On December 18th, 2002, the European Union issued a notice, in it’s official journal, of initiation of anti-dumping proceedings concerning imports of cotton-type bed-linen originating in Pakistan.
This was due to a complaint lodged by the Committee of the Cotton and Allied Textile Industries of the EU (Eurocoton). The Pakistani exporters are supposed to make their point of view known to the EU and send their defence by 27th January 2003.
Did it catch our exporters by surprise and are they clear what they are supposed to do? It is hoped that they know the strength and weakness of dealing with the case successfully. This article is aimed at informing the exporters of the issues involved in defending their case.
Some exporters and the Pakistan Embassy, Brussels, have been crying “wolf” for a long time. The fact is they have been talking of “rumours” floating in EU, since March.The Eurocoton did not file any complaint when they were talking of these rumours; when Eurocoton actually filed the complaint, they were taken by surprise. Exporters were however “voluntarily” subjected to undergo minimum export price (MEP) restrictions since July 2002 based on the assumptions that these would avert the Eurocoton’s complaint. However, these calculations failed as the period of investigation—October 2001 to September 2002—includes the MEP regime. On its part, the Export Promotion Bureau held several meetings post 18th December with the exporters but most exporters have yet not seen the complaint of Eurocoton.
The exporters are thus in the dark about what exactly is the Eurocoton’s case, what constitute the “normal” accepted price below which margins would apply, what is provisional and definitive likely margins and the difference between the two; what are the advantage and disadvantages of “cooperating” with the EU, should they accept the national level or go for individual margins? What are their rights under the WTO or EU’s own laws? What are the loopholes in the EU’s notifications that can be challenged? How will constructed cost be calculated and what is the implication of their accounting record.
It is hoped that this article will address some of the issues and may prove beneficial to the exporters. (It is mentioned at the outset that provisions of agreement referred to in this article are based on the WTO agreement which is also mandated in the EU’s own basic regulations and the EU’s obligations under its basic regulation requires more, it would be mentioned. The agreement is inferred to refer to EU and/or Pakistan as the case may be with particular reference to EU’s notification of 18th December 2002.)
While the EU’s notice is for cotton-type bed-linen, in the notice it includes the MMF and other textile material bed-linen as well. It asserts that producers representing more than 25 per cent of EU Community production of cotton-type bed-linen have complained. It is noteworthy that since more than 50 per cent have not complained, the EU cannot notify that the complaint was received by or on behalf of “domestic industry. “
The allegation of dumping on Pakistan is based on a comparison of a constructed normal value.Under the WTO’s agreement on implementation of Article VI of GATT 1994, which is the international agreement on anti-dumping measures and the base for EU’s Basic Regulation, from where it draws this power, by virtue of Article 2.2.1.1, the EU is bound to calculate costs on the basis of records kept by the exporters or producers under investigation if kept under accepted accounting principles of Pakistan. On this basis, normal price can be worked out.
Only when there is no export price or it is unreliable due to fraudulent arrangements with importers/third parties, the export price can be constructed.Are our exporters willing to accept the constructed price formula without a fight? It is worth recalling here that India successfully defended itself in the WTO against EU’s constructed cost formula in the last anti-dumping allegations against it. Other countries also benefited as EU withdrew the A/D margins against Egypt and Pakistan.
Under Article 2, the EU is bound to compare normal export price with domestic sale price and if the export price is less, this is margin of “dumping”, subject to 2.2.1.1. Only if our sales price in the domestic market is higher, we should accept the constructed value otherwise we may ask EU to take the normal price formula based on exporters’ record.
The EU’s notification has not given any brief summary of the facts leading to their acceptance of the complaint. This is mandated by the WTO agreement and the EU’s own basic regulations. Under article 5.5 , the EU is allowed not to publish any application for initiation of the investigation , till it decides to initiate the investigations. Then it is bound to notify the government of Pakistan. Has the Pakistan Embassy received it? Has it been passed on to the exporters? It is the understanding of the writer that the exporters have not received such application yet.
Both under the WTO and EU’s rule, not only the government but the producer/exporters have a right to see this application and challenge the evidences and allegations. This is fully mandated by Article 6 that all interested parties shall be provided timely opportunities to see all non-confidential information that is relevant to the presentation of their case.
In fact, Article 6.1.3 mandates that as soon as the investigation has been initiated, the EU shall provide the full text of the written application of Eurocoton to the known exporters of Pakistan and the government of Pakistan.The first thing they and the Export Promotion Bureau should do, besides making themselves “known” to the EU as interested parties requiring the questionnaire is to ask for this application and counter these allegations.
The EU’s notification very cleverly chose the words to the effect that Eurocoton have “provided evidence” that Pakistan’s export of bed-linen to EU has increased and “alleged” that this has “resulted in substantial adverse effects on the overall performance”. The EU’s notice violated Article 12 by not providing a summary of the factors on which the allegation of injury has been based and neither did it provide the basis on which the allegation of injury is based. Vague words like performance, loss of employment, etc, are not the spirit of this article. Article 3.4 clearly lays down the minimum information that should have been provided to justify injury. Eurocoton’s analysis on these factual criterion of injury and EU’s interpretation of these claims must be examined and challenged by Pakistan.
