Trade Barriers , Dumping Anti Dumping

International Trade Trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. International trade is a major source of economic revenue for any nation that is considered a world power. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade does not change fundamentally depending on whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or a different culture. International trade uses a variety of currencies, the most important of which are held as foreign reserves by governments and central banks. Internationally, is the most sought-after currency, with the Euro in strong demand as well. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other

factors of production. Then trade in good and services can serve as a substitute for trade in factors of production. Instead of importing the factor of production a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labour-intensive goods by the United States from China. Instead of importing Chinese labour the United States is importing goods from China that were produced with Chinese labour. International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.

Trade Barriers A trade barrier is a general term that describes any government policy or regulation that restricts international trade. The barriers can take many forms, including the following terms that include many restrictions in international trade within multiple countries that import and export any items of trade. •

Import duty

•

Import licenses

•

Export licenses

•

Import quotas

•

Tariffs

•

Subsidies

•

Non-tariff barriers to trade

•

Voluntary Export Restraints

•

Local Content Requirements

•

Embargo

Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. Trade barriers are any of a number of government-placed restrictions on trade between nations. The most common sorts of trade barriers are things like subsidies, tariffs, quotas, duties, and embargoes. The term free trade refers to the theoretical removal of all trade barriers, allowing for completely free and unfettered trade. In practice, however, no nation fully embraces free trade, as all nations utilize some assortment of trade barriers for their own benefit.

Advantages of Trade Barriers 1. Trade barriers increase the competitiveness of domestic producers both domestically and on foreign markets.

2. They raise money for the government in terms of revenue which can be used for government spending.

3. They improve the balance of payments position by decreasing imports as they become more expensive and less attractive to purchase.

Disadvantages of Trade Barriers 1. Trade barriers could result in retaliation from other foreign economies which could mean import control on goods that are imported from foreign countries, leading to higher prices and potentially inflationary (negative world multiplier effect)

2. A tariff will only work if the price elasticity of demand for the good is elastic. If inelastic, then the demand is unresponsive to changes in price and therefore an import control resulting in a higher price of the good will have little impact on the demand for it.

3. Trade barriers don’t actually deal with the main cause of the problem. Instead governments looking to impose trade barriers. Most likely to improve B.O.P positions or increase domestic producers competitiveness, government should look to implement supply side policies and increase the efficiency of production. Leading to a fall in costs of production and these lower costs can be passed on to consumers through lower prices and therefore increasing competitiveness. (reducing demand for imports and increasing demand for exports)

Trade Barriers have its own advantages and disadvantages, so below we jot down a few points on both the questions, why trade should be liberalized and why trade barriers should be maintained.

Why trade should be liberalized? Economic theory and practical experience demonstrate that open markets and trade liberalization—dismantling tariff and nontariff barriers to trade—provide a proven path to wealth creation and development. Countries that are open to trade tend to have more wealth, healthier populations, higher rates of education and literacy, stronger labor rights and environmental standards, and greater investment opportunities. Trade barriers, in contrast, may shield narrow special interests from competition, but ultimately they leave a nation as a whole worse off in terms of wealth foregone, slower growth, and, hence, fewer resources to address pressing societal needs. The intellectual underpinnings of free trade are well known to economists. Simply put, nations benefit by specializing in the production of goods and services that they can produce most efficiently, and exchanging these for the goods and services that other countries produce at higher quality and lower cost. In this arrangement, countries benefit from more efficient production, increased consumer choice, and better goods and services at lower prices. Dismantling government barriers to trade allows individuals access to the world's supermarket for food, clothing, and other manufactured goods, and for services that form the infrastructure of the modern economy, ranging from finance to telecommunications and transportation to education. Competition also motivates businesses to innovate, to find new production processes and technologies to better serve customers, and to advance knowledge. For example, the development of advanced computer technologies

and life-saving medicines in recent years has flourished under conditions of open markets and export opportunities for industry growth, coupled with enforcement of strong copyright and patent laws.

