1. LEGAL PROVISIONS

 

The provisions concerning the imposition of countervailing duties (CVDs) are contained in Article VI of GATT 1947. Part-V of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) sets forth substantive requirements that must be fulfilled in order to impose a countervailing measure.

 

Section 9 of the Customs Tariff Act, 1975 contains the provisions for imposition of countervailing duties in India.

 

“Section 9. Countervailing duty on subsidized articles

 

(1) Where any country or territory pays, bestows, directly or indirectly, any subsidy upon the manufacture or production therein or the exportation therefrom of any article including any subsidy on transportation of such article, then, upon the importation of any such article into India, whether the same is imported directly from the country of manufacture, production or otherwise, and whether it is imported in the same condition as when exported from the country of manufacture or production or has been changed in condition by manufacture, production or otherwise, the Central Government may, by notification in the Official Gazette, impose a countervailing duty not exceeding the amount of such  subsidy.

 

Explanation - For the purposes of this section, a subsidy shall be deemed to exist if –

 

 

(a) there is financial contribution by a Government, or any public body in the exporting or producing country or territory, that is, where –

 

(i) a Government practice involves a direct transfer of funds (including grants, loans and equity infusion), or potential direct transfer of funds or liabilities, or both;

(ii) Government revenue that is otherwise due is foregone or not collected (including fiscal incentives);

(iii) a Government provides goods or services other than general infrastructure or purchases goods;

(iv) a Government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions specified in clauses (i) to (iii) above which would normally be vested in the Government and the practice in, no real sense, differs from practices normally followed by Governments; or

 

(b) a Government grants or maintains any form of income or price support, which operates directly or indirectly to increase export of any article from, or to reduce import of any article into, its territory, and a benefit is thereby conferred.

 

(2) The Central Government may, pending the determination in accordance with the provisions of this section and the rules made thereunder of the amount of subsidy, impose a countervailing duty under this sub-section not exceeding the amount of such subsidy as provisionally estimated by it and if such countervailing duty exceeds the subsidy as so determined, -

 

(a) the Central Government shall, having regard to such determination and as soon as may be after such determination, reduce such countervailing duty; and

(b) refund shall be made of so much of such countervailing duty which has been collected as is in excess of the countervailing duty as so reduced.

 

(3) Subject to any rules made by the Central Government, by notification in the Official Gazette, the countervailing duty under sub-section (1) or sub- section (2) shall not be levied unless it is determined that -

 

(a) the subsidy relates to export performance;

(b) the subsidy relates to the use of domestic goods over imported goods in the export article; or

(c) the subsidy has been conferred on a limited number of persons engaged in the manufacture, production or export of articles;

 

(4) If the Central Government, is of the opinion that the injury to the domestic industry which is difficult to repair, is caused by massive imports in a relatively short period, of the article benefiting from subsidies paid or bestowed and where in order to preclude the recurrence of such injury, it is necessary to levy countervailing duty retrospectively, the Central Government may, by notification in the Official Gazette, levy countervailing duty from a date prior to the date of imposition of countervailing duty under sub-section (2) but not beyond ninety days from the date of notification under that sub- section and notwithstanding anything contained in any law for the time being in force, such duty shall be payable from the date as specified in the notification issued under this sub-section.

 

(5) The countervailing duty chargeable under this section shall be in addition to any other duty imposed under this Act or any other law for the time being in force.

 

(6) The countervailing duty imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of five years from the date of such imposition:

 

Provided that if the Central Government, in a review, is of the opinion that the cessation of such duty is likely to lead to continuation or recurrence of subsidization and injury, it may, from time to time, extend the period of such imposition for a further period of five years and such further period shall commence from the date of order of such  extension:

 

Provided further that where a review initiated before the expiry of the aforesaid period of five years has not come to a conclusion before such expiry, the countervailing duty may continue to remain in force pending the outcome of such a review for a further period not exceeding one  year.

 

(7) The amount of any such subsidy as referred to in sub-section (1) or sub- section (2) shall, from time to time, be ascertained and determined by the Central Government, after such inquiry as it may consider necessary and the Central Government may, by notification in the Official Gazette, make rules for the identification of such article and for the assessment and collection of any countervailing duty imposed upon the importation thereof under this section.

 

(7A) The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, interest, appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section as they apply in relation to duties leviable under that Act].

 

(8) Every notification issued under this section shall, as soon as may be after it is issued, be laid before each House of Parliament.”

 

The Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995 (CVD Rules) notified under the Act, along with its following Annexures, prescribe the procedural and substantive requirements for the imposition of countervailing duties in India:

 

(i) Annexure I - Principles governing the determination of injury.

 

(ii) Annexure II - Principles for determination of subsidy which has been conferred on a limited number of persons as referred to in Rule 11.

 

(iii) Annexure III –

          A. Part-1 -- Illustrative list of export subsidies

          B. Part-2 -- Guidelines on consumption of inputs in the production process

     C. Part-3 -- Guidelines in the determination of substitution drawback systems as export subsidies

 

(iv) Annexure IV - Guidelines for the calculation of the amount of subsidy in countervailing  duty  investigations (containing):

          A. Calculation of subsidy per unit/ad valorem

          B. Calculation of certain types of subsidy (in the form of):

               (a) Grants

               (b) Loans

               (c) Loan guarantees

               (d) Provision of goods and services by the government

               (e) Purchase of goods by government

               (f) Government provision of equity capital

               (g) Forgiveness of government-held debt

 

Investigation period for subsidy - calculation of expense versus allocation deduction from amount of subsidy

 

2. Countervailing Duties: An Introduction

 

Countervailing Duties (CVDs) are applicable when a government in the exporting country provides subsidies or assistance to a local industry. This can be in the form of subsidized loans, tax exemptions, indirect payments, etc. The assistance provided enables these foreign suppliers and manufacturers to potentially export and sell the goods for a price less than that at which domestic companies of the target member country can reasonably sell. Countervailing Duties are meant to neutralize the adverse effects of the subsidies allowed for a particular product in one member country, on the same industry in the other member country.

