NON TARIFF BARRIERS AND INDIAS FOREIGN TRADE

By
Sri. N. Raveendranath Kaushik

CONTENTS
CHAPTER 1
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10

INTRODUCTION

THOUGHTS ON INTERNATIONAL TRADE CHRONOLOGICAL EVENTS OF INTERNATIONAL TRADE FOREIGN TRADE AND INDIA IMPORTANCE OF THE STUDY THE SCOPE OF STUDY THE OBJECTIVES OF STUDY THE HYPOTHESES OF STUDY METHODOLOGY AND DATA COLLECTION THE LIMITATIONS OF STUDY CHAPTER SCHEME

CHAPTER 2
2.1 2.2 2.3

REVIEW OF LITERATURE

INTRODUCTION INDIAS FOREIGN TRADE NTBs AND INDIAS FOREIGN TRADE

CHAPTER 3
3.1 3.2 3.3 3.4 3.5 3.6 3.7

INTERNATIONAL TRADE OF INDIA

INTRODUCTION DIRECTION OF INDIAS FOREIGN TRADE FOREIGN TRADE POLICY BALANCE OF PAYMENTS (BOP) FOREIGN DIRECT INVESTMENTS (FDI) FOREIGN EXCHANGE RESERVES CONCLUSION

CHAPTER 4
4.1 4.2 4.3 4.4

NON TARIFF BARRIERS

INTRODUCTION CLASSIFICATION OF NTBs MEASURING NTBs SUMMARY

CHAPTER 5
5.1 5.2 5.3

NTBs AND INDIAS FOREIGN TRADE

5.4
5.5 5.6

INTRODUCTION NTBs AND INDIAS EXPORTS NTBs AND INDIAS EXPORTS CASE OF ASEAN, SAARC AND EU COUNTRIES IMPORTS FROM INDIA NTBs AFFECTING EXPORTS TECHNICAL BARRIERS OF EU NTBs AND INDIAS EXPORTS: SUMMARY

5.7 5.8 5.9 5.10 5.11

NTBs AND IMPORTS NTBs AND INDIAS IMPORTS FROM EUROPEAN UNION NTBs AND INDIAS IMPORTS FROM UNITED STATES US INDO RELATIONSHIPS ON REGULATING/RESTRICTING THE NTBs EXAMPLES OF NON-TARIFF BARRIERS WHICH WE COME ACROSS IN INDIAS FOREIGN TRADE

CHAPTER 6
6.1 6.2

MEASURES TO CONTROL/RESTRICT NTBs

INTRODUCTION STEPS TAKEN BY INDIA IN CONTROLLING/RESTRICTING NTBs

CHAPTER 7

NON-TARIFF BARRIERS FACED BY INDIA

CHAPTER 8 BIBLIOGRAPHY

CONCLUSION

LIST OF ABBREVIATIONS

ASEAN ASSOCHAM BIS DGFT EEC EU EXIM FDA FDI FRO FRRO FTA GATT GDP GOI HACCP IP MRTPC NAFTA NAMA NTBs OECD QRs R&D SAARC SPS STPI TBT TQM TRIMS TRIPS UNESCAP VSNL WTO

Association of South East Asian Nations Associated chamber of Commerce and Industry of India Board of Industrial Standards Directorate General of Foreign Trade European Economic Commission European Union Export Import Food and Drug Administration Foreign Direct Investment Foreigners Registration Office Foreigners Regional Registration Office Free Trade Agreement General Agreement on Tariffs and Trade Gross Domestic Product Government of India Hazard Analysis and Critical Control Point Intellectual Properties Monopoly and Restrictive Trade Practice Commission North American Free Trade Agreement Non Agricultural Market Access Non Tariff Barriers Organisation for Economic Co-operation and Development Quantitative Restrictions Research and Development South Asian Association for Regional Co-operation Sanitary and Phytosanitary Software Technology Park of India Technical Barriers to Trade Total Quality Management Trade Related Investment Measures Trade Related Intellectual Property rights United Nation Economic and Social Commission for Asia and the Pacific Videsh Sanchar Nigam Limited World Trade Organisation

LIST OF TABLES
Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 5.1 Table 5.2 Indias Foreign Trade Exports by Region Imports by Regions Anti-dumping Measures 1995-2005 Balance of Payments Indias Major Trading Partner Non Tariff Barriers faced by India Exports to ASEAN countries subject to Non-Tariff Measures (NTMs).2002-03 Table 5.3a Table 5.3b Table 5.4 Table 5.5 Table 5.6 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Non-Tariff Barriers on Indias Import Status of NTBs notified to the WTO Trade with European Union Trade with United States Different types of NTBs imposed on Indias Imports NTBs faced by India (Destinationwise) NTBs notified by Selected Affected Countries to NAMA ESCAP case studies on NTBs (Faced by Exporters in India) Productwise Break up of Anti-dumping Cases Country-wise Break up of Anti-dumping Cases

CHAPTER 1 INTRODUCTION

Nations trade with each other because they benefit from it. Other motives may be involved, of course, but the basic motivation for international trade is that of gain. The gain from international trade, like the gain from all trades, exists because specialization increases productivity.
James C Ingram International Economic Problems, p 4.

International Economics differs from domestic or inter regional trade in degree, factor mobility is greater between regions than between countries and equilibrium of factor prices is also greater. However, both national and international markets differ on ground of tastes, customs and habits. Both are run between different political units, each with a sovereign government responsible for the well being of the unit. International trade, therefore, is a form of division of labour or international specialization. In short, it is a specific case of inter-local or interregional trade.

International trade takes place because of cost differences between nations or because of absolute non availability of goods and services in countries. International trade leads to gains from trade, through transactions between counties in the field of goods and services, financial flows and factor movements. Stock of capital, political sovereignty, currency system, markets, trade and exchange controls, factor mobility etc are some to the factors which give rise to international trade. Thus, the main

cause of trade between regions is the difference in prices of commodities based on relative factor endowments and factor prices.

1.1

THOUGHTS ON INTERNATIONAL TRADE

Adam Smith1 advocated free trade. He believed free foreign trade would promote division of labour. According to him basis of international trade is one of absolute cost difference. Trade takes place between two countries if, and only if, each of the two countries can produce one commodity at an absolutely lower cost than the other country.

David Ricardo2 goes on to state that trade might take place in the advantages of both trading countries, even when one of them was more efficient in the production of both the commodities exchanged, thus, comparative advantage or comparative cost is the basis of trade. A natural or technical advantage should exist to give each country at least one low cost product, which it should sell in the international market and share the gain from foreign trade. All countries do not have access to the same technology; otherwise labour productivity cannot differ from one country to another.

1 2

Adam Smith , Wealth of Nation, p 40 David Ricardo, Theory of Comparitive cost on International Trade , p 51

Bertil-Ohlin3 is of the opinion that a country will specialize in the production and export of goods whose production requires a relatively large amount (relative to other factors of production) of the factors with which the country is relatively well endowed (relative to other factors).International trade is but a special case of interlocal or inter-regional trade that there is not substantial difference between domestic trade and foreign trade. The basis of inter regional specialization also follows the principle of comparative cost.

Kravis4 tries to explain the concept of international trade on the basis of availability factor. According to him trade takes place in only those goods which are not available at home. By this phrase he means, a country will import those goods which are not available in the absolute sense and exports those goods which are available in quantities greater than domestic demand.

Linder5 has made an attempt to explain how the country specializes in trade . According to him as the countrys per capita income grows, its representative demand pattern causes an expansion in the domestic production of certain manufactures. This expansion cases reduction in costs of these manufactures that they become the countrys new comparative advantage exports. In this way a country starts exporting its representative demand products.

3
4 5

Bertil-Ohlin, Interregional and International Trade, 1933, p5 Kravis, Availability and other influence on the Commodity Compositon of Trade, 1956, p15 Linder , An Essay on Trade and Transformation, 1961

Posner6 brings out the impact of technology on imitation gap and demand gap among different countries. To put in his word, technological innovation in the form of production of a new goods in one country leads to the imitation gap and the demand gap in the other country. The extent to which trade will take place between the two countries depends on the net effect of the demand lag and the imitation gap.

Kenen7 in his work Nature, Capital and Trade, 1965 brings in the importance of human capital in international trade. He goes on to explain on how Human capital forms one of the major parts in Trade. A country with relatively high specialized human capital will produce capital intensive goods and exports capital intensive products and imports those products which require relatively unskilled labour.

Emmanuel8 goes on to explain on how differences in production techniques and wages results in trade. He brings in the concept of developed and developing economy in order to explain how trade takes place between two different countries. Main reasons for economic inequality between developed countries and less developed countries is the differences in techniques of production and differences in wages which lead to unequal exchange in trade. The product of an hours labour in developed countries is exchanged for the products or more labour hours of an less developed country. This unequal exchange brings gain to developed countries and loss to less developed countries.
6
7 8

Posner, Technical Change and International Trade, 1961, p 13 Kenen, Nature, Capital and Trade, 1965 Emmanuel, Unequal Exchange: A study in the Imperialism of Trade, 1967

1.3

CHRONOLOGICAL EVENTS OF INTERNATIONAL TRADE The rise of international trade can be dated back to twelth Century. From twelth

Century to twentyfirst Century there is an enormous change in the way international trade has progressed. Let us briefly look in to some of the important years which has influenced the growth and development of international trade
1157 The Hanseatic League secures trading privileges and market rights in England for goods from the league's trading cities. 1498 Vasco da Gama opens up the Spice Trade. 1592 Japan introduced a system of foreign trade licenses. 1602 The Dutch East India Company is formed. Start of trade in India. 1685 The first British outpost in the East Indies is established in Sumatra 1799 The Dutch East India Company, formerly the world's largest company goes bankrupt, partly due to the rise of competitive free trade. 1828 to 1838 US enacts new tariff policy. 1860 Free Trade Agreement is finalized between Britain and France. 1868 Japan opens its border for free trade. 1930 US passes Trade Restrictions Acts. 1933 Interregional and international trade published by Bertil-Ohlin (Heckscher Ohlin model) 1946 The Bretton Woods system goes into effect. It included institutions and rules intended to prevent national trade barriers being erected, as the lack of free trade was considered by many to have been a principal cause of the war. 1947 23 countries agree to the General Agreement on Tariffs and Trade to rationalize trade among the nations 1959 Oxfam opens the first Worldshop retailing foreign goods under fair trade principles. 1960 European Free Trade Association established. 1992 European Union lifts barriers to internal trade in goods and labour. 1994 NAFTA takes effect. The GATT Marrakech Agreement specifies formation of the WTO. 1995 World Trade Organization is created to facilitate free trade, by mandating mutual most favoured nation trading status between all signatories. 2004 At Geneva conference it is agreed that developed countries will lower agricultural subsidies, and in exchange the developing countries will lower tariff barriers to manufactured goods.

