1. LEGAL PROVISIONS

 

The Agreement on Safeguards (“SG Agreement”) sets forth the broad rules for application of safeguard measures pursuant to Article XIX of GATT 1994. In addition, specific safeguard measures are also provided in various FTAs negotiated on bilateral basis with conditions contained therein.

 

Safeguard measures are defined as “emergency" actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member’s domestic industry (Article 2). Such measures can consist of quantitative import restrictions or duty increases to higher than bound rates. They are one of the three types of contingent trade protection measures, along with anti-dumping and countervailing measures, available to WTO Members.

 

In the Indian domestic framework, the applicable legal provision for imposition of safeguard duty on imports is Section 8B of the Act. Sub- section (1) provides for the imposition of safeguard duty by the Central Government on an article if the article is being imported into India in such increased quantities and under such conditions so as to cause or threaten to cause serious injury to the Domestic Industry. The Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 govern the procedural aspects, including the manner of and principles governing safeguard investigations.

 

Section 8B of the Act reads as under:

 

Power of Central Government to Impose Safeguard Duty:

 

(1) If the Central Government, after conducting such enquiry as it deems fit, is satisfied that any article is imported into India in such increased quantities and under such conditions so as to cause or threatening to cause serious injury to domestic industry, then, it may, by notification in the Official Gazette, impose a safeguard duty on that article:

 

Provided that no such duty shall be imposed on article originating from a developing country so long as the share of imports of that article from that country does not exceed three percent or where the article is originating from more than one developing countries, then, so long as the aggregate of the imports from all such countries taken together does not exceed nine percent of the total imports of that article into India.

 

Provided further that the Central Government may, by notification in the Official Gazette, exempt such quantity of any article as it   may specify in the notification, when imported from any country    or territory into India, from payment of the whole or part of the safeguard duty leviable thereon.

 

(2) The Central Government may, pending the determination under sub-section (1), impose a provisional safeguard duty under this sub- section on the basis of a preliminary determination that increased imports have caused or threatened to cause serious injury to a domestic industry:

 

Provided that where, on final determination, the Central Government is of the opinion that increased imports have not caused or threatened to cause serious injury to a domestic industry, it shall refund the duty so collected:

 

Provided further that the provisional safeguard duty shall not remain in force for more than two hundred days from the date on which it was imposed.

 

(2A) Notwithstanding anything contained in sub-section (1) and sub- section (2), a notification issued under sub-section (1) or any safeguard duty imposed under sub-section (2), unless specifically made applicable in such notification or such imposition, as the  case may be, shall not apply to articles imported by a hundred percent export oriented undertaking or a unit in a free trade zone or in a special economic zone.

 

Explanation: For the purposes of this section, the expressions “hundred per cent export oriented undertaking”, “free trade zone” and “special economic zone” shall have the meanings assigned to them in Explanation 2 to sub-section (1) of section 3 of Central Excise Act, 1944.

 

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

 

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

 

Provided that if the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the safeguard duty should continue to be imposed, it may extend the period of such imposition:

 

Provided further that in no case the safeguard duty shall continue  to be imposed beyond a period of ten years from the date on which such duty was first imposed.

 

(4A) The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, including those 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.

 

(5) The Central Government may, by notification in the Official Gazette, make rules for the purposes of this section, and without prejudice  to the generality of the foregoing, such rules may provide for the manner in which articles liable for safeguard duty may be identified and for the manner in which the causes of serious injury or causes of threat of serious injury in relation to such articles may be determined and for the assessment and collection of such safeguard duty.

 

(6) For the purposes of this section,

 

(a) “developing country” means a country notified by the Central Government in the Official Gazette for the purposes of this section;

 

(b) “domestic industry” means the producers

          (i)    as a whole of the like article or a directly competitive article in India; or
        (ii)    whose collective output of the like article or a directly competitive article in India constitutes a major share of the total production of the said article in India;

 

(c) “serious injury” means an injury causing significant overall impairment in the position of a domestic industry;

 

(d) “threat of serious injury” means a clear and imminent danger of serious injury.