 

The SCM Agreement defines the term “subsidy” along with the concept of “specificity”. Only a subsidy which is a “specific” within the meaning of Part I is subject to multilateral disciplines and can be subject to countervailing measures. A specific subsidy is, amongst others, a subsidy available only to a specific enterprise, industry, group of enterprises, or group of industries, sector, set of firms, geographical region(s), limited number of persons including artificial legal persons, use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, etc. - provided by the government of the exporting country (hereinafter an ‘exporting country’ means the country of manufacture, production, export or otherwise of concerned article) including the governments of the different provinces and municipalities in which the producers/ exporters are located.

 

The main object and purpose of the SCM Agreement is to increase and improve the GATT disciplines relating to the use of both subsidies and countervailing measures. 

 

These subsidies have been categorised into two broad categories, namely:

 

(i) Prohibited subsidies (Part-II of the SCM Agreement); and

 

(ii) Actionable subsidies (Part-III of the SCM Agreement)

 

3. SCOPE & ELEMENTS OF A SUBSIDY

 

Article 1 of the SCM Agreement defines the term subsidy as a financial contribution by a government or a ‘public body’ or on behalf of a government and which confers or results in a benefit to the recipient. If any of these elements are missing, the program is not a subsidy under the SCM Agreement. Each of the elements are discussed in detail as follows:

 

FINANCIAL CONTRIBUTION

 

The principles regarding determination of a measures by a government or a ‘public body’ or on behalf of a government, that represent a financial contribution are, amongst others, the grants, loans, equity infusions, loan guarantees, fiscal incentives, etc. and are detailed in Annexure III of CVD Rules. However, the financial contribution only is not actionable. A financial contribution, by or on behalf of the government or a public body, amounting to subsidy is illustrated in Part I of Annexure III of CVD Rules.

 

Further, benefits conferred on prior stage cumulative inputs (captive consumption) which amount to a subsidy are detailed in Part 1 with guideline for the same in Part 2 of Annexure III of CVD Rules. Paragraph (e) alongwith its explanation in (i) to (vii) of Part-1 of Annexure III of CVD Rules may also be referred to for this purpose.

 

SPECIFICITY

 

The conditions for specificity of a subsidy contained in Article 2 of the SCM Agreement, and Section 9(3) and Rule 11 of the CVD Rules, are as under:

 

(i) if it has been conferred on a limited number of industry/enterprise engaged in the manufacture, production or export of articles; or

 

(ii) if it is an export subsidy i.e. the subsidy is contingent on export performance; or

 

(iii) if it is based on the use of domestic goods over imported ones.

 

BY GOVERNMENT OR PUBLIC BODY

 

As already stated above, in order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a member country. Thus, the SCM Agreement applies not only to measures of national governments but also to measures of sub-national governments (the governments of the different provinces and municipalities in which the producers/exporters are located) and of such public bodies as state- owned companies. However, the financial contribution must be by a government body in the nature of a Federal, Regional, Municipal or Public Body such as the National Bank, National Power Company, or where the Government entrusts or directs a private body to make a financial contribution.

 

It may be clarified that all financial contributions by the government may not constitute a subsidy. Part 1 of Annexure III contains an illustrative list of what amounts to export subsidies. A financial contribution by a government is not a subsidy unless it confers a “benefit”. Few examples of the term ‘benefit’ based on WTO jurisprudence are as follows:

 

(i) An advantage to the recipient, not cost to the Government (If financial contribution places the recipient in a more advantageous position than it would have been, but for the financial contribution);

 

(ii) If the financial contribution is provided on terms which are more advantageous than those that would have been available to the recipient from the market;

 

(iii) Investment by the Government inconsistent with the usual investment practices;

 

(iv) Government loans confer a benefit if there is a difference between the amount the recipient of the loan pays on the loan and the amount the recipient would pay on a comparable commercial loan that the recipient could obtain from the market;

 

(v) Government loan guarantees confer a benefit if there is a difference between the amount the recipient firm pays on loan guarantee by the government and the amount the firm would have paid on comparable commercial loan;

 

(vi) Government provision for goods and services: if such goods and services have been provided for less than adequate remuneration based on prevailing market conditions; and

 

(vii) Government Purchase of goods does not confer benefit unless these are purchased for more than adequate remuneration based on prevailing market conditions.

 

At times a subsidy may be non-specific on its face value, however, it could, in application or in effect, be specific. These are called de facto specific subsidies. If there are reasons to believe that this is the case, it may be required to consider other factors/parameters also, including the use of a subsidy program by a limited number of enterprises, predominant use of certain enterprises, granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy. Further, consideration of factors like length of the operation, extent of diversification of economic activities within the jurisdiction of the granting authority, its nature, etc. may also be considered before taking the decision about the presence of de facto specificity.

 

Section 9 (3) of the Act read with Rule 11(1)(a) of the CVD Rules, provides that the Central Government shall not levy countervailing duty unless it is determined that the subsidies are – (a) export-oriented or (b) contingent upon use of domestic goods over imported ones or (c) conferred on a limited number of persons engaged in manufacturing, producing and exporting the article. In view of the above, only actionable subsidies and prohibited subsidies are to be countervailed by the Investigating Authority.

 

4. EXPORT SUBSIDY: Rule 11 (1)(a) identifies the subsidies which are contingent in law or in fact, whether wholly or as one of the several conditions, upon export performance. The detailed list of export subsidy is provided in Part 1 of Annex III of the CVD Rules. However, the list given is an illustrative one and not exhaustive in nature. Examples of export subsidies are as follows:

 

(i) The provision of goods or services for use in the production of exported goods in terms being more favourable than those for the production of goods for domestic consumption;

 

(ii) An export-related exemption, remission or deferral of direct taxes; excess exemption, remission, or deferral of indirect taxes or import duties; and

 

(iii) Provision of export credit guarantee or insurance programmes at premium rates which are inadequate to cover the operating costs and losses of the programmes.

