India: The Relevance Of Cost And Prices Of Non-Market Economy Country/firm While Calculating The Normal Value

The aim of this article is to evaluate whether the cost and prices in Non-Market Economy (NME) Countries are relevant when normal value is being determined based on information from market economy third country (also referred to sometimes as surrogate country or analogue country) under paragraph 7 of Annexure-I to the anti-dumping Rules.

When an article is introduced into the commerce of another country by a producer/exporter at a price (export price) less than his own domestic price (normal value) then this practice is termed as "dumping" and if such dumping causes injury to domestic industry of importing country, the same is allowed to be remedied by imposing anti-dumping duties not exceeding the margin of dumping in relation to such article.

Anti-dumping duty is levied under Section 9A of the Customs Tariff Act, 1975 (referred to as Act) read with the Rules which are framed thereunder.

The Rules prescribed a detailed methodology for determination of normal value in exporting country and principles for such determination have been set out in paragraph 1 to 6 of Annexure I to the Rules.

In the year 1999 a distinction was drawn between market economies and non-market economies. A special methodology for determination of normal value under paragraph 7 was introduced for non-market economies.

A hierarchy of methods for computing "normal value" was prescribed under paragraph 7. Under the first method, authority will simulate what an NME enterprise's prices or costs would be if it was operating in a market environment by using an appropriate surrogate (substitute) market (referred to as market economy third country).

In other words, the first method mandated that normal value shall be determined on the basis of the price or constructed value in the market economy third country, or the price from such a third country to other countries, including India.

When this methodology to determine normal value based on surrogate country was not possible, paragraph 7 provided alternate second method and provided that it could be determined on any other reasonable basis including the price actually paid or payable in India for the like product, duly adjusted if necessary, to include a reasonable profit margin.

This article as aforesaid is restricted to determination of normal value when special methodology for determination of normal value is invoked based on surrogate country.

Paragraph 7 goes to show that it discards cost and prices of NME's for determination of normal value and surrogates normal value for such NME country by a market economy third country.

Through an amendment in 2001, paragraph 8 was inserted to Annexure-I which defined NME country with an option for such country to rebut such presumption on the basis of criteria specified in sub-paragraph (3) of paragraph 8. If such presumption of NME was rebutted by evidencing that market conditions prevail for one or more such firms, the designated authority may apply the principles set out in paragraphs 1 to 6 instead of the principles set out in paragraph 7.

A plain and close reading of the paragraph 7 and paragraph 8 shows that the only distinction drawn in procedure for determination of normal value between market economies and non-market economies is "Source of Data".

For non-market economies their own price and cost data is discarded and a surrogate country data is substituted. However, if such presumption of NME was rebutted by evidencing that market conditions prevail for one or more such firms, then the actual price and cost data of such firms is not discarded and determination of normal value is done like any other market economy country. In other words, paragraph 1 to 6 is required to be applied for both market economy countries as also for NME countries.

It is pertinent to note that the procedure prescribed under paragraph 1 to 6 cannot be different under paragraph 7 as surrogate country is also a market economy country. It is pertinent to note that paragraph 1 to 6 does not prohibit its invocation for determination under paragraph 7. Even paragraph 7 does not impose any restriction or prohibition for use of paragraph 1 to 6 for determination to be reached under paragraph 7.

If an argument is made against use of paragraph 1 to 6 for surrogate country, then paragraph 7 becomes unworkable as no methodology or principles are prescribed therein as are prescribed for market economy country. If any unguided discretion is read into paragraph 7, then it would become bad in law in terms of settled principles for delegated legislation. It would also be against principles of equality before law and equal protection of law as market economy third country/ surrogate country is no different from any market economy to which paragraph 1 to 6 have been made applicable.

When designated authority determines that market conditions (as they operate on market principles of cost or pricing structures, so that sales of merchandise in such country reflects the fair value of the merchandise) prevail in terms of paragraph 8(3) for NME country/firm, then Designated Authority applies paragraph 1 to 6 even for a NME.

This also supports the argument that while operating under paragraph 7 when normal value is being determined based on surrogate country/market economy third country, then only cost and prices are substituted by another country as discussed above and not the methodology for determination of normal value.

In terms of presumption of NME contained in paragraph 8(2), there is no discretion vested in Designated Authority under paragraph 7 or 8 to grant market economy status to a NME country. In view of the presumption contained under Rule 8(2), Designated Authority has no power or right to call for cost and price related data, evidence or information while operating under paragraph 7 under the premise that a decision would be reached during the investigation process unless the country/firm opts to rebut the presumption in terms of the proviso to Rule 8(2).

In view thereof, the author is of the view that when no claim has been made by a country/firm to rebut the presumption as envisaged under proviso to Rule 8(2) of Annexure-I, the Designated Authority has no power/jurisdiction to seek cost and price related data from Non-Market Economy (NME) Countries /firms.

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Footnotes

1 Jitendra Singh is Partner at ASL-Legal and heads the litigation wing at the firm.

2 Planned socialist economic system were labeled as "non-market economies" (NMEs) as they do not operate on market principles of cost or pricing structures. Sales of merchandise in NME country do not reflect the fair value of the merchandise.