Why trade barriers must be maintained? If every place (country, state, town, region, whatever) produces and exports whatever they produce best and imports whatever somebody else can produce cheaper, and nobody puts up trade barriers. The idea seems great on it’s face– everyone is creating as much value as they possibly can, and nothing costs more than however much the most efficient producer charges. But there are some major flaws in this philosophy. The problem is that some people aren’t going to be able to produce anything (or at least not enough products) enough more efficiently than everyone else to enable them to export. Even if they do manage to be marginally more cost effective than everyone else in production, the costs involved in exporting the product eat up the difference and make profitable export impossible. Is it in the best interests of such people to buy imported goods only, since they’ll be cheaper than the same things produced locally? If they have enough in the bank to last them for the rest of their lives and the lives of all the coming generations that they care to prepare for, sure. But of course, only in a fantasy world would that be the case. If they import everything and produce nothing, obviously they’re going to run out of money really soon. Then they won’t be able to import anything, and they’ll have to start producing for themselves–only they won’t have any capital to start with, so it’ll take a very long time to ramp

up production. Clearly, in some cases, buying locally is a better mid to long term strategy than importing. So how do you convince people to buy locally when an importer is offering them the same goods for less? Unless the people have the big picture clearly in mind and are willing to sacrifice for the good of the community, it won’t happen. Consider WalMart in the U.S. People shop at WalMart because for many, many things that they buy, they have the best prices. They don’t put a lot of thought into whether WalMart is driving local businesses under. They’ve heard that communities that WalMart moves into usually end up with higher unemployment a few years down the road, but they don’t feel the pain, so their buying behavior doesn’t change. In many cases, the only way to ensure that local economies survive is to create artificial advantages for local businesses–import tariffs, subsidies, etc.

TYPES OF TRADE BARRIERS Despite all the obvious benefits of international trade, governments have a tendency to put up trade barriers to protect the domestic industry.

There are two kinds of barriers: tariff and non-tariff.



Tariff Barriers

Tariff is a tax levied on goods traded internationally. When imposed on goods being brought into the country, it is referred to as an import duty. Import duty is levied to increase the effective cost of imported goods to increase the demand for domestically produced goods. Another type of tariff, less frequently imposed, is the export duty, which is levied on goods being taken out of the country, to discourage their export. This may be done if the country is facing a shortage of that particular commodity or if the government wants to promote the export of that good in some other form, for example, a processed form rather than in raw material form. It may also be done to discourage exporting of natural resources. When imposed on goods passing through the country, the tariff is called transit duty.

 Classification of Tariffs:

A) On the basis of origin and destination of the goods crossing national boundaries •

Export duty: An export duty is the tax levied by the country of origin on a commodity designated for use in other countries .The majority of the finished goods do not attract export duties .Such duties are normally imposed on primary products in order to conserve them for domestic industries. In India export duties are levied on oilseeds, coffee and onions.

•

Import duty: An import duty is a tax imposed on commodity originating in another country by the country for which the product is designated. The purpose of heavy import duties is to earn revenues, to make imports costly and to provide protection to domestic industries. Countries impose heavy import duties to restrict imports and thereby remove the deficits in the balance of trade and balance of payment.

•

Transit Duty: A transit duty is a tax imposed on a commodity when it crosses the national border between the originating country and the country which it is consigned. African and Latin American nations impose such transit duties at any point in time. Sri Lanka is another country enjoying such benefits from Indian companies.

B) On the basis of the quantification of tariffs

•

Specific Duty: Is a tax of so much local currency per unit of the goods imported (based on weight, number, length, volume or other unit of

measurement). Specific duties are often levied on foodstuffs and raw materials.

A specific duty is a flat sum collected on a physical unit of the imported commodity. Here, the rate of the duty is fixed and is collected on each imported unit. For example, Rs 800 on each TV set or washing machine or Rs.3000 per metric ton of cold rolled steel coils.

•

Ad-Valorem duty: This kind is most commonly used; it is calculated as a percentage of the value of the imported goods - for example, 10, 25 or 35 per cent. This duty is imposed at a fixed percentage on the value of an imported commodity. Here the value of the commodity on the invoice is taken as the base for the calculation of the duties. 3% ad- valorem duty on the C&F value of the goods imported. In the ad-valorem duty, the percentage of the duty is decided, but the actual amount of the duty changes as per the FOB value of a product.

