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Introduction
The policies countries use to restrict trade
are called Barriers to Trade.
Tariffis the most common.
Tax imposed on a good as it crosses a
national boundary.
Use of tariffs has been declining
recently due to internationalnegotiations conducted under the WTO
(successor to GATT).
A tax on imported goods and services.
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IMPORTANCE
Tariffs are duties or list of that the
government puts on exports and imports.
Tariffs are important because they help toregulate the products flowing in and out of
a country. To protect fledgling domestic industries
from foreign competition. To protect aging and inefficient domestic
industries from foreign competition.
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Areas of concern
India has reduced tariffs to bring them tobound levels. Even lower for a large numberof commodities as part of the reformsprocess. Now, India committed to reduce
tariffs to bring in line with South East Asiancountries by 2007. We are not in a position toreduce tariffs substantially to the extentsuggested by developed countries since
Customs duties important source of revenuefor developing countries like India.
The industrial sector faces severalconstraints-some protection warranted for
specific industries.
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Tariff Structure in India
Given importance attached to reduction of tariffs,we look at tariff structure in India and alternativestrategy for tariff negotiations.
Tariff structure in India highly complex in early1990s. With initiation of reforms, substantialreduction in customs duty rates. Simple averageduty rates declined from 128% in 1991-92 to
22.4% as per interim budget for the year 2004-05. Weighted average duty rates declined from72.5% to 18.2% during this period, as in table.
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Tariff Structure in India(continued)
While average duty rates have declined,
still large number of tariff rates prevalent
ranging from zero per cent to over 150%during 2004-05.
Co-efficient of variation (CV) around
average duty rates quite high.
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Types of Tariffs
Specific Tariff A tariff specified as an amount of money per unit of
the good sold. (Easy to calculate, but does notadjust to price changes.)
Ad Valorem Tariff A tariff calculated as a percentage of the value of
the good or service. (More difficult to calculate.)
Combination Tariff A tariff that combines an ad valorem tariff and a
specific tariff.
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Six Types of Non-Tariff Barriers
(2) Customs and Administrative Entry Procedures:1. Valuation systems
2. Antidumping practices3. Tariff classifications4. Documentation requirements5. Fees
(1) Specific Limitations on Trade:1. Quotas2. Import Licensing requirements3. Proportion restrictions of foreign to
domestic goods (local content requirements)4. Minimum import price limits5. Embargoes
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Six Types of Non-Tariff Barriers
(3) Standards:1. Standard disparities2. Intergovernmental acceptances of testing
methods and standards3. Packaging, labeling, and marking
(4) Government Participation in Trade:1. Government procurement policies
2. Export subsidies3. Countervailing duties4. Domestic assistance programs
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Six Types of Non-Tariff Barriers
(5) Charges on imports:
1. Prior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Import credit discriminations5. Variable levies
6. Border taxes
(6) Others:
1. Voluntary export restraints2. Orderly marketing agreements
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IMPACTS OF TARRIFS
Tariffs are a boon to domestic producers whonow facereduced competition in their home market.
The reduced competition causes prices to rise.The sales of domestic producers should alsorise, all else being equal.
The increased
production and price causes domestic producersto hire more workers which causesconsumer spending to rise.
The tariffs also increase government revenuesthat can be used to the benefit of the economy.
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The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Increase:1. Inflationary pressures
2. Special interests privileges
3. Government control and political
considerations in economic matters
4. The number of tariffs they beget via
reciprocity
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The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Weaken:
1. Balance-of-payments positions
2. Supply-and-demand patterns
3. International relations (they can starttrade wars)
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The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Restrict:
1. Manufacturer supply sources
2. Choices available to consumers
3. Competition
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The export tariffs inIndia aims at doubling India'sexport and generate additional employment
complimenting the stupendous growth of Indian
economy. The export tariffs in India is formulated
complimenting the export import policy of India whichagain forms a part of the India's foreign trade policy.
The current export tariffs in India as per the EXIM
policy of India covers exports tariff rates for different
goods and services. The export tariffs in India as perthe Indian classification on tariff items which strictly
conforms to the "Harmonized Commodity Description
and Coding System".
Export tariffs in India
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Export tariffs in India (CONTI)
The Indian export tariff saw a quantumincrement of Indian exports to Pakistan, UAEand Italy in the first quarter of the current fiscal
year. Today, India ranks second in themanufacture of small passenger car segment. Itis the worlds largest producer of genericpharmaceutical and its Information Technologysector is registering three figure growth
consistently. As a result of which India hasbecome the global export hub for goods andservices.
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Tariff Structure and
Imports(continued)
Looking at import elasticities, found elasticityless than (-)1.0 for 13 commodity groups outof 99. This suggests that reduction in tariff would result in higher percentage increase in
import ratio for these commodities.
These items included animal/vegetable fat,sugars, cocoa, vegetable and fruitpreparations, tobacco items, carpets and
textile, floor coverings, apparels and clothing,human hair, feathers, ships and boats,furniture, beddings, toys, sports items
Other sectors elasticity found to be between
(-)1.0 and zero and even positive for few.
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Some Final Observations
Large tariff reductions of essential importitems like cereals, dairy products, edible oilsand other agricultural products with lowelasticity would benefit the consumers but
would be unacceptable on considerations ofnumber of people dependent on these itemsfor their livelihood and implications ondomestic production. These sensitive itemsare also heavily subsidised by DCs.
On the other hand, drastic tariff reductions onitems with high import elasticity could lead tosubstantial surge in imports and affect thedomestic economy adversely.
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Some Final Observations (continued)
It is imperative that tariff rates need to be
rationalised and more importantly made
more uniform and transparent.
While undertaking reduction commitments,
need to carefully identify sectors that could
be subjected to greater tariff reductions
than others.
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Some Final Observations (continued)
At the same time, items of export interest
with high import content need separate
treatment.
Delicate balance of various considerations
required to determine tariff reductions
such that have minimal detrimental impact
on economy.
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PROJECT BY:
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HARSHIT BAFNA -06
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