10

International trade has helped in development and growth of the country, It was because of favorable trade that Great Britain and the economy of Japan grew in nineteenth and twentieth Century. International trade contributes to economic development in following ways; a. Means of procuring imports of capital goods necessary for economic development b. Flow of technology which in turn helps in factor productivity. c. Exports allow fuller utilization of resources and increased exploitation of economies of scales. d. It is a means to price stability. e. It generates pressure for dynamic change through a) competitive pressure from exports b) pressure of competing for export markets and c) a better allocation of resources. f. Exports have larger potential to generate employment.

1.3

FOREIGN TRADE AND INDIA India got associated with world economy prior to reforms because it had fear that it would be taken advantage of if it is relied international markets for its output and input supplies. India was one of the 23 original contacting parties of GATT in 1947 and is also founder member of World Trade Organisation (WTO). India was largely moulded into the system of world trade for more than four decades after independence in 1947. When the world export was growing at 8 percent per year during 1951-73, Indias export grew up by 2.66 percent per year
11

and the ratio of exports to GDP declined from 7 percent in 1951-52 to around 4 percent in early seventies. Collapse of Bretton Woods system of fixed exchange rate in 1971 lead to depreciation of Indian currency against major currency. Depreciation followed with some deliberate steps taken for promoting exports lead to faster growth of Indias export compared to the rate of growth of world exports. Indias share in world merchandise exports which stood at 2.1 percent in 1951 declined to 0.4 percent in 1980 and recovered since only to 0.7 percent in 2006 (WTO study). Indias trade transitioned in to new phase of growth since 1991 when Indian economy was open to world. External sector reforms since 1991 consisted of; a) Devaluation of rupee b) Abolition of import license c) Reduction in tariff rates d) Removal of quantitative restrictions (QT) in phased manner, and e) Liberalization of capital inflows and FDI.

1.4

IMPORTANCE OF THE STUDY There is a huge divide between developing and developed countries which are restricting the growth and development of the developing countries. Not only this the restrictive trade practices which each and every country is practicing is affecting the smooth flow of trade between countries. These are affecting the growth of both exporting and importing countries. NTBs which some time acts as a protectionist measure now looks like a bane for trade. It becomes important to analyse the NTBs and study the consequences of such NTBs which destroys trade. We should keep in mind that it is not only the trade which gets affected
12

but, also the strategic relationship between the countries which are affected. Even though there are lot of guidelines and procedures which are framed by WTO with regard to NTBs but, still some of the developed countries are dominating other developing countries over NTBs and restricting the smooth flow of trade. Its time to look in to those areas and see to it that there will be no domination by few countries among the rest.

Finally, NTBs should be used as a purely protectionist measures and it should not harm the relationship and trade between two countries. It should protect the interest of both exporting and importing country as well. In this regard, the present study concentrates not only imports and exports of India, but also the other variables pertaining to problems of prospects of NTBs.

1.5

SCOPE OF THE STUDY Impact of NTBs can be viewed basically in trade (imports and exports) and also on the mutual relationships between the parties to such trade. For our study purpose we are concentrating the impact mainly on trade i.e., imports and exports. This study tries to find out different types of NTBs which we come across in our export and import. Since, India has trade relations with many countries, in our study we are mainly highlighting SAARC, ASEAN, the United States, and the European Union because Indias major trade is with these countries. Finally, we are listing out lot of action point which is taken and plans of which implementation are under way and recommendations which needs to be considered to overcome the difficulties of NTBs. Thus, the present work deals with NTBs and its impact on Indias foreign trade.

13

1.6

OBJECTIVES OF THE STUDY The following are the objective of the study : 1. To understand the concept of NTBs and its relevance in foreign trade 2. To analyse the role of NTBs in Indias foreign trade (Exports and Imports). 3. To assess what needs to be done in order to effectively implement NTBs

1.7

HYPOTHESES OF STUDY

NTBs even though act as protectionist measures beyond certain point they act as bane for the country which practice more closed NTB policy and procedure. NTBs are trade barriers which have direct relationship between exports and imports. They also have impact on non trade relationship (economic, defence, social etc.,) between two countries if the same countries have trade relationship among them. In conducting our research we framed the following hypotheses; 1. Countries should form regional blocks to remove NTBs 2. NTBs have higher impact on Indias foreign trade.

1.8

METHODOLOGY AND DATA COLLECTIONS

Sources of data collected is mainly of secondary data. For analysis, we have used time-series data for the period 1991-92 to 2004-05. Professional journals, books, publications materials, research papers and websites were used to collect data. Research papers presented at various WTO forums were looked into for collection of data. Working papers on trade barriers and survey conducted by OECD were also used for the same. Research paper submitted by various
14

scholars on the subject which involved trade barriers were referred at the time of working on this research. Various websites like Ministry of Commerce , OECD, WTO , government websites of United States and European Union were referred in order to collect vital data about the trade and trade barriers. Discussion with guide helped a lot to get a complete picture of what all need to be done and where to find the relevant information for completing the research. Lot of publication journal on international trade and topics pertaining to Non-tariff barriers were referred.

1.9

LIMITATIONS OF STUDY Our study has following limitations: 1. The present study does not study Indias trade with NAFTA, CIS etc. 2. Our study does not deal with Indias trade activity measures, in general, to overcome from the clutches of NTBs.

1.10

CHAPTER SCHEME Totally eight chapters were framed for our work. Chapter one starts with

brief introduction about international trade and its origin, contribution of various schools of thoughts, brief note on Indias foreign trade, scope, objective and hypothesis of study and methodology and data collections used in the study. Chapter two is all about review of literature where in contribution made by some eminent persons on Indias foreign trade and NTBs and Indias foreign trade is studied. Chapter three deals with the current trends in International Trade of

15

India. Present status of direction of trade, foreign trade policy, balance of payments, FDI and foreign exchange reserves were also briefly explained. Chapter four is all about meaning of NTBs, different types of NTBs and its measures are discussed. Chapter five deals with NTBs and Indias foreign trade. Detail study of NTBs impact on imports and exports of India with specific to ASEAN countries, EU and United States. Chapter six deals with some of the measures which can be used in order to restrict/control NTBs . A survey which was conducted by OECD on NTBs with regard to India in relation with US, EU and Japan is studied under Chapter seven. Chapter eight concludes with the finding and major suggestions of the study.

16

CHAPTER 2 REVIEW OF THE LITERATURE

2.1

INTRODUCTION The concept of international economics or international trade is vast and covers wide part of both economic and non economic areas. Various schools of economic thoughts have attempted to define on what exactly leads to trade between two countries and have concluded that in order to get some gains countries will go in for trade agreement with other countries. Even though the common objective of international trade is to get some benefits but the agreement and terms which the country enters and follows differ from one country to another. Shift from concept of domestic economy to global economy has brought in lot of changes in the study of international trade. Formation of GATT and WTO has changed the economies of developed and underdeveloped countries. Formation of regional blocks like EEC, NAFTA, ASEAN, SAARC etc., among the interested countries has contributed to growth and development of trade among member nations. Even though there is lot of benefit which can be derived from such trade agreements there are still some loopholes or disadvantages which may affect some of the parties to such agreements. In order to protect the domestic economy from exploitations there are lot of tariff and Non-tariff measures which comes handy and which can be used to minimize or restrict the negative effect caused by such agreements. Indias foreign trade which got exploited during british rule has undergone lot of changes post
17

independence and has grown tremendously. The post-liberalization effect and opening up of Indian economy has not only resulted in growth and development but also has given new dimension to foreign trade.

2.3

INDIAS FOREIGN TRADE

Pascal Lamy9 has stated that of Indian economy has grown at a healthy pace for the last years and is now the 11th world largest economy. In 2004, India was the world's 20th largest exporter and 11th largest importer. India 's merchandise exports have grown at an average of 10 percent for the last 10 years. The growth reached 32 percent in 2004 and 19 percent in 2005, well above world average. On services trade, India is now among the top 10 world traders, with exceptionally high performance on computer related services. Data for the first 2 quarters of 2005-2006 fiscal year shows a 76 percent increase in Indian exports of commercial services. Kaliappa Kalirajan10 is of the opinion that for almost half a century, India maintained one of the restrictive trade regime in the world. It imposed a system of high tariffs and stiff non-tariff barriers such as licensing and quotas, which virtually closed the economy from the international trade areas. India implemented economic reforms since the middle of 1991, and has made drastic changes in trade policy to reorient itself to integrate with the global economy.

10

Pascal Lamy, Director General of WTO, ICRIER conference WTO & Doha Round: The Way Forward, April 2006 Kaliappa Kalirajan, The Impact of a Decade of Indias Trade Reforms, 2003

18

Rajesh Chandra and Sanjib Pohit

11

has made a detailed study on the policy

reforms which took place after 1991. He is of the view that Indian government has introduced significant unilateral macroeconomic and trade reforms since 1991-92. Under the reforms both Tariff and Non-tariff Barriers have been reduced. Economy has been further opened up on export front by reducing export barriers. Major reforms in the form of flexible Indian rupee exchange rate, domestic policy reforms and structure of indirect taxes on production along with subsidies have gained momentum.

Article entitled India and Global Economy which appeared in Economy Watch website - In Twentyfirst Century, has stated that there has been a dramatic shift in Indias approach to trade policy. Judicious integration with the global trade regime has imparted some competitive efficiency and confidence to the domestic industry. In brief, India has moved from managing external sector to implementing an optimal integration of domestic and external sectors, and the global economy.

2.3

NTBs AND INDIAS FOREIGN TRADE

Baldwin12 opines that it is not only have these (NTBs) measures become more visible as tariffs have declined significantly though successive multilateral trade negotiations but they have been used more extensively by government to attain the protectionist goals formerly achieved with tariffs.

11 12

Rajesh Chandra and Sanjib Pohit Analysis of Indias Policy Reforms, 2002 Baldwin, 1970, Non-Tariff Distortion in International Trade, Brookings Institutions, Washington DC

19

Dr. Prasad

13

has conducted a study on NTBs and according to him any

obstacle imposed by a country on its imports other than customs duty (tariff) was a NTB, he said this could include quotas, tariff quotas, seasonal tariff, low and high rates, import monitoring and non-automatic license to protect human and plant health, human safety, etc.. Mehata, R14 is of the opinion that Non-tariff Measures (NTM) is one mechanism countries use to restrict imports. NTM include quantitative restrictions, tariff quotas, voluntary export restraints, orderly marketing arrangements, export subsidy, export credit subsidy, government procurement, import licensing, antidumping/countervailing duties, and technical barriers to trade. NTBs in destination countries have a significant impact on Indias exports because these measures impose additional costs on such exports. Market access would improve on account of reduction of import duties, it may be thwarted due to the application of non tariff measures. Non-tariff measures can take various forms, these can be categorised as Import policy barriers, standards, testing, labeling, anti-dumping and countervailing measures, export subsidies and Government procurements.

