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India has reduced tariffs to bring them to bound levels. Even lower for a large number of commodities as part of the reforms process. Now, India committed to reduce tariffs to bring in line with South East Asian countries by 2007. We are not in a position to reduce tariffs substantially to the extent suggested by developed countries since
Customs duties important source of revenue for developing countries like India.
The industrial sector faces several constraints-some protection warranted for specific industries.
Mechanism proposed for disclosure of source of origin of biological material used along with consent of country of origin. Dissemination of knowledge and also patent rights for seed diversity important for developing countries.
Under agreement on Trade in Services, developing countries have asked for relaxing restrictions on movement of natural persons.
Continued negotiations at WTO for remaining issues and implementation of Doha Declaration.
These issues brought forth by developing countries at Cancun but no consensus arrived at. Divergence of interests. No agreement on formula for tariff reductions for agricultural commodities as well as on Singapore issues. Proposed relaxations under S&D found inadequate by developing countries.
There is continued attempt to work out a mutually acceptable solution and negotiations.
A ‘blended’ formula for tariff reductions in agriculture proposed by US and EC whereby a proportion of tariff lines would be subject to Uruguay Round formula tariff reductions and a proportion to be made duty free. However, G-20 not found this acceptable. Felt it would prevent proper delivery of Doha mandate for market access. Continued negotiations are on.
Given importance attached to reduction of tariffs, we look at tariff structure in India and alternative strategy for tariff negotiations.
Tariff structure in India highly complex in early 1990s. With initiation of reforms, substantial reduction in customs duty rates. Simple average duty rates declined from 128% in 1991-92 to 22.4% as per interim budget for the year 2004-05. Weighted average duty rates declined from 72.5% to 18.2% during this period, as in table.
Projections made accordingly, given growth rates of GDP and actual tariff rates.
Results not very robust although R 2 and t values not insignificant for most commodity groups. Import projections compared to actual imports for the year information available i.e. for 2002-03 suggest that projected imports much higher than actual quantities imported.
Sectoral analysis suggests that actual imports much lower for sectors like petroleum and products and other mineral oils and mineral
Looking at import elasticities, found elasticity less than (-)1.0 for 13 commodity groups out of 99. This suggests that reduction in tariff would result in higher percentage increase in import ratio for these commodities.
These items included animal/vegetable fat, sugars, cocoa, vegetable and fruit preparations, tobacco items, carpets and textile, floor coverings, apparels and clothing, human hair, feathers, ships and boats, furniture, beddings, toys, sports items
Other sectors’ elasticity found to be between (-)1.0 and zero and even positive for few.
Large tariff reductions of essential import items like cereals, dairy products, edible oils and other agricultural products with low elasticity would benefit the consumers but would be unacceptable on considerations of number of people dependent on these items for their livelihood and implications on domestic production. These sensitive items are also heavily subsidised by DCs.
On the other hand, drastic tariff reductions on items with high import elasticity could lead to substantial surge in imports and affect the domestic economy adversely.