'Duty-free' hits a fifth of manufacturing imports, says WTO report

This, despite average tariffs being much higher than peers, says WTO report; officials call for need to scrutinise FTAs

Duty-free imports remain prominent in almost a fifth of inbound manufacturing categories, despite average tariffs in India being much higher than other major countries, a report by the World Trade Organization (WTO) has revealed.

As high as over 30 per cent of electrical machinery imports, 19 per cent of non-electrical machinery, and 18 per cent of various types of manufactured goods came to India as of 2018 through the duty-free route, according to the World Tariff Profile 2020.

While the government has since then gone on a tariff hike spree, officials feel the figures strengthen the case for deeper scrutiny into India’s existing free-trade agreements (FTAs) to stop imports from coming in. As of now, duty-free benefits are accorded to imports from nations with which India has various trading agreements.

Focus on Asean

“While China has remained the major target of New Delhi’s push for import substitution in all these categories, the WTO data shows that imports have continued to pour in from nations for which duties on goods have been waived. These are usually the Association of Southeast Asian Nations (Asean) economies,” a senior official said.

Over the past two years, New Delhi has aggressively implemented the phased manufacturing programme, which pushes for large-scale domestic manufacturing of consumer goods like mobile phones, televisions, and computer hardware. This has been done through progressively higher duties on imported goods. On the other hand, machinery products and components have been identified as a key sector for providing incentives for domestic manufacturing.

In November, the government said it had begun reviewing the FTA with Asean that could include issues like customs procedures, further liberalisation of trade in goods and exchange of data. “India hasn’t been able to crack into the Asean market despite having an agreement. The Asean economies are known for erecting non-tariff barriers. Domestic firms also have to compete with cheap Chinese products,” trade expert Biswajit Dhar said.

The WTO’s publication is jointly prepared with the United Nations Conference on Trade and Development and the International Trade Centre. The report shows India’s share of binding coverage, a broad indicator of a country’s commitment to establish bound rates for imports and by extension slowly reduce tariffs, was 74 per cent, lagging China’s 100 per cent.

The global trade law for the 164 WTO members prohibits discrimination on the basis of tariffs. But, in-practice bound tariffs are not necessarily the rate at which members charge taxes on another country’s products, with the ‘applied tariff rate’ — less than or equal to the bound rate — being opted for.

Developed economies like the US and the EU have had lower duties, working on eventually eliminating all tariffs on imports. On the other hand, nations like India and Brazil have had to compromise between lowering import duties to participate more in global trade while at the same time protect its own industries by keeping in place import restrictions.