Inside US Trade
India and the United States have reached an agreement that will allow India to raise tariffs on certain agricultural commodities to mitigate the effects of the lifting of quantitative import restrictions mandated by a World Trade Organization decision, according to an December 1999 agreement made public last week. In exchange for these fifteen tariff hikes, India agreed to lower eleven agricultural tariffs on products such as citrus, fruits and almonds, the largest U.S. export to India.
The tariffs increase from zero to 70 to 80 percent on grains such as include grains such as seed corn and sorghum, according to the text of the agreement released this week. The U.S. has not been historically a large exporter of the products for which the tariffs went up as part of the deal negotiated with India under Article 28 of the General Agreement on Tariffs & Trade.
India withdrew its request for tariff increases in soybean oils, animal fats and plums, according to the text of the agreement. On plums, instead of an increase, it granted a tariff reduction from 30 to 25 percent.
India wanted to raise these tariffs to protect itself from third-country imports, particularly rice from China and the rest of South East Asia, government sources said.
The tariff agreement was concluded on December 28, 1999, the same day the U.S. and India agreed on a schedule to lift import restrictions such as quotas and licenses taken for balance of payments reasons. Those restrictions, which were challenged successfully by the U.S. in the WTO, are scheduled to disappear for about 700 products by April 2000. The second group of products will have its restrictions phased out starting April 2001.
The agreement does not specify at what date the tariff cuts and hikes will go into effect, but U.S. officials said they would go into effect simultaneously and immediately without phase-out. Implementation is expected in either April or May, one official said.
The U.S. expects further negotiations with India on more tariff hikes after India lifts BOP restrictions next month, a U.S. Agriculture Department official said. Over 300 of the total 1400 items affected by the BOP deal are agricultural products.
The announcement of the tariff deal made during President Clinton's visit to India last week drew reactions of surprise and concern from representatives of some U.S. commodities groups, who said they considered India a potential market for some of the affected products. Some commodity groups were trying to arrange meetings with senior U.S. officials to get more information about the deal, sources said.
Industry sources criticized the deal, saying it hampered access to a potential market for U.S. corn, particularly for feed in a growing Indian poultry industry. The agreement establishes a tariff rate quota for non-seed corn, with an in-tariff quota of 15 percent and an out-of-quota rate of 60 percent. The previous bound rate had been zero.
"At a time when we are cracking that market and we see a potential increase...right at the same time, the tariff is negotiated up," an industry source said. "It was a surprise to us and we feel we were not informed."
By contrast, the increased tariffs on rice, which jumps from zero to 70-80 percent, did not prompt reaction from an industry source, because India is a rice exporter and not viewed as a potential U.S. market.
A U.S. trade official insisted this week that the tariff hikes had been "vetted" with both the U.S. Department of Agriculture and agricultural producers. But a USDA official said groups were notified when India first requested the talks but that the issue had been "dormant" until negotiations picked up in the fall when the U.S. and India began negotiations over elimination of the BOP restrictions.
Negotiations on the tariff changes took place under Article 28 of the GATT, which allows a country to negotiate modifications of its bound tariffs with the country or countries with which it had initially negotiated the tariffs. India also concluded Article 28I negotiations with the European Union and Australia, U.S. government sources said.
The Article 28 negotiations with the U.S. were initiated by India in 1996, prior to the WTO case on the BOP restrictions, but they became more of a priority for India after its BOP restrictions were ruled in violation of WTO rules. India had wanted to change low tariffs on grains that date back to a time when it was a major food importer, sources said. Based on the results of other Article 28 negotiations, USDA feared that India would seek tariff rates of 100 percent or higher, according to the USDA official. The U.S. also encouraged India to maintain applied rates below the new bound rates, but there was no commitment to do so, the official said.
A USDA official conceded that it was difficult to know the potential market for India for the affected products because of previous restrictions imposed by India.
The U.S. focused on winning reductions of the bound tariff rates that would also cut the tariff rates India now applies to imports. That is the case with the tariff cut in almonds, for which the bound rate was the same as the applied rate, according to an industry source. Similarly, the cut on the bound orange tariffs from 100 percent to 40 percent would cut India's currently applied tariff and tax rate of 50.8 percent, sources said.
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