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

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produced domestically. 60 Assessed primarily on manufactured goods, the additional duty applies only to certain agricultural products, such as malt, some starches, biscuits, some bakery products, custard powder <strong>and</strong> spices, s<strong>of</strong>t drink concentrates, confectionery products, cocoa products, <strong>and</strong> certain vegetable oils. 61 The additional duty is levied on the c.i.f. value <strong>of</strong> the imported good, plus the applied tariff <strong>and</strong> certain other l<strong>and</strong>ing fees. 62 During 2008 <strong>and</strong> early 2009, the central excise duty rate was reduced from 16 percent to 8 percent in three different adjustments. 63 The reduction <strong>of</strong> the excise duty not only lowers the additional duty but also the impact <strong>of</strong> the 4 percent special additional duty on the price <strong>of</strong> imported goods (see below) because the special additional duty is applied to the aggregated total <strong>of</strong> all duties <strong>and</strong> the value <strong>of</strong> the imports. 64 Additional Duty <strong>of</strong> Customs In the FY 2006/07 budget, <strong>India</strong> introduced a 4 percent additional duty <strong>of</strong> customs (special additional duty, or special countervailing duty) that applies to most imports, including many agricultural goods. 65 Some agricultural products are exempted from the special additional duty including staple food products such as pulses, fresh fruits <strong>and</strong> vegetables, rice, wheat, <strong>and</strong> coarse grains. In some cases, the <strong>India</strong>n government uses the special additional duty to maintain price stability, exempting certain products from this duty to lower domestic market prices. The special additional duty is applied to the c.i.f. value <strong>of</strong> the imported product plus all applicable taxes, including the applied tariff <strong>and</strong> the additional duty described above. As a result, the effective rate <strong>of</strong> the special additional duty is greater than 4 percent. The special additional duty applies even to goods that have tariff rates equal to the bound rate, such as raisins <strong>and</strong> almonds. 66 A credit can be provided for the special additional duty for products that are also subject to the additional duty. 67 However, according to one source, the refund generally takes at least 12 months to receive <strong>and</strong> further adds to the short-term cost <strong>of</strong> importing goods. 68 60 The <strong>India</strong>n government <strong>of</strong>ten refers to the “additional duty” as a countervailing duty. This term is not related to the WTO definition <strong>of</strong> a countervailing duty. Government <strong>of</strong> <strong>India</strong>, Customs Tariff Act, 1975, 4. Domestic producers are liable for the central excise duty as soon as the good is produced. Government <strong>of</strong> <strong>India</strong>, Taxation-Excise Duty. 61 USDA, FAS, <strong>India</strong>-Agriculture Economy <strong>and</strong> Policy Report, January 2009, 3; government <strong>of</strong>ficial, e-mail message to Commission staff, July 20, 2009. 62 The c.i.f. value is the delivered value <strong>of</strong> the product which includes cost, insurance, <strong>and</strong> freight. Government <strong>of</strong> <strong>India</strong>, Taxation-Types <strong>of</strong> Customs Duties. For certain products, the additional duty may be charged as a percentage <strong>of</strong> the <strong>India</strong>n government established maximum retail price. Importers <strong>and</strong> retailers are then required to print the maximum retail price on the product label. Industry representative, e-mail message to Commission staff, July 10, 2009. 63 The central excise rate is not the rate applied to all goods. Some goods were previously charged 4 percent or 8 percent, but those rates only apply to a limited number <strong>of</strong> commodities, <strong>and</strong> the rates have remained stable despite changes to the primary rate. In the FY 2008/09 budget, <strong>India</strong> initially lowered the rate from 16 percent to 14 percent. Later in December 2008, the central excise duty was again reduced from 14 percent to 10 percent. The acting <strong>India</strong>n Minister <strong>of</strong> Finance, Shri Pranab Mukherjee, announced the final reduction to 8 percent in February 2009 as part <strong>of</strong> an economic stimulus plan. 64 Government <strong>of</strong> <strong>India</strong>, Customs Tariff Act <strong>of</strong> 1975, 4. 65 Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Finance, Central Board <strong>of</strong> Excise <strong>and</strong> Customs, Customs Tariff Notification No. 19/2006, March 1, 2006. 66 Govindan, <strong>India</strong>: The <strong>India</strong>n Budget, March 1, 2006, 2. 67 Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Finance, Union Budget, 2005, 1. 68 Industry representative, e-mail message to Commission staff, June 10, 2009. 5-12
