IEM Problems

8/12/2019 IEM Problems

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Export Bar r iers: An OverviewDespite many decades of tariff reduction under the aegis of the General Agreement on Tariffsand 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 than10 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 fordeveloping countries, and there are large variations across industries as well. The reason for thehigh 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 themarginal cost of producing the good itself. There are a large number of studies focussing onexport barriers, mainly non-tariff barriers (NTBs) that manifest as behind-the-border barriers totrade. The pioneering research on export barriers identified the lack of knowledge of foreignmarkets 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 problemsare associated with the exporting firms organis ational 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. Laterstudies further disaggregate the conceptual domain of export barriers into internal-domestic,internal-foreign, external-domestic and external-foreign problems. Research shows thatexporters sensitivity to barriers in the foreign market is determined by managerial perceptionswhich are in turn influenced by contextual factors associated with firm size, resources andcapability, export involvement and international experience. Studies also show that exportersconsider high banking charges, low capacity usage, and poor technology as the major problemsthat affect their business operations. In more general terms, changes in consumers preference s,the presence of middlemen and agent representatives, import tariffs, problems finding atrustworthy 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 studiesreport that most barriers are attributed to technical regulations and labelling rules. A primarysurvey on exporters percepti ons of barriers reports an increasing incidence of nontariff measureson Indias exports . Another study on Indias textiles and clothing sector, informs that non-

preferential rules of origin and discriminatory unilateral changes to technical rules are important barriers. The OECD survey (2005) identifies labelling requirements, technical standards, anti-dumping measures and child labour laws as main barriers to Indian exports of textiles andclothing in the EU. Other related export barriers include general absence of information, lack oftransparency on procedures and regulations regarding technical specifications, inadequate

information about sampling, inspection, and testing as well as changes in packagingrequirements. Finally, customs procedures and valuation rules are also identified as NTBs whichhave the potential to adversely impact on exporting activity (World Bank, 2009). Studies showthat the Indian industry in general has had to face competition from both domestic and foreignfirms. The objective of this paper is to analyse the perceived export barriers faced by Textilesand Clothing and Leather Goods and Footwear industries in India. These two industries togethercomprise just over a quarter of Indias total exports to the EU in 20 10 (EC, 2011).


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Using data collected through interviews with managers of 30 firms, which are active in exportingto the EU in each of these two sectors, we develop and estimate an econometric model thatrelates export barriers reported by firms to the firm s own characteristics. Our results on Indianfirms perceptions to export barriers may shed light on issues that need addressing in light ofongoing 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 totrade. We find that firms which are closer to ports perceive transport costs and corruption are lessimportant barriers than firms which are further away. On the other hand, firm size, exportingexperience and whether the firm is in the textiles or leather industry have no significant impacton 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 aremany 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 internationallyin competitive. Thus, Indian rice becomes costlier in the international market ascompared to other competing countries in the world and Indian rice exports get setbackmany times. Infact, in Pakistan rice meant for exports specially the branded ones, dutiesare extremely low or duty free.

2. There is lack of proper infrastructural facilities. Many times exporters, when they carrytheir 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 atsea port, exporters have to face lot of difficulties, besides, it adds additional expenditureto the exporters.

3. Due to increase in the cost of inputs used for paddy cultivation the production cost goesup and the Minimum Support Price (MSP) for paddy is enhanced every year by thegovt. 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 comparedto Indian rice.

5. The major rice producing nations have decreased the price to capture the internationalmarkets 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 inwhich percentage of broken rice is more than the modern rice mills that are having under


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Runner Sheller. Hence, head rice obtained from milling of conventional mills becomescostly due to recovery of higher percentage of broken rice. Therefore, conventional millsare required to be modernized to get recovery of higher percentage of head rice suitablefor 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 countrieslike Thailand, Vietnam and Pakistan because the cost of production in these competingcountries 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 arehighly prone to lodging and lodging affects the natural grain development. In suchsituation both aroma and linear kernel elongation are affected.

10. Post-harvest handling of produce is another important aspect. Generally, farmers areharvesting 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 themajor reasons for poor quality of basmati rice. Infact, at the time of rice processing thegrain size can be taken care of, but it is a waste. However, using good quality seed theloss can be converted into profit.

Problems Faced by the Seafood I ndustry

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% inUS$ 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 beattributed to some unforeseen developments in the international scene, the impact has beendevastating. Some of the issues which require the immediate attention of and redressal by theconcerned 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 filetheir tariff rates with Federal Maritime Commission (FMC). However, these rates are not theactual tariff collected from the shippers. They will vary from shipper to shipper based on aspecial contract signed between individual shipper and the freight carrier. All other shipperswill be subject to the open tariff rate filed with FMC. The tariff rates between the contractedrate and the open tariff rate for US East Coast may be as high as US$1500.00 or more.