•

Compound duty: The "specific" part of the compound duty (called compensatory duty) is levied as protection for the local raw material industry. A tariff is referred to as a compound duty when the commodity is subject to both specific and ad-valorem duties. It is imposed on manufactured goods that contain raw materials that are themselves subject to import duty.

C) On the basis of the purpose that they serve

•

Revenue Tariff: A revenue tariff aims at collecting substantial revenues for the government. A revenue tariff increases government funds, but does not really obstruct the flow of imported goods. Here, the duty is imposed on items of mass consumption, but the rate of the duty is low. For example a tariff on coffee imports imposed by countries where coffee cannot be grown, raises a steady flow of revenue.

•

Protective Tariff: It is aimed at protecting home industries by restricting or eliminating competition. A protective tariff is used to raise the price of imported goods as a protective measure against the competition from foreign markets. A higher tariff allows a local company to compete with foreign competition. Protective tariffs are usually high so as to reduce imports. Protective tariffs can be advantageous as they can help foster the local economy, but sometimes they can also make the price of the item so expensive that companies must charge more. For example, when gas prices become too high, industries such as the trucking industry may have to charge retailers more for delivering products. The retail industry then has to mark up their items to allow for their increased transportation costs in order to make the same profit they once did. The end result is that consumers pay more for the goods.

•

Anti dumping duty: Dumping is the commercial practice of selling goods in foreign markets at a price below their normal cost or even below their marginal cost so as to capture foreign markets. Many countries follow dumping practices. It is harmful to less developed countries where the cost of production is high. Since these practices are naturally considered to be unfair competition by manufacturers in the country in which the goods are being dumped, the government of the foreign

country will be asked to impose "anti-dumping" duties. Anti-dumping are special duties additional to the normal ones, designed to match the difference between the price in the home country and the price abroad.

•

Countervailing duty: Such duties are similar to anti dumping but are not so severe. These duties are imposed to nullify the benefits offered through cash assistance or subsidies by the foreign country to its manufacturers. The purpose of the duty is to offset, or "countervail” the county or subsidy so that the goods cannot be sold at an artificially low price in the foreign country and thereby provide unfair competition for local manufacturers. The rate of such duties will be proportional to the extent of the cash assistance or granted subsidies.

D) On the basis of trade relations •

Single column tariff: Under this system tariff rates are fixed for various commodities and the same rates are made applicable to imports from all other countries.

•

Double column tariff: Under this system two rates of duty are fixed for various commodities on some or all commodities. The lower rate is made applicable to a friendly country or to a country with which the importing country has made tariff negotiations. The higher rate is the normal rate of duty. It is applicable to all other countries. This lower level of tariff may also apply to products from third countries, which may be entitled by treaty to most-favoured-nation treatment - that is, not having their products subject to higher import duties than those of any other country. This system is used by, for example, the United States

and Japan. With the U.S. tariff system, column-two rates apply to products from most Socialist countries, and column-one rates (negotiated rates) to all other countries.

•

Triple column tariff: Under this system three different rates of duties are fixed; general, international and preferential tariffs. The first two categories have a minimum variance but the preferential is substantially lower than the general tariff and is applicable to countries with which there is a bilateral relationship. This preferential system is used by, for example, the members of the British Commonwealth.

 Non-tariff Barriers Non-tariff barriers (NTBs) include all the rules, regulations and bureaucratic delays that help in keeping foreign goods out of the domestic markets.

1.

The

following

are

the

different

types

of

NTBs:

Quotas A quota is a limit on the number of units that can be imported or the market share that can be held by foreign producers. For example, the US has imposed a quota on textiles imported from India and other countries. Deliberate slow processing of import permits under a quota system acts as a further barrier to trade.

2.

Embargo When imports from a particular country are totally banned, it is called an embargo. It is mostly put in place due to political reasons. For example, the United Nations imposed an embargo on trade with Iraq as a part of

economic sanctions in 1990. 3.