13

14

Dr. H.A.C.Prasad Economic Admisor, Department of Commerce, NTBs affecting Indias Trade Mehata R Non-tariff Measures in Developing countries : Case study of India , Research and Information System for the Non-aligned and other Developing countries,2005

20

CHAPTER 3 INTERNATIONAL TRADE OF INDIA

3.1

INTRODUCTION Indias trade with western counties began with the establishment of East India

Company in 1600 AD. One of the chief objectives of East India Company was to expand trade with India. Dutch and French were the next to explore trade route with India and this lead to the expansion of trade with European countries in seventeenth Century. A major change in Indias foreign trade is traced backed to the last quarter of nineteenth Century. Our foreign trade was stimulated by number of factors, important among them are; a. Opening of Suez Canal b. Opening and expansion of Indian railways c. Rapid development of ship building industry d. Spread of Industrial Revolution in Europe During the period of British rule Indias foreign trade consisted of; a. Import of manufactured goods and export of primary products b. UK as a supplier of imports and only a little less so as a marked for exports c. Favorable balance of trade. By these points we can clearly justify that India during British rule was exploited and the foreign trade was designed in such a manner that it best suited the vested interest.
21

Second World War has changed the volume, composition and direction of Indias foreign trade. There was a gradual decline in imports and volume of exports gradually increased. There was enormous increase in the export of manufactured goods and gradual decline in export of raw materials. Partition of country in 1905 created problems for the countrys foreign trade and also balance of payments problems. Devaluation of rupee in 1949 increased the value of Indias exports. The period of Economic Planning (1950-51) resulted in increase in exports. New exportimport policy, Industrial policy resolutions, post liberalisation and economic reforms, liberalisation of exchange rate, trade and foreign investment policies, GATT/WTO agreement, economic planning, SAARC agreement etc., has changed the dimension of Indias foreign trade.

Share of Indias imports in world trade increased from 0.6 percent in 1993 to 0.9 percent in 2003, exports increased from 0.6 percent to 0.8 percent. Indias total exports according to CMIE in the period April to Nov 2004-05 stood at US $49652.4 million compared to US $38391.3 in 2003-04 (percent change 11.94 percent in 2003-04 to 29.09 percent in 2004-05). Indias total Imports in the period April to Nov 2004-05 stood at US $65991.4 million compared to US $48207.4 in 2003-04 (percent change 22.43 percent in 2003-04 to 36.89 percent in 2004-05). Indias share in global export market is still low compared to its share at 2.2 percent in 1948. Trade openness (import and export to GDP) increased from 18.9 percent in 1990 to 23.6 percent in 2004.

22

Table 3.1

Source: Annual Report 2005-06, DGCI&S

Trade in service has been growing faster than merchandise trade- growth in services trade was 78.65 percent (in 2004-05) compared to only 33.6 percent of total merchandise trade. In 2004-05 export growth recorded 26.2 percent the highest since 1975-76 and second highest since 1950-51. India was 30th leading merchandise exporter and 23rd leading merchandise importer of the world. Since 2003, Indias export growth is lagging behind the export growth of developing countries taken together, mainly because of Chinas explosive export growth after 2000.

23

Foreign Trade Policy (2004-09) envisages a doubling of Indias share in world exports from 0.75 percent to 1.5 percent by 2009. To achieve this target, Indian exports may need to exceed US$150 billion by 2009 as world exports are also growing fast.

3.2

DIRECTION OF INDIAS FOREIGN TRADE

Table 3.2 and 3.3 shows the value of Indias export to and imports from major regions/countries. During the first 8 months of the 2004-05, the share of Asia and Oceanic region comprising South Asian, East Asian, Mid-eastern and Gulf countries accounted for nearly 46.7 percent of total exports. Share of West Europe and America in Indias export at 24.2 percent and 21.1 percent. It is found that share of Asian and Oceanic region in Indias export has increase during the period and the share of EU has remained unchanged. Share of North America, South America and Western European countries in Indias export has declined. Country wise, it is USA which is most important country which form the major part of our export followed by UAE, Singapore, China, Hongkong, UK and Germany.

With regard to imports, Asia and Oceanic accounted for 33.2 percent of Indias total imports during the period and followed by West Europe (21 percent) and USA (7.8 percent). USA is the largest country from which we have imported followed by Belgium and Germany.

24

Table 3.2 Exports by Region

Source: Annual Report 2005-06, DGCI&S Table 3.3 Imports by Regions

Source :Annual Report 2005-06, DGCI&S

25

3.4

FOREIGN TRADE POLICY

Foreign Trade Policy 2004-05 announced in August 2004 had the twin objective of doubling Indias share in global merchandise trade and of acting as an effective instrument of economic growth, through generation of employment opportunity. Basic objectives of Foreign Trade Policy for 2004-09 are; Double the share of Indias trade in world level. Make exports an effective instrument of economic growth Give thrust to employment generation through number of policy initiatives. Some of the initiatives which is taken by the government in order to achieve the above objectives are listed below: Units undertaking 100 percent exports of the goods and services can be registered under EOU scheme, Electronic Hardware Technology Park (EHTP), STPI, Biotechnology Park (BTP). These units were encouraged to import goods required for the approved activity, including capital goods, free of cost or on loan from clients. Deemed exports are eligible for the advance license, deemed export drawback and exemption from/refund of terminal excise duty benefits. Board of Trade is constituted to advise government on the policy measures connected with Indias foreign trade. Board is authorized to prepare and implement short and long term strategies in response to emerging national and international trade.

26

 With a view to boost trade, Inter-state Trade Council has been set up. InterState Trade Council ensures continues dialogue between state and union territory and encourages active participation of states and union territory in trade related matters. Contingency trade policy and non-tariff measures have become significant barriers to exports from developing countries. Keeping this in view, India has been actively pursuing for negotiation on NTMs in WTO. Use of contingent protection measures like anti-dumping duties and countervailing duties has increased over time. With diversified manufacturing base, India has been one of the major users as well as one of the major targets of anti-dumping measures in the world. Table 3.4
Anti-dumping Measures 1995 - 2005

Source: WTO study

It can be seen from Table 3.4 that between January 1995 and June 2005, India initiated 412 anti-dumping investigations against 51 countries. Chemicals and petro-chemicals, pharmaceuticals, steel and other metal and consumer goods are the major sectors on which anti-duties have been levied. India is one of the major targets of anti-dumping investigations. During 1995-05, 115 investigations were

27

indicated against India, which included 27 by European Commission, 20 by South Africa and 18 by United States.

3.4

BALANCE OF PAYMENTS (BOP)

A number of measures have been initiated since 1991 to liberlise capital inflows in India. As a result of liberalized external sector policy measures, BOP indicators have improved with the current account turning from a deficit of 3.1 percent of GDP in 1990-91 to a surplus since 2001-02.

The year 2004-05 marked a significant departure in the structure and composition of BOP in India. It can be seen in Table 3.5 the current account which was surplus for three consecutive years showed a decline in 2004-05. From a surplus of US$ 14.1 billion in 2003-04, the current account turned in a deficit of US$ 5.4 billion in 2004-05. The deficit was due to excess of merchandise imports over exports, which was left uncompensated by the net surplus in the invisibles. The turnaround in the current account during 2004-05 was accompanied by a significant strengthening of more than 80 percent in the capital accounting which resulted in reserve accretion. Reserve accumulation during 2004-05, maintained Indias status as one of the largest reserve holding economies in the world. Widening of current account deficit has been accompanied by similar widening of capital account surplus.

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Table 3.5 Balance of Payments

India moved one notch up in the rankings in both exports and imports in 2004 to become 30th leading merchandise exporter and 23rd leading merchandise importer of the world. USA is the major trading partner of India and almost 10 percent of total trade is from United States. Year to year comparison shows that share of United States trade has fallen in 2004-05. Table 3.6 shows Indias major trading partners from 2000-05.

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Table 3.6 Indias Major Trading Partner [Percentage share in total trade (imports+exports)]

3.5

FOREIGN DIRECT INVESTMENTS (FDI) After exhibiting downward trend for two years since 2001-02, FDI flows

grew by 36 percent in 2004-05. The increased flow was mainly due to electrical equipment and service sectors. During the year 2004-05, inward FDI flows into India were at US$5.6 billion, were more than US$ 1 billion higher than such inflows worth US$ 4.3 billion in 2003-04. Outward FDI from India during 2004-05 was also higher at US$2.4 billion, as against US$1.9 billion in 2003-04. Overall FDI was around US$ 850 million higher in 2004-05 compared with the previous year, on account of the rate of growth of inward FDI flows being much higher than that of outward FDI.

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3.6

FOREIGN EXCHANGE RESERVES Indias foreign exchange reserves, as a result of measures initiated since

1991, have continued to record healthy growth due to moderation in trade deficit and strong capital and other inflows a rise of US $ 36.9 billion during 2003-04 to US$ 143 billion at end-March 2006. The foreign exchange reserves of the country, then exceeds 17 months of imports or about 5 years of debt servicing.

Since 1991, external sector management has helped build foreign exchange reserves through non debt creating inflows, to restrict short term debt and to maintain an acceptable level of current account deficit. The main contributors are foreign investments, workers remittances and software exports reflecting increasing global integration.

In spite of deficit in the current account, the total stock of foreign currency asset went up by US$ 26.1 billion during 2004-05. Indias total foreign exchange reserves (including foreign currency assets, gold, special drawing rights and reserve tranche position in IMF) stood at US$ 141.5 billion. Widening of current accounts deficit has resulted in the lack of accretion to reserves during current year.

3.7

CONCLUSION The size of merchandise, as well as services trade, has been increasing

steadily in recent years, reflecting greater integration of the economy with rest of the

31

world. Such integration can expand manifold though regional trading arrangements. India has been actively pursuing such arrangements with neighboring Asian countries, which has emerged as a leading trade partners. India, the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. By 2035, India is likely to be larger growth driver than the six largest countries in the European Union. Now, India has emerged as the third fastest growing major emerging market economy, after China and Argentina.

32

CHAPTER 4 NON TARIFF BARRIERS

4.1 INTRODUCTION Any restriction which is imposed on free flow of trade is termed as trade barriers. Such trade barriers may be in the form of tariff barriers or non-tariff barriers. Non-tariff barriers are administrative measures which are imposed by domestic governments in order to discriminate consumption of foreign goods. NTBs are important measures which will protect such domestic goods that would have been exploited due to foreign trade.

