Apples to mobiles, sweeping duty hikes cover more than 400 items

New Delhi :FROM ALMONDS and apples to cellphone parts and solar panels, there have been nearly a dozen instances of hikes in customs duty covering over 400 items during the last 24 months, marking a “calibrated departure” from the underlying policy of reducing import duty that was consistently followed by successive governments over the last two decades.
The increase in duties across both agricultural items and manufactured products is also in contravention with a proposal debated by the government’s policy think-tank Niti Aayog in the run-up to last year’s Budget to effectively bring tariffs down in line with corresponding duties in the ASEAN bloc.
Prior to the large-scale hikes, India’s peak customs duty — the highest of the normal rates — on non-agriculture products had come down steeply from 150 per cent in 1991-92 to 40 per cent in 1997-98 and subsequently, to 20 per cent in 2004-05 and 10 per cent in 2007-08.
The Union Ministry of Commerce has consistently denied these duty increases as “protectionist” in nature. But analysts caution that customs duty hike proposed on 29 US products on June 20 this year on items including almonds, apples and phosphoric acid worth $10.6 billion, which was to be effective from August 4 but has since been postponed by 45 days, could effectively cross the WTO-mandated “bound rates”.
Bound rates are the customs duty rates committed by a country to all other members under the most favoured nation principle and breaching these rates could effectively put a country at risk of being branded as “protectionist” as per the WTO norms, which prohibit discrimination by use of tariffs by its 164 members.
Some of the tariff hikes initiated over the last two years, incidentally, have come despite protests from the industry and even within sections of the government itself.
For instance, the withdrawal of concessional customs duties on 76 specified drugs in January 2016 had to be partly withdrawn as the Ministry of Health and Family Welfare cited an adverse impact of the move on the prices and availability of these drugs. The concession of customs duties on three drugs – Octreotide, Somatropin, and Anti-Haemophilic factor concentrate VIII & IX — were subsequently restored through another notification on February 17, 2016.
The implementation of the duty hike on solar panels from September 2017 was opposed by both the New and Renewable Energy Ministry and solar project developers.
The withdrawal of the exemption from basic customs duty on cashew nuts in shell in the Budget 2016-17 resulted in representations from various trade and industry associations such as the Andhra Pradesh Cashew Manufacturers Association, the Karnataka Cashew Manufacturers Association, Kerala Cashew Processors and Exporters Association, the Cashew Factory Owners Development Association of Tamil Nadu and the Cashew Export Council of India. They sought a withdrawal of the imposition of the duty of 5 per cent on cashew nuts in shell.
There seems to have been a decisive shift in the policies on customs duties from the middle of 2017. In fact, at the Niti Aayog pre-Budget meeting on December 28, 2016, that was attended by Prime Minister Narendra Modi, a proposal to further harmonise the peak customs duty at 7 per cent was discussed, with the aim of both bringing the import tariffs in line with ASEAN duties and addressing the issue of “duty inversion” — when the tariffs on finished goods are lower than that on components and raw materials — that hurts domestic manufacturing.
Analysts predict that breaching the WTO-bound rates could have serious repercussions. The WTO requires member countries to notify bound tariffs on products as per the commitments resulting from negotiations. Country-wise bound tariff commitments are listed in the documents called the Schedule of Commitments and are an integral part of the WTO Agreement.
WTO member countries have the flexibility to increase or decrease their tariffs so long as they do not raise them above their bound levels. If one WTO member raises applied tariffs above their bound level, other WTO members can take the country to the WTO’s dispute settlement for resolving the issue.
An official in the Ministry of Commerce and Industry said that negotiations are currently underway between India and the US on the issue of tariffs and that India would “stay compliant with all its commitments under the WTO”.
Officials also pointed out that alongside hiking duties, India has also reduced import duties on some items. These include a cut in the import duties on palm oil with effect from September 23, 2016, from 12.5 per cent to 7.5 per cent for crude palm oil of edible grade, and from 20 per cent to 15 per cent for refined palm oil of edible grade. Import duty on wheat was reduced from 10 per cent to Nil with effect from December 8, 2016, but this was subsequently increased to 10 per cent in a little over three months.