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Export Barriers: An Overview

Despite many decades of tariff reduction under the aegis of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO), trade barriers remain high. Although world average import tariffs have fallen from over 20 percent in the 1980s to less than 10 percent in 2009. Magisterial survey of the literature on trade costs note that the average tariff equivalent of trade costs for industrialised countries is 170 percent. This value is higher for developing countries, and there are large variations across industries as well. The reason for the high value of measured trade costs is that they include much more than just tariffs and non-tariff barriers; they include all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself. There are a large number of studies focussing on export barriers, mainly non-tariff barriers (NTBs) that manifest as behind-the-border barriers to trade. The pioneering research on export barriers identified the lack of knowledge of foreign markets as a dominant impediment to international activity commitment. Later research classifies barriers into internal and external barriers which impact on the activity of exporting firms. Studies show that internal barriers such as procedural, distribution and documentation problems are associated with the exporting firms organisational resources. Examples of such barriers include the lack of knowledge, experience, socio-economic and managerial factors. External barriers, on the other hand, originate in the external environment of the exporting firm. Later studies further disaggregate the conceptual domain of export barriers into internal-domestic, internal-foreign, external-domestic and external-foreign problems. Research shows that exporters sensitivity to barriers in the foreign market is determined by managerial perceptions which are in turn influenced by contextual factors associated with firm size, resources and capability, export involvement and international experience. Studies also show that exporters consider high banking charges, low capacity usage, and poor technology as the major problems that affect their business operations. In more general terms, changes in consumers preferences, the presence of middlemen and agent representatives, import tariffs, problems finding a trustworthy distributor in the target country, exchange rate fluctuations, risk of losing money in the foreign market, and quality and safety standards are other potential export barriers to firms. In Asia, export barriers are concentrated mainly in the textile and clothing sector and studies report that most barriers are attributed to technical regulations and labelling rules. A primary survey on exporters perceptions of barriers reports an increasing incidence of nontariff measures on Indias exports. Another study on Indias textiles and clothing sector, informs that nonpreferential rules of origin and discriminatory unilateral changes to technical rules are important barriers. The OECD survey (2005) identifies labelling requirements, technical standards, antidumping measures and child labour laws as main barriers to Indian exports of textiles and clothing in the EU. Other related export barriers include general absence of information, lack of transparency on procedures and regulations regarding technical specifications, inadequate information about sampling, inspection, and testing as well as changes in packaging requirements. Finally, customs procedures and valuation rules are also identified as NTBs which have the potential to adversely impact on exporting activity (World Bank, 2009). Studies show that the Indian industry in general has had to face competition from both domestic and foreign firms. The objective of this paper is to analyse the perceived export barriers faced by Textiles and Clothing and Leather Goods and Footwear industries in India. These two industries together comprise just over a quarter of Indias total exports to the EU in 2010 (EC, 2011).

