QCOs act as NTBs; raise compliance burden and costs

In recent weeks, the government has issued a number of quality control orders (QCOs) for a variety of products, ranging from copper cathodes, aluminium alloys, cast iron products, nickel powder, nuts, bolts and fasteners to footwear and their components. The intent seems to be to discourage their imports and, thus, protect the domestic manufacturers.

The Bureau of Indian Standards (BIS) is the organisation engaged in standardisation, conformity assessment, and quality assurance of goods, articles, processes, systems, and services. The standards established by BIS form the basis for product certification schemes, which provide assurance of quality, safety, and reliability of products to the consumers. The broad aim is to protect human, animal, or plant health and environment and prevent unfair trade practices.

The products under QCOs must conform to the corresponding standard and must bear the standard mark under a licence or certificate of conformity (CoC) from BIS. QCOs are notified by the line ministries of the central government under the BIS Act, 2016, after due consultations with the BIS and the producers of the relevant products. So far, QCOs cover about 575 items, some of them broad categories.

Note no.2A of the General Notes to the Import Policy says all that foreign manufactures/exporters to India of products that are subject to QCOs shall be required to obtain a licence from BIS. However, the DGFT Policy Circular no. 40/(RE-2000)/1997-2002 dated 22.02.2001 says that imports by export oriented units, units in special economic zones and imports under advance authorisation for physical exports need not comply with that condition. Some QCOs exempt the items imported for exports or export production from that condition, e.g. toys, components of footwear etc.

The BIS has prescribed detailed procedures for grant of licences to foreign parties, which include visits by BIS officers to the facilities of the manufacturers abroad. BIS says that it has issued 22,391 licences to exporters in 67 countries and 18,048 licences have expired. Arun Goyal of the Academy of Business Studies, a noted expert on international trade matters, says the foreign entities that get a BIS licence enjoy near monopolistic advantages because its competitors who have not got a BIS licence cannot export to India.

The QCOs are technical barriers to trade (TBT). Other than for goods that imperil the health of humans, animals or plants or damage the environment, standards are usually necessary to protect the consumers from goods of sub-standard quality. However, it is not the interests of consumers but the interests of producers that are taken into consideration while notifying QCOs, says Goyal.

Secondly, it is difficult to understand the imposition of standards for raw materials, intermediates and components, where the matter is best left to the buyers and sellers, who are well aware of the quality requirements. Mandating quality standards through QCOs in such cases usually leads to unnecessary compliance burdens.  The TBT agreement at the World Trade Organization discourages member countries from using TBT as non-tariff barriers and encourages them to adopt international standards and publicise any TBT in the interests of transparency.

Whatever the motivations behind the recent spurt in QCOs, indications are that the government will notify more QCOs. That means importers will face higher compliance burden and with lesser competition from imports, the prices of the locally-produced items covered by QCOs can increase.

email: tncrajagopalan@gmail.com