Contents

Introduction................................................................................................................ 1
What is Commercial Policy?........................................................................................ 1
Different types of Trade Barriers................................................................................. 3
Different Types of Tariff Barriers..............................................................................3
Different Types of Non-Trade Barriers......................................................................5
Why are Tariffs and Trade Barriers used?....................................................................8
Trade Restrictions: Good or Bad?.............................................................................. 10
Objectives of Commercial Policy...............................................................................13
Foreign Trade Policy 2015-2020: Key Highlights.......................................................16
Types of Commercial Agreements............................................................................19
Import Procedures and Difficulties Faced in India.....................................................20
A Case study of coffee.............................................................................................. 23
High import duties on trade Distortions................................................................25
Conclusion............................................................................................................. 26
A Case Study of the Natural Resource Sector (Mangoes).........................................27
Conclusion............................................................................................................. 28
References................................................................................................................ 30

Introduction
The buying and selling of goods and services across national borders is known as
international trade. International trade is the backbone of our modern, commercial
world, as producers in various nations try to profit from an expanded market, rather
than be limited to selling within their own borders. There are many reasons that
trade across national borders occurs, including lower production costs in one
region versus another, specialized industries, lack or surplus of natural resources
and consumer tastes.
International trade has numerous positive effects. It is also referred to as an engine
of growth by some renown economists. However, over the centuries, the world
has witnessed both free (liberal) and restricted (protected) trade between countries.
Economists as well as nations supported free or protected trade depending on their
individual convictions and national interests.
What is Commercial Policy?

A commercial policy (also referred to as a trade policy or international trade

policy) is a set of rules and regulations that are intended to change international
trade flows, particularly to restrict imports. Every nation has some form of trade
policy in place, with public officials formulating the policy which they think would
be most appropriate for their country. Their aim is to boost the nations
international trade. Examples include the European Union,
the Mercosur committee etc. The purpose of trade policy is to help a nation's
international trade run more smoothly, by setting clear standards and goals which

can be understood by potential trading partners. In many regions, groups of nations

work together to create mutually beneficial trade policies.
Trade policy can involve various complex types of actions, such as the elimination
of quantitative restrictions or the reduction of tariffs. According to a geographic
dimension, there is unilateral, bilateral, regional, and multilateral liberalization.
According to the depth of a bilateral or regional reform, there might be a free trade
area (wherein partners eliminate trade barriers with respect to each other),
a customs union (whereby partners eliminate reciprocal barriers and agree on a
common level of barriers against no partners) or a free economic area (or deep
integration as in, for example, the European Union, where not only trade but also
the movement of factors of production has been liberalized, where a common
currency, the Euro, has been instituted, and where other forms of integration and
harmonization have been established).

Different types of Trade Barriers

Tariffs: a tax levied on products that are traded across borders is called a tariff.
However, governments impose tariffs essentially on imports and not on exports.
This gives the domestic producer a better chance at competing with the foreign
producer.
But, it also means the domestic producer does not have to be as efficient in
their production.
Sometimes a subsidy is given to the domestic producer instead of taxing the
foreign good.
A subsidy is cash given to a producer: it could be lump sum or per unit.
Lump sum is a one-time payment while per unit is a certain amount of cash
for every product produced.
When a fixed sum of money, keeping in view the weight or measurement of
a commodity, is levied as tariff, it is known as specific duty.
Different Types of Tariff Barriers :
1.

Specific Duty: Specific duty is based on the physical characteristics of

goods.
For instance, a fixed sum of import duty may be levied on the import of every
barrel of oil, irrespective of quality and value. It discourages cheap imports.
Specific duties are easy to administer as they do not involve the problem of
determining the value of imported goods. However, a specific duty cannot be

levied on certain articles like works of art. For instance, a painting cannot be taxed
on the basis of its weight and size.
2.

Ad valorem Duty: These duties are imposed according to value. When a

fixed percent of value of a commodity is added as a tariff it is known as ad valorem

duty. It ignores the consideration of weight, size or volume of commodity.
The imposition of ad valorem duty is more justified in case of those goods whose
values cannot be determined on the basis of their physical and chemical
characteristics, such as costly works of art, rare manuscripts, etc. In practice, this
type of duty is mostly levied on majority of items.
3.