Using data collected through interviews with managers of 30 firms, which are active in exporting to the EU in each of these two sectors, we develop and estimate an econometric model that relates export barriers reported by firms to the firms own characteristics. Our results on Indian firms perceptions to export barriers may shed light on issues that need addressing in light of ongoing negotiations for a Free Trade Agreement (FTA) between the EU and India. This proposed agreement aims to address behind-the-border barriers, especially the existing NTBs to trade. We find that firms which are closer to ports perceive transport costs and corruption are less important barriers than firms which are further away. On the other hand, firm size, exporting experience and whether the firm is in the textiles or leather industry have no significant impact on the firms perception of the level of export barriers. PROBLEMS OF RICE EXPORT FROM INDIA India is facing stiff competition in the world markets for export of rice. Besides, there are many domestic problems for rice exporters. If these internal problems are relaxed to the extent possible, the exporters may find easy way to boost rice export and such measures will go a long way to sustain the exports. Some of the major problems are discussed in this chapter below: 1. As per the state Govt. policy, various taxes are imposed on rice exports, such as the states are imposing Purchase Tax (on indirect export), Market Fees, Rural Development Fund, Administrative Charges etc. These taxes are rendering the pricing of rice internationally in competitive. Thus, Indian rice becomes costlier in the international market as compared to other competing countries in the world and Indian rice exports get setback many times. Infact, in Pakistan rice meant for exports specially the branded ones, duties are extremely low or duty free. 2. There is lack of proper infrastructural facilities. Many times exporters, when they carry their stock to sea port and if the stock is not loaded due to some reason or the other, exporters do not find godown or proper place to store their stocks properly and safely at sea port, exporters have to face lot of difficulties, besides, it adds additional expenditure to the exporters. 3. Due to increase in the cost of inputs used for paddy cultivation the production cost goes up and the Minimum Support Price (MSP) for paddy is enhanced every year by the govt. of India to safeguard the interest of the growers. When paddy is converted to rice, it becomes costlier and thus makes it internationally uncompetitive. 4. Rice production meant for export purpose is having subsidy in other countries, which reduces the cost of production and thereby reducing the cost of rice. Therefore, the export price of rice of such countries is more competitive in the international markets compared to Indian rice. 5. The major rice producing nations have decreased the price to capture the international markets but Indian rice prices are inelastic due to relatively high cost of production and becomes uncompetitive in the international markets. Much of basmati rice export prospects have been lost in the recent part to other competing countries like Pakistan etc because of high prices. 6. Rice mills have not been fully modernized to ensure high milling recovery and reduce the percentage of broken rice. The conventional rice mills are having Rubber Roll Sheller in which percentage of broken rice is more than the modern rice mills that are having under

Runner Sheller. Hence, head rice obtained from milling of conventional mills becomes costly due to recovery of higher percentage of broken rice. Therefore, conventional mills are required to be modernized to get recovery of higher percentage of head rice suitable for export. 7. Lack of proper arrangements for production of sufficient quantity of quality seeds needed for cultivation of rice for export purposes. 8. The export is also suffering much due to the competition from other exporting countries like Thailand, Vietnam and Pakistan because the cost of production in these competing countries is low as compared to the cost of production in India. Infact, trade segment believes that Indian rice can face the global competition if subsidy is provided. 9. In these days basmati rice is facing aroma problem, because intensity of aroma in traditional basmati varieties is not so high as it used to be. Infact, basmati varieties are highly prone to lodging and lodging affects the natural grain development. In such situation both aroma and linear kernel elongation are affected. 10. Post-harvest handling of produce is another important aspect. Generally, farmers are harvesting the crop at different moisture levels and keeping the produce at higher moisture level for a longer period will impair the intensity of aroma. 11. In absence of genetically pure seed of basmati varieties, in majority of basmati rice fields, a variation in plant height, grain size and maturity of the crop is found. This is one of the major reasons for poor quality of basmati rice. Infact, at the time of rice processing the grain size can be taken care of, but it is a waste. However, using good quality seed the loss can be converted into profit.

Problems Faced by the Seafood Industry


According to provisional figures for the half year April-September of 2012-13, there has been a decline in Indias marine products export, compared to the same period in 2011-12. Exports of marine products have registered a decline of 6.91% in quantity and 16.60% in US$ earnings. The industry is passing through a tough phase right now. Just a few months back, we had been celebrating the conclusion of our most successful fiscal, surpassing all previous export records and the US$ 3.5 billion mark. Though the current setback could be attributed to some unforeseen developments in the international scene, the impact has been devastating. Some of the issues which require the immediate attention of and redressal by the concerned authorities are: 1. Increase in Reefer base rates All the shipping lines operating from Indian coasts have unilaterally announced an increase of US$1500.00 in freezer container freight rates irrespective of the size of the container and port of destination. All ocean freight carriers carrying goods to US ports are required to file their tariff rates with Federal Maritime Commission (FMC). However, these rates are not the actual tariff collected from the shippers. They will vary from shipper to shipper based on a special contract signed between individual shipper and the freight carrier. All other shippers will be subject to the open tariff rate filed with FMC. The tariff rates between the contracted rate and the open tariff rate for US East Coast may be as high as US$1500.00 or more.

