Opinion To liberalise its trade regime, India should lower tariffs and relax non-tariff barriers

There are signs of a thaw in India-US relations. After being extremely critical of India last week, US President Donald Trump said that the two countries are “continuing negotiations to address the trade barriers”. A US trade team led by Brendan Lynch, Assistant US Trade Representative for South and Central Asia, is in India to hold talks with government officials on the trade deal. But, the 50 per cent tariff levied on India’s exports to the US remains in place. The pain is now beginning to show. As a report in this paper shows, 50 per cent of orders of shrimp from Andhra Pradesh have been cancelled.

Even as the uncertainty over a deal with the US lingers, the India-EU trade talks are progressing, with both sides appearing confident of concluding the deal. A few days ago, the EU’s commissioner for Trade and Economic Security, Maros Sefcovic, said that “we are now maximising our efforts to finalise negotiations by the end of the year”. These are welcome signs. However, Delhi’s push to sign free trade agreements must be complemented by efforts to liberalise the broader trade regime, including the easing of non-tariff barriers such as the Quality Control Orders (QCO). While QCOs are ostensibly to ensure the quality of products and to protect consumers from low-quality foreign goods, they tend to act as trade barriers and lead to higher costs. As of March, 187 QCOs covering 769 products had been notified. These cover a range of goods, from water bottles and helmets to furniture, stainless steel pipes, and tubes. A majority of these have been issued on the recommendation of the Department for Promotion of Industry and Internal Trade. The effects of these protectionist interventions, which only create space for lobbying, are being felt across various product categories. The Confederation of Indian Textile Industry had, reportedly, in its pre-budget memorandum to the finance ministry, said that QCOs on inputs is impacting competitiveness. As per a report in this paper, MSMEs have reportedly also raised the issue, arguing that these are non-tariff barriers and have raised their input costs. These views have been echoed by others as well. NITI Aayog Vice Chairperson Suman Bery had earlier said that QCOs for inputs are a “malign intervention”. The issue is being deliberated upon by a high-level committee on non-financial regulatory reforms led by NITI Aayog member Rajiv Gauba.

Advertisement

Lowering tariffs alone will not facilitate integration with global supply chains. Firms desire transparent and predictable regimes. If India wants to integrate more closely with the world, if it wants its exports not to be subject to various forms of non-tariff barriers – such as labour and environmental standards – then it should also resist the temptation to impose such barriers. The market should be the adjudicator of quality. While there may be concerns over dumping, such measures will only make it more difficult to do business in the country, complicate efforts to boost manufacturing, and align with supply chains.