Anti-dumping Duty of Rs. 200 per Piece on Pen Drives Recommended

• Impost to Spawn Rs. 1100 Cr Grey Market

• China, Taiwan Allege “Sentencing without Hearing and Trial" in Violation of WTO Rules

Click here for Full text of Final Findings [F.No. 14/22/2012-DGAD dated 19^th December 2014]

The long drawn 18 month investigation on the import of USB flash drive (pen drive in trade parlance) came to an end on 19 December with the DGAD slapping an anti-dumping duty on all imports at $3.12 per piece (China), $3.06 per piece (Taiwan). The final notification to implement the findings is to be issued by the Department of Revenue within 30 days so one can expect the levy of the duty by 19 January 2015 in a normal course. The Department of Commerce skipped the normal stage of preliminary findings followed by final findings after field visit to verify the data. In this case, initiation went straight to final findings stage.

The Department of Electronics or Department of Revenue can ask for reconsideration by the designated authority in the Commerce Ministry on grounds of national interest or lack of due process. It may be recalled that the anti-dumping duty on solar panels was halted by the Department of Revenue on grounds of consumer interest and strategy national interest of promoting Indo-US interests even though the designated authority had recommended a duty of 11-81 cents per watt.

The calculation shows that a 4 GB pen drive for Rs. 300 will be up by Rs. 200 after suffering anti-dumping duty of Rs. 187 and VAT of Rs. 9.35 at five percent. A 4GB Moser Baer pen drive is available at Rs. 270 in Nehru Place market. The current annual market size is estimated at 400mn pieces which is Rs. 1200 crores. Imports constitute for 93 percent of this market. Thus we can expect about Rs. 1100 crores will go underground since the smuggling margin is Rs. 200 per piece. (It may be recalled that the imposition of 12 percent CVD on pen drive three years back boosted the grey market). Finally, the artificial technicality which resulted in the high 12% CVD was corrected to restore normally.

Highlights

· Indian prices and costs were used to artificially construct the reference domestic price (normal value) to determine the dumping margin consisting of the difference between the export price and the constructed domestic price. This is contrary rules.

· The contentions of the 28 exporters in defence were rejected on grounds like origin in other countries such as Ireland, Japan, Singapore etc. Only pure China and Taiwan origin companies were considered but these too were thrown out on technicalities like non supply of complete information.

· The Global Supply Chain of Ireland-Japan-China-Singapore based operations of sourcing, assembly, testing, packaging, marketing and R&D was not considered. The authority was looking for a single China or Taiwan based entity which is not possible in a Globalised World.

· Import of all models from 4 GB to 128 GB were averaged to arrive at a high landed price. This was used to compare with the domestic price and arrive at a “non injurious price” and “70%-80% undercutting. There was no model to model comparison which is unfair to the exporters and the consumer.

· USB flash drives are typically small, lightweight, hot-swappable and rewritable. They are hot-swappable in the sense that they may be plugged or removed without shutting down or causing significant interruption to the system is ideal for data swapping and for storage on account of high capacity going up to 128 GB. A 3 GB file can be transferred to a UFD in 20 seconds. Thus all cameras, laptops, tablets and mobile users love pen drives. Besides data, they store movies, music in a reliable, easy to use and affordable manner. The 4 GB and 8 GB versions are popular in the price range of Rs. 270 to 330. The subject goods are classified under Customs Classification Code 85235100.

NAND flash is similar to other secondary data storage devices, such as hard disks and optical media, and is thus very suitable for use in mass-storage devices, such as memory cards.

· M/s Storage Media Products Manufacturers & Marketers Welfare Association filed an application on behalf of the domestic producers represented by M/s Moser Baer India Limited for anti-dumping duty on USB flash drives.

· Majors totalling to 28 in China and Taiwan were identified, the prominent ones being SanDisk and Sony, ADATA, Samsung and Kingston. Major distributors like Ingram and Redington filed questionnaires along with Indian companies like HCL as many as 24 importers by the duty.

· The period of investigation (POI) for the purpose of present investigation is 1st January 2012 to 31st December 2012 (12 months). The injury investigation period, however, covered the periods 2009-10, 2010-11, 2011-12 and the POI.

· SanDisk Dual Drive and the SanDisk Connect Wireless Flash Drive, which are not manufactured by the domestic industry. The same hold good for version 3.0 UFDs which are 10 times faster than the version 2.0 made by Moser Baer. A full length movie can be transferred on version 3.0 in 50 seconds! Moser Baer makes pen drives upto 32 GB but the imported pen drives going up to 128 GB/256 GB covered in the impost.

· New Technology Chip on board (COB) (a type of flash drive in which both the controller and the flash memory are built together) were first included in import data by Moser Baer. Later on, these were excluded as the domestic producer himself was importer. It is claimed that COB is an unfinished flash drive with little value addition.

· If COB is considered as a part of the PUC, Moser Baer should not be considered to be a part of the domestic industry on account of it admittedly importing COB. Moser Baer says that they have imported the components for manufacturing of COB flash drives. Therefore, the imports of components by Moser Baer do not affect the standing of the company as domestic industry under the Rules.

· Costs and prices of the product under consideration vary significantly with changes in storage capacity and therefore they cannot be considered as alike, the Authority noted that the cost and price difference between capacity to capacity USBs is reasonable. Considering the functional substitutability, keeping aside some capacity USBs out of the purview of anti-dumping measures would encourage the exporters to dump the same and replace the domestic industry’s products in the market.

· A consumer requiring a UFD of 128 GB for large data storage will not opt for UFDs of storage capacity 32 GB. But the Authority says that nothing prevents the consumer to store the required data in more than one UFD.

· Moser Baer India Limited is the sole producer of the product under consideration in India. There is no other company in India known to be producer of the subject goods in India. Moser Baer does not import the subject goods. It is not related to any of the exporters or importers of the dumped goods. Therefore, Moser Baer India Limited constituted domestic industry for the purpose of the present investigation. Om Nano Tech” and “Amkette” are not undertaking complete production process of the subject goods and, therefore, cannot be treated as domestic producers.

· Imports of raw materials, parts, components, inputs, consumables or capital goods NAND Flash is main component which is imported. The value is mainly assembly, testing and packaging (ATP) which is low in India and does not need protection. Moser Baer is earning good profits and return on investment. In spite of import competition, it has 7% of market share and a significant player in the export market.

· Production of product under consideration involves a large number of activities. Some of the essential activities are listed below.

a) Conceptualizing the product and a model

b) Designing the product

c) Designing the PCB

d) Undertaking full production activities using PCB. The activities involved in this are

e) Software development

f) Testing technology and facilities

g) Research and development incidental to producing the product. Petitioner has carried out all the above activities in COB substrate based flash drive produced and sold by them.

· Moser Baer should disclose the legal proceedings going on against the Company. Nevertheless, vide order dated 14.10.2014, Hon’ble Delhi High Court has already disposed of the winding up petition.