India’s imposition of Anti-Dumping Duty on china and the Measure took by the government of India.

1. INDIA’S IMPOSITION OF
ANTI
DUMPING DUTY ON CHINA

2. BEFORE WE GO AHEAD WITH THE
MAIN TOPIC LETS HAVE A LOOK AT
A FEW THINGS SO THAT WE CAN
UNDERSTAND THE CAUSE
BETTER.

3. RUBBER AND TYRE INDUSTRY
Rubber – both natural and synthetic – is an important input in tyre
manufacturing. Although synthetic rubber can substitute for natural
rubber, it’s not a perfect substitute, and all tyres require a minimum
percentage of natural rubber. Natural rubber resists wear and tear
and has a high load capacity, whereas synthetic rubber has high
tensile strength and excellent resistance to heat and the effects of
aging. Tyres made with a larger proportion of natural rubber have
good grip performance.

4. India is a major producer of natural rubber. The rubber industry employs
millions of farmers in the country, primarily smallholders. Rubber plantations
require high year-round rainfall with little or no dry season.
The price of rubber is determined by supply and demand. An excess supply
can cause prices to plummet, hurting farmers, while a shortfall can cause
prices to spike, hurting tyre manufacturers. In an open economy, tyre
manufacturers could import rubber if domestic prices surged, but that would
hurt the farmers.
To protect the interests of small and marginal farmers, the government
therefore imposed an import duty on rubber, increasing it from 20% to 25% in
2015, while the import duty on tyres varied from 0% to 10%.
Tyre manufacturers believed this inverted duty structure was unfair since it
sharply increased their cost of raw materials, while reducing the cost of
imported tyres.

5. TYRES: TYPES, AFFORDABILITY
Radial Tyres:
To increase structural integrity, radial tyres are constructed with
perpendicular polyester plies and crisscrossing steel belts underneath
the tread. This construction provides a smooth ride and extends the
life of the tyre. Radial tyres are generally used for long-haul towing,
travel trailers, toy haulers, larger boats and livestock.

6. Bias Tyres:
A bias tyre’s construction consists of internally crisscrossing nylon cord plies
at a 30 to 45-degree angle to the tread center line. This design gives the tire a
tough and rugged build and increases sidewall puncture resistance. Bias
technology is generally used for construction, agriculture, marine and utility
applications.
Radial tyre generally cost 20-25% higher compared to Bias tyres however, as
larger amount of steel is required the cost of manufacturing also slightly
increases and it also increases the wear n tear of the tyre.

7. INDIAN TYRE INDUSTRY
The Indian Tyre Industry is an integral part of the Auto Sector – It
contributes to ~3% of the manufacturing GDP of India and ~0.5% of the
total GDP directly.
Indian tyre industry has almost doubled from Rs 30,000 crores in 2010-
11 to Rs 59,500 crores in 2017-18 of which 90-95% came from the
domestic markets.
The top three companies – MRF, Apollo Tyres and JK Tyres have ~60% of
the market share in terms of revenue. In terms of segmentation tyres
can be divided in two ways – based on end market and based on
product.

8. Truck & Bus (T&B), Passenger Vehicle (PV), 2/3-
Wheeler, Off-Highway Tyres (OHT) & Others
T&B tyres in India generates the
major revenue i.e. 55% of total
revenue whereas globally it’s the
PCR (Passenger Car Radials)
contribute the largest portion of
the revenue. This is mainly
because of very low penetration of
passenger vehicles in India – below
20 per 1,000 people whereas in
China the number is 69 per 1,000
people and 786 per 1,000 people
in US. In terms of volume
(tonnage) T&B contributes around
~50% of the total volume.

9. COST STRUCTURE
Tyre Industry is known for its
capital-intensive structure where
60% to 65% of the revenues is raw
material cost. The other
important cost involved are SG&A
(selling general & administrative)
which roughly contribute from 6%
to 12% of the revenues and
employee cost contributing from
7% to 14% of revenues.

