Indian CVD a hindrance to Bangladeshi imports

The Indian government recently slapped nearly 16 percent countervailing duty (CVD) on import of products from Bangladesh. The step is seen as a means of keeping national interest in mind by way of balancing domestic taxes like excise duty -- that

local producers pay for the products. While on one hand, India as a member of the WTO cannot devise its own mechanism in the name of protecting domestic products and ensuring national treatment, on the other hand it has no choice but to do so keeping in mind the rising raw material costs and slow economy in the west that has been affecting the domestic as well as apparel export industries negatively.

But the step also comes at a time when RMG exporters in Bangladesh found India as the next biggest destination after the US and the EU following withdrawal of import duty on 48 garment products last year. Despite many barriers like devaluation of the Indian rupee against the US dollar or the Lilliput debt issue, the growth in RMG export from Bangladesh to India marked a notable rise of nearly 35 percent in the first seven months of the current financial year, according to the research cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Experts say, under the WTO rule-based trading system, CVD can be applied to imports to neutralise the effects of unfair pricing, resulting from subsidies that the imported product may have received at one or more stages of production in its country of origin. The quantum of CVD should be equal to the extent of subsidy received to ensure an evenly poised ground for domestic product by way of protecting it from unfair competition of the imported product. But the CVD that India imposes from time to time on imported products, as already mentioned, is not WTO-driven.

As a step towards economic reforms, the Indian ministry of finance issued a letter to the authorities concerned about the Finance Bill 2013 that brought changes in customs and central excise law and rates. The letter said zero excise duty, as existed prior to Budget 2011-12, is being restored on readymade garments and made-ups. The zero excise duty will now be available to producers of garments, in addition to the CENVAT (central VAT) under which manufacturers can pay excise duty on the final product and avail of credit of duty paid on inputs. By doing this, besides making the domestic products competitive, it will also provide protection to the domestic industry from cheap imports. Further, the zero excise duty coupled with fresh FDI measures would encourage foreign retailers to set up shops in India to manufacture their requirements in India, rather than import from other countries.

The question is what would be the repercussion of hurting the sentiments of neighbouring country to safeguard interests of the Indian industry and how are both the governments going to reach a mutually beneficial end to this dilemma…