India in the WTO

The Indian government has relaxed its import ban on Chinese toys and will now allow imports of toys from China provided these are accompanied by prescribed safety certification. For more see earlier post. The text of the new notification issued today reads:

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. 91 /(RE-2008) / 2004-2009

NEW DELHI, DATED 2^nd MARCH, 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 Notification No. 82 /(RE-2008) / 2004-2009 dated 23^rd January, 2009 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. However, import of toys from China accompanied by the following certificates shall be permitted:

(i) A certificate that the toys being imported conform to the standards prescribed in ASTM F963 or standards prescribed in ISO 8124 (Parts I-III) or IS 9873 [Parts I-III];

(ii) A Certificate of Conformance from the manufacturer that representative sample of the toys being imported have been tested by an independent laboratory which is ILAC accredited and found to meet the specifications indicated above. The certificate would also link the toys in the consignment to the period of manufacture indicated in the Certificate of Conformity”.

2. This issues in public interest.

(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)

This comes a day after a news report that a Chinese complaint over the ban was discussed in the Indian Parliament:

"Ambassador of People’s Republic of China to India has expressed the concern of their government regarding the ban on import of Chinese toys…," Minister of State for Commerce and Industry Jairam Ramesh said in a written reply in Rajya Sabha to a question if China has threatened to drag India to the WTO over the ban.

China Daily had filed this report about how the ban had led to stocks shortages in India even for internationally-renowned branded toys given their made-in-China tag:

NEW DELHI — Indian toy dealers are running out of stocks of toys and prices of toys have soared by 30 percent to 100 percent due to a government ban on Chinese toys, reported local daily Times of India Saturday.

The report said since the ban on Chinese toys were imposed last month, the stocks of importers and wholesalers have started diminishing.

The report quoted Ashima Razdan, a merchant at the Mama’s Little Donut in Panchsheel Enclave market in New Delhi, as saying that as "every toys of branded companies which are available around the world are made in China," the banning of Chinese toys led to retailers selling imported toys like special puppets "gone out of stock".

The report also quoted Saurabh Kharbanda, a merchant of Maya Sports in Janpath in the Indian capital who has been in toy business for over 40 years, as saying that "even internationally renowned brands have stopped their billing and we are not getting stocks".

"Prices of some unbranded toys have even become double or higher. We have never seen such a situation before where getting supplies is becoming next to impossible," the report quoted him as saying.

A Bloomberg story reported on the panel established by the Indian government to recommend safety standards for toys:

India has set up a panel to prescribe more stringent standards for the permissible level of hazardous substances, including lead, in toys.

The panel will “very soon come up with recommendations,” junior industry minister Ashwani Kumar said in parliament today.

The plan to toughen the safety standards comes after a spate of recalls of Chinese-made toys by companies such as Mattel Inc. India on Jan. 23 banned imports of Chinese-made toys for six months, saying they were a hazard to public health. Mattel recalled more than 21 million Chinese-made toys in 2007.

The imported toys contained more lead than admissible, Kumar said today. The new rules will specify the quantities of hazardous substances that will be permissible and make the law more enforceable, he said.

The U.S. Congress last year passed the first overhaul of consumer protection laws in almost two decades after millions of Chinese-made toys were recalled because of excessive lead content.

India said it’s ready to discuss its ban on imports of Chinese toys after China said the block will have a “serious impact” on bilateral trade relations.

Asia’s second-biggest economy will probably ask the World Trade Organization to investigate the Indian ban, the official China Daily newspaper reported Feb. 5.

More than 4,000 Chinese toy companies closed last year because of waning demand and tighter safety standards, the official Xinhua News Agency reported Feb. 7.

Here is a curiously interesting report from the Economic Times … the Indian Committee of Secretaries has advice for the Ministry of Commerce:

Apply WTO-approved curbs to ban imports, advises CoS
28 Feb 2009, 0102 hrs IST, Amiti Sen, ET Bureau

NEW DELHI: The commerce department, which restricted the import of a number of items from China this fiscal by allowing only actual users to import them through special licences issued by the government, may no longer be able to take the measure on its own.

The committee of secretaries (CoS), headed by the Cabinet secretary, is of the view that such restrictions could lead to violation of multilateral trading norms established by the World Trade Organization (WTO) and should be used sparingly. It suggested that the decision to impose such restrictions, when absolutely necessary, should be taken by the CoS, a government official said.

