#BOYCOTT CHINA: Jingoism or A Step Towards Right Direction?
The prospective solution to our economic hurdles have been temporarily reinstated by the move to Boycott China and determine a sense of responsibility in the right direction. As the tensions between India and China escalate at the border, the national sentiment sways towards boycotting China economically in the form of a ban on Chinese products and Chinese enterprises… Read More »
The prospective solution to our economic hurdles have been temporarily reinstated by the move to Boycott China and determine a sense of responsibility in the right direction. As the tensions between India and China escalate at the border, the national sentiment sways towards boycotting China economically in the form of a ban on Chinese products and Chinese enterprises operating within the country.
While some experts advocate this as a strong message to China and an effective political deterrent, others brush it off as a mere rhetoric. Given the tightly-bound economies of the two countries, is it logistically possible? and if possible, is it within the legal limits of India with regards to international trade covenants? We shall try to decode this through a point by point analysis.
I. ECONOMIC ASPECT
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Present Scenario
The bilateral trade between China and India is worth Rs. 6 lakh crores, out of which India’s exports share is Rs. 1.17 lakh crores, while the country imports goods and services worth Rs. 4.9 lakh crores from China. In 2019, India’s exports to China rose by 3.8% while imports recorded an increase of 7.5%.
Therefore, a lopsided trade deficit exists between the two countries. The idea of trade withdrawal with China poses problems that the people demanding a blanket ban on Chinese imports have not given due consideration to. In economies of scale, China beats everyone. The production of sub-quality and cheap product somehow strikes the chord with Indian market conditions and a rigid monopoly has been established.
This has created a crunch for Indian manufacturers of similar products who have struggled to compete with below-cost pricing and dumping policies of the Chinese manufacturers. The result has led to market capture by Chinese products and service providers. Whenever we tweet #boycottchina from our Chinese smartphones, irony dies a painful death.
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What needs to be done?
The first and obvious step that appears to be practical, is enhancing the production capacity of the country and move towards a more self-reliant economy. The concept of Make-in-India needs to be better scaled and the time of distress should be used to catapult the Indian economy as the domestic producers in MSME[1] sectors have been worst affected.
The national sentiment of people towards using national produce should be capitalized upon and people should have viable options where the fire of patriotism in them should not burn their pockets. Countries like Japan have already announced an economic stimulus package of $2.2 billion to diversify their manufacturing and supply chains to newer destinations and helps its manufacturers shift production out of China.[2]
Confederation of All India Traders (CAIT), a body which represents 7 crore traders and 40,000 trade associations announced its solidarity with Prime Minister Narendra Modi’s call ‘vocal for local’. Through a national campaign to boycott Chinese products in CAIT, the traders aim to reduce imports from China to $13 billion from $68.3 billion by December 2021.
CAIT released a list of 500 categories of products imported from China, that it said could be swapped with goods made in India. These include items such as apparel, consumer electronics, kitchenware, watches, decorative lighting, toys, etc.[3]
Similarly, India needs to re-orient its economic order and expand the growth in sectors for which India has infrastructure as well as technological know-how. Withdrawal of Chinese consumer products would create a huge void in the Indian market and therefore the substitutes shall exist to restore the balance of the market.
In recent times, India has emerged as a hub of pharmaceutical industry production and export of a large amount of hydroxychloroquine throughout the world. Other similar domains need to be pointed out and a strong foreign investment policy needs to be meted out accordingly.
II. Legal Analysis
Focusing on the legal aspect of the much-demanded boycott, it is interesting as well as essential to know if it would stand the test of international law and our global commitments.
A. Barriers against Boycott
(i). Most Favoured Nation Agreement
The supreme trade governing body is WTO,[4] which replaced GATT[5] in 1995. India and China, both being signatories to GATT multi-lateral agreement, are bound by certain laws. In fact, no member-nation is at liberty to make decisions best suited to just its own economical-political condition. Along with numerous trade benefits and global market exposure, WTO levies certain obligations on all its member nations.
Article I of GATT calls for a most-favoured-nation treatment. Accordingly, all member nations are to be subjected to equal conditions with respect to exports, imports or international transfer of payments across borders. No special treatment can be accorded to a product of any country with respect to any like product of other member-nation.
This postulates that a blanket ban on Chinese imports would mean that in order to adhere to MFN treatment, India would have to place similar restrictions on all member nations which is a moot consideration. Article 1 mandates equal treatment for all member nations and therefore, policies to detriment of one or few member nations cannot be put into action without violating WTO norms.
So, if a blanket ban on Chinese products cannot be made, how about levying additional taxes to take away their low-pricing policy?
(ii). National Treatment Obligation
The heart and soul of this agreement remains to be the National Treatment Obligation under Article 3 of GATT, National treatment on international taxation and regulation, it mandates a national treatment obligation for products of other member nations.
Article III (4) states that “The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.”
Any additional tax levied on Chinese products would create an unfair market term and would be considered a violation of national treatment obligation. The words: ‘treatment no less favourable’ in paragraph 4 calls for effective equality of opportunities for imported products in respect of the application of laws, regulations and requirements affecting the internal sale, offering for sale, purchase transportation, distribution or use of products.”[6]
The govt. is bound to provide “like” domestic products and an imported product equal treatment with respect to all laws and hence, any additional tax solely on the virtue of place of origin would contravene the WTO agreement. Therefore, the policies of additional taxing or placing a blanket ban would not serve the purpose is a legitimized way. So, the question remains what can be done? and should anything be done at all?
