1. september-October 2015Rubber Asia Rubber Asia2 3september-October 2015
T
D
perspective
Jom Jacob
Fallacies galore
as prices slumpWith prices staying low for long, media are rife with reports and
discussions by the ‘saviours’ of rubber who demand immediate
remedial action against unbridled natural rubber imports into
India little knowing that, under the prevailing WTO-mandated trade
policy regime, individual member-countries lack flexibility to ban
the import or put quantitative restrictions
Falling prices of natural rubber (NR) and
suggestions for addressing the farmers’
woes have been dominating discussions
among rubber fraternity the world over for
more than two years. Around 84% of India’s
total output of NR comes from the State of
Kerala. This 100% literate State is known
for the public’s obsessive dependence on
the media for grabbing the most updated
information. Both the print and visual me-
dia in the State are flooded with daily re-
ports and columns pointing out measures
for addressing the crisis in the rubber farm-
ing sector.
Ironically, almost all the remedial measures
which have come up during the past two
years, (and extensively reported through
the media or deliberated by various fo-
rums), are built up on the wrong premise
that India still remains a closed economy
and the sub-sectors of the economy remain
insulated from the rest of the world. The
reported remedial policy measures largely
reveal lack of awareness of the proponents
about the economic reforms initiated in In-
dia in 1991, the paradigm shift in the coun-
try’s policy orientation following the signing
of GATT 1994 and the subsequent mandato-
ry removal of quantitative restrictions (QR)
on imports and exports.
This article attempts to take a survey across
the various remedial measures which have
been repeatedly suggested through the me-
dia for addressing the prevailing low rubber
prices. It also examines the merit of the sug-
gested measures in the context of the pre-
vailing economic policy environment man-
dated by GATT 1994.
Commitments under GATT 1994
India is a founder member of the WTO es-
tablished in January 1995 and signatory
to the GATT 1994 and its associate agree-
ments. GATT 1994 aims at ensuring that
markets remain open and this access is not
disrupted by sudden and arbitrary imposi-
tions of import restrictions. With this objec-
tive, the whole framework of GATT 1994 is
laid up on three basic principles which are:
september-October 2015Rubber Asia Rubber Asia2 3september-October 2015
The writer is Deputy Director,
Statistics & Planning, Rubber
Board, India, and former Senior
Economist of ANRPC.
The views presented in the
article do not necessarily reflect
those of the Rubber Board

2. september-October 2015Rubber Asia Rubber Asia4 5september-October 2015
i) Market Access, ii) Most Favoured Nations
Treatment and iii) National Treatment Rule.
Among the three, the principle of market ac-
cess is important in the context of the reme-
dial measures repeatedly suggested for the
country’s NR sector.
The market access principle requires all
WTO member-countries to keep domestic
protection measures at low and provide it
only in the form of the Customs tariff. The
use of quantitative restrictions (QR) on
imports is prohibited except under very
special situations which are specified un-
der Article XII, XX and XXI of GATT 1994.
Member-countries should reduce the Cus-
toms tariffs and remove all other forms of
barriers to trade. The reduced Customs
tariffs are bound against further increase
by getting the bound rates listed in each
country’s National Schedule. The National
Schedule forms an integral part of GATT
1994, and individual member-countries are
not permitted to change the bound rates
listed in it. The bound rate committed under
India’s National Schedule for NR traded in
the forms of RSS (Ribbed Smoked Sheets),
Block Rubber and other dry forms is 25%.
This means that 25% is the maximum Cus-
toms tariff which India can levy on these
forms of NR. However, this is not applicable
to import of NR in the form of latex because
the Government had left NR latex without
fixing a bound rate. Therefore, India enjoys
the flexibility in keeping the Customs tariff
for NR latex at any level.
Being a signatory to GATT 1994 and its
associate agreements, it has become
mandatory for the Government of India to
phase out all QRs on imports and reduce
the Customs tariffs in a phased manner.
