Trade Remedy and Emergency Duties

These are the oldest of the remedies and now the least used, because the modern practice is to reach for the WTO-compliant instruments in sections 8B, 9 and 9A. They should still be stated, because an examiner asking about protective duties is asking about these two sections.

Sections 8 and 8A: emergency powers

Section 8 gives the Central Government an emergency power to increase or levy export duties. Where it is satisfied that circumstances exist rendering it necessary to take immediate action for increasing the export duty leviable, or for levying an export duty on an article not in the Second Schedule, it may by notification direct an amendment of the Second Schedule.

Section 8A gives the corresponding emergency power to increase import duties. Where the Central Government is satisfied that circumstances exist rendering it necessary to take immediate action for increasing the import duty on an article in the First Schedule, it may by notification direct an amendment of that Schedule.

In both cases the notification must be laid before Parliament and is subject to its amendment or ratification. The point of the sections is timing: a tariff change ordinarily requires a Finance Act, and these provisions let the executive act between Budgets when a situation will not wait.

Section 8B: safeguard duty

Section 8B(1) provides that if the Central Government, after conducting such enquiry as it deems fit, is satisfied that any article is imported into India in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry, it may impose a safeguard duty on that article.

The first proviso carries the developing-country exemption, which is a WTO obligation and is regularly examined: no safeguard duty shall be imposed on an article originating from a developing country so long as the share of imports of that article from that country does not exceed three per cent, or, where the article originates in more than one developing country, so long as the aggregate of imports from all such countries does not exceed nine per cent of the total imports of that article into India.

Section 8B also provides for a provisional safeguard duty, imposed on a preliminary determination that increased imports have caused or threatened serious injury, which must not remain in force for more than two hundred days, and which must be refunded if the final determination does not support it.

As to duration, a safeguard duty ceases to have effect on the expiry of four years from the date of imposition unless revoked earlier, extendable where the Government is satisfied that the domestic industry has taken measures to adjust, but in no case beyond ten years in total.

The vocabulary is defined within the section. "Domestic industry" means the producers as a whole of the like or directly competitive article in India, or those whose collective output constitutes a major share of the total production; "serious injury" means an injury causing significant overall impairment in the position of a domestic industry; and "threat of serious injury" means a clear and imminent danger of serious injury.

Section 8C: omitted

Section 8C stands omitted. It had provided a special transitional safeguard duty on imports originating in the People's Republic of China, a country-specific remedy available under China's WTO accession protocol for a limited transitional period which has now expired. The omission is worth a sentence in an answer because it shows a remedy created for a defined period and repealed when the period ended.

Section 9: countervailing duty on subsidised articles

Section 9(1) provides that where any country or territory pays or bestows, directly or indirectly, any subsidy upon the manufacture, production or exportation of any article, including a subsidy on transportation, the Central Government may, upon importation of that article into India, impose a countervailing duty not exceeding the amount of the subsidy.

The Explanation to section 9(1) defines a subsidy, and it follows the WTO Agreement on Subsidies and Countervailing Measures. A subsidy is deemed to exist if there is a financial contribution by a government or any public body in the exporting or producing country, that is where a government practice involves a direct transfer of funds or potential direct transfer of funds or liabilities; or government revenue otherwise due is foregone or not collected, including fiscal incentives; or a government provides goods or services other than general infrastructure, or purchases goods; or a government makes payments to a funding mechanism or entrusts a private body to carry out such functions; or there is any form of income or price support which operates to increase exports from, or reduce imports into, its territory, and a benefit is thereby conferred.

Section 9(1A) deals with circumvention: where the Central Government is of the opinion that circumvention has taken place, by altering the description, name or composition of the article, by importing it in an unassembled or disassembled form, by changing the country of origin or export, or in any other manner, it may extend the duty to that other article.

Section 9(1B) deals with absorption: where the duty is rendered ineffective because it has been absorbed, that is where the export price falls without any commensurate change in the resale price in India, the Government may modify the duty to counter the effect.