 

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

 

The Central Government has notified the Rules called the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 (SG Rules), detailing the process for conducting investigation for safeguard measures (text attached at the end of the chapter). The application format has been prescribed vide Trade Notice SG/TN/1/97 dated 6.9.1997.

 

2. OPERATING PRACTICE

 

Pre-Initiation

 

An application for initiation of a safeguard investigation can be made by any aggrieved producer/manufacturer, trade body, firm or institution in India, which is representative of domestic industry, in the prescribed application format. The application should be accompanied with complete information duly signed and certified.

 

Imports data must be obtained from DGCI&S.

 

The details submitted by the Industry regarding production and the alleged injury should be examined by the investigation team.

 

The investigation requires determination of cost of production to examine injury parameters and for this a reasonable return, which is a percentage of cost of production, on case to case basis.

 

It may be kept in mind that even though there is no statutory requirement of establishment of an unfair trade practice, the injury requirement under section 8B is considered to be more stringent.

 

The Safeguard Rules require that an application shall be supported with evidence of (i) increased imports; (ii) serious injury or threat of serious injury to the domestic industry; and (iii) a causal link between imports and the alleged serious injury or threat of serious injury. Further, a statement on the efforts being taken, or planned to be taken, or both, to make a positive adjustment to import competition is also required to be furnished.

 

The application seeking initiation of safeguard investigations should be inter-alia accompanied by the following information for latest available four years and supporting documents in addition to the application in the prescribed format:

 

No.	Documents/Information
1	Soft Copy of the application
2	D.G.C.I &S import data segregated year-wise and county wise
3	Total Indian Production and basis for the estimation
4	Year-wise production of applicant and Installed Capacity of PUC with supporting documents like Pollution Control Board Certificate
5	Total sales (separately for domestic /captive/exports) of the applicant and other Indian producer(s) along with total year wise demand in the country
6	Workings of Cost of production along with Excel files
7	Submissions and Workings in support of claimed injury/threat of injury
8	Evidence in support of causal link
9	Statement of adjustment and period thereof
10	Evidence regarding unforeseen developments
11	Confirmation from the DI/consultants that the complete cost data for all the units of the domestic industry manufacturing or selling PUC has been furnished in the petition.
12	Audited financial statements and cost audit reports
13	Statement of critical circumstances if provisional Safeguard Measure is requested

 

The audited accounts must be furnished along with the application for initiation. In case the audited accounts are not available for the latest period then the Profit & Loss Account figures duly signed by the senior company officials (with name, designation and contact number clearly mentioned) should be submitted for the initiation purposes. This is subject to subsequent submission of duly audited/ certified accounts within the stipulated period as per the initiation notification.

 

Even though Annexure-III as applicable to anti-dumping investigations is not specifically applicable to the safeguard investigations, broad costing principles as contained therein may be followed like allocation of expenses and disallowance of expenses. However, optimisation of capacities is generally not resorted to in safeguard cases. A decision may need to be taken on a case-to-case basis.

 

The application should contain satisfactory and sufficient evidence regarding increased imports, serious injury or threat of serious injury to the domestic industry and a causal link between increased imports and serious injury or threat of serious injury to the domestic industry.

 

The prescribed timelines require that initiation decision on the application should be finalised within 90 days from the date of receipt of application.

 

It is necessary that accuracy and adequacy of the evidence provided in the petition be verified before taking decision. The DI verification should preferably be done before initiation so that all issues are resolved before initiation.

 

A time period of eight months has been prescribed under the Rules for completion of safeguards  investigations.

 

Period of Investigation

 

The Act and the Rules as well as the WTO Agreement on Safeguards and Article XIX of the GATT neither define nor provide guidance regarding the period of investigation. However, it is evident that the investigation period should be adequately long and sufficiently recent in time. This will allow reasonable conclusions to be drawn on the basis of various relevant factors such as domestic market conditions, performance of DI etc., as to whether or not the increased imports are indeed causing serious injury or threatening to cause serious injury to the DI and therefore justify the need for imposition of Safeguard Duty. It may be desirable that information should be sought for the most recent period of four years and the details of the source of information must be sought along with copies of the source document, wherever practicable as per the methodology explained in earlier chapters.

