China is likely to seek the intervention of the World Trade Organisation and ask it to investigate whether the ban imposed on toy imports by India is in contravention of WTO trading rules as it affects the Chinese toy industry, which has already been devastated from the global economic meltdown.
On 23 January, the Directorate General of Foreign Trade (DGFT) had suddenly banned the import of toys from China for six months without assigning any reasons for the ban. (See: India bans imports of Chinese toys for six months)
The Mumbai-based All-India Toy Manufacturers Association was reported as saying that Chinese imports account for over half of the retail toy market in India, estimated to be in the range of $500 million in 2007.
Chinese media have reported that China may take the ban imposed on India to the WTO to protect its toy manufacturers from illegal trade barriers and punitive measures imposed by India in view of protectionism policies being carried out by many countries in the wake of global recession.
The Chinese media, quoting Fu Donghui, managing director of Allbright Law Firm from Beijing as saying that the ban does not hold any water and India is sure to lose the case if the China decides to appeal to the WTO.
Though local manufacturers have been demanding protection against cheap imports from China, they were caught unawares by the sudden ban but in 2008 toy makers in the UK, Europe and the US, including Mattel, were forced to recall Chinese-made toys from the shelves of Toys ''R'' Us and Wal-Mart that were found to be painted with toxic lead-based paints (See: California attorney general sues 20 companies for lead-contaminated toys)
Mattel had recalled 21 million toys in just five weeks last August because of high levels of lead paint and the US set a new benchmark for the maximum permissible lead content at 600 ppm, (parts per million) which will come into force from this month.
Due to the global economic meltdown, Chinese toy exports have been hit badly as China exported $7.34 billion worth of toys between January and October last year, which was 16.6 percentage points lower than the year-earlier level.
Last month, the Chinese government raised the export tariff rebate for Chinese toys by 14 per cent to help exporters to reduce their losses from the fall in demand for exports of toys, which puts Indian toy manufacturers at a distinct disadvantage as China is now able to dump cheap toys in the Indian market.
Nearly 75 per cent of toys sold globally are manufactured in China and the Guangdong Province alone accounts for 70 per cent of them, but with the US being one of the main importer of Chinese toys, had raised the safety standard for Chinese toys in August, which had resulted in a drop in sales and higher costs to Chinese toy manufacturers.
Guangdong's toy exports to the US and Hong Kong, dropped by 2.5 per cent and 13.9 per cent respectively during the first three quarters last year and 3,631 toy exporters, about half of the industry's businesses, shut down in 2008 with 1391 toy factories being shut down in Guangdong province alone.
Of late, China's toy industry has been scrutinised by other importing nations following the global recalls due to toxic lead paints and also design flaws and in November the EU the US had held talks with the Chinese on a common safety standard for toys.
Concerns over safety standards of Chinese-made products, forced China to revoke or suspended export licences of over 700 toy factories in the southern provinces, particularly Guangdong, after inspections triggered by the spate of product recalls overseas (See: China bars toys export by 700 factories)
Exports being the mainstay of the Chinese economy, has taken a beating due to the global economic meltdown and Chinese Premier Wen Jiabao had hit out at the trade protectionism policies adopted by many countries in his speech at the World Economic Forum held at Davos last week.
He even bought the protectionism issue up with Britain's Prime Minister Gordon Brown when he was in London this week after the US President Barack Obama put 'the buy American clause' in the $825 billion stimulus bill late last month. (See: Obama packs 'buy American' clause in $825 billion stimulus plan)
By giving export rebates to its toy industry, China is showing its dual face of protecting its own industry and at the same time making a noise in international forums on trade protectionism policies adopted by other countries.
Its time that China learns that there should be level playing field in world trade, which the WTO was precisely set up for. Most of the WTO trade complaints languishing at the WTO are related to Chinese unfair trade practices.
China was the most frequent subject of the new investigations at the WTO, with nearly one half (37) of all of the new complaints reported for January-June 2008 directed at its exports. This was a 76 per cent increase over the 21 new investigations opened in respect of exports from China during January-June 2007. (See: WTO reports surge in anti-dumping investigations)
Products exported from China were the most frequently subject to new complaints during January-June 2008, accounting for 13 of the 54 new complaints during this period.