Trade liberalisation has led to the reduction and removal of India's trade barriers, making it easier for foreign manufacturers to access Indian markets. The continuing economic slowdown has resulted in shrinkage of markets in the developed realm. In such a scenario, the Indian market can become the target of low-priced imports from low-cost countries like China. Often, Indian businesses may find it difficult to compete with such imports and keep losing their market share.

Low-priced imports happen because of dumping — a price-discriminatory practice, in which goods are offered to foreign consumers at lower prices as compared with consumers in the exporting country. It can also happen because of the subsidies provided on finished goods by the government of an exporting country. Imported goods can be fairly priced as well, because of the presence of a genuine comparative advantage of manufacturers in the exporting country.

In some cases, comparative advantage isn't genuine, and may be secured through manipulation of trade regulations by an exporting country.

One such example is of China, which keeps the prices of key industrial inputs such as fluorspars or coke low for domestic manufacturers, and high for import-dependent foreign manufacturers through use of export quotas, export duties, export licensing and minimum export price requirements.

Since China is the leading supplier of these inputs globally, imposition of export quotas limits their global supplies, while export duties increase their international prices. This adversely affects the cost competitiveness of foreign manufacturers, especially aluminium, chemicals, steel and downstream industries dependent on import of these inputs. The other instrument used by China for securing export competiveness is manipulation of the exchange rate, which is well-known.

TRADE REMEDIES

In such situations, what should the aggrieved businesses do to protect themselves from low-priced imports? WTO provides trade remedies to all kinds of cheap imports — covertly or overtly subsidised, dumped, or otherwise genuinely priced.

While dumped and subsidised imports are considered unfair trade practice and invite tougher countermeasures, safeguard measures deal with fairly-priced imports, and hence involve adequate compensation to foreign exporters being subject to safeguards.

While increased competition to domestic industry induces improved efficiency and quality and hence is desirable, unfair trade (sometimes fair as well) competition may damage indigenous industry. India has enacted necessary legislation derived from India's rights as a WTO member to protect its industry from undesirable/unwarranted competition.

Imposition of anti-dumping duty is the most popular method resorted to by the Indian government to check dumped imports. As per the latest WTO Trade Policy Review Report, India has been the most frequent user of anti-dumping measures, and initiated 209 anti-dumping investigations against 34 countries in the review period 2006-11. In contrast, an anti-subsidy countervailing measure is applied when domestic industry is threatened by subsidised imports, though it isn't a popular method because of the complications involved in its investigation.

While the above two measures are used to protect from unfair trade practices of foreign manufacturers, safeguard measures are used to deal with fair price imports, causing or threatening to cause serious injury to the domestic industry.

SAFEGUARD PROVISIONS

Domestic businesses can also resort to India's provisional safeguard measures when the situation is so critical that it cannot wait for full-fledged investigation to determine if there is a need for safeguard measures or not. Besides, there are bilateral safeguards to protect from injury caused by preferential imports from FTA partners, say, imports from ASEAN. For availing any of trade remedial measures, the general requirements are increased imports, actual damage or threat of damage to the domestic industry, and establishment of the causal link between increased imports and damage or threat of damage to the domestic industry. In the case of anti-subsidy countervailing measures with respect to prohibited subsidy, the only requirement is proof of existence of prohibited subsidy.

There are several China-specific WTO plus trade remedial provisions which have been incorporated in Chinese Accession Protocol that Indian businesses faced with low-priced imports can resort to. As per Article 16 of the protocol, which is the basis of India's Customs Tariff (Transitional Products Specific Safeguard Duty) Rules, 2002, a non-market economy, China, will require lower burden of proof (market disruption instead of sudden and unforeseen import surge) for imposition of safeguard measures.

Article 10 (3) of the protocol requires China to eliminate all prohibited subsidy programs i.e. subsidies that are contingent on export performance (export subsidies) and the use of domestically produced inputs more than the imported one (local content requirement).

Under Article 11 (3) of accession protocol, China is required to eliminate all taxes and charges applied to export except with respect to 84 items mentioned in Annexure 6 of the protocol.

Article 15 of the protocol gives (WTO members) relaxation in price comparison for determination of the extent of dumping and subsidies with regard to import from China.

TRADE PACTS

When India is on the path of concluding as many as free trade pacts through bilateral, regional or multilateral routes, opposition to trade liberalisation efforts will grow if damage to indigenous businesses occur on account of cheap imports from low-cost countries. These free trade deals are needed as they also have beneficial effects like improved market access for India's exports.

Therefore, to make Indian manufacturers receptive to trade liberalisation, strengthening India's trade remedial regime is called for, so that domestic businesses benefit from improved market access and economies of scale, and simultaneously protect themselves from low-priced imports.

In this regard, creation of a common trade remedial authority encompassing all kinds of trade remedies — will be a great help to domestic businesses in dealing with low-priced imports. Further, resorting to trade remedies involves expensive trade law expertise. Since SMEs form a substantial section of the Indian manufacturing sector, some kind of assistance to SMEs, either from government agencies or industry associations, is needed to make India's trade remedial regime effective.

(The author is an expert in international trade for an Indian corporate house. The views are personal.)

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