 

Further, the following exemptions also amount to export subsidies:

 

(i) The exemption or remission of indirect taxes, in respect of production and distribution of export products;

 

(ii) The exemption, remission, or deferral of prior stage cumulative indirect taxes on goods or services used in the production of exported products provided this does not exceed the corresponding exemption, remission, or deferral on the goods or services used in the production of like products when sold for domestic consumption pursuant to the guidelines on consumption of inputs in the production process contained in Part-2 of the Annex;

 

(iii) Subsidies on ‘prior stage cumulative indirect taxes’ on inputs consumed in the production of the exported products. This to be interpreted with the guidelines on consumption of inputs in the production process contained in Part-1 and Part-2 of the Annexure III;

 

(iv) Remission or drawback of import charges on imported inputs consumed in the production of exported products. This is to be interpreted in accordance with the guidelines on consumption of inputs in the production process contained in Part-2 of the Annexure III to the CVD Rules and the guidelines in the determination of substitution drawback systems as export subsidies contained in Part-3 of the Annexure III to the CVD Rules;

 

(v) The exemption, remission, and deferral of prior-stage cumulative indirect taxes levied on inputs consumed in the production process of the exported product (making normal allowance for waste). The Part 2 of Annexure III to CVD Rules also provides that the prior stage inputs are inputs when they are Physically incorporated; Energy, fuel and oil used in production process: and catalysts consumed in the course of production. It also requires necessary verification and/or practical test(s) to be carried out by the investigation team to confirm which inputs are consumed, directly or indirectly, in the production of the exported article and in what amounts.

 

5. LOCAL CONTENT SUBSIDIES: Rule 11 (1)(b) identifies the subsidies which are contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. These subsidies are designed to directly affect trade and thus are most likely to have adverse effects on the interests of other Members.

 

Rule 11 (1)(c) inter alia read with the principles laid down in Annexure II to the CVD Rules identifies the subsidies which are conferred on a limited number of persons engaged in manufacturing, producing or exporting the articles.

 

As per SCM Agreement, the subsidies that are not prohibited are called actionable subsidies. However, they are subject to challenge, either through multilateral dispute settlement or through countervailing action, in the event that they cause adverse effects to the interests of another member country. There are three types of adverse effects:

 

(i) Causes or threatens to cause material injury to any domestic industry established in other member countries or materially retards the establishment of any domestic industry in other member countries and such injury and/ or retardation is caused by subsidized imports in the territory of the such complaining member country. This is the sole basis for countervailing action;

 

(ii) There is serious prejudice. Serious prejudice usually arises as a result of adverse effects (e.g., export displacement) in the market of the subsidizing member country or in a third country market. Thus, unlike injury, it can serve as the basis for a complaint related to harm to a member’s export interests;

 

(iii) There is nullification or impairment of benefits accruing under the GATT 1994. Nullification or impairment arises most typically where the improved market access presumed to flow from a bound tariff reduction is undercut by subsidization

 

6. OPERATING PRACTICE

 

PRE-INITIATION

An application, pursuant to Rule 6 read with Rule 2(b) of the CVD Rules, has to be filed by or on behalf of domestic industry in India representing major proportion of total domestic production of the like product. No investigation shall be initiated if the domestic producers expressly supporting the application account for less than twenty-five percent of the total production of the like product.

 

 

Rule 2 (b) of the CVD Rules is similar to Rule 2 (b) of the AD Rules16,17. Therefore, practices followed under anti-dumping investigations for determination of DI, as mentioned in chapter 4 of this Manual, may be applied mutatis mutandis to CVD investigations.

 

The designated authority may initiate an investigation suo-motu in terms of Rule 6(4) of the CVD Rules, if it is satisfied from the information received from the Commissioner of Customs appointed under the Customs Act, 1962 (52 of 1962) or any other source that sufficient evidence exists as to the existence of the circumstances referred to in sub-clause (b) of sub-rule (3).

 

The process of defining and describing the PUC, is similar to as followed for ADD investigation mentioned in Chapter 3 of this Manual. It is the responsibility of the Investigating team (with the approval of DA) to clearly and accurately define and describe the scope of the PUC concerned during the investigation at the stage of consideration of initiation.

 

The POI and IIP should be clearly defined for the CVD investigation. Since the relevant provisions in this regard in CVD law are similar to the ones in ADD law, therefore, the methodology followed in Chapter 5 of this Manual may be followed for this purpose.

 

The application should provide sufficient prima facie evidence that the exporting country or countries are subsidizing exportation of a particular product to India, which is causing injury to the domestic industry.

 

An application seeking initiation of CVD investigation should be accompanied with complete information in the prescribed formats duly signed and certified. The following documents in addition to the prescribed formats should be included along with the application:

 

No.	Documents/Information
1	Soft Copy of the application
2	Excel files of the costing formats
3	Total Indian production of each of the applicant(s) along with its breakup in PUC & NPUC and split up of domestic sales and export sales for the PUC
4	Installed Capacity of PUC with supporting documents like the Pollution Control Board Certificate
5	Audited financial statements and cost audit reports for the injury period including POI
6	Costing Formats from A to L relating to NIP/ Capital Employed Calculations along with soft copy of all relevant excel working sheets, as prescribed for Anti-dump- ing investigations
7	In case of new units not having completed four years since the commencement of commercial production – The project report or any other similar document.
8	Transaction wise DGCI&S import data as obtained in terms of Trade Notice 07/2018 dated 15th March, 2018
9	List of Products produced/sold by DI, which are subject to existing Trade Reme- dial Measures.
10	Details of alleged Subsidies (including Grants and Concessions), along with sup- porting documents and evidences and, if possible, their respective amounts
11	Details of Injury and Injury margin,
12	Causal link between the subsidized imports and the alleged injury
13	Complete details of Related Parties
14	Details of PUC Imports by the DI from all the countries

 

In terms of Rule 6(3)(b) of the CVD Rules, the application has to be examined for the accuracy and adequacy of the information/data prior to initiation of the Investigation. It is necessary that each actionable scheme alleged by the applicant should be substantiated or supported by the evidence thereof.