B. What could be done?
However, to prevent the over-dependence of the Indian market on Chinese goods and protection of small local manufacturers, the govt. can levy Anti-dumping and countervailing duties. These are enshrined under Article VI of GATT.
(i). Anti-Dumping Duty
Dumping is the process by which products of one country are introduced into the commerce of another country at less than the normal value of the product. This is condemned because it threatens the already established domestic injury and discourages new industries producing similar products from being set up.
Every country has the growth of its domestic industry at the helm of its financial considerations. Therefore, it creates a condition where one country via its power of mass productions dumps its product into other country creating unfair market conditions.
WTO seeks to tackle this problem by allowing the importing country to levy an anti-dumping duty under Article VI(2). This duty shall be equal to the amount of the difference of normal price of the product and the price of dumped product.
Further, the country of origin may grant a subsidy or bounty, directly or indirectly, on manufacture, production or export of such product. This allows the manufacturer to sell the product at a lower price in the market of other countries and thus, skew the competition in their favour.
(ii). Countervailing Measures
Article VI(3) allows the government to levy a countervailing duty on the imported products. The term countervailing duty means “a special duty levied for the purpose of offsetting any bounty or subsidy bestowed, directly or indirectly, upon the manufacture, production or export of any merchandise.”
However, no product can be subjected to both countervailing and anti-dumping duties.
China has become a global manufacturing hub by virtue of its cheap skilled labour, mass production facilities and pro-industrialization government policies. Chinese govt. has highly subsidized the manufacturing sector of the country which enables them to flood the global market with cheap products.
Countervailing duties can be brought into action to normalize the price of these goods so that a level playing ground can be established for all producers. Despite being known for being cost-effective, Chinese products are notorious for lacking quality and durability. Therefore, if the prices of these products are comparable to like products of domestic manufacturing, the local product is sure to surpass it in terms of consumer choice.
(iii). Special and Differential Treatment
The WTO Agreements containing special provisions give developing countries special rights and developed countries the possibility to treat developing countries in a more favoured way than other WTO Members. The provisions include things like, longer time periods for implementing agreements, commitments or measures to increase trading opportunities for developing countries.
India, as a designated developing country, should use this provision to negotiate better trade deals with developed economies and get better reach in other global markets. It also allows India to use De-Minimis provision which allows India to give a subsidy of up to 10% (amber box subsidies) for agricultural produce, which is up to 5% for developed countries.
Article 21(b) (iii) of GATT agreement also provides a security exception which enables a member nation to take steps which it finds essential for its security in time of war or other emergencies in international relations. However, at this time it would be improper to invoke this Article as peace negotiations continue between the two countries. It’s a golden rule of international relations that the back door of diplomacy shall always remain open.
CONCLUSION
In a Rajya Sabha speech, the finance minister explicitly said that it is not possible to put a blanket ban on China as WTO rules do not allow the same. India has always respected its international commitments and has framed its national policies in accordance with international laws.
However, in the recent times, Make-In-India policies of the government have been contested in WTO dispute resolution body by various countries.[7] Therefore, trade restrictions on China, direct or indirect, would attract such similar disputes.
It is high-time we realize that the policy of boycotting Chinese products shall be seen as nothing but a manifestation of self-reliance in terms of industrial production. Indian exports account for 2% of China’s total export. Rather than seeing this as an opportunity to hamper China’s economic growth, we should see this as a way to grow our own economy and reduce our over-dependence on the Chinese market.
The issue here should not be how much India could harm China but also the fact that how much would the Indian economy be harmed if China severed its business ties with us. The potential retaliatory actions should also be taken into consideration. Short-term and micro-economical plans would not secure India a victory in this great war.
A meticulous action plan and gradual strengthening of the Indian economy would pave a way in this direction. Some of our sectors remain highly dependent on Chinese input, especially in the engineering and electronics market. India serves as a great booming market for these products and therefore it is high time we seek self- reliance in these crucial sectors.
Therefore, the need is to diversify our imports from other countries while we up-scale our manufacturing infrastructure and skill development. From a seller’s point of view, the Indian market poses great potential for a variety of goods as the consumer’s tastes and preferences are diversifying and the standard of living in the country is on the rise. It would be in our best interest if this potential is harnessed by our own manufacturers.
Authored by: Rohan Pathania & Kirti Bhushan,
Campus Law Centre, University of Delhi.
References
[1] Micro, Small and Medium Enterprises
[2] See here: https://economictimes.indiatimes.com/news/defence/covid-19-and-indias-trade-dependency-on-china-should-we-continue-our-ties/articleshow/76351547.cms
[3] See here: https://www.livemint.com/news/india/cait-amplifies-call-to-boycott-chinese-imports-amid-india-china-border-dispute-11592404697267.html
[4] The General Agreement on Tariffs and Trade, 1948. See the full text here: https://www.wto.org/english/docs_e/legal_e/gatt47.pdf
[5] World Trade Organisation
[6] Panel Report, US – Section 337 Tariff Act of 1930, paras. 5.11. See here: https://www.wto.org/english/tratop_e/dispu_e/gatt_e/87tar337.pdf
[7] DS518: India — Certain Measures on Imports of Iron and Steel Products; DS430: India — Measures Concerning the Importation of Certain Agricultural Products; DS584: India — Tariff Treatment on Certain Goods.