The commerce department should, instead, use the WTO-approved special safeguard mechanism (SSM)—where special import duties are imposed to prevent import surges—to help industry against cheap imports, the CoS proposed in a recent meeting.

The commerce department, in November last year, had put a number of items on the restricted list of imports like hot-rolled steel and radial tyres which are being mostly imported from China. Import of all items on restricted list is allowed only by actual users through import licences issued by the government.

The import of restricted products is, thus, totally in control of the government — a situation WTO may not tolerate. “If we are taken to WTO by an exporting country and found guilty of violating WTO rules, retaliatory sanctions can be imposed against our exports,” an official said.

The use of special safeguard mechanism, however, is allowed by WTO as it leads to imposition of additional import duties on products once it is conclusively proved there has been a surge in the import of an identified product leading to domestic market disruption and injury to the industry.

New Delhi has already imposed safeguard duties on four items, all chemicals. The directorate general of safeguards, set up under the department of revenue, carries out investigations following complaints made by the domestic industry against increased imports of a particular commodity.

Once it is satisfied that there has been a sharp increase in the import of a product and has led to losses for the domestic industry, it imposes 200-day temporary import duties on the product. The safeguard duty could be in place for up to three years if the domestic industry continues to be threatened by imports.

With the slowdown leading to contraction in global demand, the government is focusing on protecting the domestic industry against cheap imports.

Thoughts … turf wars?

Also, the Committee of Secretaries view might give ideas to Chinese trade officials about a potential WTO violation here on Indian restrictions on imports of hot-rolled steel and radial tyres. 

And with the global economic crisis and the slow-down in India, there seems to be general protectionist sentiment all-around. In an election year, the Indian government has not much option but to protect domestic industry and very little appetite for signing new FTAs and lowering any tariffs. See earlier post

According to news reports, the Indian Directorate General of Foreign Trade (see website) has banned imports of Chinese toys for six months. And apparently, the notification issued does not give any reasons. Newspapers speculate protectionist reasons, but the Commerce Secretary says it is for public health. But surely, the notification itself should have included the reasons. Indian administrative law would require this, besides WTO obligations. Will China complain or react? Will this fall under the GATT article XX exemption, since there are apparently no existing Indian safety standards for toys to make it a TBT issue? Also, don’t think it raises any SPS issues.

The Indian Express writes:

“We are surprised that the government has taken this step. In most likelihood, it has been done to protect India’s labour engaged in this sector,” said Rajesh Arora, general secretary, Toys Association of India (TAI). “We are following toxicity standards and there is no reason why we should make any such recommendation,” Arora said.

“We are not aware of this development,” said Dinesh Rai, Secretary, Ministry for Small and Medium Enterprises said. The organised sector makes up $1 billion of the total $2.50-billion toy industry. The per capita expenditure on toys in India is just 50 cents, it’s $34 per capita in the US.

The Business Standard article states:

According to industry estimates, Chinese toys account for half the country’s toy market. According to commerce ministry data, toys worth more than $24 million (or Rs 120 crore) were imported in April-June 2008-09.

The Toy Association of India’s President, Raj Kumar said the ban would severely hit imports of Chinese toys, but Indian authorities had likely taken the step in the interest of the economy.

“You see Chinese toys everywhere. The good, upper-end toys are made in India, but the cheap toys in the street and small shops were being dominated by them. They are bringing in toys without safety norms,” he said.

The Press Trust of India writes

While the government notification did not cite the reason for the ban, sources said it was concerned over a rise in imports of toys.
A concern had also been raised over the safety of children playing with the Chinese toys, which were found to be toxic.
Most of the varieties, including wheeled toys, dolls, stuffed toys, toyguns, wooden and metal toys, musical instruments, electric trains and puzzles are covered under the ban.
The Toys Manufacturers Association of India said it was pleasantly surprised by the decision of the Commerce Ministry to prohibit shipments of cheap toys from China.
"We welcome the decision. It is good for the industry," association President Raj Kumar said, adding it is in the interest of the country.
In the face of global downturn, Indian industry has been clamouring for protection from aggressive Chinese manufacturers.
Industry officials said there has been a surge in the import of handicraft and toys by Rs 1,000 crore during April -November 2008.
However, trade expert Arun Goyal said, "The ban would encourage smuggling of toys through Nepal borders. That would be more dangerous… It is bad, especially for the slum children, who an afford the cheap Chinese toys only." PTI

CNN IBN quotesthe Commerce Secretary as citing public health reasons.

