Mollycoddled by anti-dumping duties

It is often not recognised that Indian industry, or sections of it, remain inordinately protected even after a quarter century of reforms. Now, the imbalances caused by protectionism, in the form of indiscriminate use of anti-dumping measures, is hurting overall efficiency and competitiveness. This does not augur well for the ‘Make in India’ programme.

It all started in 1995. India signed WTO’s revised trade defence agreements (anti-subsidy and safeguard agreements), ushering in an anti-dumping regime. Interestingly, even though India has been a signatory to the WTO’s General Agreement on Tariffs and Trade (GATT) it did not pursue a serious trade defence policy till 1995. But the economic liberalisation changed the scenario.

Suddenly, the Indian industry faced increased competition and needed a period of adjustment. The trade remedy instruments, particularly anti-dumping and safeguards provisions, were used to provide that contingent protection.

But it went too far. During 1998-03, India imposed some 202 anti-dumping measures accounting for about 20 per cent of all anti-dumping measures imposed by WTO members during that period.

During the same period, India also imposed eight safeguard measures, highest among all WTO members, and shot into prominence as the most aggressive user of the trade defence measures, without any prior experience in this area.

These duties were imposed on a wide range of products, mostly primary commodities for industrial use, i.e., basic chemicals and pharmaceuticals, fibres and yarns, and iron and steel products, imported from a large number of countries. The product coverage and multiple investigations for same products from several sources during this phase indicate that while the anti-dumping duty might have played a role in easing the pangs of liberalisation in the earlier years for some industries, it soon became a tool of protectionism. Lack of experience and large number of investigations led to disputes in WTO with as many as 30 cases, filed by European Union and some others in 2004.

The subsequent period showed some maturity in handling of trade remedy matters and the number of anti-dumping duties imposed by India came down substantially to 139 during 2003-07, though India continued as the number one user of the instrument. Some industrial segments continued to seek multiple investigations against new sources of imports and extension of duties beyond the initial five-year period.

The period 2008-2012, which coincided with global economic slowdown, again saw a spurt in anti-dumping activities in India with imposition of about 149 measures, accounting for 23 per cent of the measures globally. Though the number of anti-dumping investigations show a declining trend in the last four years, the numbers are still significant and India continues as the most aggressive user of the instrument.

Whether these anti-dumping duties have achieved the intended objective of providing protection against the unfair dumping by the competing foreign producers is a big question.

Repeated investigations and extension of duties to practically all sources in case of a large number of products and heavy dependence of some of the industries on continued anti-dumping duties indicate that anti-dumping is being used by those industries as a protectionist instrument rather than an instrument against unfair trade by specific foreign producers.

At any point of time, more than 300 broad products, covering roughly 1,000 tariff lines, attract anti-dumping duties. As much as 47 per cent of these products are basic chemicals and allied products, and 15 per cent are plastics and rubber based products. This is disproportionately high compared to global trends.

Base metals and metal products account for about 10 per cent of the measures in force. Most of these products are basic building blocks for a large segment of industry. India’s production base of basic chemicals either lacks in scale and backward and forward linkages, or is largely controlled by few big players who try to scuttle international competition through these measures.

Production of a large number of industries is dependent on these basic chemicals and iron and steel products, and their finished products are significantly impacted because of high anti-dumping duties.

Duty on basic raw materials has led to cascading demand for protection for the finished products as well. Some of the leading trading partners have also started retaliating with large number of anti-dumping and anti-subsidy investigations against Indian products, thereby significantly affecting India’s trade.

However, any long-term measure to address short-term price volatility may ultimately harm the economic interests of the country. Interestingly, some industries, who have even significantly expanded their capacities under anti-dumping protection, come back to seek continued protection on the grounds of continued or threat of injury from the same or new sources. Some others seek perpetual protection for their very survival, raising a question about their viability and internal efficiency.

Contrary to general belief, WTO anti-dumping code provides a set of substantive and procedural rules to check indiscriminate use of the instrument per se.

Though neither the WTO agreement, nor Indian law specifically provide for a public interest examination, there is an implicit nudge. Indian anti-dumping law allows the Centre not to act upon the recommendations of the Designated Authority to impose a duty.

The effect of high anti-dumping duty in several industrial commodities has evoked strong protests from the user industries in all recent investigations. Any aggressive use of anti-dumping measures may ultimately harm the ‘make in India’ initiative in the long-run by squeezing out competition.

Therefore, while the rhetoric for protection against so-called ‘unfair trade’ may remain high, there is a need to lower the aggressive stance taken by India so far.

The writer is with India Trade Service. The views are personal

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