 

The Authority should examine the details of any earlier investigation on the same PUC for ADD. The details of the working of the ADD case for the said PUC should be duly referred to and taken into account in the CVD investigation.

 

PRE-INITIATION  CONSULTATION

 

The Rule 6 (5) of the CVD Rules provides as follows:

 

“The Designated Authority shall notify the government of the exporting country before proceeding to initiate an investigation.”

 

Article 13 of SCM Agreement gives detailed guidelines and makes it mandatory for an Investigating Authority to notify the exporting country government for pre-initiation consultation after receipt of application to arrive at a mutually agreed solution20. The team should write to the government of the exporting country inviting them for consultation as soon as a complete application is received along with the invitation suggesting/proposing date of meeting. A copy of NCV application should also be attached.

 

The petition should also be sent to the Embassy/Consulate of India in the concerned subject country(ies) to seek information, if required, regarding the alleged subsidy schemes in the said country.

 

It is the choice of the subject country to come for consultation. In case the delegation is coming from the exporting country for the consultations, then the team should send a proper invitation in the form of Note Verbale to the Embassy of the subject country(ies) in India.

 

After such consultations, the written submission along with supporting evidences should be filed in a week’s time or such other extended period as agreed. The documents received from the subject country are analyzed and a decision is taken whether to initiate the investigation against one or more countries based on the merits. Also, it needs to be decided whether to initiate the investigations on all or few of the alleged schemes mentioned in the application.

 

Till this time, an application filed by the domestic industry is not publicised and no information is disclosed to the parties at large regarding the receipt of application in accordance with Article 11.5 of the SCM Agreement and Rule 7 of the CVD Rules.

 

Once the team satisfies itself regarding the sufficiency of the evidence in the application, notice of initiation is issued with the approval of DG, detailing:

 

(i) the name of the exporting countries and the article involved;

(ii) the date of initiation of the investigation;

(iii) the period of investigation;

(iv) a description of the subsidy practice or practices to be investigated;

(v) a summary of the factors on which the allegation of injury is based;

(vi) the address to which representatives by interested countries and interested parties should be directed;

(vii) the time-limits allowed to interested countries and interested parties for making their views known.

 

Upon initiation of an investigation, the non-confidential version of the application is shared with all the interested parties and also kept in the inspection folder to be made available to all the registered interested parties.

 

POST-INITIATION:  SUBMISSION  OF DOCUMENTS

 

The embassy of exporting country, exporters/producers of the exporting country and importers and the user industry in India are issued a questionnaire giving 40 days’ time, from the date of letter/issuance of questionnaires, for submitting the response/reply/submissions by the respondents. It may be noted that this time period is only for the initial comprehensive questionnaire and does not apply to the subsequent or supplementary questionnaires, if any issued.

 

In addition to the documents submitted at the time of filing the application, the applicant domestic industry is required to submit the following documents during the post initiation phase for investigations:

 

 

No.	Documents/Information
1	Annual Audited Accounts (including Balance Sheet, Profit & Loss Accounts and Annexed Schedules) for the Injury Period including POI (as notified in the Initia- tion Notification), if not submitted earlier. If the same is not audited for the POI, the same may be certified from the independent Practicing Chartered Accoun- tant and the duly Authorised Officer of the Company
2	Trial balance for the POI
3	Cost Audit Reports for the Injury Period including POI, if applicable
4	Cost Sheet(s) of captively consumed  product(s)/utilities
5	Consumption details of major raw materials including Bill of Materials (BOM) for the PUC
6	Supporting documents for Installed Capacity, Actual Production, Capacity Utilization
7	Details of Related Party Transaction(s) and their basis of pricing as per Indian Accounting Standard-18
8	Details of major inputs, which are subject to anti-dumping
9	Details of all abnormal close downs, if any
10	Business Transfer Agreement/Details - if there is any major change in ownership during IIP and consequential change in the value of assets, if any
11	Merger/Amalgamation details- if there is any merger/amalgamation and conse- quential change in the value of assets if any
12	Valuation Report - if there is a change in the value of assets
13	Details of major by-products and their realisations
14	Complete break-up of Sales Realisations as reconciled with audited records of the company as a whole. Each major product to be separately indicated

 

The interested parties or their representatives may procure import data from DGCI&S, if required, through an authorization issued by DGTR as per detailed guidelines in the form of contained in trade notice 07/2018 dated 15.3.2018.

 

If exporters/producers do not reply to the questionnaire, refuses access to or do not provide necessary information within a reasonable period or significantly impedes the investigation, they are considered to be ‘non–cooperating’ in the investigation. The Authority will use the best information available for such non-cooperating parties, pursuant to Article 12.7 of the SCM Agreement and Rule 7(8) of the CVD Rules.

 

CONFIDENTIALITY

 

Rule 8 of the CVD Rules govern the provisions regarding confidentiality:

 

“(1)        Notwithstanding anything contained in sub-rule (1), (2), (3) and (7) of rule 7, sub-rule (2) of rule 14, sub-rule (4) of rule 17 and sub-rule (3) of rule 19 copies of applications received under sub-rule (1) of rule 6 or any other information provided to the designated authority on a confidential basis by any party in the course of investigation, shall, upon the designated authority being satisfied as to its confidentiality, be treated as such by it and no such information shall be disclosed to any other party without specific authorisation of the party providing such information.

 

(2) The designated authority may require the parties providing information on confidential basis to furnish non-confidential summary thereof in sufficient details to permit a reasonable understanding of the substance of the confidential information and if, in the opinion of a party providing such information, such information is not susceptible of summary, such party may submit to the designated authority a statement of reasons why summarisation is not possible.

 

(3) Notwithstanding anything contained in sub-rule (2), if the designated authority, is satisfied that the request for confidentiality is not warranted or the supplier of the information is either unwilling to make the information public or to authorize its disclosure in generalized or summary form, it may disregard such information.”

