The UPA government'slist of compromises on the national strategic issues is lengthening by the day. This leaves aam aadmi wondering whether he is stepping towards illusionary progress or the marshy land.
The latest addition to the list is its decision to reject recommendations of a statutory authority to immediately protect six domestic industries against surge in imports especially from China following the global meltdown.
What is more shocking is the fact that this arbitrary decision has been taken in spite of incontrovertible evidence that delay in taking internationally acceptable legal protection can virtually kill the domestic industry.
And this is best illustrated by the case of penicillin, which is not only an antibiotic in itself but also a building block for many such other drugs. It forms the core of health protection for aam aadmi against bacterial diseases. We will read more about this from UPA government'sown belated admission of the guilt in its files later in this story.
On May 11, a committee of secretaries named the Standing Board of Safeguards (SBS) rejected the recommendations of the statutory authority named Directorate General of Safeguards (DGS) in the Finance Ministry. The latter had recommended levy of provisional safeguard duty for 200 days on six products including acrylic fibre and specific types of steel.
DGS had given the tentative recipe on the basis of first-hand scrutiny of relevant data to prevent further harm to affected industries pending submission of final findings. The final findings are invariably preceded by comprehensive counter-arguments by the domestic producers, importers and foreign suppliers of products under investigation. The provisional duty is subject to change even refund if the final findings warrant that. The law is clear on that count.
As put by the Finance Ministry, ?A safeguard is a form of temporary relief. They are used when imports of a particular product, as a result of tariff concessions or other WTO (World Trade Organization) obligations undertaken by the importing country, increase unexpectedly to a point that they cause or threaten to cause serious injury to domestic producers of ?like or directly competitive products?. Safeguards give domestic producers a period of grace to become more competitive vis-?-vis imports.?
The Ministry adds: ?Under circumstances where delay would cause damage that would be difficult to repair, provisional safeguard measures may be imposed on the basis of a preliminary determination that there is clear evidence that increased imports have caused or threaten to cause serious injury. Such measures should be in the form of refundable tariff increases and may be maintained for a maximum of 200 days. The period of application of any provisional measure must be included in the total application of a safeguard measure. Consultations must be initiated immediately after provisional measures are applied.?
Notwithstanding this clear legal situation, SBS, which was chaired by Commerce Secretary GK Pillai, concluded there was need for further investigation and consultation with all stakeholders.
SBS reportedly asked DGS to consult the importing industries and other interested parties and re-submit its recommendations after 60 days. This, in effect, means setting aside the advice for provisional duty and asking the DGS to submit its final report.
An excerpt from newspaper reports on this issue is an eye-opener. It reads as: ?Asked if there could be any injury to the local industry in view of non-imposition of the safeguard duty, Mr. Pillai said, from the evidence we do not see any threat to the industry.?
Mr. Pillai is virtually trashing the preliminary findings of DGS in six cases. Each finding has documented data to show the domestic producers have been hurt. It has measured this injury through different parameters.
In all DGS has so far investigated 13 safeguard cases since November 28, 2008, after the global meltdown started hurting Indian economy. It is significant to note that safeguards probe have been revived after July 2004. This shows that Indian industry is not fond of seeking unfair protection. And it felt the need for safeguard cover when the domestic market was flooded with imports, resulting in build-up of inventories at domestic factories, leading to closures in several cases. DGS? preliminary findings have documented all this.
Of the 13 cases, DGS has submitted preliminary findings in 11 cases, terminated another case and apparently decided not to submit preliminary finding in one case. Of the 11 cases, the government has so far levied provisional duty only on four products.
In one of these cases, it levied 20 per cent provisional duty on soda ash imports from China. This is 11 per cent lower than what DGS recommended (31 per cent). This again shows UPA government'spenchant to exercise discretionary powers.
This analysis shows that UPA government is dragging its feet in protecting the domestic industry in the same manner as it does in protecting aam aadmi against terrorism.
Penicillin shows how the UPA has harmed the long-term interest of both the domestic industry and the aam aadmi.