10. MACRO-ECONOMIC AND POLITICAL
ENVIRONMENT OF TYRE INDUSTRY
Tyre manufacturers in India could freely export all types of tyre, and the government
imposed no tyre import licensing requirements. However, the import of retreaded tyres
was restricted under India’s Export Import Policy and required an import license.
India had entered into many regional trade agreements (RTAs), including the Asia Pacific
Trade Agreement, the Indo-Sri Lanka, South Asian Free Trade Agreement, the India-
Singapore Agreement, the Association of South East Asian Nations, and the India-
Malaysia Agreement. Under these RTAs, tyres could be imported at a preferential
customs duty of 10 per cent.
But under the same RTAs, natural rubber, an important raw material in tyre
manufacturing, could be imported only at the basic customs duty of 20 per cent.
This high import duty on natural rubber was meant to protect the interests of poor
rubber farmers and laborer's working on rubber plantations. This inverted duty
structure, i.e., a high duty on raw materials (natural rubber) but a low duty on finished
goods (tyres) was one of the reasons for the high cost of tyre production in India.
To mitigate the problem created by this inverted duty structure, India had imposed an
anti-dumping duty on tyres from China and Thailand in October 2006.
But then, yielding to pressure from Indian tyre dealers, India had removed this duty in
February 2015, making Chinese TBR tyres almost 30 per cent cheaper than their Indian
counterparts. Since the elimination of the anti-dumping duty, imports of radial tyres had
risen sharply

11. TYRE MANUFACTURERS DEMAND
ANTI-DUMPING DUTY
The sharp increase in imports had hurt Indian tyre manufacturers. To
counter the declining growth in production, sales, and other growth
parameters, three major tyre manufacturers – J K Tyre Industries Ltd., Ceat
Ltd., and Apollo Tyres Ltd. – approached the Ministry of Commerce through
ATMA in March 2016. The Association pointed out that, although total TBR
production capacity and capacity utilization had increased over time, the
surge in imports had slowed the growth of both domestic tyre production
and capacity utilization, leading to inventory buildup.
The Association maintained that growth in production and capacity
utilization would have been much stronger had there been no spurt in
Chinese imports.
The growing trend to import TBR tyres was a big setback to tyre companies
since most local and foreign investment in the domestic market was geared
toward the production of TBR tyres, with the truck and bus segment
accounting for 55% of tyre industry revenue.

12. CHINA’S GROWING SHARE OF TOTAL
IMPORTS OF TBR TYRES
China’s share of India’s total imports of TBR tyres had grown significantly
over the years, increasing the share of TBR tyres in India’s total imports as
well as total sales of TBR tyres on the Indian market. Over 70% of those
tyres were imported by traders and independent importers. Actual users
(vehicle manufacturers) and tyre companies accounted for only a small
percentage of imports. The Association claimed that China’s growing share
of total imports was a concern because the tyres were being dumped: the
price of Chinese tyres in the Indian market (landed price of imports for
India) was lower than the price of those same tyres in China’s domestic
market. The landed price of imports was also far below the selling price in
the domestic industry.

13. CHINA’S PLOYS IN THE GLOBAL
MARKET/REASON FOR CHINA’S
DUMPING IN INDIA
The Chinese government had been granting direct and indirect subsidies to
promote tyre exports by ensuring that Chinese tyres were cheaper than
similar tyres produced in countries such as Thailand and South Korea.
Tyre dumping was creating a problem for domestic tyre companies since it
was leading to the underuse of production capacity for not only TBR but also
TBB tyres. This underuse of production capacity was harming India’s status
as a preferred investment destination, discouraging foreign companies from
investing in India’s tyre industry. The underuse of production capacity also
affected other players in the supply chain. Slower growth in tyre production
was slowing the growth of domestic rubber sales, hurting the interests of
India’s natural rubber producers.
The Association attributed the surge in imports and the dumping of Chinese
tyres in India to:
1. excess production capacity in China
2. anti-dumping duties on Chinese tyres imposed by major importers such as Brazil,
Colombia, South Africa, and the U.S.

14. UNFAIR IMPORT PRACTICES
Both of these factors were forcing China to find new markets.
Also contributing to this surge in imports were the unfair practices of
independent importers.
The Association noted that TBR tyres were imported primarily by
small traders and importers, which either under-invoiced the tyres or
placed them in the wrong product category to avoid paying import
duties.
Such unfair practices not only hurt the domestic tyre industry but also
led to a considerable loss of revenue for the Indian government.

