India’s battle against China’s strategic dumping tactics

By Dr. Jaijit Bhattacharya

With the spotlight on the Isopropyl Alcohol industry, pivotal for pharmaceutical production, India faces mounting challenges from China in the global market

The year 2023 marked a milestone in the trade relationship between India and China. From 1995 to 2023 China orchestrated a strategic onslaught on India, launching 12 major Anti-Dumping Duty measures, predominantly in the Chemical Sector. Anti-dumping duty is a trade remedy measure that countries may impose on imports that are sold at prices lower than their fair market value, thereby undercutting prices and causing harm to domestic industries.

China’s trade attack on India has been typical of salami cuts, that is, targeting specific critical industries and ensuring that India’s capacities in that industry are completely demolished. A classic case is that of Penicilin-G, wherein the flooding of Chinese imports wiped off our capability to manufacture this critical medicine, and now the government is investing taxpayer money into Production Linked Incentives (PLI) to get our capacities in Penicilin-G revived. And when our Penicillin-G capacities were shut down, the Chinese jacked up the prices of this vital drug to usurious levels.

Isopropyl Alcohol Industry:

We now see a similar attack on Isopropyl Alcohol (IPA) which is critical for bulk drug APIs and an ingredient in the formulation of drugs and sanitisers. It is to be noted that 75-80% of the domestic demand for IPA stems from our Pharmaceutical industry underscoring the significance of the chemical.

In FY 23 China’s share in total IPA imports to India stood at 64%. With a domestic capacity of 14,10,000 Mt per annum (source: ICIS) which is 6.5 times the IPA demand in India, China is strategically flooding the Indian market with surplus IPA. This poses a severe threat to domestic IPA producers as China’s dumping prices are lower than the cost of production of domestic Indian Industry and this could potentially lead to incapacitating Indian IPA capacities.

This has sent global alarm bells ringing with the USA, which was trying to move away from its dependence on the Chinese supply chain for medicines to Indian-sourced medicines. However the US is now worried that India itself is dependent on China, and such unrestrained dumping from China will challenge the supply-chain resilience of the pharma industry.

Trade Remedies:

So what can India do to protect the supply-chain resilience of the pharma industry and avoid a repeat of the Penicillin-G fiasco? WTO provides all economies with the ability to provide trade remedies through anti-dumping duties, similar to what China has been levying on Indian chemicals and the US has been levying on Indian-origin carbon and alloy pipes. India must immediately consider applying ADD on import of IPA, to safeguard our pharma industry and to continue to be the pharma capital of the world.

China’s Defensive Play:

Last week, China’s Ministry of Commerce (MOFCOM) reapplied the anti-dumping duty for 5 years on o-chloro-p-nitroaniline (OCPNA), a chemical sourced from India predominantly used in dyes and pigment production. The ministry justified this move as a “legitimate response”.The ministry also said, “The situation left Chinese enterprises in a state of unstable production and operation and made them susceptible to dumped imported products”.  India’s Chemical Sector Resilience and Regulatory Landscape:

The fact that China is imposing Anti-Dumping Duties on Indian-sourced chemicals demonstrates the competitiveness and robustness of the Indian Chemical sector. China’s trade tactics reveal a strategy to erode the foundation of the Indian Chemical Sector systematically. Either by dumping the surplus into India to make the market unattractive for Indian players or imposing trade remedies such as Anti-dumping Duty to restrict market access to Indian exporters.

The domestic industry keeps frequenting the Directorate General of Trade Remedies (DGTR) to share their challenges, after thorough due diligence DGTR shares its recommendation to the Director of Revenue (DoR) for further implementation.

However, recent data from the Centre For Digital Economy Policy Research (C-DEP) shows that the Ministry of Finance (MoF) rejection rate of DGTR recommendations increased to 61% in the period 2020 to 2022, while the rejection rate was 0.67% for the period 1995 to 2022.

Government Interventions:

Amid this global chessboard of trade wars, there is a clear need for a proactive interface between the government and the domestic industries. Faster and more responsible trade interventions can prevent Indian sectors (like IPA) from succumbing to the pressures of the trade wars and the onslaught of imports. However, it’s crucial to recognise that any trade intervention loses its effectiveness if the domestic industry has already succumbed to the pressures of imports.

As India dreams of reaching a $10 Trillion Economy by 2030, navigating the global trade dynamics is crucial. The government’s timely and strategic interventions will determine the ability to safeguard the domestic industries, India’s economic aspirations and supply chain resilience on the global stage.

This article first appeared in The Pioneer,

https://www.dailypioneer.com/2024/columnists/india—s-battle-against-china—s-strategic-dumping-tactics.html