The Devil In The Details

Business world, January 29, 2013
India must learn to deal with an ever-growing number of visible and invisible non-tariff barriers if its exports are to thrive

Increasingly, importers are making suppliers sign a code of ethics. If it is uniform for all exporters, it could be reasonable, but problems arise when it is not uniform across exporters. “If there are 10 buyers and 10 codes of ethics, all can be different, and even be contradictory, requiring a large body of regulations to be followed by the exporter, which, in turn, make his produce more expensive and less competitive in the global market,” says Nair. To make matters worse, “same norms are not being followed or enforced across countries by the same companies,” he adds.

Global Scenario

According to the WTO, non-tariff measures (NTM) contribute much more than tariffs to overall trade restrictiveness. Any country can announce NTMs for genuine health or environment safety goals. The WTO allows such restrictions. But the reasons behind such barriers are not always backed by scientific evidence, feel Indian seafood exporters. “They reflect public policy goals, but they may also be designed and applied in a way that unnecessarily frustrates trade,” notes the World Trade Report 2012 by WTO.

Even though there is no single estimate on the financial loss from NTMs to Indian exports, the WTO report drops sufficient hints. For the apparel sector, it says, prices in the US, EU and Canada were higher by 15 per cent, 66 per cent and 25 per cent, respectively, owing to NTMs. Similarly, in South-east Asia, South Asia and Japan, paper products cost 67 per cent, 119 per cent and 199 per cent more, respectively.

The impact of such measures on exports from countries such as India is apparent. Stricter rules mean costlier compliance, turning products more expensive and less competitive in the global market. The TBT and SPS measures prove to be a huge burden for exporters from developing countries. In 2010, almost half of the NTMs perceived as burdensome by exporting firms were TBT or SPS measures.

The Invisible Ones

WTO rules stipulate that every member country has to notify NTMs. The idea is to provide an opportunity for others to see if these measures have been suggested in the right spirit. Countries can raise objections; the member that introduces such measures can defend it. An analysis carried out by the Centre for WTO Studies has revealed that such notifications hide more than what they reveal. The centre has a unique system to track such notifications. It says 90 per cent of such notifications listed at the WTO forum do not provide accurate details of the products they actually target.

According to Murali Kallummal, the brain behind the database analysis system at the Centre for WTO Studies, of the nearly 31,000 NTMs which covered about 212,000 products until March 2012 (from January 1995), only 10 per cent provides meaningful details about the exact target. For the remaining NTMs, it takes special skills and time-consuming research to figure out targets. The centre now scans each such notification to suggest the possible product it might be targeting. “It will be useful to understand issues related to market access. It will help exporters, importers, academics, apex industrial bodies and trade policymakers,” he says.

Kallummal says keeping things vague and unclear is not limited to NTMs alone; it also happens in the case of tariffs, as there are several ways to keep them within WTO compliant levels and still provide higher tariffs for specific products. “Higher product distinction allows a country to apply varying levels of tariffs, while keeping the average tariff at the harmonised level, closer to its WTO-committed level,” he says. The strategy, he explains, is clearly visible in the EU’s product distinction for wine and spirits (based on a 2005 study done by the centre for the UB Group).

In the EU (266 products), the distinction of products for tariff application in the wine and spirits industry was eight times sophisticated than the Indian classification (33 products). Product distinction in wine category is 27 times sophisticated to that of India. “The expansion in the product list has provided the EU with substantial flexibilities by way of application of varying tariff levels, even when the average tariff remains low,” Kallummal says.

Fight Your Way In

In the globalised world of trade, countries that fight such clauses successfully can minimise NTBs, at least the visible ones. A couple of years ago, Indian drug export consignments to Africa and Latin America were being confiscated regularly in Dutch ports on grounds that the drugs violated the EU’s intellectual property laws. These seizures forced Indian drug exporters to ship medicines through longer routes, which raised the cost of shipment and made the drugs costlier. Only after the matter was taken to WTO forums, and the exporting countries, including India, Brazil, South Africa, threatened to take it to WTO’s dispute settlement forum, that the EU agreed to review its rules and the member countries agreed to amend their IP laws.

Today, India may have to do the same against Japan’s notification on shrimp exports. Such NTBs are being discussed, sorted out and minimised, as countries are entering bilateral and multilateral trade agreements. For instance, the India-EU bilateral trade and investment agreement (BTIA) deals with issues related to services, agricultural market access and disciplining of quality requirements under SPS and TBT.

The commerce ministry says that problems arising due to NTBs are duly taken up with the authorities of the country concerned. This is done either bilaterally with a view to their early and mutually satisfactory resolution or presented for resolution by the WTO’s Dispute Settlement Mechanism.

That said, the increasing incidence of NTBs signals the need for more diplomatic, political and legal steps that India should take to help its exporters fight the bigger challenge. Perhaps, one should begin closer home. CUTS International — a think tank on trade, regulations and governance issues — estimates that if the existing potential (which considers both tariff and non-tariff barriers) of India-Pakistan trade is harnessed, India will gain about $80 million (about Rs 440 crore).

The gain for Pakistan could be much more, about $1.4 billion (Rs 7,700 crore). “Aviation spirit, light petroleum distillates, gold and silver jewellery and iron ore are some of the prominent items from India that have significant potential for export to Pakistan,” says Bipul Chatterjee, deputy executive director, CUTS. Benefits, thus, can be mutual, and here lies the hope.

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