Time to review India's non-tariff measures

It is critical to upgrade domestic systems to achieve greater market access and a level playing field for exporters

The nature of international trade negotiations has increasingly turned non-tariff-based. The spectrum of issues has widened to include investment facilitation and protection, and economic opportunities such as job creation, value addition and technology transfer. Trade agreements are now negotiated on the basis of tariff cuts and non-tariff measures (NTMs). Trading partners’ NTMs lead to rejection of export consignments, placing Indian exporters at a disadvantage. India has therefore expressed concerns on NTMs such as sanitary and phyto-sanitary (SPS) measures and technical barriers to trade (TBTs).

SPS measures are applicable to agricultural products, plants and animals, while TBTs are applicable to other manufactured products. SPS measures can take the form of product inspection, permissions or constraints for using select additives, pest and residue determination. TBT measures include labelling requirements; technical specifications and quality standards; measures protecting the environment; rules for product weight, size, or packaging; ingredient or identity standards; shelf-life restrictions; import testing and certification procedures.

Unlike tariff cuts which are relatively easy to quantify and execute, negotiating on NTMs is difficult for several reasons. First, NTMs have a dispersed coverage across imports and exports, and are manifested through multiple policy instruments such as quotas, subsidies, measures of trade defence and restrictions. Second, NTMs are designed at a national level, leaving little scope for command by partners. Third, the product-specific nature of NTMs makes impact analysis difficult. Fourth, the direct effect of NTMs is hard to quantify through numbers.

With much tariff liberalisation already in place, the next generation trade wars is likely to be fought on NTMs. In fact, modern trade negotiations have maintained an NTM focus in terms of their ability to address the influx of imports from partners and the constraining effect on exports to partners. Even with lower tariffs in partner countries, India’s exports have not been able to achieve high success. The problem can partially be attributed to internal issues such as structural difficulties arising from small firm size, infrastructure bottlenecks, and issues related to land and labour.

NTMs exercised by trading partners play an important role. India faces the challenge of being swamped by cheaper imports from trading partners. Apprehensions have been expressed by industry associations (steel, chemical, electronic goods) and farming and dairy communities on the possibility of SME producers being driven out of business. These concerns are justified in view of the absence of a social security net for those likely to be impacted. A stock-taking of the SPS and TBT eco-system in India is needed to assess the scope, strength and prevalence of NTMs. Such an assessment will provide important information for domestic stakeholders who are at risk from manufacturers abroad. It will also indicate the safety levels available for consumers and producers in India.

Accordingly, the existing level of safeguards can be reviewed to address the growing concerns. Since the application of NTMs requires that the measure does not discriminate against the exporting country, NTMs have to be designed keeping in mind the acceptability of the domestic industry, consumer and infrastructure. This in turn provides an opportunity to improve domestic standards. The related information on standards, measures and processes will be of great use in strengthening micro, small and medium enterprises (MSMEs), to be able to meet higher standards and become competitive in the corresponding export segments, too. 

The shift to non-tariff remedies to meet standards and regulations has increased over time. Strategising in areas of competence and covering weaknesses is hence critical. Equally important is the need to capitalise on the opportunity to upgrade domestic systems for deeper international integration with the goal of greater market access and a level playing field for exporters. On the import front, the challenge is the ability to withstand competition. Import issues are likely to be tougher, given India’s higher share of 2.3 per cent in world imports, compared with a 2.1 per cent share in exports. 

Imports also constitute a higher proportion of the value of India’s economy, at 20.6 per cent, as against 19.2 per cent for exports. Since the scope and application of NTMs in a country is non-discriminative (for the trade partner), it is necessary that identical standards be adopted by the domestic industry. Thus, raising the standard of domestic NTMs will require raising the standards of domestic industry, which in turn will improve the standards of India’s exporting units, ultimately making them more competitive through compliance with modern standards across partner countries. This will further complement the government’s focus on ease of trading across borders, as announced in the mid-term review of India’s Foreign Trade Policy 2015-20, which was released last month.

Even more, the improved standards through SPS and TBT measures will lead to better health and safety for consumers, plants and animals, ultimately yielding social benefits. Nevertheless, although the ambition of reaching higher standards is a desirable one, it is also important to recognise the cost of compliance for domestic industry. This can be potentially challenging for producers in fragmented market structures, particularly if they are small.   

The writer is with NCAER, New Delhi