Hillman15 defines NTB as Any governmental device or practice other than a tariff which directly impedes the entry of imports into a country and which discriminates against imports, but does not apply with equal force on domestic production or distribution.

4.2

CLASSIFICATION OF NTBs

The, Figure 4.1 shows different types of NTBs which are prevailing in international trade. Classification of NTBs are based on the study which considered the most common NTBs which were effecting trade in almost majority of the countries.
15

Hillman J.S. 1991. Technical Barriers to Agriculutre Trade,Boulder, CO : West veiw Press

33

Figure 4.1 Types of Non-tariff Barriers

Non-tariff Barriers

Import Policy Barriers

Standard, Testing, Labelling & Certification

Anti dumping & countervailing measures

Export Subsidies

Government procurement

Service Barriers

4.2.1 Import Policy Barriers These are barriers in the form of import licensing requirements. Restrictions on Imports can be imposed on the grounds of safety, health, public morale etc.. Import charges other than customs tariffs and quantitative restrictions are the other forms in which import restrictions can be imposed through import policy.

4.2.2 Standard, Testing, Labeling & Certification These are some of the tools which is used both for checking the quality of goods and also at the same time as protectionist measures. Under WTO there exists an agreement relating to Sanitary & Phytosanitary (SPM) and Technical Barriers to Trade (TBT) which specifically deals with trade related measures which are necessary for protection of human, animal or plant health and also to protect the environment from various hazards. In simple, the main aim of WTO agreement on SPM and TBT is to see that good quality of goods are to be traded.

34

4.2.3 Anti-dumping & Countervailing Measures These measures can be applied in order to protect domestic industry from serious injury arising out of dumping and subsidized imports. WTO agreement on countervailing duties recommends that the amount of duty imposed should be such as is adequate to remove injury to the domestic industry. Tariff duty, import quota, import embargo and voluntary export restraint are some of the anti-dumping measures which can be used in order to protect from dumping.

4.2.4 Export Subsidies Export subsidies are government grants which are given to export firms in order to reduce the price per unit on goods which are exported by such firms. Export Subsidies tend to displace exports from other countries into the third country markets. Export subsidies may be direct and indirect. Direct exports are prohibited under the GATT agreement. Subsidised credits, refund of tariffs on inputs, finance assistance to export companies in promotional activities like trade fairs, market research, advertisement etc..

4.2.5 Government Procurement Sometime Government resorts in to compulsory purchase of goods manufactured this will restrict the movement of goods.

35

4.2.6 Service Barriers Service barriers in the form of giving visas, licenses for foreign professional in service area like accounting, architecture, doctors, engineers etc..

4.2.7 Other NTB Some of the other NTBs which one can come across are lack of protection to Intellectual Property Rights (e.g. existence of video and software piracy in Gulf has affected Indias export), investment barriers practiced by some countries, language and culture barriers, regional trade blocks agreement etc..

4.3

MEASURING NTBs

There are around four different methods of measuring NTBs. 4.3.1 Frequency Type Measures This measure is based on inventory listings of observed NTBs that apply to a particular sector or categories of trade. 4.3.2 Price Comparison Measures Calculated in terms of tariff equivalent or price relatives. 4.3.3 Quantity Impact Measures Econometrics estimates of models of trade flows. 4.3.4 Nominal Rate of Assistance Measurs Primary NTBs which affects developing countries market access are a) b) Import licensing systems Variable levies
36

c) d) e) f) g)

Production and export subsidies (in agriculture sectors) Import/export quotas (in textile sectors) and local content Export balancing requirements (in automotive industry) Export subsidies to develop non-tradional manufacturers State trading corporations.

[As per Figure 4.2, NTB categories with highest incidence of notifications are technical barriers to trade (with 530 NTB entries i.e. about 44 percent), customs and administrative procedures (with 380 NTB entries about 32 percent), and Sanitary and Phytosanitary measures (with 137 entries about 10 percent) and others forming less than 5 percent entries (quantitative restrictions, trade remedies, charges on imports and other barriers)] Figure 4.2
Frequency of notifications by NTB category (percentage of total notifications)
45 40 35 30 25 20 15
11 32.5 44

10 5 0
Governm ent Cusom s and participation in adm inistrative trade procedures Quantitative restrictions Technical barriers to trade Sanitary and Phytosanitary m easures Charges on im ports Trade rem edies Other barriers 4.5 2 0.5 3 3

Source: OECD, based on submissions to NAMA

37

Among the product groups with most reported NTBs are live animals and products (around 27.59 percent) which is affected by Sanitary and Phytosanitary measures (SPM), machinery and electronics (19.20 percent) affected by technical barriers, chemical products (11.07 percent) affected by technical barriers and also import licensing and textile article (8.3 percent) affected by technical barriers, quantitative restrictions and customs valuation.

4.4

SUMMARY

While tariff have been already brought down substantially in the Uruguay Round, the future efforts are more likely to concentrate on the NTBs. It is not true that non-tariff measures are currently unnecessary. The WTO agreements permits the members to take measures to protect human, animal or plant life or health, to conserve natural resources or to ensure the quality of goods finding an access in their markets. Members can also in certain circumstances take specified action to protect domestic industry. Non-tariff measures acts as a barrier only if they are applied as protectionist measures in a disguise. If a country feels that non-tariff measures taken against its exports are inconsistent with the WTO provisions, it may take the matter to the WTO dispute settlement mechanism, besides seeking bilateral consultations. Even where the measures are consistent with the WTO provisions, most of the agreements envisage special and preferential treatment for the developing country members. Bilateral consultations can perhaps help a lot in this regard.

38

Chapter 5 NTBs AND INDIAS FOREIGN TRADE

5.1 INTRODUCTION

This chapter analyses the import and exports of India with reference to NTBs especially with SAARC, ASEAN, EU and United States. Importance of NTBs in Indias foreign trade gained momentum after 1991 when the Government started bringing series of economic reforms.

The Table 5.1 shows different types of NTBs which we come across in India. Major classification of barriers which are affecting Indias trade are Government participation, customs and administration procedures, quantitative restrictions, technical barriers, sanitary and phytosanitary, charges and fees, trade remedies and other barriers. It is found that most of the trade barriers are in the trade regions wherein OECD countries are involved. Quantitative restrictions, sanitary and phytosanitary and Trade remedies are few NTBs which are not forming part of trade with non OECD countries. This implies that there is no much NTBs on exports made to non OECD markets.

39

Table 5.1 Non Tariff Barriers faced by India

Source: OECD, compiled from a selection of business surveys.

40

5.2

NTBs AND INDIAS EXPORTS

India is actively involved in bilateral Free Trade Agreement. While Free Trade Agreement would imply reduction in tariffs, the gains from such trade will be limited with the presence of non tariff barriers. There are many NTBs which Indian exports have to face when it enters in to trade agreement with different countries. These NTBs are restricting the Indias export to other countries.

5.3

NTBs AND INDIAS EXPORTS CASE OF ASEAN, SAARC AND EU COUNTRIES IMPORTS FROM INDIA

As part of trade policies, India is entering in to bilateral/Free Trade Agreement (FTA) with ASEAN and SAARC countries. ASEAN is a small market for Indias export. Indias total trade to ASEAN countries in 2004-05 was at 8.6 percent of total exports which India made in the same period. From the Table 5.2 it is found that Phillipines (37 percent) has the highest number of non-tariff measures on the total volume of exports. It is followed by Malaysia (32 percent) and Indonesia (29 percent). Sri Lanka has only 0.5 percent of its total exports which are subject to NTMs.

41

Table 5.2 Exports to ASEAN countries subject to Non Tariff Measures (NTMs) 2004-05 Percent of Exports subject to NTMs 9 percent 29 percent 37 percent 32 percent 25 percent 4 percent 5 percent

Countries

Singapore Indonesia Phillipines Malaysia Thailand Vietnam Sri Lanka Source: ICRIER, 2005

5.4

NTBs AFFECTING EXPORTS

There are some NTBs which are restricting gains of bilateral/Free Trade Agreements with ASEAN and SAARC countries. For the purpose of study we have classified the NTBs under two groups 1. Technical barriers to trade and sanitary and phytosanitary measures (product standards, process standards, certifications, registration, packing, marking, labeling, language and environmental barrier). 2. Other non-tariff barriers import quotas, licensing, exchange and financial controls, government controls, customs procedures and administrative practices.

42

5.4.1

Technical Barriers

In countries such as Indonesia, Malaysia, Singapore and Sri Lanka majority of the firm have faced barriers related to product standards while majority of the firms exporting to Thailand and Vietnam found packaging requirements.

Exporters were forced to take certain measures which would enable them to product standards and regulations. Importing countries were forcing hard on particular product standards and regulations which the exporting countries were compelled to bring in measures which would favour the exports. Firms in exporting countries used to follow some of the quality standards like ISO 9000, in house testing etc. But, this didnt suffice the importing counties and the level of their expectations increased enormously. So, some of the firms were forced to increase the expenses on such quality standards in order to make their export competitive in the importing country.

a)

Barriers related to Product Standards

Product Standards now-a-day are used as hidden trade barriers. It is one of the important NTB which is the main concern for Indias export. Product standards are one of the important NTB which is affecting the Free Trade Agreements among the regional blocks. With relating to ASEAN and SAARC countries our exports

43

more frequently face this barrier. Let us study some of the commodity where in we come across product standards when we export to ASEAN and SAARC countries.

