My recent joint article with Jagdish Bhagwati (Times of India, May 3) arguing the case against India becoming a party to the China-US dispute over renminbi peg brought back unusually large volume of mail. While the vast majority appreciated our forthright dissection, with Professor Kishore Gawande of University of Texas A&M even congratulating us for calling spade a spade, some readers drew attention to contrary arguments we had missed. Three of these arguments deserve a response. Unsurprisingly, the most important of the contrary arguments originated in Washington DC. According to it, even if prudent exchange rate management has allowed India to neutralise the effects of renminbi undervaluation in its export markets, Chinese undervaluation has hurt India in its own market. As proof, those making the argument cite the large number of anti-dumping cases India has initiated against China in the recent past. While sounding plausible, upon closer scrutiny, this argument turns out to be just as specious as others I had discussed in my joint article. Under WTO rules, an importing country has the right to impose anti-dumping duties on the foreign firms found selling their products below cost provided imports are shown to cause injury to domestic producers of like products. Usually, anti-dumping actions proliferate in the face of sudden import surges. Import surges in turn may result from large-scale trade liberalisation, a sharp rise in the value of domestic currency that makes imports cheaper or a global recession that intensifies competition in all markets. During July 1, 2008 to June 30, 2009, the latest one-year period for which data are available, India turned out to be the largest user of anti-dumping, initiating 59 new cases. Of these, 17 were against China, the largest number against any single trading partner. The question this raises is whether this large number can be attributed in any meaningful way to renminbi undervaluation vis-a-vis the dollar. At least five reasons point to a negative answer to this question. First, conceptually, one must show that renminbi is undervalued against the rupee not against the dollar. Since India is free to choose its own exchange rate, undervaluation against the dollar does not automatically imply undervaluation against the rupee. Second, China began pegging renminbi in 1997. But beginning on July 1, 2005, it allowed the latter to appreciate against the dollar. By April 10, 2008, the currency had appreciated more than 18%. This should have reduced rather than increased the exchange rate related advantage Chinese firms enjoyed. Since anti-dumping accelerated after April 2008, prima facie, its cause has to be rooted in something other than renminbi undervaluation.

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