Trade policy review report by the secretariat



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Trade Policy Formulation and Objectives

  1. Trade policy formulation


          1. Trade policy is formulated and implemented by the Department of Commerce in the Ministry of Commerce and Industry, with the assistance of other Ministries and agencies, including the Ministry of Finance, the Reserve Bank of India and other sectoral Ministries such as Agriculture, Consumer Affairs, Food and Public Distribution, Textiles, Petroleum and Steel. The role of the Department of Commerce, according to its Annual Report for 2012-13 is "to facilitate creation of an enabling environment and infrastructure for accelerated growth of exports". Its mandate is regulation, development and promotion of India's international trade and commerce through formulation of appropriate trade and commercial policy and implementation of its various provisions.6 The Department formulates, implements and monitors the Foreign Trade Policy (FTP) which is issued every five years and reviewed annually, and forms the basic policy framework for the promotion of exports and trade. The Department is also responsible for multilateral and bilateral commercial relations, special economic zones, state trading, export promotion and trade facilitation, and development and regulation of certain export-oriented industries and commodities.

          2. There are a number of offices that are attached to the Department to help in the formulation and implementation of trade policy. The Directorate General of Foreign Trade (DGFT) whose role has evolved from the prohibition and control of exports and imports to "facilitator" of foreign trade, formulates and implements the Foreign Trade Policy. The DGFT also issues authorizations to exporters and monitors their corresponding export obligations. The Directorate General of Anti-Dumping and Allied Duties (DGAD) is responsible for conducting investigations, where required under the Customs Tariff Act, into the amount of anti-dumping or countervailing duty to be applied if injury to the domestic industry is determined. The Tariff Commission was established in September 1997 to look at the impact of the tariff on domestic industry and export potential; in this regard it also looks at the inverted tariff structure of the Indian tariff and suggests remedial action. According to the authorities it has conducted studies on around 30 products during the last two years and suggested that there was an inverted duty structure in some of these cases.

          3. There are also a number of subordinate offices such as the Directorate General of Commercial Intelligence and Statistics (DGCIS), which collects, compiles and disseminates India's trade and commercial statistics; Office of Development Commissioner of Special Economic Zones; and autonomous bodies, notably the Coffee, Rubber, Tea, Tobacco and Spices Board which are statutory bodies responsible for the development of these crops; the Marine Products Export Development Authority, responsible for the development of the marine industry particularly exports; the Agricultural and Processed Food Products Export Development Authority (APEDA), which is responsible for export promotion of 14 agricultural and processed food products and the monitoring of the import of sugar; the Export Inspection Council (EIC) which carries out quality control of exports; the Indian Institute of Foreign Trade; and the Indian Institute of Packaging (IIP).

          4. The Department also has a number of public sector undertakings (PSUs) involved in international trade such as the State Trading Corporation of India (STC) responsible for trading agricultural products such as spices; the Minerals and Metals Trading Corporation (MMTC) which is responsible not only for trading in minerals and metals but also precious stones and fertilizers; and the Project and Equipment Corporation of India (PEC) which is responsible for trading in engineering and defence equipment and non-engineering items. Finally, 29 export promotion councils (EPCs) provide advice on export promotion and other functions outlined in the FTP.
  2. Trade policy goals


          1. Increasing India's share in global exports remains the main thrust of the Government's trade policy goals. The main goal of the FTP 2009-14 was to make India a global player in world trade by doubling its share of global trade by 2020. This was to be achieved through fiscal measures such as tax incentives, credit for export schemes, institutional changes, rationalization of procedures, diversification of export markets and increased market access, including through regional trade agreements. The FTP is announced every five years and reviewed and adjusted annually. The new FTP for 2015-2020 was released on 1 April 2015. Its goal is to make India a significant participant in international trade and to raise India's share of global exports from 2% to 3.5% by 2020. This is expected to be achieved by providing a sustainable and stable policy environment for foreign merchandise and services trade; linking rules, procedures and incentives for trade with other recent initiatives such as "make in India", "digital India" and "skills India"; promoting the diversification of India's exports by assisting key sectors to become more competitive; and creating an architecture for India's engagement with key regions of the world.7 The acceleration in exports is expected to be achieved through exemption and remission of indirect taxes on inputs for producing final export products, imports of capital goods at concessional rates of duty, and by stimulating services exports and focusing on specific products and markets.

