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Chinese Dumpling

The government wakes up but too late to counter dumping from behind the Bamboo Curtain

Chinese Dumpling
Under pressure from various industrial lobbies to curb "dumping" of Chinese goods, PM Atal Behari Vajpayee last fortnight demanded a special briefing on the subject. Bureaucrats from the ministry of commerce gave him chapter and verse on the country's import scenario, detailing the tremendous influx of foreign goods (mainly Chinese) and suggested ways of tackling the problem.

But the consequent damage to Indian industry and the human cost involved—idle factories, jobless workers, impoverished families—found no mention in the clinical presentation. Even so, the cold facts and figures rang alarm bells. Vajpayee didn't need a stroll through Delhi's Ghaffar Market—where Chinese-made phones, fabrics, electronic goods, sanitary fittings, umbrellas, footwear, bicycles and toys are available at less than half the price of comparable Indian goods—to get the message. Import projections for the next year spoke for themselves: act now and protect domestic industry or watch it wither under the Chinese onslaught.

The government's immediate step thereafter was to send positive signals by suo motu initiating anti-dumping investigations against three Chinese products (sports shoes, toys, dry cells). And by making bis (Bureau of Indian Standards) certification and marking of mrp (retail price) on all imported items mandatory, as also hiking duty on edible oils and imposing compulsory licensing on all imports. On the enforcement front, raids were conducted all over the country and Chinese goods confiscated. Overnight, choice items have disappeared from the capital's grey markets. Want a Chinese-made TV for one-third the cost of a Samsung? Or a ceiling fan with a built-in inverter? Chances are you'll now have to quietly place an order. With customs authorities on the prowl, traders have become cautious.

While these measures are welcome, Laghu Udyog Bharti chairman Sudarshan Sareen feels it's too little, too late. He cites a list of industries which have packed up because the government didn't wake up in time: toys, locks, hosiery/woollens, umbrellas. Others, like electronics, crockery, woven polymer sacks, power plant equipment, sanitary fittings, auto accessories and TV parts, are also under threat. "Six months after toy-makers closed shop, the government has initiated investigations into dumping. In Ludhiana, hosiery mills and workers are idle because manufacturers find it cheaper to import Chinese-made sweaters and sell or re-export them under their own labels," says Sareen. While closure of factories and manufacturers-turning-importers is nothing new, he says, the government's hand has now been forced as big business is being affected and ficci, cii and Assocham are howling in protest.

For its part, the commerce ministry says it hasn't received a single formal complaint about dumping of Chinese consumer goods. Says a senior bureaucrat, "We've received complaints about dumping of chemicals and pharmaceuticals from China in the past and we have taken action by imposing duties." For instance, Alpha Drugs complained of dumping of the drug trimethoprim earlier this year and an anti-dumping duty was imposed last month. Duties have been imposed on metronidazole and citric acid (vitamin C). Similarly, action was taken in the case of polystyrene, soda ash, iron magnets, industrial sewing needles and many other items.

Three things are essential to prove dumping: an application from the affected party supported by proof that the exports are below "normal price", evidence of material injury to the domestic industry and a causal link between dumping and injury."It is very rare for the designated anti-dumping authority to take action suo motu. We've done that now only because we had solid proof from the customs department," says a senior commerce ministry official. The ministry of commerce in fact stresses that India is the second most frequent user of anti-dumping measures, after South Africa.

Proving dumping by China as far as consumer goods are concerned is next to impossible, Sareen points out. How do you determine "normal price" in a non-market economy? Says garment exporter Pawan Bansal, "In China, there is no concept of cost of production. Raw materials are virtually free of cost, overheads are minimal and labour is dirt cheap. Even they don't know how to determine normal price. This allows drastic undercutting. The Chinese objective is to capture markets. They're looking at volumes." Economies of scale are another reason for low prices: the world's largest single manufacturer of fans is a Chinese firm.

