Continuation of safeguard duties on imports from China for third consecutive year creates confusion

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NEW DELHI: The government’s decision to continue the imposition of safeguard duties for a third consecutive year on imports from China has been met with confusion from the industry, while experts have said that it might not have much of an effect in the short-term.

“The solar industry has been recommending to the government to levy a basic customs duty (BCD) on imports of solar cells and modules as it will give support and direction to the domestic manufacturers for the next four to five years, and they can expand accordingly,” Saibaba Vutukuri, CEO of Kolkata-based manufacturer Vikram Solar told ET.

On Wednesday, the Ministry of Finance issued a notice that would continue a duty of 14.9% to be levied on Chinese imports for six months from July 30, 2020 to January 28, 2021, while the duty will be slightly lesser at 14.5% in the following six months. As per the World Trade Organisation’s (WTO) safeguard measures, such a safeguard duty can only be applied for a maximum period of four years to protect the domestic industry, but it has to be progressively lowered.

Last month, union power and renewable energy minister R.K. Singh Power told stakeholders that a basic customs duty (BCD) of 15-20% on solar equipment would be imposed from August, which would double in a year’s time. This duty was supposed to replace the safeguard duty, but now it seems likely that both would be charged for the coming 12 months. An official announcement on the basic customs duty is expected soon, which would not violate any WTO rules.

However, experts don’t think that a year’s extension on safeguard duties will do much to boost domestic manufacturing in the short term. Per industry estimates, indigenous production of solar cells and modules will initially cost about 20% more than Chinese imports.

80% of solar imports used in India are imported from China. The rest are sourced from Thailand and Malaysia, which are mostly comprised of Chinese-origin companies. Due to the ASEAN Free Trade Agreement, the basic customs duty cannot be levied on these countries, but they cannot keep up with India’s requirements in the short-term.

“They make up roughly 10 to 15% of the total solar imports, but do not have enough manufacturing capacity to fulfill India’s needs substantially right now,” said Debasish Mishra, leader, energy resources and industrial products at Deloitte India.

“The extension of the safeguard duty appears to be to ensure continuity of the protection to the domestic industry till a long term solution is made,” said Santosh Kamath, partner and leader, alternate energies at KPMG India. Kamath said that until the domestic industry becomes competitive through manufacturing by scale and develops a reliable supply chain, protective measures like the safeguard duty are necessary to protect domestic interests. This approach has worked in other sectors like automobiles and steel, he added.

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Tagged China, deloitte india, imports, KPMG India, renewable energy, safeguard duties, Solar cells, WTO

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