Combined or Compound Duty: It is a combination of the specific duty and

ad valorem duty on a single product. For instance, there can be a combined duty
when 10% of value (ad valorem) and Re 1/- on every meter of cloth is charged as
duty. Thus, in this case, both duties are charged together.
4.

Sliding Scale Duty: The import duties which vary with the prices of

commodities are called sliding scale duties. Historically, these duties are confined
to agricultural products, as their prices frequently vary, mostly due to natural
factors. These are also called as seasonal duties.
5.

Countervailing Duty: It is imposed on certain imports where products are

subsidised by exporting governments. As a result of government subsidy, imports

become more cheaper than domestic goods. To nullify the effect of subsidy, this
duty is imposed in addition to normal duties.
6.

Revenue Tariff: A tariff which is designed to provide revenue to the home

government is called revenue tariff. Generally, a tariff is imposed with a view of

earning revenue by imposing duty on consumer goods, particularly, on luxury

goods whose demand from the rich is inelastic.
7.

Anti-dumping Duty: At times, exporters attempt to capture foreign markets

by selling goods at rock-bottom prices, such practice is called dumping. As a result

of dumping, domestic industries find it difficult to compete with imported goods.
To offset anti-dumping effects, duties are levied in addition to normal duties.
8.

Protective Tariff: In order to protect domestic industries from stiff

competition of imported goods, protective tariff is levied on imports. Normally, a

very high duty is imposed, so as to either discourage imports or to make the
imports more expensive as that of domestic products.
Different Types of Non-Trade Barriers:
A non-tariff barrier is any barrier other than a tariff, that raises an obstacle to free
flow of goods in overseas markets. Non-tariff barriers, do not affect the price of the
imported goods, but only the quantity of imports. Some of the important non-tariff
barriers are as follows:
1.

Quota System: Under this system, a country may fix in advance, the limit of

import quantity of a commodity that would be permitted for import from various
countries during a given period. The quota system can be divided into the
following categories:
(a) Tariff/Customs Quota

(b)
(d)

Unilateral Quota

(c)

Bilateral Quota

Multilateral Quota

Tariff/Customs Quota: Certain specified quantity of imports is allowed at

duty free or at a reduced rate of import duty. Additional imports beyond the
5

specified quantity are permitted only at increased rate of duty. A tariff quota,
therefore, combines the features of a tariff and an import quota.

Unilateral Quota: The total import quantity is fixed without prior

consultations with the exporting countries.

Bilateral Quota: In this case, quotas are fixed after negotiations between the

quota fixing importing country and the exporting country.

Multilateral Quota: A group of countries can come together and fix quotas

for exports as well as imports for each country.

2.

Product Standards: Most developed countries impose product standards for

imported items. If the imported items do not conform to established standards, the
imports are not allowed. For instance, the pharmaceutical products must conform
to pharmacopoeia standards.
3.

Domestic Content Requirements: Governments impose domestic content

requirements to boost domestic production. For instance, in the US bailout package

(to bailout General Motors and other organisations), the US Govt. introduced Buy
American Clause which means the US firms that receive bailout package must
purchase domestic content rather than import from elsewhere.
4.

Product Labelling: Certain nations insist on specific labeling of the

products. For instance, the European Union insists on product labeling in major
languages spoken in EU. Such formalities create problems for exporters.
5.

Packaging Requirements: Certain nations insist on particular type of

packaging materials. For instance, EU insists on recyclable packing materials,

otherwise, the imported goods may be rejected.
6

6.

Consular Formalities: A number of importing countries demand that the

shipping documents should include consular invoice certified by their consulate

stationed in the exporting country.
7.

State Trading: In some countries like India, certain items are imported or

exported only through canalising agencies like MMTC. Individual importers or

exporters are not allowed to import or export canalised items directly on their own.
8.

Preferential Arrangements: Some nations form trading groups for

preferential arrangements in respect of trade amongst themselves. Imports from

member countries are given preferences, whereas, those from other countries are
subject to various tariffs and other regulations.
9.

