India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

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descriptive product language or specific tariff codes. 44 The research required to determine which serial numbers apply to which goods reportedly increases costs to exporters. To keep track <strong>of</strong> the current tariff rates, market participants state that they must monitor the Customs <strong>and</strong> Excise website daily because tariff-rate changes come into effect immediately unless otherwise specified. 45 Additionally, the large number <strong>of</strong> notifications reportedly also makes the system more susceptible to error, irregular or arbitrary administrative discretion, or corruption. 46 U.S. industry <strong>of</strong>ficials report that <strong>India</strong>n customs agents may not be aware <strong>of</strong> which tariff rate applies to certain imports, <strong>and</strong> unless the importer knows for certain that a specific tariff rate has been reduced, customs agents may charge the higher rate previously in effect. 47 In addition, many notifications incorporate changes to a wide variety <strong>of</strong> products, both agricultural <strong>and</strong> nonagricultural, while amending notifications from previous years. 48 The <strong>India</strong>n Minister <strong>of</strong> Finance recognized the complexity <strong>of</strong> the system in his February 2006 budget speech <strong>and</strong> called for the system <strong>of</strong> notifications to be simplified. 49 Adjustments to Product Classifications Certain adjustments to applied tariff rates are made based on the end use <strong>of</strong> the product or product descriptions that are not specified in the tariff schedule, reportedly creating uncertainty for foreign exporters to <strong>India</strong>. For example, in the FY 2006/07 budget, <strong>India</strong> reduced its tariff rate from 20 percent to 12.5 percent “on non-edible grade oils (other than crude palm oil), falling under {HS} headings 1507 to 1515, having 20 percent {free fatty acid} when imported for manufacture <strong>of</strong> soaps, industrial fatty acids <strong>and</strong> fatty alcohols by a manufacturer having a plant for splitting up <strong>of</strong> such oils into fatty acids <strong>and</strong> glycerols.” 50 Because the <strong>India</strong>n tariff schedule does not classify edible oils by their free fatty acid content for duty purposes, the customs determination regarding classification <strong>of</strong> those edible oil imports may require interpretation. Consequently, an exporter may be uncertain at the time <strong>of</strong> shipment whether the higher or lower tariff rate will ultimately be applied. 51 In addition, this tariff-rate reduction only applied to oils that are destined for use in a specific type <strong>of</strong> manufacturing, <strong>and</strong> it is unclear how customs agents determine the end use <strong>of</strong> the imported product in such cases. 44 For example, Notification No. 27/2009-Customs amended Notification No. 21/2002-Customs <strong>and</strong> lowered the tariff on certain edible oils. The amendment states that “[i]n the said notification, in the Table, against S. No. 29A, for the entry in column (4), the entry ‘Nil’ shall be substituted.” Neither the HTS number nor the product name is explicitly stated, only a reference to a serial number that was established in a prior notification. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Finance, Central Board <strong>of</strong> Excise <strong>and</strong> Customs, Notification No. 27/2009-Customs, March 24, 2009. 45 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 26, 2009; government <strong>of</strong>ficial, telephone interview by Commission staff, July 23, 2009. 46 WTO, <strong>India</strong> Trade Policy Review, July 2007, 37. 47 Industry representative, telephone interview by Commission staff, March 3, 2009. 48 The <strong>India</strong>n government attempted to simplify the notifications in 2002 by consolidating all the previous changes into a single notification (Notification No. 21/2002-Customs). 49 Chidambaram, Union Budget, February 28, 2006. 50 Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Finance, Union Budget, 2006, 1. 51 Government <strong>of</strong>ficial, telephone interview by Commission staff, July 23, 2009. 5-10
