TRIBUNAL UPHOLDS REJECTION OF INPUT PRICES FROM NME COUNTRIES ANTI DUMPING
Section 9A of the Customs Tariff Act read with the Agreement on Dumping provide for determination of the normal value based on the cost of production, where the sales in the home market do not provide for a fair comparison. Ordinarily, the cost of production is determined based on the records maintained by the exporter. In a recent decision in the case of Kumho Petrochemical Company Ltd, the Tribunal upheld the rejection of the purchase price of an input by the Korean exporter from China, and directed adoption of alternate values.
The relevant legal provision reads as under:
The arguments of the exporter have been summarized as under:
The exporter had been sourcing 4ADPA from Sinorghem China PR, which was a cooperating exporter from China in the investigations. The Authority committed a serious error in rejection of the actual cost of 4ADPA, in the absence of any legal provision to justify rejection of the actual cost of procurement of 4ADPA, since Korea is a market economy, and not subject to provisions of Paragraphs 7 and 8 of Annexure 1 to the Customs Tariff (Identification, Assessment and Collection of Duty or Additional duty on Dumped Articles, and for Determination of Injury) Rules, 1995 (Anti-Dumping Rules'). It was also contended by the Id. counsel that:-
i. There is no dispute that the actual cost of 4ADPA had been reflected in their books of accounts, and therefore the same ought to have been adopted for" determination of normal value in terms of Para 3 of Annexure 1 to the Rules.
ii. The source of procurement of the input is immaterial for determination of normal value, since only actual cost of production is relevant in terms of Section 9A(1)(c) of the Act
"The elements of costs referred to in the context of determination of normal value shall normally be determined on the basis of records kept by the exporter or producer under investigation, provided such records are in accordance ewith the generally accepted accounting principles of the exporting country, and such records reasonably reflect the cost associated with production and sale of the article under consideration."
The arguments canvassed by the domestic industry are as under:
6. It was submitted that Para 1 of Annexure 1 is to be construed in the context of the words "normal" and "ordinary" used in Section 9A (1) of the Act. The elements of cost cannot be based on the records kept by the exporter, unless they reasonably reflect the cost associated with production and sale of the product under consideration. This is a condition precedent .for determination of costs based on the records of the exporter. In this context, they referred to the WTO Panel Report in the case of China Anti-Dumping and Countervailing Duty measures on Broiler products from the United States [WT/DS427/R] wherein it was held that although Article 22.214.171.124 sets up a presumption that the books and records of the respondent shall normally be used to calculate the cost of production for constructing normal value, the investigating authority retains the right to decline to use such books if it determines that they are either (i) inconsistent with GAAP or, (ii) do not reasonably reflect the costs associated with the production and sale of the product under consideration. They also relied on the decisions of the Apex Court in the case of Haldor Topsoe (2000 (120) E.L.T. 11 (S.C.)] and Reliance Industries (2006 (202) E.L.T. 23 (S.C.)], for the proposition that the exports were country specific and not exporter specific. They also referred to the WTO Panel Report in the cases of:-
(i) US Lumber V (WT/DS264/R (Para 7.237)]
(ii) US DRAMS [ WT/DS99/R (Para 6.66)]
(iii) Egypt Steel Rebar (INT/DS211/R (Para 7.393)]
7. They relied on the judgment of the General Court (European Union) in the matter of Acron OAO and Anr Vs. Council of the European Union relating to Ammonium Nitrate (T-235/08) decided on 07.02.2013, wherein it was held that when the prices of raw materials are regulated in such a way that they are artificially low in the domestic market, it may be presumed that the cost of producing the product concerned is affected by a distortion. The General Court considered that under such circumstances, the Union institutions are entitled to conclude that cost or one of the items in the records cannot be regarded as reasonable and that, consequently, the same can be adjusted. They also referred to EU Regulations as under:-
i. Council of the European Regulation (EU) No.1194/2013 in the matter of Biodiesel from Argentina and Indonesia followed the judgement of General Court and constructed the cost of production of raw material on the basis of international price.
ii. Council Regulation (EEC) No.3836/91 relating to dihydrostretomycin from China, the Commission adjusted the raw material price on the basis of international price due to distortion.
iii. Council Regulation (EC) No.237/2008 relating to imports of Ammonium Nitrate originating from Ukraine, the Commission adjusted the price of gas from Russia on the basis of international price due to distortion.
iv. Council Regulation (EEC) No.2818/91 relating to provisional anti-dumping duty on imports of cotton yarn originating in Brazil, the Commission adjusted the raw material price on the basis of international price due to distortion.
