Antidumping and cartels – Are they interdependent or is it a coincidence?
To begin with, we must first understand what ‘antidumping’ and cartels mean.
What are cartels?
Cartels are usually a union of various companies or bodies that come together to set a price for goods or service for their mutual benefit. Cartels are usually formed in industries which constitute homogenous products so that the consumer demand would not have impact with the price variation. The main objective of cartels is to minimise competition by maximising profits. Cartels are by-products of either an explicit agreement or an implicit collusion.
As there is no substitute to products like onions, sugar, cement, etc. the customers would have no option but to purchase the goods irrespective of how high the prices are. When it comes to reviewing airline companies for cartelisation, the CCI investigated and concluded that the airfare hike does not fall under cartelisation.
Proving cartelisation is yet another task that is crucial and the step that either makes or breaks the case. Thus, there must be a hard evidence to prove cartelisation failing which the commission would not intervene. The commission would relook into a case once it succeeds in getting enough hardcore evidence to prove the presence of a cartel.
The competition law has a provision for what is called as the ‘Leniency Provision’ that empowers a cartel to get away with a very less penalty which otherwise is a grave offense.
What does Dumping and antidumping mean? What role does it play in the International Trade?
Dumping is the term used when goods or articles exported from a country and sold at a lower price as per the Section 9A of the Customs Tariff Act.[1] This is an unfair trade practice that has a huge impact on the trade when viewed from a wider angle that is international trade.
Antidumping is a measure that has been taken by the concerned authorities to rectify and regulate dumping. This would ensure in re-establishing a fair-trade practise. This activity is approved by the World Trade Organisation (WTO) as it provides certain relief to the domestic trade industry due to the consequences faced by dumping.
It is worthwhile noting that dumping implies low priced reports in a relative sense and does not mean that the prices in general too are low.[2]
The WTO plays a pivotal role in anti-dumping
As many countries are members of the WTO, they are bound to adhere to the rules laid out in the GATT i.e. the General Agreements on Tariffs and Trade. Any country member of the WTO must prove that dumping took place to install an anti-dumping a duty by showing that dumping caused a damage in the local industry first. The WTO has a list of three calculations that are to be proved by the nations. They are:
- The actual price in the domestic market of the exporting nation
- The price charged in other nations by the exporter.
- Calculation of the other expenses and profit margins of the exporting country.[3]
The Competition Commission of India (CCI):
This authority plays a crucial role in the anti-dumping process on the nation level that is in India, specifically. The Indian Competition Act 2002 (Competition Act) is the law governing all such trade and business- related practices in India. India has been a host to various cartels as there was no effective authority to taken over this issue until the CCI has been set up.
The said Act broadly regulates the following areas:
- Any kind of anticompetitive agreement including cartels and cartelisation
- Any kind of combinations that may include mergers, acquisitions, etc
Section 3 of this Act illegalises agreements that are anticompetitive in nature including agreements between cartels.
Establishment of cartels can be done when the CCI approves that the companies have entered into a valid agreement with fixed prices. This statutory body also has the authority for search and seizure of documents by conducting raids to establish the existence of a cartel agreement. The CCI works based on reference from the Central and State authorities and thus is an overall watchdog on the happenings in the trade industry of India and its business relations with the other nations.
To initiate a legal proceeding with the CCI, they may be appealed to the National Company Law Appellate Tribunal (NCLAT), and eventually a higher appeal to the Supreme Court of India (SC).
In 2018. The NCLAT squashed the appeal and upheld the decision of the CCI in the famous cement cartel case. In this case the NCLAT investigated evidence like production, price parallelism, etc. to find that the cement manufacturing companies were all a cartel. Thus, the NCLAT concluded that in proving any cartel case in India, the standard of evidence is known as the balance of probabilities.[4]
Penalty:
Section 27 of the Competition Act gives CCI the authority to impose penalties in any illegal cartel cases that have been reported.
The famous Cement Cartel:
An exclusive authority called The Builders Association of India which represents various construction contractors from all over the country had lodged a complaint to the CCI that various companies are entering into false practices like monopolistic and restrictive trade practices to control the prices of the cement in their favour.
The Film Producers Cartel:
The Multiplex Association of India had lodged a complaint against the various authorities concerning the Production and Distributers, Television Producers that they haven taken the shape of a cartel and their behaviour resembled to that of a cartel as they refused to release movies until and unless multiplexed alter the revenue share agreement.
A few Well-known Global Cartels:
Opec: It is known to be one of the best cartels ever formed that it merely impossible to even break as they contain and control the world’s crude oil production and they have the supreme authority to even cut the desired price of its produce.
Vitamins: This is yet another famous cartel in the Europe and the Japanese pharma fraternity which produce products that include Vitamins A-M, beta carotene and carotenoids.[5]
The anti-circumvention ruled introduced in India to prevent Dumping:
- When any good or an article is liable to be protected under the anti-dumping rules has been imported to India it can be in any unfinished form i.e. it can be assembled and given a final look in India itself. In such circumstances the value addition in India must not be any less than 35%.
- When there is any alteration, could be minor, in the form of either its appearance or any such changes, the goods are still held to be circumventing the anti-dumping duty. They could be imported from any other nation and are governed by the Rule 25 (2) for the purpose of levy.
The designated or concerned authority has the power to Suo moto pursue any application pertaining to the domestic industry for carrying out an investigation to find out whether there has been any effect of dumping of goods in the nation.
What is the global scenario?
