Trade policy experts have debated India’s past experiences with free trade agreements (FTAs) with ASEAN. While many concluded that the country did not benefit from such agreements, only a few discussions focused on why not. With a renewed focus on trade agreements and exports of goods worth $1 trillion by 2030, let us reevaluate why we haven’t benefited from our previous FTAs and anti-dumping duties (ADDs) and How Countervailing Duty (CVD) has worked against it. Integration of India into Global Value Chains (GVCs) and the country’s goal of becoming self-reliant or self-reliant.
FTAs and Trade Remedial Measures with Saturated Fatty Alcohols as an Example: There are many advantages to being a party to an FTA. Zero duty on intermediate products can reduce production costs, thereby boosting domestic manufacturing, employment and investment. However, if ADDs/CVDs are levied after zero duty is agreed upon under the trade agreement, it can lead to higher cost of manufacturing for domestic producers who use intermediate goods. So the question is why should such ADDs/CVDs be installed? Ideally, trade remedial measures should be adopted only when the import price is lower than that of the exporting country’s domestic market; i.e. in obvious cases of dumping. If ADDs/CVDs are imposed to counter high import volumes or to protect certain domestic industry players, the intermediate goods user industry will suffer.
In some of India’s previous agreements, such as with ASEAN, intermediate goods and raw materials have either been levied higher import duties than the final products or have faced ADD/CVD, a measure of ‘Make in India’. having an adverse effect. Let us take the example of Safeguard Duty/ADD on import of Saturated Fatty Alcohol, which is the basic raw material used by the Indian surfactant industry for the manufacture of Ethoxylated Fatty Alcohol, Sodium Lauryl Sulphate (SLS) and Sodium Lauryl Ether Sulphate (SLS) Is. Used to make products such as shampoo, hand wash, toothpaste and detergent. As per industry estimates, the demand for SLES in India in 2019-20 was 236,000 tonnes and is expected to grow at a compound annual growth rate of over 7%. India’s surfactant industry has annual revenue of approximately $2.5 billion, supports $21 billion of India’s home and personal care industry, and directly employs more than 9,000 people. Thus, there is a large and growing user industry for saturated fatty alcohols.
Globally, the ASEAN countries Malaysia, Indonesia and Thailand are among the top producers and exporters of saturated fatty alcohols due to their topographic and climatic advantages in the production of palm fruit, as well as significant potential and scale in the production of palm-based derivatives. economies of. In addition to scale, they have the advantage of proximity to the feedstock (palm kernel oil).
Indian users of saturated fatty alcohol could benefit from zero duty under India’s FTA with ASEAN. However, before the user industry could avail the benefit of zero duty, the import trade of saturated fatty alcohol came under remedial measures. A safeguard duty was imposed on the product from 2014 to 2017, and add from 2018 to 2023, which took away the full benefit of the zero-duty under the trade agreement. This led to an increase in production costs and a decline in the cost competitiveness of the user industry. How would this fulfill the objective of ‘Make in India’?
What is the right trade policy to adopt?: There can be many reasons for implementing trade remedial measures. It may be that ASEAN countries are giving actionable subsidies to their producers. However, in this example of saturated fatty alcohols, countries such as Indonesia and Malaysia have export taxes on palm kernel oil. It was imposed to encourage domestic value addition and export of locally manufactured value added products. Since this is not an export subsidy, but imposed to discourage exports, it may not be correct to react with CVD/ADD.
Products like SLS, SLES and Ethoxylated Fatty Alcohols are exported from India. Import of saturated fatty alcohols from countries like Malaysia, Indonesia and Thailand is important not only to meet the domestic demand, but also to increase our exports, given that India’s manufacturing capacity of fatty alcohols is a major factor in the domestic end-use demand. may not be enough to complete. as well as the final export. Therefore, implementing ADD/CVD may go against the objectives of Atmanirbhar Bharat and integration with GVC.
Before implementing business remedial measures, it is important to examine the number of firms that have been adversely affected. If imports adversely affect 1-2 firms, it is important to estimate their production capacity, match it with market requirements and study the reasons for lack of competitiveness in comparison to imports, if any. If there is a demand-supply gap in the value chain, and zero-duty imports can help bridge this gap, it should be encouraged until Indian companies develop back-end manufacturing capacity. Indian players at the back-end of the value chain may be supported through subsidies to enhance production-linked incentives. If Indian manufacturers are not competitive against an international firm, it may be due to firm-level issues such as operational inefficiency and outdated technology, or country-level issues such as high logistics costs, neither of which may be a reason to implement CVD/ADD.
These are the personal views of the authors.
Arpita Mukherjee and Ishana Mukherjee are Professors at the Indian Council for Research on International Economic Relations (ICRIER) respectively and a Research Associate at ICRIER.
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