Voluntary Export Restraint (VER) A country facing a persistent, huge trade deficit against another country may pressurize it to adhere to a self-imposed limit on the exports. This act of limiting exports is referred to as voluntary export restraint. After facing consistent trade deficits over a number of years with Japan, the US persuaded it to impose such limits on itself.

4.

Subsidies to Local Goods Governments may directly or indirectly subsidize local production in an effort to make it more competitive in the domestic and foreign markets. For example, tax benefits may be extended to a firm producing in a certain part of the country to reduce regional imbalances, or duty drawbacks may be allowed for exported goods, or, as an extreme case, local firms may be given direct subsidies to enable them to sell their goods at a lower price than foreign firms.

5.

Local Content Requirement A foreign company may find it more cost effective or otherwise attractive to assemble its goods in the market in which it expects to sell its product, rather than exporting the assembled product itself. In such a case, the company may be forced to produce a minimum percentage of the value added locally. This benefits the importing country in two ways it reduces its imports and increases the employment opportunities in the local market.

6.

Technical Barriers Countries generally specify some quality standards to be met by imported goods for various health, welfare and safety reasons. This facility can be

misused for blocking the import of certain goods from specific countries by setting up of such standards, which deliberately exclude these products. The process is further complicated by the requirement that testing and certification of the products regarding their meeting the set standards be done only in the importing country. These testing procedures being expensive, time consuming and cumbersome to the exporters, act as a trade barrier. Under the new system of international trade, trading partners are required to consult each other before fixing such standards. It also requires that the domestic and imported goods be treated equally as far as testing and certification procedures are concerned and that there should be no disparity between the quality standards required to be fulfilled by these two. The importing country is now expected to accept testing done in the exporting country. 7.

Procurement Policies Governments quite often follow the policy of procuring their requirements (including that of government-owned companies) only from local producers, or at least extend some price advantage to them. This closes a big prospective market to the foreign producers.

8.

International Price Fixing Some commodities are produced by a limited number of producers scattered around the world. In such cases, these producers may come together to form a cartel and limit the production or price of the commodity so as to protect their profits. OPEC (Organization of Petroleum Exporting Countries) is an example of such cartel formation. This artificial limitation on the production and price of the commodity

makes international trade less efficient than it could have been. 9.

Exchange Controls Controlling the amount of foreign exchange available to residents for purchasing foreign goods domestically or while travelling abroad is another way of restricting imports.

Direct and Indirect Restrictions on Foreign Investments A country may directly restrict foreign investment to some specific sectors or up to a certain percentage of equity. Indirect restrictions may come in the form of limits on profits that can be repatriated or prohibition of payment of royalty to a foreign parent company. These restrictions discourage foreign producers from setting up domestic operations. Foreign companies are generally interested in setting up local operations when they foresee increased sales or reduced costs as a consequence. Thus, restrictions against foreign investments add impediments to international trade by giving rise to inefficiencies.

Customs Valuation There is a widely held view that the invoice values of goods traded internationally do not reflect their real cost. This gave rise to a very subjective system of valuation of imports and exports for levy of duty. If the value attributed to a particular product would turn out to be substantially higher than its real cost, it could result in affecting its competitiveness by increasing the total cost to the importer due to the excess duty. This would again act as a barrier to international trade. This problem has now been considerably reduced due to an agreement between various countries regarding the valuation of goods involved in a cross-border trade.

DUMPING AND ANTI – DUMPING If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. Is this unfair competition? Opinions differ, but many governments take action against dumping in order to defend their domestic industries. The WTO agreement does not pass judgement. Its focus is on how governments can or cannot react to dumping — it disciplines anti-dumping actions, and it is often called the “AntiDumping Agreement”. (This focus only on the reaction to dumping contrasts with the approach of the Subsidies and Countervailing Measures Agreement.) The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and show that the dumping is causing injury or threatening to do so. GATT (Article 6) allows countries to take action against dumping. The AntiDumping Agreement clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of binding a tariff and not discriminating between trading partners — typically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its

price closer to the “normal value” or to remove the injury to domestic industry in the importing country. There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options. It provides three methods to calculate a product’s “normal value”. The main one is based on the price in the exporter’s domestic market. When this cannot be used, two alternatives are available — the price charged by the exporter in another country, or a calculation based on the combination of the exporter’s production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Antidumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury. Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small

(defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product — although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports). The agreement says member countries must inform the Committee on AntiDumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTO’s dispute settlement procedure.