The Bench observed as under:
15. As per paragraph 1 of Annexure 1 to the Anti-Dumping Rules, the elements of costs referred to in the context of normal value shall normally be determined on the basis of records kept by the producer or exporter under investigation provided such records are in accordance with the generally accepted accounting principles (GAAP) of the exporting country, and such records reasonably reflect the cost associated with production and sale of the article under consideration. Thus, what is contemplated In Paragraph 1 is the records prepared on the basis of market economy conditions because only then they will reasonably reflect the cost associated with production and sale of the goods. This is clear from the scheme of Annexure 1, which applies paragraphs 1 to 6 to firms operating under market economy conditions responsive to market signals and paragraphs 7 and 8 to firms operating udder non-market economy conditions.
16. The element of cost referred to in the context of normal value can therefore not be determined based on the records kept by the producer in the exporting country, even if they are kept in accordance with GAAP of the country, because such records would not correctly reflect the cost associated with the production of the article under consideration, in which the raw material produced within the non-market economy country is used even if its actual purchase price is reflected in the cost of the article, unless the distortion caused due to non-market economy conditions is corrected. This position is clearly elucidated in the WTO Panel Report in the case of Broiler (supra), a relevant part of which is reproduced below:-
"7.164. In sum, the Panel is of the view that although Article 126.96.36.199 sets up a presumption that the books and records of the respondent shall - normally be used to calculate the cost of production for constructing normal value, the investigating s the right to decline the use such books if it determines that they are either (i) inconsistent with GAAP or, (ii) do not reasonably reflect the costs associated with the production and sale of the product under consideration. However when making such a determination to derogate from the norm, the investigating authority must set forth its reasons for doing so.
17. WTO Panel Report in Egypt - Steel Rebar /DS211/R (Para 7.393)] the Panel noted that both Articles 188.8.131.52 and 2.2.2 "emphasize two elements, first, that cost of production is to be calculated based on the actual books and records maintained by the company in question so long as these are in keeping with generally accepted accounting principles but that second, the costs to be included are those that reasonably reflect the costs associated with the production and sale of the product under Consideration." It is clear that both the requirements must be independently met.
18. In the judgement of the General Court (European Union) in the matter of Acron 0A0 and Anr Vs Council of the European Union relating to Ammonium Nitrate (T-
235/08) decided on 7 February 2013, it has been 'held as under:-
"Since the price of gas in Russia was regulated, it may indeed by presumed that the cost of producing the product concerned was affected by a distortion of the domestic Russian market regarding the price of gas, as that price was not the result of market forces.
45. In addition, the interpretation of the first sentence of Article 2(5) of the basic regulation put forward by the appellants, namely that the costs of production are
calculated solely on the basis of the records of the party under consideration, would be tantamount in factg to precluding recourse to the constructed normal value in particular where the costs of production do not result from the ordinary course of trade, even though such recourse is expressly provided for in Article 2(3) of that regulation.
46. The institutions were therefore fully entitled to conclude that one of the items in the applicants' records could not be regarded as reasonable and that, consequently, that item had to be adjusted by having recourse to other sources from markets which the institutions regarded as more representative and, consequently, the price of gas had to be adjusted."
19. In dumping investigations, the Authority routinely requests both price and cost information in order to check whether domestic sales are made below cost. In determining normal value, sales of the like product in the domestic market of the exporting country at prices below per unit (fixed and variable) costs of production plus SGA costs will be treated as not being in ordinary course of trade by reason of price. In order to ascertain the comparable price for the like article when meant for consumption in ordinary course of trade in the exporting country under Section 9A (1) (c) (i) ibid, the sales reflected in the accounts / record for the relevant period at the price shown therein will normally be accepted when the record reasonably reflects the cost associated with the production and from a non-market economy country, the sale price reflected in the record will have to be scrutinized to detect and correct the distortion resulting from the non-market economy price of the input used, the cost of which is required to be worked out in order to correct the distorted cost of production of the article. The Authority is justified in rejecting the domestic sales price shown as the record when the input in question was produced within a non-market economy country, because the price for such input would be distorted, as they do not reflect the normal market economy purchase price. The prices or costs in non-market economies are not accepted as an appropriate basis for the calculation of normal value on the ground that prices and costs are controlled and regulated by the government and therefore not subject to market forces. Export price of 4ADPA from China to India, would also suffer from the same distortions. Thus, in our view, the international price, as evidenced by the import data for 4ADPA from a market economy country to India, is a fair basis for ascertaining the actual value of 4ADPA.
The above decision puts at rest the controversy regarding interpretation of Annexure -I to the Anti-Dumping Rules.
Link: Final Order No. AD/A/54808-54810/2014 CU (DB) dated 27.08.2014