Reference Prices Reference prices, which are set by the <strong>India</strong>n government based on international market prices, are used to determine actual duties paid on vegetable oils <strong>and</strong> poppy seeds. The reference price, rather than the actual import value <strong>of</strong> the product, is used in conjunction with the ad valorem tariff rate to determine the total import duty. This system, reportedly established to prevent any loss <strong>of</strong> revenue resulting from underinvoicing by importers, 52 results in dramatic shifts in the effective ad valorem tariff rate based on fluctuations in the established reference price. Moreover, these fluctuations can lead to speculation in the <strong>India</strong>n market as well as to increased uncertainty <strong>and</strong> costs. 53 Until late 2006, the <strong>India</strong>n government reportedly adjusted reference prices regularly to reflect world prices. When the reference price is higher than the invoiced price on the shipment, the effective applied tariff rate can be higher than <strong>India</strong>’s bound tariff rate, a scenario that has occurred for soybean oil imports. 54 For example, in August 2005, the tariff reference price for crude soybean oil was $558 per metric ton, 55 but the average unit value <strong>of</strong> U.S. exports to <strong>India</strong> <strong>of</strong> crude soybean oil during August was $485 per metric ton. 56 As a result, even though the bound rate is 45 percent, the U.S. exporter paid an effective applied tariff rate <strong>of</strong> 51.8 percent. 57 Since late 2006, when the <strong>India</strong>n government began lowering tariffs on vegetable oils (fig. 5.3), reference prices have remained unchanged. By March 2008, the use <strong>of</strong> reference prices had no impact on imports <strong>of</strong> certain vegetable oils because the tariff rate was reduced to zero. Additional Border Fees <strong>and</strong> Taxes In addition to applied tariffs, imports may be subject to a number <strong>of</strong> additional fees <strong>and</strong> duties that lower dem<strong>and</strong> for agricultural imports <strong>and</strong> increase the cost <strong>and</strong> complexity <strong>of</strong> trading in the <strong>India</strong>n market. 58 The commonly cited fees are (1) the additional duty, (2) the additional duty <strong>of</strong> customs, (3) the educational cess (surcharge), <strong>and</strong> (4) l<strong>and</strong>ing fees. 59 Additional Duty The additional duty, or “countervailing duty,” levied on certain agricultural imports is equal to the central excise duty (generally 8 percent) that is assessed on similar products 52 Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, May 28, 2009. 53 Shunmugan, <strong>India</strong>: Oilseeds <strong>and</strong> Products; Government Increases Reference Prices, October 5, 2005. In reaction to the negative consequences <strong>of</strong> the reference price system on vegetable oil exporters, one industry representative has advocated that the reference price system be replaced with tariffs applied on a specific per-kilogram basis. Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, June 1, 2009. 54 Govindan, <strong>India</strong>: Oilseeds <strong>and</strong> Products, May 15, 2006. 55 Shunmugan, <strong>India</strong>: Oilseeds <strong>and</strong> Products; <strong>India</strong> Revises Tariff Rates <strong>and</strong> Reference Prices, April 5, 2005. 56 USITC, Dataweb (accessed June 24, 2009). 57 The tariff paid was calculated as 45 percent <strong>of</strong> the reference price <strong>of</strong> $558 per metric ton. The effective tariff rate was calculated by dividing the $251.10 in duties paid by the $485 per metric ton import unit value. 58 <strong>India</strong>n Express.com, “Excise Duty Drops from 16% to 8% in One Year,” February 25, 2009. 59 Government <strong>of</strong> <strong>India</strong>, Taxation-Types <strong>of</strong> Customs Duties. 5-11
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United States International Trade C
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U.S. International Trade Commission
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Abstract This report describes <str
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TABLE ES.1 India:
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U.S. agricultural products face str
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U.S. Foreign Direct Investment U.S.
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CONTENTS Page Abstract ............
