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

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Model Limitations Simulated effects from this PE-GE model are based on established U.S. export patterns that may exist for such reasons as the distance between countries <strong>and</strong> the presence or absence <strong>of</strong> transport infrastructure. These factors are imperfectly captured by the model. Furthermore, the model does not directly account for historical or cultural factors as determinants <strong>of</strong> trade patterns. The model assumes that these factors are unaffected by the economic policy changes. Economic models capture the most important factors for the question under consideration: existing trade flows <strong>and</strong> trade policies <strong>and</strong> the degree <strong>of</strong> consumer dem<strong>and</strong> sensitivity to price changes. However, economic models are limited in their ability to reflect the degree <strong>of</strong> complexity evident in the real world. 13 Despite these limitations, the simulations performed here can be quite useful in providing insights on the effects <strong>of</strong> economic policies. The model presents a unified framework in which the likely effects <strong>of</strong> the policy can be assessed. Estimation <strong>of</strong> Price Gaps for <strong>Nontariff</strong> <strong>Measures</strong> Estimation <strong>of</strong> <strong>Nontariff</strong> Measure Price Gaps The quantification <strong>of</strong> nontariff measures (NTMs) using the method <strong>of</strong> price gaps, or “tariff equivalents,” has been frequently used in Commission studies on NTMs. 14 In this study, we estimated price gaps at the HS6 subheading level. We estimated separate price gaps for <strong>India</strong>n imports from the United States <strong>and</strong> <strong>India</strong>n imports from the rest <strong>of</strong> the world in order to account for possible quality differences between U.S. <strong>and</strong> non-U.S. varieties <strong>of</strong> agricultural exports. The fact that imports from the United States <strong>and</strong> other countries sell at different prices is indicative <strong>of</strong> quality differences. Estimating separate price gaps recognizes both these differences <strong>and</strong> the possibility that the NTMs may have a greater or lesser impact on <strong>India</strong>n prices for imports from different sources. 15 We used unit values from available trade data to construct the price gaps. In particular, we considered price data for 2005–07 to account for variable effects <strong>of</strong> NTMs under different market conditions. The median price gap for the three years was used as the estimate. We eliminated some products that presented data difficulties. 16 13 Examples <strong>of</strong> real-world complexities that are difficult to reflect in the model include the changing relative growth <strong>of</strong> different economies; politically motivated, export-oriented investment; relationships between multinational subsidiaries that influence trade patterns; <strong>and</strong> such events as catastrophic weather or violence that are inherently unpredictable (at least in their details). 14 For the foundations <strong>of</strong> the method for estimating price gaps for NTMs at the Commission, see Linkins <strong>and</strong> Arce, “Estimating Tariff Equivalents <strong>of</strong> Non-Tariff Barriers,” August 2002. For further descriptions <strong>of</strong> the price-gap method, as well as literature reviews, see Deardorff <strong>and</strong> Stern, Measurement <strong>of</strong> Non-Tariff Barriers, 1998, <strong>and</strong> Ferrantino, “Quantifying the Trade <strong>and</strong> Economic <strong>Effects</strong> <strong>of</strong> <strong>Nontariff</strong> Measure,” January 2006. The methods used in this study with respect to quality adjustments for different trading partners build on a previous Commission study. See USITC, U.S.-Korea Free Trade Agreement, September 2007. 15 In general, it is not feasible to correct for all possible quality differences while estimating NTM price gaps because some <strong>of</strong> these differences are unobservable. Certain countries consistently export products at higher unit values than other countries, however, suggesting a quality difference, particularly for relatively homogeneous goods. The methods used in this study exploit the observed quality differences arising from differences in exporter-specific unit values. 16 These difficulties included, inter alia, nonst<strong>and</strong>ard units <strong>of</strong> measurement <strong>and</strong> thinly traded products exported from small countries, for which a reference price could not be established. The st<strong>and</strong>ard unit <strong>of</strong> measurement for almost all agricultural products is the kilogram or the metric ton. Beverages are typically measured in liters. H-8