Subsidies and countervailing measures This agreement does two things: it disciplines the use of subsidies, and it regulates the actions countries can take to counter the effects of subsidies. It says a country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (known as “countervailing duty”) on subsidized imports that are found to be hurting domestic producers. The agreement defines two categories of subsidies: prohibited and actionable. It originally contained a third category: non-actionable subsidies. This category existed for five years, ending on 31 December 1999, and was not extended. The agreement applies to agricultural goods as well as industrial products, except when the subsidies are exempt under the Agriculture Agreement’s “peace clause”, due to expire at the end of 2003.

1.

Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade. They can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take counter measures. If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

2. Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted. The agreement defines three types of damage they can cause. One country’s subsidies can hurt a domestic industry in an importing country. They can hurt rival exporters from another country when the two compete in third markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market. If the Dispute Settlement Body rules that the subsidy does have an adverse effect, the subsidy must be withdrawn or its adverse effect must be removed. Again, if domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed. Some of the disciplines are similar to those of the Anti-Dumping Agreement. Countervailing duty (the parallel of anti-dumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for anti-dumping action. There are detailed rules for deciding whether a product is being subsidized (not always an easy calculation), criteria for determining whether imports of subsidized products are hurting (“causing injury to”) domestic industry, procedures for initiating and conducting investigations,

and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty. Subsidies may play an important role in developing countries and in the transformation of centrally-planned economies to market economies. Leastdeveloped countries and developing countries with less than $1,000 per capita GNP are exempted from disciplines on prohibited export subsidies. Other developing countries are given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate import-substitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003 — for other developing countries the deadline was 2000. Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies had to be phased out by 2002.

TRADE BARRIERS & IMPORT POLICIES We say that this is the Era of globalization and liberalization, as after post 1991 but if you carefully observe the policies of India you will find that India still plays a very protective role for domestic companies in various sectors. Many Exporters from U.S. and other countries continue to encounter tariff and nontariff barriers that impede imports of goods in the Indian Territory, despite the government of India’s ongoing economic reform efforts. Many member nations keep on complaining about the Trade barriers imposed for their products by India to WTO. WTO has also closely observed the Policies of India and are discussing and working on it as far as Barriers are concerned in order to improve the coordination between India and different countries. While many exporting countries registered sizable growth in 2007-2008, further reduction of the bilateral trade deficit will depend on significant additional Indian liberalization of its trade regime. Let’s have a look at the Current Trade barriers and policies of India in respect of different Sectors and Industries.

Tariffs and other Charges on Imports India’s import regime is characterized by pronounced disparities in bound versus applied rates. According to the WTO, India’s average bound rate tariff is

48.6 percent, while its applied tariff for FY2007 (latest data available) was 14.5 percent across all goods. However, the government of India’s (GOI) 2008-2009 budget maintained the applied duty at 10 percent. In December 2008, the GOI further reduced excise duties on most products to 10 percent from 14 percent. In February 2009 as part of an economic stimulus package, the GOI again cut the excise duty on most products to 8 percent. In November 2008, India increased tariffs on certain steel products to 5 percent. Also, India’s WTO bound tariffs on agricultural products are among the highest in the world, ranging from 100 percent to 300 percent, with an average bound tariff of 114.2 percent in 2007. While many Indian applied tariff rates are lower, they still represent a significant barrier to trade in agricultural goods and processed foods (e.g., potatoes, apples, grapes, pistachios, and citrus). Further, given the fact that there are large disparities between bound and applied rates, U.S. exporters face greater uncertainty because India has the ability to raise its applied rates to bound levels in an effort to manage prices and supply. For example, in April 2008, the GOI, in an effort to curb inflation, reduced applied duties on crude edible oils and corn to zero, refined oils to 7.5 percent, and butter to 30 percent from 40 percent. However, in November 2008, the GOI raised crude soy oil duties back to 20 percent. Imports also are subject to state-level value added or sales taxes and the Central Sales Tax as well as various local taxes and charges. In March 2006, the government established a 4 percent ad valorem"extra additional duty". The extra additional duty is calculated on top of the basic customs duty (i.e., a tariff) and additional duty.

