6 minute read 14 Jan 2021
DGTR investigations for Indian businesses

Why participating in DGTR investigations is good for Indian businesses

By Agneshwar Sen

EY India Tax and Economic Policy (International Trade) Associate Partner

Leads the international trade vertical and has held various positions in trade related agencies of the Indian government. He is a travel enthusiast and likes to cook and explore different cuisines.

6 minute read 14 Jan 2021
Related topics Tax

Parties are often unsure about how to react to notices from the The Directorate General of Trade Remedies (DGTR) seeking participation in the investigation.

The Directorate General of Trade Remedies (DGTR) in India is the nodal governmental agency for conducting trade remedial investigations. It is an investigative body that examines complaints of unfair trade by foreign exporters and recommends imposition of trade remedial measures, such as anti-dumping duty, countervailing duty and safeguard duty, or physical import restraints in case of import surges. The expectation of the DGTR is cooperation from the parties to the investigation in terms of providing requisite data and information that may be needed to fairly arrive at a conclusion on whether trade remedial measures is at all required to correct distortions of trade caused due to any unfair trade practice of foreign exporters.

In any typical trade remedy investigation, the interested parties are the domestic industry manufacturing a product that submits a complaint about an unfair practice, providing data and information as mandated by DGTR evidencing the cause for action on a preliminary basis. Such a complaint after an initial examination by the DGTR is made public in case the investigation is initiated. DGTR seeks information from foreign exporters of that product to India, Indian importers and users, consumer organizations and the interested public at large. A question arises on how to react to the notices from the DGTR seeking participation in the investigation. Should one participate and offer data and information for examination that may be confidential in nature, or simply not respond and react if the trade remedial measure is finally imposed.

Participation in the investigation offers numerous advantages to the cooperating exporters, producers, importers and users. Depending on the nature of interest that a party to the investigation may have, the magnitude of advantages would vary. A participating producer exporter of a product subject to investigation will have the opportunity to prove that it is not involved in dumping or illegal subsidization. In the event of being able to prove nil dumping, a producer-exporter will not be subject to any duty. Even if the exporter has made dumped sales in the country of import, participation confers an opportunity to limit the remedial duty only to the extent of dumping and resultant injury. In contrast, non-participation may result in significantly higher remedial duty, since the DGTR will rely on the data and information that is provided by the complainant’s domestic industry.

As a matter of practice, the DGTR presumes that non-participating exporter or producer may have the highest incidence of dumping and consequent injury to the domestic industry. Further, in the absence of contesting claim, the DGTR cannot decline the dumping and injury claims of the domestic industry. Therefore, cooperating exporters and producers can safeguard themselves against the duty determined on the basis of adverse inference.

Notably, a nil or lower duty on a producer or exporter gives comparative advantage over those who are subject to a higher duty. This effectively means that exporter/producer with lower duty will have higher demand and better market access as opposed to those who are subject to relatively higher incidence of duty.  Non-participating exporters will lose its market share to cooperating ones with lower duties. Thus, participating parties will have commercial edge over non-participating in terms of capturing the market.

For the participating stakeholders, the legal recourse to the Appellate Authority or the Courts may be easier, whereas the non-participating stakeholders might find it difficult to challenge the decision of the DGTR. Therefore, for uncooperating parties to the investigation, there would be limited escape from duty once levied. There are many precedents where participating parties have challenged the DGTR’s decision of duty recommendations and have successfully done away with duties to their advantage. As the recommended duty must be confirmed and ratified eventually by the Department of Revenue, Ministry of Finance (“the DOR”) cooperating parties might have better standing to approach the DOR and seek repeal or revision of final duty. However, non-participating parties may be deprived of this specific opportunity. Given that confirmation of duty by the DOR is dependent on diverse economic and political factors related to countries subject to investigation, participating stakeholders can resort to representation to the DOR to be able to capitalize on favourable decision-making factors.

Since the trade remedial investigations are carried out in the manner prescribed by the WTO Agreements, any decision of the DGTR which is inconsistent with the provisions of the applicable Agreement can lead to complaint in the WTO. The aggrieved exporters or producers can approach their governments to address the inconsistent and illegal measures recommended by the DGTR and their governments can, in turn, take the matter to the WTO Dispute Settlement Body for consultation or dispute resolution. The recourse of escalating the order of DGTR is available only to participating exporters and producers of the subject countries to the exclusion of others. In order to persuade their own governments to seek the resolution under the framework of WTO laws, participating exporters and producers must have complied with the requirement of participation in the investigative proceeding. In case none of the interested parties from a subject country participates in the investigation, even the government of subject country loses substantial ground to seek resolution in the WTO. Particularly in the context of anti-dumping investigations, the governments of the subject countries are parties to the investigation only for the purposes of the notification of the investigation and are not necessarily privy to the ratio decidendi followed by the DGTR. Therefore, participation of the exporters and producers becomes even more critical to be able to challenge the orders of the DGTR under WTO mechanism for dispute resolution.

Thus, it is apparent that participation has scores of advantages for all the parties having opposing business interest to the complainant. Conversely, the non-participation has serious implications of losing out in existing markets by having to endure trade remedial duties or import quotas with very limited scope of redressal before these measures come to an end, often after several years.

(Sanjay Singh, Senior Manager, EY India contributed to this article.)

Summary

Exporters and producers who cooperate in the investigations can safeguard themselves against the duty determined on the basis of adverse inference.

About this article

By Agneshwar Sen

EY India Tax and Economic Policy (International Trade) Associate Partner

Leads the international trade vertical and has held various positions in trade related agencies of the Indian government. He is a travel enthusiast and likes to cook and explore different cuisines.

Related topics Tax