‘India has no excess capacity, bans forced-labour imports’

Why in the News

Both US charges behind its tariffs on India, structural excess capacity and weak curbs on forced-labour imports, are now contested by India. At the G20 Trade Ministers’ Meeting, the Commerce Minister said India has no excess capacity in the flagged sectors and already bans forced-labour imports. The US already levies a 10% “forced labour” tariff on India, and a US Trade Representative (USTR) probe of 60 countries could add more.

What is structural excess capacity, and what is India’s position?

1. What it is: Structural excess capacity means an economy produces far more than its market absorbs and exports the surplus cheaply, like a factory dumping unsold goods on a neighbouring town.
2. India’s growth model: India called itself the fastest-growing large economy, driven by local demand. It is building manufacturing “from design to finished goods” for domestic and global needs.
3. Where distortion lies: Capacity itself is not the problem. Distortion arises when production concentrates in one place because of hidden subsidies.
4. Shared worry: India shares concern that trade-distorting support in some economies leads to “dumping and predatory pricing“, meaning selling below cost to kill rivals.
5. The takeaway: India argues the target should be subsidy-driven distortion, not countries that simply produce a lot.

How does India want capacity concerns handled?

1. Trade remedies: Concerns should be met with anti-dumping duties, which offset below-cost imports, and countervailing duties, which offset foreign subsidies. Both need evidence and face judicial review.
2. No pretext: Supply-chain diversification is legitimate, but cannot justify measures outside World Trade Organization (WTO) rules.
3. Policy space: The burden of adjustment must not shift to developing countries, which need room to industrialise.
4. No unilateralism: On both excess capacity and forced labour, India said any step must be multilateral and WTO-compliant.

What has India done on forced labour?

1. US tariff route: In July the USTR imposed extra tariffs on 60 countries, including India, after probing whether they did enough to stop forced-labour imports.
2. Constitutional bar: Article 23 prohibits forced labour as a fundamental right, enforceable by the Supreme Court.
3. ILO commitments: India has ratified International Labour Organization (ILO) Conventions 29 and 105, the core treaties against forced labour.
4. Import ban: In July India amended its Foreign Trade Policy to prohibit imports of goods made with forced labour.
5. Firm commitment: India called its commitment to eliminating forced labour “absolute and unconditional“.

Where does India draw the line at the G20?

1. Evidence, not presumption: Border measures must rest on “specific and verifiable evidence“, not presumptions about whole countries, regions or sectors, and must respect due process.
2. Right forum: The ILO, as the universal tripartite body of governments, employers and workers, is the competent forum for labour standards.
3. Conditional cooperation: India backs G20 cooperation only with no monitoring of members, no new obligations and no use for unilateral trade action.
4. US-set agenda: The US holds the 2026 G20 Presidency, with sessions on excess capacity, forced labour and updating the Most-Favoured-Nation (MFN) principle, under which a WTO member gives all members its best tariff terms.

Challenges

1. Broken WTO appeals: The WTO Appellate Body has been non-functional since December 2019, so unilateral tariffs face no final ruling.
2. Region-wide presumptions: Some forced-labour laws presume whole regions guilty without specific evidence. Eg. The US Uyghur Forced Labor Prevention Act, 2021 presumes goods from Xinjiang are tainted.
3. Domestic enforcement gaps: The Bonded Labour System (Abolition) Act, 1976 bans bonded labour, yet it persists in brick kilns and farms.
4. MFN under review: Reopening the MFN principle could erode equal tariff treatment that developing countries rely on.

Way Forward

1. Supply-chain traceability: The Ministry of Labour and Employment should certify forced-labour-free supply chains for exporters.
2. Bilateral settlement: The Commerce Ministry should press to remove the 10% tariff in ongoing India-US trade talks.
3. Appellate revival: India should lead a developing country coalition to restore WTO appellate review.
4. Evidence-based remedies: The Directorate General of Trade Remedies (DGTR) should keep India’s own duties strictly evidence-based.

Conclusion

India accepts the goals of fair trade and free labour but rejects their use as grounds for unilateral US tariffs. The outcome of the USTR’s excess capacity probe will show whether WTO process or unilateral pressure governs this dispute.

Matching Previous Year Question

“[2017] Consider the following statements: 1. India has ratified the Trade Facilitation Agreement (TFA) of WTO. 2. TFA is a part of WTO’s Bali Ministerial Package of 2013. 3. TFA came into force in January 2016. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 1 and 3 only (c) 2 and 3 only (d) 1, 2 and 3 Answer: A”