Trade pacts under lens as India seeks to check Chinese imports

NEW DELHI: India is looking to plug loopholes as it seeks to reduce import dependence on China. The routing of Chinese goods to India through their common trade partners, inversion in duty structures and the exploitation of ambiguities in origin rules have all come under the government’s scanner, said people with knowledge of the matter.

The commerce and industry ministry is putting together details of the installed capacities of local industry for goods that India trades under free trade and bilateral agreements, and products which face issues related to inverted duty structures.

The exercise is to check if these agreements are leading to preferential rates being lower on finished products than the intermediate or raw material.

Especially on the radar are the trade arrangements with South Asian countries under the South Asian Free Trade Area (SAFTA), the Asean group, and bilateral pacts with Singapore, Japan, South Korea and Sri Lanka, with a focus to plug gaps that aid imports from China. India suspects China is routing goods through these countries, taking advantage of the trade pacts.

The only operational trade agreement linking India and China — the Asia Pacific Trade Agreement, or APTA, (formerly Bangkok Agreement) — is also under scrutiny. South Korea, Bangladesh, Laos and Sri Lanka are also members of this grouping.

“There is a suspicion of circumvention of free trade agreements (FTA) and Chinese goods entering through these routes violating rules of origin norms,” said an official. Under-invoiced imports from China too will be scrutinised.

There was a sudden spurt in imports from Singapore, Japan and the Asean countries in 2017-18, and inbound shipments have been high since then. India’s trade deficit with China was around $47 billion in the first 11 months of fiscal 2020. “China has been pumping investments in Vietnam and its imports into India are coming unchecked, that too at low duty, through such countries,” said an industry executive.

Source Problem

Most of India’s exports to China have been of primary goods and raw materials including petroleum products, organic chemicals, iron ore, cotton and plastic raw materials, while imports have been mainly intermediate and finished goods such as telecom instruments, electronic components, consumer electronics, active pharmaceutical ingredients and machinery.

While correcting the inverted duty structure in dual-use products such as steel may be difficult, experts suggested empowering customs officials to detain unnecessary imports but paying demurrage in cases where import substitution is key, could be helpful.

“We are looking at ways to curb the import surge as this cripples the domestic installed production capacity,” the official said, adding that this would be done using all kinds of tariff and nontariff instruments such as antidumping duty, countervailing duty, safeguard duty and qualitycontrol measures.

The issue has compounded as China has granted deeper duty cuts to India’s competitors including Peru, Pakistan, Australia, South Korea and Asean in its FTAs with them, which has displaced some of India’s exports.

“One can only imagine the plight of our domestic industry had India joined the Regional Comprehensive Economic Partnership. Even thinking of these measures would not have been possible in that case,” said a Delhi-based expert on trade issues.