The Hindu Business Line : Tariff binding not import-sensitive: Study

EVEN as negotiations for modalities for non-agricultural market access (NAMA) agreement remains to be sewed up, a new study has found that India's current binding for most lines/commodities, does not reveal a domestic sensitivity of competitiveness from imports.

"There exists a large scope for a widespread binding of Indian industrial lines/items. There are very few lines/commodities, which are highly import sensitive. India can still keep such industrial lines in the unbound category or undertake to bind these at a high level in the present negotiations," says a new study by Dr Rajesh Mehta, Senior Fellow, Research and Information System (RIS) for the non-aligned and other developing countries here.

According to the study, only one item, i.e., urea should remain unbound. "In other words, our study suggests that the number of industrial lines, subject to binding rates, can be increased from the 70 per cent figure at the Uruguay Round to around 99 per cent in the forthcoming round," it added.

The study advocates India to offer tariff cuts on a large number of tariff lines. An analysis of 9,467 tariff lines reveals that India could offer significant tariff cuts on as many as 8,643 lines (including 2,582 unbound lines). Out of the remaining 167 unbound tariff lines, India could think of binding 166 lines at relatively higher tariff rates.

Stating that India should adopt a mixed tariff reduction formula in the Doha Round, the study notes that it could offer deep tariff cuts on a large number of lines using approaches such as the linear formula. For other items, India should follow the request and offer method because (i) it cannot reduce the extant level of bound rates or (ii) propose that the binding rates should be relatively on the higher side.

In case sector-by-sector approach is adopted for tariff reduction, the study said India should emphasise the commodity groups defined by Harmonised System (HS) of commodity classification chapters such as Chapter 16 (preparations of meat), chapter 25 (salt, sulphur, earth), chapter 26 (ores, slag and ash), chapter 30 (pharmaceutical products), chapter 36 (explosives), chapter 44 (wood and articles of wood, wood charcoal), chapter 49 (printed books, newspapers), chapter 69 (ceramic products), chapter 72 (iron and steel) and chapter 75 (nickel and articles thereof). It can include 23 more commodity groups, including photographic or cinematographic goods, fish and crustaceans, essential oils and resinoids, perfumery, arms and ammunition, musical instruments, project imports, laboratory chemicals and miscellaneous goods since tariff rates for most of these commodities could be significantly reduced.

According to the study, India should start the process of negotiations from the bound rates (or given rates for unbound items) and not from the applied rates. This might enable India in binding its rates on the higher side. On the other hand, it might not lead to a deeper reduction in the binding rates by other developing countries because their applied rates are significantly lower than the corresponding binding rates.

Where India's objective of negotiations is to also capture developing country markets (and not just to protect domestic industry), negotiations should start from the applied rates and they must lay emphasis on tariff escalation i.e., a higher reduction in the tariff rates of finished goods compared to a reduction in the tariff rates of raw materials or semi-processed goods. Secondly, negotiations should not focus on a reduction in the average tariffs but should also be concerned with a reduction in the peak tariff.

Finally, the study said India and other developing countries should demand special and differential treatment for (i) level of base rates for unbound items; (ii) higher cut-off points for identification of peak tariffs; and (iii) higher reduction in the tariff rates of finished goods compared to tariff cuts of unfinished or semi-processed products.