Fibreoptics face-off as EU duties challenge Indian exporters

With anti-dumping duties shaking up the USD 400M market, India’s OFC manufacturers face new challenges in Europe, impacting their global expansion plans.

On 17 June, the European Commission announced anti-dumping duties on 10 Indian firms selling optical fibre cables (OFC) in Europe. While the simple explanation for the new duties is pricing investigations that take place regularly in the corporate world, a closer look reveals a potentially multi-crore rupee impact on India’s OFC manufacturers, a key part of global communications infrastructure.

Why is this important for India? Data from market watcher OEC World pegged India to be the world’s sixth-largest OFC and accessories exporter. Fellow market researcher Mordor Intelligence valued the global OFC market at around USD 12.8 billion as of this year. India accounts for nearly 12% of the global OFC economy, including export of over INR 3,400 crore, or USD 400 million.

Of this, the European Union accounts for a significant chunk. OEC data noted that last year, beyond the US, India’s top importers of OFCs included Denmark, Germany, The Netherlands and the United Kingdom (the latter being outside the EU’s purview). Even without the UK, the top EU importers accounted for one-fourth of India’s OFC exports. Considering all of the continents, this figure should easily exceed at least one-third of India’s optical fibre businesses abroad.

While nine of the 10 investigated companies have been slapped with duties, HFCL Group has so far managed to avoid the levies.

As a result, any imposition of restrictions and penalties could be a considerable ordeal for an industry that is still growing and has massive potential for growth, given India’s emphasis on ramping up local manufacturing and domestic value addition.

What is anti-dumping duty?

Put simply, anti-dumping is a practice enforced by governments to ensure that the price of a commodity being exported by a company is not less in its country of export than its country of origin. The regulation is in place to ensure fair trade practices and prevent predatory pricing.

For reference, any nation that becomes a major exporter of a commodity typically has the said commodity in abundance. In such situations, competition for the commodity in their domestic markets could be stiff. However, companies with a robust supply of the said commodity in a foreign market could reduce pricing below market standard rates to gain market share in new geographies.

While some degree of such practices are considered fair and are a clear way through which global pricing and itemised pricing work, central regulators step in if the pricing levels stoop too low. The rationale is that if a foreign exporter reduces pricing to a point where it destroys the ability of the respective nation’s own companies to compete in the market, this can eventually harm the local economy. Foreign entities, meanwhile, leverage new markets to reap corporate profits.

Anti-dumping, therefore, seeks to prevent such a situation from arising. If local regulators suspect predatory pricing, they subsequently investigate companies from a certain geography and their pricing. In the long run, if found guilty, the respective companies are levied an anti-dumping duty to impose pricing parity.

How does this affect India?

As per various media reports, the decision to investigate OFC sellers in the EU from India followed similar investigations of companies from China, which were charged with anti-dumping duties ranging from 39.4% to a staggering 88%—the final rate of duties that are in effect now and have been increased since the  original investigation.

The investigation on Indian companies comes after notices were sent to domestic entities in November last year, wherein the European Union asked exporters from India to submit data on sales, manufacturing, exports and pricing in the EU for the 12-month period of October 2022 to September 2023.

According to reports, companies that have received notices and have been investigated include Sterlite Technologies, Birla Cables, Universal Cables, ZTT India, UM Cables, Aksh Optifibre, Apar Industries, Polycab India, Aberdare Technologies, and HFCL Technologies.

Currently, preliminary duties imposed on each entity mentioned above, apart from HFCL, range from 8.7% to 11.4%. While nine of the ten investigated companies have been slapped with duties, HFCL has so far managed to avoid the levies.

The anti-dumping duty imposed by the EU is against the ethos of free and fair market practices that the European Commission so vehemently upholds.

In a statement submitted as part of an exchange filing last month, Mahendra Nahata, managing director of HFCL, said, “This decision is a huge achievement for us and speaks volumes about the trust that we have garnered globally for our fair-trade practices and transparency of processes. We firmly believe this decision will enable us to play a central role in Europe’s digital transformation.”

Given that exports play a significant role in OFC businesses set up by Indian entities, the imposition of these duties could lead to the companies losing some of their EU clients by having to increase product pricing due to the duties imposed. While it is too early to quantify the impact, the imposition could impact present and upcoming players making OFCs and accessories and exporting to European geographies. This, in turn, may affect how these companies can expand their businesses.

Any imposition of restrictions and penalties could be a considerable ordeal for an industry that is still growing and has massive potential for growth.

A senior executive at one of the companies mentioned above with direct knowledge of the matter said on condition of anonymity that the imposed duties could be detrimental to scaling up businesses globally.

“Given our industry, Indian entities have not engaged in predatory pricing in the EU market, which is a significant consumption economy. In the long run, this could restrict the way Indian telecom infrastructure players can expand globally—which goes against the ethos of free and fair market practices that the European Commission so vehemently upholds. We expect further investigations into the matter during the coming months,” the executive added.

A spokesperson for Sterlite Technologies said that the imposed duties are “an initial step of the process, which will be followed by thorough consultation and review.”

“With our OFC manufacturing in Italy, we have been a trusted partner in the EU for over 20 years, working with local service providers to further their country’s fibre adoption ambitions. We are constructively engaging with the EC and are confident that a comprehensive evaluation will further reinforce our steadfast commitment towards fair competition and advancing Europe’s digital connectivity goals,” the spokesperson added.

While a resolution may not be immediate, it underlines how pricing handles a precarious balance between companies in open, competitive markets and what companies will likely have to do to uphold it.

By Vernika Awal

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