L<strong>and</strong>ing Fees <strong>and</strong> Educational Cess A 1 percent l<strong>and</strong>ing fee is levied on the c.i.f. value <strong>of</strong> all imports, <strong>and</strong> a 3 percent educational cess (surcharge) is charged on agricultural imports <strong>and</strong> domestically produced products. Revenue from the educational cess contributes to the <strong>India</strong>n educational budget. The 3 percent educational cess is assessed on the aggregate <strong>of</strong> the customs duties payable, not the value <strong>of</strong> the good. The educational cess was established in the FY 2003/04 budget <strong>and</strong> increased from 2 percent to 3 percent in the FY 2007/08 budget. Products with applied rates that equal the bound rate are exempt from the educational cess, but the cess reportedly is charged on some agricultural products even when it pushes the effective tariff rate above the bound rate (box 5.1). 69 BOX 5.1 The Impact <strong>of</strong> <strong>Tariffs</strong> <strong>and</strong> Additional Fees on Wine Retail Prices High tariffs <strong>and</strong> additional fees levied at the <strong>India</strong>n border substantially increase the retail price <strong>of</strong> U.S. wine in the <strong>India</strong>n market. The applied tariff (150 percent) is assessed on the c.i.f. value plus a 1 percent l<strong>and</strong>ing charge. Other fees are added as shown below (table A). The applied tariff <strong>and</strong> the additional fees together increase the total cost <strong>of</strong> a $10 bottle <strong>of</strong> U.S. wine (c.i.f. value) to $26.73. Consequently, the effective tariff rate on wine is 167.3 percent. The resulting disparity between retail prices <strong>of</strong> imported wine in the <strong>India</strong>n market <strong>and</strong> retail prices for the same bottle in the United States illustrates the impact <strong>of</strong> high tariffs <strong>and</strong> the additional fees. For example, a 750 ml bottle <strong>of</strong> Blossom Hills Chardonnay, a California wine, can be purchased for approximately $27 (1,344 Rs.) in Mumbai, while the suggested retail price in U.S. stores for the 1.5 liter bottle (which holds twice the volume) is $9.99. a TABLE A Cost structure <strong>of</strong> wine imported into <strong>India</strong>, 2009 C.i.f. value <strong>of</strong> imported shipment $10.00 L<strong>and</strong>ing charge (1% <strong>of</strong> c.i.f.) $0.10 Assessible value (AV) (= c.i.f. + l<strong>and</strong>ing fee) $10.10 Tariff (150% <strong>of</strong> AV) $15.15 Education cess (3% <strong>of</strong> the assessed tariff) $0.45 Total cost after tariff <strong>and</strong> education cess $25.70 Special additional duty (4% <strong>of</strong> total cost) $1.03 Total cost including all duties $26.73 Source: Commission staff calculations. The additional fees for imported wines in <strong>India</strong> have been adjusted in recent years. The additional customs duty, which was equivalent to the domestic excise tax <strong>and</strong> is charged on various other imported agricultural products, is no longer assessed on all alcoholic beverages. In July 2007, the <strong>India</strong>n government repealed the additional customs duty after the European Union <strong>and</strong> United States filed for WTO dispute settlement proceedings <strong>and</strong> claimed that the additional fees violated <strong>India</strong>’s WTO commitments by bringing its tariff rate above its maximum bound rate. However, following the removal <strong>of</strong> the additional customs duty, the <strong>India</strong>n government raised the tariff rate on wine from 100 percent to the bound rate <strong>of</strong> 150 percent <strong>and</strong> gave states the power to institute “special fees” on alcohol products. b ______________ a A 750 ml bottle <strong>of</strong> Blossom Hills Chardonnay is not marketed in the United States. Price calculated using the average exchange rate in May 2009 <strong>of</strong> $1 to 49 Rs. b United States Trade Representative, “WTO Appellate Body Reverses Panel <strong>and</strong> Finds in Favor <strong>of</strong> the United States,” October 30, 2008; JBC International Inc., Comprehensive Study <strong>of</strong> the <strong>India</strong>n Wine Market, August 21, 2008, 18. 69 JBC International Inc., Comprehensive Study <strong>of</strong> the <strong>India</strong>n Wine Market, August 21, 2008, 18. 5-13
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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 <
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Page 71 and 72: Regional Variation Geographic <stro
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Page 79 and 80: The Farm Sector soybeans 29 —but
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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 99 and 100: sensitive. They include vegetable f
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Page 107: Reference Prices Reference prices,
Page 111 and 112: Simulated Effects
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Page 117 and 118: Bibliography Acharya, Keya. “Thor
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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
Page 139 and 140: TABLE 6.2 India: E
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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Page 154 and 155: approximately 65 million households
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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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