Foreign Exchange Regulations: The importer has to ensure that adequate

foreign exchange is available for import of goods by obtaining a clearance from

exchange control authorities prior to the concluding of contract with the supplier.
10.

Other Non-Tariff Barriers: There are a number of other non tariff barriers

such as health and safety regulations, technical formalities, environmental

regulations, embargoes, etc.
Subsidies: Subsidies work to foster export by providing financial assistance to
locally manufactured goods. Subsidies help to either sustain economic activities
that face losses or reduce the net price of production.
Quotas: Import quotas are the trade limits set by the government to restrict the
quantity of imports during a specified period of time.
Embargo: This is an extreme form of trade barrier. Embargoes prohibit import
from a particular country as a part of the foreign policy. In the modern world,
7

embargoes are imposed in times of war or due to severe failure of diplomatic

relations.
A voluntary export restraint: A restriction set by a government on the quantity of
goods that can be exported out of a country during a specified period of time.
Often the word voluntary is placed in quotes because these restraints are typically
implemented upon the insistence of the importing nations

Why are Tariffs and Trade Barriers used?

Tariffs are often created to protect infant industries and developing economies, but
are also used by more advanced economies with developed industries. Here are
five of the top reasons tariffs are used:
1. Protecting Domestic Employment
The levying of tariffs is often highly politicized. The possibility of increased
competition from imported goods can threaten domestic industries. These
domestic companies may fire workers or shift production abroad to cut
costs, which means higher unemployment and a less happy electorate. The
unemployment argument often shifts to domestic industries complaining
about cheap foreign labor, and how poor working conditions and lack of
regulation allow foreign companies to produce goods more cheaply. In
economics, however, countries will continue to produce goods until they no
longer have a comparative advantage (not to be confused with an absolute
advantage).
2. Protecting Consumers
A government may levy a tariff on products that it feels could endanger its
population. For example, South Korea may place a tariff on imported beef
from the United States if it thinks that the goods could be tainted with
disease.
8

3. Infant Industries
The use of tariffs to protect infant industries can be seen by the Import
Substitution Industrialization (ISI) strategy employed by many developing
nations. The government of a developing economy will levy tariffs on
imported goods in industries in which it wants to foster growth. This
increases the prices of imported goods and creates a domestic market for
domestically produced goods, while protecting those industries from being
forced out by more competitive pricing. It decreases unemployment and
allows developing countries to shift from agricultural products to finished
goods.
Criticisms of this sort of protectionist strategy revolve around the cost
of subsidizing the development of infant industries. If an industry develops
without competition, it could wind up producing lower quality goods, and
the subsidies required to keep the state-backed industry afloat could sap
economic growth.
4. National Security
Barriers are also employed by developed countries to protect certain
industries that are deemed strategically important, such as those supporting
national security. Defense industries are often viewed as vital to state
interests, and often enjoy significant levels of protection. For example, while
both Western Europe and the United States are industrialized, both are very
protective of defense-oriented companies.
5. Retaliation
Countries may also set tariffs as a retaliation technique if they think that a
trading partner has not played by the rules. For example, if France believes
that the United States has allowed its wine producers to call its domestically
produced sparkling wines "Champagne" (a name specific to the Champagne
region of France) for too long, it may levy a tariff on imported meat from the
United States. If the U.S. agrees to crack down on the improper labeling,
France is likely to stop its retaliation. Retaliation can also be employed if a
trading partner goes against the government's foreign policy objectives

10

Trade Restrictions: Good or Bad?

Imagine that you have a country A and a country B who wish to trade with each
other. Country A has plenty of coal and has mastered efficient ways how to
produce coal thus making coal price very cheap. Country B only has little coal
reserves, and it's extraction method are not as efficient as in country A.
Consequently, the price of coal is lower in country A other than country B
If country A wants to export coal to country B it has to pay tariff. Tariffs are kind
of a tax. Tariff is calculated on the price or amount of coal. It must be paid by
either exporter from country A or importer from country B. Like every tax, tariffs
increase the price of product. Therefore, consumers in country A will pay lower
price of coal than country B.
Also country B can impose quotas, a restriction on quantity allowed to be
imported. For example country A is allowed only to export 10 tons of coal per year,
not more. Even if it has plenty coal to export it is not allowed to do it. Low supply
of coal in country B increases the price of coal for them.
On the other side, country B produces great and quality wine, which residents of
country A absolutely love. They have tried to make exactly same wine, but its
quality simply couldn't match that of country B. But they also have to pay tariffs if
they want to export it. At the end price of the same wine would be higher in
country A than in country B because of tariffs.

