World Trade Organization Organisation Mondiale du Commerce Organización Mundial del Comercio

WTO Secretariat's report, page 28, paragraphs 23 34

The report does not provide information of corporate social responsibility regulations and guidelines which are an important element of the business environment.

11. 
    Could India provide information about corporate social responsibility regulations and guidelines in place including any recent development?
    

Reply: In order to assist the businesses to adopt responsible governance practices, the Government of India has prepared Corporate Social Responsibility Voluntary Guidelines 2009 for responsible business which will add value to the operations and contribute towards the long term sustainability of the business. These guidelines indicate some of the core elements that businesses need to focus on while conducting their affairs. The core elements of the CSR Policy includes care for all stakeholders, ethical functioning, respect for workers' rights and welfare, respect for human rights, respect for environment and activities such as education, skill building for livelihood of people, health, cultural and social welfare particularly for the disadvantaged sections of society for social and inclusive development. This will enable business to focus as well as contribute towards the interests of the stakeholders and the society.

While the report explains that foreign companies can incorporate as foreign branches (footnote 20), it also indicates that foreign branch offices can only engage in foreign trade and representative activities.

11. 
    Could India confirm whether a branch of a foreign company is allowed to operate without incorporation?
    

Reply: Branch office has to register with the Registrar of Companies.

11. 
    Could India explain the conditions for the operations of the branch of a foreign company, including in which sectors there are restrictions on this?
    

Reply: According to Companies Act, a branch is defined as any new physical outlet of a business. There is no definition of a branch of a foreign company in the meaning of representative entity in India (except for financial services).

A branch office has to register with the Registrar of Companies. Further, FDI is restricted for following sectors as such a foreign entity engaged in following area cannot open a branch office:

1. 
   Retail trading (except single brand product retailing).
   
2. 
   Atomic energy.
   
3. 
   Lottery business.
   
4. 
   Gambling betting.
   
5. 
   Business of chit fund.
   
6. 
   Nidhi company.
   
7. 
   Trading in transferable development rights (TDRs).
   
8. 
   Activities/sector not opened to private sector investment.
   

According to Companies Act, a branch is defined as any new physical outlet of a business. There seems to be no definition of a branch of a foreign company in the meaning of representative entity in India (except for financial services).

11. 
    Could India clarify
    

i) The definition of a branch in its legislation, including listing the differences in different sectors;

ii) The definition of the representative office in its legislation, if it exists;

iii) The differences in treatment of branches of companies incorporated in India and direct branches of foreign companies?

Reply: For the purpose of FEMA (Foreign Exchange Management Act) Regulations "Branch" shall have the meaning assigned to it in sub section (9) of Section 2 of the Companies Act, 1956 (1 of 1956).The details of FEMA can be seen at www.finmin.nic.in. For the purpose of FEMA regulations "liaison office" means a place of business to act as a channel of communication between the principal place of business or head office by whatever name called and entities in India but which does not undertake any commercial/trading/industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel

The branch of a foreign company (set up with the approval of RBI under FEMA) can only undertake limited activities including some commercial activities as permitted under the extant FEMA regulations. However, a company incorporated in India by a foreign company (either as WOS or JV) can conduct full fledged operations akin to any other domestic company albeit in compliance with the permitted activities under the extant FDI policy and FEMA regulations. Further any office established by it would also be able to conduct all activities akin to a branch of a domestic company albeit in compliance with the extant FDI policy.

11. 
    Does India envisage a change of the current branch definition to allow for the concept of direct branch of foreign company as a non incorporated representative entity, which may have more than one outlet in different geographical locations in India?
    

Reply: No change in definition is envisaged. However, a non resident entity can open multiple branches in India after taking due approval of the Reserve Bank of India under the relevant FEMA regulations.

WTO Secretariats report, page 33, table II.8

11. 
    Could India confirm that the list in table II.8 covers all sectors where foreign direct investment is prohibited? In particular, could India confirm that FDI is allowed in legal services, auditing and news agency services?
    

Reply: The list in table II.8 covers sectors in which FDI is prohibited under the FDI policy. However, any investment, including foreign investment, is subject to applicable laws/sectoral rules/regulations/security conditions, which may contain restrictions

WTO Secretariat's report, page 33, para. 41

According to the report, India applies investment restrictions to nationals and companies of certain neighbouring countries.

11. 
    Could India clarify how its GATS commitments are honoured for citizens of WTO Members, including those with double nationality where one nationality is that of a neighbour to which the restrictions apply and for juridical persons incorporated in these countries, but owned by other WTO Members' persons?
    