Import Licensing

India maintains a negative import list of products subject to various forms of nontariff regulation. The negative list is currently divided into three categories: banned or prohibited items (e.g., tallow, fat, and oils of animal origin); restricted items that require an import license (e.g., livestock products, certain chemicals);

and

"canalized"

items

(e.g.,

petroleum

products,

some

pharmaceuticals, and bulk grains) importable only by government trading monopolies subject to cabinet approval regarding timing and quantity. The government allows imports of second-hand capital goods by the end users without requiring an import license, provided the goods have a residual life of five years. Refurbished computer spare parts can only be imported if an Indian chartered engineer certifies that the equipment retains at least 80 percent of its residual life, while refurbished computer parts from domestic sources are not subject to this requirement.

Customs Procedures Issues have emerged regarding the application of customs valuation criteria to import transactions. Valuation procedures allow India’s customs officials to reject the declared transaction value of an import when a sale is deemed to involve a reduction from the ordinary competitive price. Exporters have reported that India’s customs valuation methodologies do not reflect actual transaction values and effectively increase tariff rates. U.S. industry reports that, since September 2007, India has improperly included certain royalties in the customs valuation of imported digital video disc (DVD) analog master tapes and digital linear tapes. The United States is working through the WTO Committee on Customs Valuation and the Trade Policy Forum to address this issue. India’s customs officials generally require extensive documentation, which inhibits the free flow of trade and leads to frequent processing delays. In large

part this red tape is a consequence of India’s complex tariff structure and multiple exemptions, which may vary according to product, user, or intended use. There is a positive sign that India has worked to reduce the time lap of import transaction to 20 and reduction in number of documents. Issues have also arisen regarding customs policies with respect to imports of edible oils, such as crude soybean oil. The customs policies, including the customs valuation system, are Non transparent and unpredictable. Motor vehicles may be imported through only three specific ports and only from the country of manufacture.

STANDARDS, TESTING, LABELING, AND CERTIFICATION In early 2009, the GOI revised its mandatory certification compliance list, which now includes 85 specific commodities. The revised list includes such products as milk powder, infant formula, bottled drinking water, certain types of cement, household and similar electrical appliances, gas cylinders, certain steel products and multi-purpose dry cell batteries. Products on the mandatory certification list must be certified for safety by the Bureau of Indian Standards (BIS) before the products are allowed to enter the country. All manufacturers, foreign and domestic, must register with the BIS in order to comply with this requirement.

Agricultural Biotechnology The GOI’s trade policy stipulates that imports of all biotechnology food/agricultural

products

or

products

derived

from

biotechnology

plants/organisms should receive prior approval from the regulatory body, the Genetic Engineering Approval Committee (GEAC).

India’s biotechnology regulatory system is onerous and time consuming, but is evolving towards harmonization with international standards. Despite recent efforts by regulatory bodies to streamline the process, the biotechnology community feels there is a need for further reforms to facilitate faster growth in the sector.

GOVERNMENT PROCUREMENT In India, different procurement practices apply at the Central level and at the state level, and to the public sector agencies and enterprises. At the Central (federal) level, procurement is regulated through executive directives and administered by the government agencies. The General Financial Rules (GFR), issued by the Ministry of Finance, lay down the general rules and procedures for financial management, the procurement of goods and services, and contract management. India’s government procurement practices and procedures are not transparent. Foreign firms rarely win Indian government contracts due to the preference afforded to Indian state-owned enterprises in the award of government contracts and the prevalence of such enterprises.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION Large-scale copyright piracy, especially in the software, optical media, and publishing industries, continues to be a major problem. The United States retained India on the "Priority Watch List" as part of the 2008 Special 301 review.