          2. Despite this focus on increasing exports, India continues to use trade policy as a means to regulate domestic supply and to address short-term objectives such as containing inflation and fluctuations in commodity prices. Thus export taxes, minimum export price, as well as adjustments to import duties, are used on an ad hoc basis through a notification by the DGFT. During the period under review for instance, exports of onions, sugar and potato were subject to changing minimum export prices to regulate domestic supply of these products. Export prohibitions on edible oils have been extended on an annual basis since March 2008 with some exceptions introduced on 8 June 2013.8 Onions are a particularly sensitive item and export prohibitions and minimum export prices are used liberally to control exports. For instance, exports of onions were banned on 29 June 2012.9 Exports of onions were then permitted but subject to a minimum export price of US$650 per metric tonne on 14 August 201310 which was increased to US$900 per metric tonne on 19 September 201311 and US$1,150 per metric tonne on 1 November 201312, before being reduced to US$800 per metric tonne on 16 December 201313, US$350 per metric tonne on 19 December 201314 and to US$150 per metric tonne on 26 December 201315, and then removed on 4 March 2014.16 Minimum export prices of US$500 per metric tonne were then reinstated on 2 July 201417, and reduced to US$300 per metric tonne on 21 August 2014.18 Similarly minimum export prices and/or export prohibitions are used periodically for other agricultural products such as potatoes, rice, sugar and pulses. During the period 3 July 2009 and 31 March 2013 export restrictions were placed on wheat flour and exports of cotton were subject to prior registration of contracts with DGFT. In February‑March 2014 the Government decided to provide a subsidy of Rs 3,333 per metric tonne (US$55), raised to Rs 3,371 per tonne for August‑September 2014, to sugar mills to export raw sugar of up to 4 million tonnes during the 2013/14 and 2014/15 marketing years.

          3. Import policy is also largely driven by domestic supply considerations. In the case of sugar for instance, import duties were lifted temporarily in 2012 to allow an increase in imports but reinstated at 10% in July 2012. Such frequent changes to policy are disruptive and reduce predictability in India's trade policy. In a report prepared on sugar policy, headed by the Chairman of the Economic Advisory Council to the Prime Minister on 5 October 2012, it was stated that "the export-import policy of the Government does not allow firms to have a long-term relation internationally and impedes the growth of the sector. The policies are unanticipated and create uncertainty for the firms. Also the short term cyclicality, which is largely a consequence of Government intervention, adversely affects the long-term strategic development of the sector".19 The authorities note that India's autonomous measures are occasionally taken to provide a stable and predictable policy regime for agricultural trade. In February 2013, some of the major processed and/or value added agricultural products such as wheat of meslin flour (HS 1101), cereal flours (HS 1102), milk products (HS 3501), butter and other fat derivatives from milk (HS 0405) etc. were exempted from export restrictions/bans.
  • Trade Agreements and Arrangements

    1. WTO


            1. India is a founding Member of the WTO. It provides MFN treatment to all other WTO Members and other trading partners. India has also accepted the Fourth and Fifth Protocols and is a party to the Information Technology Agreement. It has been an observer to the WTO Government Procurement Agreement since 10 February 2010.

            2. India's most recent notifications (Table 2.1) include those for domestic support for agriculture, import licensing procedures, and quantitative restrictions with regard to the WTO Trade Facilitation Agreement. India has not yet submitted its Category A notification.

    Table 2.7 Notifications to the WTO, 1 January 2011–13 March 2015

    WTO Agreement

    Description

    Document symbol

    (most recent notification)

    Date

    Agreement on Agriculture

    Article 18.2 (DS:1)

    Domestic support

    G/AG/N/IND/10; G/AG/N/IND/10/Corr.1

    10/09/2014

    Article 18.2 (MA:1)

    Tariff and other quota commitments

    G/AG/N/IND/6

    07/03/2011

    Article 18.2 (MA:2)

    Tariff quotas

    G/AG/N/IND/5

    07/03/2011

    Article 18.2 (ES:1)

