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American Shipper

What is India trying to protect?

What is India trying to protect?

   The seeds of doubt are often well-tended until they turn into blossoms of paranoia.

   Look no further than a decision in late January by India’s Directorate General of Foreign Trade to declare a six-month ban on the import of Chinese toys.

   It's a rather stunning deterioration of Indian-Chinese trade ties, and it comes at a pretty inconvenient time for China. Fresh from the worst year, in terms of trade statistics, since China was admitted to the WTO, India promised to be a beacon of hope this year. A place where trade would grow, not stagnate or decline.

   India is a top-10 export destination for Chinese toymakers, and growing larger every year. Total two-way trade between the two nations has grown from $5 billion in 2002 to nearly $50 billion in 2008. India's commerce ministry projects it to grow to $100 billion by 2012.

   All the while, the imbalance between Indian exports to and imports from China has been widening, leading to more calls to protect India's domestic manufacturing sectors.

   But the toy ban is a protectionist measure that makes anything the United States is contemplating appear pedestrian. Imagine the controversy if the Obama administration suggested, even for one second, a complete six-month prohibition on imported toys from China.

   Though no official reason for the ban was given, it was subtly disguised as one concerned with the safety and health of Indian citizens. It followed a similar ban on milk and dairy products from China after the melamine scare in China last year. But the reality is less about lead paint and more the leaden demand environment facing Indian toy manufacturers.

   About three-quarters of toys sold in India come from China. That may be less than the ratio in the United States, but it's still a huge percentage. When India's GDP was growing at 9 percent, domestic manufacturers could assuage their concerns over China's increasing dominance by looking at comfortable bottom lines. But with economic woes lightening the pocket books of consumers, the daggers of protectionism come out quickly.

   An editorial from the Indian news service IBN suggested that the ban had nothing at all to do with safety standards.

   'A closer look at the categories that have been banned by the Indian government include items like tricycles, pedal cars, recreational models and puzzles,' the editorial said. 'These are not necessarily toys that lend themselves to being constantly chewed or ingested — the one way by which lead actually leaches out and can cause lead poisoning in children. So it looks like the commerce ministry has other concerns. Many say this temporary ban is a means of providing protection to domestic manufacturers against cheap competition. Perhaps this is the government's way of heeding distress calls of small-scale toys manufactures in a tough economic market.'

   Blaming the imperfect safety record of Chinese goods rings a little hollow for one reason. There are no comprehensive safety regulations for domestic or imported toys in India.

   Comparing the situation to the United States, the lead paint issue in 2007 affected Chinese imports to the United States, but it did not completely curtail them. That's largely because there are safety and health regulations in place in the United States that allow the good and safe toys to be admitted and the unsafe toys to be weeded out. It's not a perfect or full-proof system, of course, but it does allow trade to flow.

   India's product safety system, or lack thereof, almost seems designed to be taken advantage of by protectionist interests. It's very easy to say that Chinese toys contain lead paint and should be banned, but there's very little to stop domestic manufacturers from using lead paint in toys either. There might be laws on the books, but enforcement is more important than words.

Diplomatic table tennis?

   So, the health and safety issue provides a perfect smokescreen for the larger issue — that Chinese-made goods present real problems for India's manufacturing sector. India can treat the problem as the West has treated it — with quotas, antidumping and countervailing duties, and diplomatic table tennis.

   Or it can forge a new path. It might be in the best interest of India and China to have serious economic summit talks and decide how they will lead the world over the next century. India might very well need to acknowledge that it will take a back seat in manufacturing to China, but a front seat in services. That's not to say that India will cease to develop its manufacturing sector, but that it should take more advantage of its relative strengths versus China.

   “The major difference between the Indian toy industry and Chinese is while the major portion of the Indian toy industry caters for the Indian market, the Chinese toy industry is basically contract manufacturing,” K. John Baby, chief executive officer of toymaker Funskool, told Asia Times Online in January.

   It's estimated that 90 percent of India's toy manufacturing sector is unorganized, meaning local producers making their own designs and selling through their own channels.

   Placing bans on Chinese goods is certainly not the answer to organize the toy industry or make it less dependent on the domestic market. Bans like this will only artificially insulate Indian manufacturers from the real world, making them less equipped to compete with rivals from other nations when the ban is eventually lifted.

   It increases tension between two countries that have much bigger issues to worry about. And it sends a signal that India is not truly ready to join the ongoing Asian economic evolution.

   It's easy for me, sitting behind a computer, to say that domestic toy manufacturers and their employees should take their medicine and fight a losing battle with Chinese companies. But surely bans like these just prolong the inevitable. They rarely change the eventual outcome.

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