Causal Link Analysis: An Examination

The Indian anti-dumping authorities in recent findings in sunset review investigations concerning imports of Acetone [see end note 1] and Phenol [see end note 2] recommended the discontinuation of the duty as, among other things, factors other than dumped imports from the subject country were found to be responsible for the injury caused to the domestic industry. The Designated Authority’s (DGAD) finding not recommending the continuation of the duty is particularly interesting for the reason that one of the reasons for the termination of the review proceedings was based on the fact that the causal link in the particular investigation was absent. The Indian authorities have very rarely terminated an investigation based on the absence of a causal link perhaps purely for the reason that undertaking a non-attribution analysis is not always direct and easy.

The article explores the difficulties in undertaking a causal link analysis, particularly in light of the lack of guidance in the legal provisions. Further, it examines whether such an examination should also be taken at a time of a sunset review, which on a plain reading of the relevant legal provisions is not required.

The three pillars for imposition of anti-dumping duties

An anti-dumping duty is imposed on a product which is found to be dumped and such imports are causing injury to the domestic industry in the importing country that produces the like product. In simpler terms, the essentials for an anti-dumping duty to be imposed is (a) presence of dumping; (b) material injury to the domestic industry in the importing country that is producing the like product; and (c) a causal link between the dumped imports and injury to the domestic industry. There is considerable amount of guidance in the legal provisions regarding the determination of dumping and injury however the determination of a causal relationship between the dumped imports and injury to the domestic industry has been left open-ended to a certain extent. As a result, member countries have been given the discretion on devising methodologies to undertake a causal link analysis.

Article 3.5 of the AD Agreement

Article 3.5 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“AD Agreement”) governs the undertaking of a causal link analysis and a similar provision is provided in Annexure II(v) of the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 (“Indian AD Rules”). It provides, in relevant part, as under:

The demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports. Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.

The obligation on the authorities, as per the above provision, is to examine whether any other known factors might be responsible for the injury being caused to the domestic industry and an indicative list of factors has been set out in the last sentence. The WTO Appellate Body in US – Hot rolled Steel [see end note 3] noted that the obligation under Article 3.5 of the AD Agreement requires the authority to undertake a two-step approach – first, to examine all “known factors”, other than the dumped imports which are causing injury to the domestic industry; and second, the authority must ensure that the injury being caused by the other identified factors is not attributed to the dumped imports. The difficulty in this two-step approach arises in separating and distinguishing the injurious effects of the other known causal factors from the injurious effects of the dumped imports.

Although segregation and differentiation of the injurious effects of other known factors is theoretically possible, undertaking such an examination practically is not always possible. The Appellate Body in the above dispute accepted that the process of undertaking such an examination is not easy but underscored the fact that the obligation under Article 3.5 of the AD Agreement is mandatory to be undertaken. The AD Agreement is silent on the methodology to be followed for this non-attribution analysis. Therefore, as long as there is an indication that the authority has undertaken such an examination, the obligation under Article 3.5 of the AD Agreement will be satisfied.

Notably, there is a little more guidance in the conduct of safeguards investigation for the manner in which this non-attribution analysis is to be conducted. The Panel and Appellate Body in Argentina – Footwear (EC) [see end note 4] held that in the context of a causation analysis, there should be a relationship between the movements in the imports and the movements in the injury parameters. In other words, the increase in imports should coincide with the decline in the relevant injury parameters. Although the nature of the analysis in a safeguards investigation would differ from an anti-dumping investigation, but guidance on the manner in which such an analysis may be undertaken could be taken from the examination in safeguards investigations.

In most investigations, the authority has restricted its examination to only the factors provided in Annexure II(v) of the Indian AD Rules or Article 3.5 of the AD Agreement. It is only in very few cases that claims of lack of a causal link have resulted in termination of the examination. The two investigations mentioned above therefore could be considered as a rarity.

Recent investigations in India

In reference to the investigations on Acetone and Phenol review proceedings noted above, the domestic industry in both the investigations was the same. In particular, in both investigations, one of the domestic producers had suffered significant product losses while the performance of the other domestic producer did not exhibit any significant deterioration and in fact was performing at full capacity and earning positive profit margins. On an examination of the reasons behind this discrepancy, it was found that the reason for its losses was directly linked to its working capital losses and management issues and therefore it was found that its negative performance could not be linked to imports from the subject countries. On the basis of the same, the authority did not find any causal link between the allegedly dumped imports and the injury being suffered by the domestic industry as a whole.

Notably, a similar situation arose in a safeguards investigation conducted by the Indian authorities last year. In the safeguards investigation concerning imports of cold rolled flat products of stainless steel of 400 series [see end note 5] the authority held that based on an evaluation of the overall position of the domestic industry, it was noted that the factors such as abnormally high depreciation and finance charges were responsible for the losses being suffered by the domestic industry. Therefore, the investigation was terminated based on the fact that the causation analysis in the particular investigation was absent.

Is a causal link examination necessary at the time of a sunset review investigation?

Another issue that arises in regard to the above two anti-dumping findings is whether the authority was obligated to undertake a causal link analysis in a sunset review investigation. In particular, Article 11.3 of the AD Agreement deals with the conduct of sunset reviews and requires the authority to determine whether “the expiry of the duty would be likely to lead to continuance or recurrence of dumping and injury”. On a reading of the provisions therefore, it is clear that a causal link analysis is not mandated at the time of a review.

The Appellate Body in US – Anti-dumping Measures on Oil Country Tubular Goods [see end note 6] examined the anti-dumping mechanism as set forth under Article VI of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”) and the AD Agreement and concluded that authorities are not required to undertake a causal link analysis “anew” in an expiry review investigation. In particular, the Appellate Body held that re-establishing the link is not required as a legal obligation in a sunset review.

In India however, a causal link analysis is undertaken in all sunset reviews in the similar manner that the examination is undertaken in the original investigation. In this respect, the practice by the Indian authorities is an additional factor examined. The Indian authorities undertake a causal link analysis although such an analysis is not required under the investigation. This causal link analysis would in no way be considered WTO-inconsistent as it is merely an extra criteria that needs to be satisfied for the continuation of the duty. While the AD Agreement envisages only the examination of continuation and recurrence of injury and dumping in a sunset review, the Indian authorities in practice examines not only the presence of dumping and injury but also a causal link between the two. Nonetheless, the fact that the above investigations were terminated on account of the break in the causal link in the investigation at the time of a sunset review could be used as a basis for investigations in the future.

Conclusion

In most jurisdictions, termination of an investigation based on the failure to establish a causal link is very rare. A reason for the same could be the difficulty of undertaking such an analysis and further the lack of guidance in the AD agreement.

In regard to India’s practice of undertaking a causal link analysis even in sunset review proceedings, the same is merely an additional step to be satisfied in the investigation. In the above investigation, the result of undertaking a causal link in the review stage would have given the same results had the facts surrounding the other domestic producer remained the same as compared to the original investigation. However, as there was a change in the facts and circumstances, the examination of these factors led to a different conclusion. Therefore, it can be concluded that a causal link analysis undertaken at the time of the sunset review investigation does not prejudice the rights of parties in any manner and is merely an additional factor examined.

[The author is a Senior Associate, International Trade Practice, Lakshmikumaran & Sridharan, Delhi]