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Wednesday, April 01, 2020

Explained: In Budget itself, signals that a major India-US dairy deal is unlikely

There has been a lot of speculation about India offering to open up its dairy and poultry market, including by extending duty concessions, to US imports. The picture on the ground so far, though, has been quite the opposite.

Written by Harish Damodaran , Parthasarathi Biswas | New Delhi, Pune | Updated: February 20, 2020 8:46:08 am
In Budget itself, signals that a major India-US dairy deal is unlikely Budget hiked customs duty, import duties on dairy products. (Express photo by Bhupendra Rana)

US President Donald Trump’s statement virtually ruling out the signing of any major bilateral trade deal with India during his upcoming visit is partly reflected in the latest Union Budget’s tariff proposals relating to the dairy sector. There has been a lot of speculation about India offering to open up its dairy and poultry market, including by extending duty concessions, to US imports. The picture on the ground so far, though, has been quite the opposite. Finance Minister Nirmala Sitharaman’s Budget for 2020-21, if anything, has hiked import duties on all dairy products.

Dairy: hike in duties

The basic customs duty on butter, ghee, butter oil, whey and cheese was raised from 30% to 40%. Further, the Budget did away with the concessional duty of 15% applicable on imports of up to 10,000 tonnes of skimmed milk powder during any financial year. That concession, under the so-called tariff rate quota regime, was withdrawn and all imports (whether up to or beyond 10,000 tonnes) were subjected to a uniform duty of 60%.

The Budget basically increased the import duties on all dairy products to their maximum permissible “bound” rates under World Trade Organization (WTO) rules. One interpretation of this move was it would enable India to offer tariff concessions or reduction in customs duties (relative to the generally applicable rates) under free trade agreements (FTA) with individual countries/blocs.

For instance, ice-cream attracts a general basic customs duty of 30%. But ice-cream is already now importable into India at zero duty from the 10-member ASEAN (Association of South East Asian Nation) countries and at 5% duty from South Korea under a Comprehensive Economic Partnership Agreement (CEPA). Both the India-ASEAN FTA in goods and the India-South Korea CEPA were signed in 2009 during the tenure of the UPA government.

The NDA government was initially seen as favourable to India joining the Regional Comprehensive Partnership Agreement (RCEP), a bigger FTA bloc involving the 10 ASEAN countries and South Korea plus China, Japan, Australia and New Zealand. That deal would have required India to grant concessional import duty access to dairy products, especially from New Zealand and Australia. But the government, in November, announced that it was opting out of the RCEP.

If President Trump’s statements on Tuesday —that “we are not treated very well by India” and “I don’t know if it’ll be done before the election (presidential election on November 3)” — are any indication, there is little chance of any big trade deal materialising during his February 24-25 visit.

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Poultry: new restrictions

Dairy apart, poultry was another sector where India reportedly was open to allowing greater access to US imports. Poultry meat imports into the country, at present, attract 100% duty. India had, in 2007, additionally imposed restrictions on US poultry product imports, citing concerns over avian influenza. However, in October 2014, the WTO’s dispute settlement board ruled that the ban was discriminatory and unscientific, as the US had not recorded any outbreak of the highly pathogenic avian flu virus since 2004. In July 2016, the US sought WTO authorisation seeking to slap a $450 million retaliatory annual fine on India for not complying with the dispute panel’s order. The matter was subsequently referred to arbitration.

Meanwhile, in mid-2018, India allowed a small consignment of frozen chicken leg pieces from the US to land by air. That lone and last consignment was subjected to 100% import duty. Just as in the case of dairy products, efforts to get that import duty reduced have met with stiff opposition from the Indian poultry industry. The latter’s contention has been that the American consumer preference is for chicken breast and there is practically no market for legs in the US. The bulk of chicken legs are, then frozen for exporting to other countries. The danger of these being “dumped” is higher in markets such as India, where legs, rather than breasts, are the most popular cut of chicken.

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In 2019, broiler (poultry meat) production in the US amounted to 43.9 billion pounds or 19.91 million tonnes (mt), way above India’s estimated 4.06 mt for 2018-19. Out of the 43.9 billion pounds of US production, 7.11 billion pounds or 3.22 mt, worth $3.23 billion, was exported. And roughly 60% of this constituted chicken legs.

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