Reply: The policy on FDI has been steadily liberalised and is reviewed from time to time, with a view to increasing its investor friendliness. In keeping with this thrust towards an increasingly open policy environment, country specific restrictions on investment, which had earlier found a place under the policy on FDI, have also been gradually reduced over time.

WTO Secretariat's report, page 32 33, paragraph 39 40

The report by India highlights the liberal and transparent investment policy of India, while the report by the Secretariat indicates that the number of sectors where FDI is restricted has increased in recent years, and that sectoral restrictions  even in sectors with no ownership caps  remain more restrictive than an explicit investment cap.

In this regard, the EU would like India to provide related information concerning the following sectors:

11. 
    As for accounting services, what steps are being taken to allow Indian companies to have their audit reports signed by locally incorporated foreign firms using internationally recognised names, as well as to end the restrictions on the number of partners? By when can this be expected?
    

Reply: The existing ICAI (Institute of Chartered Accountants of India) Act and regulations framed thereunder regulate the profession of Chartered Accountants which inter alia also includes the operation of Chartered Accountancy firms in India including the manner of registration and the name of such firms which are approved by ICAI.

11. 
    Concerning legal services, what are India's plans as regards opening the legal services for foreign investment?
    

Reply: As of now, there is no proposal to open legal services for foreign investment.

11. 
    As regards postal services, we note that a Postal Bill has been prepared by Indian government. Could India please give an overview of any restrictions reducing the current market access/scope of business and any new requirements and obligations for foreign postal or courier companies?
    

Reply: The Post Office Amendment Bill is presently under consideration of the Government and has yet not been introduced in the Parliament.

11. 
    With respect to retail services, India is considering 51% FDI in multi brand retail. Could India confirm when this will come into effect and what the requirements for investment (thresholds, mandatory investments, etc.) that will be put in place for foreign players to operate are?
    

Reply: The existing policy allows for 51% foreign direct investment (FDI), only in single brand retail trade, subject to specified conditions. FDI in multi brand retail trading is prohibited. Government of India had released a Discussion Paper on the subject of "Foreign Direct Investment in Multi Brand Retail Trading", in order to obtain stakeholder comments, for informed policy making. Comments were received from a number of stakeholders. The discussion papers, as well as the comments received thereon, are in the public domain. The Government has not taken a final decision in this regard.

11. 
    Regarding security services, has India taken any steps to raise the current FDI equity cap? By when can this be expected?
    

Reply: There is no proposal in this regard at present.

11. 
    As for education services, when will India's 'Foreign Education Providers' bill be passed?
    

Reply: The Foreign Educational Institutions (Regulation of Entry and Operations) Bill 2010 was introduced in Rajya Sabha (the Upper House of Parliament) on 3 May 2010 and is under consideration of the Parliament.

11. 
    With regard to defence services, has India taken any steps to raise the current FDI equity cap? By when can this be expected?
    

Reply: A discussion paper on "Foreign Direct Investment in Defence sector" had been released by Government for stakeholder consultations in 2010. The paper had outlined the concerns related to liberalising the FDI regime for the defence sector and possible ways of meeting them. No decision has been taken in this regard.

11. 
    Could India confirm that economic activity undertaken in relation to a new or existing investment respects India's national labour law, the fundamental rights at work as embodied by the ILO's 2008 Declaration on Social Justice for a Fair Globalisation and the 8 core ILO Conventions (nos. 29, 87, 98, 100, 105, 111, 138 and 182)? How does India ensure that these are in fact respected?
    

Reply: Government of India has ratified 4 core conventions and 3 priority/governance conventions. The four core conventions ratified by India are Forced Labour Convention (No. 29), Abolition of Forced Labour Convention (No. 105), Equal Remuneration Convention (No. 100) and Discrimination (Employment Occupation) Convention (No.111), and the three priority conventions are Labour Inspection Convention (No. 81), Employment and Social Policy Convention (No. 122) and Tripartite Consultations (International Labour Standards) (No. 144), and all activities have to obey the national laws. Internal mechanisms for enforcement and monitoring have been put in place to ensure that violations of laws do not occur.

III. TRADE POLICIES AND PRACTICES BY MEASURE

(2) MEASURES DIRECTLY AFFECTING IMPORTS

(ii) Customs valuation

WTO Secretariat's report, page 39, para. 20

The Report states that the transaction value method may be rejected if "reasonable doubt" arises on the accuracy of the declared value. There are six circumstances under which a customs officer may raise reasonable doubt. Raising reasonable doubt does not lead to an upfront rejection of the import value presented, which, if justified by the importer, is accepted.

