The statement, issued by the US Trade Representative (USTR) on Wednesday, following a meeting on the sidelines of the Organisation for Economic Co-operation and Development Trade Committee deliberations in Washington, said, “We call on all countries to take steps to eliminate structural excess capacity and production in their economies, including by ending the use of non-market policies and practices that distort markets and contribute to the problem.”
Building on discussions at the G20 trade ministerial in Milwaukee, the economies joined the US in signing the statement to work together through new, dedicated sectoral platforms to examine and take effective action against structural excess capacity and production in several key sectors of concern. G20 members China, Brazil, Indonesia, Russia, Saudi Arabia and South Africa did not sign the joint statement. The US is chairing the G20 this year.
The G20 trade ministerial in Milwaukee had failed to reach a consensus on issues related to forced labour and excess industrial capacity.
“Despite those commitments, and the efforts undertaken by some G20 members, structural excess capacity and production has worsened since 2016, harming an array of domestic industries and their supply chains,” said the joint statement.
Last week, at the G20 trade ministerial, commerce and industry minister Piyush Goyal had said that India does not have structural excess manufacturing capacity in sectors identified by the G20 presidency, underscoring New Delhi’s commitment to steer clear of incentives that cause price distortions and promote dumping.
India’s installed capacity serves both domestic and global needs, and New Delhi has taken steps to prohibit the import of goods made using forced labour, he said, adding that industrial capacity in itself is not the cause of dumping but distortions can arise where geographical concentration of production is driven by hidden subsidies and support.This assumes significance as the US has launched a trade probe into excess industrial capacity at 16 of its major trading partners, including India, under legal provisions that allow it to unilaterally initiate investigations and potentially slap new tariffs. The probe, under Section 301 of the US Trade Act, claims India has created significant excess capacity in petrochemicals, steel and solar modules. India’s global goods trade surplus sectors include textiles, health, construction materials and automotive goods.
Structural excess capacity and production lead to overproduction and overconcentration of production, deter market-based investment, production and capacity building, and undermine market-based exports, according to the statement.
“We acknowledge that structural excess capacity and production in any country poses significant challenges for all of its trading partners as it distorts prices and production patterns, deters new entrants, and stymies innovation and competition,” it said, adding that such structural excess capacity and production in a country can deepen trading partner dependence on that country’s products, thereby increasing trading partner vulnerability to economic coercion, including arbitrary export restrictions.
The areas of concern are automobiles and electric vehicles, batteries, chemicals, foundational semiconductors and solar panels.
According to the statement, a lack of timely and effective measures to address structural overcapacity and production in these sectors will “cripple our domestic industries, displace local production, destroy jobs, undermine our economies, hinder efforts to develop and industrialize, and ultimately lower the standard of living for our people”.
“It is important to note that the joint statement has mentioned sectors like automobile including EVs, Chemicals, solar panels, batteries, and semiconductors. We are well aware that China is holding large inventories of ICE passenger cars, same is the situation with Chemicals & Petrochemical sector,” said Deep Kapuria, chairman, Hi-Tech Gears Limited.
Terming it a timely recognition by the G20, Kapuria said any meaningful global action would have immense positive implication for global manufacturing, which is facing the distorted market because of excess capacity.