India, China threaten to raise trade barriers against each other
January 24, 2012

As the world gets set to meet in Davos to iron out strategic international issues, three separate news stories explain how policy wheels are in action in both India and China to up trade barriers against each other. The Wall Street Journal on Monday reported how China has banned imports of oilmeal from India saying it has found traces of a hazardous chemical in some rapeseed meal shipments. Meanwhile, Mint reported that India’s ministries of heavy industry and power seem to have arrived at a consensus on the contentious issue of levying an import duty on power generation equipment, a move that may specifically affect Chinese manufacturers of such machinery and Indian power companies that are looking to place orders with them. Also, The Times of India wrote – The government is ready with a plan to act against countries that provide subsidy to local producers and make exports more competitive. – a move that if proved and subsequently implemented will hurt China the most.

As European markets sink, and the US contemplates a recovery, Asia is left to fend for herself. More importantly, as trade dries up, Asia’s largest economies are looking inward, boosting domestic demand is now prime as countries realize that value has t be riven from within. As a result, in order to protect their domestic industries, both India and China are raising import duties, taxing subsidized items and banning imports.

While the trade barriers are not expected to be up for more than six months into 2012, analysts feel most of the moves are just preventive measures to protect domestic companies. For example, India’s countervailing duty to protect against subsidized Chinese imports can be imposed only after the authorities have determined that there is a specific subsidy, relating to export performance. Also new Delhi has to push for the use of domestic goods over imported products that are used on manufacturing an export article. Further, the country that initiates anti-subsidy action has to prove that the subsidy is given to a limited number of persons or units involved in manufacturing or exporting the product. Trade experts, however, warned that proving subsidies and taking countervailing is most difficult among the three as information is difficult to obtain.

Further when it comes to import duty on Chinese power generation equipment, which India desperately needs, the ministries have been yo-yoing between levying high taxes and allowing for the much needed imports. India has tried varying ways in which to block power equipment companies and yet often allows large private firms to source and import from China. While domestic Indian players are unable to meet the high demand and fast turn around rate of private companies, they blame Chinese power equipment for being low quality. Nonetheless, New Delhi seems to be leaning towards protecting these industries. “Companies such as Bhel and L&T are at a specific disadvantage. Imports should not be disallowed but there is a case for (the Indian) power industry to have a level-playing field,” minister for heavy industry, Praful Patel said.

Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T) have been lobbying the government to limit Chinese competition. State-owned Bhel has been facing competition from Chinese power generation equipment firms such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd, both in domestic and overseas markets.

Mint had reported on 25 November that the power ministry had proposed imposing a 5 percent tariff on such imports. Planning Commission member Arun Maira had recommended a 10 percent customs duty and a 4 percent special additional duty on power generation equipment imported from China to strike a balance between protecting local manufacturers and the need to import equipment to boost power production. A committee of secretaries (CoS) recommended a 5 percent import duty on power equipment imports from China apart from a 10 percent countervailing duty and a 4 percent special additional duty.

Power generation equipment makers having a manufacturing base in India stand to benefit from such a move. They include Bhel, Doosan Heavy Industries and Construction Co. Ltd, and the joint ventures between L&T and Mitsubishi Heavy Industries Ltd; Toshiba Corp. and JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH, and Thermax Ltd and Babcock and Wilcox Co.

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