Manufacturing goods tackle minefield of restrictions to reach China

The last of a three-part series on rising non-tariff barriers to Indian exports explores how manufacturing shipments are trying but failing to enter China

After securing a contract to export to China, textile exporters almost always begin by giving their manufacturing unit a thorough scrubbing. The shop floors are cleared of obstructions and workers are given training according to the latest guidelines.

All this is done in anticipation of a Chinese team of inspectors which may land up at the door to check every step of the manufacturing process. “But there is no guarantee this will help, as there is no fixed pattern to the inspections. Contracts have been suspended due to non-issues such as the layout of the manufacturing facility, which may not be able to handle higher orders in future,” Rajesh Mehta, a Mumbai-based textile exporter, currently shipping hosiery items to China, said.

This is ironic, considering the Chinese domestic guidelines are lax and often flouted by manufacturers operating out of sweatshops, adds Mehta. “Apparel exports to China are in a nascent stage. At a time when Indian exports to prime markets like the European Union and the US are increasingly under threat from Bangladeshi and Vietnamese goods, Indian exporters want to tap into the Chinese market. But getting access is difficult,” a senior functionary of Texprocil — The Cotton Textiles Export Promotion Council, says, fresh off a trip to China to secure partners.

Textiles is among a handful of sectors the commerce department has identified to boost India’s manufacturing trade prowess. But it has been inundated with complaints from exporters who cite the heavy use of non-tariff barriers by China to curtail imports from India.

A report by the Confederation of Indian Industry has pointed out that since 2012, China’s exports have increasingly moved up the value chain, with accelerated growth in high-technology items, such as telecommunications equipment, automotive, cellphones, etc. With the rest of the world carved up by trade deals and the Chinese market slowly opening up, shipment of manufactured goods to India’s northern neighbour remains a top priority.

“China is a state enterprise-driven economy and most imports continue to be ordered by state companies. Issues of market access, primarily in agri commodities and pharma products, continue to remain. These have to be addressed first,” Ajay Sahai, director general of the Federation of Indian Export Organisations, said. Shipments of high value machinery items to China had seen an uptick in 2017-18, jumping by more than 34 per cent before growth rate halved a year later. Little of the $81.02 billion of India’s engineering exports in 2018-19 reached China. Exporters blame this on state-owned enterprises, rejecting Indian firms once they participate in tenders.

“The tender specifications themselves are exceedingly strenuous and mandate local registration for Indian firms and in some cases, significant criminal liability for not honouring the contract. The issue is that authorities act arbitrarily, often suspending shipments midway into the contract period, citing the exporter hasn’t complied with new product standards that have just been announced,” Pankaj Mahtani, head of product sales at Premier Engineering, a midsized export firm, says.

The government has placed its biggest bet on pharmaceuticals for reducing $53.6 billion trade deficit with China. Despite bilateral talks, access to the market remains transitory for Indian firms. Estimates suggest over 240 applications of Indian pharmaceutical exporters are currently pending with China.

“India is one of the largest manufacturers of generic drugs. While Indian pharmaceutical companies export generic drugs to the US and Europe, as most of the drugs have received the USFDA and European Union approval, the difficulty for Indian pharmaceutical exports arises from the complicated regulatory approvals process in China,” D K Aggarwal, president of the PHD Chamber of Commerce & Industry, said.

Thus, Indian pharmaceutical firms face regulatory hurdles and prolonged and unpredictable timelines for drug registration in China. Often, they are asked to submit detailed clinical trial data and reveal the drug formulation process at the time of registration, he added.

Despite suffering from a lack of cheap lifesaving drugs, the country has refused to relax management on imported generic medicine. People who want to import generic drugs for profit still have to follow Chinese laws to register and get an approval in advance.

“China has been very effectively using non-tariff barriers to curb imports that it wants to avoid. On the other hand, it also uses these restrictions as a political tool to control bilateral relations,” senior trade policy expert and professor at Jawaharlal Nehru University, Biswajit Dhar, said.

The WTO estimates that India’s average rate of tariff stands at 13.8 per cent, one of the highest for any major economy. On the other hand, the average rate of import duty for China stood at 5 per cent before Beijing’s long and costly trade war with the Trump administration. “It has been seen that countries with lower import tariffs repeatedly deploy nontariff barriers to control imports. What matters is how long they can hold on to them, given that global trade growth is going down. We will continue to talk to China till then,” a senior commerce department official, said.