India China establish joint panel to defuse trade tension and resolve toy imports issue
India and China are in bilateral official-level talks in New Delhi. China is now India’s largest trading partner and India is China’s 10th largest trading partner. There is a huge trade surplus favoring the Chinese side, but China says it does not intentionally seek a trade surplus with India. From the new developments it seems unlikely that China will go in for formal WTO dispute settlement on the toy imports issue. The Indian government has admitted that the safety standards applicable at present exclusively to toy imports from China, need to be extended to imports from other countries and that comparable standards need to be put into place for Indian-made toys as well.
Xinhua reports:
During the talks, both sides agreed to set up a joint working team to coordinate and communicate regularly on the problems of bilateral trade, said the sources
The Chinese side expressed great concern over India’s frequent trade remedy probes against Chinese products, especially the prejudicial restrictive measures against Chinese toys, and asked India to avoid abusing trade remedy measures to over-protect its domestic products, and to uplift the restrictive measures on Chinese products, which were imposed merely out of prejudice and contradicted the WTO rules, said the sources.
The Chinese side also hoped that the two sides should solve bilateral trade disputes through government-to-government communications and coordination and strengthening of dialogue between the industrial sectors of the two countries, said the sources.
Vice Minister Zhong said at a media conference that China reserves the right to resort to the WTO dispute solution authorities over India’s ban of Chinese toys, but still believes the two sides have the capability and wisdom to solve this problem through communications and coordinations
Secretary Pillai said that according to Chinese statistics, bilateral trade between India and China has attained a volume of 51.8 billion U.S. dollars in 2008, so China has overtaken the United States as India’s largest trade partner.
Pillai expressed his hope that both sides expand bilateral trade and investment, and stand up against trade protectionism, saying India is willing to solve the problem of on-going anti-dumping and anti-subsidy investigations against Chinese products through coordination at the level of the joint working team.
In order to avoid possible prejudice against Chinese toys, India will also study and make up as soon as possible the safety standards for toy products, so that all imported toys and domestically made toys will all abide by the standards, he added.
The Indian side also hopes that China will solve as soon as possible the problem of quarantine and safety tests for Indian agricultural products and beef products bound for Chinese market, and take concrete measures to expand import of such products from India.
The Chinese side said that China does not intentionally seek trade surplus with India and wants to have a balanced development of bilateral trade and push forward the solution of the problem of quarantine for Indian food products.
According to statistics of Chinese Ministry of Commerce, from October 2008 to February 2009, India has launched 17 trade remedy probes, including those of anti-dumping and anti-subsidy, against Chinese products, covering industrial salt, steel, auto parts, coal products, porcelain products, textile and rubber products, which means a total loss of more than 1.5 billion U.S. dollars for the Chinese producers and traders.
Moreover, the Indian government has imposed restrictions on imports of Chinese steel, chemical and textile products and declared a six-month ban of Chinese toys in January. But due to opposition of home toy dealers, India has eased the ban on boys and allows import of products with international safety certificates.
New blog category added for posts on recent Indian safety measures against Chinese toy imports
Due to the continuing interest in the discussion on the recent Indian measures against imports of toys from China on safety considerations (first the ban and then its revision to new mandatory safety standards), I have created a new blog category Indian safety measure for Chinese toys where all posts and comments on this issue can be accessed. I hope this will facilitate retrieval of information for those interested.
China criticizes new Indian mandatory standards for Chinese toys before TBT Committee
The Economic Times reported yesterday that China has raised the issue of the mandatory safety standards imposed by India on imported Chinese toys before the WTO Committee on Technical Barriers to Trade.
In its complaint to the WTO, China has alleged that India’s quality checks violate the condition of “national treatment” laid down under WTO’s trade rules as they did not apply to toys manufactured in India or imported from any other country.
In its submission to the WTO committee on technical barriers to trade, China pointed out that since the restrictions apply only to Chinese toys, it could be viewed as a general ban on and a discriminatory measure against Chinese toys.