    Export subsidies

    G/AG/N/IND/9

    30/07/2012

    Agreement on Sanitary and Phytosanitary Measures

    Article 7 Annex B

    Notification of measure

    G/SPS/N/IND/92

    03/11/2014

    Enabling Clause

    Paragraph 2

    Notification of preferential tariff treatment for LDCs

    G/C/W/651 and WT/COMTD/N/38

    12/09/2011

    Paragraph 2c

    Notification of regional trade agreement

    WT/COMTD/N/37

    12/09/2011

    Agreement on the Implementation of Article VI of the GATT 1994 (Anti-dumping)

    Article 16.4 – ad hoc

    Semi-annual report

    G/ADP/N/259/IND

    10/09/2014

    Article XVII and Understanding on the Interpretation of Article XVII (State trading)

    Article XVII:4(a)

    Notification on State Trading Enterprises

    G/STR/N/14/IND

    30/11/2012

    Agreement on Import Licensing

    Article 7.3

    Replies to questionnaire on import licensing procedures

    G/LIC/N/3/IND/14

    03/10/2014

    Decision on Notification Procedures for Quantitative Restrictions

    G/L/59/Rev.1

    Notification of quantitative restrictions in force

    G/MA/QR/N/IND/1

    20/06/2014

    Agreement on Subsidies and Countervailing Measures

    Article 7.3

    Replies to questionnaire on import licensing procedures

    G/LIC/N/3/IND/13

    16/09/2013

    Article 25

    Semi-annual report

    G/SCM/N/274/IND

    10/09/2014

    Article 25

    Notification pursuant to Article XVI.1 of the GATT and Article 25 of the Agreement

    G/SCM/N253/IND and G/SCM/N/253/Suppl. 1

    02/05/2014

    21/11/2014



    Agreement on Safeguards

    Article 12.1(a)

    Initiation of an investigation

    G/SG/N/6/IND/40

    21/10/2014

    Article 12.1(b)

    Preliminary finding of serious injury and to impose a measure

    G/SG/N/8/IND/26/Suppl.1; G/SG/N/10/IND/17/Suppl.1; G/SG/N/11/IND/12/Suppl.1

    22/10/2014

    Article 12.1(b)

    Finding of serious injury and proposal to impose a measure

    G/SG/N/8/IND/27; G/SG/N/10/IND/18; G/SG/N/11/IND/13

    16/10/2014

    Article 12.6

    Notification of laws, regulations and administrative proceedings relating to safeguard measures

    G/SG/N/1/IND/3/Suppl.1

    25/09/2012

    Agreement on Technical Barriers to Trade

    Article 2.9

    Proposed technical regulation

    G/TBT/N/IND/46

    24/10/2013

    General Agreement on Trade in Services

    Article V

    Notification of Economic Integration Agreement

    S/C/N/599

    12/09/2011

    Source: WTO Secretariat.

                1. India also remains active in taking issues to the WTO Dispute Settlement Mechanism. During the period under review it was involved in three disputes each as complainant and as defendant (Table 2.2). In addition, it was involved in 29 disputes as a third party.

    Table 2.8 WTO dispute settlement cases involving India as complainant, respondent, 2011-13 March 2015

    Dispute

    Member

    Status (July 2014)

    WTO document series

    India as respondent

    Certain taxes and other measures on imported wines and spirits

    EU

    Consultations commenced on 22 September 2008

    WT/DS380

    Measures concerning the importation of certain agricultural products from the United States

    United States

    Panel report circulated on 14 October 2014; Appeal by India

    WT/DS430

    Certain measures relating to solar cells and solar modules

    United States

    Panel established 23 May 2014 and composed on 29 September 2014

    WT/DS456

    Source: WTO Secretariat.
        1. Regional and preferential agreements

          1. Regional trade agreements


                1. While India remains a supporter of multilateral trade liberalization, like other WTO Members it has negotiated a number of regional trade agreements. India currently has a network of 15 RTAs in force that have been notified to the WTO. These are mainly with its neighbours and other Asian countries. In addition, it has a few RTAs with countries in Latin America (Chile, MERCOSUR), and is a party to the Global System of Trade Preferences (GSTP) but these are partial in their scope and cover very few tariff lines (Table A2.1).

