Case for tariff simplification

As the two countries signed the Trade Partnership Enhancement (ETP) in February 2021, India and the UK trade relations saw a new impetus in the post-Brexit era. They expressed interest in concluding a free trade agreement, and as a first step, there is a strong possibility that they will enter into a pre-harvest agreement, where food and beverages are a key sector for simplification. Therefore, it is important for both countries to understand the scope of tariff simplification and address each other’s sensitivities and concerns. Due to the current uncertainties surrounding the coronavirus epidemic and the cancellation of the UK Prime Minister’s visit to India on 20 April 2021 (replacing the virtual summit scheduled for May 4), both sides need to continue to participate online. The basis for solving trade problems.

In food and beverages, India has a positive trade balance of $ 475.30 million with the UK. Total food and beverage trade from India to the UK increased from $ 479.97 million in 2009 to $ 873.72 million in 2019 (82.04%). In 2019, the UK was the 12th largest export partner (2.16% share) in India and the 17th largest exporter (1.09% share). India is the UK’s 22nd largest export partner (0.8% of the value of UK exports) and the 16th largest importer of the UK (with a share of 1.2%). At the same time, the potential for bilateral trade is largely unused. Given the positive trade balance in favor of India and the potential for unused bilateral trade on both sides, there is no doubt that food and beverages should be a key sector for liberalization under the FREE and the future free trade agreement with the UK.

In the field of food and beverages, India’s exports to the UK are more diverse and include products such as rice, tea, fruits and vegetables, frozen products such as shrimp and organic products; Ethyl alcohol accounts for over 88% of UK exports to India in 2019; Alcoholic strength by volume less than 80%; Spirits, liqueurs and other spirits’ (HS 2208), which contains a significant amount of a product called Scotch whiskey! Of this, the customs tariff rate in 2019 is 150% for a bottle of Scotch whiskey and for bulk Scotch whiskey imported for bottling in India. India imposes 150% tariff on intermediate products, which are 80% by volume by volume of undefined ethyl alcohol. Or higher (HS code 220710), which is used to combine with product in India. This tariff reduction on intermediate products will lead to value addition in India and increase ‘Make in India’.

A study conducted by the author on the Indian alcoholic beverage sector has shown that despite the reduction in tariffs, a large percentage of consumption in the country remains locally produced whiskey. According to a survey, several countries, including the UK, US, EU member states and Australia, have expressed concern about higher tariffs on alcohol imports. The UK is particularly focused on the Scotch whiskey bottle in the UK and the high tariffs on bulk Scotch whiskey imported for bottling and blending in India.

In view of the concerns of its trading partners, the Union Budget for 2021-22 reduced the Basic Customs Tariff (BCD) to 50%, but introduced the 100% Agricultural Infrastructure Development Cess (AIDC), which handled BCD + AIDC 150%, previous tariff levels . Although no such cess is generally considered a customs duty, Section 115 (1) of the Finance Act 2021 refers to AIDC as a customs duty so that UK policy makers can take it up with their colleagues during discussions with the Ministry of Commerce of India. Tariff rationalization can be considered a loss of revenue, but experience in other countries such as China has shown that the contribution to the treasury of growth has increased many times over as a result of sales. As India plans to enter into trade agreements with partners such as the UK, EU, US and Australia, it is in India’s interest to create a roadmap for tariff rationalization.

Tariff rationalization can be carried out in stages so that it does not harm the domestic industry and helps to develop and improve local production, which also becomes export. While India is a small exporter of alcoholic beverages, exports are on the rise and will increase further if there are no restrictions on the prices of intermediate products. Therefore, tariffs on intermediate products can be immediately reduced to zero during early Harvest implementation to facilitate production and value addition in India. For heavily imported spirits, then blended and bottled in India, and the Spirits Bottle in Source (BIO), tariffs can be reduced from the current 50% to zero in stages over the 3 years from the implementation of the agreement. In addition, India is required to eliminate 100% AIDC cess within three years. In order to protect the interest of domestic producers, India will reduce the tariff beyond the limit or the price of the product only. Once the tariff is zero, domestic products will not face price competition from imports. Such a tariff rationalization strategy, which focuses only on the simplification of premium products and intermediate goods, will, on the one hand, protect the domestic industry, and on the other hand, allow India to gain mutual market access to its export-interested products. In other fields such as beverages and clothing.

Dr. Arpita Mukherjee Professor, Indian Council for Research on International Economic Relations

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