Countering Trump’s stand on India’s protectionist outlook
While justifying the withdrawal of GSP rates, the US President Trump pronounced recently that India is an economy which applies high and complex protectionist measures. In this article, we are analysing technically the real picture of Indian tariff and non-tariff structure of some significant products and comparing it with major developed and developing economies.
Tariff reduction in industry was one of the most important outcomes of the Uruguay round of multilateral trade negotiations. Although successive rounds of multilateral negotiations had succeeded in significantly reducing tariffs on non-agricultural products, the Uruguay Round alone achieved an overall reduction of 40% in average trade weighted tariffs for developed economies and 30% for economies in transition. Therefore, tariff rates agreed upon and implemented as a result of this round are significantly lower relative to tariff rates prevailing in the previous GATT Rounds.
Despite the success of the Uruguay Round, substantial tariff barriers remain. While tariff rates have been significantly reduced in average terms, tariff reductions do not spread out evenly across all economies and sectors. High tariffs are commonly found in certain sectors and remain a barrier to free trade. Besides, there are ‘tariff peaks’ which are relatively high tariffs amidst generally low tariff levels. A 50 percent import tariff on cotton fabric while the average tariff on textiles is 5 percent would be an example of a tariff peak. Finally, there is an issue of tariff escalation in which higher duties are applied on semi-processed products than on raw materials and higher still on finished products. No import tariff on raw cacao beans, a 20 percent tariff on roasted ones, and a 60 percent tariff on chocolate bars is an instance of tariff escalation. Tariff escalation protects domestic processing industries but discourages the development of processing activity in the countries where raw materials originate.
For trade promotion, efforts to enhance export performance will require not only technical assistance aimed at strengthening the institutional infrastructure for trade and trade policy, but also initiatives aimed at enhancing the outward orientation of the private sector. Enterprise-oriented technical cooperation programmes can underpin efforts to improve international marketing and business development, especially in the developing and LDC (least developed countries) economies, by focusing on product and market development, trade finance, export quality management, export packaging, and training in international purchasing and supply management. Under the right conditions, the pay-off to such efforts can be even higher when special attention is given to the needs of small and medium size enterprises.
After the significant reduction – and, in many cases, elimination – of import tariffs during the past two decades, further reductions in trade costs will have to be achieved by tackling the non-tariff sources of trade costs, which now account for more than 90% of overall international trade costs.
Increasing importance of food safety standards and agriculture health standards around the world are affecting international trade significantly. Most of the policies and regulations are designed to sustain minimum level of standards to ensure human, animal and plant health. However these standards are double edge swords that may be used with protectionist motive for providing shield to domestic producers. Interestingly, these regulations and standards are not only used to hinder the trade but also to facilitate trade.
An analysis of Sanitary and Phytosanitary (SPS) measures notified to the SPS committee point out that there is an increasing trend towards WTO members implementing measures that depart from international standards. The increasing SPS requirements especially from developed countries and the inability of developing countries to comply to those measures often leads to lot of SPS-related disputes . More to the point, the foremost complexity in dealing with these standards is to distinguish those measures which are justified by legitimate goods from those which are imposed for protectionists’ purpose.
Sanitary (human and animal health) and Phytosanitary (plant health) measures can take many forms, such as inspection of products, specific treatment, setting of allowable maximum level of pesticide residues, etc. Some SPS regulations are in place to protect animal and plant health from imported pest and disease, while a particular type of SPS known as MRL are designed to safeguard human health. MRLs describe the maximum legal level of concentration of pesticides or food additives that a country is willing to accept in or on the surface of food products. India has comparative advantage in both production and export of various food products. However it is interesting to note that the Indian food products’ exports face the largest amount of NTMs, which ultimately contribute a major loss to India’s export basket, both in terms of value and volume. The impact of trade standards may be reflected by the number of rejection of consignments on crossing the border, thus negatively affecting India’s exports.
In the fresh Fruit and Vegetable segment, developing economies are having relatively higher tariff rates (MFN applied converted) than developed economies, With Turkey, India, Israel, China, Mexico and Vietnam having more than 20% tariff rate on imported values, economies like Australia, Brazil, USA, Canada and Chile are imposing NTMs in such a manner that it is currently creating hurdles for exporters to export the respective products to these economies more than exporting it to countries like India.
In the segment of Meat Products, apart from Australia, USA and Chile, other economies are imposing moderate to high import tariff rates. Turkey being an outlier is imposing average of 143% of tariff followed by Canada. Here India is placed in moderate category of import tariffs along with Russia, Vietnam, Mexico and South Korea. But when it comes to NTBs India and Turkey are imposing minimum NTBs, China imposing maximum NTBs followed by Australia, Canada and Chile. It is clear that those economies, having comparative advantage on concerned products, actually implement protectionist measures through NTMs. Thus, hindrances are actually practiced by implementing Non-Tariff Barriers. For example, Australia, only levies 2% import tariff on meat products but 193 NTMs out of which 91 are related to export related barriers.
In the case of beverage and tobacco, developing economies are imposing relatively higher tariff rates than developed economies. However we cannot ignore and overlook the fact that at the same time developed economies do provide export subsidies especially for agricultural products. As an exception we have to admit that India is protecting tobacco and beverage sector due to domestic reasons.
In the dairy and cheese segment, India generally does not impose higher tariff than other economies. In fact, in this segment, India’s tariff is lesser than USA, UK, EU and Canada which all are developed economies. Canada being an outlier imposes 245% which is humongous. Generally developed economies like USA, Canada, EU and UK supports their dairy sector specially EU. Also, NTMs applied by developed economies overweighs developing economies, as usual.
In chemicals and allied products segment major importing economies have tariff rates ranging from 1.98% to 9.55%. India, Brazil and China are among the economies applying high tariff rates ranging from 8.9% to 9.55%. Developed economies are imposing tariff ranging from 2% to 6% on an average. However on NTBs the story is as usual with very high quantum of NTBs by developed economies compared to countries like India
Lastly on electrical machinery and telecom sector, Brazil and China impose highest import tariffs. On the contrary, being a developing country, India’s import tariff cannot be termed as significantly high. NTBs is the same story for this segment as well.