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Anti-dumping is a very distinct area that can have a significant impact, completely upsetting the world’s macro-economy, thereby affecting the jobs and lives of millions, even billions of people. However, despite such an important influence, specific information on anti-dumping and its impact on life is still relatively vague in Vietnam. In the article below, ASL LAW law firm will provide the basic information one needs to know about the field of anti-dumping in Vietnam and the world.
The dumping behavior of a business in the market of a country will have a great influence on the economy of that country, thereby indirectly and directly affecting the jobs of employees and their lives.
According to the WTO, damage caused by dumping can be:
- Physical damage to domestic industrial production;
- The risk of causing material loss or disrupting the operation of a similar industry in the country.
Basically, determining damage from dumping in particular and law violations, in general, is a very difficult thing because the damage in the past up to the time of determination, although hard but possible to calculate, however, the impact in the future, on the reputation of the business, the country, etc., both tangible and intangible, is difficult to measure.
Thereby, in order to completely avoid this stage as well as the unpredictable effects of dumping, and market segmentation, WTO and countries around the world have jointly issued anti-dumping rules in order to stabilize the world market, detailed in Article VI of the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Implementation of Article VI of GATT 1994 – also known as the Anti-Dumping Agreement (ADA), Subsidy and Countervailing Measures Agreement (SCMA).
General definition related to anti-dumping and anti-subsidy activities
Anti-dumping is basically measures taken to ‘prevent the dumping’ of businesses in other countries into the market of a certain country or territory.
The act of dumping and subsidizing is considered an unfair trade by distorting competition by dumping and/or selling subsidized goods in foreign markets, causing damage to the importing country’s economy.
According to the WTO, “dumping” is defined as where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.
Thereby, the export price < the domestic selling price at a certain scale will cause the domestic market price to be disturbed, and businesses, as well as the people, will be heavily affected.
Subsidies are understood as any financial support from the State or a public organization (central or local) that benefits an enterprise/manufacturing industry through:
(i) Direct support by cash transfer (e.g. funding, lending, share contribution) or promised transfer (guarantee for loans);
(ii) Exempt or waive revenues that should be paid (eg tax incentives, credits);
(iii) Purchase goods, provide services or goods (except for general technical infrastructure);
(iv) Pay a donor or assign a private entity to carry out the activities (i), (ii), (iii) above in the same way as the Government.
To combat the above subsidies, importing countries need to apply anti-subsidy measures (also known as countervailing measures) against goods imported from a certain country when there are suspicions that the goods are subsidized and cause material damage/threat to the industry producing the same product in the importing country.
Basically, an anti-dumping/anti-subsidy measure is a measure applied to an imported product when the imported product is dumped and/or receives a subsidy from the Government of the exporting country and causes damage or threatens to cause material damage to the domestic industry of the importing country and is intended to protect the domestic industry of the importing country.
Dumping and subsidies are not prohibited under WTO rules and are only imposed if they cause damage to the importing country’s manufacturing industry. This regulation is issued/or ‘not issued’ by the WTO to prevent countries from abusing the application of anti-dumping and anti-subsidy measures.
Anti-dumping and anti-subsidy measures can be applied in the form of anti-dumping and anti-subsidy duty or commitment.
Acts of evading anti-dumping and anti-subsidy measures
When being subject to anti-dumping duty, exporting enterprises of those countries may perform acts of evading anti-dumping and anti-subsidy measures.
Basically, the act of evading anti-dumping and anti-subsidy measures can be understood as the act of avoiding and/or evading the anti-dumping and/or anti-subsidy measures, expressed primarily through the anti-dumping/anti-subsidy duties.
Duty evasion can be done by businesses in many different forms.
The most basic measure is to transfer all or part of the production process of that product from the country being subject to anti-dumping/anti-subsidy duty (exporting country) to other markets besides the domestic market of the exporting country (Countries not subject to anti-dumping/anti-subsidy duties).
In general, the classification of avoidant behavior can be divided into simple circumvention measures and complex circumvention measures. These two divisions are applied based on the sophisticated nature of a case, as shown by the size of the case and the evasion methods used.
Simple circumvention refers to simple methods used by exporters/manufacturers to evade duties, such as transshipment, false customs declarations, and other forms of fraud.