"In the case of a non-market economy like China, comparable data of a market economy can be superimposed and thus a case for anti-dumping can be made," observes a commerce ministry bureaucrat. However, he adds that "dumping" of goods by China is more a matter of perception than actual fact. Nor can it be laid at the wto's door and traced to the removal of quantitative restrictions (QRs). "After all, the removal of QRs hasn't created a balance of payments problem—our reserves stand at $36 billion. And China isn't even a wto member," the official says.

While not particularly alarmed at the onslaught on small-scale industries, the various federations of commerce and industry bodies do feel threatened and want the government to tighten enforcement. Chinese goods enter the Indian market in three ways: legitimate imports from China, outright smuggling across the border or technically legal imports through Nepal. While imposition of duties may tackle the first, the second and third can be curbed through strict enforcement. This involves plugging the porous Indo-Nepal border and keeping a strict eye on under-invoicing and assessing local value-addition after identifying the country of origin. The Indo-Nepal treaty would also have to be reviewed. Says Assocham secretary-general Jayant Bhuyan, "Under-invoicing is a huge problem, particularly with regard to exports routed through Nepal. By insisting on mandatory display of mrp, so that assessment of additional customs duty on mrp and of transaction value on the basis of international data/intelligence is possible, it can be prevented." Bhuyan also stresses the need for alertness, particularly on the part of manufacturers and in the case of agricultural products, farmers. "Today, the focus is on China. Tomorrow, it could be Chile. Take apples...the Chilean apple may sell for Rs 100 a kilo as opposed to Rs 60 per kilo for the Himachal apple, but it's still selling because the quality's so good.

Agrees Satish Dhanda, vice-chairman of the Engineering Export Promotion Council, "So far, there has been a premium on industrial inefficiency. Now, that premium is gone." Sareen, however, says the consumers' honeymoon will be shortlived. "Remember Pepsi? First, they wiped out local the competition, like Campa Cola, by undercutting. As soon as the market was captured, they hiked the price."

Another frequent criticism of the industrial cry-babies is that they ought to have been prepared for competition—Chinese or otherwise—because the wto is not a tidal wave that struck out of the blue.Sareen blames the government, "Their job is to prepare industry and then make international commitments. Internal reform first, then external reform. But they've gone about it in reverse. For example, they've yet to dismantle the inspector raj." A solution offered by big business: dereservation of items under ssis. But Sareen says the small scale sector can compete globally because overheads are so low—but not against China's unfair practices.

bjp MP Madan Lal Khurana, who's been conducting a crusade against dumping, charges his own government with laxity and says the problem is one of perception. "The bureaucracy believes the inflow of cheap goods would jerk local industry out of its cocoon. What it fails to understand is that China is a communist country with hidden subsidies in every sector. Our industry has none." While most bureaucrats are inclined to dismiss the problem as overstated, some admit a crisis may be brewing. "If one crore umbrellas are imported, it certainly has an impact on domestic industry, although a marginal one. But we have to prepare for the future. What do we do in 2001, when QRs on another 715 items, most of them in the small-scale sector, are removed? We must use wto-compatible anti-predatorial measures for restricting imports. The safeguards are there, we just haven't used them yet," says an official.

The government would prefer a stealth-bombing to a sledgehammer approach because of diplomatic repercussions and possible retaliation. So raising tariff barriers—when the government has already announced its commitment to bringing them down to Asian levels—isn't really a long-term solution. The stress is on non-tariff measures, like quality control through bis certification, for instance. "Chinese cycles will not get it," says Dhanda. Likewise, sanitary measures like imposing a quarantine would create covert barriers to import of agricultural products.

Says Khurana, "The government cannot afford to see the problem of Chinese goods in terms of figures alone. Even if one agrees that Indian industry must become competitive, it would be ruined thanks to China's limitless capacity for undercutting. A time would come when revival of sick units would prove impossible." And that's a peril India can ill afford.
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