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

U.S. Foreign Direct Investment
U.S. firms are active participants in the <strong>India</strong>n food sector through FDI.
U.S. FDI in <strong>India</strong>, most prominently in food <strong>and</strong> beverage processing, alcoholic beverage
industries, <strong>and</strong> quick-service restaurants, permits U.S. agricultural firms to access <strong>India</strong>n
consumers directly, while bypassing many trade barriers. U.S. firms report that the <strong>India</strong>n
government encourages FDI <strong>and</strong> that they generally have not experienced market access
or national treatment barriers. Many U.S. firms prefer to operate in <strong>India</strong> through joint
ventures rather than wholly owned affiliates. Local partners can be particularly useful in
helping U.S. firms navigate through central <strong>and</strong> state government bureaucracies <strong>and</strong> the
intricacies <strong>of</strong> local business customs.
The <strong>India</strong>n market <strong>of</strong>fers incentives <strong>and</strong> disincentives for U.S. agriculture-related
FDI.
Incentives for U.S. FDI include access to the large <strong>and</strong> growing <strong>India</strong>n consumer market,
an enhanced ability to adapt products to local needs <strong>and</strong> requirements, <strong>and</strong> the ability to
bypass tariffs <strong>and</strong> NTMs that may inhibit U.S. exports. The <strong>India</strong>n government also
provides some regulatory FDI incentives, such as tax rebates linked to Special Economic
Zones. Disincentives to FDI include a ban on FDI in most farming activities, occasionally
difficult relations with joint venture partners, complex licensing <strong>and</strong> regulatory systems,
<strong>and</strong> a disjointed national market in which it is difficult to achieve economies <strong>of</strong> scale
because <strong>of</strong> logistical constraints <strong>and</strong> widely varying state regulations.
Intellectual Property Rights
<strong>India</strong>n intellectual property rights (IPR) policies reportedly are <strong>of</strong> critical
importance to U.S. seed firms operating in <strong>India</strong>, but U.S. firms in most other
agricultural sectors did not identify IPR as a significant trade or investment barrier.
Three factors identified by U.S. <strong>and</strong> global seed firms as critical to participation in the
<strong>India</strong>n market are strong <strong>and</strong> effective IPR laws, market-based pricing, <strong>and</strong> science-based
regulatory review <strong>of</strong> new seed technologies. <strong>India</strong> recently enacted a plant variety
protection law <strong>and</strong> patent provisions for seed biotechnology inventions, but broad
exceptions in the laws, delayed implementation, <strong>and</strong> uncertainty about enforcement
undermine the effectiveness <strong>of</strong> these IPR protections. State-level restrictions on seed
prices <strong>and</strong> time-consuming <strong>and</strong> unpredictable regulatory review also hinder the
commercialization <strong>of</strong> new seed technologies. In the absence <strong>of</strong> effective regulatory
review <strong>and</strong> IPR enforcement, illegal <strong>and</strong> counterfeit seed markets have flourished, to the
detriment <strong>of</strong> legitimate products.
Quantitative Findings
<strong>India</strong>n tariffs are estimated to have reduced U.S. agricultural exports by as much as
$291 million in 2007.
Economic simulations suggest that <strong>India</strong>n agricultural tariffs reduced U.S. agricultural
exports to <strong>India</strong> by $200–291 million in 2007. In the absence <strong>of</strong> <strong>India</strong>n tariffs, total U.S.
exports to <strong>India</strong> would have been 42–61 percent higher (table ES.4).
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