Patents India amended its patent law effective January 1, 2005. The amended patent law extends product patent protection to pharmaceuticals and agricultural chemicals.

Copyrights The GOI has proposed amendments that are intended to update the copyright laws to address issues related to the Internet and digital works. WTO continues to encourage India to address these issues and fully implement the treaties.

SERVICES BARRIERS Indian government entities have a strong ownership presence in some major services industries such as banking and insurance, while private firms play a preponderant or exclusive role in a number of rapidly growing parts of the services sector, including the information technology sector, advertising, car rental, and a wide range of business consulting services. While India has submitted initial and revised offers for improved services commitments in the WTO Doha Round, these offers do not remove existing limitations or promise new

liberalization

in

key

sectors

as

distribution,

express

delivery,

telecommunications, financial services, and the professions.

Insurance Foreign participation in the Indian insurance sector has been allowed since 1999, but foreign equity is limited to 26 percent of paid-up capital. The GOI introduced legislation in late 2008 that would allow foreign equity participation to 49 percent, but the legislation was not passed before Parliament adjourned prior to elections due in the first half of 2009.

Banking

Although India has opened up to privately-held banks, most Indian banks are government-owned, and

entry of foreign banks remains highly constrained.

State-owned banks hold roughly 70 percent of the assets of the banking system, although private banks are growing rapidly. Foreign banks may operate in India in one of three forms: a direct branch, a wholly-owned subsidiary, or through a stake in a private Indian bank. Under India’s branch authorization policy, foreign banks are required to submit their internal branch expansion plans on an annual basis, but their ability to expand is severely limited by non transparent quotas on branch office expansion. In 2007, India granted 19 new foreign branch office licenses.

Accounting Only graduates of an Indian university can qualify as professional accountants in India. Foreign accounting firms can practice in India if their home country provides reciprocity to Indian firms. Only firms established as a partnership may provide financial auditing services, and foreign-licensed accountants may not be equity partners in an Indian accounting firm. The GOI is working on opening up the sector to foreign chartered accountants and professional consultants through the Limited Liability Partnership Bill, which still awaits approval in the Parliament.

Construction, Architecture, and Engineering Many construction projects are offered only on a nonconvertible rupee payment basis. Only government projects financed by international development agencies allow payment in foreign currency. Foreign construction firms are not awarded government contracts unless local firms are unable to perform the

work. Generally, foreign firms may participate in government contracts through joint ventures with Indian firms.

Legal Services Foreign law firms are not authorized to open offices in India. Foreign legal service providers may be engaged as employees or consultants in local law firms, but they cannot sign legal documents, represent clients, or be appointed as partners.

Telecommunications However, other U.S. companies complain that India’s licensing fee for these services (approximately $500,000 per service) serves as a barrier to market entry for smaller market players. The GOI maintain limits on foreign direct and foreign indirect investment (FDI and FII) in several areas; namely, cable networks (49 percent), satellite uplinking (49 percent), "direct-to-home" (DTH) broadcasting (49 percent with FDI limited to 20 percent), and the uplinking of news and current affairs television channels (26 percent). The GOI continues to hold equity in three telecommunications firms: a 26 percent interest in the international carrier, VSNL; a 56 percent stake in MTNL, which primarily serves Delhi and Mumbai; and the 100 percent ownership of BSNL, which provides domestic services throughout the rest of India. These ownership stakes have caused private competitive carriers to express concern about the fairness of the GOI’s general telecommunications policies. By way of example, valuable 3G wireless spectrum will be set aside for MTNL and BSNL and not subject to competitive bidding.

Distribution Services

The retail sector in India is largely closed to foreign investment. In January 2006, the government began allowing FDI in single-brand retail stores, subject to a foreign equity cap of 51 percent and government approval and 100 percent in cash and carry (wholesale). FDI in multi-brand retail outlets is not permitted.