11. 
    Could India indicate:
    
    1. 
       Whether this refers to implementation of Decision 6.1 of the WTO Customs Valuation Committee;
       
    2. 
       Whether the "six circumstances" mentioned are the total criteria applied;
       
    3. 
       Whether risk analysis and risk criteria also apply;
       
    4. 
       How the importer can justify the declared customs value, with respect to each of the individual "six circumstances" mentioned;
       
    5. 
       Whether any other action is taken by customs, in cases where the transaction value method is not used?
       

Reply: The provision cited only gives the instances where the proper officer could raise doubts on the truth or accuracy of the declared value based on certain reasons or grounds. The grounds for doubting the truth or accuracy of the declared value are communicated to the importer on request. The importer, if he so requests, is also given an opportunity of being heard before a final decision is taken in the matter.

It is relevant to mention here that Rule 12 of the Customs Valuation Rules, 2007 by itself does not provide a method for determination of value; it provides a mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value. The acceptance of the declared value is based on the facts and circumstances of each transaction, as envisaged in the CVA. Following the CVA, the Indian valuation legislation provides that where the declared value is rejected, the value will be determined by proceeding sequentially in accordance with rules 4 to 9 of the said Customs Valuation Rules, 2007.

The reply to the five specific questions is as under:

1. 
   Yes.
   
2. 
   The "six circumstances" are given only for the purposes of illustration. There could be more than the six circumstances mentioned in Rule 12 of the Customs Valuation Rules, 2007 for raising doubts on the truth or accuracy of the declared value depending on the facts of the case.
   
3. 
   Yes, risk analysis and risk criteria are also applied based on a number of risk parameters. The acceptance of the declared value would be based on the facts and circumstances of each transaction, as envisaged in the CVA.
   
4. 
   Based on the query raised by the Customs, the importer is required to furnish a copy of the agreement between him and the seller and all other documents as may be required to justify the truthfulness of the declared value. The CVA provides for a process of consultation between the Customs and importer with a view to arriving at a basis of value of goods.
   
5. 
   The Indian Customs law gives primacy to transaction value; in case of rejection of the declared value, the methods prescribed in the WTO CVA are applied sequentially for determination of customs value.
   

11. 
    Can India explain what are "tariff values" (reference prices) and what purpose do they serve in practice?
    

Reply: Tariff values have been notified for palm oils, crude soybean oil, poppy seeds and brass scrap, as these goods are prone to undervaluation. Tariff values are fixed on the basis of prevailing international prices of these goods as observed from the various reputed international journals and other publications.

The tariff value system promotes greater uniformity and certainty in assessment practice. It checks undervaluation and thus acts as an important policy instrument for collection of appropriate amount of customs duty.

WTO Secretariat's report, page 40, para. 21

The Secretariat's report states that a "landing charge" of 1% of the c.i.f. value is added to the c.i.f. value in order to obtain the transaction value."

11. 
    Could India clarify if this 1% charge is a charge to be paid to customs authorities, or is part of a method to calculate the transaction value? If the charge is to be paid to customs authorities, how does this charge reflect the approximate cost of service rendered as required by Article VIII of the GATT?
    

Reply: Article 8.2 of the CVA states that, in framing its legislation, each Member shall provide for the inclusion in or the exclusion from the customs value, in whole or in part, the loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation. India has provided for the inclusion in the assessable value of landing charges which represent the cost of unloading and handling charges of the imported goods at the port of importation.

The duties are levied on the customs value of goods which, inter alia, includes the landing charges. These charges are not paid to the customs authorities.

4. 
   Tariffs
   

WTO Secretariat's report, page 45, para. 31

The reports of both India and the Secretariat note that tariffs have been progressively reduced in recent years. As noted in both reports, India attributes its overall enhanced productivity and competitiveness to this increased openness.

However, some sectors remain highly protected: the average of 33.2% for agricultural goods masks some exceptionally high peaks, i.e. 150% for spirit drinks, or the average of 8.9% for manufactured goods hides the 60% rate applied to passenger cars.

11. 
    When does India plan to further reduce tariffs in these sectors in order to bring the stimulus of international competition to these parts of the Indian economy?
    

Reply: India has autonomously reduced its tariffs from time to time on a number of agricultural products, as part of its domestic policy aimed, inter alia, at domestic supply management, and in keeping with its continuing commitment to trade openness.

(v) Other charges affecting imports

WTO Secretariat's report, page 50 51, para. 43

The report of the WTO Secretariat notes that most imports remain subject to the SAD.  In the case of spirit drinks the headline rate of 4% is effectively 10% cif because it is applied on the duty paid value i.e. 4% x (cif + BCD @150% cif). The report further states that the SAD is refundable for those imported goods on which State level sales/value added taxes are paid. However, the procedures for reclaiming the SAD are so bureaucratic and time consuming that many importers conclude that seeking a refund is not cost effective.