 

PUC

 

The principles followed for determination of PUC in AD cases may also be applied for finalization of PUC in safeguard investigations. In fact, the scope of PUC is wider that PUC in AD laws as the SG law covers “directly competitive articles” as well. The issue was also discussed in detail in an investigation dealing with import of Solar Cells.

 

Domestic Industry

 

Domestic Industry has been defined in clause (b) of sub-section (6) of Section 8B of the Act as follows:

 

(b) “Domestic industry” means the producers –

 

as a whole of the like article or a directly competitive article in India; or whose collective output of the like article or a directly competitive article in India constitutes a major share of the total production of the said article in India.

 

As a general practice,the SEZ units are not considered to be eligible as DI. A detailed explanation has been given in the final finding in the safeguards case of Solar Cells and Modules as per the details mentioned in foot note 2 on pre-page.

 

Confidentiality

 

Application and responses are to be submitted in confidential and non- confidential versions, as detailed under Rule 7 of the said Rules read with Trade Notice dated 21.12.2009 issued by Director General (Safeguards) under File No. D-22011/75/2009. Further, the Trade Notice No.10/2018 dated 7th September 2018 may be referred to for detailed guidelines on this issue.

 

Initiation

 

After examination of the application and other evidences, available on records, if it is found that sufficient evidence exists for initiation of investigation, the investigation is initiated by the Authority to further examine the existence of injury to the domestic industry caused by the imports of an article.

 

The notification of initiation of investigation is to be notified in the Gazette and uploaded on the DGTR website. The Notification and application of the domestic industry is to be forwarded to the concerned Administrative Ministry, known exporters of the subject article, the Government of the exporting countries, through their Embassy in India, and other interested parties.

 

Initiation Notification calls upon exporters, foreign producers and the Governments of interested countries to submit information in writing within 40 days from the date of initiation notification as per Trade Notice No. 11/2018 dated 10.09.2018 or within such extended period as may be allowed by the Director General.

 

Any other party who wishes to be considered as an interested party may submit their request within days from the date of initiation notification as per the Trade Notice No. 11/2018 dated 10.09.2018 or as specified by the Director General in the Initiation Notification.

 

Maintenance of Inspection Folder

 

Maintenance of a proper NCV folder is an important part of the investigations from the point of view of principles of natural justice, transparency and due process of law. The folder should contain the application of the DI which forms the basis of the decision by the DG. Copies of the non confidential version of all the responses received from interested parties should be kept in the folder. Copy of NCV of submissions and other communications should also be kept in the folder. A list of all interested parties along with details such as the name of the Counsel, the address for contact, contact person, email id etc. should be maintained and kept in a folder. An inspection index should be created in the folder.

 

The inspection of the folder should be allowed only to the authorized representative of the interested party. Whenever the representative inspects the folder or takes any document, the details thereof should be mentioned along with the signatures and contact details of that representative. The non-confidential version of all the responses and submissions, as well as the communications made during the course of the investigation, should be kept in the folder for inspection by the interested parties and/or their authorized representatives.

 

Post-Initiation: Submission of Documents

 

The applicant DI is required to submit the additional information/ documents, if any during the course of investigations.

 

The team should verify the authenticity of the data submitted by all the interested parties. The process of verification is as detailed in Chapter 8 of this Manual. The need to decide on the requirement of physical verification of the plant and data is to be decided on a case to case basis with the approval of DG.

 

Computation of Injury Margin

 

Article 5 of the Agreement and Rule 12 of Safeguard Rules require that Safeguard duty should not exceed the amount which has been found adequate to prevent or remedy serious injury. However, no guidance is provided under the Safeguard Agreement, Act or Rules regarding the quantification of serious injury.

