Trade policy experts have debated India’s past experiences with free trade agreements (FTAs), such as the one with ASEAN. While many have concluded that the country has not won from such deals, only a few discussions have focused on why not. With a goal of exporting $1 trillion worth of goods by 2030 and a renewed focus on trade deals, let’s reassess why we failed to benefit from our previous FTAs ​​and how anti-dumping duties (ADDs) and countervailing duties (DCV) worked against India’s integration into global value chains (GVCs) and the country’s goal of becoming atmanirbhar or self-reliant.

FTAs and trade remedy measures for saturated fatty alcohols, for example: there are several advantages to being party to an FTA. The absence of tariffs on intermediate products can reduce production costs, thereby stimulating domestic manufacturing, employment and investment. However, if ADD/CVD are imposed after a zero duty has been agreed as part of a trade agreement, this may lead to increased manufacturing costs for domestic producers who use intermediate goods. The question then is why should such ADD/CVD be taxed? Ideally, trade remedy measures should only be taken when the import price is lower than the domestic market price of the exporting country; that is, in clear cases of dumping. If ADD/CVD were imposed to counter higher import volumes or to protect certain players in domestic industry, the industry using intermediate goods would suffer.

In some of India’s past agreements, such as the one with ASEAN, intermediate goods and raw materials either attracted higher import duties than final products or faced ADD/CVD, which which had a negative impact on “Making in India”. Take the example of safeguard/ADD duties on imports of saturated fatty alcohol, the basic raw material used by the Indian surfactant industry to manufacture ethoxylated fatty alcohol, sodium lauryl sulfate (SLS) and sodium lauryl ether sulfate (SLES), which are used to make products like shampoos, hand soap, toothpaste and detergents. According to industry estimates, the demand for SLES in India was 236,000 tons in 2019-2020 and is expected to have a compound annual growth rate of over 7%. India’s surfactant industry generates annual revenues of approximately $2.5 billion, supports India’s home and personal care industry worth $21 billion, and directly employs over 9,000 people. Thus, there is a large and growing user industry for saturated fatty alcohols.

Globally, ASEAN countries, Malaysia, Indonesia, and Thailand are among the top producers and exporters of saturated fatty alcohols, due to their topographical and climatic advantage in palm fruit production. , as well as significant capabilities and economies of scale in the production of palm derivatives. In addition to scale, they have the advantage of proximity to the raw material (palm kernel oil).

Indian users of saturated fatty alcohols could have benefited from zero duty under the India-ASEAN FTA. However, even before the user industry could reap the benefits of the zero duty, imports of saturated fatty alcohols slipped under the trade remedy radar. A safeguard duty was levied on the product from 2014 to 2017 and an ADD from 2018 to 2023, which removed all benefit of the zero duty under the trade agreement. This has led to an increase in production costs and a related decline in the cost competitiveness of the user industry. How would this have served the cause of “Make in India”?

What is the right commercial policy to adopt? : There may be several reasons for imposing trade remedy measures. ASEAN countries may provide exploitable subsidies to their producers. In this example of saturated fatty alcohol, however, countries like Indonesia and Malaysia have an export tax on palm kernel oil. This measure was imposed to encourage domestic value addition and export locally manufactured value added products. Since this is not an export subsidy, but imposed to discourage exports, responding with CVDs/ADDs may not be correct.

Products like SLS, SLES and fatty alcohol ethoxylate are exported from India. Imports of saturated fatty alcohols from countries such as Malaysia, Indonesia and Thailand are not only crucial to meet domestic demand, but also to increase our exports, given that the manufacturing capacity of fatty alcohols of India may not be sufficient to meet the demand for domestic end uses as well as possible exports. Therefore, imposing ADD/CVD may go against the objectives of Aatmanirbhar Bharat and integration with GVCs.

Before imposing trade remedy measures, it is important to consider the number of companies that are adversely affected. If imports have a negative impact on 1 or 2 companies, then it is important to estimate their production capacity, match it to market requirements and study the reasons for their lack of competitiveness with imports, the optionally. If there is a gap between supply and demand in the value chain and duty-free imports can help fill this gap, they should be encouraged until Indian companies develop manufacturing capacity background. Indian actors further down the value chain can be supported with subsidies such as production-linked incentives to expand. If Indian manufacturers are not competitive with an international company, it may be due to company-level issues such as operational inefficiency and old technology, or domestic-level issues such as high logistics costs, none of which can be a reason to impose CVD/ADD.

These are the personal opinions of the authors.

Arpita Mukherjee and Eshana Mukherjee are respectively Professor at the Indian Council for Research on International Economic Relations (ICRIER) and Associate Researcher at ICRIER.

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