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The lack of effective legislation for fixing the freight rates to specific destinations havecontributed 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 boardincrease 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 supportivedocumentation. Apart from the FMC filed tariff, they have the option of further increasingthe rates through such mechanisms as BAF (Bunker Adjustment Factor), CAF (CurrencyAdjustment Factor), GRI (General Rate Increase), PSS (Peak Season Surcharge) and CS(Congestion Surcharge). It is truly amazing that this service provider (freight carriers) andtheir agents (Shipping Services Provider) who are operating from India with a license appliedfor and granted by the Government of India are allowed to be totally beyond any controlmeasures of the Indian Government and can continue to operate with impunity and fix thescale 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 theircompetitors who are not subject to this unilateral increase. . Many exporters have now startedresorting to transhipment of through foreign ports to overcome the high freight charges theyare asked to pay in Chennai, Cochin, Mumbai, etc. Even though it may take a couple of extraweeks in transit compared to direct service from Indian ports, exporters choose the indirectroute as the savings on freight charges are enormous. The savings become all the moresignificant with increase in the size of cargo. The freight rate to UAE for a 40 reefercontainer (18000kgs) from Cochin is US$1700.00. An increase of US$1500.00 (88.32%) willincrease the price of the product by Rs.4.60/kg which is more the profit that the shipperwould make on the product. To East Asia and China (24000kgs), the increase will beRs.3.44/kg. If the product is Ribbonfish, the freight increase will simply close the market forIndian 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 willreceive 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 TerminalHandling Charges (THC) levied by Indian terminal operator. Although the scale of rates forthe 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 takenagainst them. The THC in Indian ports today are very high compared to ports in theneighbouring countries including Sri Lanka and the Middle East region. According to mediareports, more than half of Colombo Ports total cargo volume comes from India. Needless tosay, this is due to the high charges at Indian ports. Reports further reveal that Colombo portis all set to increase its cargo handling capacity to three times the present capacity, inanticipation 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.


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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 ARthis 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 sixthAdministrative Review (AR) it has been further enhanced to 2.51 per cent, from 1.69 percent. 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, tozero. The revised duty is applicable from February 2011 to January 2012. This decision ofDoC 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 theInternational Trade Administration, the United States Department of Commerce (DoC) andthe United States International Trade Commission (ITC), demanding the imposition ofcountervailing duties on certain frozen warm water shrimps from China, Ecuador, India,Indonesia, Malaysia, Thailand and Vietnam. The petition makes several allegations regardingthe countervailable subsidies provided in India with regard to the manufacture, productionand 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 theGovernment of India is aggressively promoting its shrimp industry through the provision ofgenerous government subsidies. It calls for the initiation of an investigation into thecountervailable 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 bythese subsidies. The petition also asks the US Department of Commerce to include subsidiesto producers of raw shrimp in India, in its investigation.

5. Withdrawal of SHIS for Marine Industry

The Director General of Foreign Trade (DGFT), on 5 th June 2012, published the AnnualSupplement of the Foreign Trade Policy (FTP), in which the Status Holder Incentive Schemewas expanded to cover more export product groups including marine products. However, thewords 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 28 th December 2012, marine products were withdrawn from the scope of SHIS.


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Conclusion

Our efforts to tide over the present crisis require the government s 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 takinginto 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 aninput 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 internalfactors, 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 riskydue 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 thissector. Unless the support packages are restored, both in terms of increase in VKGUY andDrawback rates, the sector and its employment force of almost 3 million people will facesevere hardships in the days to come.

Problems F aced by the Texti le and L eather I ndustry

Within the context of EU-India trade, external barriers that industries encounter originate fromregulatory framework in the EU that are minimum quality standards to guarantee the health andsafety of the consumer or protection of the environment. These regulations and standards arelegal 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 ofcompliance (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 chemicalsused 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 outharmful 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 andverification of exporters compliance at a fee every time this list is updated. Such technicalrequirements on the minimum quality standards to guarantee the health and safety of theconsumer or the protection of the environment raise prices of imports in a way that is equivalentto a tariff. Further costs arise given producers have to prove conformity with any given standardor 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


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in India and government agencies lack qualified technicians/laboratory assistants and haveshortage of testing equipment, in most cases the results of tests and accreditation are notrecognised by EU buyers. Without exception, the EU-based importers demand that exports ofTextiles and Clothing (e.g. functional garments, uniforms, upholstery materials, homefurnishings 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 SGSTesting, 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 offinal product depending on destination country with regards to waste reduction at source,elimination of harmful materials in packaging waste, maximising the recovery of packagingwaste for re-use, recycling, composting or energy generation, and minimising final disposal.

Another barrier emanates from standards, both national and voluntary, that vary widely betweendifferent 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, firmshave to meet different standards and are unable to benefit from economies of scale.

