Sunil Jain: Indo-US highs and lows

RATIONAL EXPECTATIONS

Much has been made of the mangoes that the US will finally allow to be imported from India as a sign of the great trade co-operation between the two countries during US President George Bush's visit, but a point that got surprisingly little attention in Indo-US trade relations was the US highs and our lows. That is, the extraordinarily high import duties in the US for items that India wishes to export in large volumes, and the impact of this on keeping India's exports low. Indeed, while most Americans (and many Indians) are fond of comparing India's high tariffs with the average of 4-5 per cent in their country, the fact is that US tariffs are higher than those in even India for some of these items.

In the case of cotton T-shirts, which are a big export item for India, for instance, the US has an import duty of 19.7 per cent while India levies import duties of just 15 per cent on such items. For man-made fibre T-shirts, the difference is even more stark""while the US import duty on such products is a massive 32 per cent, our import duty is less than half this at 15 per cent. The same rough order of magnitude applies to other man-made fibre items like trousers and shirts. Indeed, the average tariff Indian exporters of garments have to pay in the US ranges from 15 to 30 per cent, depending upon whether it is cotton or man-made fibre items that are being imported.

If this were the only anomaly, there wouldn't be too much of a problem. After all, if the US wants to penalise its citizens, then so be it. The problem, however, is that the US imports huge amounts of textiles/apparel from countries with whom it has preferential or zero tariff arrangements""these include the Central American Free Trade Arrangement countries (like El Salvador, Nicaragua, and Guatemala), the Caribbean Basin Initiative ones (Costa Rica, Jamaica, Haiti, and others)""and this is a big loss to Indian suppliers who, due to the higher import duties, become uncompetitive. Such zero-duty import could add up to around 75 per cent of all US imports of particular commodities at times.

Take the case of women's knit shirts/blouses made out of cotton, which are one of the larger-volume textile/apparel items the US imports""in the first eleven months of 2005, the US imported a little under $6.3 billion of such items. While India supplied just $177 million of this, over $4.6 billion of cotton blouses were imported from various zero-duty countries. In the case of cotton trousers/slacks/shorts for women and girls""another big-ticket item with $6.4 billion of imports in the January to November period last year""India did not make any supplies in this category in this period while that from zero-duty countries were over $3.1 billion.

The list goes on. Of the ten items the Confederation of Indian Textile Industry (CITI) collated such information for, while total US imports were $32 billion last year, that from zero-duty countries added up to around 62 per cent of total imports. Exports from India of these items, by contrast, were just a little over $1 billion. According to CITI, Indian exports face similar discrimination in Europe, but unlike in the case of the US, there is no freely accessible database that allows such an analysis to be made easily""the otexa site in the US has all manner of data available for those interested in such things.

In a landmark case, which India won against the EU at the WTO a few years ago, it was able to show just how much such duty-free access agreements hit India's exporters. In the case in question, the EU gave special duty concessions to countries like Pakistan on the grounds that they were combating illicit drug production and so needed to be compensated for the loss of revenues they were suffering. India won the case by showing this was inconsistent with the Most Favoured Nation obligation of the WTO, but what's important is that it showed that even when Pakistan's shipping price was higher than India's, its price for European customers was lower than that of Indian suppliers due to the duty differential. This drug window, incidentally, affected more than 60 per cent of EU imports from India in terms of value and between 2001 and 2003, Pakistan's exports to the EU rose more than 37 per cent while India's rose only 22 per cent. In the case of specific items like T-shirts, trousers, ladies' blouses, and bed linen, India's exports grew by less than 2 per cent while those from Pakistan rose by nearly 20 per cent.

While this kind of problem is the most severe in the case of textile products where, in the case of exports to the US, nearly 200 tariff lines, or types of goods, are affected by high tariffs, it applies in other areas as well. Forty-five types of leather goods, from bags to belts, face import duties ranging from 16 per cent to 48 per cent in the US. For glassware and other items that India exports, US tariffs are in the range of 16-38 per cent.

Of course, it's not just the US; Canada has 16-18 per cent import duties on 294 lines of textile products India exports, and 16-20 per cent duties on footwear; and Australia has import duties of up to 50 per cent on some items of export interest to India.

suniljain@business-standard.com