Another anti-trade action

Govt must avoid protectionist measures

The Union Ministry of Commerce and Industry last week issued a statement to the effect that all imports of paper products — from newsprint to letter paper — will require pre-registration. From October 1, according to the new requirements, imports will be subject to a Paper Import Monitoring System, which will require importers to register themselves in a manner similar to systems that have been put into place in the past for steel and coal. There can be little justification for this return to the licence-quota raj in yet another industry. It is yet another step backward for India towards the pre-liberalisation period, especially as the specific justification provided by the ministry is protectionist in nature, with the relevant statement saying the “move will also go a long way in promoting Make in India and Atmanirbhar in this category”. The misuse of “Make in India”, intended initially to create global competitiveness for Indian industry, continues.

Do Indian paper mills have genuine reason to complain about dumping by some of India’s trade partners in this sector? Perhaps. Imports are not being “dumped”, it should be noted, when they are merely cheaper than local alternatives. Dumping is a technical term indicating that imports are being sold in a particular country below their production cost in their place of origin. Has such a determination taken place for the paper industry in recent months? True, investigation in 2020 recommended an anti-dumping duty on certain paper-related imports for five years. It is far from clear what the assumptions and model used are. Either way, if the concern is dumping, then the ministry needs to put a targeted, appropriate, anti-dumping duty in place — not a return to import licences. It is worth noting there is already a 5 per cent Customs duty on imports of newsprint. Is there evidence that this is insufficient to control dumping? If so, the public deserves to have this evidence made available. Many mature economies have independent authorities that hold public hearings to hear from producers, importers, and consumers before assessing injuries from imports. The independent board regulators then vote on their conclusions, with the votes also made public. At the very least, such an institutional framework needs to be put into place in India.

What is particularly odd is that this action from the government comes at a time when global newsprint prices have been increasing sharply. Newsprint prices have more than tripled from the lows in 2020. Domestic prices have risen to match. If the Indian paper industry is failing to use its capacity under these circumstances, then foreign producers can hardly be blamed. The problem lies within. But that is always the case when protectionist instincts take hold in the bureaucracy. Industrial lobbies form, seeking to convince officials and politicians that there is no alternative policy to further protection. In the process, growth, productivity, and consumer welfare all suffer. This was India’s story under the licence Raj. Restrictions on paper product imports need to be placed in the context of recent export bans, tariff increases, and other anti-trade measures that reveal the political leadership has allowed scepticism about trade to overpower basic economic theory on the sources of growth.