The lack of effective legislation for fixing the freight rates to specific destinations have contributed to this unhealthy practice of bargaining for the freight rates by the shippers. Nevertheless, the freight carriers have neither discussed the increase with the shippers nor published their prior intention to increase the rates. Application of an across the board increase of US$1500.00 for all destinations and sizes of containers clearly indicates that the increase has been applied without proper methodology, justification or without supportive documentation. Apart from the FMC filed tariff, they have the option of further increasing the rates through such mechanisms as BAF (Bunker Adjustment Factor), CAF (Currency Adjustment Factor), GRI (General Rate Increase), PSS (Peak Season Surcharge) and CS (Congestion Surcharge). It is truly amazing that this service provider (freight carriers) and their agents (Shipping Services Provider) who are operating from India with a license applied for and granted by the Government of India are allowed to be totally beyond any control measures of the Indian Government and can continue to operate with impunity and fix the scale of rates according to their whims and fancies. Seafood shippers exporting low value seafood to destinations to East Asia and the Middle East will be put to serious problems as they will not be able to compete with their competitors who are not subject to this unilateral increase. . Many exporters have now started resorting to transhipment of through foreign ports to overcome the high freight charges they are asked to pay in Chennai, Cochin, Mumbai, etc. Even though it may take a couple of extra weeks in transit compared to direct service from Indian ports, exporters choose the indirect route as the savings on freight charges are enormous. The savings become all the more significant with increase in the size of cargo. The freight rate to UAE for a 40 reefer container (18000kgs) from Cochin is US$1700.00. An increase of US$1500.00 (88.32%) will increase the price of the product by Rs.4.60/kg which is more the profit that the shipper would make on the product. To East Asia and China (24000kgs), the increase will be Rs.3.44/kg. If the product is Ribbonfish, the freight increase will simply close the market for Indian Ribbonfish. In the case of value added IQF products, the increase will be between Rs. 5.90 to Rs.6.88/kg. As can be seen from the above scenario, the future trade of seafood will receive a serious setback, if the intended freight increase is put in to effect. 2. Terminal Handling Charges (THC) A major hurdle faced by the seafood export industry in India is the exorbitant Terminal Handling Charges (THC) levied by Indian terminal operator. Although the scale of rates for the THC is fixed by Tariff Authority for Major Ports (TAMP), the shipping services sector pays little heed to the regulatory body knowing full well that no penal action will be taken against them. The THC in Indian ports today are very high compared to ports in the neighbouring countries including Sri Lanka and the Middle East region. According to media reports, more than half of Colombo Ports total cargo volume comes from India. Needless to say, this is due to the high charges at Indian ports. Reports further reveal that Colombo port is all set to increase its cargo handling capacity to three times the present capacity, in anticipation of a further increase in Indian cargo through it. It seems they are eyeing the possibility of Indian traders capitalising on the high economies of scale.