Therefore, it has become obligatory for
the country to frame its EXIM policies
and domestic support measures in com-
pliance with the basic principles of GATT
1994. Accordingly, the Government had to
remove all QRs for NR’s imports effective
April 1, 2001. From that date onwards,
NR can be imported into the country in
any quantity, without licence by paying
the Customs tariff at the prevailing rate.
Moreover, the levy of the Customs tariff
should be subject to the bound rate com-
mitted through the National Schedule.
Given this background, the following sub-
sections examine the merit of the various
remedial measures which have been sug-
gested for addressing the current phase
of low NR prices.
Ban on import
GATT 1994 does not allow any member-
country to ban or quantitatively restrict
imports, even for a temporary period,
until March 2001 as explained in the Table
on Page 7.
From the Table, it is evident that the Govern-
ment enjoyed flexibility until March 2001 for
restricting the quantity of imports or even to-
tally banning them. The Government lost this
flexibility from April 2001 onwards. There-
fore, the suggestions for banning the import
or putting quantitative restrictions are illogi-
cal in the prevailing WTO-mandated trade
policy regime in which individual member-
countries lack flexibility in doing so.
However, the Government may discontinue
or restrict the Advance License scheme
for duty-free imports of NR against export
of manufactured rubber products. This, be-
ing an incentive, provided by the Govern-
ment for promoting export of value-added
products, does not come under the ambit of
GATT 1994.
Upward revision of Customs tariff
GATT 1994 requires that all WTO member-
countries should keep the applied rates of
basic Customs tariffs within the bound rates
they have listed in their respective Nation-
al Schedules. The bound rate, which India
has committed for NR traded in the forms
of RSS (HS code 400121), Block Rubber
(HS code 400122) and other dry forms (HS
400129), is 25%. Against this, the applied
rate of the Customs duty, effective April 30,
2015, is “25% or Rs.30 per kilo gram which-
ever is lower.” The prevailing applied rate
for dry forms of NR is the maximum level
to which India is permitted to raise the Cus-
toms tariff. India lacks any further option
to raise the Customs tariff for dry forms of
NR. The only option which is available now
is to remove the cap of Rs.30 per kilogram
on the Customs tariff. But, at the current
level of prices in the international market,
the removal of the cap does not provide any
added protection.
Levy of Anti-dumping Duty
There is a general notion that any abnormal
increase in the imports of a product could
be treated as dumping. For instance, a total
quantity of 442,130 tonnes of NR was im-
ported into India during 2014-15 as against
the average annual import of only 61,500
tonnes during the period from 2001-02 to
2008-09. Obviously, the import surged by
more than seven-fold. This abnormal surge
in the imports is often quoted as justifica-
tion for levying anti-dumping duty on NR
imported into the country. But, under the
Agreement on Anti-dumping Practices of
GATT 1994, it is laid down that a surge in im-
ports per se cannot be considered as dump-
ing. A product is considered dumped into a
country only if either of the following two
unfair trade practices is proven:
i) The product is exported from the
source country at a price lower than
the price normally charged in the
source country.
ii) The product is exported from the source
country at a price below its cost of pro-
duction.
Even if there is surge in imports, it cannot be
considered as dumping unless either of the
two is established. For instance, suppose
there is surge in Indonesia’s exports of ‘SIR
20’ grade of Block Bubber into India and
it causes material injury to the Indian NR
production sector. This can be considered
as dumping only if it is proven that i) Indo-
nesia exported SIR 20 at a price below its
cost of production or ii) Indonesia exported
SIR 20 at a price below the corresponding
market price in Indonesia. As far as either of
these two conditions is established, there is
no unfair trade practice involved and hence
dumping cannot be charged or anti-dump-
ing action cannot be initiated.
Safeguard action
The levy of anti-dumping duty discussed in
the previous sub-section is a punitive ac-
tion against an unfair trade practice. But,
except under very special situations which
are specified under Article XII (Against se-
vere Balance of Payment crisis) and Article
XX and Article XXI (To protect human,
animal and plant life, and on national se-
curity grounds). Surge in imports, piling-
up of stock or fall in prices do not provide
justification for a member- country to rein-
state QR.