 

The provisions of confidentiality/non- confidential are similar to that of Article 6.5.1 of the AD Agreement and therefore the guidelines notified vide Trade Notice No 10/2018 dated 7th September, 2018 and Trade Notice No. 14/2018 (wherever applicable) dated 01st October, 2018 may be applied mutatis mutandis to CVD investigations.

 

INSPECTION FOLDER

 

In every CVD investigation, an inspection folder, containing non-confidential versions of the submissions & responses filed by all the interested parties is to be maintained by the team. Interested parties can inspect and obtain copies of the submissions/responses of other interested parties during the course of the investigation. Upon examination of responses filed by interested parties, DGTR may request for more information if it determines that such information is necessary for conducting the investigation.

 

INJURY DETERMINATION

 

Rule 13 of the CVD Rules provides for “Determination of Injury”:

 

13. Determination of injury-

 

(1) In the case of imports from specified countries, the designated authority shall give a further finding that the import of such article into India causes or threatens material injury to any industry established in India, or materially retards the establishment of an industry in India.

 

Except when a finding of injury is made under sub-rule (3), the designated authority shall determine the injury, threat of injury, material retardation to the establishment of an industry and the casual link between the subsidised import and the injury, taking into account inter alia, the principle laid down in Annexure I to the rule.

 

(2) The designated authority may, in exceptional cases, give a finding as to the existence of injury even where a substantial portion of the domestic industry is not injured if –

 

(i) there is a concentration of subsidised imports into an isolated market, and

(ii) the subsidised imports are causing injury to the producers of almost all of the production within such market.

 

The existence of material injury or threat thereof to the like product of domestic industry in India or material retardation to the establishment of domestic industry in India and its causal relation with the subsidized imports is an essential pre-requisite for invoking any countervailing measure in India. Injury Determination can be defined as an evaluation/assessment of the effects of subsidized imports on the concerned domestic industry. Injury analysis is the basis for the Authority to arrive at a conclusion for its recommendation regarding imposition, continuation of relevant trade remedial duty or termination of an investigation/existing duties. Such analysis establishes that domestic industry is suffering injury. The different type of injuries under Trade Remedy Investigations can be identified as:

 

(i) Material Injury;

(ii) Threat of Material Injury; or

(iii) Material Retardation.

 

The Annexure I to the CVD Rules requires that the determination of injury must be based on positive evidence and involves an objective examination of:

 

(i) the volume effect of subsidised imports;

(ii) the price effect of the subsidised imports on prices in the domestic market for like products; and

(iii) the consequent impact of the subsidised imports on the economic health of the domestic producers of the like product (evaluation of Economic Parameters).

 

The principles for determination of injury are broadly similar to the procedure followed in case of Anti-dumping investigations. The  important distinguishing thing to demonstrate is that the injury is caused by the subsidized imports, in view of their volume and price effects and their consequent impact on the domestic industry. It is important to first determine if the Domestic Industry is having a material injury, then the Authority would proceed to determine if the injury is due to subsidization or not.

 

Further analysis for determining causal factor i.e. causation is important for the determination of injury on account of subsidised imports. The demonstration of the causal link must be based on an examination of all relevant evidence before the authority. The authority must also examine any known factors other than the subsidized imports, which could be injuring the domestic industry at the same time and the injury caused by these other factors must not be attributed to the subsidized imports.

 

When imports from more than one country are simultaneously subject to countervailing duty investigation, the Authority can cumulatively assess the effect of alleged subsidized imports for determining injury to the domestic industry for injury purposes as long as they do not qualify for the de minimis or negligibility thresholds and a cumulative assessment is appropriate in light of the conditions of competition among the imports and between imports and the like domestic products. Further, the Authority is required to analyze the impact of subsidized imports on the domestic industry, in the same manner, as is done for dumped imports on the domestic industry. The Authority is required to make an analysis of the following factors which are set out in Para 1(5) of Annexure I to the CVD Rules:

 

(i) Economic parameters and indices having bearing on the Domestic Industry;

(ii) The actual and potential decline in output, sales market share, profit, productivity, return on investments, or utilization of capacity, factors affecting domestic prices;

(iii) The actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments; and

(iv) In case of agriculture, whether there has been increased burden on the government  support programme(s).

 

The above list is not exhaustive and nor are they the decisive factors for determining injury. Broad principles governing the determination of Injury have also been discussed in Chapter 11 relating to injury analysis in case of AD investigations which may be applied mutatis mutandis in case of CVD investigation.

 

INJURY MARGIN

 

Rule 19(1)(b) of the CVD Rules provides for recommending the amount of duty which if levied, would be adequate to remove the injury to the domestic industry. An amount of duty which can ensure a fair price to the domestic industry is understood to be adequate to remove the injury of the Domestic Industry on account of subsidized imports.

 

Injury margin represents the injury suffered by the domestic industry on account of subsidized imports calculated as the difference between the Non- injurious Price (NIP) of the domestic industry and the landed value of imports of the subject goods from the countries under investigation. Therefore, a duty levied up to the injury margin is expected to be the margin adequate to remove the injury of the Domestic Industry on account of subsidized imports. The injury margin calculation is important since it affects the level of duties finally recommended because the Authority will recommend the countervailing duty at the level of the subsidy margin or injury margin, whichever is less. Therefore, the team has to compute the Non injurious Price for the DI.

 

NIP DETERMINATION

 

Non-Injurious Price (NIP) denotes the fair price, which will enable the DI to reasonably recover its cost of production and reasonable profit margins, after taking into consideration all other factors of production which could have affected the company, but for which subsidized imports are not responsible. It is the price at which the domestic industry should be able to compete with exporters or foreign producers of the like product. The NIP is used for calculation of Injury Margin by comparing the NIP with the Landed Value of the subsidized imports.

 

The provisions relating to Lesser duty rule and Injury margin are similar in both Section 9 and Section 9A of the Customs Tariff Act dealing with CVD and ADD respectively. Hence the provisions/guidelines for determination of NIP as provided in Annexure III (as notified on 1st March 2011) read with Rule 17(1)(d) of the AD Rules may be applied for CVD investigations also. The applicable Generally Accepted Accounting Principles, Accounting Standards and Cost Accounting Standards are also kept in mind while finalizing the NIP. Therefore, the procedure already detailed earlier in Chapter 9 of this Manual may be followed for determination of Non- injurious Price in case of CVD investigations as well.