Section 9(2) permits a provisional countervailing duty pending final determination, with refund of any excess. Section 9(2A) excludes application to articles imported by a hundred per cent export-oriented undertaking or a unit in a special economic zone unless made specifically applicable or unless the article is cleared into the domestic tariff area.

Section 9(3) provides the limiting conditions: the duty shall not be levied unless it is determined that the subsidy relates to export performance, or relates to the use of domestic goods over imported goods in the export article, or has been conferred on a limited number of persons engaged in manufacturing, producing or exporting. Those are the specificity requirements, and they are what prevent a general economy-wide measure being treated as a countervailable subsidy.

Section 9A: anti-dumping duty

Section 9A(1) provides that where any article is exported by an exporter or producer from any country to India at less than its normal value, the Central Government may impose an anti-dumping duty not exceeding the margin of dumping.

The three definitions in section 9A(1) are the heart of the remedy and must be reproduced accurately.

"Margin of dumping" means the difference between the export price and the normal value of an article.

"Export price" means the price at which the article is exported, or, where there is no export price or it is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the price at which the imported article is first resold to an independent buyer, or on a reasonable basis where it is not so resold.

"Normal value" means the comparable price in the ordinary course of trade for the like article when destined for consumption in the exporting country; and where there are no such sales, or they do not permit a proper comparison, either the comparable representative export price to an appropriate third country, or the cost of production in the country of origin plus reasonable additions for administrative, selling and general costs and for profits, that is the constructed normal value.

Section 9A(1A) and 9A(1B) carry the same circumvention and absorption provisions as section 9. Section 9A(2) permits a provisional duty pending determination, section 9A(2A) contains the export-oriented unit and special economic zone exclusion, and section 9A(3) permits retrospective imposition in defined circumstances, including a history of dumping and massive dumped imports in a short time, up to ninety days prior.

Section 9A(5) provides the sunset rule: an anti-dumping duty ceases to have effect on the expiry of five years from the date of imposition unless revoked earlier, unless the Central Government, in a review, is of the opinion that cessation would be likely to lead to continuation or recurrence of dumping and injury, in which case it may extend it for a further period not exceeding five years.

Section 9AA provides for refund of anti-dumping duty to an importer who proves that he has paid duty in excess of the actual margin of dumping, on an application and in the prescribed manner. It exists because the duty is imposed on a country-wide or exporter-wide determination which may overstate the margin for a particular consignment.

Section 9B: the limits common to both remedies

Section 9B is the provision that keeps sections 9 and 9A within India's international obligations, and it should be cited whenever either duty is discussed.

No article shall be subjected to both countervailing duty under section 9 and anti-dumping duty under section 9A to compensate for the same situation of dumping or export subsidisation. That is the rule against double remedy.

No countervailing duty or anti-dumping duty shall be levied unless it is determined that the subsidisation or dumping, as the case may be, causes or threatens material injury to any established industry in India, or materially retards the establishment of any industry in India. That is the injury requirement, and it is why an investigation must establish injury and causation and not merely dumping.

The Central Government may not levy either duty on an article imported from a member country of the World Trade Organization, or from a country with most favoured nation status under a trade agreement, unless a determination of injury has been made in the prescribed manner.

Section 9B also requires that the duty be levied only after an investigation conducted in accordance with the rules, and permits the Central Government not to levy where it is against the public interest.

Section 9C: the appeal

Section 9C provides that an appeal against the determination or review regarding the existence, degree and effect of any subsidy or dumping in relation to the import of any article shall lie to the Customs, Excise and Service Tax Appellate Tribunal.

The appeal must be filed within ninety days of the date of the order under appeal, and the Tribunal may entertain it later on sufficient cause. It is heard by a Special Bench constituted by the President for hearing such appeals, consisting of the President and not less than two members, and including one judicial and one technical member. A fee is prescribed. The provisions of section 129A of the Customs Act, so far as may be, apply.

Distinguishing the three remedies

Worked example

Deccan Solar Ltd, an Indian manufacturer of photovoltaic modules, finds imports from Country A rising sharply and priced below what it can match. Three different remedies might be available, and the facts decide which.