UPA belatedly admitted this fact at a closed-door meeting of port officers on November 25, 2008, which was addressed by Mr Pillai, Commerce Secretary (CS)-cum-SBS Chairman.
According to minutes of the meeting, ?CS informed that surge in imports, particularly from China, is affecting domestic sector. In the case of penicillin manufacturing sector, Indian manufacturers had to shut shop due to competition from China. After this, the prices were increased by over 1000 per cent by the Chinese suppliers. Such situation cannot be allowed to recur and in view of this, some specific measures may need to be initiated for protecting domestic sector to avoid double jeopardy of not just losing international market but also shrinking of domestic production due to import surge. For monitoring import surge, CS directed that software should be immediately developed, which can throw up tariff line data at 4/6/8 digit level.?
Citing these minutes, an insider in the government wondered what prompted Mr. Pillai to take a U-turn when it came to implementing the recommendations of DGS for imposition of provisional duty on six products.
A liaison man from the company hinted at the prospects of political pressure on SBS to go soft on safeguards front. He said such pressures due to lobbying by vested interests are common at the time of elections.
More than four years after the penicillin cried for protection, the Anti-Dumping Authority (ADA) in Commerce Department started its investigation into import of Penicillin-G only on November 3, 2008.
Of the four manufacturers, two have vanished from the scene due to dumping by Chinese suppliers and the two others are struggling for survival.
JK Pharmachem, which is currently under liquidation, had seen the writing on the wall. The company'slast available annual report for accounting year ending September 30, 2004, is revealing. It said: ?These low prices (of Chinese supplies) are not due to any technological advancement but are meant to be predatory pricing. These anomalies were brought to the notice of the Government of India several times over last few years through various representations of your company through the Indian Penicillin Manufacturers Association (IPMA), unfortunately with no avail.?
To prevent other domestic industries going the penicillin way, Mr. Pillai and his political masters in the UPA do not have to wait for new software. They have to just look at plant closures, audited balance sheets, import data and above all the statute.
It is here pertinent to recall the fact UPA has not even invoked a China-specific safeguards provision introduced by the BJP-led NDA government.
The NDA government had amended Customs Tariff Act (CTA) in 2002 to exclusively tackle the surge in imports from China.
The Customs Tariff (Transitional Product Specific Safeguard Duty) Rules 2002, thus, enable the government to levy specific safeguard duty on Chinese products for as long as 10 years through repeated extension of the initial validity of final safeguard duty of four years. The provisional duty can be applied for a maximum of 200 days.
The UPA government has also not implemented a recommendation made by Task Force on Indirect Taxes (TFIT) in 2003 when NDA was at the helm of affairs. The implementation of this recommendation would not have only simplified the mechanism to protect domestic industry but would have also made it more credible and transparent.
TFIT, which was chaired by Dr. Vijay Kelkar (who is at present heading the Finance Commission), said: ?It is recommended that an independent body such as the tariff commission should be suitably strengthened to conduct the work of investigations such as injury determination, dumping, margin, etc. relating to safeguard duties and anti-dumping duties.?
The regulatory turf is currently split between the Finance Ministry and the Ministry of Commerce and Industry. The former controls DGS which investigates safeguard cases, whereas the latter controls ADA, which not only deals with anti-dumping cases but also with investigations into export subsidies provided by foreign governments that help their companies dump products on the Indian market.
If the UPA government can constitute separate regulatory authorities for each and every sector, what stopped it from constituting one for protecting the domestic industry?
Instead of taking such rational initiatives, UPA has been opening chinks in the domestic industry. It has been doing so through a series of bilateral preferential trade agreements and free trade agreements (PTAs/FTAs) that provide for imports at zero customs duty or a rate lower than the normal tariff.
The government has been signing these agreements either with countries such as Singapore or regional trade blocks such as ASEAN over the years, hurting the overall interests of the domestic industry. This is because the government barters away larger Indian economic interests for a fewer gains.