Defence mechanisms

What is common to Europe, India and the US? These three are the most active users of trade defence instruments (TDIs) worldwide.

Countries use TDIs essentially to address price-distorting and anti-competitive business practices of firms and the market-distorting measures of governments for strategic or mercantilist intent. Europe is perceived to be using TDIs as retaliatory threats to safeguard market access abroad.

But the fact is that WTO rules allow members to temporarily restrict the import of a product in cases where a surge in imports threatens to injure a domestic industry.

In the last three decades I have not seen any compelling evidence that the European Union uses TDI as a retaliatory element. But it is a fact that for Indian companies exporting to the EU, TDIs create uncertainties about the rules of the game for market access. And for public discourse, it adds to the sensitive nature of the issue of ‘unfair’ trade.

What are these instruments? TDIs are temporary protective tariffs on imports.

They are of three kinds: ‘anti-dumping measures’ against price dumped imports, ‘anti-subsidy measures’ — also called ‘countervailing measures’ — against subsidised imports, and ‘safeguard measures’ against sudden and unforeseen import increases.

Dumping occurs when companies in a country export at a price below the domestic price of a similar product. The exports must cause ‘injury’ to the industry in the importing country for measures to be imposed.

Analysis in Europe reveals that anti-dumping protection comes at a rather high price. For every one euro gained in the protected sector, the user industry and European consumers pay, on average, €4.5 in higher prices and tariffs.

But Indian companies doing business with Europe need to be aware that dealing with TDIs is a necessary evil.

Several anti-dumping and anti-subsidy investigations launched by the EU against India resulted in the imposition of anti-dumping and/or countervailing duties.

On the other hand, several cases were terminated without duties due to timely and active resistance by Indian companies, their respective trade associations and national bodies such as CII and FICCI, and the Indian government.

It is also very important to note that not all Indian companies are treated equally in cases where duties have been imposed.

The worst situation arises for companies that do not register with the European Commission and do not cooperate at all. They receive a punitive residual duty, making them uncompetitive in the market.

Minimise damage Therefore, it is important to thwart duties and find other constructive ways of maintaining exports and market presence in Europe.

These include negotiating prices or price quota undertakings with the European Commission.

Indian firms must respond quickly and diligently to the EU’s anti-dumping questionnaire and the sampled companies’ participation in the ‘dumping simulation’.

This is followed by a verification visit made to the sampled company where the exporting producer will be requested to substantiate all the information submitted.

While EU anti-dumping investigations are driven by the European Commission headquartered in Brussels, definitive duties are ultimately adopted by the 28 EU member-states.

It is imperative for Indian exporters, Indian missions in Europe and India’s Ministry of Commerce to remain in undeviating contact with the anti-dumping advisory committee (ADC) representatives of the EU member-states. This will help not only monitor India’s interests but also, in many cases, pre-empt EU’s anti-dumping cases.

(The author is former Europe Director, CII, and lives in Cologne, Germany.)

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