Reliance vs Small Manufacturers in MEG Anti-Dumping Tussle

Bengaluru: In February 2020, the Narendra Modi government withdrew the anti-dumping duty on Mono Ethylene Glycol (MEG), which is used to manufacture polyester fibres and films, polyethylene terephthalate resins and engine coolants. The move was opposed by Reliance Industries Limited (RIL), the largest MEG producer in the country, and others.

India, one of the world’s largest importers of MEG, imports an average of 800 KT (kilotonne) annually. Following the withdrawal of the anti-dumping duty on MEG, RIL filed a request with the Directorate General of Trade Remedies (DGTR), Union ministry of commerce and industry, to initiate an anti-dumping investigation against MEG imports from Kuwait, Oman, Saudi Arabia, the United Arab Emirates (UAE) and Singapore.

In a letter to the ministry of textiles available with the writers of this report, the Polyester Textile Apparel Industry Association (PTAIA), a group of PTA (Purified Terephthalic Acid) and MEG consumers who utilise both substances as essential inputs for the creation of polyester fibres and textiles opposed the RIL request and requested the ministry’s assistance to “terminate the ongoing anti-dumping investigation”.

Reliance later requested the DGTR to drop Saudi Arabia from the list of countries being investigated for dumping MEG in India. At the same time, the government maintained that it would continue its probe into Kuwait, Oman, Singapore and the UAE for dumping practices. Subsequently, the DGTR terminated the investigation for all countries in November 2020.

What is Anti-Dumping Duty?

Anti-dumping duty is a tariff levied on imported products in large quantities and at competitive prices or often cheaper than the prices of the same product produced domestically. The duty is imposed to prevent the “dumping” of an imported product into the Indian market to protect local manufacturers from foreign producers undercutting them by selling the product at very low prices (often below the cost of production). 

The Customs Tariff Act, 1975, and the Customs Tariff Rules, 1995, set the legal parameters for the imposition of such duties. The department of revenue may receive a recommendation from the DGTR to impose an additional import duty above the regular basic customs duty as an anti-dumping duty if the investigation reveals that a particular good is being dumped in India and harming domestic producers.

Redux of 2020 Tussle

A year later, RIL and India Glycol Limited (IGL) filed yet another application in June 2021 with the DGTR requesting an anti-dumping investigation concerning MEG import—this time from Kuwait, Saudi Arabia and the USA.

The official list by the DGTR categorises only RIL and IGL as the ‘domestic industry’ because they initiated the request for an investigation. In contrast, it listed 14 Indian companies as importers of the product. The DGTR investigation ran its course through 2021 and reached September 2022 through multiple extensions. In their disclosure statement, DGTR has again recommended imposing anti-dumping duty on MEG imports.

In a déjà vu, PTAIA has yet again written a letter to textiles minister Piyush Goyal, who is also the Union minister of commerce and industry, to reconsider imposing anti-dumping duty on MEG.

“The major producers of MEG use around 70% of their production in captive. So, there is only 30% MEG left for the manmade fibre’s downstream Industry. MEG will further be in short supply for the Manmade Fibre’s downstream industry for their new expansions in the pipeline. The present and future capacity of manmade fibre can survive depending on import,” the letter states.

MEG producers in India are operating at total capacity but 70% of that capacity is used in captive facilities, mainly used to manufacture final goods. Only 30% of the MEG manufactured domestically is sold to non-captive consumers, such as small textile makers.

Is anti-dumping duty on MEG justified? Small Producers say No

The letter further points out that local MEG producers profit even after adding freight and distribution charges to their final selling price since no customs fees are paid on the raw ingredients used to make MEG.

“The anti-dumping duty on MEG will adversely impact approximately 40,000 small and medium manufacturers of polyester fibre, yarn, fabric and garments. This, in turn, will jeopardise the jobs and the livelihood of hundreds of thousands of workers in India. The textile industry in India as of today provides 10-15 crores (people) of direct and indirect employment,” the letter further states.

Any domestic business that collectively accounts for more than 25% of the production of an item may request an anti-dumping inquiry for that item in accordance with the Indian Customs Tariff Rules. RIL and IGL account for more than 70% of the MEG production in India. So, they are eligible to initiate an investigation given that they provide valid evidence of an injury.

RIL and IGL stated that cheaper MEG imports are hurting their production in their application to the DGTR. However, the PTAIA questioned that claim, presenting a different picture of the market situation by pointing out that the imported MEG enters India at a cost comparable to that of the domestic producers and rejecting the dumping allegations.

PTAIA has requested that “the government of India also has to keep in consideration whether they want to create more jobs, bring foreign investment and further expansions in manmade fibre industry in India or to revert the interest of two or three producers, who, in any case, operating at full capacity and can’t fulfil the local demand in any case”.

The ball is now in the government’s court. Will it heed the request of small producers or side with Reliance?

The writers are freelance journalists.