 

NIP determination requires following information in Format “A” to Format “L” notified vide Trade Notice 02/2018 dated 1st February 2018 read with Trade Notice 15/2018 dated 22.11.2018:

 

No	Format Number	Subject Description
1	A	Statement of Consumption of Raw Materials, Packing Materials and Utilities
2	B	Statement of Raw Material Consumption
3	C	Allocation and Apportionment of Expenses
4	D	Statement of Consumption of Utilities
5	E	Statement of Net Sales Realisations
6	F	Certificate by the Chief Executive or a duly authorised representative of the Domestic Industry
7	G	Declaration by Legal Representative
8	H	Performance Parameters of Domestic Industry
9	I	PCN wise summarised Statement of Expenses
10	J	Related Party Transactions
11	K	Calculation of Capital Employed
12	L	Calculation of claimed NIP

 

It may be clarified here that the company can furnish details/clarifications during post-initiation period in furtherance of the petition/application already submitted to enable the proper processing. However, the DI cannot be allowed to revise the application in such a way that it will structurally alter the original application on which the initiation is based, as it will render the initiation invalid. The team is allowed, within its lawful mandate, to seek clarifications/ details from the applicant(s) during the course of the investigation but it should do so in writing as has been clearly instructed by the DG. No oral request should be made for seeking information.

 

DETERMINATION OF SUBSIDY

 

Rule 12 and the Annexure IV of the CVD Rules provide the methodology for calculation of the subsidy margin. This subsidy margin needs to be compared with the injury margin for determination of duty under the lesser duty rule.

 

The CVD Rules clearly provide that the subsidy amount is to be determined in terms of benefit to the recipient in the form of subsidization. Further, it may also be noted that the general procedure relating to the investigation is left on to the member countries. Each method applied by the investigating country should be transparent, adequately explained and be in compliance with the guidelines provided in the SCM Agreement.

 

The subsidy calculations must be done on a programme-by-programme/ subsidy-by-subsidy basis. This necessitates the determination of the amount of subsidy provided to/received by the exporter/producer in question under a given programme. Subsidy amount received by the exporter/producer during POI is divided by relevant actual or potential sales over the useful life of that subsidy, which gives the rate of subsidization with respect to that scheme. This working to calculate per unit subsidy (Article 19.4 of the SCM Agreement and the Part A of Annexure IV of the CVD Rules) during the period of investigation has to be done with respect to each subsidy scheme. The calculations should reflect the amount of subsidy found to exist during the period of investigation and not simply the face value of the financial contribution. If the subsidy was only for part of the year, appropriate allocation may need to be done. Finally, the subsidy under each of the schemes needs to be added to arrive at the total per unit subsidy margin for all the schemes.

 

Apart from the programmes alleged to be actionable subsidies, the Designated Authority may investigate in to any other program of the subject countries which may be revealed during the course of the investigation as actionable subsidy. Sometimes, it is possible that the alleged program is known by different names other than the one specified by the applicant.

 

The information and evidence is required to be co-related with PUC if the program is specific to the PUC or specific to the inputs used in the PUC. If the program is not specific to the PUC (like linked to geographical location), question of providing information or evidences relating to PUC may not be critical. It may be added here that complete details of subsidies or grants received by the alleged entity and its related entities (including holding company etc) must be obtained during investigations. For example, if an entity related to the subject entity obtains grants/subsidy on any intermediate to the input or receives any other similar benefit like free or subsidized land, then such related entity might pass on the said benefit to the subject entity. Similarly any subsidy or grant received by the subject entity on any captive input will also tantamount to subsidy for its downstream products including PUC.

 

As regards non-cooperating units, it would be reasonable to proceed on the basis of an assumption that an exporter/producer entitled for the benefits would have availed the benefit available under the program. It is for the cooperative exporter/producer to establish that despite eligibility, it has not availed the benefit.

 

If some schemes are related to specific geographical areas or cities and no cooperation is received from producers/exporters from that geographical area, all units in that geographical area, if otherwise eligible, shall be assumed to have availed the benefits.

 

Another issue which must be considered is the benefits from non-recurring subsidies received anytime in the past (prior to POI) like free land or subsidized construction etc. It is logical that these benefits should also be considered over the average useful life of the concerned tangible/ intangible assets used in the production of subject article.

 

The Agreement foresees two methodologies to calculate total subsidy amount in CVD context namely, Benefit to recipient (how much advantage to the recipient, compared with price at which it could obtain from the market); and Cost to government (how much did it cost the government to provide the concerned subsidy). However, as per Rule 12 of the CVD Rules, the Indian Authority has been using the ‘benefit to recipient’ approach so far.

 

As regards grants, following are some of the examples inter alia listed in Part B of Annexure IV of the CVD Rules:

 

(i) Direct Transfer of funds: Amount received;

(ii) Tax exemption: Amount of tax payable at applicable rate;

(iii) Tax reduction: Amount of tax payable at applicable rate –tax paid;

(iv) Accelerated depreciation: Amount of tax payable under normal; depreciation schedule –amount actually paid;

(v) Interest rate subsidies: Amount of interest saved by the recipient; and

(vi) In all above cases, an amount for notional interest on subsidies received during the period of investigation is also to be added.

 

ON THE SPOT VERIFICATION

 

The Authority relies upon the facts and information contained in the application/ questionnaire response for arriving at final determinations in an investigation. However, the Authority may also validate the information by conducting a verification of the domestic industry or other respondent(s). The team is required to notify the exporter(s)/subject country(ies) in question in advance. If an interested party refuses access to, or otherwise does not provide necessary information within a reasonable period, or significantly impedes the investigation, the findings may be finalised based on the best available facts in terms of Rule 7(8) of the CVD Rules.

