India faces Chinese dumping threat

Category: WTO Sub-category: Anti Dumping
Document type: news

India is justified in filing the maximum number of anti-dumping complaints against China in the WTO, writes Anurag Agarwal (Director, Board of Studies, Institute of International Trade, Kolkata), explaining how the Chinese ‘invasion’ is causing irreparable damage to the Indian domestic market and producers.

Published in The Statesman, Monday, 18th May 2009.

India has filed 42 anti-dumping complaints at the World Trade Organization (WTO), the most by any country. 17 of those complaints were against China. China was the most frequent subject of the new investigations, according to the latest WTO anti-dumping report dated May 7, 2009.

According to data compiled by the Global Antidumping Database, the first quarter of 2009 saw an 18.8% increase in the number of antidumping, countervailing duty, global safeguard, and China-specific safeguards brought by WTO members compared to the same period in 2008. While India imposed the most import barriers under these laws during this time period, other G-20 members that did so include Argentina, Australia, Brazil, Canada, the EU and its member states, South Korea, Turkey and the United States. China's exporters are the dominant target for these newly imposed import restrictions facing new barriers in over 70% of the cases.

If a company exports a product at a price lower than the price it normally charges in its own home market, it is said to be “dumping” the product, according to WTO. Particularly in times of recession, dumping can wreak havoc on local economies. The gigantic size of India‟s market can make it a tempting dumping target. However, care has to be ensured that anti-dumping complaints are investigated and found to be genuine, rather than used as a cover-up for protectionist trade policies.

India has adequate anti-dumping investigation mechanisms in place, like the Directorate General of Anti-dumping and Allied Duties (DGAD), which carefully determine the normal value of imports and the extent of anti dumping measure to be levied upon the imported goods. The DGAD initiates, investigates, and makes recommendations for imposition and collection of antidumping and countervailing duty by the Department of Revenue, Ministry of Finance.

In India, the national legislation on anti-dumping was enacted in 1985 and the first case of anti-dumping was initiated only in 1992. Since then, Designated Authority (DA) in the Department of Commerce has been handling anti-dumping cases. The DGAD came into existence in April 1998 in the Department of Commerce, Ministry of Commerce & Industry.

The world economy is going through a financial and economic turmoil for more than a year now. This period has seen many countries including America adopting protectionist measures ("Buy American") to protect their domestic industries. Such protectionist measures help countries only in the short run, by creating jobs and business opportunities. But in the long run it causes more harm than good to the international trade. In the recent times we have seen a spurt in the number of anti dumping cases, with India being the chart topper along with other developing nations.

China took the world by storm with its low-cost manufactured products. Foreign markets flooded with Chinese goods are a testimony to that. China therefore becomes the obvious target for countries initiating anti-dumping measures. Most of the anti-dumping measures have only been initiated but a final verdict is yet to be out as all these cases have to go through WTO's Dispute Settlement Body to come into effect. So it would be premature to say whether most of the cases are under protectionist measures. But at the same time there is a high probability of such a situation to occur.

Increasing imports from China have been a rising cause of concern for the Indian domestic markets. In the wake of the global downturn, demand from China's biggest export contributor, the United States, has slackened. As a consequence of this, the Chinese economy is trying to sustain itself by thrusting its manufacturing produce into fast growing developing economies like India.

China has been increasingly resorting to measures such as dumping – it sells its products in the Indian market at very cheap prices. The result is that China has the potential to cause injury to the domestic producers. India's infrastructure does not permit it as yet to observe huge economies of scale like those of China. Having this competitive advantage, the Chinese industry is bolstering itself by diverting its products to India. But in the process, it is causing irreparable damage to the Indian domestic market and producers.

China's increasing dumping activities into India are evident from a look at sectors such as rubber, steel, auto parts, and aluminium, which have been bombarded by Chinese goods and where China has taken the domestic market with a storm.

Chinese tyres sold in India are 30% cheaper than the cost of tyres produced in India. About 80-85% of the demand for tyres is met with Chinese imports. As such, the share of domestic producers in the market is a meager 15% to 20%. Moreover, even those producers are not able to fully utilize their capacity of production due to the rising share of China in the market.

For instance, imports of auto parts in the third quarter of 2008 were recorded to be 61.8% of the total demand as compared to a mere 21.8% in the first and second quarters of the same year. The share of crankshaft in Chinese imports increased from 2.3% in the first half of 2008 to 15.75% in the following quarter of 2008. We have to take significant note that the sudden increase in Chinese auto parts exports to India is in sync with the deepening of the financial crisis and slackening demand across other parts of the globe.

Stainless steel products imported from China similarly have witnessed a consistent annual increase by 20-30% since the year 2006. Moreover, the imports of aluminium and chemical products from China have expanded nearly three times, to cover a share of 15%, in the April to December period of 2008.

It is therefore evident from the facts that if the current situation continues Indian industry would cease to exist. The current situation is that China is selling its products in Indian markets at such low prices that domestic products keep losing their market share. Being unable to operate at such a large scale as China, India is left with no other option but to restrict the imports of China through suitable measures, in compliance with the norms of the World Trade Organization.

Source: The Statesman