There are number of product standards prevailing in different countries in ASEAN and SAARC region for the same product. These multiciplity of product standard has created difficulty for Indian exporters to meet the demand for each country.

b)

Barriers related to Process Standards

Process Standards are one of the major barriers which is affecting Indias export. Different countries have different natural resources and use different technology for manufacturing the product. Restriction imposed on the basis of the process of manufacture is creates lot of problems to the exporting countries. It is very difficult for the exporting countries to apply the methods of production followed by importing counties. Export of meat from India to some of ASEAN countries is facing great challenge because of some of the barriers which is imposed. For example, countries like Philippines and Malaysia requires exporting countries to have their own integrated slaughter houses with HACCP certifications. But, it is very costly and also difficult to set up integrated slaughter houses and get HACCP certification. Inspite of getting this certification and setting up of integrated slaughter houses still exporters face the problem with some of the other ASEAN countries. One of the main reasons for this is that the meat which is exported by

44

Indians are badly maintained and unhygienic slaughter houses and some time even prone to diseases.

c)

Barriers related to Certifications, Testing Procedures and Registration

i)

Certifications Exporters are required to be certified from competent authority within the

limits of exporting country and/or the importing country may ask the exporters to get certified from international agency. So, certification can be either internal or external or both [all the jute exporters are required to get certified from Indian Jute Industry Research Association (IJIRA)]. Getting license from IJIRA involves lot of time and money and this will act as a barrier to some of exporters who need to hold back their exports unless they get certified for their products. Similarly all the exports to Sri Lanka require KMEA certificate even though the products are certified internationally. KMEA certificate for all imports are mandatory in Sri Lanka without which nothing can be exported to Sri Lanka.

ii)

Registration Exports done to some of the countries require prior registration for such

exports. Products to be exported must be first registered at Customs or at importing countrys ministry. Pesticides exported to Vietnam require registration from the Ministry of Agriculture. Cosmetics exported to Sri Lanka require proper registration with their authority (the Ministry of Health) even though it is registered in exporting

45

countries. Indian exports face lot of registration problem with different countries of ASEAN and SAARC, even though we have FTA still these types of barriers are affecting foreign trade. One of the main disadvantages of registration is that the registration authority will ask for confidential information relating to the product, process of manufacture etc., which many exporters are not willing to disclose and also the procedure get registration involves lot of cost and also time which may irritate the exporters.

iii)

Testing Importers will insist the exporting countries to conduct various tests before

they export the products. Such tests are time consuming and also involve lot of costs. Indian exporters have to undergo quality test on sanitary ware before it exports to Malaysia. Vietnam and Philippines requires exporters to submit the chemistry of the products and reports of the toxic test before they export the products.

d)

Barriers related to Packaging and Labelling

i)

Packaging Barrier in the form of packaging can be seen more frequently in Indias

exports. Importing countries will specify the packaging norms which should be adhered by the exporting countries. Since such packaging requirement varies from country to country it will be difficult for the exporters to export the product.

46

Packaging norms specified by Thailand and Vietnam for Export of yarn has resulted in high cost of exports of Indias yarn to such countries. Similarly Indias export is facing lot of package issues with countries like Mayamnar, Sri Lanka and Malaysia.

ii)

Labelling Some of the importing countries insist on printing importers countries

literature on the labels which may involve extra cost to the exporting countries. Malaysia insists on printing of Halal logo (products certified with Halal logo implies that they does not contain any dangerous ingredients which may affect the human health) on the products which is exported from India. Similarly for bulk drugs exported to Phillipines and Thailand requires each product pack should bear the registration numbers. This will result in increase in cost and waste of time.

5.4.2 Other Barriers Barriers relating to competition, prohibition, anti-dumping, government policies duties financial institutions (Banks) were identified which had impact on exports.

a)

Import Quotas Some of the countries in ASEAN and SAARC have placed restrictions on

number of imports which can be done within a period of one year. These quota restrictions have directly affected the exporters because they find difficult to plan the

47

production till they get quota to export. Import quota fixed on auto components by Vietnam resulted in serious export problems in India.

b)

Licensing Exporting countries should have proper license in order to carry on exports

smoothly and freely with other countries. For example demands license of tyres wherein in order to export to Mayamnar, Indian exporters should get approved license from the Directorate of Trade. Similarly in case of export of isolators and valves to Vietnam requires getting license from that country.

c)

Anti-dumping Duties There was not much anti-dumping cases registered against India but, in the

annual report prepared by the Ministry of Commerce, Government of India indicated that there were around 6 cases against India registered by Indonesia on antidumping.

d)

Financial Institutions Banks also act as barriers in some of the cases. Some of the banks in

importing countries do not confirm the letter of credits due to which the exporters face the problem of risk of collecting. Letter of credit issues by various banks in Vietnam and Thailand has resulted in risk of collection to Indian exporters in recent years. Sometime even the importing county banks issues false letter of credit because in reality such banks do not exist at all. Some cases were reported from

48

Cambodia and Brunei wherein the false letter of credit was received from banks which did not exist.

Dr.Prasad16 (Economic Advisor, Department of Commerce) strongly recommended FTAs (Free Trade Agreements) with strategic partners to avoid NTBs, WTO-compatible incentives for testing, certification, labelling, etc., related to environment. In the case of tobacco export, for instance, he said there was need to examine why there was a slump despite India being so competitive in this field, export-linked MNC investment in this area, he felt, may help avoid NTBs.

Even though we have only small amount of exports to ASEAN and SAARC countries, we are facing lot of barriers which is restricting the exports of goods. Some of the barriers discussed above can be sorted out with good bilateral agreements which India is already doing it and some of the barriers which is beyond our control can be reduced through global agreements like WTO and GATT. It becomes very important from the perspective of Indias foreign trade to sort out these barriers because we feel the threat from China and other countries who may capture lot of ASEAN and SAARC country markets in near future. ASSOCHAM is of the view that as per Indias vision of becoming a developing nation by 2020, the Government should be committed to policies that enable us to work more closely with our neighbors and to support the efforts of the state governments in promoting business-to-business links between India and South-east Asia.
16

Dr. Prasad, Economic Advisor,Department of Commerce, Forum on Trade Barriers, New Delhi,2006

49

In October 2003, India and ASEAN signed a framework agreement on Comprehensive Economic Cooperation, with following objectives; Strengthen and enhance both trade and investment co-operation between the parties Progressively liberalise and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime. Explore new areas and develop appropriate measures for closer economic cooperation between parties. Facilitate more effective economic integration of the new ASEAN member states and bridge the development gap between parties.

5.5

TECHNICAL BARRIERS OF EUROPEAN UNION

Soon after the idea of European Community starting taking shape in 1950s, India was the first country to set up diplomatic relations with European Economic Community (EEC) in the early 1960s. Indias relationship with European Community deepened with bilateral agreements signed in 1978 to 1981. In 2001, experts from 40 leading EU and India met in Brussels to work out the most viable areas of co operation. Series of summits have strengthened the relationship between India and EU. India and EU relationship which was purely based on economic front has now moved to strategic partnership. Indias Export to EU country which stood at US$13.4 billion Euros in 2001 has increased to US$16.2 billion Euros in 2004. Indias Import from EU which stood at US$12.9 billion Euros in 2001 has increased to US$17 billion Euros in 2004.

50

Non-tariff barriers which are more restricting have been another major area of concern. There is lot of EC legislation relating to sanitary, phytosanitary and food safety issues which are applied in a very stringent manner on imports from developing, such as India. Lot of restrictions is placed by EU countries that is affecting Indias export. Most frequently affected export is that of farm products. Instruments like agricultural practices and ecological labelling are being used by EU countries in order to control its import of farm products. Since growing conditions vary from one country to another country it is not proper to have farm products labeling it would be very difficult for the country like India to cope-up with the global competition. Another technical barrier which has affected Indias export to EU is stipulation of International Standards. These standards were fixed by some of the developed EU countries without involving developing countries. As such it is very difficult for country like India to adopt to the technology and have such resources which can drive to achieve the fulfillment of standards fixed by the EU. From time to time India is raising the concerns of the barriers with EU. In March 2006, India informed the EU to address the serious barriers of mounting stringency and non harmonization of standards, cumbersome and complex rules and frequent use of trade defense instruments that are making EU very difficult market to penetrate.

51

Elangovan17, the Minister of State for Commerce and Industry, is of the opinion that India seeks to the initiative and cooperation of EU in setting issues of various NTBs on supposed grounds of health and SPS standards that Indian exports have been facing in the EU. Important step towards facilitating greater engagement in the field of software sector would be the removal of stringent restrictions on visa and work permits for professional and businessmen moving from India and Europe.

5.6

NTBs AND INDIAS EXPORTS: SUMMARY

It will be very important to study the sector wise NTBs which is affecting Indias export. For this purpose Indias export is bifurcated on the basis of different sectors like textiles, agriculture and food processing, chemical and electronic industries. These sectors contribute to about 90 percent of total Indias exports.

In the textile sector, while quotas have been removed, preferences given by Canada, the US and the EU to regional trade partners and least developing countries prevail. Regulations regarding labour standards, such as SA 8000, and environmental norms, such as ISO 14000, as well as anti-dumping duties also act as NTB for Indian textile exporters.

In the agricultural and food processing sectors, SPS measures are the dominant concern. Maximum residue levels affected exports of livestock products to

17

E.V.K..S. Elangovan, Minister of State for Commerce and Industry, Indo-EU Joint forum on International Trade, March 2006

52

the EU, pest/disease free zones were placed by Japan for mangoes and grapes, the definition of whiskey restricted exports in the EU.

The chemical sector has to contend with multilateral environment agreements such as the Basel Convention or the Montreal Protocol, as well as environment stipulations from importing countries. The EU has recently instituted REACH, for registration, evaluation, authorisation and restriction of chemicals, with high standards of regulations that has already attracted action by the US, Japan and other countries . The fast-growing electronics industry sector faces social NTB, such as SA 8000 and OSHAS 18001 for occupational health and safety. Technical barriers mean conforming to TQM practices and attaining voluntary international standards which are costly to acquire. Restrictions on hazardous substances, ISO 14000 and end of life disposal form environmental barriers.

5.7

NTBs AND IMPORTS

In India import restrictions have been maintained under various categories. Some of them are in the form of non automatic licensing, prohibited items and items which are importable exclusively by government trading monopolies. Most of the items in the restricted list fall under the category of agricultural products, chemicals, fertilizers, metal and pharmaceuticals. EXIM policy for 2002-07 states that 63 items are to be removed from the restricted list. It is not only the import of goods which is
53

facing threat from barriers but even services which forms the major part of trade in recent years are also undergoing lot of restrictions. It will be ideal to study NTBs pertaining to goods and also services. On trade liberalization front, Economic Reforms consisted of abolition of import license and phased removal of quantitative restrictions. Pusell and Sharma (1996) estimated the share of internationally tradable goods protected by Quantitative Restrictions (QRs) and other NTBs in total sectoral tradable GDP. In the pre reforms periods (1980s) the QRs share was as high as 93 percent in total tradable GDP. In 1995 it came down to 66 percent. Siting balance of payment reasons India maintained import restrictions on 1429 items. As a signatory to Uruguay Road agreement, WTO members challenged Indias need to maintain measures for balance of payments reasons. WTO dispute settlement decision, responding to the complaint filed by US, ordered India to end the curbs on all items by April 2001. On April 1999, QRs restricted imports on about 1200 tariff lines, of these, QRs on 600 lines were removed on April 2000 and rest on April 2001. (Please see the below Table 5.3a and 5.3b)
Table 5.3a Non-tariff Barriers (NTBs) on Indias Imports (Number of Tariff lines, 10 digit level)

54

Table 5.3b Status of NTBs Notified to the WTO

Source: Directorate General of Foreign Trade, Ministry of Commerce, Government of India

To drill down further and make the study simple we classify the NTBs which are affected our imports on the basis of following three categories.

