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

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Department <strong>of</strong> Commerce) for some imports it considered to be “sensitive.” These products include edible oil, cotton, milk <strong>and</strong> milk products, grains, fruit <strong>and</strong> vegetables, nuts, spices, tea, c<strong>of</strong>fee, <strong>and</strong> alcoholic beverages. 40 Should the <strong>India</strong>n government determine that imports <strong>of</strong> these sensitive products are disrupting the domestic market, the government may adjust the applied tariff rates, sometimes as frequently as several times annually in the case <strong>of</strong> grains, to maintain a sufficient domestic supply <strong>of</strong> or a stable market price for these products. 41 The existence <strong>of</strong> the monitoring process itself creates uncertainty for U.S. exporters <strong>of</strong> agricultural products, who face the prospect <strong>of</strong> planned shipments becoming uncompetitive in terms <strong>of</strong> price because <strong>of</strong> <strong>India</strong>n restrictions announced <strong>and</strong> implemented within a short time frame. 42 Licensing Requirements Specific import licensing requirements by the <strong>India</strong>n government directly affect certain U.S. agricultural exports or would affect them in the absence <strong>of</strong> other applicable NTMs. Starting in 1998, the <strong>India</strong>n government began gradually dismantling its general import licensing system, which the government had used as a primary method <strong>of</strong> restricting certain agricultural as well as nonagricultural imports through the refusal to issue licenses. 43 In April 2001, the government abolished the general import licensing system itself <strong>and</strong> replaced it with a collection <strong>of</strong> other measures for protecting <strong>India</strong>n producers, including specific import licensing. 44 For example, over the last four years <strong>India</strong> has allowed importation <strong>of</strong> live animals only under license because <strong>of</strong> sanitary concerns, which according to the USDA has restricted or effectively banned the import <strong>of</strong> live animals. 45 Furthermore, the licensing process must begin at least 30 days prior to import; spans two government ministries, depending on whether the livestock product is freely traded or restricted; <strong>and</strong> involves approximately three levels <strong>of</strong> administrative review before issuance. Some <strong>of</strong> these administrative bodies meet only twice per month. 46 This restriction affects U.S. equine (horses <strong>and</strong> mules) exports to <strong>India</strong>. 47 Similarly, an industry representative indicated that no corn is imported within the <strong>India</strong>n tariff-rate quota (TRQ), thereby qualifying those imports for the lower in-quota duty rate, because the process for obtaining a license to 40 WTO, “Trade Policy Review: Report <strong>of</strong> the Secretariat: <strong>India</strong>,” July 24, 2007, 46–47; OECD, Agricultural Policies in Emerging Economies, 2009, 109. 41 See Govindan, <strong>India</strong>: Grain <strong>and</strong> Feed, February 20, 2008; Govindan, <strong>India</strong>: Grain <strong>and</strong> Feed; Quarterly Lock up Report, May 6, 2008; <strong>and</strong> Pursell, Gulati, <strong>and</strong> Gupta, “Distortions to Agricultural Incentives in <strong>India</strong>,” December 2007, 7. See also chapter 5. 42 A source indicates that the <strong>India</strong>n government has withdrawn the monitoring list <strong>of</strong> trade-sensitive items from use without a formal announcement. Pursell, Gulati, <strong>and</strong> Gupta, “Distortions to Agricultural Incentives in <strong>India</strong>,” December 2007, 7. The <strong>India</strong>n Department <strong>of</strong> Commerce, however, publishes details on a monthly basis about the sensitive agricultural imports it monitors, including the countries <strong>of</strong> origin for those imports. Food grains <strong>and</strong> edible oils are frequently highlighted items in the monthly Press Notes. Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, “Import <strong>of</strong> Sensitive Items” (accessed September 22, 2009). 43 A general import license allows the importation <strong>of</strong> goods covered by the license from any applicable country. FAO, “Import Policy Instruments,” n.d. (accessed September 17, 2009). 44 Some <strong>of</strong> the other measures are occasionally sharp increases in tariffs, the use <strong>of</strong> STEs to control agricultural imports, the use <strong>of</strong> tariff-rate quotas (TRQs), <strong>and</strong> the issuance <strong>of</strong> new technical <strong>and</strong> SPS st<strong>and</strong>ards. Pursell, Gulati, <strong>and</strong> Gupta, “Distortions to Agricultural Incentives in <strong>India</strong>,” December 2007, 7. 45 Shunmugam, <strong>India</strong>: Livestock <strong>and</strong> Products, August 30, 2005, 4–5; Singh, <strong>India</strong>: Livestock <strong>and</strong> Products, August 23, 2006, 4–5; Dhankhar, <strong>India</strong>: Livestock <strong>and</strong> Products, October 1, 2007, 10; <strong>and</strong> Dhankhar, <strong>India</strong>: Livestock <strong>and</strong> Products, September 2, 2008, 9–10. 46 Dhankhar, <strong>India</strong>: Livestock <strong>and</strong> Products, October 1, 2007, 10. 47 USITC, DataWeb (accessed September 18, 2009). 6-12
import corn under the TRQ is too bureaucratically cumbersome. 48 U.S. corn exports in any significant volumes are already effectively blocked by <strong>India</strong>n restrictions on the approval <strong>and</strong> importation <strong>of</strong> agricultural products containing GMOs. State Trading Enterprises State trading enterprises (STEs)—commercial entities created <strong>and</strong> usually wholly owned by the national government or granted special or exclusive economic privileges—play a central role in <strong>India</strong> in managing the supply <strong>and</strong> price <strong>of</strong> certain commodity agricultural imports for the benefit <strong>of</strong> the <strong>India</strong>n consumer, as they have since the 1950s. 49 <strong>India</strong> imports specific bulk grains, such as wheat <strong>and</strong> corn, in which U.S. producers are highly competitive globally, primarily through these limited <strong>and</strong> preferential STE channels. The use <strong>of</strong> STEs by governments in developing countries is widespread <strong>and</strong> longst<strong>and</strong>ing. The WTO recognizes their prevalence in economies where agriculture is an important trade factor <strong>and</strong> states that it does not seek to prohibit or discourage the use <strong>of</strong> STEs. 50 Yet trade distortions may occur when the <strong>India</strong>n STEs, unlike private sector traders, do not act as independent commercial actors seeking pr<strong>of</strong>it maximization, but instead promote government policies favoring domestic production. 