Public or user interest in trade defence measures: Insights from the EU’s nuanced approach in balancing competing interests

Introduction

Trade remedy measures, like anti-dumping or countervailing duties, are necessary to protect the domestic producers from unfair import competition. At the same time, the imposition of measures may increase the cost of imports for the user or downstream consumer industries. The balancing of two competing interests becomes important for the government especially in sectors where the user industry is strategically important for the economy and there are structural undercapacities with the domestic producing industry. While there are set principles under the WTO law to assess the conditions for imposition of duties, namely dumping or subsidy causing injury, there are no standard principles to assess the user industry interest in the trade remedial investigations. 

In the Indian context, the methodology to assess user industry interest or public interest in trade remedial measures has been a debatable topic in recent years. In our earlier article,[1] we had highlighted that public interest occupies an undefined space in India’s trade remedy framework, which often makes the Ministry of Finance (‘MoF’) take a binary decision – to accept or reject the recommendations of the Directorate General of Trade Remedies (‘DGTR’) for imposition of duties. The moot question which arises for consideration is – whether there is a middle path – where both the competing interests can be balanced. 

In the European Union (‘EU’), the ‘Union interest’ assessment, as mandated by Article 21 of the basic Regulation (EU) 2016/1036, serves as the key legal provision under which the EU tries to balance the overall interests of stakeholders, including producers, importers, users, consumers, and the economy at large in a trade remedy investigations. The recent approach of the European Commission (‘EC’) in the fused alumina anti-dumping duty determination[2] (‘the fused alumina case’) exemplifies a sophisticated, evidence-driven process for balancing trade remedy protection with broader economic considerations. 

This article analyzes how the EU applied the Union interest test in the fused alumina case and compares this approach with current practice in Indian trade remedy investigations. It aims to propose an alternative methodology that India may adopt in the absence of a codified public interest framework.

The ‘union interest’ methodology in the fused alumina case 

In the fused alumina case, the EC was faced with a challenge of balancing the interests of Union producing industry and the Union downstream industry. The task was to restore fair competition for EU producers of fused alumina and at the same time ensure security of supply for downstream sectors (of abrasives, refractories, technical ceramics, and wear-resistant coatings). These sectors included critical applications like defence-related products, high-temperature furnace linings, and industrial abrasives, where reliance on imports was necessary due to undercapacities with EU producers but an over-reliance on Chinese imports also posed a long-term systemic risk.

The EC, while imposing definitive duties to protect the Union industry, had to also prevent risks of closure of user industries that had become structurally dependent on imported Chinese material. The instrument chosen for that calibration was a hybrid model wherein the regulation imposed duties on dumped imports, while introducing a phased duty-free tariff rate quota (‘TRQ’) for a limited volume of imports from China. The EC set the TRQ to gradually reduce over the five-year duration of the measures. The approach tries to address the core tension in trade remedies, protecting the domestic industry from injurious dumping while safeguarding downstream users and broader economic interests. 

Collection of information played a key role in the assessment of Union Interest 

First, the EC built a record of downstream users that was broad enough to be treated as representative. The EC noted that around 50 users and user associations came forward and that many of them provided complete responses to the questionnaires, enabling a thorough and representative assessment. The EC also noted that industry associations in the abrasives and refractory sectors submitted substantial and detailed information, and that these associations covered small and medium enterprises (SMEs) and larger operators, so that the data reflected the range of downstream players.

The data was not limited to narrative statements. The EC recorded figures on employment and turnovers for the refractory and abrasives sectors, and then consolidated them into an estimate for the two sectors together (turnover and direct jobs), including the number of jobs it treated as ‘at risk’. It also recorded the industrial role of these sectors as downstream suppliers to other manufacturing chains. 

The EC also obtained supply-chain dependence data through questionnaire responses. It recorded that, based on user responses, around 50% of fused alumina which was used in abrasives and around 65% used in refractories originated from China, and this became an evidence of reliance on Chinese imports. 

Use of collected information into an assessment methodology

Second, the EC converted the user submissions into measurable variables and tested them against supply-side evidence. The EC also quantified potential cost exposure of 10% to 30% by estimating cost increases from ant-dumping duties. It quantified the cost exposure for refractories and abrasives, and drew conclusions on the changes to downstream production costs vis-à-vis price changes of fused alumina.

The fragmentation and heterogeneity of the downstream users was also considered in the analyses.  It noted that user industries were ‘highly fragmented’, with varying capacity to absorb cost increases, and that for some users the cost increase could jeopardise operational sustainability, which may lead to downsizing, relocation, or closures. The EC made a specific distinction between SMEs and larger groups: concluding that smaller and cost-sensitive operators may shut down and larger operators may shift production outside the EU. From its analyses, the EC concluded a ‘high risk of deindustrialisation’ in downstream sectors, with reported loss-making positions and financial fragility.

