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Sunday, February 12, 2017

Countervailing duty on jute

M S Siddiqui

Bangladesh exports some simple consumer goods like garments, hosiery products, knitwear, leather
shoes, fruit juices, jams and pickles, fish and fish products apart from raw jute and jute products for
the Indian market. Bangladeshi products attract more tax and other charges in addition to the basic
customs duty, there are a number of para-tariff measures, which are virtually applicable to all
products imported into India.

Sometimes these para-tariffs are applied at the border without any prior notification to the importers
or the exporters. These measures are intended to protect local products and include Countervailing
Duty (CVD), anti-dumping duty, excise duty, sales tax, supplementary duty, additional customs duty,
special additional customs duty , surcharge on customs duty, luxury tax etc.,which together amount
to 60-80% of the invoice value.

Additionally, the Government of India in its FY 2006-07 budget imposed high tariffs on almost all
major Bangladeshi products exported to India. Moreover, the Government of India imposed 4%
special (CVD) on the import of JamdaniSaree and Hilsha fish.

Apart from tariff, Non-Tariff Barriers (NTBs) are a major impediment to Bangladesh's exports to
India. It is difficult to make an exhaustive list of NTBs as they tend to vary from consignment to
consignment. Most NTBs are non-transparent and hence are difficult to identify. Some of them are
state-mandated impositions or requirements, while others are sheer bureaucratic interference.

The most commonly used NTBs are dispute over classification of goods for Customs Purposes. The
Indian Customs Authority sometimes refuses to accept the HS classification declared by the Indian
importers as per nomenclature rule and letter of credit opened by Indian Banks.

Secondly, requirement of chemical tests. Indian Customs demands chemical test for most products
but since there is no testing facility near any land port, chemical tests take a long time and cause
goods to be stranded for indefinite periods under the open sky.

These testing requirements not only raise costs to Indian importers but also constitute harassment to
Bangladesh exporters. Problems multiply if the importers happen to be in Northeast India since that
area is far away from lab situated in the western part of India. Then comes customs valuation.

The Indian Customs often refuses to accept the Invoice value of the exported items and assesses the
consignment on the basis of Retail Sale Price in India, which is higher than the invoice value. This is
also against standard customs policy. This practice substantially raises the assessable value of the
imported items and the buyers are to pay an extra amount as import duty and taxes.

As a result, Bangladeshi exports become less competitive in the Indian market. Health and Quality
Standards is next. Imposition of arbitrary health and quality standards favors domestic producers
over foreign producers. The process of Health and quality standard is really difficult from India for
Bangladeshi products.

Permits and Licenses is also to be considered. Indian traders require obtaining Import-Export Code
No. for doing cross-border trade from the North-East from the Director General of Foreign Trade,
Kolkata, which is about 1680 km. from Agartala. Because of this restriction, Bangladesh and Tripura
cannot take the advantage of their geographical proximity to increase bilateral trade.

Condition for obtaining ISI Certificate is also important. Bangladesh exporters of cement and
building materials are required to obtain an ISI Certificate from the Bureau of Indian Standard
(BIS), New Delhi, if they intend to export to India. The huge cost as well the complicated procedure
for certification makes exporting to India very difficult. There is Requirement to collect health
certificate. An Indian importer has to obtain a Health Certificate from the Port Health Officer (PHO)
in Kolkata for importing food items from Bangladesh.

North-East India, where the land customs stations are 1060 km to 1680 km away from Kolkata, this
is a formidable barrier to importing food items from Bangladesh. Sanitary and Phytosanitary
Measures. In order to import agricultural products in India, an importer has to obtain "Bio-Security"
and "Sanitary and Phytosanitary" Import Permit.

Quality standard certificate by the BSTI is not accepted by India. India introduced mandatory
marking for a number of products stating that these should comply with Indian Quality Standards
set by the Bureau of Indian Standards (BIS). This requirement seriously hampers Bangladesh's
exports to India. Mutual recognition of each other's standards could obviate with this problem.

Inadequate land customs infrastructure is another reason. Because of the absence of warehousing
facilities for imported goods in most of the land customs stations on the Indian side, goods exported
by Bangladesh are kept in the open space till customs formalities for clearance are completed.

