Opinion
Non-tariff barrier: Time for India to reverse its rash of quality control orders
Summary
- Suman Bery of the Niti Aayog and EAC-PM has pointed out how QCOs act as non-tariff barriers—to the anguish of MSMEs. Given India’s need to signal trade openness, we should roll back all except the few we actually need.
Perhaps the only positive outcome of the tariff turmoil that the US has plunged the world into is the renewed attention being paid to trade barriers. Across the world, it has led countries to re-examine their own policies. So too in India.
It is in this context that comments made by Niti Aayog’s vice-chairperson Suman Bery, who also chairs the Economic Advisory Council to the Prime Minister, assume significance. On Tuesday, he flagged the harm that many of our micro, small and medium enterprises (MSMEs) have suffered due to a flurry of quality control orders (QCOs) issued by the government. These call for quality check approvals for goods to be imported into India, with the Bureau of Indian Standards in charge of certifying whether specified items are worthy of use.
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While consumer protection is the ostensible aim, the red tape involved tends to act as a non-tariff barrier. As reported, by one count, India had as many as 187 QCOs covering 769 products by mid-March. Some of these are for inputs used by various industries and have had the effect of either keeping out imports or making them costlier, thus raising the cost base of the affected manufacturers. This threatens their ability to price their finished products competitively.
While Bery was critical of QCOs on inputs, his remarks were part of a discussion on the export prospects of power and hand tools made by small businesses, which have seen their bills swell for the steel and polymers they use. Since compliance with World Trade Organization rules requires tariffs to stay within limits, he observed, other devices had been used. “It takes a certain genius for the bureaucracy to come up with an intervention which is even more malign [than tariffs] because of arbitrariness," Bery reportedly said, adding that it had put the survival of several MSMEs at stake.
It is true that QCOs can serve an earnest purpose if there exists an actual problem of quality. Clearly, India cannot be a dumping ground for sub- standard products made elsewhere. Deployed as barriers, these orders could also prevent ‘dumping’ as economists use this term: that is, to describe imports that sell below their cost of production.
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With China facing steep import tariffs imposed by the US on its shipments, trade diversion is exceptionally likely from now on, which explains fears of Indian producers getting swamped by an influx of Chinese goods. In some cases, thus, QCOs might be justified. After all, these are extraordinary times.
Still, India’s expansive list of items deemed fit for quality scrutiny strikes a discordant note at a time we should signal the country’s openness to international trade. Tariff reduction is a key aspect of it. Exposing Indian manufacturers to global rivalry drives efficiency, so long as local regulations do not get in the way. In theory, it also helps us figure out what we can produce for the world. As non-tariff barriers typically have the same effect as tariffs, they go against that effort.
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While it’s undeniable that our global embrace left many businesses disappointed and New Delhi has swerved its policy away from low barriers in general, so that ‘complementary’ trade deals can be struck with chosen partners, the case for greater economic integration still holds good.
Indeed, today’s trade turbulence argues for a broader approach. Global supply chains are in flux; for us to join them, at least inputs must be kept cheap. It’s time to withdraw most QCOs. We should only retain the few that serve a clearly justifiable purpose.
