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The Rupp Report: India's Troubles With Turkey And Egypt

Jürg Rupp, Executive Editor

India has approached Turkey and Egypt requesting them to remove the additional duties they have imposed on Indian cotton textile imports or pay suitable compensation. As a senior government official said, the moves by Ankara and Cairo are actionable at the World Trade Organization (WTO), and if the discussions would not lead to a mutually satisfactory solution, India would push them to the WTO.

Protectionism In Sight
Turkey and Egypt are not the only countries with this kind of idea: India's move might also serve as a warning for countries like Bangladesh, Peru and Brazil, which are planning curbs against Indian textile imports. It's quite obvious - with the global downturn reducing the demand for most goods, countries are looking for various protectionist measures to slow down imports.

As for Turkey, the additional duties imposed had increased the total import duties to more than 15 percent against a bound rate, or ceiling rate, of 5 percent at the WTO, said an official from an India-based non-profit international marketing organization working for local manufacturers of cotton yarns, fabrics and apparel.

And, as everybody could expect, Egypt replied and kicked back the import duty on cotton textile from India to 30 percent against the 15-percent bound rate at the WTO. Now the Indians are calculating, that Turkey alone owes India $2 billion in compensation for the loss suffered by the industry because of the protectionist measures.

The case is quite important. Turkey is India's second-largest market for cotton textiles after Bangladesh, accounting for annual exports worth $186 million, while Egypt ranks fifth, with exports worth $100 million.

As a government official said, action can be taken against the two countries if the discussions prove the higher duties were imposed just to reduce competition from the domestic industry without suitable provocation.

Safeguard Measures
However, if the two countries can prove their moves were measures against a surge in imports taken to protect the domestic industry from injury, they will be validated by the WTO, which allows such safeguard measures, and there is little India can do about them.

Yet, the troubles among these countries could be the beginning of unmanageable problems - or, in other words, the start of another round of protective measures by other countries. If India is able to take action against Turkey and Egypt, it would be a disincentive to other countries to make similar moves. Other countries importing Indian goods probably could start increasing import duties beyond bound levels.

To be more competitive, the Confederation of Indian Textile Industries (CITI) has recently sought a two-year moratorium on repayment of principal amounts against term loans "to avoid defaults and loans turning into non performing assets." Big textile companies noted losses in the fourth quarter of 2008. CITI also is seeking exemptions in service tax, import duties on man-made fibers and restoration of a 4-percent interest rate subsidy on bank loans to exporters.

In October 2008, the Indian government had withdrawn a 4-percent interest rate subvention granted to textile exporters. Subsequently, in a stimulus package last December, the government extended a 2-percent interest rate subsidy and said it would provide 14 billion rupees for a technology upgrade funding scheme for textile enterprises.

March 10, 2009