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Review of India’s LDC scheme highlights the importance of product coverage, SPS requirements and rules of origin

20 July 2014

The duty-free preferential import scheme announced by India in April 2008 became fully operational in October 2012. The scheme offers duty-free access to LDCs on 85% of Indian tariff lines and some form of tariff preferences on 9% of tariff lines, while excluding 6% of tariff lines from any tariff preferences. In launching the scheme, the Indian government drew attention to the products “of particular interest to Africa”, including agricultural products such as cotton, cocoa, and cane sugar. However, the scheme excluded agricultural products of export interest to African LDCs, such as dairy products, fruit and vegetables, coffee, tea, maize, vanilla and tobacco products.

Analysis published by ECDPM in April 2014 notes that total African exports to India increased from US$4.6 billion in 2000 to US$23.1 billion in 2012 (increasing India’s share of total African exports from 6.2 to 7.5%). Fuels made up 74% of total African exports to India and agricultural products some 12%, with Nigeria, Angola and South Africa dominating the continent’s exports to India.

By 2012, LDCs accounted for only 31.7% of African exports to India, but if Angola (a major oil exporter) is excluded, this falls to only 9.2%. Excluding oil and a few other commodities, African LDC exports to India are “very limited”.

Exclusions are an important factor in the value of the scheme to African LDCs, with the significance of the product coverage of the scheme varying from country to country. Thus, while virtually all of Lesotho’s exports are included under the scheme, 82% of Burundi’s exports are excluded. In all, six African LDCs have more than 40% of their exports excluded, while 11 African LDCs have less than 10% of their exports excluded from the Indian scheme.

While product coverage and geographical proximity have seen Asian LDCs benefit from the Indian scheme, India remains “a marginal destination for many African LDCs’ exports”. Some LDCs’ exports – those of Zambia, Rwanda, Eritrea and Burundi – to India “actually decreased since the implementation of the scheme”. The analysis noted flaws in the scheme’s design, since it “excludes a number of products of key export interest to African LDCs”.

The article noted that additional problems arise from the application of non-tariff measures, notably regulatory requirements such as SPS and rules of origin, as well as administrative measures specific to the scheme. It considered SPS requirements and rules of origin certification the most burdensome of the obstacles that African firms face in exporting to India. In the case of rules of origin, the origin requirements are simple (30% domestic value-added and a change of tariff heading), but the absence of cumulation provisions is a particular problem for LDCs. In addition, “obtaining certificates of origin may be a cumbersome process and not worth the hassle where the margin of preference is very small.”

The authors called on India to revisit its preferential scheme for LDCs and revise it, including through:

  • extending the product coverage to all products;
  • addressing rules of origin shortcomings;
  • facilitating SPS certification.

Editorial comment

The review of the experience of the Indian preferential trade scheme for LDCs highlights the potential scope for ACP-coordinated initiatives in this area. The fact that Asian LDCs are better placed to exploit preferences on the Indian market, and the flaws in the design of the scheme, suggest a need for concerted action by African LDCs to promote a revision of the Indian scheme to extend the product coverage into areas of greatest interest to African LDC exporters.

The ACP experience of negotiating rules of origin with the EU, including on the complex issue of cumulation, could also be brought to bear in the interests of African LDC exporters.

Finally, given the differential capacities of ACP LDCs to get to grips with SPS issues, a concerted ACP initiative to establish a dialogue with India on SPS compliance requirements and institutional modalities for implementation could offer a cost-effective means of getting to grips with facilitating SPS certification for exports to the Indian market. This could be particularly effective if such an initiative were sector-based and focused on those sectors where African LDC exporters have the potential to take advantage of trade preferences being extended to LDCs by India.

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