 

The Article 12.6 of the SCM Agreement and Rule 10 of the CVD Rules provide for verification in the territory of the other member countries as required. Following are the essential steps for on the spot verification in CVD investigations:

 

(i) In CVD investigations, the DGTR requests the responding exporter to designate a contact point for verification of the information contained in the questionnaire and also requests for the availability of the concerned officials for verification;

 

(ii) For schemes of Government, it may be necessary that the verification is done with respective agency officials, i.e., those who are directly involved with the administration of the concerned programs and not the officials who actually prepared the questionnaire responses. The Embassy/Consulate of India in the concerned subject country(ies) shall be requested to coordinate the meetings with the respective Govt. departments and public offices in the respective countries;

 

(iii) The Investigating Authority is required to provide the verification agenda well in advance. The purpose of providing this agenda in advance of the verification is to allow subject member countries to brief the appropriate government personnel on the items to be covered and the type of records/ evidence required to verify each item;

 

(iv) Verification is only done for the information which is already submitted with the Investigating Authority. No new submission is accepted at the time of verification, except minor corrections;

 

(v) Separate questions are provided for each scheme, for which the information is already submitted with the investigating Authority in the questionnaire responses;

 

(vi) The Investigation Team may request for certain information to be submitted as exhibits, during verification which are taken on record. All the documents submitted should be exhibited and numbered;

 

(vii) After Verification, the Investigating Authority issues a Verification Report to the respective respondents so verified, which includes the submissions and discussions of the verification31;

 

The detailed methodology and guidance for undertaking verification in AD investigations as given in Chapter 8 of this manual may also be followed for verification32 in CVD cases.

 

ORAL HEARING

 

Article 12.2 of the SCM Agreement and Rule 7 (6) of the CVD Rules require that before the finalization of the disclosure statement, an oral hearing is to be granted before the Authority to give the opportunity to all the stakeholders including the Embassy/Government of the respective subject countries, for presenting their case, making oral submissions and with a view to protecting their interest. This gives an opportunity to all the stakeholders to present the explanation of their views and evidence before the Authority orally. This right of the parties is subject to justification to present information orally. As per the SCM Agreement, the interested parties may request for hearing to present their views orally.

 

The notice of hearing must also be uploaded on the DGTR website. Posting of notice of hearing or any other communication on the website shall be deemed to be served upon all the interested parties even though all efforts should be made to communicate individually to each of the registered interested parties. The detailed procedure for oral hearing in Anti-dumping investigation as given in chapter 15 of this manual may also be kept in mind for CVD investigation.

 

PRELIMINARY FINDING

 

Section 9(2) of the CVD Act and the Rule 14 of the CVD Rules provides for the imposition of preliminary measure. As per these provisions, if DGTR finds in appropriate cases that a preliminary measure is required to prevent injury being caused, it may proceed expeditiously with the conduct of the investigation and shall issue a preliminary finding recommending imposition of a countervailing duty on case to case basis. However, this is not a mandatory provision and is on the discretion of the Authority. In addition, no preliminary measures are imposed prior to 60 days from the date of initiation of the investigation and such a measure imposed shall be limited to a brief period, not exceeding four months.

 

PRICE UNDERTAKING

 

With regard to price undertakings, Article 18.1 of the SCM Agreement and Rule 17(1) of the CVD Rules envisage two types of undertakings: (a) an undertaking by the exporting country government to eliminate or limit the subsidy or to take other measures concerning its effects; or (b) an undertaking by an exporter to revise its prices to eliminate the injurious effect of the subsidy or the amount of the subsidy itself, whichever is lower. The detailed procedure for submission and acceptance of Price Undertaking in AD investigations as given in Chapter 16 of this Manual may be followed for CVD cases also.

 

DISCLOSURE  STATEMENT

 

Rule 18 of the CVD Rules provides as follows:

 

“The designated authority, shall, before giving its final findings, inform      all interested parties and interested countries of the essential facts under consideration which form the basis of its decision and permit the interested parties to defend their interest.”

 

The Authority before arriving at the final determination is required to inform essential facts under consideration to all the interested parties, which will form the basis of its finding. The disclosure contains all factual details and all the relevant facts available with the Authority, which “the Authority considers relevant” for the purpose of final finding.

 

Disclosure statement discusses all the stages of the investigations and essential summary of all the arguments of the interested parties. The Authority after issuance of the disclosure statement gives enough opportunity to the parties to comment on the disclosure statement. Before arriving at final determination, the Authority has to consider the submissions presented to it on the disclosure statement. The disclosure statement mentions the relevant documents in the covering letter and has four annexures i.e. procedure, submissions, rebuttals and examination by the Authority. The detailed procedure for disclosure is provided in chapter-16 of this manual relating to Disclosure statement in anti-dumping investigations.

 

FINAL FINDING

 

The investigations shall normally be concluded, with an issuance of Final Finding on such investigation by the Authority, within one year and in no case more than 18 months, after initiation of the concerned investigation.

 

Rule 19 of the CVD Rules discusses the issuance of Final Findings. Rule 19 of the CVD Rules states as under:

 

“(1) The designated authority shall, within one year from the date of initiation of an investigation determine as to whether or not the article under investigation is being subsidized and submit to the Central Government its final finding, as to -

 

(a) (i) the nature of subsidy being granted in respect of the article under investigation and the quantum of such subsidy;

(ii) whether imports of such articles into India in the case of imports from specified countries, cause or threaten material injury to an industry established in India or materially retards the establishment of any industry in India and a causal link between the subsidized imports and such injury; and

(iii) Whether a retrospective levy is called for and if so, the reasons therefor and the date of commencement of such  levy.

 

(b) its recommendation as to the amount of duty which if levied, would be adequate to remove the injury to the domestic industry:

 

Provided that the Central Government may in circumstances of exceptional nature extend further the aforesaid period of one year by six months:

 

Provided further that in those cases where the designated authority has suspended the investigation on the acceptance of a price undertaking as provided in rule 17 and subsequently resumes the same on violation of the terms of the said undertaking, the period for which investigation was kept under suspension shall not be taken into account while calculating the said period of one year.