Complicated avoidance includes minor modifications, evasion through third countries, later product development, price changes of different types of products, etc.
Simple circumvention
Simple circumvention measures include:
(i) Transshipment: used to evade anti-dumping/anti-subsidy duties simply by transferring the like product that is subject to anti-dumping/anti-subsidy duty or under investigation to another third country to apply the rules of origin and take the origin of this third country.
(ii) False customs declarations and other fraudulent methods: including a variety of evasive acts such as the false declaration of origin of goods, false product descriptions (false customs and value of goods), and other fraudulent methods to pay less or no anti-dumping/anti-subsidy duty also fall into this category.
Complex circumvention
Usually, although it is more complicated, laborious, and costly, producers/exporters who want to practice circumvention tend to choose this method because this behavior gives better results and makes it more difficult for the authorities to detect or identify anti-circumvention of price/anti-subsidy measures.
Complex circumvention measures include:
(i) Upstream (input products): exporters/foreign manufacturers build processing and assembly plants in importing countries (countries imposing anti-dumping/anti-subsidy duties) and transport components of the product (which are not subject to anti-dumping/anti-subsidy duties) to the importing country after an anti-dumping/anti-subsidy duty order is issued or after the period when the product is subject to anti-dumping/anti-subsidy investigation. The product is then assembled in the importing country and thus anti-dumping/anti-subsidy duties can be evaded since the final product can be considered to have been manufactured in the importing country.
(ii) Side stream: This method mainly includes two types:
(a) minor/insignificant change (slight/minor alteration/modification) to the original product’s appearance, shape, or packaging. Specifically, this method is when a foreign exporter/manufacturer makes minor changes to the shape, appearance, or packaging of the product for the purpose of evading anti-dumping/anti-subsidy duty after a duty order is issued on the product. Initially, the (suspected) new product is called the modified product and the behavior associated with this change is called the minor change.
(b) in relation to a new generation product, a new version (developed after the original dutied product), is a product with minor design changes or with some additional features and attributes. An important factor that exporters/manufacturers consider when undertaking this practice is to give this new product a different appearance (after the imposition of duty) so that this ‘new’ product does not fall under the subject of anti-dumping/anti-subsidy duty and thereby avoid the duties.
(iii) Downstream: occurs when a foreign exporter/manufacturer adds one or several important components that are currently subject to anti-dumping duties/countervailing duty on a product not subject to the duties.
(iv) Third-country circumvention: This method is done by changing the exporting country instead of changing the product. Businesses do this because according to the provisions of the anti-dumping/anti-subsidy law, the goods will not be subject to the current anti-dumping/anti-subsidy duty if it is from another third country that is not the country being dutied.
(v) Avoidance through the system of multinational companies (Country hopping): This behavior is considered a form of development from evasion through a third country, usually occurring in the case when anti-dumping duty/anti-subsidy is imposed, the exporter/manufacturer then transfers the assembly operations through its network of multinational companies. As a result, these assembly facilities are moved from the country subject to anti-dumping/anti-subsidy duties to a third country. In this third country, the exporter/manufacturer manufactures the products.
(vi) Repeat corporate offender (often with short-lived products): This behavior involves some companies that produce multiple products that take advantage of the production of multiple product categories in series to evade anti-dumping/anti-subsidy duties (usually happens on high-tech products). The main factor contributing to this behavior is that an anti-dumping/anti-subsidy investigation usually lasts more than 1 year while the life cycle of high-tech products is usually relatively short. This fact makes it possible for companies to produce a wide range of products in series and evade duties by substituting new generation products with older generation products during the investigation phase (e.g., mobile phones, computers, televisions, etc. are constantly changing technology). Therefore, the duty order will become invalid because the exporters keep updating the product before the investigation ends.
(vii) Evading through price changes for different types of products (Fictitious markets): In response to an anti-dumping duty order (not anti-subsidy), exporters/producers can create a ‘fictitious market’ by lowering domestic prices to reduce or eliminate the margin of dumping. This price reduction is temporary and the main purpose is to evade anti-dumping duties.
ASL LAW is the top-tier Vietnam law firm for Anti-dumping & countervailing. If you need any advice, please contact us for further information or collaboration.
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