11

Pros
The most prevalent view by all economists today on free trade is that it is a good
thing for both economies, and that it should be eliminated all whatsoever. In the
ideal world there should be no tariffs, quotas or any kind of trade restriction. Good
should be allowed to freely flow over the border. Why? Lots of economic models
have been made to analyze it, and the conclusion is that free trade is good because
of comparative advantage and specialization.
Country A is better in producing goal, and country B is better in producing wine. If
we reduce tariffs, country A would produce more coal and it would be cheaper for
everyone. Country B will produce more wine which will be cheaper for everyone.
Companies in country A which have produced wine would stop to exist because all
wine production will move to country B. But all production of coal would move to
country A instead.
The final result is that everybody is a winner, both producers and consumers.
Consumers get cheaper products, produces have access to bigger market and
produce more thus making higher profits. Country A has a competitive advantage
in producing coal, but country B has competitive advantage in producing wine.
Also, if we impose too strict trading regulations, we might have problems with
illegal activities like smuggling.
All trade restriction have been mostly been managed via bilateral agreement
between two countries. If countries were in good terms they would agree on
lowering tariffs or removing them all completely. In the last half of 20th
century multilateral trade agreements have started to become more prevalent. (one

12

of the most important one is NAFTA). NAFTA model is now copied everywhere
else in the world.
Also we have a WTO (World Trade Organization) which promotes free trade in the
whole world.

Cons
However, with the rise of globalization, there is a rising criticism of free trade.
Companies are looking for cheaper resources around the world, thus taking their
investments outside their country of origin. Some countries are poor and do not
have established factories and infrastructure, so all that they can offer is a cheap
labour force. Consequently all labour intensive industries move to developing
countries leaving people in developed countries without jobs. Theory suggests that
new jobs will be opened in economy sectors where a developed country has a
competitive advantage, but it didnt happen or it is happening too slow. Producers
in developed countries get significantly cheaper products, but they are out of jobs.
On the other hand, workers in developing countries are stuck with low salaries
which are their only competitive advantage. If salaries get higher, the company
moves to other low cost country. Because of very low salaries, their standard of
living doesnt get improved, and as a final result, their buying power remains low.

13

Objectives of Commercial Policy

Following are the main objectives of commercial policy.
1. To increase Exports: The under developed countries are preys to Trade Gap.
It means that their exports are less than their imports. As a result they have to face
deficit in their balance of payments. Therefore, the main objectives of commercial
policy in these countries are to remove deficit in balance of payments. This can be
done by enhancing exports. In this respect the export duties are abolished and
subsidies on exports be provided, the concessions be granted to those firms which
produce domestic raw material, and multiple exchange rate system be pursued,
whereby low rate of exchange be adopted for exports, and a higher rate of
exchange be followed for imports, particularly for luxurious imports.
2. Diversification in Exports: To remove deficit in balance of payments not only
the exports should be boosted up, but a diversification in exports be also brought.
The quality of exports is improved. The new markets for exports be discovered the
share of manufactured goods in exports be increased for this all, the exporters be
encouraged. They be provided with subsidies and rebates. The cheap credit policy
be initiated for the exporters. Tax holidays be granted for the exporters. In this way
the quantity and quality of exports would be increased.
3. Protection to Infant Industries: The purpose of import policy is to protect the
infant domestic industries. As the industries of under developed countries like
India can not compete with industries of developed countries. Therefore if the
domestic markets are supplied with foreign products the process of
industrialization in home country will never start. The country will remain
backward. Therefore in order to protect the infant industries, the commercial policy
14

