International TradeTrade 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 BarriersA 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. The following are the different types of NTBs:

1. 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 “Anti-

Dumping 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 Anti-

Dumping 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. Anti-

dumping 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 Anti-

Dumping 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. Least-

developed 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.