5.7.1 TRADE BARRIERS

a)

Import Licensing After WTO ruling India has eliminated import licensing on most of consumer

goods. There still exist getting special license for importing some of the automobile products. Some of the restricted items like livestock products still requires license to imports. There exists some of the commodity which are highly monopolistic in the hands of the government example are petroleum products and some pharmaceuticals which the private party cannot directly import.

55

b)

Sanitary and Phytosanitary (SPS) India is imposing lot of compulsory detention and laboratory tests on various

food products which it is importing. There are many new amendments made in the Prevention of Food Adulteration Act and also the Ministry of Agriculture has brought in many changes in importing agriculture products which acts as a barrier to imports. These regulations have hit import of almonds, pulses, wheat, soybean oil, fruits and vegetables, soft drinks etc., from United States.

c) i)

Intellectual Property Rights Patents Indian patent laws have come in the serious questioning especially from US

as it excludes from product patent protection, any invention intended for use. Many drugs which are invented by US has been reproduced in India without any proper license. US chemical industries along with other industries have started raising voice against Indias inadequate intellectual property protection. As a result industries have withheld marketing and productions of compounds in India.

ii)

Copyrights Amendments made into the Copyright Act in 2000 have weakened the Act.

Software imports are affected to maximum extent due to these amendments. The amendments to copyright act has lead to decomposition of computer programmes and multiple copies of a computer program for personal and non commercial use. United States believes that such amendments will lead to piracy and illegal

56

trafficking of software applications. The amendments made into the Copy Right Act give minimal criminal punishment including minimum jail term which will not help in curbing the piracy. Copyright as a NTB is effecting Indias import from many countries. iii) Trademarks Protection of foreign trade marks in India is still difficult, although enforcement is improving. Guidelines for foreign joint ventures have prohibited the use of foreign trademarks on goods produced for the domestic market. That is, owners of foreign trademarks who register them in India must use trademarks on local production. Non use of such trademarks in India may result in their cancellation.

d)

Standards, Testing, Labeling and Certifications Government of India has identified 159 specific products which require

clearance from Bureau of Indian Standards before they are imported into India. Stringent standards are imposed on some of the pre-cuts like distilled spirits, textile and apparels. To facilitate trade the Government of India announced in 2004 that importers could obtain BIS certification after importing affected production.

57

5.7.2 SERVICE BARRIERS

There are lot of service barriers which are influencing our Imports. India has submitted an initial WTO/GATTs offer to provide further services liberalization but, it has not done much for removing the restrictions on already existing services lines such as professional services, telecommunications and financial services. Following are some of the areas identified in the study which we come across service barriers at the time of imports

a)

Insurance The insurance sector that earlier owned by Government sector was allowed

for private participation with effect from December 1999. The government has placed restriction on the foreign companies on their equity investment which cannot exceed 26 percent. India has also limited the range of insurance lines which can be offered to the public by foreign companies. These restrictions are acting as barriers for promoting insurance sector in the Indian economy.

b)

Banking There are lots of restrictions which the foreign banks are facing in India.

Most of the banks in India are government owned and entries of foreign banks are highly regulated. Foreign banks operate under restrictive conditions like limitations on adding up sub branches in different regions, increasing the fields of operation and investment of funds in development activities.

58

c)

Audiovisual and Communication Services NTBs in the form of restrictions on pre-censorship quality checks procedures

and fees for film imports, check on broadcasting of foreign TV channels, encouraging joint ventures in the field of setting up of channels instead allowing 100 percent foreign participation, having check on the editorial content by giving Indian firm the authority to do edition and changes. Now lot of restrictions have been relaxed in order to promote the importance of communications in the fast growing dynamic world. In the area of Telecommunication there still exists a lot of bias in Telecommunication policy towards government owned service providers. Government owns major part of share in Telecommunication industry and has restricted domestic and foreign companies entering Telecommunication field. American telecommunication companies have complained about the restrictive policies adopted by Indian international service provider VSNL on international bandwidth, cable access and landing stations in India. They have alleged discriminatory and monopolistic practices by VSNL and have restricted the Indian government to intervene to ensure VSNL makes available submarine cable capacity to other suppliers on a reasonable and non discriminatory basis.

d)

Construction, Engineering and Accounting Services Large numbers of construction projects are awarded only on non convertible

rupee payment basis. Government projects which are financed by international development agencies permit payments in foreign currency. Foreign company in

59

India is not allowed government contracts unless it is clear that Indian company cannot perform such work. It is also made mandatory that foreign firm should participate through joint venture with Indian firm in order to do work related to engineering and constructions. Graduates who are qualified professionals from Indian universities can only go in for accounting practicing in India. Degrees of foreign universities are not recognized for such practices in India. Internationally recognized firm names may not be used, unless they are compromised of the names of proprietors or partners, or name already in use in India. Foreign accountants may not be equity partners in an Indian accounting firm.

5.7.3 INVESTMENT BARRIERS

a)

Equity Restrictions Indian government has prohibited FDI in certain politically sensitive sectors,

such as agriculture, retail trading, railway and real estate. Government regulation with respect to equity varies from industry to industry and also lot of directional changes is made every now and then. Portfolio investments are inconsistent across industries and there are no transparencies in the FDI policy of the government. Many foreign industries have expressed concern with Indian governments stringent and non transparent regulations and procedures governing local shareholdings. Foreign company in order to set up joint venture should first get approval from the government by giving reasons for setting up of such industries in India. It also needs to get approval for technical collaborations or trade mark agreement in India. It is

60

left to the discretion of the Government to approve or reject the application by justifying with reasons for doing so. Foreign investor who have already stake in India and who wants to increase the equity stake in the company should first get resolution approved in Board of Directors meeting and then they need to get approval from the Indian government. This involves lot of procedures and time to get approval in order to increase the investments. b) Anticompetitive Practice Indian trading system suffers from lot of bureaucratic bottlenecks and regulatory bodies that apply monopolistic and fair trade regulations on domestic and foreign Indian company. Competition Commission of India (CCI) has replaced the MRTPC which prohibit unfair trade practices and encourages competition among the companies.

5.8

NTBs AND INDIAS IMPORTS FROM EUROPEAN UNION

Table 5.4 Trade with European Union

Figure 5.1 clearly shows different types of NTBs imposed by EU on Indian goods. Tariff Quota (44 percent of tariff lines) is the most frequently applied NTBs on Indian goods. Next comes non-automatic license (21 percent of tariff lines),

61

Import monitoring (12 percent of tariff lines) and seasonal tariffs rates (8 percent of tariff lines). Figure 5.1 NTBs facing Indias Imports in EU

Source: Department of Commerce, Economic Division, NTB faced by India

Since November 2000, Directorate General of Foreign Trade (DGFT) has started imposition of various NTBs in the form of packaging and labeling requirements to imported consumer goods, the extension of mandatory registration of BIS standards to imported products, the agriculture permit and the sanitary permit for import of meat and meat products. Indian market is considered by the EU as one of the most difficult markets among the markets under review. The main problem for the EU exporters is the obligation to label the products and difficulty in making changes if it needs to be corrected. Indian authorities are also trying to bring in lot of certifications procedures which will be difficult to satisfy by the EU exporters.
62

For EU exporters, the provisions of the Standards on Weight and Measures Act and the provisions of the Prevention of Food Adulteration Act (PFA) are now applied to imported products. Therefore, the exporters must affix a specific label before shipment. The new rules foresee that the compliance with these requirements shall be ensured before the clearance process. EU exporters face difficulties to comply with some of these requirements like affix the Maximum Retail Price (MRP) on the label is problematic. The MRP varies from one state to other, given the fact that its calculation is based on domestic taxes. For EU exporters of wine, for example, this requirement constitutes, if strictly applied, an unbearable barrier. The obligation to comply with the requirements before the clearance process causes practical difficulties to importers. According to customs, importers are neither allowed to affix the labels in customs nor allowed to correct a label found unsatisfactory by Indian authorities (Customs or Bureau of Indian Standards).

Indian importers also face difficulties with the controls (testing process) carried out by accredited laboratories in charge of compulsory inspections for foodstuffs. There is no maximum for completing the tests. Importers are charged with high storage cost and some times it is very difficult to store the product in right type of environment.

63

5.9

NTBs AND INDIAS IMPORTS FROM UNITED STATES

Table 5.5 Trade with United States

It can be seen from the figure 5.2 that the most prolifically applied NTBs by US on Indian goods are technical barriers to trade including safety, and food safety measures. Woven apparel, knit apparel, textile floor coverings, edible fruits and nuts and cotton yarn and fabrics are some of the important commodities which are affected by NTBs.

Figure 5.2 Important NTBs facing Indian Imports in US

Source: Department of Commerce, Economic Division, NTB faced by India

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In 2005, the United States and India increased their efforts to develop a constructive long term trade relationship. These efforts include work to identify areas like bilateral issues, including tariff and non tariff barriers and subsidies. US India trade policy forum which met in New Delhi in 2005 agreed to establish focus groups on agriculture, tariff/non tariff barriers, services, investment and innovation and creativity that will meet on regular basis and sort our issues. There are some NTBs which are restricting the Import of US goods in to India. Some of the restricts which is affecting US exports to India are; Indias import bans and other restrictions on some 2700 items. Indias protection of patents on Pharmaceuticals and Agricultural Chemicals. Indias measures that discriminates imports of US automobiles. Indias restriction on controlling optical media piracy which has affected US exports. Restrictions on access to, and use of, leased lines and submarine cable capacity. Excessive regulatory requirement, including high licensing fees, high capitisation requirement, restriction on resale and limitations on the entities with whom a foreign license can partner. It is stated that textile, iron and steel items, vehicles, parts and accessories, marine products and edible fruits and nuts are the main items exported by India to the US facing NTBs there.

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In the case of exports from other countries to the US, vehicles, machinery such as nuclear reactors, boilers and electrical machinery, and pharmaceutical products are the main items facing NTBs in the US. The Table 5.6 shows that Free NTBs (9611 tariff lines) are the major NTBs which are imposed on Indias imports. Due to government intervention in controlling and restricting NTBs it can be seen in the table that Restricted NTBs have gradually come down from 1996 to 2001. However, number of tariff lines under Prohibited NTBs is remaining constant as these are NTBs which are used in order to protect the interests of domestic trade. There is no tariff lines reported in 2001 under Canalised and SIL NTBs because government is of the view that if they start continuing with these NTBs then it will have a negative impact on the trade relationship and instead of it acting as protectionist measure it will lead to restriction of trade .
Table 5.6

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5.10

INDO - US RELATIONSHIPS ON REGULATING/RESTRICTING THE NTBs

Series of summit and forums between Indian Trade representators and US counterparts have agreed for procedures wherein they can regulate/restrict some of the NTBs which are affecting the trade between them. It was discussed in the forum which was held in March 2006 that some of the sectors where their was predominance trade between the two countries and still they suffered due to existence of tariff and non tariff barriers among them. In the summit they agreed for identifying such areas and to find out a solution so that there will be smooth flow of trade among the countries. Pharma Industry India should takes steps to ensure IP protection and enforcement, review of price control policy, customs clearance and storage facility to handle sensitive products. From US end it should ensure that Indian companies get FDA and other approvals for items manufactured and Exported by India. Food and Agriculture sector - Review of Agriculture Product Market Committee Act, Liberalise Import Policy and tariffs, Review the Technical and SPS measures imposed by India. Reduced agricultural subsidies in the US gave India a chance to develop export markets for agriculture products. To set up Indo-US research and development center for Agriculture research and development and encourage collaborations in agriculture research. Reduce Non-tariff barriers to export of agriculture produce and sea food to US.