A health concern or an economic compulsion? Following India’s the ban on import of milk, milk products and chocolates from China, the Commerce ministry has announced the ban on some Chinese toys for a period of six months.

The commerce secretary has told CNN IBN that, " The reason for the ban is a concern for public health. Chinese toys are known to have high content of poisonous substances like lead."

International and Indian studies in the past have shown that Chinese toys contain high amounts of lead.

In fact, a CNN-IBN special investigation one year ago, tested a random sample of toys for lead.

The results revealed that Chinese toys contained higher levels lead than their Indian counterparts.

The study also showed that the highest content of this heavy metal was in products like teethers for newborn and toddlers.

But its story also suggests possible protectionist reasons.

However, a closer look at the categories that have been banned by the Indian government include items like tricycles, pedal cars, recreational models and puzzles.

These are not necessarily toys that lend themselves to being constantly chewed or ingested- the one way by which lead actually leaches out can cause lead poisoning in children. So it looks like the commerce ministry has other concerns. Many say this temporary ban is a means of providing protection to domestic manufacturers, against cheap competition.

After all, over 70 per cent of all toys sold in India come from China.

Perhaps this is the governments way of heeding distress calls of small scale toys manufactures in a tough economic market.

And CNN IBC drops this interesting piece of information:

Meanwhile chew this fact- India continues to have no safety standard of all toys in India -Chinese or Indian.

The Business Standard carries an article today on the new steel quality control order that will come into effect from 12 February 2009. But all stakeholders are not supporting the new norms. And Japanese industry is already complaining that the new standards would amount to a technical barrier to trade.

The Steel and Steel Products (Quality Control) Second Order, 2008, is supposed to be operational from February 12. It was first scheduled to come into effect from September 12, 2008. The order requires all domestic steel producers as well as international companies selling steel to India to register with the BIS. Secondary steep producers have urged the government to delay the implementation of the order.

“Sub-standard or defective steel and steel products shall be disposed of as scrap,” the order says. But steel exports from India have been exempted.

“The order is very much there but the ministry is discussing if it should be implemented from the stipulated date or not. It has been postponed once. There is a request from secondary steel producers to postpone the implementation further,” said Steel Secretary PK Rastogi. He said the order was also applicable to steel imports.

The Cold Rolled Steel Manufacturers Association (CORSMA) has asked the ministry to introduce quality standards based on the application of steel. “Foreign suppliers are not keen to get BIS registration and might stop exports to India.

The Japan Chamber of Commerce and Industry has written to the commerce ministry against the proposed standards since they amount to technical barrier under the WTO norms,” said SC Mathur, executive director, CORSMA. Mathur added the order would benefit a few major domestic producers who face competition from cheap steel imports.

Sources in the secondary steel industry said the order amounted to a backdoor ban on steel imports and forcing them to depend entirely on domestic producers.

“The grade of steel required for the automobile industry is not the same as the quality of steel needed to produce a trunk. So introducing uniform quality specifications is not practical,” said a secondary steel producer.Bottom of Form

A copy of the gazetted order can be accessed here.

I had a quick look at the Order and it does not seem discrimnatory at least. All steel used in India whether domestic or imported will need to comply. Steel meant for export is exempt provided specifications provided by foreign buyers are at least “not less” than the specified Indian standards. Do these new standards comform to the TBT agreement?

Update:

The Economic Times reported earlier that Indian tin can makers are opposed to the new standards, while domestic tin plate manufacturers whose product is used to make tin cans support the standards.