3. Anti-Dumping Duty The US anti-dumping duty on frozen shrimp imports from India was imposed from August 4, 2004. The average duty imposed on Indian companies was 10.17 per cent and in the first AR this was cut to 7.22 per cent. It was further reduced to 1.69 per cent in the second AR and to 0.79 per cent in the third. In the fifth AR, this was raised to 1.69 per cent. After the sixth Administrative Review (AR) it has been further enhanced to 2.51 per cent, from 1.69 per cent. Announcing the results of the sixth AR, the US Department of Commerce (DoC) reduced the duty for Falcon Marine Exports, the mandatory respondent for the review, to zero. The revised duty is applicable from February 2011 to January 2012. This decision of DoC will be effective from 2013, when the seventh administrative review completes. Whereas the number of Indian companies exporting to the US in the year 2005 stood at 270, the number stands at 68, today. 4. CVD Petition Filed against Seven Countries including India The Coalition of Gulf Shrimp Industries of the U.S. has filed a petition before the International Trade Administration, the United States Department of Commerce (DoC) and the United States International Trade Commission (ITC), demanding the imposition of countervailing duties on certain frozen warm water shrimps from China, Ecuador, India, Indonesia, Malaysia, Thailand and Vietnam. The petition makes several allegations regarding the countervailable subsidies provided in India with regard to the manufacture, production and export of certain frozen warm water shrimp. The petition identifies certain subsidy programmes as countervailable to the shrimp industry in India. The petition alleges that the Government of India is aggressively promoting its shrimp industry through the provision of generous government subsidies. It calls for the initiation of an investigation into the countervailable subsidies provided to the Indian shrimp industry, and to impose duties through a countervailing duty order in an amount that would offset the benefit conferred by these subsidies. The petition also asks the US Department of Commerce to include subsidies to producers of raw shrimp in India, in its investigation. 5. Withdrawal of SHIS for Marine Industry The Director General of Foreign Trade (DGFT), on 5th June 2012, published the Annual Supplement of the Foreign Trade Policy (FTP), in which the Status Holder Incentive Scheme was expanded to cover more export product groups including marine products. However, the words Marine Products was neither mentioned in Chapter 3 of FTP, nor in the Handbook. Because of this anomaly, exporters couldnt avail of SHIS benefits. Surprisingly, on 28th December 2012, marine products were withdrawn from the scope of SHIS.

Conclusion Our efforts to tide over the present crisis require the governments support and assistance. Seafood exports have always figured on the growth sectors side of the countrys economy, but periodic policy formulations havent done enough to improve upon the growth of this industry. As exporters, we have always felt that policy changes are effected without taking into account important factors like the comparative situation in our competitors economies. The sector is already placed at a huge disadvantage as diesel is not being considered as an input for calculations in the erstwhile DEPB scheme and also in the Drawback scheme. Regardless of the serious obstacles faced by this sector, both due to external and internal factors, the supports of DEPB of 8% has been reduced to 3.5% drawback, and worse still, VKGUY of 5% has been reduced to 3%. With the international markets, particularly the USA and EEC, being very weak and risky due to economic crisis, the sector is greatly concerned about its immediate and future prospects, which is compounded by the massive reduction in the support package for this sector. Unless the support packages are restored, both in terms of increase in VKGUY and Drawback rates, the sector and its employment force of almost 3 million people will face severe hardships in the days to come.

Problems Faced by the Textile and Leather Industry


Within the context of EU-India trade, external barriers that industries encounter originate from regulatory framework in the EU that are minimum quality standards to guarantee the health and safety of the consumer or protection of the environment. These regulations and standards are legal documents and are mandatory in all cases. Over implementation by importers manifests as NTBs to the exporting activity of firms which translates into: (1) administrative burden of compliance (2) additional financial costs. For instance, in the Leather and Footwear industry, buyers require exporters to comply with chemicals limits in excess of the specified requirements. Examples include demand for over compliance with the norm on specified limits for chemicals used in leather processing and finishing such as azodyes, chrome IV, cadmium, polychlorinated biphenyls, terphenyls, and Benzedrine. Another example from the Leather and Footwear industry is the EUs Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) legislation which aims to phase out harmful chemicals over 10 years by employing the life cycle process approach to production. Other related costs to implement REACH are changes necessitated in production processes given the extant EU rules require exporting firms to identify all inputs used in production of the final product. Other associated compliance costs for REACH include independent accreditation and verification of exporters compliance at a fee every time this list is updated. Such technical requirements on the minimum quality standards to guarantee the health and safety of the consumer or the protection of the environment raise prices of imports in a way that is equivalent to a tariff. Further costs arise given producers have to prove conformity with any given standard or technical regulation. In principle, certification of goods conformity can be carried out either by the exporting firm, government agencies, or outsourced to other firms. Since exporting firms