51 The <strong>India</strong>n government facilitates the preeminent role <strong>of</strong> STEs in agricultural trade, as well as their ability to further government objectives, by granting STEs preferential treatment in the tariff rates applicable to their imports compared to private sector <strong>India</strong>n importers. An example is the current 50 percent tariff on private sector wheat imports versus the zero percent duty on STE wheat imports. 52 The four primary STEs in <strong>India</strong> for agricultural imports are the State Trading Corporation <strong>of</strong> <strong>India</strong> Ltd. (STC), established in 1956; the National Agricultural Cooperative 48 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, June 4, 2009. 49 WTO, “Technical Information on State Trading Enterprises” (accessed June 11, 2009). For one listing <strong>of</strong> the numerous <strong>and</strong> varied <strong>India</strong>n STEs, see <strong>India</strong>’s Homepage (accessed June 9, 2009). 50 Article XVII <strong>of</strong> the GATT 1994 is the principal provision dealing with STEs <strong>and</strong> their operations. Work on this subject in the WTO is undertaken mainly by the Working Party on State Trading Enterprises. 51 See WTO, “Technical Information State Trading Enterprises” (accessed June 11, 2009). The <strong>India</strong>n government stated in its “Foreign Trade Policy 2004–2009” document that STEs should import “solely in accordance with commercial considerations … in a non discriminatory manner <strong>and</strong> shall afford enterprises <strong>of</strong> other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales.” Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, Department <strong>of</strong> Commerce, “Foreign Trade Policy 2004–2009,” April 11, 2008, 25. This wording is very similar to WTO text on the optimal operation <strong>of</strong> STEs. 52 STEs also assist <strong>India</strong>n government goals with “balancing” <strong>India</strong>n imports <strong>and</strong> exports through the use <strong>of</strong> countertrade, which involves an agreement for one country to sell goods to another in exchange for goods (perhaps also involving some cash or services) <strong>of</strong> an equal value from the second country. The practice is most prevalent between countries that have foreign exchange constraints or balance <strong>of</strong> payments issues, as <strong>India</strong> had in the past. Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, “Foreign Trade Policy 2004–2009,” April 11, 2008, 82; Hindu Business Line, “Beware the Palm Oil Cartel,” March 12, 2004; <strong>and</strong> Reuters, “<strong>India</strong> Steps Up Countertrade Deals to Cut Trade Gap,” n.d. (accessed September 17, 2009). <strong>India</strong> has stated there is no countertrade requirement, although private companies are reportedly “encouraged to use countertrade” <strong>and</strong> MMTC promotes its countertrade operations on its Web site. WTO, “Trade Policy Review: Report <strong>of</strong> the Secretariat: <strong>India</strong>,” July 24, 2007, 62; USTR, 2009 National Trade Estimate Report on Foreign Trade Barriers, 2009, 247–48; <strong>and</strong> “MMTC Inside” (accessed June 17, 2009). Some <strong>of</strong> the most recent uses by <strong>India</strong> <strong>of</strong> countertrade involve capital goods, but <strong>India</strong> has used countertrade in agricultural products as recently as 2002–03. Mohanty, “Offsets in <strong>India</strong>n Defence Sector,” May 22, 2009; FDIMagazine, “Countertrade Still Thrives,” December 8, 2003; Indonesian Commercial Newsletter, “Indonesia—<strong>India</strong> Agrees on Counter Trade,” March 26, 2002; <strong>and</strong> AsiaPulse News, “<strong>India</strong> to Use ‘Counter Trade’ to Boost Grain Export,” March 25, 2002. 6-13
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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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CHAPTER 3 Domestic Consumption Over
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TABLE 3.2 India: P
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more likely to have been exposed to
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BOX 3.3 Indian Con
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TABLE 3.3 India: T
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are expected to see income growth <
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Food Preferences India</str
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Regional Variation Geographic <stro
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CCC. “Know India
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CHAPTER 4 Indian A
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For most crops, however, In
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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 97 and 98: CHAPTER 5 TARIFFS Overview
Page 99 and 100: sensitive. They include vegetable f
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Page 105 and 106: India also reporte
Page 107 and 108: Reference Prices Reference prices,
Page 109 and 110: Landing Fees <stro
Page 111 and 112: Simulated Effects
Page 113 and 114: and nuts” by $0.
Page 115 and 116: 5-19 TABLE 5.4 India</stron
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
Page 125 and 126: BOX 6.1 Milk and M
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Page 129 and 130: perpetuated continuously. The impor
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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
Page 152 and 153: Private mandis Som
Page 154 and 155: approximately 65 million households
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Page 158 and 159: poor communications infrastructure
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Page 162 and 163: The lack of infras
Page 164 and 165: found that 39 percent of</s
Page 166 and 167: Bibliography Banerjee, A. Dairying
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Page 174 and 175: Food Processing and</strong
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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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