INSIGHT: Chemicals anti-dumping cases on the rise

20 January 2009 17:13  [Source: ICIS news]

By John Richardson

Chemicals anti-dumping cases on the riseSINGAPORE (ICIS news)--The number of dumping cases involving chemicals is on the rise and is likely to increase much further, as producers seek to export their way out of inventory problems while those at the receiving end scramble to protect their home markets.

“Exactly the same thing happened in 1997 during the Asian financial crisis,” said Edmund Sim, an expert in trade law and partner with law firm Hunton & Williams' Singapore practice.

“We saw very few cases in 2006-2007 and even into the first half of last year. But over the last three to four months, we have seen an increase in petitions from the chemicals and other industries.”

In the first six months of 2008, a record 44% of the world’s anti-dumping investigations involved China, according to the publishing and consultancy company antidumpingpublishing.com.

India was the top user of anti-dumping measures in 1995-2008, with 520 cases lodged, according to anti-dumpingpublishing.com.

The US was in second place with China in ninth, according to the consultancy.

The top target of investigations was China, with South Korea and the US in second and third places respectively.

Twenty percent of all dumping investigations in the first six months of last year involved chemicals, compared with 11% in 1995-2008, said the service.

Dumping, under international trade law, is defined as when a manufacturer in one country exports a product to another country at a price which is either below the price it charges in its home market or below its cost of production.

Recent anti-dumping activity in chemicals includes India’s decision to extend duties for a further 11 months until October 2009 on melamine imports from China, and the launching of an investigation by the Indian government into dumping claims against carbon black producers from Australia, China, Iran, Malaysia, Russia and Thailand.

India has also launched safeguard investigations into imports of soda ash from China and oxo-alcohol imports from various countries.

Duties are set to be imposed soon by the Indian government against phthalic anhydride shipments from South Korea, Israel, Indonesia and Taiwan.

And in December last year, Sinopec and PetroChina lodged a complaint with the Ministry of Commerce against an unspecified list of South Korean polymers and aromatics producers.

The beauty of a successful anti-dumping petition – the procedure for which begins with a producer or group of producers approaching their government, usually through an industry association – is that duties can remain in place for five years.

Outside the US, it is possible – albeit difficult – to gain an extension. In the US, the renewal procedure is easier, with some duties having been in place for over 30 years, said Sim.

World Trade Organization (WTO) rules do not stipulate any ceiling for the percentage of anti-dumping duties that can be levied – and the duties are always in addition to the prevailing import tariffs.

Victims of successful petitions are able to ask for duties to be lowered or removed within a year to a year and a half after they have been levied. This involves providing documentary and verifiable evidence that their pricing strategy has changed.

Anti-dumping duties can also be contested in law courts of the country where they have been imposed.

The other route for the aggrieved is to take their complaint to the WTO, but the dispute resolution process can take one to two years and is expensive.

And there’s a big catch: even if the WTO rules in your favour, it has no power to force the country that levied the duties to pay them back.

Evidence of the production costs of the company or companies accused of dumping has to be provided.

“This is easy in South Asia, where companies have sophisticated IT accounting systems and produce daily cash-flow analysis,” said Sim.

But it is not the case in China, because statements are compiled once a quarter or, even in some cases, only once a year.

“Measurements of profits are often made intuitively rather than systematically,” said Sim.

China is classified as a “non-market” economy by many trading partners because of the difficulty of assessing production costs due to purported government intervention in the economy.

A petition filed against a Chinese company involves looking at the costs of a similar producer in a market economy with a comparable level of economic development – usually India.

China will be given market-economy status in 2016. This will make it much harder to prove a dumping case against a Chinese company because of the country’s very low costs, said Sim.

Another approach is to apply for countervailing or anti-subsidy duties.

This involves proving that an exporter has used a tax break, free land or another type of investment incentive intended to support domestic business.

China’s VAT rebates on imported chemical and other raw materials that are re-exported as finished goods do not fall into this category.

This hasn’t stopped governments complaining about the rebates' market-distorting effects, because it is hard to predict at what level they will be set.

The rebates, including those for chemicals, chemical fibres and plastics, were reduced in 2007 as part of China's drive to lower dependence on exports while boosting domestic consumption.

But as the economic crisis has worsened, China's rebates have been increased for some products.

The final option is to seek safeguard duties. These only apply for short periods, are levied at countrywide-levels and are designed to give industries breathing space in order to restructure. 

Anti-dumping laws are a minefield for exporters, even in the best of business conditions.

“One of the first things they teach you at business school is to maximise returns on your local sales and export your marginal production at a small profit if possible, or at cost,” said Sim

“But dumping legislation was written by lawyers, not businessmen, so what seems perfectly normal in the business world is not acceptable to the anti-dumping lawyers.”

The huge ramp-up in Middle East capacity taking place this year could lead to Asian companies making dumping and/or countervailing claims against the region.

“Such cases are likely to very hard to prove. One route is to look at the financing for some of these projects,” suggested Sim.

Despite all the complexities and uncertainties, the steady trickle of new dumping petitions that have occurred over the last few months might well turn into a flood.

Further impetus could be given by elections due to take place this year in India and Indonesia. Politicians could face intense and successful lobbying by companies that have good standing and/or employ large numbers of voters.

Chemicals markets have also become virtually impossible to read, making it very difficult to choose the right operating rate.

Stories abound of chemicals producers being forced to sell stocks quickly in order to put complex and highly integrated operations on stream.

And, of course, with cash being crucial, every bit of it is helpful – even if returns from exports are minimal.

The temptation to sell at very competitive prices in overseas markets in order to relieve inventory pressure could remain high.

And, as Asian producers steadily lose overseas market share to the Middle East while China increases its self-sufficiency in chemicals, protecting the proverbial backyards could become a top priority.

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By: John Richardson
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