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

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.
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