in India and government agencies lack qualified technicians/laboratory assistants and have shortage of testing equipment, in most cases the results of tests and accreditation are not recognised by EU buyers. Without exception, the EU-based importers demand that exports of Textiles and Clothing (e.g. functional garments, uniforms, upholstery materials, home furnishings and made ups, carpets and rugs, and industrial fabrics) and Leather and Footwear from India are tested and certified by EU nominated foreign testing agencies, such as SGS Testing, Specialised Technology Resources Inc or even laboratories in the EU (Khorana, et al, 2010). In addition to these, there are overheads such as consultancy fees for certification, translation of technical documents for the certifying agencies in languages other than English, despatch charges of samples and technical documents. Costs are also involved for packaging of final product depending on destination country with regards to waste reduction at source, elimination of harmful materials in packaging waste, maximising the recovery of packaging waste for re-use, recycling, composting or energy generation, and minimising final disposal. Another barrier emanates from standards, both national and voluntary, that vary widely between different EU Member States. In almost all cases, buyers require that product labels be in line with both the EU legislation and Member States national domestic standards. As a result, firms have to meet different standards and are unable to benefit from economies of scale.

Internal barriers encountered by Indian firms in exporting to the EU market


Internal or domestic barriers stem from inadequate physical infrastructure, corruption and high transport costs which impacts adversely on Indian firms export competitiveness. Changing fashions in garments necessitate shorter production schedules and in light of the existing physical infrastructure constraints in India it is a challenge for exporters to ensure timely deliveries of initial and repeat orders. In particular, Indian exporters competitiveness is disadvantaged by an ineffective domestic logistics system. The inefficiency of the Indian inland transportation system is attributed to outdated transport lorries, poor road conditions, unavailability of all-weather road connectivity, frequent road strikes, and rising fuel costs. Finally, cargo is often delayed because of numerous official and unofficial checkpoints on the principal trade routes, in particular between state borders and district boundaries (Planning Commission of India, 2010). In this manner, high transport costs and physical infrastructural deficiencies impact on competitiveness directly and raise per unit export costs. Corruption and bureaucracy is another important barrier. High domestic corruption, attributed to excessive governmental regulations and bureaucratic hurdles, is a commonly constraint reported by Indian exporters. Extant rules require Indian exporters to undertake excessive administrative formalities in different offices. Corruption is compounded by the existing governmental policy that allows tax breaks and financial support to small exporting firms.