The Anti-dumping Agreement famously known as the ADA is very much based on the rules issued by India. Countries like the USA, Europe, Australia have a set of guidelines issued to protect the dumping of goods in their respective nations and thus have certain set of anti-dumping guidelines. As per record, there has been no case recorded with the World Trade Organisation. The provisions and the guidelines which enlist the anti-dumping guidelines form the backbone and protect the world trade and nations from the disastrous and unfair trade practice of Dumping.[6]
The famous Cement Cartel case:
In 2008, an association of the construction company contractors named Builders Association of India (BAI) had lodged a complaint that the cement manufacturers association (CMA) had fixed retail prices like that of the BAI. The investigation was carried out by various authorities and was later handed over to CCI.
This case gained a lot of significance in the Competition law sector. All the cement companies reportedly decreased the cement production in their respective units to inflate prices. Cement being a homogenous product thus having no alternative, consumers would be forced to buy irrespective of how high the prices are.
The Competition commission of India being a watch dog in the business and trade sector of the nation has the duty to ensure there is no monopoly. When a company or two which are large fix prices, it leads to domination and result in unfair pricing. The CCI was successful in proving that there was a cartel of 11 cement companies by showing evidence like profit margins of all the companies, their construction activity, etc. This authority i.e. the CCI investigated the supply shortage issue which proved that the cement companies were purposely not running the cement plants efficiently, the plant capacity generally being around 70%.[7]
Haridas Exports v. Float Glass Manufacturers Association:[8]
The Supreme Court in this case said that the Customs Tariff Act, 1975 in which the anti-dumping duties are enlisted. When the case was dismissed, it was argued upon that the anti-dumping duties should be imposed in such a way that the Competition law is at par with the guidelines. The anti-dumping rules that exist in today’s times are known to be anti-competitive in nature and hence this could result in anti-competitive effects, overall.[9]
The Honourable Court held that the MRTP had no extra territorial jurisdiction and both the antidumping law as well as the competition law was analysed.
There is still an ongoing research and debate whether the anti-dumping duty and the competition law are a part of each other or two separate entities. Few say that the anti-dumping duty is a continuation to the law whereas few deny this statement.
Conclusion:
To prove that dumping of goods has taken place and for the anti-dumping duty to be imposed, two ingredients must take place and they must be proved. There must be dumping of goods caused firstly and then an injury must be caused. Only them a claim for relief can be sought for. This was later struck down as the essential conditions are very vast in nature and there are high chances for the power of abuse.
I believe that for any case to be filed in the case of dumping of goods and to invoke the anti-dumping duty, it must follow the provisions given in the Competition Law. This would be step that could ensure that any case would be registered only when there is an actual abuse of power by the companies in the trade market.
‘Dumping’ the Anti-dumping law would be very much effective and when replaced with the provisions of the Competition Law, would make this situation law abiding which would hence ensure justice and fair play in the trade market.
The only authority to look after the disastrous act is in nation level which is the Competition Commission of India. Many states do not have any body of authority to investigate these matters at a state level. I believe that each state must have their own body of authority which would carefully administer the formation of any cartels and investigate the activities of the cartels and their business.
This indeed would ensure a much smooth functioning of the trade and allow transparency and justice to the customers who would not fall prey to the nigh prices fixed by the cartels.
References:
[1] Kluwer Competition Law Blog, Law Blog (July 7, 2020, 12:12 AM) http://competitionlawblog.kluwercompetitionlaw.com/2018/07/02/india-rethinking-anti-dumping-duties-competition-law-perspective/?doing_wp_cron=1594183190.5408709049224853515625#:~:text=In%20Haridas%20Exports%20v.,in%20different%20and%20independent%20fields.
[2] Competition Commission of India, (July 7, 2020, 2:30 PM) https://commerce.gov.in/PageContent.aspx?Id=52
[3] Trade dumping and its sources (July 8, 2020, 1:30 PM) https://www.thebalance.com/what-is-trade-dumping-3305835
[4] India: Cartels, The Asia-Pacific Antitrust Review 2019, (July 8, 2020, 8:30 AM)
https://globalcompetitionreview.com/insight/the-asia-pacific-antitrust-review-2019/1188992/india-cartels
[5]How can CCI tell what is cartelisation, Economic Times (July 7, 2020, 3:42 PM) https://economictimes.indiatimes.com/news/economy/policy/sunday-et-how-can-cci-tell-whats-a-cartelcartelisation/articleshow/14737382.cms?from=mdr
[6] India tightens anti-dumping law, Anti circumvention rules introduced (July 8, 2020, 5:32 AM) https://www.lakshmisri.com/newsroom/archives/India-tightens-anti-dumping-law-Anti-circumvention-rules-introduced#
[7] What is cement cartelisation issue all about, NDTV (July 7, 2020, 6:21 PM) https://www.ndtv.com/business/what-is-cement-cartelisation-issue-all-about-306552
[8] Antidumping law and competition law, Mondaq (July 8, 2020, 7:21 AM) https://www.mondaq.com/india/antitrust-eu-competition-/782654/anti-dumping-law-and-competition-law-a-case-of-intersecting-lines
[9] Antidumping, CCI, (July 7, 2020, 2:21 PM) https://www.cci.gov.in/sites/default/files/Antidumping_20090420151657.pdf
Author:
Y. Keerthana Reddy, Legal Intern (July 2020)
Keerthana is an enthusiastic future lawyer and a humanitarian. She is a second year student at Amity Law School, Noida pursuing BBA LLB Hons. with an aim of getting an LLM degree from Cambridge. She says that she would love to take up flashy and media attention drawing cases but her top most priority, on any given day, would be to help people around her who haven’t been given a fair chance in the society. Her last internship at a legal firm has taught her the importance of advocating for clients against all odds.
She has a special interest in Law of Torts, Cyber Law, International Human Rights Law, Forensic Law, Copyright Law. This is not an exhaustive list and she being an inquisitive and a vivid leaner would like to read and learn on all aspects of law.
