INDIA – CHINE ECONOMIC LANDSCAPE
NEWS: The Central Board of Indirect Taxes and Customs (CBIC) recently imposed anti-dumping duty on five Chinese goods, including vacuum-insulated flasks of a certain thickness and aluminium foil.
WHAT’S IN THE NEWS?
What is Dumping?
1. Definition of Dumping:
• Dumping occurs when a country exports goods at a price lower than their price in the domestic market, resulting in price discrimination.
• This practice allows exporters to sell goods abroad at cheaper rates, often undercutting local industries in the importing country.
2. World Trade Organization (WTO) Definition:
• According to the WTO, dumping is a form of international price discrimination where the “normal value” (price in the domestic market of the exporting country) is higher than the export price (price at which goods are sold to foreign markets).
• It is considered a trade distortion that affects fair market competition.
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Anti-Dumping Measures Under WTO Rules
1. Countries Can Impose Anti-Dumping Duties If:
• There is evidence of material injury to domestic producers due to dumped imports.
• There is a threat of injury to domestic industries if dumping continues.
• There is material retardation in the establishment of new domestic industries due to unfair price competition from dumped goods.
2. Calculation of Anti-Dumping Duty:
• The anti-dumping duty imposed should not exceed the dumping margin, which is calculated as:
Dumping Margin = Normal Value – Export Price
• The total duty imposed cannot exceed:
Dumping Margin + Customs Duty
• This ensures that duties are only levied to counteract the price difference rather than act as excessive protectionism.
Reasons Dumping is a Contentious Trade Practice
1. Unfair Trade Practices:
• Dumping is often seen as an unfair trade practice because it exploits global free trade systems.
• Exporting countries take advantage of price disparities and flood foreign markets with cheaper goods, harming local industries.
2. Threat to Domestic Industries:
• Domestic industries struggle to compete with artificially cheap imports, which can result in declining sales and profit margins.
• Prolonged exposure to dumped products can lead to factory closures, job losses, and overall economic instability in the affected country.
3. Violation of Free Trade Principles:
• Dumping distorts fair market competition and disrupts economic equilibrium.
• While free trade encourages lowering trade barriers, dumping exploits this openness to gain an unfair advantage over local manufacturers.
Chinese Manufacturing Advantage and Its Impact
1. Factors Contributing to China's Competitive Edge:
• Low labor costs: Due to its large workforce, China can manufacture goods at a significantly lower cost than many other countries.
• Government subsidies: The Chinese government provides direct and indirect subsidies to its industries, allowing companies to sell products at below-market prices.
• Economies of scale: China’s massive manufacturing base allows it to produce goods in large volumes, further reducing production costs per unit.
2. Challenges for Other Economies, Including India:
• Due to these advantages, Indian industries struggle to compete with cheap Chinese imports, particularly in sectors such as electronics, telecom, and pharmaceuticals.
• This has led to an increasing trade deficit with China, making India more reliant on Chinese products.
Potential for Market Monopolization Due to Dumping
1. Short-Term Impact:
• Dumping initially benefits consumers in the importing country as they gain access to cheaper goods.
• However, domestic industries suffer significant losses, leading to factory closures and job layoffs.
2. Long-Term Risk:
• Once local industries collapse, the exporting country may increase prices, effectively establishing a monopoly in that market.
• This leaves the importing country vulnerable to price manipulation and supply chain disruptions.
Economic Engagement Between India and China
1. Bilateral Trade Trends:
• India-China trade reached $118.4 billion in FY24, making China India’s top trading partner, surpassing the United States.
• India’s imports from China totaled $101.74 billion, accounting for 15% of India’s total imports.
2. India’s Trade Deficit with China:
• India’s trade deficit with China crossed $83 billion in 2023, raising concerns about economic dependence.
• The deficit exists because:
India mainly exports raw materials (e.g., iron ore, cotton).
China dominates high-value manufacturing sectors (e.g., electronics, telecom, and machinery).
Key Concerns in India-China Economic Ties
1. Widening Trade Deficit:
• Export-Import Imbalance: India exports low-value raw materials but imports high-value finished goods, leading to a negative trade balance.
• Barriers to Indian Exports: China imposes non-tariff barriers (NTBs) on Indian goods, restricting exports in pharmaceuticals, IT services, and agriculture.
2. Over-Dependence on Chinese Imports:
• Critical Sector Vulnerability: India depends heavily on China for:
Pharmaceutical ingredients (APIs)
Electronic components
Telecom equipment
• Risk to Self-Reliance: This reliance conflicts with India’s Atmanirbhar Bharat (Self-Reliant India) initiative, which aims to boost domestic manufacturing.
3. Investment and FDI Restrictions:
• Policy Shift After the Galwan Clash (2020): India tightened FDI rules, requiring government approval for investments from countries sharing land borders.
• Gradual Easing in 2025: India is now considering relaxing restrictions to allow selective Chinese investments in areas that can boost India’s manufacturing capabilities.
4. Non-Tariff Barriers and Market Access Issues:
• Challenges for Indian Goods: China imposes stringent regulatory standards that hinder Indian exports.
• Need for Reciprocity: India seeks to use its openness to Chinese trade as leverage to gain better market access in China.
Way Forward for India-China Economic Relations
1. Diversify Trade and Reduce Dependence on Chinese Imports:
• Implement the China Plus One strategy to source imports from alternative countries.
• Encourage domestic production of critical goods like electronics, telecom equipment, and pharmaceuticals.
2. Strengthen Domestic Manufacturing and Export Capabilities:
• Boost high-value manufacturing sectors such as electronics, telecommunications, and pharmaceutical APIs.
• Invest in technology development and innovation to compete in global markets.
3. Negotiate Greater Market Access for Indian Goods:
• Use trade and investment negotiations to push for reciprocity in access to Chinese markets.
• Engage in diplomatic efforts to remove non-tariff barriers affecting Indian exports.
4. Calibrate FDI Policy to Attract Selective Investments:
• Gradually relax FDI restrictions for sectors where Chinese expertise can enhance India’s manufacturing capabilities.
• Promote joint ventures and technology partnerships to ensure knowledge transfer while mitigating risks.
5. Enhance Anti-Dumping Mechanisms and Trade Safeguards:
• Strengthen the Directorate General of Trade Remedies (DGTR) to monitor dumping cases more effectively.
• Regularly review import data and impose anti-dumping duties where necessary.
6. Strengthen Digital and Cybersecurity Framework:
• Reduce dependence on Chinese technology in critical digital infrastructure.
• Promote indigenous development of 5G, AI, and cyber defense systems to enhance national security.
By adopting these measures, India can reduce its trade imbalance with China, protect domestic industries from unfair trade practices, and achieve greater economic self-reliance.
Source: https://indianexpress.com/article/explained/this-word-means-dumping-china-goods-9903621/