Primer on preparing/developing a Safeguard Duty application Proposal.


Dated 04th December 2011

The Safeguard Duty Rules under the  Indian Customs Tariff Act, 1975, prescribes several stages from initiation of the proceedings till the levying of the Safeguard Duty. The stages, are as under:

–                      The preparation and filing of request for imposition of safeguard duty in the format of the Trade Notice prescribed by Director General (Safeguards) vide Rule 5(2) of the Safeguard Duty Rules.

–                      Subject to the “Notice of Initiation” being issued by the Director General (Safeguards) [hereinafter referred to as ‘DG (SGS)’], the preparation and filing of the response vide the questionnaire meant for domestic producers prescribed by the ‘DG (SGS)’. A very crucial activity pertaining to finalizing the response meant for domestic producers would be preparing & finalizing a concrete restructuring plan for the domestic trade and present it as a viable action strategy for making the domestic industry competitive during the period it is accorded the protection of safeguard duty.

* Notice of Initiation is a formal proclamation by the DG (SGS) about its intention to investigate the matter. A copy of the notice of initiation is sent to all the interested parties, which includes the concerned foreign exporter, foreign govt’s, importers and user groups based in India besides the domestic producers. Typically as per law once a notice of initiation is issued, rules requires DG (SGS) to finalize and issue its recommendations within eight months from the date of issue of notice of initiation.

–                       Collection and detailed scrutiny of the responses filed by the interested parties and filing the rejoinder to the same.

–                      Appearances before the DG at Public hearing(s) conducted by him.

–                      Filing of written submissions to the DG post public hearing.

–                      Collection of the written submissions filed by all the interested parties in context to the submissions made by them and preparing rejoinder for the same and making the final submission to the DG (SGS).

If the available data, the preliminary investigation done  shows that there is a surge in imports  from China ,in such a situation there is  an option of moving an application under Section 8B of Customs Tariff Act, 1975 (hereinafter referred to as ‘Act’), or under Section 8C of the ‘Act’ which is a China Specific provision.

However, protection from surge in imports  from all sources is available only under the general safeguard provisions vide Sec. 8B of the ‘Act’.The conditions, which are required to be met in order to succeed in the general safeguard application, are much more stringent vis-à-vis conditionalities laid down for China specific safeguard provisions under Sec.8C of the ‘Act’ and the rules made there under.

For making a formal request for imposition of safeguard duty on the import of  a item ,the requirement of the Trade Notice under Rule 5(2) of the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 (hereinafter referred to as the ‘Rules’) needs to be fulfilled.

Under the said Rule an application has to be supported by:

(a)           an evidence of: –

(i)             surge in  imports, which is recent, significant, sharp and sudden in nature.

(ii)            serious injury or threat of serious injury to the domestic producer;

(iii)           a causal link between imports and the alleged serious injury or the threat of serious injury; and

(b)           a statement on the efforts being taken, or planned to be taken, or both, to make a positive adjustment to meet the  competition posed by imports.

PREPARATION OF THE APPLICATION

In the light of the above said conditionalities, one needs to prepare the application in such a manner so as to establish by concrete evidence  surge in the imports.  Further  there is an implicit need to establish that as a result of this surge, the applicants representing the domestic trade have suffered/ likely to suffer serious injury. Typically serious injury is expressed in terms of:

–        Reduced Production

–           Reduction in capacity utilization

–           Reduced profitability

–           Reduced productivity

–           Loss in employment

–           Reduced Sales

–          Decline in market share

However, the injury parameters need not be restricted to only the aforesaid mentioned conditionalities.

To establish all this, a comprehensive research about the Indian  industry would have to be undertaken to understand its nature, characteristics, extent (in value and volume terms) and peculiarities (in terms of the type of manufacturers, varieties produced, the cost and price structure, bottlenecks being faced etc). This effort would form the cornerstone of moving ahead for preparing an application for safeguards.

 

The preparation of the application would involve going through each minute detail of at least the last three years of all the domestic producers who are a party to this application viz. their installed capacity, capacity utilization, number of employees, price of the raw materials, sale price, balance sheets and other statements of accounts etc.