This breached a series of fundamental principles embodied in the WTO agreement, including that of most favoured nation treatment (every member country will be treated on a par with other member countries), and national treatment (product from a member country will be given the same treatment as that given to a product made locally), along with provisions of technical barriers to trade (TBT) agreement.
China also pointed out that India did not inform WTO about the restrictions, a procedure necessary under the transparency obligations of TBT agreement.
“China strongly requests that India revoke its discriminatory and WTO-inconsistent restriction on Chinese toys immediately,” the submission stated.
So China is alleging that even the revised Indian notification violates both MFN and national treatment. Further, it violates the notification requirement in the TBT agreement. For more background, see earlier posts on this subject under the category –public health. See http://indiainthewto.wordpress.com/2009/03/02/indian-government-relaxes-ban-on-chinese-toy-imports/
Why did the Indian government not use Clause 2.10 of the TBT agreement permitting the issue of safety standards in urgent cases with post-facto notification to the WTO secretariat and other members? Such a notification requires the statement of objectives and the rational for the standards. India will probably argue that these are international standards not requiring notification, but the application of these standards exclusively to imports from China does raise potential violations of MFN and NT.
The Indian authorities could have avoided a lot of trouble if only they had also followed the letter of WTO rules in this matter. The flexibility to take action against imports for safety reasons is fully available, but the Indians seem to have messed up on procedure. Is this an example of lack of capacity in Indian government institutions to use the WTO rules effectively? Why do they not consult lawyers more?
The Hindu meanwhile has an interesting take on the matter:
China is likely to convey its concern to India over New Delhi trying to restrict import of Chinese goods, even though Beijing has not "yet" dragged its neighbour to the World Trade Organisation on the issue.
Chinese Vice Minister of Commerce Zhong Shan is expected to convey his country’s strong resentment over India resorting to protect its industry against imports from China, when he meets Commerce Secretary G K Pillai here this week, sources said.
"We have nothing on this yet," WTO spokesperson said in an e-mail from Geneva when asked whether China has lodged any formal complaint against India. China was upset over India slapping a ban on import of Chinese toys on January 23, which was partially eased within six weeks, provided the toys conformed to international health and safety standards.
The official Chinese media had reported that the country was mulling to drag India to WTO for contesting the ban. However, Mr. Pillai is expected to confront Mr. Zhong with data showing surge in imports from China.
While the bilateral trade has seen a sharp rise in the fiscal 2008-09, it is highly skewed in favour of China. In 2007-08, India’s exports to China stood at USD 10.83 billion, while imports was USD 27.11 billion.
So why would Indian Commerce Secretary talk to the Chinese about surging imports in a matter to do with safety issues? To be fair, the discussions between the Indian Commerce Secretary and the Chinese Vice Minister of Commerce will likely cover all the recent trade tensions between the two countries. And the discussion of import surges will probably feature in that context.
Why India should issue a fresh notification giving reasons for the ban on chinese toy imports
Kamal Nath has clarified that the six-month ban on chinese toy imports into India was for public health and safety reasons. Reuters reports:
India’s trade minister said on Friday the government’s decision to ban imports of Chinese toys was taken on the grounds of public safety and the move was compatible with World Trade Organisation rules.
Last month, India banned imports of several types of toys from China for six months "in the public interest" but without giving further details of why, a move that pleased local manufacturers but shocked importers.
"The question of banning Chinese toys was on the grounds of public health and safety," Trade Minister Kamal Nath told reporters after a conference.
"It is a matter which is of public concern rather than commercial, and public concern has to be given priority over commercial concern," he added.
On Wednesday, the China Daily newspaper reported that China may ask the WTO to investigate the six-month import ban, citing a source close to the matter.
The Chinese government will probably ask the global trade regulator to look into whether the move violates its laws, the state-owned paper said, quoting a source who asked not to be named.
"Of course, it is for China to establish this," Nath said.
"We are fully compliant with WTO … Before we take any action we make it sure it is WTO compatible," he added.
