Public Health or Protectionism, Chinese Fireworks Ed.

The NYT reports that:

India’s Supreme Court on Friday banned the sale of firecrackers in the capital region, reflecting a growing sense of urgency after a thick smog engulfed Delhi for 10 days early this month, trapping its population of 20 million in dangerous concentrations of polluted air…

For generations in India, fireworks have been set off to mark Hindu festivals, and their manufacture is a vast industry. Last year, the court refused to issue a blanket ban on fireworks, arguing that it would infringe on citizens’ rights.

This year, however, the hearing came on the heels of an episode that rattled the capital. After acrid smoke from fireworks set off late last month for Diwali, the Hindu festival of lights, merged with emissions from other sources, levels of the most dangerous particles of air pollution rose to more than 16 times the level that the Indian government considers safe.

At first glance, this seems like an open-and-shut case of public health protection.

However, as an opinion piece last year in Asia Times reports, there is also a significant economic dimension.

Chinese goods — often produced with cheap labour in their sweat factories — have begun to have an edge over Indian fireworks.  An important reason is the killing pricing, which Sivakasi factories are unable to match. The Chinese prices are so low that they are naturally tempting for a consumer — and this “unhealthy competition”, as some aver, is smoking out the livelihood of thousands in Sivakasi — a town that virtually survives on the fireworks industry.

The 750-odd fireworks units in Sivakasi have had to cut their output by a third — and this means that this commercial enterprise cannot run on the fifth gear during the festival season, as has been the case traditionally…

Chinese goods began their unlawful journey into India in 2013. That year, says G. Abiruben, president of the Tamil Nadu Fireworks Manufacturers’ Association, only ten kinds of fireworks came into India from across the Himalayas. This year, the number is a whopping 215 — the increase is incredible, but painfully true.

The best part of this whole clandestine business is that these Chinese products are smuggled along with other legal imports — which may be toys or electronics. And most of these fireworks are sold in small unauthorised shops and even by pavement vendors.

Some estimates place the figure of smuggled Chinese stuff at Rs 5,000 million (US$76 million), and given the low pricing, the actual quantity of fireworks sold may well be huge.

More recently, Indian trade officials have been stepping up their scrutiny of Chinese imports, as India Today reports.

So is the Indian Supreme Court motivated by public health or protecting Indian fireworks manufacturers from Chinese competition? Unclear, and the motivation won’t matter as much as the effect on competition if China decides to raise the issue with the World Trade Organization (WTO).

As a WTO member, India has agreed to not apply charges or restrictions to imports above what it imposes on domestic production, and to not impose “prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures… on the importation of any product of the territory of any other contracting party.”

If China launches a case, would India have any defenses? It wouldn’t be a defense that this week’s action was undertaken by courts rather than regulators. As I show here in the context of a case brought by Mexico against the U.S., international adjudicators will treat all branches as a single entity when it comes to state responsibility in international law.

And it could be difficult to argue that a sales ban is excused under environmental defenses baked into the GATT. Why? Arguably, the Supreme Court decision will hit Chinese exports disproportionately. The sale ban (a quantitative restriction) goes into place immediately, while the NYT reports that the a ban on Indian manufacture of fireworks will be punted to down the road. This discrepancy could make it harder to argue that India is making the environmentally-motivated trade restriction in conjunction with restrictions on domestic production – something required under WTO defense provisions.

On the other hand, the Supreme Court might have set the measure on less protectionist footing. Earlier this year, Asia News Network reports that India banned the sale of foreign fireworks only.

Stay tuned to see if China requests consultations with India at the WTO.

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