aims at imposing import duties, quota system and exchange control etc. The
cheaper credit facilitates be granted to those industries which engage in import
substitutions. In this way on the one side the imports will come down. On the other
side import substitutes will be produced in the country. Consequently the balance
of payments of the country will improve the process of capital accumulation will
start leading to increase income and employment.
4. Improvement in Terms of Trade: The ratio between the prices of exports and
prices of imports is known as terms of trade The terms of trade of developing
countries like India goes on to fall. It means that they have to give more exports
against their imports. In other words the prices of exports go on to fall while the
prices of imports go on to increase in case of developing countries. Therefore to
check the falling tendency of terms of trade the commercial policy helps us.
Through commercial measures such goods be exported which could command
rising prices in the world markets. As rather agriculture goods, the manufactured
goods are exported. The buffer stocks for agri goods be set up so that fluctuations
in their prices could be avoided. The necessary raw material and industrial goods
be prepared at country level. With such all measures terms of trade could be
improved.
5. Stability in Internal and External Value of Currency: Whenever a country
faces deficit in its balance of payments, the external value of the currency goes on
to fall. This not only leads to decrease the international value of the currency but
inflation is also generated in the country. Thus commercial policy can be applied to
bring internal and external stability in the value of currency. For this purpose the
import duties be imposed on the imports, the quotas of the imports be fixed and
rationing of foreign exchange can be made. When the external value of the
currency improves the internal value of the currency will also improve. In other

15

words, with the help of commercial instruments both internal and external balances
can be attained.
6. Commercial Links: The commercial policy can be applied to make commercial
links with other countries. For this purpose the trade delegates can be sent abroad.
The trade fairs and exhibitions can be arranged. In this way, a country can
popularize its products and exports. Consequently the exports are boosted up and
balance of payments will improve.

16

Foreign Trade Policy 2015-2020: Key

Highlights
The Foreign Trade Policy (FTP) 2015-20 was unveiled by Ms Nirmala Sitharaman,
Minister of State for Commerce & Industry, Government of India on April 1, 2015.
All exports and imports made upto the date of notification shall, accordingly, be
governed by the relevant FTP, unless otherwise specified. Following are the
highlights of the FTP:
FTP 2015-20 provides a framework for increasing exports of goods and
services as well as generation of employment and increasing value addition
in the country, in line with the Make in India programme.

The Policy aims to enable India to respond to the challenges of the external
environment, keeping in step with a rapidly evolving international trading
architecture and make trade a major contributor to the countrys economic
growth and development.

FTP 2015-20 introduces two new schemes, namely Merchandise Exports

from India Scheme (MEIS) for export of specified goods to specified
markets and Services Exports from India Scheme (SEIS) for increasing
exports of notified services.
17

 Duty credit scrips issued under MEIS and SEIS and the goods imported
against these scrips are fully transferable.

For grant of rewards under MEIS, the countries have been categorized into 3
Groups, whereas the rates of rewards under MEIS range from 2 per cent to 5
per cent. Under SEIS the selected Services would be rewarded at the rates of
3 per cent and 5 per cent.

Measures have been adopted to nudge procurement of capital goods from

indigenous manufacturers under the EPCG scheme by reducing specific
export obligation to 75per cent of the normal export obligation.

Measures have been taken to give a boost to exports of defense and hi-tech
items.

E-Commerce exports of handloom products, books/periodicals, leather

footwear, toys and customised fashion garments through courier or foreign
18

post office would also be able to get benefit of MEIS (for values up to INR
25,000).

Manufacturers, who are also status holders, will now be able to self-certify
their manufactured goods in phases, as originating from India with a view to
qualifying for preferential treatment under various forms of bilateral and
regional trade agreements. This Approved Exporter System will help
manufacturer exporters considerably in getting fast access to international
markets.
A number of steps have been taken for encouraging manufacturing and
exports under 100 per cent EOU/EHTP/STPI/BTP Schemes. The steps
include a fast track clearance facility for these units, permitting them to
share infrastructure facilities, permitting inter unit transfer of goods and
services, permitting them to set up warehouses near the port of export and to
use duty free equipment for training purposes.

108 MSME clusters have been identified for focused interventions to boost
exports. Accordingly, Niryat Bandhu Scheme has been galvanised and
repositioned to achieve the objectives of Skill India.

