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THE GIST of Editorial for UPSC Exams : 21 MARCH 2019 (Trade liberalisation, but on our terms (The Hindu))

Trade liberalisation, but on our terms (The Hindu)

Mains Paper 3: Economy
Prelims level: TRQ
Mains level: TRQ highlights and benefits

Context

Tariff rate quotas (TRQs) can work as deal-makers in global trade talks by balancing the interests of local producers and consumers.

What is a TRQ?

A TRQ is a mechanism that allows a set quantity of specific products to be imported at a low or zero rate of duty.
TRQs are established under trade agreements between countries.
The “TRQ commitment” does not apply any limits on the quantity per se of import of a product.
Instead, it applies a higher rate of duty for that specific product once imports up to the “TRQ commitment” have been reached.
So essentially, a TRQ is a two-tiered tariff instrument.
Imports entering within the quota portion of a TRQ are subject to a lower tariff rate called the tariff quota rate.
The later imports face a much higher tariff rate, which is normally the MFN (Most Favoured Nation) tariff.
[MFN tariffs are what countries promise to impose uniformly on imports from other members of the WTO.]

Need

India has a whopping $104-billion trade deficit with the Regional Comprehensive Economic Partnership (RCEP) grouping.
This was 64% of India’s total trade deficit of 2017-18.
Consequently, there is a debate on opening up a significant portion of the market.
Several other trade agreements are also in various stages of negotiations.
In this context, the introduction of Tariff-rate quotas (TRQs) can be a more relevant transitional tool.
This may provide a degree of safeguard to the future demand growth in a rapidly expanding market.

Prevalent is TRQ use

The use of TRQ as an instrument is globally quite prevalent.
Tariff quotas are used on a wide range of products but most are in the agriculture sector.
Cereals, meat, fruit and vegetables, and dairy products are the most common, and sugar is also protected in most producing countries.
It is estimated that as many as 1,200 TRQs are operated each year by WTO members including EU, Japan, Canada and the US.
This ensures that limited volumes of sensitive products can enter their market at a low tariff.
However, the tariff outside the TRQ quantity is kept high to offer a degree of protection to the domestic producers.
E.g. the US cotton tariff quota protects US cotton growers while allowing textiles manufactures to import some cheaper cotton also

TRQs benefit countries

TRQs protect domestic producers from having to face competition from large quantities of imports.
They also allow consumers and producers in the importing country to enjoy a benefit of lower priced products.
TRQs are used as sweeteners to help reach a consensus in trade negotiations. E.g. EU-Japan bilateral deal was finalised with a TRQ for cheeses
On the other hand, TRQs help overcome traditional domestic opposition to trade deals.

Way forward

If India is to induce investments in manufacturing, it need not have to commit entirely to a zero tariff regime.
A quantity-linked tariff elimination as that in TRQ could be considered in the long run.
But the TRQ administration system must not impair or nullify the market access commitments negotiated.
It should be transparent, minimising transactional costs for traders.
Historically, the quotas are allocated through a slew of processes including auction, first-come, first-served, licence and finally, import by trading entities.

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Prelims Questions:

Q1. Consider the following statements.
1. The writ of Prohibition can be issued only against judicial and administrative authorities.
2. The writ of Certiorari is different from Prohibition in that the former can be applied even to legislative bodies that exceed their jurisdiction.

Which of the above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) None