Our tariff, non-tariff barriers should be cut in our own interest

Last week, United States (US) President Donald Trump imposed a tariff of 25 per cent on goods from India and threatened to impose further penalties. The new duty rates will apply for goods shipped after this Thursday. The duty exemptions for items like pharmaceuticals, electronics etc. will continue. The higher rates for steel, aluminium etc. announced earlier will also continue.

 

Our government has said that negotiations for a bilateral trade agree­ment will continue and that national interests, especially those of the farmers and small businesses, will be protected. A US trade delegation is expected in India later this month and hopefully, the negotiators will strike a fair deal acceptable to both countries soon. 

 

Trump is right in saying that India’s tariffs are high in comparison with many other countries. But he is not right in saying that our high tariffs hurt the American exporters. As Ajay Srivastava, the founder of Global Trade Research Initiative points out, the US does not produce many globally competitive goods outside of a few sectors like agriculture, petroleum, coal and high-end tech products. On agriculture and dairy products, India is reluctant to open its markets to foreign producers because that might affect the livelihood of farmers. However, our high tariffs, especially on primary products like steel hurt the user industries, especially in the small and medium scale segment. So, India should reduce the import duties in its own interest. Some baby steps in that direction started a couple of years back.  

  

Trump also said that India has the most strenuous and obnoxious non-monetary trade barriers of any country. I do not want to comment on the non-tariff barriers in other countries, including the US but I can say that every day, I deal with the travails of the Indian importers whose goods are held up on account of one non-tariff barrier or the other. In recent months, the government issued many quality control orders that not only mandate adherence to prescribed quality standards for many items but also registration of overseas suppliers of such items. The overall user industry perception is that such non-tariff barriers are imposed to discourage imports of items of interest to big producers and help the big businesses to hike their prices and make more profits. 

 

The US is a very important trading partner for India and so, the government will certainly deal with its demands very carefully. At the same time, the government should also take note that our exports are not very diversified. During the period 2004-14, the government had targeted schemes to encourage exports of farm products, forest produce, goods made in rural areas, employment intensive items etc. and also to help offset freight and other disadvantages involved in exports to relatively unexplored markets in Latin America, Central Asian Republics, Sub-Saharan Africa etc. The government must review the decision to withdraw these incentives.  A review of our decision to stay away from integrating more with the fast growing regions in Asia is also overdue. 

 

The government cannot yield to pressure tactics of Trump but it should review its protectionist policies that hurt our less influential segments. The government’s focus should never be diverted from enhancing the competitiveness of our producers. It is our competitiveness that can give us better leverage in trade negotiations. 

 

Email : tncrajagopalan@gmail.com