Problems of Marketing and Export of Indian Spices


General Problems Low Productivity Low productivity in the Spice sector is one of the serious problems facing the Indian Spice industry. Result is low competitiveness in the international markets. Poor Product Quality Poor product quality at farm level is another problem hindering reasonable price realization by the producer. Insufficient infra-structure facilities for cleaning, scientific methods of processing, storage and packing. Insufficiency of Legal Provisions Our present legal provisions relating to many elements that constitute SPS measures are insufficient. India does not have a National Standard covering all the requirements of the agreement under SPS measures. The regulations under AGMARK are only optional and not mandatory and are not even comprehensive. Similarly, the provisions existing under the PFA are also not comprehensive and provide loopholes for import of cheap spices from other countries of origin. Under both the legislations, there is absolutely no reference to pesticide residues. Out of the 164 molecules registered in the country, 26 are produced under deemed registration regime and the situation has continued over years. This system of registration would certainly have an adverse impact on the spices export from the country in the long run. The major non-tariff trade barrier that seriously affects Indian export of spices is the presence of pesticide residues, expressed as Maximum Residue Limits (MRLs). Some Indigenous Varieties are disappearing The rapid disappearance of some indigenous varieties of spices due to mixing of planting material results in loss of genetic purity. Examples are varieties contributing to the production of Cochin ginger (viz. Kuruppampady, Ellackal), Alleppey finger turmeric (viz. Elanji), and Byadagi chilli, etc. Poor Post-harvest Handling Post-harvest operations involve drying, curing and primary packing. This reduces problems of contamination. Scientific post-harvest handling has yet to come to the agricultural operations in Uttaranchal. Our natural comparative advantages in production are being whittled away due to the poor quality of the produce. Insufficient Mechanization of Spice Production and Processing Lack of desired level of value-addition at the primary processing level results in lesser returns to the farmers and farm laborers. Competition India is facing stiff competition from other producing countries that supply spices in whole form. Most of these countries have no domestic market for the spices they are producing, forcing them to sell their produce even at cost price (examples cardamom from Guatemala, pepper from Vietnam, cloves from Indonesia). Rejection of Export Materials Farmers of spices like cardamom, chilly and ginger are heavily dependent on chemicals for pest and disease control and fertilizers. Indiscriminate use of chemicals results in pesticide residues beyond tolerable limits, leading to rejection of many consignments of spices from India. Trade restrictions on contaminated food or feeds have the greatest effect on countries like India, which currently have limited, or no available means of monitoring aflatoxin levels. The toxins are

particularly carcinogenic in humans and eating contaminated food often results in liver cancer, amongst other diseases. Aflatoxins also act an immuno-suppressant so that affected individuals become susceptible to a wide range of diseases. Besides endangering human health, aflatoxin contamination seriously affects the export potential of high-value commodity crops, such as edible nuts and spices like turmeric and chillies, which could provide an important source of income for farmers. Agricultural Extension is not Market-oriented Extension is not focused on the needs of the market, especially the export market. The available market information service is limited to a few areas and to a few sections and often fails to recognize indigenous methods and factors to get a competitive edge in export of spices. Problems of the Exporters Inadequate Surplus for Exports Of the 31.50 lakhs tonnes of spices produced annually, (excluding mustard), India could hardly export 7.58 per cent. There have been severe shortages of exportable varieties of spices in certain years. The major reason is burgeoning domestic demand. Demand for spices from the upwardly mobile middle-class is on the increase. Changing eating habits and the population explosion are also factors. This huge domestic demand leaves behind little surplus for export and so exports are happening by accident rather than design. Insufficient Quantities of Quality Spices The major causes of inferior quality in spices are: Lack of awareness among farmers of the latest technologies in production and postharvest operations. Facilities at the grading and packing centers are also rudimentary and the merchants in this sector do not possess modern equipment for cleaning and grading or for storage of spices. Proper drying of spices within 8-12 per cent of moisture is not done after harvesting, resulting in microbial contamination. Drying of spices on non-hygienic surfaces creating further contamination from microbes such as fungi, germs and bacteria including harmful ones like Salmonella, Staphylococcus aureus, Bacillus cereus and Clostridium perfringens, yeast and mould, E-coli, Coliform. Lack of real time knowledge of area sown, especially with annual crops.

Problems faced in exporting Fruits Constraints for Exports


Lack of exportable varieties Lack of post-harvest infrastructure High cost of obtaining certification for exports

Supply Chain Issues


Uneconomic scale of operation Lack of consistency in supply and quality Lack of cost competitiveness Inadequate and inappropriate storage and distribution infrastructure Lack of technical support for the agro-industrial sector

Market Access Issues


Non-Tariff Barriers Import Policy Barriers Standards, Testing, Labelling and Certification requirements Anti-dumping & Countervailing Measures Export Subsidies and Domestic Support Government procurement Short product life cycle Lack of brand image

Technological Constraints
Majority of holdings are small and unirrigated Unproductive plantations needing replacement / rejuvenation. Low productivity of crops due to inferior genetic stocks and poor management. Inadequate supply of quality planting materials of improved varieties High incidence of pests and diseases Heavy post-harvest losses

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