Indian Tariff, Customs Policies Still Problematic Despite Investment Improvements, Says ITC
The Indian government has implemented several critical improvements to its trade and investment legal regime since Prime Minister Narendra Modi took office in May 2014, but the country has ramped up tariffs on some telecommunications-related imports and continues to propose localization requirements, said the International Trade Commission in analysis (here) released on Oct. 22. India has also decreased tariffs on other telecommunications products, the ITC noted, while asserting the government has made only minor changes to its tariff schedule and customs laws. The Indian government has strived to improve bureaucratic transparency and ease of doing business policies, among other investment areas, the analysis said.
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Indian tariffs remain high compared to other countries globally, particularly on agriculture and products that compete with domestic goods, said the ITC. The government continues to use “flexibility built into its tariff system to adjust duty rates in response to market conditions or policy priorities,” and that latitude affects U.S. edible oils, wheat and auto products most acutely, the analysis said.
The Modi government, however, is continuing to build on roughly two decades of liberalization, said the ITC. “Despite this increasing openness to imports, U.S. exporters to India report areas of concern with the Indian tariff regime,” said the report, which covers May 2014 – July 2015. “Although India’s tariff structure has been simplified in the last decade, its tariff regime changes frequently, with changes in applied tariff rates announced both in annual budgets and in multiple amending notifications throughout the year. In addition to the frequent changes in rates, one reason that India’s tariff structure remains particularly complex is the use of multiple duty-exemption programs.”
The ITC based its analysis partially on an exporter survey. The analysis found roughly one-fifth of U.S. exporters are “substantially affected” by Indian tariffs, and more than 15 percent of exporters are similarly affected by customs variability. The Indian government continues to interpret customs valuation rules inconsistently and impose bond requirements for intra-firm trade. U.S. exporters are also hampered by delays in customs clearance processes. “In some cases, delays at the border can be more costly than tariff barriers,” said the ITC. “While India’s performance in this domain is average to slightly above average for its size and income level, importers nonetheless remain frustrated by poor infrastructure conditions, congestion at the port and high costs of freight.”
The report is a sprawling data collection for issues across the trade and investment spectrum. Bipartisan leaders of the Senate Finance and House Ways and Means committees, the congressional bodies that requested the ITC analysis in 2014 (see 14092622), commended the analysis and pushed India to further improve. “This important report reaffirms that, while there have been some positive developments since the Modi Administration began, significant concerns remain, and it is not yet clear whether policies that negatively affect foreign trade and investment are in fact headed towards much-needed reform,” said the lawmakers in a joint statement (here). “It is apparent from this report that there is room for the United States and India to continue to work together to improve our bilateral trade and investment relationship.”