SC Directs Govt To Impose Anti-Dumping Duty on Imports of Low Density Polyethylene

A division bench of the Supreme Court comprising Justices Krishna Murari and Sanjay Karol, on Thursday, April 13, granted an interim order directing the Union government to impose a provisional Anti Dumping Duty (ADD) on imports of low-density polyethylene (LDPE) from foreign countries. The bench issued the order despite the additional solicitor general Vikramjeet Banerjee’s vehement opposition. 

The petitioner, the Chemical and Petrochemical Manufacturer Association (CPMA), sought the order in view of the Union government’s failure to impose ADD despite the final determination of significant dumping and consequent material injury to the Indian industry by the Designated Authority of the Directorate General of Trade Remedies (DGTR) of the Department of Commerce of the Union Ministry of Commerce and Industry last year. 

The bench also took note of the fact that interim orders granted by various high courts in such matters directing provisional assessment have not been implemented by the government – despite the apex court confirmation of such orders by dismissing the government’s challenge. 

The bench, therefore, directed the imposition of ADD under Section 9A (2) of the Customs Tariff Act, 1975 at the rate determined by the DGTR in its Final Finding, issued through a gazette notification on March 31, 2022. The bench made it clear that the levy of such ADD shall be subject to final adjudication in these proceedings.

Background

Dumping occurs when goods are exported by one country to another at a price lower than their normal value. This is an unfair trade practice which can have a distortive effect on international trade. Anti-dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of ADD is to rectify the distortive effect of dumping and re-establish fair trade. The use of anti-dumping measures as an instrument of fair competition is permitted by the WTO. In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.

CPMA is the apex forum representing the chemical and petrochemical industry. Established in 1993, it offers its members a podium to collectively present their ideas, voice their concerns and offer suggestions on industry issues. The Association is a Steering Committee member of the Asia Petrochemical Industry Conference (APIC). APIC also has associations from Singapore, Japan, Malaysia, Taiwan, Thailand, South Korea and India. CPMA had taken the lead to set up and promote the Indian Centre for Plastics in the Environment (ICPE) to deal with all environmental issues connected with the usage of plastics for its sustained growth. 

On June 6, 2022, the Union Government decided not to accept the recommendations to impose ADD on the import of LDPE. India was initially planning to impose ADDs ranging from $17.05/tonne to $216.76/tonne on LDPE imports from Saudi Arabia, Thailand, Singapore and the US.

An investigation into LDPE dumping from these four countries and two others was started by the DGTR in October 2020 following a complaint from the CPMA. Subsequently, it decided to terminate the probe into allegations against UAE and Qatar. The Ambani conglomerate, Reliance Industries Ltd, is the sole producer of LDPE in India. 

On March 31, 2022, the DGTR published its Final Findings with regard to anti-dumping investigations concerning imports of LDPE from Qatar, Saudi Arabia, Singapore, Thailand, the UAE and the US.  

The investigation was initiated by the DGTR under the Customs Tariff Act, 1975 and the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995, as amended from time to time.

The Designated Authority (DA) under the DGTR, on the basis of a duly substantiated application filed with sufficient prima facie evidence submitted by Reliance Industries, which is a CPMA member and a producer of the product, initiated the investigation in accordance with Section 9A of the Act read with Rule 5 of the Rules to determine the existence, degree and effect of the alleged dumping of the subject goods originating in or exported from the subject countries, and to recommend the amount of anti-dumping duty, which if levied, would be adequate to remove the alleged injury to the domestic industry. 

Polyethylene is a thermoplastic made by the polymerisation of monomer ethylene. LDPE is a type of polyethylene, having a density range of 0.910-0.935 grams per cubic centimetre and is often referred to as the “branched” polyethylene. It is used in applications requiring clarity, inertness, processing ease, sealability, moisture barriers, and good electrical properties. It is also used for producing trash bags, carrier bags, heavy-duty bags, agricultural films, automatic packaging films and bags for food and sanitary articles, frozen food packaging, shrink and stretch hood film, surface protection film, lamination film, bubble wrap, adhesive tape backing films, foam for the manufacture of mattresses etc. 

The DA recognised that the imposition of the anti-dumping duties might affect the price levels of the product in India. However, the fair competition in the Indian market will not be reduced by imposition of the anti-dumping measures, it found. On the contrary, the imposition of anti-dumping measures would remove the unfair advantages gained by the dumping practices, prevent the decline in the performance of the domestic industry and help maintain the availability of a wider choice to the consumers of the subject goods, it had concluded. 

