It is expected that the lifting of 24 per cent cap on foreign direct investment (FDI) will lead to a quantum jump in the quantity as well as quality of production so that India can face challenges from its neighbours.

However, India is facing a threat from the European Union (EU). To make its domestic industry competitive, the EU has imposed anti-dumping duties on Indian textile exports. The duties were imposed in several slabs ranging upto 24.7 per cent since November 28, 1997. India, therefore, dragged the EU to the Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) for imposing unwarranted anti-dumping duties on its textiles exports. It also complained that the EU had "failed" to consider India's special status as a developing country before imposing the duties on June 12, 1997.

The complaint was lodged under Articles III.3 and IV.3 to the DSB and under Section 2.4 of the Anti-dumping Practices (ADP). According to this Article, a product is considered to be dumped only if the export price of the producer is lower than the price charged for home consumption in the country of export. The margin of dumping is determined primarily by comparing these two prices.

On November 1, the WTO backed New Delhi by ruling that EU's imposition of anti-dumping duties on imports of cotton bed-linen from India violated free trade rules. The ruling was a major victory for Indian textile exporters, most of whom were in the private sector. The panel recommended that the EU be asked to bring its levy on anti-dumping duties into "conformity with the obligations under the ADP agreement." The European Commission, the executive body of the EU, contended in front of the appellate panel that the European textile industry had suffered declining profitability and price depression and therefore had slapped anti-dumping duties. However, the panel, unconvinced with the EU arguments, passed a ruling in India's favour.

The WTO has also ticked off the EU for "failing to explore the possibilities of constructive remedies" before levying the anti-dumping duties. "The EU had acted inconsistently with the provisions of ADP agreement and has nullified or impaired benefits accruing to India under that agreement", the panel noted. It said that there was "infringement" of EU's obligations assumed under the ADP agreement in the present case.

It has been reported that the EU would contest the WTO ruling against the anti-dumping duties on exports of cotton bed-linen from India worth Rs 400 crore. The EU announced its decision to appeal against the ruling of the three-member WTO arbitration panel at a meeting of the DSB. A larger seven-member appellant body would now hear the EU appeal. India now has to defend the ruling of the appellant panel and prove that the EU has gone against the provisions of the ADP agreement, thus putting itself at a disadvantageous position. There is a requirement for India to approach the WTO to prevent frequent anti-dumping laws by importing nations trying to curb its exports. India has to ensure that anti-dumping does not become a tool in the hands of a few developed countries.

Moreover, anti-dumping cases once settled should not be allowed to be revived through fresh legislation. Anti-dumping cases should be started when there is sufficient evidence of a link between a country's exports and the harm caused to the domestic industry of the importing country.

(The writer is Visiting Faculty on International Trade, Punjab University, Chandigarh)