Home / Opinion / Views /  Opinion | There are various ways for India to take trade action against China

China is a member of the World Trade Organization (WTO). Therefore, one must be careful about trade action taken against China. So runs a refrain. Yes, China did become a member of the WTO on 11 December 2001. On 15 June 2020, the global trade body issued a rather innocuous sounding statement: “As the panel had not been requested to resume its work, pursuant to Article 12.12 of the [dispute settlement understanding], the authority for establishment of the panel lapsed as of 15 June 2020." This was a reference to a mutually-agreed solution to a dispute between the EU and China. The core of that dispute was an anti-dumping agreement and the way that the EU had imposed anti-dumping duties against China. If a Chinese product is exported to India at a price lower than that of a comparable Indian product, this does not qualify as “dumping". Under the WTO, as under its predecessor arrangement, the General Agreement on Tariffs and Trade (GATT), dumping has had a specific legal definition. If a Chinese product is exported at lower than “normal value", dumping occurs. The normal value can be determined as: a) the domestic cost of production in China plus a mark-up; b) the product’s price in China’s domestic market; c) its export price in a third country. The first and second of these are possible and plausible only if input and output prices within China are determined by the market, not by the State. Since prices within China are subject to distortions, the EU used the last of the three methods, and in December 2016, China requested consultations with it.

Note the names of countries that joined those consultations in 2016—Vietnam, Australia, Canada, Japan, Russia and the US, with Mexico following suit in 2017. This list has countries that have, or might have, trade disputes with China. When consultations led nowhere, China formally complained, and the WTO’s dispute settlement body (DSB) set up a panel in July 2017. This panel was supposed to submit its final report in the second quarter of 2019. At this point, to quote Alice, of Wonderland fame, the story became “curiouser and curiouser". China withdrew its complaint. This was agreed to in June 2019, and after waiting for one year, in June 2020, the panel was dissolved. It would have been interesting to read what the panel thought of China’s status as an economy. But since China withdrew the complaint, no report exists in the public domain. More interestingly, having lodged a complaint, when does one withdraw it? Logically, that only occurs when one is certain of losing the dispute. The dispute here isn’t only about the anti-dumping agreement, though that was the trigger. It is about China’s status as a market economy. Beyond December 2016, China hoped it would get “market economy" status.

But that was contingent on China complying with disciplines agreed to at the time it joined the WTO. Since those disciplines haven’t been complied with, China cannot be treated as a market economy, a relevant point for both anti-dumping investigations (and consequent duties) and anti-subsidy investigations (and consequent countervailing duties). Note that except the anti-dumping agreement, no action against individual companies is subject to WTO disciplines. These apply to countries, not enterprises. Therefore, for anti-dumping and subsidies, China may be a WTO member, but it is not like any other member. Yet another possibility of action against China is in the safeguards agreement. Apparently, safeguard measures must be applied on a most favoured nation (MFN) basis, that is, “irrespective of the source".

Typically, safeguard measures are quantitative restrictions or tariff rate quotas, not hikes in basic customs duties. If one reads the safeguards agreement carefully (such as Article 5), there is quite a bit of leeway in allocating import licences among possible exporters.

The WTO is about multilateral agreements. There are several regional trade agreements (RTAs) too. If one ignores future and possible RTAs, given the China angle, the most pertinent one is the Asia Pacific Trade Agreement (APTA), also known as Bangkok Agreement. When first signed in 1975, its members were Bangladesh, India, Laos, South Korea and Sri Lanka; the Philippines and Thailand attended the meeting but did not ratify the agreement. China wasn’t a member until 2001. Membership of it may have been worthwhile for India in 1975, but that need no longer be true. All it takes for India to withdraw from APTA is a notice of six months. In trading with these partners (other than China), any market access India obtains, or concessions it grants, can be pushed through the South Asian Free Trade Area and agreements with the Association of Southeast Asian Nations. In the India-China trade relationship, it is doubtful that India gains much through APTA; China gains much more. Other than opting out of APTA and not joining any future trade agreements that has China as a member, there are also rules of origin. These plague all RTAs, not just those in which India is a member. Under RTAs that India has signed up for but China hasn’t, agreement inadequacies mean that Chinese exports get routed via third countries. Unfortunately, under the GATT/WTO umbrella, there hasn’t been much movement on harmonizing the rule of origin. Importing countries have been left to figure these out. With no progress under the WTO, as India re-evaluates its RTAs, the rules of origin also need to be re-negotiated. Even without mentioning standards, plenty of trade action can be directed against China, despite it being a WTO member.

Bibek Debroy & Aditya Sinha are, respectively, chairman and assistant consultant at the Economic Advisory Council to the Prime Minister

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