Imports of NR into India remained quanti-
tatively restricted right from 1947 onwards
september-October 2015Rubber Asia Rubber Asia4 5september-October 2015
Stakeholder leaders of the rubber industry in a panel discussion on NR price crash
Rubber growers resort to crop diversification compelled by price crash

3. september-October 2015Rubber Asia Rubber Asia6 7september-October 2015
Period Nature of Quantitative Restriction imposed
1947 to 1968 Domestic supply of NR was short of the demand right
from 1947 onwards. Therefore, the Government permit-
ted manufacturing units to directly import NR during
this period. In order to restrict the quantity of imports,
the Government issued individual import licence to
manufacturing units specifying the quantity permitted
to be imported. The total volume of imports during a
year was decided on the basis of the deficit foreseen.
This system continued until 1968. Manufacturing units
in the country imported a total quantity of 235,400
tonnes of NR during the period from 1947-48 to 1967-68
as against 214,900 tonnes of the shortfall in production.
1968 to 1992 Towards end of 1968, the Government authorised the
State Trading Corporation of India Ltd. to import NR
and release into the domestic market so as to bridge the
estimated deficit. The quantity imported during each
year was restricted to the extent of the deficit foreseen.
The system continued until March 1992. A total quantity
of 544,300 tonnes was imported into the country dur-
ing 1968-92 as against the deficit of 454,700 tonnes. The
Government also banned the import during the period
from 1973-74 to 1978-79 when domestic supply was in
excess of the demand. Moreover, a quantity of 26,400
tonnes was procured and exported during the period of
excess supply.
1992-2001 The Government decanalysed import of NR by remov-
ing STC from the role effective April 1992. As an alter-
native system, a Public Notification Scheme, was intro-
duced in April 1992 facilitating manufacturing units to
directly import restricted quantity of NR on payment of
the prevailing Customs tariff. By issuing Public Notice,
the Government invited applications from manufactur-
ing units for obtaining the license for direct import of
restricted quantity of NR. The total licensed quantity
for each year was supposed to match with the deficit
foreseen for the year. This scheme continued till March
2001. The country imported a total of 208,100 tonnes
and exported 33,500 tonnes of NR during the period
from April 1992 to Match 2001. But, the total shortfall in
the domestic production during the whole period was
62,300 tonnes only.
safeguard action is a provision given under
the Agreement on Safeguard Duty of GATT
1994 for providing protection to the domes-
tic sector even if no unfair trade practice is
involved. But, this is applied under specified
situations subject to well-stated conditions.
There have been media columns pointing
out that India could initiate safeguard ac-
tion against imports of NR into the country.
Unfortunately, they missed proper under-
standing of the various clauses and condi-
tions laid down under the Agreement on
Safeguard Duty. Safeguard action is recom-
mended under the following special situa-
tions:
i. There is no issue of unfair trade practic-
es involved. Import surged although the
trade is undertaken through fair practic-
es only.
ii. The domestic sector is not prepared to
face the surge in imports. The domestic
sector needs time for preparing itself for
facing the increased competition.
For instance, suppose India considers initi-
ating safeguard action on SIR-20 imported
from Indonesia. As far as the imports take
place through fair practices, it is not possi-
ble to initiate punitive measures against In-
donesia. Suppose India feels that the domes-
tic NR production sector would be able to
attain competitiveness if it is provided time
to prepare itself for the same. This means,
the domestic NR production
sector would be able to re-
duce the cost of production
so that it would be possible
to offer domestically pro-
duced NR at prices lower
than the prices offered by
exporters in Indonesia.
Moreover, it has to be
proved that the domestic
NR production sector is
seriously damaged and the
surge in imports from In-
donesia is the cause for the
same. Under such a situa-
tion it is possible to initiate
safeguard action against
import of SIR-20 from Indo-
nesia for a specific period.
This is only the conceptual
part of the safeguard action
and most of the proponents
of this measure have never
gone beyond the conceptual
part.