 

In view thereof, the broad principles followed in anti-dumping cases should preferably be followed in safeguard investigations also.

 

Provisional Finding, Oral Hearings and Final Findings

 

In critical circumstances warranting grant of immediate relief to the domestic industry, the investigation may be conducted expeditiously and a preliminary finding is recorded regarding serious injury or threat of serious injury to the domestic industry. In such cases, provisional Safeguard duty may be imposed for a period not exceeding 200 days. In Safeguard investigations, provisional finding can be issued at any time, after initiation.The proviso to sub-section (2) of section 8B also provides that where the Central Government in its final determination concludes that increased imports have not caused or threatened to cause serious injury to a domestic industry, it shall refund the amount of safeguard duty provisionally collected.

 

Before issue of final finding, an oral hearing is required to be conducted. The notice for Oral Hearing should be given well in advance to all the interested parties. The oral submissions made by the interested parties, including the Domestic Industry during the hearing are required to file written submission of the views presented orally in terms of sub rule (6) of rule 6 of the Custom Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997.

 

The evidence presented by one interested party shall be made available to the other interested parties in order to enable them to file rejoinders.

 

The findings are required to be issued within 8 months from the date of notice of initiation of investigation. The findings deal with determination whether the increased imports of the article under investigation have caused serious injury or threat of serious injury to the domestic industry and that a causal link exists between the increased imports and the said injury. Accordingly, the recommendations are given regarding amount of duty which, if levied, would be adequate to prevent or remedy serious injury or threat of serious injury to the domestic industry.

 

The preliminary/final findings and recommendations are considered by the Standing Board on Safeguards under the chairmanship of Commerce Secretary under Department of Commerce.

 

The views of the Standing Board on Safeguards are then placed before the Finance Minister for approval of levy of Safeguard duty. However, no time period is prescribed for the Department of Revenue to take decision on the recommendations of the Board on Safeguards, unlike in case of anti-dumping investigations, where a period of 90 days has been allowed to Department of Revenue.

 

After approval by the Finance Minister, Department of Revenue may issue a notification imposing a Safeguard duty under Sec 8B of the Act. These duties are applied on all countries without discrimination. However, developing countries as detailed in para 21.48 may need to be considered for exemption.

 

In the event of conclusion of injury, the Authority generally recommends Ad valorem duty i.e. percentage of CIF price of imports/Assessable Value.

 

The second proviso to sub-section (1) of section 8B of the Act, provides that the Central Government may, by notification in the Official Gazette, exempt such quantity of any article as it may specify in the notification, when imported from any country or territory into India, from payment of the whole or part of the safeguard duty leviable thereon. In other words, safeguard duty shall be levied only on the additional quantities over and above such exempt quantities.

 

Article 9 regarding Developing Country Members inter-alia provides that Safeguard measures shall not be applied against a product originating in a developing country Member as long as its share of imports of the product concerned in the importing Member does not exceed 3 per cent, provided that developing country Members with less than 3 per cent import share collectively account for not more than 9 per cent of total imports of the product concerned. Even though World Bank, OECD etc. have different lists, the detailed trade notice indicating names of developing countries as per Indian Customs is placed at Annexure-I.

 

As per provisions of sub-para (4) of section 8B, the duty imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of four years from the date of such imposition. However, if the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the safeguard duty should continue to be imposed, it may extend the period of such imposition subject to a maximum period of ten years from the date on which such duty was first imposed.

 

Unforeseen Developments and Causal Link

 

The WTO Agreement on Safeguards read with Article XIX of GATT obligates the national authorities to examine “unforeseen developments” that led to the increase in imports and the consequent serious injury to the DI3. However, domestic laws/rules do not impose any such obligation on the Authority to analyse the unforeseen developments as a result of which the increased imports have occurred. The legal provisions neither contain any parameters that must be verified to identify the unforeseen developments nor do they specify any methodology that must be followed in the analysis of such unforeseen developments. However, in view of WTO requirements , the Authority has consistently been examining the issue of “unforeseen developments” in its investigations.