19

 Trade facilitation and enhancing the ease of doing business are the other
major focus areas in this new FTP. One of the major objective of new FTP is
to move towards paperless working in 24x7 environment.

20

Types of Commercial Agreements

1. Bilateral agreements: 2 countries undertake an agreement. One country

reduces import tariffs or other restrictions to imports from the another
country, and the other country does the same with certain products from the
first country.
2. Free trade agreements: a lot of commercial barriers between 2 or more
countries are reduced or eliminated.
3. Custom unions: a group of countries unifies his external custom tariffs and
make agreements regarding its internal tariffs.
4. Free economic areas: a lot of commercial regulations are eliminated. The
movement of production factors is liberalized and monetary policy is
coordinated. There are several grades of economic unions. European Union
has unified its currency and released the movement of production factors.
5. Commercial relations between governments are not always cooperative:
restrictive measures taken by a country can lead to other restrictive measures
taken by another country in response to the first measures. For example, if a
country raises its import tariffs to a product, the country that exports these
products can raise the tariffs to products exported from the first country.

21

Import Procedures and Difficulties Faced in

India

Table 1 summarizes all those factors seen by business executives as the most
problematic factors for importing in India. Among all the eight factors, the first two
factors, i.e., the burdensome import procures and tariffs together scores 45.1,
which means they alone represent 45.1 per cent of the total problems or difficulties
faced by importers and business executives. Therefore, it becomes imperative to
focus on these two vital aspects of importing in India.

Table 1: Problematic Factors of Importing in India

For clearance of import goods, the importer or his agents have to undertake various
formalities and rules which are very tedious and make the import process much
22

difficult. There are 11 essential documents (among the highest in the world)
required to Import in India (among the highest in the world) compared to only four
documents in the OECD countries which makes the import process tedious and
burdensome (Table 2). The documents to imports are as follows:
1) Bill of Entry (customs import declaration)
2) Bill of landing
3) Cargo release order
4) Certificate of Origin
5) Certified Engineers Report (technical standard certificate)
6) Commercial Invoice
7) Foreign Exchange Control Form
8) Inspection Report
9) Packing List
10) Product Manual and
11) 10 Terminal Handling Receipts.
India also requires double the time (days) compared to the OECD countries to
import.

Table 2: Comparison of India With South Asia and other OECD countries

23

Table 3: Import Procedures and the cost for import in India

Table 3 makes it clear that there occurs heavy delay and huge costs due to
cumbersome import procedures. By taking 20 days to clear the procedure, the
importers have to bear USD 1250 per container. This is really a heavy toll on the
shoulder of importers. This is despite the tariff imposed on the imported goods.
Tariff is the next component to the costs borne by the importers. Lobbying and
business groups is another factor in influencing import restrictions. Though
lobbying is illegal in India it plays a very important role in influencing or imposing
new restrictions on imports in India. An example: 11
recently added restriction on imported televisionix and petrochemicals. Licence
also plays a negative role for the smooth and continuous international trade,
according to USTR. However, the USTR describes Indias custom tariff system as
complex and characterized by a lack of transparency in determining the net
effective rates of customs tariffs and excise duties.x In this context it is essential to
analyse the import duty in India. Despite Indias efforts for trade liberalization, the
country still maintains high peaks on goods such as flowers (60 per cent), natural
24

rubber (70 per cent), automobiles and motorcycles (60-75 per cent sometimes even
100 per cent), high-end sports cars (150-175 per cent), raisins and coffee (100 per
cent), alcoholic beverages (150 per cent), and textiles (some rates exceed 300 per
cent). India has also established tariff-rate quotas for products such as corn and
dairy.

