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There is a widespread, but erroneous perception, according to which Indian customs duties are excessively high. Subjective factors come into play in the definition of a country, such as quality of life, public courtesy or even the reception of foreigners. However, customs duties are quantifiable and subjectivity should not have its place. So let’s examine the facts.
Before that, it could however be useful for the average reader to understand the function of customs duties in a low-income developing country like India, as opposed to a high-income developed country like the United States. Traditionally, low -income developing countries use customs duties for two reasons: to protect their national industry and draw from it. The protection of national industry is an argument accepted by economists around the world, especially if the industry is emerging and the country must develop an industrial basis. There is also a generation of revenue function, as shown by customs duties on alcohol or luxury motorcycles, for example.
Indian customs duties, raised in the 1980s, have been considerably reduced since the launch of 1991 reforms and during the Uruguay cycle negotiations, which led to the creation of the World Trade Organization (WTO). Since then, the centuries -old trend in India has been a gradual reduction in applicable customs duties, year after year.
From a technical point of view, countries apply two types of customs duties. The first is the right of applied customs, which, as its name suggests, corresponds to the real customs law (generally ad valorem) imposed on the border when a foreign property enters a country.
The other is that of consolidated prices, which constitute the maximum rate that a country can impose on a foreign product under a legal obligation arising from its most favored nation commitments (NPF) towards the WTO.
It goes without saying that the tariff war launched by the United States violates their commitments under the WTO agreements. However, the WTO itself has been moribund for some time. It should also be noted that customs duties cannot be identical for all countries. It is obvious that low -income developing countries will impose higher customs duties (for the reasons mentioned above) than the G7 countries.
So where is India in all of this? When India is evaluated on the basis of its customs duties, two parameters are used: the simple average of customs duties and weighted rights depending on the exchange. If we use the first measure, Indian customs duties seem high (15.98 %). But this is in many theoretical respects, because for most goods entering the Indian market, it is the weighted customs law according to the exchanges that counts. However, the weighted customs law according to the exchanges that India maintains is 4.6 %, a very respectable level. This level of customs duties contradicts the affirmations that India is a king of customs duties. The simple averages distort the situation because they deal with all the products in the same way, regardless of the volume of exchanges. So why is there such a difference between the simple average of customs duties and weighted rights according to the exchanges of India?
India maintains relatively high customs duties on agriculture and the automobile. In both cases, the main objective of these rights is to protect the national industry. Indian agriculture is unique and does not look like any other big country in the world. About 50 % of the immense Indian population depends directly or indirectly on agriculture. In addition, Indian agriculture is not mechanized and farms are so small that agriculture is a matter of survival and not of commerce. Asking India to open their agricultural sector to imports is like to ask him to commit suicide, which no elected Indian elected government would accept. This demand is all the more blatant since Western farmers benefit from direct and indirect subsidies.
Given all this, India maintains relatively high customs duties on agricultural products, with average rates of around 33 % on meat, dairy, fruit and cereals. But this is not surprising if we consider that the average rate of the European Union is 37.5 % on dairy products, up to 205 %, and up to 261 % on fruits and vegetables. Compare this to Japan, the rate of which is 61.3 % on dairy products, up to 298 %, and up to 258 % on cereals, and 160 % on meat and vegetables. Or in South Korea, the average of which is 54 % on agricultural products, 800 % on vegetables and 300 % on fruit. Who is the king of customs duties in agriculture, could you ask? As for the automobile, this sector creates mass jobs and is crucial for this reason.
Even the average simple average tariff levels of India, at 15.98 %, comply with global standards for developing economies. Bangladesh (14.1 %), Argentina (13.4 %) and Turkey (16.2 %), which are all countries with comparable or higher GDP, maintain similar or higher prices.
Concerning the United States saying that their exports of non-agricultural products are faced with tariff barriers to India, it should be noted that American exporters are often faced with equivalent, even inferior customs duties in India compared to many Asian competitors. In the electronics and technologies sector, for example, India applies zero customs duties to most IT, semiconductor, computers and spare parts, with average customs duties of 10.9 % on electronics and 8.3 % on computer machines.
In comparison, Vietnam applies a customs rate of 8.5 % on electronic equipment, which can go up to 35 %. China applies a customs price of 5.4 %, up to 20 % on electronic products and up to 25 % on computer machines. Indonesia applies a customs rate of 6.3 % on electronic equipment, up to 20 %, and up to 30 % on computer machines.
It is true that India maintains justified pricing protection in its agricultural, dairy and automotive markets for valid reasons. But his weighted customs duties according to the exchanges applied in other sectors do not justify his name “king of customs prices”.
- Dr. Mohan Kumar is a former Indian ambassador and managing director of the new Jadeja Motwani Institute for American studies at the World University OP Jindal.
The opinions expressed in this article are those of the author.