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Ban on Chinese toys may not hold at WTO

Rituparna Bhuyan  |  New Delhi 

India’s move to ban import of Chinese toys may not be compatible with the World Trade Organization (WTO) rules.

Trade experts and lawyers told Business Standard that if China drags India to the WTO, the country may find it difficult to justify the ban. However, Indian toy manufacturers see the ban as an opportunity to reclaim their lost market share.

“There are certain norms under which a country can impose such prohibitions. It seems the ban is not compatible with them,” said a Delhi-based international trade expert.

The notification, issued on January 23, said the move had been carried out in “public interest” and would be effective for six months. However, there were no details of the grounds on which the ban was imposed.

The ban comes against the backdrop of shrinking market for exports as major economies like the US, Europe and Japan — which account for half the world’s output — are in recession. Countries hit by low exports are creating barriers to protect their domestic companies from competition. WTO members can drag their trade partners to the international trade body if they suspect any unfair trade practice.

Government officials said there has been no official intimation from China on this. “There is a procedure through which they have to come. They have to seek consultations,” Commerce Secretary Gopal K Pillai said recently. The ministry said any country can restrict imports from a country in public interest.

Government sources said the ban was imposed because of health concerns. In 2007, many varieties of Chinese toys were found to carry toxic substances like lead and many international companies had recalled millions of such toys across the globe.

Lawyers specialising in international trade disputes point at Article 20 of General Agreement on Tariffs and Trade (GATT), which defines conditions under which import restrictions can be imposed. These include protection of public morals as well as health and safety concerns. However, the article specifies that such measures cannot be used to discriminate between countries.

“For this, there has to be scientific evidence that there has been an impact on citizens’ health. Moreover, if India says that the ban was imposed as quality norms for Chinese toys did not match its standards, it has to apply the same standards on domestic toy manufacturers. If India has not done its homework, it may lose to China in the WTO,” said a lawyer specialising in trade.

“They should have at least mentioned that the ban was imposed after complaints related to toxicity. Clearly, WTO procedures have not been followed,” he added.

Experts said the notification could have at least mentioned more elaborately the reasons for the ban or banned import of toys with specified toxic content from all countries. “Toxic toys can come from anywhere, why only China?” said the expert.

Significantly, the DGFT widened the ambit of the ban in a subsequent circular, which said the ban would apply to all toys manufactured in China. This means that even a toy imported from a third country but manufactured in China won’t be allowed into the country.

Ban to help domestic players

Domestic toy manufacturers, who peg their market size at Rs 3,000-3,500 crore, have been complaining that cheaper Chinese toys have grabbed over 40 per cent of the market, impacting them adversely. “The ban will help the domestic industry augment their share,” said AK Bansal, chief managing director, Hanung Toys and Textiles Ltd, which sells about Rs 100 crore worth of toys in India.

According to industry estimates, about 20-25 per cent of the industry is organised. “Toy makers in the unorganised sector have been hit the most by cheaper Chinese toy imports,” added Bansal.

First Published: Wed, February 11 2009. 00:40 IST