11. 
    Does India plan to give early consideration to suspension of the SAD on those imported goods for which the former Additional Duty (AD) has already been suspended?
    

Reply: There is no such proposal under consideration.

WTO Secretariat' s report, page 50, para.45

According to the Secretariat's report, the average tariff declined reflecting India's shift towards lower tariff. Thus, the average effective applied MFN tariff fell from 15.1% in 2006/07 to 12% in 2010/11. However, the average total duty rate, including extra charges (additional customs duty, special additional customs duty, some cesses and charges), shown in Table III.8, attained 25.6% in 2010/11. For HS 01 24 the average total duty including extra charges amounts to 42.6% and for HS 25 97 to 23.1%. These averages compare to effective applied MFN rates which are respectively 35.1% for agricultural goods and 8.6% for industrial goods.

Duty rates including extra charges range across the board from 0% to 527.4%. The highest rates apply to beverages, spirits and tobacco (23.9% to 527.4%), and transport equipment (0% to 107.1%). The authorities noted that some of these extra taxes are "in lieu" of domestic taxes.

11. 
    How does India explain the difference between the effective applied MFN rates to which it committed in the WTO and the applied –higher  total duty to which certain goods appear to be subjected? Is India planning to reduce in a significant manner such levels of taxation in line with decrease in the applied MFN tariff?
    

Reply: India's effective applied MFN rates excluding duties equivalent to internal/domestic taxes, are within its WTO bound levels. The levels of duties equivalent to internal taxes such as excise duty have also come down in the last few years in keeping with the reduction in excise duty rates from 16% in 2007 08 to 10% in 2010 11.

11. 
    With regard to wines and spirits and passenger cars, could India indicate what taxes applied to imported products are "in lieu" of domestic taxes?
    

WTO Secretariat's report, page 52, para. 46

India notes that it intends to remove the cascading effect of taxes and provide a common national market for goods and services through the introduction of GST, hopefully in 2012. Economists have estimated that India's GDP could be boosted by as much as 2% by the successful introduction of GST. However, this is dependent upon the application of the tax to all goods and services at a uniform rate.

Under the provisions of the draft Constitutional Amendment Bill currently being considered by Parliament, a number of important sectors including petroleum products, natural gas, real estate and alcoholic drinks are specifically excluded from the scope of the new tax arrangements.  This will limit the overall benefits of the GST and create distortions in the market.

Reply: Alcoholic liquors currently attract basic customs duty of 150% but are fully exempt from additional duty. The levy of 4% special additional duty is applicable to imports of alcoholic liquor in lieu of internal taxes.

As regards passenger cars, additional duty and special additional duty are applicable in lieu of domestic taxes.

11. 
    Does India envisage using its very best endeavours to secure the inclusion of all goods and services in the proposed GST? Are a mechanism and timeline foreseen to extend coverage to commodities which may be initially excluded, such as alcoholic beverages?
    

Imported wines and spirits face 28 different state markets within India, each with different internal tax structures. A variety of discriminatory tax and other non fiscal measures imposed by state governments continue to compound the market access problems created by the 150% customs duties applied to these products. These state measures have been raised in WTO Consultations requested by the EU under the WTO dispute settlement case (case DS380). Dispute settlement consultations were requested in 2008 and took place in four rounds; they have resulted in some improvements, although the discriminatory measures implemented by state governments continue to seriously impair access to the state markets concerned. New forms of discrimination are regularly proposed by different states.

Reply: Since India is a federal country, the design and structure of GST has to be finalised by consensus on the basis of discussions between the Centre and the States. These discussions are currently underway.

11. 
    What commitments can India make to ensure that Indian states finally bring their practices into conformity with India's WTO obligations?
    

Reply: As acknowledged by the EU, several state governments have taken steps to rationalise the taxation of wines and spirits. The Central Government continues to work with the state governments as regards the taxation of imported wines and spirits.

WTO Secretariat's Report, page 57, para. 63

India maintains import quotas for marble and similar stones (HS 2515.11.00, 2515.12.10, 2515.12.20, and 2515.12.90) which are administered through a system of import licenses. The recent notification No. 64 (RE 2010)/2009 2014 of India's Ministry of Commerce and Industry (4 August 2011) establishes a set of conditions related to the import of rough marble blocks for the financial year 2011 12. Amongst others, import licenses are subject to a minimum import price of US$ 325 per Metric Tonne of rough marble blocks.

