Tariff and non-tariff barriers

From 1947 to 1991, India's import and export policies were such that a vast majority of goods could be imported only under license from the Central government's Controller of Imports & Exports (CCI&E). In 1991, India initiated economic reforms to tide over the budget deficit, balance of payments problems and structural imbalances in several industry sectors of the economy. In successive years, India has made the trade regime increasingly more transparent. However, India's tariffs are still high by international standards, and many quantitative restrictions on imports still exist. These high tariffs and import restrictions have constrained U.S. firms from selling in this market and U.S. investors from importing competitive inputs in several industries.

India's policy relating to the general provisions regarding exports and imports is guided by the Export Import (EXIM) Policy of 2002-2007. Imports are now permitted in most of the cases without a license. Exceptions to this arise where items are prohibited or restricted (import permitted under license) or where imports are allowed only through a state-owned enterprise. A new 8-digit commodity classification based on ITC- Harmonized System of coding for imports was adopted in April 2002. The common classification to be used by DGFT and Customs will eliminate the classification disputes and hence reduce transaction costs and time.

Since April 2001, India removed quantitative restrictions (QR) on a final batch of 715 items, completing the process of phased trade policy liberalization that was started in 1991. Out of these 715 items 342 are textile products, 147 are agricultural products including alcoholic beverages and 226 are other manufactured products including automobiles.

While India has removed some tariff barriers, it has introduced other curbs such as adjustment of tariffs and anti dumping duties. Approximately 300 items comprise a 'sensitive' list of imports that the Government monitors. A 'war room' group has been created to closely monitor the import trends for these items.

India has appealed to the Appellate Body of the World Trade Organization against the recommendations of a WTO panel report on its quantitative restrictions on import of agricultural, textile and industrial products. India has challenged the panel's authority to determine whether the balance of payments can be used to justify imposition of import restrictions and the overall compatibility of regional trade agreements with WTO norms. The removal of QR's and the prospect of further reduction in tariffs to the Asian levels within a span of two years are likely to lead to a high degree of import competition.

Tariff rates

Classification: The Indian customs classification on tariff items follows the Harmonized Commodity Description and Coding System (Harmonized System or HS). India has fully adopted HS through the Customs Tariff Amendment Act, 1985. There has been some modification of HS as appropriate to the Indian environment concerning excise taxes. It is pertinent to note that the excise authorities also use the HS codes for classifying the goods for levying the excise duty (manufacturing taxes) on the goods produced in India.

Customs duties: The Customs Act was formulated in 1962 to control the imports through preventing illegal imports and exports of goods. The Customs Tariff Act specifies the tariffs rates and provides for the imposition of anti-dumping and countervailing duties. With some exceptions, most tariffs are ad valorem. Tariff rates, excise duties, regulatory duties, and countervailing duties are revised in each annual budget.

From February 1, 2003 Indian Customs uses the 8-digit customs classification code based on Harmonized System of Nomenclature (HSN). Currently, Indian Customs, the Directorate-General of Commercial Intelligence and Statistics, and the Directorate General of Foreign Trade use different nomenclatures and codes for classification of imports and exports. While Customs use six-digit codes, DGCI&S uses eight-digit codes for statistical purposes. The DGFT has broadly extended the eight-digit DGCI&S codes up to 10 digits. The new harmonized codes, finalized by an inter-Ministerial Task Force, will be common for customs, excise, trade and the DGFT.

Indian tariffs have been progressively brought down since early 90's and now the peak tariff rate announced in this budget (2003-04) was reduced to a ceiling (with a few exceptions) of 25 percent in the last fiscal budget. The budget announcement committed to a phased reduction in duty rates in accordance with WTO guidelines. A special additional duty will continue to be charged at 4 percent on all products, except on duty free imports. Import duties are quite product specific and may be altered by notifications that are issued through out the year. American companies are advised to verify the relevant rates for their products.

In order to give a broad guide as to classification of goods for the purpose of duty liability, the central Board of Excises Customs (CBEC) bring out periodically a book called the "Indian Customs Tariff Guide" which contains various tariff rulings issued by the CBEC. The Act also contains detailed provisions for warehousing of the imported goods and manufacture of goods is also possible in the warehouses. The official website of the government of India where the rates of duties are published is: www.cbec.gov.in or http://commerce.nic.in/. Other websites where this information can be obtained include: http://exim.Indiamart.com/customs-duty/ and http://exim.Indiamart.com/index.html

Duty Exemption Scheme: The Duty Exemption Scheme enables duty free import of inputs required for export production. An Advance License is issued under Duty Exemption Scheme. The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product. Duty Remission scheme consist of (a) DFRC and (b) DEPB. DFRC permits duty free replenishment used in the export product. The DEPB scheme allows drawback of import charges on inputs used in the export product. The government has wide discretionary power to declare full or partial duty exemptions "in the public interest" and to specify conditions such as end-use provisions. Almost half of India's total inputs enter under concessional tariffs, though the use of exemptions is falling in tandem with the tariff-reduction program.

While reduced tariffs have assisted several U.S. export industries, further reductions in basic tariff rates would benefit a wide range of U.S. exports. Industries that might benefit from reduced tariff rates and removal of Quantitative Restrictions (QR's) include the following: consumer products, processed food, footwear, toys and telecommunications products. Fertilizers, mining equipment, wood products, jewelry, camera components, paper and paperboard, ferrous waste and scrap, computers, office machines and spares, textile machinery and spare parts, hand tools, soft drinks, cling peaches, vegetable juice and canned soup would also benefit.

Taxes

India's 28 states may tax goods "imported" from other states. In principle, the power to tax inter-state commerce fragments the economy, especially trade in agricultural goods. The Government has sought to simplify the tax structure by introducing a nation-wide Value Added Tax. Disparate internal levies on commerce have long made India's tax system opaque, and have been cited as a factor impeding economic growth. The Government had set April 1, 2003 as the launch date, but it has been postponed indefinitely because not all of India's 28 states made the necessary preparations for the transition. The episode marked the third consecutive year that the Government has been required to postpone the planned launch date because of a lack of consensus on modalities with the state governments.