 

(2) The final finding if affirmative, shall contain all information on the matter of facts and law and reasons which have led to the conclusion and shall also contain information regarding -

 

(i) the names of the suppliers, or, when this is impractical, the supplying countries involved;

(ii) a description of the product which is sufficient for customs purposes;

(iii) the amount of subsidy established and the basis on which the existence of a subsidy has been determined;

(iv) considerations relevant to the injury determination; and

(v) the main reasons leading to the determination

 

(3) The designated authority shall issue a public notice regarding its final findings."

 

Based on the facts and examination, the Authority issues the final finding notification either recommending imposition of a countervailing duty or terminating the investigation without the imposition of a countervailing duty.

 

For a decision on quantum of countervailing duties, the lesser duty rule is mandatory in India and accordingly, countervailing duty is recommended by the Authority equivalent to the margin of subsidy or margin of injury, whichever is less.

 

The investigation can be terminated in certain cases in accordance with Rule 16 of the CVD Rules. For example, when the authority determines that the amount of subsidy is less than one percent ad-valorem in case of developed countries and less than two percent in case of developing countries, it shall terminate the investigation immediately against such country.

 

In case of a recommendation of countervailing duty by the DGTR, Department of Revenue may issue a notification levying countervailing duty within three months from the date of issuance of the recommendation by the DGTR. Countervailing duty can be imposed for a maximum period of five years from the date of imposition of a duty, subject to provisions of review as discussed in paragraphs later in this chapter.

 

It may be added that the Paragraph 5 of Article VI of the GATT inter-alia states that “No product of the territory  of  any  contracting  party  imported  into  the territory of any other contracting party shall be subject to both anti-dumping     and countervailing duties to compensate for the same  situation  of  dumping  or  export subsidization”. This provision seeks to prevent a situation of double remedy/ compensation for the “same situation” of “dumping” or “export subsidization” (and not “domestic subsidization”) in relation to concurrent anti-dumping (AD) and countervailing duty (CVD) investigations.

 

It may be clarified here that an export subsidy may lead to reduction in the export price of a product, but will not affect the price of domestic sales of that product in that country. Therefore, this subsidy will result in higher margin of dumping. In such circumstances, the situation of subsidization and the situation of dumping are the ‘same situation’. In other words, the dumping margin already accounts for the export subsidy in such cases; and the application of concurrent duties would amount to the application of ‘double remedies’ to compensate for, or offset, a same situation. But it may be ensured by the team that such export subsidy is either covered in ADD or CVD investigation.

 

Another issue, which may be relevant in CVD investigations is about cross- ownership of the domestic industry. As per the existing practice, the Authority normally attributes a subsidy to the products produced by the company that directly received the subsidy. However, in today’s era, where related party transactions are used to further the interests of an organisation, the following subsidies to the following types of cross-owned corporations are to be covered (as is done in USA etc.) for CVD investigations:

 

(i) Producers of the subject merchandise;

(ii) Holding companies or parent companies;

(iii) Producers of an input that is primarily dedicated to the production of the downstream product; or

(iv) A corporation producing non-subject merchandise that otherwise transfers a subsidy to a respondent.

 

REVIEWS OF CVD

 

Section 9(6) of the Act and Rule 24 of the CVD Rules provide for a Review mechanism of the countervailing duties.

 

Section 9(6) of the CVD Act reads as under:

 

“(6) The countervailing duty imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of five years from the date of such imposition :

 

Provided that if the Central Government, in a review, is of the opinion that the cessation of such duty is likely to lead to continuation or recurrence of subsidization and injury, it may, from time to time, extend the period of such imposition for a further period of five years and such further period shall commence from the date of order of such extension  :

 

Provided further that where a review initiated before the expiry of the aforesaid period of five years has not come to a conclusion before such expiry, the countervailing duty may continue to remain in force pending the outcome of such a review for a further period not exceeding one  year.”

 

Rule 24 of the CVD Rules reads as under:

 

“(1) The designated authority shall, from time to time, review the need for continued imposition of the countervailing duty and shall, if it is satisfied on the basis of information received by it that there is no justification for the continued imposition of such duty or additional duty, recommend to the Central Government for its withdrawal.

 

(2) Any review initiated under sub-rule (1) shall be concluded within a period not exceeding 12 months from the date of initiation of such  review.

 

(3) The provisions of rules 6, 7, 8, 9, 10, 11, 12, 13, 16, 17, 18, 19, 20, 22 and 23 shall mutatis mutandis apply in the case of review35.”

 

The SCM Agreement recognizes the following three types of reviews of CVD measures:

 

(i) Article 19.3: The investigating Authority is required to carry out promptly and in accelerated manner reviews requested by exporters which are subject to a definitive countervailing duty, but which were not actually investigated for reasons other than for refusal to cooperate. However, no such review has been done so far for CVD;

 

(ii) Article 21 (Sunset Reviews also called as Expiry Review and Mid- Term review): Definitive countervailing duties shall normally expire after five years from their imposition, unless the domestic industry asks for a review within a reasonable period of time preceding the expiry, arguing that the expiry of the duty would be likely to lead to continuation or recurrence of subsidization and injury. During the five-year period (hence the term interim review), interested parties may request the authorities to examine whether the continued imposition of the duty is necessary to offset subsidization, whether the injury would be likely to continue or recur if the duty were removed or varied, or both36. The duty may remain in force pending the outcome of such a review;

 

(iii) Article 23 provides that Members, which do adopt countervailing duty legislation, must also maintain independent judicial, arbitral or administrative tribunals or procedures for the purpose of prompt review of administrative final and review determinations. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in India is the independent judicial forum to consider the appeals against the final findings issued by DGTR.

 

APPEAL PROVISION

 

The last paragraph of the final finding notification, should mention the appeal provision. It should be stated that “an appeal against the order of the Central Government arising out a Final Finding shall lie before the Customs, Excise and Service Tax Appellate Tribunal in accordance with the Customs Tariff Act”

Source: Manual Of Operating Practices For Trade Remedy Investigations