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US Congress Warns On India's Trade Policies

by Mary Swire, Tax-News.com, Hong Kong

29 December 2014


The leading lawmakers on the House of Representatives Ways and Means Committee and the Senate Finance Committee have released the results of a United States International Trade Commission (ITC) investigation into the effects of India's trade policies that discriminate against American exports and investment.

"We are at a pivotal moment for the US-India relationship," said a statement from Ways and Means Committee Chairman Dave Camp (R – Michigan) and its Ranking Member Sander Levin (D – Michigan), and Senate Finance Committee Chairman Ron Wyden (D – Oregon) and its Ranking Member Orrin Hatch (R –Utah). "We are hopeful that we may see a deepening expansion of our long-term trade and investment relationship, which has already risen to nearly USD100bn."

"At the same time," they added, "we remain concerned about systemic and continuing market access barriers identified in the ITC's report that undermine a market-based path to development for India and diminish opportunities for US workers and businesses."

Overall, the ITC found that "policies in two areas – tariffs, and taxes and financial regulations – have the heaviest effects on US companies. … If tariff and investment restrictions were fully eliminated, and standards of IP protection were made comparable to US and Western European levels, US exports to India would rise by two-thirds, and US investment in India would roughly double."

It was pointed out that, while trade-weighted average applied tariff rates have fallen from around 25 percent in 2000 and fluctuated at between 6 and 8 percent since 2006, India still relies more heavily on import duties than other developing economies. In 2011, customs and other import duties made up 17.1 percent of Indian total tax revenues, and high tariff rates remain in sectors such as agriculture and motor vehicles.

In addition, the ITC report emphasized that "the Indian tariff system is complex, …[and] some industries with particularly high or variable duty rates are areas in which the US competes heavily, such as the automotive, distilled spirits and soybean oil industries." Additional duties applied at the Indian border, which are designed to collect the equivalent of certain domestic taxes, are often compounded on top of official rates.

Furthermore, it was pointed out that, on an annual basis, India issues about 150 amending notifications to its tariffs, which "routinely add complexity to the tariff regime, because many of them modify both the applied rate and the list of products qualifying for tariff-exemption programs. This makes it more difficult for exporters to track the current rate in effect for their product, and contributes to uncertainty in the total tariff rates for many products."

Among the other major areas of concern for US exporters and investors, relating principally to their affiliates in India, were found to be "retroactive taxation; transfer pricing problems pertaining to the prices set for products sold between related entities within a company; judicial and administrative bias and delays in the tax dispute resolution system; and uncertainty about the application of India's new General Anti-Avoidance Rule, which aims to minimize tax avoidance."

The US lawmakers urged the Indian Government to address all of these areas of concern. They disclosed that they had requested the ITC to produce a second report, to be delivered to Congress on September 24, 2015, that will seek information concerning India's policies since the first investigation. "We look forward to receiving the results of the second ITC investigation next September," they concluded.

TAGS: tax | investment | business | India | tax avoidance | law | accounting | tariffs | food | manufacturing | transfer pricing | United States | import duty | standards | regulation | trade | business investment

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