We considered the possibility that some NTMs might prohibit U.S. agricultural exports to <strong>India</strong> completely or almost completely over the period considered. For those products, wheat being the most notable, we estimated a quantity gap as described below. For <strong>India</strong>n imports <strong>of</strong> U.S. goods, unit values on a cost-insurance-freight (c.i.f.) basis were taken from the UN Comtrade database, which was accessed using the WITS system. Unit values for U.S. exports to the world were taken from U.S. <strong>of</strong>ficial data as reported on the Commission’s Dataweb system. 17 The transport cost adjustment was based on the U.S. ratio <strong>of</strong> import charges to c.i.f. value for imports from <strong>India</strong>, adjusted by a factor to account for the fact that charges for U.S. exports are generally smaller than charges for U.S. imports. A calculation based on GTAP model data indicates that U.S. export margins to <strong>India</strong> are 41.3 percent <strong>of</strong> U.S. import margins from <strong>India</strong>, but the GTAP margins are derived indirectly from balance-<strong>of</strong>-payments data on transport services. Our estimates assume that U.S. export margins to <strong>India</strong> are 60 percent <strong>of</strong> U.S. import margins from <strong>India</strong>. This assumption is conservative <strong>and</strong> tends to understate the price gap. In general, the estimated price gaps are substantially larger than the transport margins, so they are not greatly affected by the method used to estimate the margins. For <strong>India</strong>n imports <strong>of</strong> non-U.S. goods, we constructed unit values using a method that adjusts for systematic quality differences among different suppliers to the <strong>India</strong>n market. In particular, we estimate a price gap for each supplier, again comparing <strong>India</strong>n c.i.f. values with the various suppliers’ free on board (f.o.b.) values, <strong>and</strong> then weight these gaps by the quantities imported into <strong>India</strong>, using <strong>India</strong>n data for the weights. We adjust the weighted average for transport costs. For these calculations, we compared data from UN Comtrade with alternate data obtained from Global Trade Atlas, a product <strong>of</strong> Global Trade Information Services, Inc. (GTIS). Occasionally, UN Comtrade data contain estimated quantities <strong>and</strong> thus estimated unit values. In these cases, we believe GTIS data to be more reliable. The format <strong>of</strong> UN Comtrade, however, is more computationally convenient than that <strong>of</strong> the GTIS. The method used here relies on GTIS data for <strong>India</strong>’s largest two suppliers <strong>of</strong> those HS6 subheadings with larger trade flows (annual <strong>India</strong>n imports exceeding approximately $100,000). To the extent feasible, when one <strong>of</strong> <strong>India</strong>’s largest two import sources was a country not reporting data to the GTIS, we replaced the missing f.o.b. unit value with a c.i.f. unit value from a country other than <strong>India</strong> with imports from the same supplier. The transport cost adjustment was based on sectorspecific margins for <strong>India</strong>’s imports from the world, as reported in the GTAP model. Market Share Anomalies <strong>and</strong> Quantity Gaps In order to take account <strong>of</strong> situations in which NTMs might be prohibitive or near prohibitive, we considered products for which the U.S. export market share is large in the RoW <strong>and</strong> small in <strong>India</strong> <strong>and</strong> products for which <strong>India</strong>n imports are zero in the base data. To identify such products, we used the same 2007 base data as were used in the PE modeling. The single, striking anomaly in this case is wheat. U.S. exports to countries other than <strong>India</strong> accounted for 29.7 percent <strong>of</strong> world exports <strong>of</strong> nondurum wheat <strong>and</strong> 21.8 percent <strong>of</strong> exports <strong>of</strong> durum wheat in 2007. Official U.S. data record zero U.S. exports to <strong>India</strong> <strong>of</strong> either category <strong>of</strong> wheat during 2005–07, on which the analysis <strong>of</strong> NTMs was based. <strong>India</strong>n data report imports <strong>of</strong> durum wheat from the United States <strong>of</strong> $217,295 for 2006, but zero otherwise during 2005–07. 17 USITC DataWeb. H-9
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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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notices that must be integrated wit
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import corn under the TRQ is too bu
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Customs Procedures India</s
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Corruption Interests within <strong
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TABLE 6.2 India: E
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Bibliography American Apparel <stro
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Mattson, Jeremy W., Won, W. Koo, <s
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———. 2009 National Trade Esti
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TABLE 7.1 India: C
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First Point of Sal
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Private mandis Som
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approximately 65 million households
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7-10 TABLE 7.2 India</stron
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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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Page 250 and 251: is in nonirrigated areas with yield
Page 252 and 253: Consumption India
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Page 268 and 269: certain agricultural goods in the p
Page 270 and 271: Bibliography Chaulan, Shri U.K. “
Page 273 and 274: Simulation Framework The effects <s
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Page 283 and 284: Bibliography Anderson, Kym, Mariann
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