                2. Since the previous Review in 2011, two agreements, with Malaysia and Japan, have entered into force. In addition, the parties to the South Asian Free Trade Area (SAFTA) have now completed negotiations to add services commitments to the Agreement, although this has not yet been notified to the WTO. India is also party to an early harvest agreement in goods with Thailand but this has also not been notified to the WTO. According to the authorities the process to notify these agreements will be initiated in consultations with India's trading partners. On 9 September 2014, India signed the Trade in Services and Investment Agreement with ASEAN (the Agreement on Goods has been in force since 1 January 2010 and was notified by the parties to the WTO). The Services and Investment Agreement is expected to come into force on 15 July 2015.

                3. With regard to its RTA negotiations, India has made "early announcements" of negotiations with the European Union, EFTA, SACU and the Bay of Bengal Initiative on Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) with Bangladesh, Bhutan, Myanmar, Nepal, Sri Lanka and Thailand. Negotiations are also ongoing with Australia, Canada, GCC, Indonesia, Israel and New Zealand and being considered with Egypt and Mauritius. Finally, India is also a party to negotiations on a Regional Comprehensive Economic Partnership (RCEP) Agreement between the 10 members of the Association of South East Asian Nations (ASEAN) and six of their FTA partners (Australia, China, India, Japan, the Republic of Korea and New Zealand); negotiations which commenced in August 2012 are expected to be completed by end 2015.

                4. Out of 15 RTAs notified by India to the WTO, four include provisions on services as well as goods (with the Republic of Korea, Malaysia, Japan, and Singapore) although, as noted, the SAFTA Trade in services (SATIS) agreement is in force but not notified to the WTO while India and ASEAN have recently signed a Services and Investment Agreement. India's tariff liberalization in its RTAs tends to vary greatly depending on the negotiating partner. Among its notified RTAs that have been considered by either the Committee on Regional Trade Agreements or the Committee on Trade and Development, India's tariff liberalization commitments range from zero tariffs liberalized in the partial scope Agreement with Chile, to 23.6% in its FTA with Singapore, 75.3% with Malaysia and 86.6% with Japan. With ASEAN, India commits to liberalize 75% of its tariff lines for imports from ASEAN countries. According to the authorities partial scope agreements should not be a measure for computing the level of liberalization; liberalization should be looked at only in reference to full scope agreements.

                5. In services, India's agreements are largely based on a GATS positive list approach and they have made incremental improvements to its GATS commitments. However, as stated by India in its most recent services agreement with ASEAN "all the schedules tabled by India are well within the existing autonomous regime of India"20, suggesting that while commitments on services go beyond its GATS commitments, India's applied regime remains more liberal.

                6. There have been concerns expressed in recent years regarding the potentially negative impact of RTAs, notably on Indian industry. The Department of Commerce recently conducted an internal analysis of various FTAs, and found that the utilization of several FTAs by India's FTA partners was not significant.21 Given the low impact of FTAs on Indian industry, it is not clear what the immediate benefits of existing FTAs are and what if any implications for India's policy there may be on its current RTA negotiations. According to the authorities each negotiation is driven by the overall balance of interests with the specific trading partner(s).
          2. Preferential trade arrangements


                1. India is a recipient of preferences under the Generalized System of Preferences from Australia, Canada, the European Union, Japan, New Zealand, Norway, Switzerland, Turkey, the United States and the Customs Union between Belarus, Kazakhstan and the Russian Federation.

                2. Since 13 August 2008, India also provides duty free and quota free treatment (Duty Free Tariff Preference Scheme) to least developed countries following the WTO Hong Kong Ministerial Declaration of December 2005.22 The scheme is open to all LDCs, and as of 1 January 2015 31 LDCs had indicated their interest in the scheme and therefore received preferential treatment.23 The scheme was to reduce duties on around 85% of the tariff by 20% per year and phase them out over five years. Effective 1 April 2014, the scheme now provides duty free market access on around 96% of India's tariff lines at the HS 6 digit level with 1.8% of the tariff excluded from the scheme.24 In the 2014/15 tariff, 94.7% of the tariff was covered by the scheme with 94.1% being duty free (Section 3.1.8).
        2. Other agreements and arrangements


                1. India has signed bilateral investment treaties with 83 countries. Double tax avoidance agreements have been signed with 71 countries.
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