I ntern al barr iers encountered by Indian fi rms in exporting to the EU marketInternal or domestic barriers stem from inadequate physical infrastructure, corruption and hightransport costs which impacts adv ersely on Indian firms export competitiveness. Changingfashions in garments necessitate shorter production schedules and in light of the existing physicalinfrastructure constraints in India it is a challenge for exporters to ensure timely deliveries ofinitial and repeat orders. In particular, Indian exporters competitiveness is disadvantaged by anineffective domestic logistics system. The inefficiency of the Indian inland transportation systemis 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 becauseof numerous official and unofficial checkpoints on the principal trade routes, in particular between state borders and district boundaries (Planning Commission of India, 2010). In thismanner, high transport costs and physical infrastructural deficiencies impact on competitivenessdirectly and raise per unit export costs. Corruption and bureaucracy is another important barrier.High domestic corruption, attributed to excessive governmental regulations and bureaucratichurdles, is a commonly constraint reported by Indian exporters. Extant rules require Indianexporters to undertake excessive administrative formalities in different offices. Corruption iscompounded by the existing governmental policy that allows tax breaks and financial support tosmall exporting firms.


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Problems of M arketing and Expor t of I ndian Spices

General ProblemsLow ProductivityLow productivity in the Spice sector is one of the serious problems facing the Indian Spiceindustry. Result is low competitiveness in the international markets.Poor Product QualityPoor product quality at farm level is another problem hindering reasonable price realization bythe producer. Insufficient infra-structure facilities for cleaning, scientific methods of processing,storage and packing.Insufficiency of Legal ProvisionsOur present legal provisions relating to many elements that constitute SPS measures areinsufficient. India does not have a National Standard covering all the requirements of theagreement under SPS measures. The regulations under AGMARK are only optional and notmandatory and are not even comprehensive. Similarly, the provisions existing under the PFA arealso not comprehensive and provide loopholes for import of cheap spices from other countries oforigin. Under both the legislations, there is absolutely no reference to pesticide residues. Out ofthe 164 molecules registered in the country, 26 are produced under deemed registration regimeand the situation has continued over years. This system of registration would certainly have anadverse 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 disappearingThe rapid disappearance of some indigenous varieties of spices due to mixing of plantingmaterial results in loss of genetic purity. Examples are varieties contributing to the production ofCochin ginger (viz. Kuruppampady, Ellackal), Alleppey finger turmeric (viz. Elanji), andByadagi chilli, etc.Poor Post-harvest HandlingPost-harvest operations involve drying, curing and primary packing. This reduces problems ofcontamination. Scientific post-harvest handling has yet to come to the agricultural operations inUttaranchal. Our natural comparative advantages in production are being whittled away due tothe poor quality of the produce.Insufficient Mechanization of Spice Production and ProcessingLack of desired level of value-addition at the primary processing level results in lesser returns tothe farmers and farm laborers.CompetitionIndia 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 themto sell their produce even at cost price (examples cardamom from Guatemala, pepper fromVietnam, cloves from Indonesia).Rejection of Export MaterialsFarmers of spices like cardamom, chilly and ginger are heavily dependent on chemicals for pestand 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. Traderestrictions on contaminated food or feeds have the greatest effect on countries like India, whichcurrently have limited, or no available means of monitoring aflatoxin levels. The toxins are


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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, aflatoxincontamination seriously affects the export potential of high-value commodity crops, such asedible nuts and spices like turmeric and chillies, which could provide an important source of

income for farmers.Agricultural Extension is not Market-orientedExtension is not focused on the needs of the market, especially the export market. The availablemarket information service is limited to a few areas and to a few sections and often fails torecognize indigenous methods and factors to get a competitive edge in export of spices.Problems of the ExportersInadequate Surplus for ExportsOf the 31.50 lakhs tonnes of spices produced annually, (excluding mustard), India could hardlyexport 7.5 8 per cent. There have been severe shortages of exportable varieties of spices incertain years. The major reason is burgeoning domestic demand. Demand for spices from theupwardly 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 andso exports are happening by accident rather than design.Insufficient Quantities of Quality SpicesThe 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, Staphylococcusaureus, 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 exporti ng F rui ts Constraints for ExportsLack of exportable varietiesLack of post-harvest infrastructureHigh cost of obtaining certification for exports Supply Chain IssuesUneconomic scale of operationLack of consistency in supply and qualityLack of cost competitivenessInadequate and inappropriate storage and distribution infrastructureLack of technical support for the agro-industrial sector


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Market Access Issues Non-Tariff BarriersImport Policy BarriersStandards, Testing, Labelling and Certification requirementsAnti-dumping & Countervailing Measures

Export Subsidies and Domestic SupportGovernment procurementShort product life cycleLack of brand image

Technological ConstraintsMajority of holdings are small and unirrigatedUnproductive plantations needing replacement / rejuvenation.Low productivity of crops due to inferior genetic stocks and poor management.Inadequate supply of quality planting materials of improved varietiesHigh incidence of pests and diseasesHeavy post-harvest losses

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IEM Problems