Trade winds

Tackling non-tariff barriers is crucial

Even as India is aiming to boost exports and is negotiating free-trade agreements (FTA) with different trading partners, the issue of non-trade barriers (NTBs) continues to haunt exporters. To address the matter, as reported by this newspaper, the Ministry of Commerce and Industry has decided to set up a panel and launch an online platform. The move should address exporters’ concerns and must be welcomed. The platform will allow exporters to register their complaints regarding NTBs and seek the government’s intervention in resolving them. As part of the redress process, the matter may be taken up for discussion with officials of countries that impose such barriers. The portal will also track the history and chronology of reported barriers and document the frequency of discussions with trade partners. The newly constituted panel will then investigate whether the conditions imposed by the trade partners comply with World Trade Organization (WTO) rules and if India has previously objected to them. Additionally, it will also suggest necessary improvements to the domestic industry and measures to better cope with these challenges.

Exporters often face trade hurdles that are not confined to tariffs and duties. Among the host of other challenges they face are complex documentation processes, failure to meet environmental and sustainability standards, public-procurement norms, and concern over quality and certification of products. In fact, NTBs have been flagged as a key obstruction that comes in the way of India realising the full potential of its FTAs with important trade partners. Addressing NTBs becomes crucial as part of India’s efforts to achieve an overall target of $2 trillion in exports by 2030 because they hinder export growth in markets where tariffs are already low or negligible. The recent controversy over pesticide residue in Indian spices is a case in point. In the absence of clear WTO guidelines on maximum residue limits (MRLs), several countries resorted to the use of NTBs in the form of sanitary and phytosanitary measures to suspend purchases from India.

Different MRLs across countries can affect Indian exporters. This is not to suggest that Indian producers should not address the issue, but the problem can often have a disproportionate impact. Agricultural exports remain particularly vulnerable. In 2017, for instance, there was a sharp drop in rice exports following a reduction in the European Commission’s MRL for fungicides used in paddy cultivation. Further, stringent environmental norms in production have led to a significant increase in the proportion of sustainability-driven NTB notifications to the WTO in recent years. Some recent examples include the Carbon Border Adjustment Mechanism (CBAM) passed by the European Union, and the United States’ Inflation Reduction Act. While EU officials claim that CBAM only aims to mitigate carbon emissions and is not a restrictive trade barrier, it is set to hurt the export of energy-intensive products.

India certainly needs to raise the quality of export products. For instance, food and agricultural exports must meet international hygiene standards and be without contamination. However, if NTBs selectively target Indian exporters and unreasonable standards continue to obstruct imports from India, the government must engage in discussions with the trade partner concerned. Flagging concerns with Russia over barriers faced by Indian marine and pharmaceutical exporters is a good example in this context. A dysfunctional WTO will, however, pose challenges.