India in the WTO

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.

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.

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.

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.

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"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.

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"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?

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?

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.

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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

Alan Bryden, the secretary-general of the International Organization for Standardization was in New Delhi last week, and called upon India for more engagement in making international standards.

His visit highlights that the ISO will now focus on developing industry and stakeholder standards in the climate change, environment and energy trade area, – sectors which are now taking centre-stage in global trade policy making. He explained the role of standards in these new emerging sectors. The Financial Express covered this visit:

The ISO secretary-general, Alan Bryden in an interaction with the industry in Delhi on Thursday said : “We have formulated some norms like environmental management, environmental labeling, life cycle analysis, greenhouse gas emissions accounting and verification, air, water and soil quality, ship recycling, but we need to do more in the area, particularly in relation to climate change and trading in emission credits.”

In collaboration with the International Energy Agency and the World Energy Council, ISO would formulate norms on bio-fuels and bio-diesels, energy management and auditing, energy efficiency in transportation, sustainable and energy efficient buildings, hydrogen technologies and solar energy.

The FE also reports on India’s thus far limited participation in the ISO. The highlights according to the report: 

• India is represented in the ISO through the Bureau of Indian Standards (BIS) from 1947, which is the designated Indian enquiry point under the WTO’s agreement on technical barriers to trade (TBT).
• BIS has formulated 18324 standards for goods and services, out of which only 4500 are aligned to ISO norms.
• India has been elected to sit in the ISO governing council for two years starting January 2008. India was earlier on the ISO governing council in 2002 and 2003. The ISO governing council has 18 members.
• India had hosted the meeting ISO sub-committees on plastics and textiles.
• India is also a participating member of ISO sub-panels like DEVCO, CASCO, COPOLCO.
• Indian is the regional coordinator for standard formulation in South Asia, which is recognised by the ISO as a separate entity in standard formulation.
• ISO members are ranked according to their contribution in quality setting as well as country GDP. India is ranked 18 and is in the second group of countries alongwith China, Brazil, Spain and Holland.

Speaking of standards and technical barriers to trade, the website of the Indian government agency regulating, formulating and enforcing standards in India is available here http://www.bis.org.in/

Much to explore …