Dealing with a surge in imports

The past week has witnessed a spate of decisions by the Government to protect different sections of domestic industry from imports. First, the customs duty on vegetable oils was increased sharply. Then in order to counter the ``Chinese threat'', two major decisions were taken.

The anti-dumping machinery of the Government of India independently decided to investigate allegations of dumping of dry batteries, toys and sports goods by China. And for perhaps the first time ever the Government has decreed that imports (in the first instance 131 commodities) have to meet the specifications of the Bureau of Indian Standards, list the place of manufacture and also the maximum retail price.

Such actions are bound to increase as the last batch of the quantitative restrictions (QRs) on imports are removed next April. Indian industry has been voicing an increasingly loud chorus of complaints that foreign goods are going to ``de- industrialise'' India. Especially strident in the past couple of months is the complaint that Chinese products are swamping the Indian market by offering a range of products at incredibly low prices. The Government's decision to invoke BIS standards on a large number of imports is a direct response to the complaints about the Chinese threat, that is, non-tariff barriers (here standards) can be used to keep out imports if tariffs cannot be raised or do not help.

As the economy enters a qualitatively new phase from April 2001 there are bound to be more and more demands for protection. Some and indeed many of these demands may be justified, though it is a moot question how far they can be met without hurting a downstream user of an imported component that becomes more expensive or for that matter a consumer who will have to pay more.

Further, with applied tariffs in a number of cases already close to what they have been bound by India at the World Trade Organisation, there is not much scope to further raise tariffs on a number of products. (Edible oil is a notable exception where the bound rate is 300 per cent but applied rates are under 80 per cent.) There is also the danger that in some instances more could be made out of import competition than is actually the case.

While a number of business chambers and individual firms have been complaining of a flood of imports from China, it is still not clear how widespread such a phenomenon this really is or if it is one restricted to a narrow range of products and a small geographic area. There are no official statistics showing a recent surge in imports. (According to the statistics for 1999 India last year imported goods worth a measly $1.2 billion and its exports were worth $825 billion.)

Industry's complaints are of three kinds. One, China is dumping products. This is what is now going to be investigated for some products by the Directorate General of Anti Dumping and Allied Duties (DGAD), though there will doubtless be more products added to the list. The second route is allegedly smuggling via Nepal and Myanmar, though it is difficult to see a destruction of swathes of Indian industry through such smuggling. This may happen in a few cases like dry cell batteries - one product that is on every one's lips and now on the DGAD's list as well. A third route apparently taken by Chinese products is import into Nepal and re-export to India at low duties, making use of the concessional Indo-Nepal trade agreement.

While there are many complaints of the Chinese ``flood'' coming down all three rivers, documented evidence is hard to come by of large-scale and widespread dumping of any kind. ``Legal dumping'' - products imported legally but sold at less than normal price - is something the DGAD will have to establish. The other two areas are a matter for, one, the enforcement agencies, and, two, for discussion between India and Nepal. (There is some talk of a provision for value-addition norms being included in the Indo- Nepal bilateral trade agreement.)

There are two dangers in an overreaction in case the Chinese threat is not as large as it looks and is merely being used as an excuse by an industry suffering from a demand recession in the domestic market.

First, India has always complained that other countries unfairly impose non-tariff barriers on Indian exports. The use of arbitrary quality standards is often cited in this respect. India cannot use the same stick on imports into the country and yet effectively argue against other countries using such non-tariff barriers.

Second, the imposition of anti-dumping duties can in some situations badly affect domestic industry as well. A recent example is the pig iron industry which after the imposition of anti-dumping duties on coke imported from China has had to cut back production.

Domestic pig iron production has fallen by more than 25 per cent in the first half of 2000-01 because manufacturers now have to use either the poorer quality Indian coke or more expensive coke from other international suppliers.

It is not going to be easy dealing with import competition once all QRs are removed. But even as the Government will have to use all measures at its disposal (anti-dumping duties, higher tariffs and the application of standards) to deal with unfair competition from China, the U.S., the E.U. or any other country, indiscriminate action will carry its own costs.

CRR

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