This results in damage to the exported goods and their inconsistent supply to the Indian market.
Apart from tariff, para-tariff and non-tariff barriers mentioned above, imports into India are
restricted by various types of unexpected harassment like filing false cases in court for allegedly
violating rules relating to health, weights and measures, rejection of consignments on one pretext or
another, refusal to grant duty concessions as per SAPTA provisions, and so on. Bangladesh
manufacturers have found it very difficult to overcome these barriers and export their merchandise
to the Indian market.

The recent Indian counter veiling duty on Jute and Jute goods has been imposed upon application
from some Jute traders in India. The Directorate General of Anti-Dumping and Allied Duties
(DGAD), India investigated the issue during the year 2015 and had concluded that there is dumping
of goods and the imports were "undercutting and suppressing the prices of the domestic industry".
"Performance of domestic industry has deteriorated in the terms of profitability return on
investments and cash flow (and) injury to domestic industry has been caused by dumped imports,"
West Bengal is the major player in the jute industry, with 3.5-4 lakh people being employed in the

By this time, Indian Supreme Court stay the counter veiling duty on Bangladeshi and Nepali Court
Jute and Jute goods till end of February at the writ submitted by Indian Importers. Bangladesh
usually exports jute and jute goods, yarn, twine, sacks and bags worth around $900 million and 20
per cent of Bangladesh's export to Indian market. Total Indian demand for Jute products in 2014-15
was 14,80,828mt.

The Sales of the Indian domestic industry reportedly declined in the period of investigation (POI) in
2015. However, the domestic market share has grown by 1.44% and 0.44% respectively in year 2011-
12 and 2012-13. The petitioners claim that, though the petitioning domestic Industry production
declined in POI, the other domestic producers witnessed around 10.28% growth.

The profitability of the domestic industry has declined over the injury period. Petitioner reported 19
Indian companies have shut down though no evidence was established that companies were shut due
to imports from Bangladesh. They did not establish the causal link between shutdown of jute
industry and import from Bangladesh and Nepal. They did not provide any impact assessment and
economic impact of Bangladesh and Nepalese export.

The petitioners claimed only 42% share of total domestic production comprising three categories of
jute and jute goods, yarn, twine, sacks and bags. But the requirement of major share of domestic
industry for individual product category was not fulfilled. Interestingly during the investing period,
some of the petitioners imported these products from Bangladesh and Nepal.

Market intelligence shows many Petitioning Companies namely Gloster Industry, Ludlow Jute
Industry, Chevot company and Budge Budge etcwere able to make incremental and notable profits
in 2015-16. Even companies made profit during injury period e.g. 2010-11 to 2013-14.

Total jute and jute goods export from Bangladesh was $918 million in 2015-16. Export of India was
$320 million in Year 2015-16. About 29.46% of our total export earnings from India accounts for
Jute and jute goods. Owing to global precarious economic situation, many jute mills in Bangladesh
also incurred losses in 2014-15.

Investigation found none of the jute mills in India were shutdown due to jute import from
Bangladesh rather were due to other likely exogenous economic factors. Indian Jute industry enjoys
13% cash incentive for export including 5% duty drawback, 5% and 3% Working Capital loan subsidy.
They could not prove that the claimed of evidence to establish causal link between dumping and

The anti-dumping duty will decrease the formal export and increase smuggling to India. Bangladesh
will try to have alternate market for jute and jute products and will also try to export value added
products in order to get better price. Finally Bangladesh will be benefited in the long run. The Indian
action may increase the informal export of Raw jute to India will narrow down the gap of informal
trade and Bangladesh exporter will look for alternate export market. These two benefits Bangladesh
may gain from Indian action.

A World Bank study has, however, produced evidence to show that Bangladesh's bilateral trade
deficit with India is not necessarily the result of, or aggravated by, India's protectionist policies, but
by Bangladesh's undiversified production structure and lack competitiveness in the Indian market.

The study suggests that the low level and slow growth of Bangladesh's exports to India reflect
fundamental comparative advantage factors not discriminatory import policies. The study of World
Bank did not refer to the reason why Bangladesh garments export to India is very low while
Bangladesh is one of the market leaders of garment export to EU and US market. They may not
consider the export of Bangladeshis drugs to about 100 countries including quality sensitive US

The writer is a legal economist