Safeguard action can be in
to suffer from the import of SMR 20 from
Malaysia, STR 20 from Thailand and SVR 10
from Vietnam. That means, India may have
to replicate the same exercise with these
countries as well by offering them highly
attractive compensations. While Malaysia
may ask for concessional tariff for import-
ing palm oil or timber products into India,
Vietnam may demand a lower tariff for im-
porting coffee into India and Thailand may
ask for a special tariff for rice. In short,
India may have to sacrifice the interests in
several domestic production sectors before
considering safeguard action against im-
port of NR. Even if India is willing for such
a sacrifice, major NR exporting countries
are unlikely to consent for a measure hav-
ing potential damage to their NR trade sec-
tor. For the major NR exporting countries,
India is a bright spot in view of the coun-
try’s increasing dependence on imports.
Therefore, safeguard action is not a feasible
proposition in addressing the current phase
of low NR prices.
Inclusion of NR under
Agreement on Agriculture
NR is not included in Annexe 1 of the
Agreements on Agriculture (AoA) of GATT
1994 and, therefore, it is treated as “other
products” which are often referred to as
industrial products. There is a misconcep-
tion that the bound rate of Customs tariff
for NR could be raised if it is brought under
Annexe 1 of the AoA. First of all, re-classi-
fication of Annexe 1 is practically impossi-
ble as it requires consent from all member-
countries of WTO. Secondly, NR’s inclusion
in Annexe 1 of the AoA and upward revi-
sion of an already committed bound rate
are two different matters. Upward revi-
sion of an already committed bound rate is
practically impossible because it requires
consent from all the member-countries
whose trade interest could be affected due
to the revision. India has already emerged
as a major destination of NR exports from
Thailand, Indonesia, Vietnam and Malay-
sia. Therefore, it is practically impossible
to get the consent of these countries for the
upward revision of India’s already commit-
ted bound rate.
Another misconception is that planting sub-
sidies and other forms of incentives to the
domestic NR production sector could be
enhanced if NR is brought under the AoA.
NR being classified under “other products”,
rules on subsidies are governed by the
Agreement on Subsidies and Countervailing
Measures of GATT 1994. The Agreement on
Subsidies and Countervailing Measures per-
mits subsidization to the extent of 5 per cent
of the value of output. Based on the produc-
tion and average price of NR during 2014-
15, 5 per cent of the value of output comes
to Rs.4,300 million. That means, Agreement
on Subsidies and Countervailing Measures
already allows India to raise the annual
amount of subsidization to the extent of
Rs.4,300 million which is more than four
times the amount being currently provided.
Evidently, GATT 1994 is not a constraint for
India to bring more than four-fold increase
in the amount of subsidization provided to
NR. Inclusion of NR in Annexe 1 of AoA is
not needed for the same.
september-October 2015Rubber Asia Rubber Asia6 7september-October 2015
Felling rubber trees for planting other crops: A common sight across NR growing regions
the form of an increase in the Customs tar-
iff or imposition of QR for a specific period
for importing SIR 20 from Indonesia. But,
the most important point is that safeguard
action is not a punitive measure against an
unfair trade practice. But, it is a measure
against fair trade. Due to the same reason,
safeguard action could be initiated only
with the consent of the exporting country
concerned. For initiating safeguard action
against Indonesia, India has to get the con-
sent of the former. Indonesia is not expect-
ed to agree to a proposal having potential
adverse damage to its own trade interest.
Moreover, Indonesia’s smallholder-dominat-
ed NR production sector is export-oriented
and therefore the Indonesian Government is
unlikely to agree to an action affecting the
interest of the country’s smallholders. In or-
der to get Indonesia’s consent, the country
proposing to initiate safeguard action (In-
dia) has to offer highly attractive compensa-
tion to Indonesia. The compensation could
be in the form of tariff concession on other
products of export interest to Indonesia.
For instance, Indonesia may ask for a lower
Customs tariff for importing palm oil into
India. But, this will cause damage to India’s
domestic edible oil sector.
