Insights

Author- Shivendu Jaiman, Legal Associate

Consider an industry that faces overcapacity and lack of vertical integration, and consequently low profit margins. The financial position of the industry is extremely fragile, and to compound the issue, it is faced with dumped imports pushing prices even lower. When the industry, aggrieved by such dumping, seeks imposition of an anti-dumping duty against foreign competitors, a question that arises is whether the issue faced by the industry is its own structural weakness or the dumping. In other words, before imposing any duty, the investigating authority would have to examine whether a causal link is established between dumping and injury, as required under WTO law.

The above illustration highlights an issue frequently faced by industries during investigations. When an industry has inherent vulnerabilities such as overcapacity, high fixed costs, or structural inefficiencies, can dumped imports still be found to cause injury to such an industry? Would the structural weakness of the industry eliminate the possibility of proving causation between injury to the domestic industry and dumping in the country?

The Legal Framework

The WTO Anti-Dumping Agreement requires investigating authorities to examine the existence of a causal link between dumped imports and injury. In other words, it must be demonstrated that the domestic industry has suffered injury due to the dumping of the product under consideration into the importing country. The Agreement also requires authorities to consider and investigate all other factors causing injury to the domestic industry and to ensure that they do not attribute injury that stems from other factors to dumped imports.

The non-attribution analysis was included in the Agreement to exclude the effect of injuries caused by external events. However, the requirement is not intended to refuse trade remedial measures to industries, that have been operating consistently in a certain manner over a long period of time, and may face certain disadvantages versus their competitors. Since the existence of injury essentially implies a deterioration in the performance of the industry, it would be illogical to consider that a chronic feature of an industry has suddenly resulted in an inordinate deterioration in performance during a particular period, compared to previous periods. Thus, such a chronic feature does not constitute an “other factor” breaking causal link.

What Counts as “Other Factors”?

“Other factors” involve development or changes in the circumstances that cause injury to the industry, independent of any dumping. The investigating authority must address such other factors and ensure that injury from such factors is not attributed to dumping.

To explain what constitutes an “other factor” which may break causal link, the Agreement provides a non-exhaustive list of examples such as the volume and prices of non-subject imports from countries, contractions in demand or changes in consumption patterns, developments in technology, etc. All these examples describe a change in circumstances affecting the industry or causing injury to the industry. They are all external events that are independent of the internal structure and constitution of the industry. In other words, these are all developments that represent things happening to the industry, rather than being factors intrinsic to the status of the industry. This creates an important distinction and shows why the WTO has maintained that inherent industry features operate differently from “other factors” in a legal sense.

One such example of an “other factor” causing injury to the domestic industry is any development in technology that disrupts the market. For example, LED lighting technology disrupted incandescent lighting markets, thus destroying demand for traditional lightbulbs. Such a factor can break the causal link in anti- dumping investigations. Similarly, if a competitor introduces a new technology that makes the subject merchandise obsolete, this external innovation creates a factor causing independent injury to the industry even in the absence of dumping in the market.

What Does Not Count as “Other Factors”?

It is essential to note that any factor that does not change over the injury period and essentially forms the environment in which the industry, as well as its competitors, are operating, cannot be considered as “other factors” causing injury to the domestic industry. These are factors inherent to the industry.

Inherent features are characteristics that describe the structural state of the industry, such as overcapacity from historical overexpansion, high fixed-cost production structures, etc. This is distinct from “other factors”, which are developments that the industry experiences as external events, or represent changes in the circumstances of the industry. These include sudden surges of imports from countries other than the subject countries, recessions, global shortage of raw materials, etc. These represent events and changes rather than persistent structural states.

The WTO Panel and the Appellate Body that have reviewed causation issues have developed a consistent approach that distinguishes between vulnerability or inherent features from “other factors” which may cause injury to the domestic industry.

For example, in case of petroleum-derivative products, a producer located in the Middle East would have an inherent advantage due to the natural abundance of crude oil in its jurisdiction than a producer in India, thus leading to lower costs on all the derivative downstream products for the former. This situation is one that has existed over an extended period of time, and therefore, all consequences arising out of it are inherent features of the industry. In such a situation, if the domestic industry in India suddenly faces a decline in its performance, such deterioration cannot be attributed to its locational disadvantage compared to the producer in the Middle East.

Jurisprudence on the issue

The principle that inherent features do not break the causal link was most explicitly stated in the case of European Union – Anti-Dumping Measures on Biodiesel from Argentina. The European Union imposed an anti-dumping duty on imports of Biodiesel from Argentina and Indonesia. Argentina challenged the anti-dumping duty imposed and argued that the injury to the Union Industry was due to overcapacity in the European Union and not dumping from Argentina. Argentina claimed that the EU violated the Anti-Dumping Agreement by failing to treat overcapacity as an “other factor” that breaks the causal link.

The WTO Panel examined this argument and concluded that overcapacity was indeed a “known factor”. However, the Panel rejected the argument that overcapacity breaks the causal link by stating that “overcapacity” of the domestic industry is not a “factor other than the dumped imports that may have caused injury to the domestic industry”, in the sense intended by Article 3.5. Rather, it is a characteristic of the domestic industry, that is, the situation in which the industry finds itself. The Panel further observed that the capacity utilisation of the European industry remained roughly constant throughout the investigation period. The Agreement addresses “factors other than the dumped imports which at the same time are injuring the domestic industry” in which the Panel interpreted “at the same time” to contemplate factors that cause injury during the period of investigation. If overcapacity was constant but injury worsened during the investigation, this cannot explain the decline in performance of the industry. Thus, it was established that overcapacity is not an “other factor” breaking the causal link between dumping and injury to the European Industry.

From an Indian context, the principle was affirmed in the case of Nippon Zeon Co. Ltd. V. Designated Authority, wherein the Customs, Excise and Gold (Control) Appellate Tribunal held that “the question of injury to domestic industry cannot be decided by assuming ideal conditions, but has to be decided on prevailing conditions though giving reasonable adjustments”. Thus, the Tribunal held that inherent features cannot be considered to cause injury to the domestic industry, and in case the injury to the domestic industry is due to both imports and such features, the Authority can make reasonable adjustments to conduct a non- attribution analysis.

Thus, the principle that inherent features of an industry do not constitute “other factors” that break the causal link between dumped imports and injury has become well-established. It has been explicitly stated in the EU-Biodiesel case and has been endorsed by investigating authorities in India as well as other jurisdictions across multiple investigations. This allows industries to seek remedies against dumping from other countries, notwithstanding any structural weaknesses that may have previously affected them.