Dumping (representative imahe) | Photo credit: BCCL
Dumping is a practice of selling goods in a foreign country at a price lower than their domestic selling price, after accounting for differences arising from transportation charges, tariffs, and other cost justifications. Many governments view the activity as an unfair competitive practice and frequently expose those who engage in dumping to an anti-dumping duty. The anti-dumping duty is an additional import duty that is imposed to offset the effect of dumping that is found to be materially damaging to the domestic industry.
It is well known that a large number of low-priced, shoddy and fake products from China are flooding the Indian markets. Indochina’s trade resumed in 1978 after being suspended in the wake of Chinese aggression in 1962. With China’s accession to the World Trade Organization (WTO) in December 2001, bilateral trade between the two countries received a boost. greater momentum.
The flood of imports from China has negatively affected India’s manufacturing sector, particularly micro and small industries. Dumping by China has forced many industrial units to operate below capacity levels and, in some cases, to close. This has negatively affected local employment. Although the quality of Chinese products is often questionable, their low-priced availability has created a huge market for them.
Why are Chinese products more competitive in price than similar Indian products? China’s competitiveness is mainly the result of the efforts and support of the Chinese government. A large number of companies that dominate exports are government-controlled companies. The WTO does not recognize China as a market economy mainly due to a lack of transparency in its trade policy.
While China has long been accused of manipulating its currency to maintain export competitiveness, it has also been found guilty of unfair trade practices, such as export subsidies, that contravene WTO regulations. The Department-Related Parliamentary Trade Standing Committee (chairman: Naresh Gujral), which submitted its report to the Indian Parliament on July 26, 2018, was informed by the tax authorities that the Chinese government grants refunds of 17 percent to exporters.
In addition, China’s regional provinces expand tax incentives and rebates and compete with each other to attract industries to their region. They also promote exports by extending considerable incentives, such as logistical compensation for long-distance transportation, which makes Chinese products profitable.
Aside from non-WTO-compliant trade practices, China’s competitiveness is also the result of an enabling, often opaque, political environment in which the government ensures that factors of production (land, labor, capital) are available to manufacturers at the cheapest costs. Lending rates in China are favorable to the industry (6 percent or even lower); while in India banks charge one of the highest loan rates in the industry, between 11 and 14 percent.
Chinese manufacturers produce different qualities of a product for different markets, including cheap, shoddy products for low-income countries. These low-quality products have a negative impact on the environment. For example, importing impure chemicals generates low-quality agrochemicals (pesticides) for farmers. Similarly, Chinese toys, colors, firecrackers, rakhis, diyas, statues of gods and goddesses of poor quality are health hazards for Indian families, especially children.
The methods adopted for the dumping of cheap goods in the Indian market include under-invoicing of goods, entry of goods prohibited by misdeclaration, forwarding of goods across other countries and smuggling, both at sea and on land. As recently reported (HT July 13), tape measures and their components of Chinese origin were exported to India via Singapore and Cambodia. Therefore, the government imposed anti-dumping duties, as of July 8, 2020, on these products originating in China or any other country for a period of 5 years.
India cannot afford to be a dump for Chinese products causing damage to local manufacturing and leading to a growing trade deficit. In fact, there is widespread global outrage against China’s illegal and dubious business practices. While the United States and the EU have been quite aggressive in addressing these concerns, India has been less proactive in adopting trade defense measures under the WTO.
The dumping of Chinese products has adversely affected domestic industries, some of which are labor intensive and have traditionally been large generators of employment, for example textiles. The aforementioned Committee made the shocking revelation that the dumping of Chinese solar panels led to a loss of almost two lakhs of jobs, as almost half of the capacity of the domestic industry remained idle. It also revealed that as of April 18, 2018, the definitive anti-dumping duty was in effect on 144 products, of which 102 were Chinese.
The downsizing or closing of units has affected tax collection and affected the Make in India program. Additionally, the unit closures have put stress on the banking sector, which is already reeling under the burden of huge NPAs.
After Covid-19, the global economy is unpredictable and volatile and all countries have to cope under uncertainty. Aatmanirbhar Bharat Abhiyan (Independent Initiative of India) announced by Prime Minister Narendra Modi on May 12, 2020 is a timely call, given the prevailing global environment. Furthermore, recent incidents on the Indochina border have angered the nation, which is now willing to impose economic costs on the adversary. The most effective way to do this is to boycott Chinese products which, in most cases, are harmful to health and the environment. In short, it is time to get rid of China.
MM Sury is a guest contributor. Opinions expressed are personal.