Suppose that all the above complications
are somehow managed and safeguard action
is taken on SIR 20 imported from Indonesia.
The domestic NR production sector still has

4. Rubber Asia8 september-October 2015
Notification of Statutory
Minimum Support Price
During the protectionist period, the Govern-
ment of India used to administer NR prices
by notifying statutory fixed prices, minimum
prices, maximum prices or both the maxi-
mum and minimum prices. This had been
in practice in various forms right from 1942
onwards as part of the domestic support
measures provided by the Government dur-
ing the pre-reforms period. As imports and
exports of NR were quantitatively restricted
during the period up to March 2001, it was
possible to effectively enforce the prices no-
tified during the period.
A few media reports have recently sug-
gested statutory notification of minimum
price as a solution to relieve the farmers
from the prevailing low prices. The reports
have quoted the successful enforcement of
Rs.180/kg is a punishable offence. But, im-
ports are allowed free of restrictions and
NR is available at the international market
at Rs.110/kg. Naturally, the domestic manu-
facturing industry will source NR from the
international market leaving no buyers for
the domestic NR. Eventually, farmers in In-
dia will not able to sell the produce even if
they are willing to offer at prices much low-
er than the notified minimum prices.
Domestic procurement
Domestic procurement of NR is a policy
suggestion that has dominated among the
various measures which have been pointed
to support the domestic prices of NR. Those
advocating this policy measure blindly
presume that the domestic price can be
brought upward by bringing down the sup-
ply and this can be achieved by procuring
NR from the domestic market by a designat-
ed Government agency. They point out that
procurement operations carried out by the
Government in the past had been effective
in addressing the low prices prevailed dur-
ing those days.
It is true that the domestic procurement
operations were effective in shoring up the
low prices during the pre-reforms period
when the domestic market enjoyed insula-
tion from rest of the world. Until March
2001, imports were quantitatively restricted
and, therefore, it was possible to regulate
availability in the domestic market by pro-
curing NR from the market. As mentioned
earlier, policy measures which had been ef-
fective during the protectionist period can-
not be expected to yield the same result in
the changed scenario.
It is possible to bring down the water level
in an unconnected pool by pumping out wa-
ter from it. But, if the pool is connected to
an ocean, it is hard to bring down the wa-
ter level in the pond. The Indian NR market
from April 2001 onwards is like a pond con-
nected to ocean. The domestic market is in-
tegrated to the world market and, therefore,
domestic procurement will be a futile exer-
cise as far as imports are permitted free of
quantitative restrictions.
Proper understanding of the changed eco-
nomic scenario and WTO-mandated trade
policies are essential in dealing with the
prevailing crisis in the NR market and iden-
tifying the appropriate remedial actions.
One should not enter a new battlefield with
the weapons used in the past. Let us study
the battlefield and rules of the game before
choosing the weapons.
the same during the past. But, the propo-
nents of the administered price ignore the
basic fact that Indian economy is no longer
an insulated island. The support measures
and strategies that prevailed during the pro-
tectionist period of the past, and were effec-
tive in supporting the domestic sector, are
no longer feasible in the changed economic
scenario. Effective April 2001, there are no
restrictions on imports and exports. Even
if the Government notifies a statutory mini-
mum price, it can be effectively enforced
only if imports are quantitatively restricted
and NR is procured by a designated agency
at the notified minimum prices. As stated
earlier, it is practically impossible to rein-
state QR on imports and, therefore, admin-
istration of price by notifying a statutory
minimum support price lacks logic in the
changed economic scenario.
In order to make this point clear, suppose
the Government notifies Rs.180 per kilo-
gram as the statutory minimum price for
NR in the country. Once this is notified,
buying or selling NR at a price lower than
Rubber Asia8 september-October 2015
Proper understanding of the changed economic scenario
and WTO-mandated trade policies are essential in dealing
with the prevailing crisis in the NR market and identifying
the appropriate remedial actions. One should not enter
a new battlefield with the weapons used in the past. Let
us study the battlefield and rules of the game before
choosing the weapons