Apart from establishing a causal link between the increase in imports and the resulting losses to the applicants, the requirement of the ‘Rules’ is that if one seek the imposition of the safeguard duty, one would need to provide details of efforts being taken or planned to be taken or both to make a positive adjustment to import competition, as, the safeguard duty is only a temporary mechanism (which can be invoked for a maximum period of ten years) to allow time to the local industry to come to terms with the global competition by becoming competitive. However, the safeguard duty cannot be imposed for a period of more than four years at a time. So, one has to to prepare a viable restructuring plan for the industry.

In the event of a request being made for the imposition of the provisional safeguard duty under sub-section (2) of section 8B of the Act, one has  to establish the existence of critical circumstances.  In this event  the domestic industry also needs  to establish through clear evidence that imports have taken place in such increased quantities and under such circumstances as to cause or threaten to cause serious injury to the domestic industry and delay in imposition of provisional safeguard duty would cause irreparable damage to the domestic industry.

It is pertinent to mention here that since the foremost requirement of safeguard provision is to protect the Domestic Producers as a whole, therefore, it would be very important to establish that the said application is being moved on behalf of the majority of the Domestic Producers. Thus, one has to move the application on behalf of the majority of the producers/manufacturers of this product so as to represent the interest of the majority of the producers/manufacturers of the product.

It can thus be seen that the task of preparing an application for imposition of safeguard duty is an enormous one and would require substantial time and effort.

INFORMATION NECESSARILY REQUIRED BY THE APPLICANTS FOR THE RELEVANT LAST THREE FINANCIAL& FOR THE CURRENT YEAR ,UP TO THE LATEST QUARTER:                 

  • Name and Address of all known domestic producers, concerned trade associations and user associations.
  • Certified annual statement of accounts complete with balance sheet, Profit & Loss account, all annexures and schedules, Auditors Statement etc. along with form 3 CD Income Tax Audit report as filed.
  • Cost Audit report (In the absence of cost audit report, a detailed cost of production statement product/variety wise based on annual figures clearly identifying all elements of cost)
  • Full description of product (Composition, process of manufacture- complete details) with Custom Tariff and Central Excise Tariff heading.
  • Details of quality certification viz. whether the plant is  ISO-9001, 9002 certified etc.
  • Details of total domestic production.
  • Installed capacity, capacity utilization and fall in capacity utilization on an annualized basis.
  • Any significant idling of production facilities in the industry including data indicating plant closure.
  • Sales volume

–                      Breakup of sales category customer wise with details of price.

–                      Breakup of exports Country wise with price details.

–                      Breakup of imports made by domestic producers with price details

  • Sale price realization product/variety wise.
  • Employment figures.
  • Details of plants, machinery, investments made, additions made during the last three years, further plans of capital investments
  • Source of funds
  • Major raw materials used and their price movements.
  • Details of orders placed by consumers during last 3 years, which could not be executed or was delayed considerably with reasons.
  • Import figures for the last three years pertaining to the relevant tariff heading. This import figure should include details variety wise of the:

–                      Country of origin

–                      Name and address of the exporter (name and address of the concerned trade association in the exporting country)

–                      Price

–                      Name and address of the user groups of the imported tiles.

–                      Name and address of the importers.

BESIDES DGCI&S THER ARE OTHER CREDIBLE SOURCES AS WELL.

  • The domestic producers should also submit information separately or as a whole about any other factors that may be contributing to the injury factors such as competition from alternate products etc.
  • Copy of the anti dumping application moved by the domestic producers, though not directly relevant would be useful in finalization of the safeguard application.
  • The domestic industry SHOULD also propose the nature, duration and extent of the safeguard duty required.

THOUGH THE ARTICLE HAS BEEN WRITTEN IN THE INDIAN CONTEXT THE STEPS ENUNCIATED WOULD BE APPLICABLE IN ALL COUNTRIES WHICH HAS ACCEPTED AND IMPLEMENTED THE WTO AGREEMENT ON SAFEGUARDS.

SOURCE: GOVERNMENT OF INDIA, MINISTRY OF FINANCE
Disclaimer: please refer to official sources before effecting a decision.

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About neeraj prasad

contact me on neeraj001@gmail.com if you wish to have any clarification !!
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