As per the Metal Containers Manufacturers Association of India (MCMAI), can makers will have to scrap non-BIS certified tin plates lying as inventories and in-transit, which will amount to losses of more than Rs 200 crore. Tin plate is a high-priced steel product and constitutes 60% of the price of a tin can.
Under the BIS directive, global tin plate producers such as ArcelorMittal & Tata-owned Corus will have to pay annual marking and processing fee, which will increase their overall cost by 2%. This in turn will be passed on to the Indian tin plate importers, feels MCMAI.
“Since can makers have long term contracts with end users, it’s difficult to pass on the increased cost burden to them. Also, the users have option to import empty tin cans from abroad,” said MCMAI vice-president Sanjay Bhatia.
Countering the demand of can makers, domestic tin plate producers alleged that huge quantities of seconds and defective tin plates are being exported to India at low prices and has reduced demand for domestically produced products. Therefore, quality check on imported products is imperative.
India’s three big tinplate makers–Tata Group-owned Tinplate Company of India, SAIL and Gujarat-based GPT Steel–cumulatively produce 6.8 lakh tonne annually. The metal packaging industry requires 4 lakh tonne of tin plate annually, of which about 40% is imported.
“Domestic production capacity is being under-utilised as some end users manage to import seconds and prime tin plate at low prices. Use of unscrupulous products usually leads to contamination of food and non-food items,” said a top executive of a large domestic tin plate firm.

Wonder if the standards will be implemented given that the government will find it difficult to satisfy all stakeholders?

In a interesting article in the Hindustan Times, the shipping problems on account of security concerns faced by Indian firework manufacturers is highlighed. Apprarently, both Singapore and Sri Lanka have recently denied access to ships with fireworks coming from India on-route to places like Durban. Other Indian ports like Nava Sheva in Mumbai have also had there own problems. As a result, firework manufacturers from India have tied-up with Chinese manufacturers and export products from China under the Indian maker’s label.

Sivakasi firecrackers made in China? Ganesan gets his firecrackers made in China, and then obfuscates where they are made. The individual cartons simply say “Sony Fireworks” — there’s no mention of Sivakasi, India or China — but the crate says “Made in China”.

A town of 4 lakh that makes Rs 800 crore worth of firecrackers every year, Sivakasi has had to adopt this ingenious practice after exports plummet by 320 per cent over a decade to no more than Rs 20 lakh today.

There are two, diverse reasons for this: Sivakasi’s fireworks need trans-shipment to reach the world, either through Chennai port or through Tuticorin, 100 km to its west — and then to Colombo or Singapore.

Singapore won’t allow ships laden with fireworks because of tightened safety laws. Sri Lanka, on the other hand, cites security reasons for stopping the transhipment of Sivakasi fireworks.  

“Colombo is terrified of anything to do with fireworks because of the LTTE threat,” said M. Selvaraj, a leading Sivakasi manufacturer.

Tying up with the Chinese, then, is the only way out. China is the world’s largest fireworks manufacturer, exporting nearly 95 per cent of its production, earning Rs 5,000 crore every year. There is no chance of Sivakasi matching that figure.

The town’s manufacturers tried to reach the world through other Indian ports but failed. Since 2003, the Centre has allowed export of fireworks through the Nava Sheva port in Mumbai, but exporters say the authorities are so wary that the ships often sail away.

“The authorities think militants could use firecrackers as a cover for moving explosives,” said Ganesan. “We have discussed our problems with the Chief Controller of Explosives in Nagpur, but he was not really helpful.”

Some need for trade facilitation measures here? And what exactly are the security concerns? Are fireworks exports covered by WTO rules?

Sometime ago, the International Economic Law and Policy blog had a post on trade in fireworks. See here. It also discussed shipping problems for the fireworks industry and quoted a press release from the US fireworks association. The press release:

International Shipping Problems Affect the US Fireworks Industry

2008 is proving to be a very difficult year for the Fireworks Industry in the United States.

Recent problems in China which include a shortage of shipping lines and ports, are now causing a severe shortage of fireworks.  This will affect both consumer fireworks stores and stands, as well as the annual July 4th Display in many cities and towns across America.  Most companies are reporting dramatic increases in both product and shipping costs.  Many companies are reporting a severe shortage  of inventory as fireworks that have been ordered and in many cases, paid for, are still sitting in China with little or no chance to arrive in time for the busy July 4th season.

Reports from China indicate that the current port accepting fireworks for shipment may close at any time as China prepares for the Olympic Games.

Fireworks Company owners are at a loss as they have no control over the severe price increases nor the lack of shipping coming from China.

There is no indication when or if this situation will get better.