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 Manufacturing

sector.

Removing

of

anti-dumping

and

safeguard

legislation/anti-dumping on items such as steel by US. Lower/remove NTBs and technical barriers- SPS standards and legislation to be unbiased and equal on both sides. Information/Knowledge based industry. Licensing information/knowledge based industry should be reviewed. Relaxing requirements to obtain licenses for certain information sector products and services that support business activities, national initiative to crack down on piracy in education and research sector should be encouraged. Remove restrictions on research and development collaborations by the US and establishing product design and development centers. Liberalise US visa regime for service providers. India to consider providing visa for up to five years and removal of FRO/FRRO requirements for US citizens to report physically once a year. India to develop a TRIPS compliant IP system and IP protection, especially for software and published materials, print or electronics. License requirement for certain information sector products and for services, which support business activity, should be reviewed and eliminated by Government of India. India and US economy to be opened further for free trade in service and products. US-India FTA to take bilateral trade and investment to a new level.

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5.11

EXAMPLES OF NON-TARIFF BARRIERS WHICH WE COME ACROSS IN INDIAS FOREIGN TRADE

Following are some of the sectoral examples which shows how NTBs are affecting Indias trade Many exports of India are handicapped on account of quantitative restrictions. In case of certain woollen garments, India had to go to the WTO for seeking redressal against the USA which was duly granted in the absence of any solid reason.

Countries like Switzerland have prohibited the participation of Indian made watches in their trade fairs on the ground that India has not yet fully freed its import regime for watches under the low tariff system.

Indiscriminate use of anti-dumping measures has affected exports of many developing countries including India. According to WTO report, as on 30th June, 1995, 805 anti-dumping actions were in operation. Of this, 305 were by the US, 178 by the EU, 91 by Canada, and 86 by Australia.

A few countries are extending preferential treatment to some of their trading partners and are following discriminatory trade policies. For example, in case of horticulture products, while flowers from the EU are allowed duty-free in The Netherlands, the same flowers from a country like India attract an import duty of 18 to 20 percent

NTB menace is growing in India from time to time. For instance, around 44 percent of our exports to US face several of the listed hard-core NTBs most important being technical and labeling requirements. The main commodities affected are textiles, ready made garments, iron and steel, fish and sea foods.

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CHAPTER 6 MEASURES TO CONTROL/RESTRICT NTBs

6.1

INTRODUCTION

Import restraints and export subsidies are the broad classification of nontariff barriers which is affecting most of the countries trade. These NTBs have effect on trade, production, consumption, revenue, employment and welfare activities. So, it becomes important for countries which has effect of such NTBs to control or restrict NTBs in their trade.

Non-tariff measures which aims at controlling/elimination of NTBs are difficult to quantify, costly to administer, costly to consumers, costly to exporters, inefficient way of creating jobs, lacks transparency and inherently discriminatory. They also demarcate the world prices and domestic prices. Uraguay Round made considerable head way in eliminating or reducing the NTBs and setting structured guidelines for the use of those which are still allowed. In case of developing countries Uraguay Round identified areas pertaining to voluntary export restraints, restraints under WTO agreement on textiles and clothing and WTO agreement under WTO agreement on agriculture wherein NTBs can be eliminated. It was decided to explicitly prohibit the use of voluntary export restraint in industry and agriculture. The WTO agreement on Agriculture has brought agriculture sector under more transparent rules and set stages for a progressive liberalization of trade. Apart from
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these NTBs a number of other NTBs like contingency protection (safeguards, anti dumping, countervailing), technical barriers (Sanitary and SPS measures),Trade Related Intellectual Property Rights (TRIPS), TRIMs, Import Licensing, State Trading were also identified and suggestions made to bring changes in stringent procedures which were restricting the trade.

6.2

STEPS TAKEN BY INDIA IN CONTROLLING/RESTRICTING NTBs Mansingh18, has clearly said that Indian exporters cannot expect to be free

from non-tariff barriers (NTBs) to their products abroad unless India itself eschews the tendency to impose NTBs to imports at the instance of vested interests. Its true that we should be liberal on Imports and should see to it that we should identify the areas where we can reduce or eliminate some of procedures so that it promotes easy Imports.

To ensure compatibility with the transparency provisions, department of commerce, GOI established in June 2006 three SPS related enquiry points to handle all reasonable queries, comments on our SPS notifications by other WTO countries. Department of agriculture, health and family welfare, animal husbandry. For TBT related issues BIS has been designated as the national enquiry point.

18

Mansingh, Directorate General of Foreign Trade (DGFT), Interactive session organised by the Federation of Indian Chambers of Commerce and Industry (FICCI)-Southern Region, April 2006

71

 Department of commerce continues to be the national notifying authority for both SPS and TBT related measures to the WTO. Department of commerce has taken number of steps to deal with notifications which acts as a barrier to trade. Along with the BIS (Board of Industrial Standards) it has started awareness programmes for stakeholders. Workshop was also organized for the officials of Central and State governments, scientists working on standards, trade and industry

representatives, commodity boards etc on the transparency issues relating to WTO. A study by the Ministry of Commerce on non-tariff barriers (NTBs) has suggested that export promotion policies should look into the NTBs which can be avoided by suitable WTO compatible measures such as facilities to tackle SPS (sanitary and phyto-sanitary) and TBT (technical barrier to trade) measures. On the policy front, the study advocates a coherent negotiating stand, taking note of both NTBs and tariffs as sectors with NTBs also face tariff peaks and concealed high tariffs in the form of specific duties in some developed countries. India has also been at the forefront of an effort of many developing countries striving to guard against bio-piracy by incorporating suitable provisions in the TRIPS Agreement to ensure that our biological/genetic material and traditional knowledge is adequately compensated through reasonable benefitsharing. In this regard, India is raising the issue of bringing appropriate
72

harmony between the objectives of the TRIPS Agreement and the objectives of the Convention on Biological Diversity (CBD). Negotiations in the area of Rules (anti-dumping and subsidies agreement) has also been delivered on pro-development outcome and lead to such strengthening in disciplines as may be necessary to ensure that these instruments are used to check unfair trade practice only and not used to restrict market access for developing countries exports. India has formed broad-based alliance with other like-minded developing countries such as G-20 and G-33 on issues of common interest. The efforts of coalition building by India and other developing countries was reflected in the outcome at Hong Kong Ministerial Conference in December 2005. On the domestic front, the Government holds periodic consultations with various stakeholders to fine tune its approach to the negotiations. In this regard, the Government also gets analysis done of various negotiating issues and feedback from these studies is again fed into the negotiating strategy. Regulatory measures are being introduced in order to see that there will not be much impact of procedures on the Trade. Indian Regulator TRAI took action to lower cost of international private leased circuits and has also made recommendations to the Department of Communications to facilitate access to submarine cable capacity. It has also reduced license fees for long distance services. Export-linked FDI policy, as part of an overall strategy to minimise the impact of NTBs, as foreign investors too have to adopt similar standards,
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FTAs (Free Trade Agreements) with strategic partners to avoid NTBs, WTOcompatible incentives for testing, certification, labelling, etc., related to environment. The exporters should maintain an effective interaction with their counterpart associations etc. in the importing countries. Any difficulties due to technological or economical limitations must be adequately brought forward to the notice of the Government. Most of the WTO agreements envisage special and preferential treatment to developing countries. Specific problems being faced and the favour required should therefore, be identified. This may help the government to have effective bilateral consultations with the concerned countries and to seek specific dispensation. List out all NTBs against India, examine whether these are WTO-compatible or not, related to which Article of WTO and the action taken by other countries in similar cases. Improvements in product quality and equivalent standard setting between importing and exporting nations are sometimes least costly ways of increasing market access. The Ministry of Commerce and Industry is actively addressing NTB in multilateral trade negotiations on the WTO platform. At the recent miniministerial meeting in Dalian, our Union Minister intervened to keep NTB on the table for the G-20 agenda.

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 Governments are to provide exporters with timely and useful information regarding phasing out of quotas, initiation of anti-dumping, countervailing duty or such other action. The non-tariff measures act as barriers if they are applied as protectionist measures in a disguise. The non-tariff measures need, therefore, to be examined for their consistency with the WTO disciplines and whether they are applied as a protectionist measures in a disguised form or manner. If a country feels that non-tariff measures taken against its exports are inconsistent with the WTO provisions, it may take the matter to the WTO dispute settlement mechanism, besides seeking bilateral consultations. The manufacturing techniques used must be carefully selected so as to ensure that the resultant products do not cause any harm to human, animal or plant life or health.

The exporters need to carefully study the laws and regulations of the importing countries and their likely impact on the exports. Similarly they should also carefully examine the notices or notification made by the importing countries under the agreement on application of Sanitary and Phyto-sanitary measures and the agreement on technical barriers to trade.

Since any dispute in the WTO can be raised by the governments only, the exporters will do well to fully cooperate with their government and to provide it with all the necessary information through their association ..

75

The WTO is to concentrate more on monitoring the implementation rather than going in for more and more `new-new' areas. In particular, the WTO is to concentrate more on the issues of tariff escalation and tariff peaking

The WTO is not to be burdened with non-trade related matters. Further, the WTO is to make sure that non-trade objectives are not used for pursuing protectionist policies or creating (non-tariff) trade barriers.

The focus of NAMA negotiations has been on encouraging the WTO members to make notifications on such barriers faced by them to facilitate the identification, examination, categorization and ultimately the negotiations on NTB. India had submitted a notification on some of the NTBs faced by its exports. On the front of elimination of NTB to environment goods and services. India has submitted a approach called Environmental Project Approach to committee on trade and environment which clearly identified environmental benefits and eliminates, dual or/and multiple uses. Rising cases of NTBs in the form of Sanitary and Phytosanitary measures and technical barriers to trade has emerged as major concern. SPS measures include all those measures to protect human, animal and plant life or health. TBT measures seek to achieve balance between WTO member countries to take regulatory measures to protect the interests. Series of discussion among the WTO members aims to see that technical regulations and standards procedures do not become unnecessary restriction on international trade.