The purpose of the anti-dumping duties, in general, is to eliminate injury caused to the domestic industry by the unfair trade practices of dumping so as to re-establish a situation of open and fair competition in the Indian market, which is in the general interest of the country. The imposition of the anti-dumping duties, therefore, would not affect the availability of the product to the consumers. The DA noted that the imposition of the anti-dumping measures would not restrict the imports from the subject countries in any way and, therefore, would not affect the availability of the product under consideration to the consumers.

The other interested parties made the following submissions to the DA with regard to public interest:

1. As the applicant (Reliance Industries) is the sole producer of LDPE in India, there is the likelihood that it will dominate the market and create barriers to market entry which will hamper the competitive environment in India.
2. In the recent past, there has been an unprecedented increase in the price of LDPE resulting in a loss of business proposition for small-scale downstream manufacturers. The applicant is already dominating the market by inflating the price of LDPE frequently. 
3. There is a demand-supply gap in the country, as the demand in India is 1100KT, whereas the supply is 600KT. The imposition of anti-dumping duty will stop all imports and result in a monopoly of Reliance in India.
4. the coronavirus pandemic has already impacted the world, including India, adversely and the imposition of duty will further aggravate the situation in terms of loss of livelihood, reduction in export of downstream goods, market asymmetry, undue protection to domestic industry making bumper profits, adverse effect on small end users, demand-supply gap. 
5. The imposition of anti-dumping duty will be contrary to the policy of the Government of India and budget 2020-21 on the protection of the MSME sector post COVID-19. MSMEs are struggling to survive at present. The unemployment rate in India is at its highest and the MSME sector is the main employment generator. 
6. There are thousands of end users in India who are mostly in the MSME sector and the cost of LDPE in their final production is 60-70% of the total cost. The imposition of anti-dumping duty will adversely affect the economies of these end users. 
7. The purpose of anti-dumping duty is to protect the fair international trade order. It should not be used to protect the industry. 
8. The imposition of ADD will make the finished goods manufactured by small-scale industries expensive and uncompetitive. It will lead to an increase in the price of basic commodity materials packed in the films manufactured by using LDPE as a raw material.
9. An increase in prices of downstream products will reduce the consumer preference for such products. This will cause competitive asymmetry in the Indian market. 
10. Imposition of duty will lead to a reduction in the export of finished downstream goods, demand-supply gap in downstream products and wastage of food due to the unavailability of good packaging material. 
11. Imposition of duty will result in protection to only one company, that is Reliance Industries.
12. LDPE is imported in India as supplies by Reliance are erratic and cannot feed the continuous process of the packaging industry, quality of imported products is better for using on high-speed blown films and extrusion coating machines and all grades of LDPE are not produced by Reliance. 
13. Reliance cannot meet the demand in India as there is a waiting period of 15 days to 1 month for the supply of LDPE.
14. The value chain of raw materials in LDPE is completely inverted as there is only one producer and supplier of LDPE in India. The imposition of ADD on LDPE will make the downstream users uncompetitive in the international market. 
15. Reliance has been misusing trade remedy measures as it has applied for various trade remedial investigations on many of its products. 

It is not clear whether the government, while not accepting the recommendation of the DA, favoured the submissions of the other interested parties, as the decision of the government was without any reasoning. 

Submissions by the domestic industry to the DA were, broadly, as follows: 

1. The users will not be affected by the imposition of ADD as the user industry is a pass-through industry which is evident from the fact that the prices of the subject goods were higher in 2017-18 but the operations of users did not become unviable and the demand increased. In any case, the impact of duties on the end product will be negligible.  
2. As the product under consideration forms a very small part of the price of the eventual product, the impact on the final product to the consumer would be negligible.  
3. The imposition of ADD will encourage further investment in the product. The subject goods can be imported from other countries such as the EU, Japan and China. The imposition of anti-dumping duty does not ban imports but only ensures that they are available at un-dumped prices. 
4. Dumping should not be allowed even when there is a single producer. If the investments made by the sole producer in India become unviable, it will close down its operations with regard to the product under consideration and India will become totally reliant on imports. It will also discourage further investment in the product, which will lead to the widening of the demand-supply gap. 
5. If the investments in LDPE become unviable, the investment in the upstream product, ethylene will become unviable as well. 
6. Reliance Industries can cater to 87% of the demand in India based on its current production and the remaining demand can be fulfilled by imports from other countries, which currently cater to 10.5% of the demand.  