To scotch any potential challenge or complaint from China, it would probably be advisable for the DGFT to issue a fresh notification imposing the ban but this time stating these reasons clearly in the notification. This would overcome any objection to the present notification on the ground that the absence of reasons violates principles of natural justice. Further, stating the public health interest in the notification itself will help counter allegations that the prohibition was issued for protectionist reasons. A fresh notification would pre-empt any challenge of the ban by way of writ petition by an Indian importer before a High Court or the Supreme Court of India. (Though the Foreign Trade Development and Regulation Act provides for appellate and revisionary jurisdiction, these provisions won’t apply here.)
For some background on Indian administrative law and Supreme Court rulings on the obligation to give reasons in support of administrative action when such action affects rights or liabilities see here. The statute under which the notification has been issued [the Foreign Trade (Development and Regulation) Act, 1992] can be found on the DGFT website here under the notifications link.
Text of Indian notification banning imports of toys from China
This is what the notification states:
TO BE PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY
PART-II, SECTION—3, SUB SECTION (ii)
GOVERNMENT OF INDIA
MINISTRY OF COMMERCE AND INDUSTRY
DEPARTMENT OF COMMERCE
NOTIFICATION NO. 82 /(RE-2008 ) / 2004-2009
NEW DELHI, DATED 23 JANUARY, 2009
S.O. (E) In exercise of powers conferred by Section 5, read along with Section 3(2) of the Foreign Trade (Development and Regulation) Act, 1992, also read along with paragraph 2.1 of the Foreign Trade Policy, 2004-09, the Central Government hereby amends Schedule – I (Imports) of the ITC (HS) Classifications of Export and Import Items, 2004-09 as under:-
1. “Import of ‘Toys’ from China appearing under ITC Codes 9501, 9502, 9503 of Schedule – I of ITC(HS) Classifications of Export and Import Items is prohibited for six months with immediate effect and until further orders.”
2. This issues in public interest.
Sd/-
(R.S. Gujral)
Director General of Foreign Trade and
Ex-officio Additional Secretary to the Government of India
(Issued from F.No. 01/89/180/0053/AM01/PC-2(A)
It can be found on the DGFT website here
New developments plus some background on the Indian ban on imports of Chinese toys
Whats new?
The China Daily reports that the Chinese government is considering complaining to the WTO DSB against the recent Indian notification that banned imports of Chinese toys but omitted to specify the reasons for the ban.
The Chinese government is mulling a response to India’s recent ban on Chinese toy imports and will probably ask the World Trade Organization to investigate whether the ban violates WTO laws, said a person close to the issue on condition of anonymity.
This comes after a similar move in which China asked the WTO to investigate anti-subsidy and anti-dumping duties imposed by the US on four categories of imports from China in December.
Experts said it is a sign that China will be leveraging WTO rules to help protect its manufacturers from illegal trade barriers and punitive measures by its trading partners at a time when protectionism is growing amid the global economic recession.
…
"The ban cannot hold water. The Indian side is doomed to lose in the court if the Chinese government appealed to the WTO Dispute Settlement Body," said Fu Donghui, managing director of Allbright Law Firm Beijing, which deals with WTO-related cases.
…
"In the past, the Chinese government always kept silent. But the situation is changing, and resorting to the WTO is a right choice to prevent the trade partners from abusing the WTO regulations," said Fu.
The notification issued by the Directorate General of Foreign Trade should be here but is not. GATT article X calls for prompt publication of such notifications "in such a manner as to enable governments and traders to become acquainted with them" No doubt the notification has been published in the official gazette, but it is not on the DGFT website. How are traders to find the notification?
Correction dated 7 January 2008: The DGFT notification is on their website here. For some reason did not find it before.
This report from a local mumbai news site has some more. Apparently, the notification mentions it is issued in public interest but gives no reasons as my earlier post had noted.
