, India, Indonesia, Mexico and South Africa the pertinent issues related to unjustified and non-transparent calculation of target prices have come to the shore. With respect to Brazil and Indonesia one could highlight the unpredictability in calculation of reasonable profit in target prices.  In April 2013, a new package of reforms was put forward by the EU Commission. There was support to remove the lesser duty rule in selected situations where the target countries do not have adequate social and environmental standard levels, or in case of evidence of subsidies to the producer industry and also where the size of EU industry is small. However, the member states of EU found themselves to be divided on the issue which has blocked further progress.
Lesser Duty Rule vs. Public Interest
Sometimes presented as a ‘soft option to ensure public interest’, the lesser duty rule can be argued to soothe some of the harm caused to consumers by the imposition of duties. It has all the ingredients to be a champion of the public interest. It makes its message clear that it is to protect the domestic industry by way of trade remedy measures. It echoes the fair trade principle that underlines all the WTO activities. The European Union also considers public interest to be an important test in all the anti dumping investigations. It defines public interest test as “an appreciation of all the various interests in the [Union] taken as a whole by analyzing the likely economic impact of the imposition or non-imposition of measures on economic operators in the Union.
The Canadian jurisdiction specifically provides that lesser duty rule must be applied in certain public interest determinations by CITT i.e. Canadian International Trade Tribunal. The Canadian legislation provides that if a duty is concluded to be not in public interest by the Tribunal then the latter must issue a report to the Ministry of Finance with adequate reasons and the degree of reduction required in the duty or price of dumped goods that would suffice to eliminate injury, retardation or threat of injury to the domestic industry. The Minister of Finance and the cabinet exercise their discretion. Therefore, lesser duty rule is not a ‘mandated requirement’ in all the cases.
What will be the final result of the investigation drives the distinction in the EU and Canadian regimes of public interest application. On the basis of a public interest investigation the EU may completely eliminate the anti-dumping measures, while Canada may also reduce the duty as an alternative.
Whatever the contrary views may be, it is evident that benefits of lesser duty rule far outweigh the drawbacks. The very fact that a majority of countries have readily accepted and are applying it for several years even when it’s not mandatory indicates the success of the provision. The drawbacks such as problems in the present countries which are following lesser duty rule is not viable. This is because, firstly there are no mandatory provisions under WTO which are devoid of problems, thus they can be worked out, and secondly, the problems could diminish once there is mandatory application under WTO as that would lead to a uniform practice and a concentrated effort from the world as a whole. Further, the public interest argument really has the force to push this instrument to overall benefit of consumers through trade defence measures which are often criticized to be protectionist. In this case the imposition of lesser duties would lead to more benefits, more healthy trade relations and more success for WTO. Less is definitely more.
 Anti-Dumping & Antisubsidy measures: FAQs, http://commerce.nic.in/traderemedies/ad_measures_3.asp
 The AD Agreement, Article 9.1
 Panel Report, United States- Anti-Dumping and Countervailing Measures on Steel Plate from India, WT/DS206/R, para 7.116
 Panel Report, European Communities- Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, 12 Mar.2001, modified by Appellate-Body Report, WT/DS141/AB/R, DSR 2001: VI, 2077, para 6.229
 Ibid, para.6.230
 Proposal on Mandatory Application of Lesser Duty Rule: Communication from India, TN/RL/W/170, 9 February 2005.
 Training Module on Anti-dumping and Injury Margin Calculation Methods, Trade Mark Southern Africa
 Yan Luo, Anti-Dumping In The Wto, The Eu And China, The Rise Of Legalization In The Trade Regime And Its Consequences, 134 (Kluwer Law International) (2010)
 Sandisk International Ltd vs The Designated Authority & Ors 2004 (92) ECC 324
 Fukunaga Yuka, An “Effect-Based” Approach to Anti-Dumping: Why Should We Introduce a “Mandatory Lesser Duty Rule”?, Journal of World Trade 38(3), 2004, 501
 Further Comments on Lesser Duty Proposals: Paper from the United States, TN/RL/GEN/58, 13 July 2005.
 Comments on the Lesser Duty Rule: Communication from Brazil, TN/RL/W/189, 13 October 2005.
 Vermulst Edwin and Holick Gary, Problems with Dumping and Injury Margin Calculations in Ten User Countries, Global Trade and Customs Journal Volume 2, Issue 1, (2007)
 Rory Cahill, EU member state & stakeholder split jeopardizes planned trade defence reforms, Borderlex, (June 20, 2014) http://www.borderlex.eu/eu-member-state-stakeholder-split-jeopardises-planned-trade-defence-reforms/
 Kotsuibska Viktoriia (Supervisor: Gary N. Holick), Public Interest Consideration in Domestic and International Anti-Dumping Disciplines, MILE 11 Thesis, (September 2011)
 Replies of the European Communities to the List of Questions Posed by Members on the Application of the Lesser Duty Rule and Consideration of Public Interest, G/ADP/AHG/W/114, (11 April 2001), 1
 Dan Ciuriak, Trade Defence Practice in Canada: Canadian Country Report for the Evaluation of the European Union’s Trade Defence Instruments, CC Working Paper, (February 2012)
 Supra note 10
***This article first appeared in A Handbook on Trade Remedial Measures- An Indian Perspective: Anti Dumping, Countervailing/Subsidy & Safeguards Measures [LexisNexis], by TPM Consultants.