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Last Updated: Monday, 31 July 2006, 23:00 GMT 00:00 UK
China faces Indian dumping allegations
By Charlotte Windle
Business reporter, BBC News, Shanghai, China

The number of anti-dumping actions being filed against China by other developing nations is increasing.

China is now aggressively expanding into these markets and meeting resistance from governments trying to protect their domestic industries.

In the largest anti-dumping investigation to date launched by one developing country against another, India is currently accusing China of dumping silk and satin into the Indian market.

Chinese silk
India says Chinese silk is dumped in its markets

China is the world's largest producer of silk and India is its largest market.

The problem is that India is also a major manufacturer of silk.

Indian silk producers claim that the price of Chinese silk in India is so low that they cannot compete.

They say the Chinese must be "dumping", or selling their products at below what they cost to produce.

Adverse impact

In May, the Indian government launched a formal investigation.

Indian investigators have yet to report on their search for evidence of dumping by five of China's largest silk exporters.

In the meantime, the Indian government has introduced provisional tariffs ranging from 57% to 116% on silk imports from China.

Chinese textiles market
China is seen as a threat by other developing nations

The deputy general manager of one of the Chinese company's under investigation, Lu Xing, thinks the tariffs are unfair and will not only have a "huge negative impact on China's enterprises that export silk fabric to India" but will also "increase the price that Indian consumers have to pay for silk products.

Furthermore, India's domestic manufacturers cannot produce enough to satisfy all the demand from Indian consumers, so there could be a shortfall.

Lastly, a high anti-dumping tariff raises the possibility that companies will start smuggling goods from China into India, and that is a situation that neither country's government wants to see happen."

"While protectionist measures taken by developed nations against China have been making the headlines, developing country protectionism has received less attention," says Stephen Green, China chief economist for Standard Chartered Bank.

Between 1995 and 2005, India filed more anti-dumping complaints against China than either the US or the EU.

Meanwhile, other countries including Turkey, Argentina, Brazil and Colombia - nations China refers to as developing nation "partners" - have all increased anti-dumping complaints about China.

Lacking resources

According to the World Trade Organization (WTO), China was the most popular target for new anti-dumping complaints during the second half of 2005, up 40% when compared with the same period of 2004.

China is seen as a threat by other developing nations because significant industries in these countries compete directly with Chinese firms.

For example, Sri Lanka and India still have large textile-manufacturing sectors - unlike the US or the EU, where textile production is a sunset industry.

Protectionism could hit China's textile exports

When a Chinese firm is accused of dumping, they are asked to prove that they have not received any financial assistance from the government, neither directly nor indirectly.

They must prove, for example, that they have paid a decent price for the land the factory is built on, and that all their taxes and bank loans have been paid in full.

"This is tough, particularly for a private firm, which usually only survives by flying under the radar," says Mr Green.

"Chinese firms are at an additional disadvantage when dealing with a developing countries because they often lack the resources to carry out a thorough investigation.

Protectionist path

It is easier to come down against China.

India is expected to decide whether to introduce permanent tariffs against Chinese silk imports by the end of 2006.

If tariffs are introduced, the Chinese are warning that it will jeopardise the livelihood of 10 million Chinese silkworm farmers and many more silk factory workers.

Trade between India and China has surged from $2bn in 2000-01 to $18bn in 2005-06.

Chinese-made textiles, toys and electronic goods abound in India's retail market while India provides materials for China's booming construction sector.

China has predicted that bilateral trade between the two could reach $100bn dollars in less than 10 years.

But a lot will depend on whether India continues along its newfound protectionist path.

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