Moreover, Article 3.7 requires that determination of injury shall be based on facts and not allegations. The EU while determining possibility of injury is bound to consider, inter alia:
A significant rate of increase in dumped imports into EU indicating the likelihood of substantially increased importation.
Can our defence be based on this article alone?. There is no question of increased exports from Pakistan, as bed-linen is under quota restraint. The 2002 marginal export increment was not due to dumping but due to 15 per cent quota enhancement granted by the EU itself. The EU itself also gave duty-free access to Pakistan’s bed-linen due to Pakistan’s effective combat against the menace of drugs under it’s own GSP rules. Thus the increment is due to EU’s blessings, rather than dumping by our exporters. But further increase in export, despite the “blessings” are constrained due to quota restrictions.
In addition, the EU also has to establish that Pakistan has sufficient free capacity to increase exports. Pakistan can prove that it does not have any “free” capacity as it is busy producing bed-linen for other destinations too.
Pakistan can challenge these issues in an independent EU as article 13 mandates that the EU will have judicial, arbitral or administrative tribunals or procedures, inter alia, for the prompt review of administrative actions relating to final determination, which shall be independent of the administration under the notice on 18th December. It is the right of all interested parties , be it government, exporter, producer to ask for all non-confidential information and basis of calculations presented to EU by Eurocoton, producers, importers, retailers and EU’s consumer groups. All of these should be asked for.
In addition to these independent judicial challenges, Pakistani exporters should provide data in their favour to the EU as per the EU’s notification and also challenge the EU’s notice in the WTO on several grounds including (a) the constructed value basis, (b) faulty and incomplete notification, (c) no threat of increased exports due to quota and no idle capacity, (d) initiating a new investigation within 10 months of the termination of last anti-dumping for which Pakistan has not claimed any compensation for the wrong charges of A/D for the last 5 years and (e) including the period of October 2001 to February 2002 in the new investigation when Pakistan bed-linen was subjected to A/D during that period.
The A/D margin is not generally country-specific rather it is exporter-specific. Article 6.10 mandates that as a rule, the EU will determine an individual margin of dumping for each of the Pakistani exporters, except where it is determined that the number of exporters is large enough to do sampling. The EU has decided to do sampling. Art 6.10.1 mandates that any selection of exporters, producers, etc, shall preferably be chosen in consultation with, and with the consent of, the exporter etc concerned.
The EU is required to help, particularly the small exporters, in preparing the questionnaire. The EU notice asks interested parties to send relevant information as asked in its notice if they are interested to fill in the questionnaire that the EU was to send for sampling by 2nd January 2003. By 9th Jan, the EU was to consult them for their consent to be part of the sampling. They may send their point of views filled questionnaire and request for hearing by 27th Jan 2003 if they are interested. After being informed of inclusion in sampling, they must send the questionnaire within 37 days of being informed of inclusion in the sampling. The first day is assumed to start from the day the EU mails the questionnaire or hands it over to our Embassy in Brussels.
If in their favour, Pakistani exporters may analyse the EU’s import of bed-linen of similar quality from other countries and compare the average unit price. Pakistani exporters may also send details of unit price of exports to other countries if it goes in their favour. There is a difference between dumping and inefficient cost of production of the EU producers, Pakistani exporters cannot be punished for the EU’s inefficiency in producing bed-linen. What is important to understand is that the EU will need to prove 2 things: (a) that there is dumping and (b) there is injury to the EU. Even if there is dumping but no injury A/D duties can not be imposed. If injury is less than A/D, then duties reflecting lower injury will apply.
In worst case scenario, provisional A/D duties can be levied but not before 60 days and not later than 9 months from initiation of proceedings. Provisional duties may be imposed for 6 months or if significant percentage of exporters have no objection can be extended for 3 months or imposed for 9 months. The investigation must end within 15 months. Provisional duties shall be secured by a guarantee. The EU can also after fulfilling certain conditions, determine the percentage of provisional duty can be definitively collected. However, if the definitive duties are announced and are higher than the provisional duty, the differential can not be collected.If the definitive duty is lower, the duty shall be recalculated. The definitive duty may be levied not more than 90 days to the date of application of provisional duty but under no circumstances prior to the initiation of the investigation.
Article 8 refers to suspension or termination of A/D duties upon receipt of price undertakings given by manufacturers/exporters. This is premature to consider at this moment. However the exporter must keep in mind the EU is bound to inform them of reasons for rejection. Similarly if any information or evidence provided by the exporter is rejected by the EU, it is bound to inform the exporters of the reasons for rejection. In conclusion, Pakistani exporters have a good chance of fighting the case. They, through their associations, must hire good lawyers to represent them in the EU and the EU’s independent judiciary for review and in WTO. The exporters through their associations must also hire local lawyers and accounting firms to help fill the questionnaires and send their point of views. They would need good accountants/tax lawyers to prepare a right book to counter “their number 2” book they may be used to with the objective of declaring lower income tax by declaring higher cost of production and lower profits. This is one example where depriving the government of Pakistan of taxes may lead to their own loss.
Despite all the odds, they have a good chance of winning, Good luck to all the Pakistani exporters.