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CONTENTS―Continued Chapter 6 <str
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CONTENTS―Continued Figures 1.1. <
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ACRONYMS AND TERMS AAY Antodaya Ann
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ACRONYMS AND TERMS—Continued RGGV
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TABLE 1.1 India: A
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FIGURE 1.1 India:
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India’s central
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Despite their weak economic pr<stro
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Approach Current India</str
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Bibliography Birner, Regina, Surupt
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World Bank. Agriculture for Develop
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FIGURE 2.1 India:
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TABLE 2.1 India: A
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FIGURE 2.3 India:
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premium); (2) India</strong
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include government export restricti
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TABLE 2.3 India: A
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FIGURE 2.6 India:
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Exports by Major Trading Partner <s
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Page 61 and 62: more likely to have been exposed to
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Page 67 and 68: are expected to see income growth <
Page 69 and 70: Food Preferences India</str
Page 71 and 72: Regional Variation Geographic <stro
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Page 79 and 80: The Farm Sector soybeans 29 —but
Page 81 and 82: Food processing in India</s
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Page 87 and 88: August 3, 2009, New Delhi announced
Page 89 and 90: known as zamindars, have doubled or
Page 91 and 92: that the PFA Act was strictly enfor
Page 93 and 94: ———. Bharat Nirman: A Time-Bo
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Page 97 and 98: CHAPTER 5 TARIFFS Overview
Page 99 and 100: sensitive. They include vegetable f
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Page 105: India also reporte
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Page 111 and 112: Simulated Effects
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Page 117 and 118: Bibliography Acharya, Keya. “Thor
Page 119 and 120: Indian Express.com
Page 121 and 122: CHAPTER 6 Nontariff</strong
Page 123 and 124: foreign sources. 6 For example, SPS
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Page 127 and 128: BOX 6.2 Wheat—Continued Yet, <str
Page 129 and 130: perpetuated continuously. The impor
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Page 133 and 134: import corn under the TRQ is too bu
Page 135 and 136: Customs Procedures India</s
Page 137 and 138: Corruption Interests within <strong
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Page 141 and 142: Bibliography American Apparel <stro
Page 143 and 144: Mattson, Jeremy W., Won, W. Koo, <s
Page 145: ———. 2009 National Trade Esti
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Page 150 and 151: First Point of Sal
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7-10 TABLE 7.2 India</stron
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poor communications infrastructure
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limited popularity with farmers bec
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The lack of infras
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found that 39 percent of</s
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Bibliography Banerjee, A. Dairying
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Tiwari, Shri Rajendra Kumar. “Pos
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FDI Regulations and</strong
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TABLE 8.2 India: A
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Food Processing and</strong
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There is not necessarily a strong l
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For processing of
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BOX 8.3 Restrictions on Foreign Joi
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Under certain circumstances, FDI ca
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commenced. States tend to be quick
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Bibliography Bahn, Niti, an
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International Center for Alcohol Po
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Structure of the <
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BOX 9.1 The UPOV System for Plant V
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that the public sector in I
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Whether this situation will soon ch
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The U.S.-India Bus
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eggplant, which began field trials
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Maskus, Keith E. “Intellectual Pr
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APPENDIX A REQUEST LETTER
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The Honorable Sham L. Arano
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cprice-sewell on PRODPC61 with NOTI
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APPENDIX C HEARING WITNESSES
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ORGANIZATION AND WITNESS: Tuttle Ta
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Summary of Views <
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advertising and pr
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highest in the Asia-Pacific region.
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to U.S. exports to India</s
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transparent sanitary regulations th
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hotel and catering
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Western Pistachio Association 26 In
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APPENDIX E POTENTIAL FOR U.S. AGRIC
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E-4 TABLE E.1 India</strong
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APPENDIX F INDIAN AGRICULTURAL PROD
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TABLE F.1 India: A
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FIGURE F.1 India:
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is in nonirrigated areas with yield
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Consumption India
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efrigeration. This characteristic i
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70 percent of tota
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eportedly preferred in southern <st
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Cotton During MY 2003/04-2007/08, <
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Government of <str
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APPENDIX G UNION AND STATE/UNION TE
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certain agricultural goods in the p
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Bibliography Chaulan, Shri U.K. “
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Simulation Framework The effects <s
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Producers determine the optimal sup
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Applied ad valorem tariff equivalen
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We considered the possibility that
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Estimation of <str
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Bibliography Anderson, Kym, Mariann
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