15. INDIA’S ACTION TOWARDS CHINA
In support of the tyre manufacturer’s demands for higher import
duties, ATMA declared that tyres imported from China were of poor
quality and did not meet India’s standards.
Fearing a sharp decline in the margins and profits of domestic tyre
companies, especially those controlling a large share of the medium
and heavy commercial vehicle market, the Association observed that
the free flow of cheap imported tyres was contrary to the
government’s “Make In India” initiative, which aimed to make India a
global manufacturing hub by encouraging companies to
manufacture their products within the country.
The Association also pointed out that if the government failed to
address the manufacturers’ concerns, their investments in capacity
expansion would be wasted.

16. PROTESTS IN INDIA AGAINST ANTI-
DUMPING DUTY
Unlike tyre manufacturers, India’s dealers were against any curbs on
tyre imports. The All India Tyre Dealers’ Federation (AITDF) declared
that tyre imports had done no harm to the domestic industry.
Instead, it claimed that tyre manufacturers were promoting anti-
competitive practices. The duty-free import of tyres was required to
curb the collusive practices of Indian tyre manufacturers, accelerate
radialization, and lower transport costs.
The AITDF alleged that, rather than facilitating radialization, tyre
manufacturers were interfering in the free play of market forces and
resorting to anti-competitive practices. It claimed that
manufacturers were not passing on the benefits of falling rubber
prices to consumers and enjoyed high profit margins.
In its letter to the Additional Secretary, Union Ministry of Commerce
and Industry, the Federation claimed that, in general, the world’s
leading tyre makers had low profit margins and a low return on
capital employed. But in India, even with falling rubber prices, the
price of tyres had not fallen. The so-called injury to domestic tyre
makers had to be seen in that light.

17. FEDERAL GOVT’S COUNTER
Federation pointed out that imported radial tyres had less natural
rubber content than did traditional cross-ply (or bias) tyres. The
inverted duty structure thus had little impact on the cost of
manufacturing domestic tyres and “the plea of domestic tyre
manufacturers to impose restrictions on the import of truck and bus
radial tyres was incongruous.” Highlighting the fallacies in tyre
manufacturers’ arguments for restricting tyre imports, the
Federation urged them to “learn to face global competition on the
basis of quality, fair trade practices, and a competitive pricing
structure rather than seek shelter in protective mechanisms of tariff
and non-tariff barriers.”
Accusing the tyre manufacturers of engaging in cartelization and
anti-competitive trade practices, the Federation declared that the
major tyre companies were indulging in price manipulation and
demanding tariff and non-tariff barriers on imported tyres.
According to the Federation, the domestic tyre industry was in fact
thriving and in a position of strength.

18. THE WORLD TRADE ORGANIZATION’S
PROVISION FOR ANTI-DUMPING
ACTIONS
Anti-dumping action generally means charging extra import duty on the
product being imported to bring its price closer to the “normal value” or to
eliminate the injury to the domestic industry caused by importing cheap
goods.
Free trade promotes economic growth, and the World Trade Organization
(WTO) advocates and facilitates the smooth flow of trade in goods by having
member nations agree to eliminate quantitative restrictions on imports and
exports and keep tariff barriers at mutually agreed-upon levels.
Although the WTO frowns on restrictive trade practices, its agreements allow
certain safeguard mechanisms to protect members from disruptive forces.
Anti-dumping duties safeguard domestic markets and industries from the
dumping of goods by foreign companies or countries.
According to the WTO, if a company exports a product at a price lower than
the price it normally charges on its own home market, it is said to be
“dumping” the product.
The WTO’s anti-dumping agreement allows countries to take action against
dumping. But, before taking action, the country must (i) show that dumping is
taking place, (ii) calculate the extent of the dumping, and (iii) show that the
dumping is causing injury or threatening to do so.

19. CONCLUSION
Was it a right decision or wrong. Who benefited the most?
Chinese tyres were available at a discount of 20-25 per cent to the tyres
from the Indian tyre manufacturers. The anti-dumping duty increased
the prices of Chinese radial tyres by 10-15 per cent.
Overall, the domestic manufacturers benefited more than the dealers
but at least further market degradation was prevented and rubber
industries was saved. Though due to anti-dumping provisions market
was back to its old ways without much expansion, productivity, and
production efficiency since the bigger players have already done that.
So, from customers point of view this decision cost them the most,
because they are the end users who generate revenue for the companies
and the country.
It is believed that JK Tyres & Industries benefits the most among the
other rated issuers due to its larger presence in the TBR segment
(around 31 per cent of the market share), followed by Apollo Tyres and
CEAT.