A Case study of coffee

In order to understand better the process of importing a product in India, we chose
to exemplify it using the sub-header 090111 Coffee-not roasted, not
decaffeinated. If the goods are cleared through the Electronic Data Interchange
(EDI) System, no formal bill of entry is filed because it is generated by the
computer. However, the importer is required to file a cargo declaration. In the nonEDI system, the importer has to have a bill of entry certifying that the goods
specified in description and value are entering the country from abroad. The bill of
entry has to be submitted in different copies and different colours for different
purposes. A bill of entry for home consumption has to be submitted when the
imported goods are for full consumption in India. A bill of entry for warehouses
has to be presented whenever the imported goods are to be stored in a warehouse
without payment of duty to be clearer later. Finally, a bill of entry for ex-bond
clearance is used for clearing good stored in a warehouse. The goods are classified
and valued at the time of clearance (Government of India 2013). Along with the
bill of entry, other documents are generally required are:
Signed invoice
Packing list
25

 Bill of Landing or Delivery Order/Airway Bill

GATT declaration form duly filled in
Importers declaration
License wherever necessary
Letter of Credit/Bank Draft/wherever necessary
Insurance document
Import license
Industrial License, if required
Test report in case of chemicals
Adhoc exemption order
DEEC Book/DEPB in original
Catalogue, technical write up, literature in case of machineries, spares or
chemicals as may be applicable
Separately split up value of spares, components machineries

26

 Certificate of Origin, if preferential rate of duty is claimed

No Commission declaration
For clearance, except from Bangladesh (0per cent), Bhutan (0 per cent), Maldives
(0 per cent), Nepal (0 per cent), Sri Lanka (0 per cent) and Pakistan (20 per cent)
India charges an ad-valorem tariff of 100 per cent to the imports of coffee (090111)
from the world. In addition to the basic custom duty, customs also charges an
education cess, a secondary and higher education cess and an additional
countervailing duty, which increases the price of coffee (090111) in 111.12%
High import duties on trade Distortions
In this section an attempt is made to understand the effects of high import duties
on major stakeholders such as domestic customers, business groups, and industries.
For an effective evaluation of this process, i.e., the relation between heavy import
duties (on imported finished goods and raw materials), and the associated multidimensional effect on the economy as a whole can be understood with the help of
this analytical framework.

27

The analytical framework includes four channels to describe this phenomenon. It

points out the fact that Indias international trade describes potential and untapped
opportunities for further trade facilitation. In an empirical study, Topalova and
Khandelwal (2011) find that lower input tariff on final goods and the access to
better inputs have increased firm-level productivity. They claim that the effect was
strongest in import competing industries and industries not subject to excessive
domestic regulations. According to Zaki (2014), improvements in trade facilitation
to lower red tape, or administrative barriers, following WTO provisions for
expediting the movement, release and clearance of goods, India can have an export
gain of US $35 billion(constant prices 2005) by 2020. Prabir De (2013) affirms
that despite services having emerged as crucial economic activities in India, a
growing number of barriers have been impeding India's international market access
in the services sector. In his article, an analysis of the linkages between India's
services trade flow and its probable barriers is estimated. He estimates that a 1 per

28

cent improvement in services trade facilitation measures would lead to a 2 per cent
rise in services exports in India.
Conclusion
A detailed evaluation of the Enabling Trade Index (ETI) suggests that India
imposes a lot of duty restrictions and undue regulations on her imports which is
affecting her trade with the rest of the world. To some extent, it also deprives India
of her foreign market access for exports. Not only that, imposition of high tariffs
are also posing as burden for the importers and major stakeholders such as
domestic consumers, traders and manufacturers, as witnessed in the case of gold.
What is more significant is the procedure that hinders smooth and progressive
imports to the country. It is very difficult to state which of these factorstariff and
import proceduresis more adverse in creating conducive import environment.
However, this study attempts to suggest that import tariffs have to be lessened and
more importantly import procedures have to be reduced to create an atmosphere of
competition in policy action.

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A Case Study of the Natural Resource Sector

(Mangoes)
Raw mangos and processed mango products are a natural resource based sector primarily domestic-market-oriented. Exports of raw mangos and processed mango
products seem to have started on a small scale in the post economic liberalization
period but the value of such exports remains very small - at present, mango exports
account for less than 0.1 % of total Indian exports. Ten firms, which exported fresh
mango and processed mango products to both developed and developing country
markets - were interviewed for this study. The sample firms - located in different
locations in India including Mumbai, Pune, Bangalore and Hyderabad - were
selected to capture the entire value chain in this activity starting with fresh mangos
and moving up to mango pulp and juice and, finally, to chutneys and pickles.
The main findings in regard to the incidence of NTMs, firm strategies and
institutional support are as follows:
There exist 8 different types of NTMs - (1) packaging and labelling
regulations, (2) pesticide residue limit regulations, (3) chemical content
limitations, (4) fruit fly related regulations, (5) uniformity requirements, (6)
labour standards, (7) documentation procedures and (8) company and
product registration.
The imposition of NTMs follows a specific pattern. Developed countries
like the USA, EU and Japan impose sophisticated regulations like
registration, packaging and labelling, pesticide residue and aflatoxin content,
fruit fly regulations and labour standards. Problems faced by firms in Gulf