If the exporters in Country A sell modules in India at Rs 18 a watt while selling the same modules at home at Rs 25 a watt, that is dumping. The margin is the difference between the export price and the normal value, and the remedy is an anti-dumping duty under section 9A not exceeding that margin, imposed against the named exporters after an investigation establishing material injury as section 9B requires.

If instead the exporters sell at Rs 18 because their government reimburses Rs 7 a watt on export, that is a subsidy. The remedy is a countervailing duty under section 9 not exceeding the amount of the subsidy, but only if the specificity conditions in section 9(3) are met, that is the subsidy relates to export performance, or to the use of domestic over imported goods, or has been conferred on a limited number of persons.

If the exporters have done nothing unusual at all, but imports have tripled in eighteen months because global capacity expanded, then neither remedy lies, because neither dumping nor subsidisation can be shown. The available relief is a safeguard duty under section 8B, which requires serious injury, a higher standard than material injury, and which will lapse in four years unless extended.

One further point completes the answer. Deccan cannot obtain both an anti-dumping duty and a countervailing duty to compensate for the same situation, because section 9B forbids the double remedy. And if Country A supplies less than three per cent of India's imports of modules and is a developing country, the safeguard route is closed against it by the first proviso to section 8B, whatever the injury.

What it does NOT mean

It does not mean these duties are levied to raise revenue. They are remedial, and section 9B makes injury a condition of levy. A duty imposed without a determination of injury is bad.

It does not mean dumping is unlawful. Dumping is a commercial practice by a private exporter, not an offence; what the law does is authorise a duty to offset its injurious effect.

It does not mean an anti-dumping duty lasts indefinitely. Section 9A(5) sunsets it at five years, subject to extension on review, and section 8B caps safeguard duty at ten years in all.

And it does not mean section 8C is available against Chinese imports. It has been omitted; the transitional China-specific safeguard is gone, and any remedy must now be found in sections 8B, 9 or 9A.

Quick revision

• Sections 6 and 7: protective duties on the recommendation of the Tariff Commission, imposed by notification laid before Parliament; section 7 governs duration and permits increase, reduction or extension in the public interest.
• Sections 8 and 8A: emergency powers to amend the Second Schedule (export duties) and the First Schedule (import duties) between Budgets, subject to being laid before Parliament.
• Section 8B, safeguard duty: imports in increased quantities and under such conditions as to cause or threaten serious injury to domestic industry. Developing-country proviso: 3 per cent from one country, 9 per cent aggregate. Provisional duty maximum 200 days. Duration 4 years, extendable, never beyond 10. Defines domestic industry, serious injury and threat of serious injury.
• Section 8C is omitted (the transitional China-specific safeguard).
• Section 9, countervailing duty: not exceeding the amount of the subsidy. The Explanation defines subsidy as a financial contribution (direct transfer, revenue foregone, goods or services other than general infrastructure, payments through a funding mechanism) or income or price support, conferring a benefit. s.9(1A) circumvention, s.9(1B) absorption, s.9(2) provisional, s.9(2A) the export-oriented unit and special economic zone exclusion, s.9(3) the specificity conditions.
• Section 9A, anti-dumping duty: not exceeding the margin of dumping, being the difference between export price and normal value. Normal value is the comparable home-market price, failing which a third-country export price or a constructed value of cost of production plus administrative, selling and general costs and profits. s.9A(3) permits retrospective levy up to 90 days; s.9A(5) sunsets at 5 years, extendable by five on review. Section 9AA refunds duty paid in excess of the actual margin.
• Section 9B: no double remedy for the same situation; material injury must be determined; no levy on WTO-member or most favoured nation imports without a determination of injury; investigation required; public interest may prevent levy.
• Section 9C: appeal to CESTAT within 90 days, heard by a Special Bench of the President and not fewer than two members, including a judicial and a technical member.

