Trade tariff commitments: Banded better than Swiss for India

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New Delhi, July 17: The Swiss formula for tariff reduction in agriculture, backed by a number of developed countries, will force developing countries like India to bring about sharp reductions in import tariffs for sensitive products including fruits and vegetables, coffee, tea, spices, grains and oilseeds.

Application of the banded formula, however, will substantially bring down the reduction commitment of developing countries, calculations made by Oxfam’s Centre for Trade & Development (Centad) reveal.

The Swiss formula aims at bringing all tariffs to the same level by reducing higher tariffs more steeply than lower tariffs. It goes against the interests of developing countries as such countries mostly have high tariff rates.

In a banded formula, all tariff lines are divided into different bands or categories. Each band is then subjected to tariff reduction by applying the linear formula which results in an average overall reduction in the tariff rates with a minimum reduction per tariff line.

If the Swiss formula is used with a reduction coefficient of 50 for cutting agriculture tariffs, India will have to cut down tariffs on fruits and vegetables from the existing 105.1% to 33.8%. However, if the banded formula is used then the cut would be much lower at 42.1%.

For coffee, tea, mate, cocoa and preparations, a Swiss formula would result in reduction from 133.1% to 36.3%, while using a banded formula would allow India to maintain tariff at a much higher rate of 53.24%.

Duties on spices, cereal and other food preparations, which currently enjoying a protection of 126.5% in India, will have to be brought down to 35.8% using the Swiss formula while the banded formula would call for much lower reduction at 50.6%.

For grains, with tariff protection of 86.3%, duties would have to be brought down to 31.6% using the Swiss formula and 43.1% using the banded formula.