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

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Under certain circumstances, FDI can be a driver <strong>of</strong> trade, but as noted above, that has not necessarily been the case with regard to investment in <strong>India</strong>’s food <strong>and</strong> agriculture sector. One exception may be the case <strong>of</strong> the barley used for brewing beer. Barley is a significant input for breweries, <strong>and</strong> high-quality barley is difficult to find in <strong>India</strong>, where barley is produced <strong>and</strong> used mostly for animal feed. Several beer industry representatives <strong>and</strong> importers have noted that they would be interested in importing barley from the United States, but U.S. exports cannot be certified to meet <strong>India</strong>’s requirement for ergotfree barley, so brewers in <strong>India</strong> import from other, more expensive sources, primarily Canada. 40 Foreign <strong>and</strong> domestic investment in <strong>India</strong>’s wine industry is in the very early stages, but it is growing rapidly, <strong>and</strong> is encouraged in part by projected future increases in consumption <strong>and</strong> a supportive FDI environment. According to one estimate, <strong>India</strong>’s production <strong>and</strong> consumption <strong>of</strong> wine are expected to increase by 25–30 percent between 2008 <strong>and</strong> 2013, driven by increasing incomes, rapid urbanization, <strong>and</strong> the growth <strong>of</strong> organized retail outlets in <strong>India</strong>. 41 Foreign firms can wholly own a production facility such as a winery but are not permitted to purchase <strong>and</strong> farm most types <strong>of</strong> agricultural l<strong>and</strong>, including vineyards. Pernod Ricard, a global company in the alcoholic beverage market, has built a winery named “Nine Hills” in Nasik <strong>and</strong> is producing wines for the domestic market. Because <strong>of</strong> the ban on agricultural l<strong>and</strong> ownership, Pernod Ricard has established contract farming arrangements to purchase wine grapes from local farmers. The contracts require farmers to follow specific production methods, dictated by a Nine Hills viticulturalist who educates local farmers on wine grape production. Many <strong>of</strong> these farmers have long experience growing table grapes but have switched because wine grapes sell at significantly higher prices. 42 The central government <strong>of</strong>fers some support for foreign investors in the wine industry, including: direct subsidies for winery development, approximately 25–33 percent <strong>of</strong> start-up costs for capital investments in wineries, up to $160,000; capacity-building initiatives, including technical training <strong>of</strong> workers; research assistance <strong>and</strong> assistance in establishing a laboratory; <strong>and</strong> approval <strong>of</strong> the formation <strong>of</strong> a National Wine Board, intended to be a public-private partnership that will advocate for growth initiatives for the <strong>India</strong>n wine industry. 43 Although the distilled spirits industry in <strong>India</strong> is open to FDI, global spirits companies tend to export to <strong>India</strong> even though existing tariffs are high, rather than establish operations within <strong>India</strong> <strong>and</strong> produce locally because certain spirits are distinctive products <strong>of</strong> particular countries or regions. For instance, genuine Scotch whiskey must be produced in Scotl<strong>and</strong>, <strong>and</strong> genuine bourbon must be produced in the United States. 40 Industry representatives, interview by Commission staff, Gurgaon, <strong>India</strong>, June 5, 2009; industry representatives, interview by Commission staff, Washington, DC, June 19, 2009. See chapter 6 for additional discussion <strong>of</strong> NTM restrictions that apply to barley. 41 Rabobank, “Executive Summary,” February 2008. 42 According to an industry representative, table grapes sell for Rs. 10–12 per kilogram <strong>and</strong> wine grapes for Rs. 28–38 per kilogram, although production costs for wine grapes may also be higher than for table grapes. Industry representatives, correspondence with Commission staff, March 12, 2009. 43 Industry representative, correspondence with Commission staff, March 12, 2009. 8-14
Alcoholic beverage production <strong>and</strong> sales are closely regulated by state governments, <strong>and</strong> industry representatives have identified (1) specific state regulations, (2) the general system <strong>of</strong> state regulation, <strong>and</strong> (3) the practice <strong>of</strong> export taxes payable for shipments from one <strong>India</strong>n state to another as deterrents to FDI or domestic investment in particular states. 44 Specific state regulations cited as impediments to FDI include those related to labeling requirements, licensing for breweries <strong>and</strong> distilleries, prohibitions on sales <strong>of</strong> alcoholic beverages produced in other states, product st<strong>and</strong>ards, <strong>and</strong> price caps, all <strong>of</strong> which tend to vary widely among states. 45 Under <strong>India</strong>’s 2008 Food Safety Law, states are able to require separate labeling st<strong>and</strong>ards for alcoholic beverages. The law entered into force in May 2009, so state regulations have not yet been issued, but industry representatives cite this development as a potentially significant barrier to sales. Specific labeling issues noted include requirements to list ingredients, dates <strong>of</strong> packaging <strong>and</strong> manufacture, <strong>and</strong> nutritional information on labels (see chapter 6). This practice is not st<strong>and</strong>ard for alcoholic beverages worldwide. 