Test yourself

1. Distinguish anti-dumping duty, countervailing duty and safeguard duty. They answer three different problems and are therefore subject to three different tests. Anti-dumping duty under section 9A of the Customs Tariff Act 1975 answers the conduct of a private exporter who sells in India at less than the normal value of the article, that is at less than the comparable price in the ordinary course of trade in his home market; the duty may not exceed the margin of dumping, being the difference between the export price and the normal value. Countervailing duty under section 9 answers the conduct of a foreign government which pays or bestows a subsidy on the manufacture, production or export of an article; the duty may not exceed the amount of the subsidy, and section 9(3) requires the subsidy to be specific, that is related to export performance or to the use of domestic over imported goods, or conferred on a limited number of persons. Safeguard duty under section 8B answers no wrongdoing at all: it applies where imports increase in such quantities and under such conditions as to cause or threaten serious injury to domestic industry.

Because the safeguard is imposed although everybody has behaved lawfully, its conditions are stricter. The injury standard is serious injury, defined in section 8B as significant overall impairment in the position of a domestic industry, which is higher than the material injury required by section 9B for the other two remedies. It carries an express developing-country exemption, three per cent from a single country and nine per cent in the aggregate. Its provisional form cannot exceed two hundred days, and the duty lapses after four years unless extended, and never continues beyond ten. Anti-dumping duty, by contrast, sunsets at five years under section 9A(5) subject to extension on review, and section 9AA allows an importer to recover duty paid in excess of the actual margin. Finally, section 9B forbids the imposition of both anti-dumping and countervailing duty to compensate for the same situation of dumping or export subsidisation.

2. What is "normal value" and why does the Act provide alternatives to it? Normal value is defined in section 9A(1) as the comparable price, in the ordinary course of trade, for the like article when destined for consumption in the exporting country or territory. It is the benchmark against which the export price is measured, and the difference between the two is the margin of dumping which sets the ceiling of the duty.

The Act provides alternatives because the benchmark is frequently unavailable or unreliable. There may be no sales of the like article in the ordinary course of trade in the domestic market of the exporting country, for instance where production is wholly for export. The sales that exist may be too few, or made under conditions, such as sales below cost or between associated parties, which do not permit a proper comparison. In those cases section 9A(1) permits either the comparable representative price of the like article exported to an appropriate third country, or a constructed normal value, being the cost of production in the country of origin together with reasonable additions for administrative, selling and general costs and for profits. Without those alternatives an exporter could defeat the remedy simply by not selling at home, and the whole discipline would be evaded by a choice of distribution.

3. What limits does section 9B place on the levy of anti-dumping and countervailing duties? Four, and they are what keep the Indian remedies within India's WTO obligations. First, the rule against double remedy: no article may be subjected both to countervailing duty under section 9 and to anti-dumping duty under section 9A to compensate for the same situation of dumping or export subsidisation. Second, the injury requirement: neither duty may be levied unless it is determined that the subsidisation or dumping causes or threatens material injury to an established industry in India, or materially retards the establishment of an industry in India, so that dumping or subsidisation alone, without injury and causation, is not enough. Third, the most favoured nation condition: neither duty may be levied on an article imported from a member country of the World Trade Organization, or from a country having most favoured nation status under a trade agreement, unless a determination of injury has been made in the prescribed manner. And fourth, procedure and public interest: the duty must follow an investigation conducted under the rules, and the Central Government may decline to levy where levying would be against the public interest.

4. Where does an appeal lie against a determination of dumping, and how is it heard? Section 9C provides that an appeal against a determination or review regarding the existence, degree and effect of any subsidy or dumping in relation to the import of an article lies to the Customs, Excise and Service Tax Appellate Tribunal. The appeal must be filed within ninety days of the date of the order appealed against, though the Tribunal may admit a later appeal on sufficient cause being shown, and the prescribed fee must accompany it. It is not heard by an ordinary Bench: section 9C requires a Special Bench constituted by the President for the hearing of such appeals, consisting of the President and not less than two members, and including one judicial member and one technical member. The provisions of section 129A of the Customs Act 1962 apply so far as may be. The specialised Bench exists because a dumping determination rests on economic analysis of price comparisons, cost construction and injury causation, which differs in kind from the classification and valuation questions that make up the Tribunal's ordinary work.