11. 
    Could India explain the reasoning behind the maintenance of import quotas for marble and similar stones and the established minimum import price?
    

Reply: India's import policy on marble and similar stones is not inconsistent with its obligations under the WTO Agreements.

(vii) State trading

WTO Secretariat's report, page 58, para. 68

We have noted that the section of the WTO Secretariat's report covering state trading makes no reference to STEs operating at the State level. A number of Indian States operate STEs in the alcoholic drinks sector and some appear to disadvantage imported products as compared to their domestically produced like products.

11. 
    What mechanisms or measures are available to India to ensure that these STEs comply with India's WTO obligations vis à vis national treatment?
    

Reply: Any goods, for which exclusive or special privileges for import or export has been granted to STE(s), the STE(s) are required to make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale in a non discriminatory manner and shall afford enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales. This is one of the conditions stated in paragraph 2.11 of the Foreign Trade Policy, 2009 14, which is available at the website http://dgft.gov.in. Amongst others, they are monitored by the concerned administrative departments/ministries and the auditing agencies.

(viii) Contingency measures

WTO Secretariat's report, page 61, para. 78

11. 
    Could India explain what the major innovations brought by the new procedure for sun set reviews (SSR) as compared to the previous rules are?
    

Reply: The Customs Tariff Act 1975 (as amended from time to time) and Anti Dumping Rules require the authority to conduct review of anti dumping duties. The Hon'ble Delhi High Court has held in Writ Petition No. 16893 of 2006 that sunset review is mandatory in order to determine whether cessation of the existing duty is likely to lead to the continuation or recurrence of dumping and injury. Therefore the Authority, in terms of said order, initiates a sunset review investigation in accordance with Section 9A(5) of the Act read with Rule 23 of Antidumping Rules to review the need for continued imposition of duty and to examine whether the cessation of such duty is likely to lead to continuation or recurrence of dumping and injury.

WTO Secretariat's report, page 62, para. 80

11. 
    Could India please inform whether it is foreseen in Indian law that a review for new exporter or producer from a country that is subject to an anti dumping duty should be "initiated and carried out on an accelerated basis" as provided by Article 9.5 of the WTO Anti dumping Agreement?
    

Reply: Rule 22 of India's Anti Dumping Rules explains the provisions for determination of margin of dumping for exporters not originally investigated. The above rules can be downloaded from the website www.commerce.nic.in.

WTO Secretariat's report, page 62, para. 81

As explained in the report, it is understood that no price undertaking can be accepted before a preliminary determination is made.

11. 
    Could India indicate until when a price undertaking can be accepted by the investigating authorities?
    

Reply: The provision for suspension or termination of investigation on furnishing of price undertaking is explained under Rule 15 of India's Anti Dumping Rules.

WTO Secretariat's report, page 66, para. 97

The report indicates that initiations of safeguard investigations increased substantially during the reviewing period. It is noted that the mere initiation of safeguard investigation even if no measures are imposed can disrupt imports.

11. 
    Could India explain how it ensures that:
    

i) Such investigations are initiated on the basis of a duly justified complaint;

ii) Due restraint is exercised in using this exceptional instrument in consideration of India's commitment to resist protectionism (G 20);

iii) Safeguard measures are applied only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment?

It must be added that, in some cases, the same product was subject to both a safeguard and an anti dumping investigation.

Reply (i): Rule 5(3) of India's Safeguard Duty Rules obligates the investigating authority to examine the accuracy and adequacy of the evidence provided in the application and to satisfy that there is sufficient evidence regarding: (a) increased imports; (b) serious injury or threat of serious injury; and (c) a causal link between increased imports and alleged injury or threat of serious injury. The DG (safeguards) initiates safeguard investigations by following this Rule.

Reply (ii) and (iii): During the period of review, 17 safeguard investigations were initiated based on prima facie evidence furnished in the applications. However, measures were recommended by the Investigating Authority only in 6 cases out of 17. Further restraint was exercised by imposition of lower rate of safeguard duty and for a shorter duration of time than recommended by the Investigating Authority (IA). In one case, the safeguard measure was limited to the period of provisional safeguard measure. At present only one safeguard measure of India is in force.

11. 
    Could India provide a legislative reference, if any, or explain how in practice India applies simultaneously trade defence instruments (notably anti dumping and safeguard measures) and avoids double imposition?
    

Reply: In such cases, India ensures that there is no double imposition. If an anti dumping measure is applied where a safeguard measure is already in force, the anti dumping measure is adjusted to take into account the injury addressed by the safeguard measure. Similarly where an anti dumping measure is already in force, the safeguard measure is applied after taking into account the existing anti dumping measure in force.