 

During the course of investigation,the temporal nature of the increase in imports of the PUC is established leading to serious injury to the DI or threat of such serious injury, which must be unforeseen or unexpected and factual.

 

Causal Link

 

A determination of serious injury cannot be made unless there is objective evidence of the existence of a causal link between increased imports of the product concerned and serious injury. Further, when factors other than increased imports are causing injury to the domestic industry at the same time, such injury must not be attributed to increased imports.

 

The WTO Panel in the case of Korea-Dairy Productsset forth the basic approach for determining “causation”, which inter-alia includes that in its causation assessment, the national authority is obliged to evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry. In addition, if the national authority has identified factors other than increased imports which have caused injury to the Domestic Industry, it shall ensure that any injury caused by such factors is not considered to have been caused by the increased imports. In addition, having analysed the situation of the Domestic Industry, the authority has the obligation not to attribute to the increased imports any injury caused by other factors.

 

The Appellate Body in the US-Safeguard Measures on Wheat Gluten held that the existence of causal link does not mean that increased imports are the sole cause of injury. According to the Appellate Body the language of Article 4.2(b) suggests that the causal link between the increased imports and serious injury may exist, even though other factors are also contributing “at the same time” to the situation of the domestic industry.

 

Adjustment Plan

 

“Adjustment Plan” refers to an action plan which a domestic industry is required to submit, that describes a set of quantified goals, specific plans, and timetables that a concerned industry commits to undertake in order to facilitate positive adjustment of the industry to import competition. One of the core features of the WTO Agreement on Safeguards is emphasis on adjustment by the domestic industry.

 

Reviews of Safeguard Duty

 

Rule 18 of the Safeguard Rules, 1997 provides for the review of Safeguard Duties. Rule 18 reads as under:

 

(1) The Director General shall, from time to time, review the need for continued imposition of the safeguard duty and shall, if he is satisfied on the basis of information received to him that,

 

(i) safeguard duty is necessary to prevent or  remedy  serious  injury and there is evidence that the industry is adjusting positively, it may recommend to the Central Government for the continued imposition of duty;

 

(ii) there is no justification for the continued imposition of such duty; recommend to the central Government for its withdrawal:

 

Provided that where the period of imposition of safeguard duty exceeds three years the Director General shall review the situation not later than the mid-term of such imposition, and, if appropriate, recommend for withdrawal of such safeguard duty or for the increase of the liberalization of duty.

 

(2) Any review initiated under sub-rule (1) shall be concluded within a period not exceeding 8 months from the date of initiation of such review or within such extended period as the Central Government may allow.

 

(3) The provisions of rules 5, 6, 7 and 11 shall mutates mutandis apply in the case of review.

 

A review is conducted to examine whether safeguard duty is necessary to prevent or remedy serious injury and there is evidence that the industry is adjusting positively, however, the recommendation for the withdrawal of duty is made to the Central Government if there is no justification for the continued imposition of such duty.

 

A mid-term review is mandatory where the period of imposition of safeguard duty exceeds three years. In appropriate cases, the DG recommends either for withdrawal or for the increase in the liberalization of the duties levied. However, the Authority has so far not levied duty in any case for the period exceeding three years. The methodology for conducting review investigation, is broadly similar to that of original safeguard investigation.

 

The domestic industry is required to substantiate the application with sufficient evidence showing the need for continuation of Safeguard duties. The Applicant is required to make a case that cessation of Safeguard duty would result in recurrence of injury to the domestic industry. It may further be added that a safeguard measure,unless revoked earlier, cease to have effect on the expiry of four years from the date of its imposition although if the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the safeguard duty should continue to be imposed, it may extend the period of such imposition. In no case the safeguard duty shall continue to be imposed beyond a period of ten years from the date on which such duty was first imposed.

 

Source: Manual Of Operating Practices For Trade Remedy Investigations