DA’s findings:

The DA noted that the demand-supply gap is not a justification for dumping in India. Even if there is a demand-supply gap in the country, it is necessary that the product is available at fair prices. 

While there is a demand-supply gap in the country, the imports at present far exceed such a gap. The product under consideration can also be imported from other countries, such as Qatar, UAE, Belgium and the Netherlands. The volume of imports historically made from these countries was sufficient to address the demand-supply gap. The imports from other countries have declined only because of increased imports at cheaper prices from the subject countries. In the event of the imposition of the duty, users can continue to source the subject goods from other countries. The price of imports from the rest of the world is higher than the price of imports from the subject countries. Further, the import price of the subject goods from the rest of the world is higher than the selling price of the domestic industry, the DA noted in its Final Findings. 

The DA gave a clean chit to Reliance Industries saying it has been catering to a large share of the market and has been using its plant at high-capacity utilisation. This would not have been possible if the subject goods produced by the applicant were of inferior quality. Reliance also piled up inventories, and a delay in delivery is unlikely, it said. It takes only 24 hours for delivery of 90% of the orders, whereas the transit time for imports is between 45-60 days for the Middle East, and 70 days for the US, the DA highlighted.

Reliance claimed that it produces 75 products, of which duties are in force against very few. The DA noted that the number of products on which duty had been sought could not be a consideration for the decision concerning the imposition of duty. A duty would be imposed only if the Authority finds that there is dumping, injury and causal link. Therefore, any duty that has been imposed on any of the products produced and supplied by Reliance is only after due examination of the relevant factors, and having regard to the merits of the case, the DA clarified. 

The DA found that imports from Qatar and UAE into India are not dumped imports. Rule 14(c) of the  Rules requires that the Authority shall terminate an investigation immediately if it determines that the margin of dumping is less than 2% of the export price. Thus, it terminated the investigation against exports of subject goods from UAE and Qatar. Accordingly, the subject countries are the US, Saudi Arabia, Singapore, and Thailand only.  

The Authority found that the imports of the subject goods from the subject countries are undercutting the prices of domestic industry. The domestic industry has maintained its market share by lowering its selling price to match with the dumped imports. Imports entered the market at prices below the prices of the domestic industry. The price of imports has declined, despite an increase in the price of ethylene.  The Authority found that while the domestic industry has not suffered an injury in terms of its volume parameters, the imports have adversely affected the profitability of the domestic industry. Thus, the domestic industry has suffered material injury, it said. 

The Authority found that the information on record shows that non-imposition of ADD will adversely impact indigenous production, while the imposition of ADD will not materially impact the consumers or the downstream industry or the public at large. 

Having regard to the lesser duty rule followed by the Authority, it recommended the imposition of ADD equal to the lesser of the margin of dumping and the margin of injury so as to remove the injury to the domestic industry. Accordingly, the Authority recommended imposition of the ADD on the imports of the subject goods, originating in or exported from the subject countries, for a period of five years from the date of the notification to be issued in this regard by the Union government. 

In an Office Memorandum issued on June 6, 2022, the Under Secretary (Tax Research Unit-1) of the Ministry of Finance Department of Revenue, referred to the Final Findings dated March 31, 2022, and decided not to accept the recommendations of the DA, without giving reasons. 

On January 4, the New Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) reiterated that the decision taken by the Union government to not impose ADD under Section 9A of the Customs Tariff Act, 1975 is quasi-judicial in nature and not legislative, and thus, the requirement of a reasoned order must be complied with. CESTAT struck down the Office Memorandum, remitting the matter back to the Union government for taking a fresh decision on the recommendation made by the DA.   

The appellant, CPMA, submitted before the tribunal that the office memorandum communicating the decision of the Union government to not impose ADD, despite a recommendation having been made by the DA, was arbitrary and violated the principles of natural justice. 

The government argued that the appeal was not maintainable under Section 9C of the Act. It contended that the government’s power to impose ADD under Section 9A of the Act read with Rule 19 of the Rules is legislative in nature, and thus, the principles of natural justice are not required to be complied with, nor is a reasoned order required to be passed. 

The CESTAT relied on its decision in M/s Apcotex Industries Limited vs Union of India (2022), in which it held that even if it was assumed that the Union government exercised legislative powers when it takes a decision not to impose ADD, it would still be a piece of conditional legislation and thus, the principles of natural justice and the requirement of a reasoned order would have to be complied with.