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countries are mostly caused by uniformity in size and documentation

procedures.
Four of the ten mango enterprises in the sample seem to have adopted
offensive competitive strategies in relation to NTMs in major export markets
while the others seems to be defensive-oriented.
The compliance costs were not uniform across NTMs but seemed to be more
severe on smaller firms than large ones.
The interviews revealed that the mango sample firms receive help from at
least four separate sources - in-house technical staff, foreign importers,
chambers of commerce and industry associations and government
institutions. In general, the sample firms seemed to be drawing on all these
different sources and wanted more assistance from them.
Conclusion
The evidence presented in this Report indicates that NTMs can be an impediment
to export growth and that they are something that the Government of India should
be aware of and concerned with. There are a number of actions that the
Government of India, in association with the private, can take, to elicit a more
positive and dynamic private sector response to the challenges posed by NTMs.
This study is the first of its kind and presents enterprise-Ievel data for a
limited sample of companies at one point in time. The study has nevertheless
collected and analysed a wealth of empirical information and permits a more
informed view of the extent and incidence of NTMs and their actual and
potential impact on Indian export performance. We recommend that the
study of NTMs cover more sectors and firms on an on-going basis, perhaps
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repeated every three years, in order to build up a data base on NTMs which
will in turn provide an input into future bilateral and multilateral trade
negotiations. Legal opinion can be sought on selected cases of actual or
suspected NTMs and where appropriate, such cases can be taken by the
Government of India to the WTO for settlement.
Institutional support, both generic and industry-specific, should be further
developed to create an enabling environment which provides a coherent and
supportive infrastructure to facilitate company compliance with NTMs, both
technical regulations, which are mandatory, and standards, which are
voluntary. Conformity assessment procedures (that is, ensuring that
standards are complied with, requiring product testing, labelling, etc.) can be
facilitated by government. Larger companies, other things being equal, are
more likely to be able to provide the necessary facilities in-house, and the
Government of India will thus need to create an environment rich in
infrastructure services targeted specifically at small and medium sized
enterprises (SMEs) which are most vulnerable to NTMs and least able to
deal with their consequences.

The Government should encourage the private provision of certain services

required to improve the capabilities of enterprises to respond positively to
NTMs, in such areas as consultancy services, testing and certification
facilities and quality control issues. An important role for government is to
make industry more aware of the extent and significance of NTMs and to
make SMEs in particular more aware of the importance of compliance
issues. Increased government funding and resources for public sector
institutions, such as standard setting bodies (SSBs), will complement the
efforts made by the private sector. Government at all levels must work
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closely with both Pan Indian and specific industry associations to encourage
the positive competitive strategies that are so important to Indian enterprises
to sustain existing and develop new competitive advantages.

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References
Books:
Economics of Global Trade and Finance Johnson, Mascarenhas (Manan Prakashan)
Web Pages:
http://www.econlib.org/library/Topics/HighSchool/BarrierstoTrade.html#definition
http://economicpoint.com/commercial-policy
https://en.wikipedia.org/wiki/Commercial_policy
http://www.econmentor.com/hs-georgia/international-economics/ssein2/definetrade-barriers-as-tariffs-quotas-embargoes-standards-and-subsidies/text/1699.html
http://www.econmentor.com/hs-advanced/barriers-to-trade/trade-restrictions-goodor-bad//text/1071.html
http://www.eldis.org/go/home&id=19128&type=Document#
http://www.tradeportalofindia.com/usrdata/webadmin/Section3.9/Mult_NonTariffMea
sures_1201.html#top
http://www.easeconomics.com/2011/08/is-free-trade-good-or-bad.html

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