The notification "without reasons" clearly violates Indian administrative law as clarified by numerous Supreme Court decisions and could be challenged in an Indian Court by an importer or consumer of chinese toys. Further, even GATT article X:3(a) requires that WTO member governments administer their laws in a uniform, impartial and reasonable manner. The absence of reasons would seem to make out a case under this provision also.
There seems to be another problem with the notification. Apparently, and this is from news reports only, the notification bans direct imports from China but does not address imports of Chinese toys from third countries. This could also lay open the notification to legal challenge. The argument would be that the notification fails to achieve its objective of "safety" and the ban is being applied in a non-uniform manner.
Meanwhile, the Economic Times had reported earlier that the reason for the six month ban was to enable the government to formulate acceptable safety standards in this period. Why did the government not decide to issue emergency safety standards immediately? I suspect this was because many Indian toys would probably also have failed to comply. An Economic Times report noted that Indian toy manufacturers in the unorganized sector needed time to be able to comply with safety standards.
The background for this whole development seems to be a public interest litigation (PIL) that was filed before the Mumbai High Court by a consumer organization in 2007. The Maharashtra Pollution Control Board had apparently informed the Court in April 2008 that Chinese toys in India were found to contain unacceptable levels of toxins. See here. This PIL deals with both imported and Indian-made toys.
An outlook article has more on the lack of standards issue:
Following a report by Delhi-based NGO Toxics Link in 2006-07, highlighting the presence of toxic materials in a range of toys priced below Rs 150 ($3) found across the country, the Consumer Welfare Association of Mumbai filed the PIL. An added provocation was the government failure to check imports of ‘harmful’ toys. Says Rajiv Chavan, the advocate representing CWA, "There are two issues we have raised: the import of toys and the manufacturing of Indian toys." Indian toys meet around 50 per cent of the Rs 10,000-crore domestic market. According to Toxics Link, high levels of lead, cadmium and phthalates (a chemical used for softening plastics) can be found in most cheap toys—be they Indian or imported—bought by a majority of urban children. "How does the ban on Chinese toys protect consumers’ interest considering half the market is mostly cheap made-in-India toys with no control on quality," asks Ravi Agarwal of Toxics Link. "There is need for a mandatory standard to protect young consumers," he adds.
And spurred on by the judiciary, various ministries—consumer affairs, health, commerce, micro, small and medium enterprises (MSME)—have begun to study ways to enforce quality standards. The bad news: don’t expect safer toys in a hurry. Take, for instance, the norms put out by the Bureau of Indian Standards (BIS), which fall far short of global standards. While the European Commission had 11 safety standards for toys, India had only three—which deal with the mechanical and physical safety and flammability of toys. "The BIS calls these three standards equivalent to European standards…. But for other areas like organic, chemicals, paints and solvents used, we have nothing," complains A.M. Mascarenhas, secretary, Mumbai CWA.
Consumer affairs secretary Yashwant Bhave admits many issues are yet to be looked at. Though BIS has standards, "the issue is of making them compulsory", he says.The ministry is studying the legality of making the standards mandatory and whether it would require "mere notification or bringing in legislation", which would mean seeking Parliament approval. Pillai reveals there’s a proposal to make quality standards mandatory for certain products for young children. Simultaneously, the MSME ministry is studying ways to gradually introduce mandatory requirements to regulate toxicity of chemicals used in toys. "We have been told that in the first stage rules will be set for PVC and metal toys," says Ashok Jain, president, All India Toy Manufacturers Association. To support industry, more toy-testing labs will be set up (there are only four now).
Then, recently, the health ministry constituted a committee headed by Dr Y.K. Gupta of the AIIMS pharmacology department to study the veracity of the Toxics Link report. Says Dr R.S. Dhaliwal of ICMR and coordinator of the seven-member panel, "The health effects of metals are already known. What we are studying is the levels of toxicity in toys and its uptake or migration into the human body." While the domestic toy industry is ready to abide by better quality standards, this will take time: the court has been informed that the process to gauge levels of chemicals in toys can take up to two years.
Why can’t the government issue emergency safety and health standards under Article 2:10 of the agreement on technical barriers to trade?
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