46 If states with smaller markets imposed distinct labeling requirements, major distributors would likely exit those markets <strong>and</strong> concentrate on major market areas such as Maharashtra, New Delhi, <strong>and</strong> Goa. 47 The case <strong>of</strong> SABMiller in Tamil Nadu exemplifies problems with licensing procedures in <strong>India</strong>. The company applied for a brewery license in 2007 <strong>and</strong> was still waiting for approval as <strong>of</strong> September 2009. Because Tamil Nadu does not permit alcoholic beverages to be transshipped from other <strong>India</strong>n states, SABMiller has been supplying its products to Tamil Nadu through a contract brewing arrangement with Mohan Breweries & Distilleries (MBDL), an <strong>India</strong>n company with brewing facilities in the state. MBDL suspended its agreement with SABMiller in April 2009, leaving SABMiller with no production or distribution facilities in Tamil Nadu. SABMiller reportedly had been selling 3 million cases <strong>of</strong> beer annually in Tamil Nadu, <strong>India</strong>’s second-largest beer market, <strong>and</strong> the company hopes to resume operations in the state before the end <strong>of</strong> 2009. 48 By carving up the large <strong>India</strong>n market into separate jurisdictions, state regulations may dissuade large investors from investing in <strong>India</strong> at all, because the barriers to interstate movement <strong>of</strong> goods make it very difficult for investors to benefit from the economies <strong>of</strong> scale that such a large market would generally <strong>of</strong>fer. In the wine industry, for example, the Bureau <strong>of</strong> <strong>India</strong>n St<strong>and</strong>ards has developed the st<strong>and</strong>ards for <strong>India</strong>n winemaking, but these st<strong>and</strong>ards are only suggestions to the State Excise Departments. Each state establishes <strong>and</strong> enforces its own st<strong>and</strong>ards, which are usually, but not necessarily, the same from state to state. 49 State regulations have also been used to impose price caps on specific products, <strong>of</strong>ten with little or no warning <strong>of</strong> the change in regulations <strong>and</strong> after production has 44 The central government imposes high tariffs on alcoholic beverages, but other taxes <strong>and</strong> restrictions on the industry are the purview <strong>of</strong> the individual states. 45 Industry representatives, interviews by Commission staff, New Delhi, <strong>India</strong>, May 8, 2009, <strong>and</strong> Washington, DC, June 19, 2009. 46 DISCUS, submission to the Commission, June 25, 2009. 47 Industry representatives, interviews by Commission staff, New Delhi, <strong>India</strong>, May 8, 2009, <strong>and</strong> Washington, DC, June 19, 2009. 48 Industry representative, e-mail message to Commission staff, September 25, 2009; Boby Kurian, “Mohan Breweries to Exit SABMiller Pact,” The Economic Times, May 12, 2009. 49 Industry representative, correspondence with Commission staff, March 12, 2009. 8-15
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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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Food processing in India</s
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BOX 4.1 The Central Government’s
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BOX 4.2 Does the Minimum Support Pr
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August 3, 2009, New Delhi announced
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known as zamindars, have doubled or
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that the PFA Act was strictly enfor
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———. Bharat Nirman: A Time-Bo
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Organisation for Economic Co-operat
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CHAPTER 5 TARIFFS Overview
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sensitive. They include vegetable f
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wholly milled rice and</str
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The Indian governm
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India also reporte
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Reference Prices Reference prices,
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Landing Fees <stro
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Simulated Effects
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and nuts” by $0.
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5-19 TABLE 5.4 India</stron
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Bibliography Acharya, Keya. “Thor
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Indian Express.com
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CHAPTER 6 Nontariff</strong
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foreign sources. 6 For example, SPS
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BOX 6.1 Milk and M
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BOX 6.2 Wheat—Continued Yet, <str
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perpetuated continuously. The impor
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Page 141 and 142: Bibliography American Apparel <stro
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Page 186 and 187: Bibliography Bahn, Niti, an
Page 188 and 189: International Center for Alcohol Po
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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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