Another WTO loss

India is failing to make a case for its protectionist turn

A three-member dispute settlement panel at the World Trade Organization (WTO) has ruled against India in its disagreement with Japan over import duties on hot-rolled steel. In the last financial year, Indian imports of steel from Japan and South Korea were 45 per cent of the total steel imports of 8.4 million tonnes; the total value of steel imports was $6.5 billion. India has sought to protect the domestic steel industry consistently over the past three years, following a plea by domestic producers to the government. The official argument given for this action was that Chinese over-capacity was distorting the market. Yet, it is clear that a major impact has also been felt by Japanese, and presumably Korean, steelmakers. It is now the case that India has lost its claim that its safeguard duties on hot-rolled steel in particular were consistent with WTO rules. In other words, India failed to substantiate that a sudden and sustained increase in imports had significantly harmed domestic producers. This means that one of two facts must be true. Either the steel industry was complaining without sufficient reason; or the government has failed to present these arguments convincingly enough in Geneva.

India’s turn towards protectionist trade policy over the past years has not gone unnoticed at the WTO. In one landmark ruling earlier this year, a WTO panel ruled that “domestic content requirements” in India’s solar panels breached trading rules. These requirements were scaled up as part of India’s effort to indigenise the manufacturing of solar panels amid a scale-up of renewable energy generation capacity. The decision itself was contested within the government; the ministry of new and renewable energy argued that cheaper solar panels were essential to India’s solar mission, while the department of industrial policy and promotion wanted to push Indian solar panel manufacturing. Two errors were made. First, given that the central fear was imports of panels from the People’s Republic of China, with its subsidised manufacturing, would skew purchasing choices, other sources of solar panels should have been brought on-side. Instead matters were allowed to slide with other panel-producing countries till the US filed and won its case. The second error was, again, in failing to make the case that the well-known crash in solar panel prices was damaging Indian industry.

A pattern is beginning to be visible when it comes to India at the WTO. A sharp protectionist action is taken; and, subsequently, India fails to back it up at the WTO with suitable arguments. This might well happen next with its hard stand on agricultural procurement, where it is defending its complex web of minimum support prices at the WTO amid international isolation and even opprobrium. The government has only two options. Either it stops trying to erect barriers that disadvantage Indian consumers in the name of domestic protection. Or it creates sufficient capacity that ensures it is able to win enough of the disputes that such barriers will cause. A larger debate is needed on the nature and orientation of India’s protectionist turn, which harms consumer welfare and causes international embarrassments of this sort.