Me So Toxic: India Underdogs in a WTO Toy Case

As you can see, this story presents me with another opportunity to doctor photos for my (fleeting) amusement. To me, international economic diplomacy is the most ridiculously fascinating thing--it's just that many do not present the subject matter in lively enough fashion. [As a plug, Birmingham is one of the few schools offering a graduate-level course.] Certainly, there is enough comic fodder here to last a lifetime--banana wars, bra wars, etc. Today we feature the ongoing toy wars. A few days ago, I featured news that China was about to launch a formal complaint at the WTO over India banning toy imports from China without much reason. While we're all waiting for that action to happen, things have not stood still. The Business Standard of India consulted with a bunch of trade law experts on the WTO legality of India's toy ban. As you will read below, the judgment is unanimous--India's ban on Chinese toys fails to pass muster on the following grounds:

• India did not field formal complaints as a procedure before making the ban;
• There have been no tests conducted to demonstrate the toxicity of specific Chinese toys;
• A ban purportedly made in the "public interest" should be applied where toxicity is found to local products as well as those of other trading partners.

I am sorely tempted to label posts like this "stupid protectionist tricks" instead of just "trade" if it weren't for the former eating up more screen space. In any event, my intuition is that the Indian government itself knew that the ban wouldn't pass muster. Rather, it was hastily imposed for a period of six months to ensure that the fallout was limited on India's part. It will lose if push comes to shove, but it will probably not lose big. Then, the government can tell the toymakers, "See? We told you this &"£$ would happen." As I've said before, the ban should be in the past by the time China gets proceedings underway. Still, the Indian government had to please domestic toy manufacturers doing the ol' rent-seeking jig, so what you see is what you get:

India’s move to ban import of Chinese toys may not be compatible with the World Trade Organization (WTO) rules. Trade experts and lawyers told Business Standard that if China drags India to the WTO, the country may find it difficult to justify the ban. However, Indian toy manufacturers see the ban as an opportunity to reclaim their lost market share. “There are certain norms under which a country can impose such prohibitions. It seems the ban is not compatible with them,” said a Delhi-based international trade expert.

The notification, issued on January 23, said the move had been carried out in “public interest” and would be effective for six months. However, there were no details of the grounds on which the ban was imposed...Government officials said there has been no official intimation from China on this. “There is a procedure through which they have to come. They have to seek consultations,” Commerce Secretary Gopal K Pillai said recently. The ministry said any country can restrict imports from a country in public interest.

Government sources said the ban was imposed because of health concerns. In 2007, many varieties of Chinese toys were found to carry toxic substances like lead and many international companies had recalled millions of such toys across the globe.

Lawyers specialising in international trade disputes point at Article 20 of General Agreement on Tariffs and Trade (GATT), which defines conditions under which import restrictions can be imposed. These include protection of public morals as well as health and safety concerns. However, the article specifies that such measures cannot be used to discriminate between countries.

“For this, there has to be scientific evidence that there has been an impact on citizens’ health. Moreover, if India says that the ban was imposed as quality norms for Chinese toys did not match its standards, it has to apply the same standards on domestic toy manufacturers. If India has not done its homework, it may lose to China in the WTO,” said a lawyer specialising in trade. “They should have at least mentioned that the ban was imposed after complaints related to toxicity. Clearly, WTO procedures have not been followed,” he added. Experts said the notification could have at least mentioned more elaborately the reasons for the ban or banned import of toys with specified toxic content from all countries. “Toxic toys can come from anywhere, why only China?” said the expert.

Significantly, the DGFT [Directorate General on Foreign Trade] widened the ambit of the ban in a subsequent circular, which said the ban would apply to all toys manufactured in China. This means that even a toy imported from a third country but manufactured in China won’t be allowed into the country.

Domestic toy manufacturers, who peg their market size at Rs 3,000-3,500 crore, have been complaining that cheaper Chinese toys have grabbed over 40 per cent of the market, impacting them adversely. “The ban will help the domestic industry augment their share,” said AK Bansal, chief managing director, Hanung Toys and Textiles Ltd, which sells about Rs 100 crore worth of toys in India. According to industry estimates, about 20-25 per cent of the industry is organised. “Toy makers in the unorganised sector have been hit the most by cheaper Chinese toy imports,” added Bansal.

I would've concluded with an appeal to "set the Bratz loose" if it weren't for their own legal wrangles Stateside.