Look forward to reading this, (the paper contains case-studies for marine products and tea) and will comment on it later:

Pavel Chakraborty ad Nidhi Srivastava, “Environmental Standards and India’s Market Access Concerns” Icfai Journal of Environmental Law, Vol. 7, No. 2, pp. 11-21, April 2008 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1114038

Abstract:
Trade liberalization and improved access to the world’s markets lie at the heart of the sustainable development paradigm for developing countries. It can be growth in aggregate income and its distribution across various economic segments of society, efficiency in allocation of resources, generation of finances for development, or transfer and application of improved technologies and best practices. The expansion and diversification of export opportunities, including diversification into higher value products, also intensified the debate regarding the environmental protection measures and the international trade. The debate on the impact of trade liberalization has intensified with a growing literature on the effects of international trade on the environment. Many participants in the trade and environment debate fear that there could be conflicts between trade liberalization and environmental concerns. The issues of environmental regulation and international competitiveness revolve around the question of harmonization of standards and it is generally observed that competitive deregulation could lead to downward harmonization of environmental standards. This paper addresses reconciliation of these two – somewhat disparate – points of view. It discusses the key issues related to market access, particularly the impact of environmental measures on the access from an Indian perspective in case of two products: (1) marine products, and (2) tea. This paper covers a canvas that includes a background discussion on market access issues related to environmental requirements, emergence of environment-related issues in the WTO agenda, environmental provisions in various agreements that could pose a non-tariff barrier, discussion on experiences with specific non-tariff barriers that have posed a market access concern in individual exportable sectors of India, along with developments in domestic regulation often in response to external requirements. This paper concludes by recapitulating India’s past submissions on Item 6 of the CTE agenda relating to market access issues and providing the way forward. Clearly, the thrust is on developing a position or stand for India that is based on sound logic and concrete experiences from specific export-oriented industries.

The Financial Express reports that India wants the EU to address concerns that the EU’s notification systems for food and non-food safety related concerns operate as significant non-tariff barriers against Indian exports. The EU systems in question are called RAPEX ( Rapid Alert System for non-food consumer products) and RASFF (The Rapid Alert System for Food and Feed). Here’s what the report has to say:

India has now called for lifting of the EU’s Rapid Alert System for Food and Feed (RASFF) and a similar system called RAPEX for non-food consumer products. These rapid alert systems restrict the marketing and use of any such product that is found to be posing serious and immediate danger to consumers’ safety and health by swiftly exchanging information.

According to India, this could be seen as a paranoid reaction from the EU authorities that would potentially harm exports from India. India has pitched for a joint appeal system, whereby affected exporters can file an appeal against a laboratory report given by either EU or India, on the basis of which the consignments are rejected. It has demanded incorporate the two new proposals in the final draft of the FTA.

RASFF and RAPEX fall under both health-related trade restrictions like Sanitary and Phytosanitary measures (SPS) and Technical Barriers to Trade (TBT). While SPS deals with health protection measures of foods and drinks, TNT measures include technical requirements and procedures on most topics from shape of food packages to car safety and energy saving equipments.

As per the officials, what is troubling India is that after one such rapid alert by a country, all other EU member countries would do a thorough check of several subsequent consignments. This adds to delays and costs of exports from India, especially since the EU has not yet unified and electronically linked the customs procedures of member countries.

Belgium, which is the most lenient, does such checks on three subsequent consignments. Greece, the strictest in this regard, has not put any limit on subsequent checks after a rapid alert. Moreover, European buyers are reluctant to purchase any item put on such a rapid alert.

Officials said EU’s measures were acting as non-tariff barriers (NTB) meant to protect their domestic industry. Analysts say that the EU is a leading user of such SPS and TBT measures. India sees it as a non-transparent and protectionist measure, rather than a genuine safety one.

…

Biswajit Dhar, head of the centre for World Trade Organisation (WTO) studies at Indian Institute of Foreign Trade, reckons that the main reason for India insisting on including these new proposals in the FTA would be to create a window for quick disposal of disputes bilaterally, rather than take it to the WTO, which could be a long-winding process.

 

The EU runs training programs on the RASFF. A workshop is scheduled in Thailand on 12-14 June which will be attended by Indian representatives. For more information on this training program see http://training.rasff.com/eventos.aspx

A short bibiography (last updated 8 October 2007)

Mehta, Rajesh, “Non-tariff Barriers Affecting India’s Exports”, RIS Discussion paper No 97, June 2005

Saqib and Taneja, “Non Tariff Barriers and India’s Exports: The Case of ASEAN and Sri Lanka, ICRIER working paper No. 165, July 2005