The balancing act of TRQ structure

Generally, a demand–supply gap is not, by itself, a legal defence to dumping causing injury. However, the EC noted that the measures would create a high risk of deindustrialisation in downstream sectors. It also recorded that non-imposition of measures would have negative and irreversible consequences for the Union industry and could jeopardise continuity of European production of a material used in strategic sectors such as steel and defence. To balance the interest of Union industry and the downstream user industry, the EC adjusted the form of measures to TRQ. 

The EC noted that in the light of protecting producers while mitigating user costs and reducing dependency on China, the definitive measure ‘should take the form of a duty-free tariff-rate quota’, with imports within quota being exempted from duties and imports beyond the quota subject to full duties.

The working of TRQ methodology 

The sequential quota methodology followed by the EC was as under.

1. Viability benchmark for Union producers: It first assessed the sales volume necessary for the domestic industry to remain viable and maintain stable market presence, based on historical periods when the industry was competitive and profitable.
    
2. Expected evolution of third-country imports: It then considered how non subject third-country imports might evolve. The EC treated this as a factual question and relied on historical import data including the imports made post the imposition of provisional measures.
    
3. Market size and residual volume: Finally, it took Union market size into account and set the remaining volume (after Union producer’s supply and projected third-country imports) as the duty-free quota.
    
4. Quantity, glide path, and administration: It also fixed an initial quota volume of 60,000 tonnes for 2026, decreasing by 7,500 tonnes per year to 30,000 tonnes by 2030. The quota will operate on a first-come, first-served basis and is divided by product, granularity, and time (quarterly), with the stated objective of equitable access and availability through the year.
    
5. Impact assessment for producers and users: For producers, it projected improvements in sales, capacity utilisation, and market share and stated that the TRQ was designed to ensure viability. For users, it stated that the TRQ offered a transitional period to mitigate initial cost impact, allowed time for alternative suppliers and certifications, and a predictable framework for planning. 
    

Public interest analysis in India

In India, the legal architecture for imposition of duties is two-fold: the DGTR, under the Ministry of Commerce, investigates and recommends measures, while the MoF takes the final call for imposition of duty. There are many instances where the MoF refrains from imposing duty despite a positive recommendation of the DGTR and the public record seldom discloses the factors weighed, the evidence accepted, or the threshold applied in making that decision. While the MoF may consider larger public interest, but the binary decision making – of either acceptance or rejection of recommendation – arguably fails to balance the competing interests of domestic producers and downstream users.

The India’s trade remedial investigation framework currently provides for user interest submissions through the user questionnaires and economic interest questionnaires prescribed under several trade notices issued by the DGTR. However, there is a lack of legal backing to treat user interest as a ground to terminate an investigation. Also, often there is a lack of structured analyses to the information obtained from downstream users and consumers similar to what was undertaken by the EC in its Union interest examination in the fused alumina case. 

In several recent investigations, DGTR recorded supply constraints and undercapacities in its final findings, however, duties were recommended. Many of these recommendations ended up being rejected  by the MoF.[3]  While this may have brought relief to the user industry in those investigations, the domestic industry in such instances may continue to suffer economic injury from dumped or subsidised imports. Therefore, it is high time that that India adopts more nuanced approach to the user or public interest issues in its trade remedial investigation in a way which balances the interests of both constituents of the economy. 

Conclusion

The EU model demonstrates that user or pubic interest can be operationalized through calibrated methodologies in trade investigations. It is important for Indian authorities to integrate a more nuanced public or user interest assessment into its final findings, particularly in critical sectors and cases involving structural supply gaps in the economy. This can be done by DGTR at the investigation stage by using evidentiary record and measures like TRQ to balance the competing interests of all stakeholders. This approach may reduce the existing friction with the MoF’s rejections of DGTR recommendations and may bring the required relief to the domestic industry while at the same time protecting the interests of the downstream user industries. 

[The authors are Associate Partner and Senior Associate, respectively, in International Trade practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]

[1] A missing piece in India’s trade remedy law: Codifying ‘public interest’, as available here.

[2] Implementing Regulation, as available here.

[3]Anti-dumping investigation concerning imports of Solar Cells whether or not assembled in Modules or made up into Panels originating in or exported from China PR; Anti-dumping investigation concerning imports of Certain Cranes originating in or exported from China PR; Anti-dumping investigation concerning imports of Copolymer Polyol of hydroxyl value >= 23.5 originating in or exported from China PR; Anti-dumping investigation concerning imports of Black Toner Powder Cartridge originating in or exported from China PR; Anti-dumping investigation concerning imports of Resorcinol originating in or exported from China PR and Japan; Anti-Dumping investigation concerning imports of Acrylonitrile Butadiene Rubber (NBR) originating in or exported from China PR, European Union, Korea RP and Russia; Anti-dumping investigation concerning imports of T-Shaped Elevator/Lift Guide Rails and Counterweight Guide Rails originating in or exported from China PR.