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CHAPTER 7 NON-TARIFF BARRIERS FACED BY INDIA

The Table 7.1 reflects generally what EU, Japanese and US firms consider to be the main impediments to their access of foreign markets. An attempt is made to assess the extent to which similar non-tariff problems are reported so that it becomes easy to compare with other regions.India has a major trade relationship with US and EU. It will be helpful to know the trade related issues which we are facing with these countries. It can be found from the survey that with USA India is facing NTBs in the form of tariff, quota, custom related issues, prohibition on imports, standards, certifications and labeling and sanitary and phytosanitary. In case of EU countries, NTBs are in the form of health and safety standards, labeling, testing and sanitary measures which is affecting trade between the countries. Market entry difficulties due to price changes, lack of transparency in administrative practices, import quotas and labeling are some of the NTBs which are restricting trade with Japan. By this survey it can be judged that there are few common NTBs like labeling, testing, sanitary and SPS and import quotas which are major concern for India. It is time to take some action on these fronts in order to restrict such NTBs which is harming the smooth trade.

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Table 7.1

NTBs faced by India (Destinationwise)

USA EU Japan

Tariff quotas (tobacco and dairy products): management of tariff quotas for tobacco are perceived to be more restrictive than necessary; in-built rigidities reported in the licensing arrangement for dairy products. Unnecessary supplementary documents and information required by customs during clearance: overly-detailed; rule of origin problems. Excessive fees (customs, harbour, arrival facilities, transport, etc)

Restrictions on market access for fur products

Proposed reference pricing system results in market entry difficulties (especially for pharmaceuticals)

Restrictions on production practices: only imported wines produced with the oenological practices of the EU authorized Development of standards for certain product groups, based on minimum health and safety requirements: export of nutritional supplements affected due to strict SPS measures. Delays in exports due to delayed laboratory test reports: test reports face lengthy approval processes by European affiliates that are affected by political concerns; marketing bans on GMOs which run counter to EU regulations Labelling issues: labelling of all new processed foods and food ingredients; labelling to indicate recyclability or reusability causes problems for glass, plastic containers; eco-labelling

Impediments in accessing distribution channels

Lack of transparency in administrative practices and burdensome and unpredictable nature of application process; prevalence of informal directives

Import prohibitions on dairy products and on shrimp

Discriminatory excise tax system (imported distilled spirits)

Strict certification on industrial fasteners: strict International Standard; prevalence of third-party testing and certification instead of self-testing.

Burdensome on-site inspection requirements, fumigation policy, etc., for horticulture products: hence difficulty in market access for leafy vegetables, strawberries, some citrus and avocados

Table Contd 78

US

EU

Japan

Differences at state level in regulations

Early phasing out of some hydrochlorofluorocarb ons affects exports of refrigeration and air conditioning exports. Reclassification by EU states raises tariff rates for certain goods

Strict certification restricting competition

Other barriers: taxes (harbor maintenance, levy of luxury, penalty payments, gas guzzle and excise, ad valorem); unilateral sanctions; application of domestic legislation outside borders. Strict sanitary and phytosanitary-sanitary requirements on fruits and vegetables Labelling (esp. car parts, fur products, wine) and extensive product description requirements

Other barriers: food sanitation laws (vitamins); poor market access and sales opportunities (automotive); standards and specifications (utilities); use of narrow technical standards rather than performance based standards; lack of equal access to procurement information for local and foreign firms Import quotas (fish)

Strict sanitary measures: veterinary sanitary equivalency required to be at par with EU. Ban on the use of 'specified risk materials' in certain products

Labelling of foods produced using biotechnology

Source; OECD Working Paper, 2003

The OECD undertook a comprehensive analysis of non-tariff barriers of concern to developing countries (OECD, 2004b). According to this study, barriers related to customs and administrative procedures and technical measures to trade emerge as the main NTBs of concern to developing countries vis--vis developed country markets. Despite less consistency across different sources, barriers related to SPS measures follow in importance and are cited frequently in business surveys focusing on access to OECD markets. In terms of sectors, live animals and related products, machinery and electronics, and chemical products are the sectors most frequently subject to NTBs. The barriers and sectors identified above may provide insights into NTBs that particularly concern the affected countries

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In the process of NAMA negotiations, WTO members have notified NTBs their exports were facing in various markets. Among them are four affected countries, Bangladesh, India, Malaysia, and Thailand, have submitted notifications identifying a total of 106 NTBs which affect their exports (Table 7.2). They pointed to battiers related to technical measures to trade, and customs and administrative procedures as the most common difficulties to their trade, followed by government participation in trade. The NTB frequencies cited by four affected countries are quite similar to those of the larger group of developing countries
Table 7.2 NTBs notified by Selected Affected Countries to NAMA

Non-tariff measures Bangladesh Government participation in trade 2 Customs and administrative procedures 9 Quantitative restrictions and similar 5 specific limitations Technical barriers to trade 4 Sanitary and Phytosanitary measures 2 Charges on imports 1 Trade remedies 0 Other barriers 1 Total 24

India 0 0 0 4 0 0 0 2 6

Malaysia Thailand Total 7 0 9 16 0 25 1 0 6 25 6 0 1 12 68 6 1 0 0 1 8 39 9 1 1 16 106

Source: OECD (based on submissions to NAMA), 2005

According to an UNESCAP case study (UNESCAP, 2000), exporters in India, complained of NTBs to their exports of garments and textiles, jewellery, electrical machinery, and agricultural and fisheries products (Table 7.3). Responding to the survey, exporters in India point to the MFA related trade regime as a barrier to
80

their trade. The termination of the MFA quota system under the Agreement on Textiles and Clothing is expected to provide a new business environment to resolve this issue. A review by OECD of available data from business surveys indicates that Indian firms identified SPS requirements, standards and technical requirements, and certifications for priority NTB concerns (OECD, 2004b).

Table 7.3 ESCAP case studies on NTBs (Faced by Exporters in India) Non Tariff Barriers MFA quota Labelling requirements Technical standards Exports Fabrics, apparel, textile Fabrics, apparel, textile Leather goods; coffee, tea, cigars; pharmaceuticals; electrical machinery Inorganic and organic chemicals, man-made staple fibres, iron and steel bar and rods Meat, fish, dairy products, vegetables, fruit, fish, tea Diamonds, jewellery Carpets and floor coverings Export Markets European Union, United States Not specified European Union

Anti-dumping

European Union

SPS Restricted Imports Child Labour

United States, Japan Japan European Union

Source: UN Economic and Social Commission for Asia and the Pacific, 2005

The Table 7.4 provides information of product wise analysis of cases against Indian exporters indicates that the highest number of anti dumping cases continue to be on engineering products, including steel products which account for 32 percent of total cases, followed by textiles (19 percent) ,Drugs and pharmaceuticals and chemicals (18 percent). In the anti-subsidy cases, engineering products, particularly
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steel products accounts for 38 percent of the total cases, followed by rubber/plastics (25 percent) and textiles/articles and drugs (13 percent each)

Table 7.4

Product-wise Break up of Anti-dumping Cases

The Table 7.5 shows the country wise break up of Anti-dumping cases. Out of 68 anti-dumping cases initiated against exports from India, EU has filed the highest number of cases (27), followed by USA (14), South Africa (11) and Indonesia (8).
Table 7.5

Country-wise Break up of Anti-dumping Cases

Country Australia EU USA China South Africa Indonesia Canada Total cases Anti-dumping 2 27 14 1 11 8 5 68

Source: Annual Report, 2003-04

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Chapter 8 CONCLUSION

It become clearly evident from the study that even though NTBs are used as protectionist measures in the domestic country still they are posing lot of problems to foreign trade. One country protectionist measure may act as a barrier to other countrys trade. Instead of going for NTBs it becomes necessary for the country to get in to Free Trade Agreements (FTA) among the countries and solve the problem of unnecessary restrictions among themselves. It becomes important for the country to work on the lines of WTO which encourages Most Favored Nations among the member countries. Apart from these it is important for the countries in different global regions to form unified regional trade blocs, have mutual trade agreements among themselves and solve the problems of trade barriers. This proved our first hypothesis positively. There are lot of regional blocs like SAARC, ASEAN, EU, NAFTA etc., which can be used as a better forum for solving the trade related issues among the member nations. Even WTO can think of brining modifications and changes in to trade barriers by studying the pros and cons of trade in developed and developing countries. It becomes important to mention here the role of OECD towards identification of NTBs in different countries and trying to give some solutions to the countries which are facing the evils of NTBs. OECD from time to time is conducting lot of surveys and various working papers have been presented in different forums wherein it has helped in identifying the barriers which has impacted
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the trade and also it has suggested the correcting measures in the line of WTO in order to overcome those barriers among the countries. Fresh study by Ministry of Commerce , Government of India on non-tariff barriers has suggested that export promotion policies should look into the NTBs which can be avoided by suitable WTO compatible measures such as facilities to tackle SPS (sanitary and phyto-sanitary) and TBT (technical barrier to trade) measures. The best way to deal with NTBs/TBTs was to evolve a multilateral agreement on internationally acceptable sanitary and phytosanitary standards and technical standards. India was working within the WTO with this objective. It is only in some odd cases wherein India is forced to take retaliatory measures of NTBs. The present study recommended listing of NTBs against India on regular basis and also called on for research work where quantitative assessment of impact of tariffs, NTBs , Regional Trade Agreements, to be done on systematic manner. Hereby, our second hypothesis that Indias foreign trade is influenced by NTBs is also proved. At this stage it can be concluded that following are some of the important recommendations which needs to be thought about on the priority basis in order to address the problem of NTBs a multilateral trade forum that includes moving NTMs on top of the WTO agenda, plugging loopholes in the multilateral rules to make the system less restrictive as well as improving the empirical database.

putting in place bilateral and/or regional FTAs.

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Internal measures need to be taken to deal with issues such as import restrictions, the lack of coordination between the different departments and the lack of adequate processing facility and the basic infrastructure like storage and transportation. Some of the other methods which can help in restricting NTBs are: plugging

loopholes in multilateral rules and making system less restrictive, improve empirical database, encouraging bilateral/regional FTA, voicing concern over NTBs at international forums and giving at most importance to study and identify NTBs in various sectors. The picture that emerges from the above study on analysis of NTBs which is affecting Indias foreign trade is not optimistic one. The Indian business is haunted by a variety of restrictions in the form of compliance cost that the exporting to these markets (mainly US and EU countries) have become nightmare. So, it is very important at this stage to think of methods like multilateral trade forum, bilateral/regional trade agreements and internal streamlining which can help in improving the trade relationship by eliminating or restricting NTBs.

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