[This blog post is sourced from one of the studies (workshop presentation slides here) yours truly was involved in about a year ago while working at SAWTEE. I think sharing analytical excerpts from the comprehensive report will be helpful to interested readers and researchers. This blog post focuses on tariffs on Nepali exports to the Indian market. Here are earlier blog posts on the issues surrounding pegged exchange rate between Nepal and India; the confidence on the Indian rupee in Nepal; and the size of Indian market for Nepal.]
State of tariff barriers
According to the trade treaty between Nepal and India signed on 27 October 2009, there are virtually no tariffs imposed on most of the Nepalese exports to India.[1] The import of vegetable fats, copper products, acrylic yarn, and zinc oxide are subject to annual quotas. The import of alcoholic liquors/beverages (except industrial spirits[2]), perfumes and cosmetics with non-Nepalese/non-Indian brand names, and cigarettes and tobacco are not allowed preferential entry into India.
The applied ad valorem equivalent (AVE) tariffs[3] are between 0.01 percent and 22.69 percent on nine of the total product categories at HS2007 2-digit classification (see Table 1). At the HS2007 6-digit level, estimated applied tariff of up to 75 percent is slapped on 25 different products. The highest tariff is on liquors and spirits (product code 220870 and 220820 respectively), estimated to be AVE equivalent tariffs of 75 percent and 50 percent, respectively.
Table 1: Applied ad valorem equivalent tariffs on Nepalese exports to India (HS2007 2-digit level) in 2009
Product codes
|
Product description
|
Number of tariff lines
|
Total AVE tariff (estimated)
|
'24
|
Tobacco and manufactured tobacco substitutes
|
44
|
22.69%
|
'22
|
Beverages, spirits and vinegar
|
64
|
4.98%
|
'18
|
Cocoa and cocoa preparations
|
15
|
4.48%
|
'74
|
Copper and articles thereof
|
95
|
0.87%
|
'33
|
Essential oils and resinoids; perfumery, cosmetic or toilet preparations
|
124
|
0.53%
|
'15
|
Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes
|
119
|
0.08%
|
'54
|
Man-made filaments
|
244
|
0.04%
|
'28
|
Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes
|
327
|
0.01%
|
'85
|
Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles
|
594
|
0.01%
|
All others
|
0.00%
| ||
Source: ITC’s Market Access Map (data for the latest year available)
In general, India's tariffs are higher for agriculture goods and processed goods than for semi-manufactures. The tariff structure in India for fiscal year 2010/11 is summarized in Table 2.
Table 2: Tariff structure, 2006/07 and 2010/11 (%)
Tariff category
|
MFN effective applied rates
|
Final bound
ratea | ||
2006/07
|
2010/11
| |||
1.
|
Bound tariff lines (% of all tariff lines)
|
75.2
|
75.6
|
75.6
|
2.
|
Simple average rate
|
15.1
|
12.0
|
46.4
|
Agricultural products (HS01‑24)
|
38.2
|
35.1
|
119.1
| |
Industrial products (HS25‑97)
|
11.8
|
8.6
|
33.7
| |
WTO agricultural products
|
36.2
|
33.2
|
118.3
| |
WTO non‑agricultural products
|
12.0
|
8.9
|
32.0
| |
Textiles
|
12.2
|
9.6
|
26.9
| |
Clothing
|
12.5
|
10.0
|
37.1
| |
3.
|
Duty free tariff lines (% of all tariff lines)
|
2.7
|
3.2
|
1.9
|
4.
|
Domestic tariff "peaks" (% of all tariff lines)b
|
2.5
|
2.2
|
6.5
|
5.
|
International tariff "peaks" (% of all tariff lines)c
|
12.5
|
11.9
|
87.7
|
6.
|
Overall standard deviation of tariff rates
|
15.0
|
14.2
|
40.8
|
7.
|
Coefficient of variation of tariff rates
|
1.0
|
1.2
|
0.9
|
8.
|
Non‑ad valorem tariffs (% of all tariff lines)
|
6.1
|
6.1
|
8.0
|
9
|
Nuisance applied rates (% of all tariff lines)d
|
0.5
|
0.7
|
0.0
|
a Based on 2010/11 tariff schedule. Implementation of final bound rates was completed in 2005. Calculations are based on 8,567 bound tariff lines, of which 8,503 are fully bound and 64 partially bound.
b Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate.
c International tariff peaks are defined as those exceeding 15%.
d Nuisance rates are those greater than zero, but less than or equal to 2%.
Note: The 2006/07 tariff is based on HS02 nomenclature, consisting of 11,695 tariff lines; the 2010/11 tariff is based on HS07 nomenclature consisting of 11,328 tariff lines. Calculations exclude specific rates and include the ad valorem part of alternate rates. MFN applied rates include exemptions, applicable at the full eight digit tariff line.
b Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate.
c International tariff peaks are defined as those exceeding 15%.
d Nuisance rates are those greater than zero, but less than or equal to 2%.
Note: The 2006/07 tariff is based on HS02 nomenclature, consisting of 11,695 tariff lines; the 2010/11 tariff is based on HS07 nomenclature consisting of 11,328 tariff lines. Calculations exclude specific rates and include the ad valorem part of alternate rates. MFN applied rates include exemptions, applicable at the full eight digit tariff line.
Source: WTO. 2011. Trade Policy Review India: Report by the Secretariat. Trade Policy Review, Geneva: World Trade Organization (WTO).
India grants preferential tariff rates for certain articles under Global System of Trade Preference (GSTP), regional,[4] and bilateral agreements[5]. Under the GSTP, India has granted tariff concessions to 12 countries on a limited number of products. Only preferences under the SAFTA II (at 2.3%) and under the Sri Lanka FTA (at 2.3%) are significantly lower than the simple average applied MFN of 12% (See Table 3).
a The 2010/11 MFN tariff consists of 11,328 tariff lines, of which 359 are duty free. The number of preferential lines includes only lines on which the rates, at fully applied eight‑digit level, are lower than the corresponding MFN applied rate.
b Preferential rates for Pakistan and Sri Lanka.
c Preferential rates apply to SAFTA LDC members: Bangladesh, Bhutan, the Maldives, and Nepal. For Bangladesh, duty‑free in‑quota rates apply to textiles.
Source: WTO. 2011. Trade Policy Review India: Report by the Secretariat. Trade Policy Review, Geneva: World Trade Organization (WTO).
[1] The official provisions concerning export of goods are related to tariffs (on the negative list items), rules of origin and safeguards.
[2] Nepalese beer can be exported to India on payment of the applicable liquor excise duty equal to the effective excise duty as levied on Indian beer.
[3] An ad valorem equivalent (AVE) tariff is a tariff presented as a percentage of the value of goods cleared through customs.
[4] These are: Agreement on South Asian Free Trade Area (SAFTA), Asia Pacific Trade Agreement (APTA, also known and Bangkok Agreement), Southern Cone Common Market (MERCOSUR), and Association for South East Asian Nations (ASEAN).
[5] These are bilateral agreements with Chile, Singapore, South Korea, and Sri Lanka.
