Wt/tpr/M/313/Add. 1 31 July 2015

EU Question 6: To avoid non necessary delays in setting up facilities and building infrastructures, can India elaborate on the next steps it is going to take in experimenting the "plug and play model"?

Reply: The government has intends to explore the possibility of experimenting with the 'plug and play' model across sectors, wherever possible. However, details in this regard are being worked upon.

Para 2.32 Unilateral trade preferences towards LDCs

EU Question 7: Can India provide recent statistics on the value and volume/ percentage of its total imports that are subject of the preferences granted to LDCs? Could India indicate the legal basis for the revised scheme? Which countries and products are excluded and on which criteria? Are there any quotas applied on duty free imports for those products and countries covered?

Reply: Duty preferences to LDCs are granted in terms of the DFTP scheme of India. As per the scheme, as of now, India provides duty free market access on about 96 % of its tariff lines (at 6 digit HS classification) and 2.2% of the lines are under preferential duties. Only 1.8% of the tariff lines have been retained in the Exclusion List, with no duty concessions. Customs Notification No. 8/2014 dated 1^st of April, 2014, whereby the scheme was expanded provides legal basis of the DFTP scheme. Scheme is open to all LDCs. However, in order to become beneficiary of the DFTP Scheme, individual LDCs are required to submit to the Government of India, a Letter of Intent and details of officials who would be responsible for issuing the Certificate of Origin in the prescribed format. Presently, 31 out of the 48 LDCs have become beneficiaries to the scheme. Out of this, 21 LDC beneficiaries are from Africa. Some of the products which have been excluded under the scheme are agricultural products like poultry, milk and milk products, fruits, coffee, tea, cereals and others items like crude/rough marble, specific steel products, refined copper, cathodes etc. No specific quotas have been put under the DFTP scheme.

Page 31, para 2.32, Compulsory Industrial licensing, paragraph

The Report mentions that "The IEM, according to the authorities, is required principally for data collection purposes on investment and type of industrial activity. Industrial licenses are valid for an initial period of three years following which they are extendable for up to a maximum period of seven years."

EU Question 8: Is the extension period of seven years inclusive of the initial three years?

Reply: Yes, for all sectors other than Defence Sector.

For Defence Sector the initial validity of Industrial Licence has been increased from present three years to seven years with a provision to seek an extension of three years. (DIPP Press Note 5 of 2015 series)

The Report also mentions that "There are also two industries reserved for the public sector: atomic energy and railway operations other than construction, operation and maintenance":

EU Question 9: Has India conceived any plans in the future to open atomic energy and railway operations other than construction, operation and maintenance to privatization?

Reply: Since these sectors are crucial with respect to national interest & security and are of sensitive nature, FDI is prohibited in these sectors. At present, there are no plans to open these sectors for allowing FDI.

However, Govt. has allowed FDI upto 100% under the automatic route in Construction, operation and maintenance of the railway infrastructure projects as specified in the Consolidated FDI Policy (12th May, 2015) as per Para 6.2.17 of the Consolidated FDI Policy 2015 .

The Report mentions "In November 2011, the DIPP also notified the National Manufacturing Policy (NMP) whose overall goal is to raise the share of manufacturing in GDP to 25% and create 100 million jobs over a decade or so. To implement the policy, national investment and manufacturing zones (NIMZs) have been created".

EU Question 10: Have certain NIMZs already been identified? If so, could India provide additional details?

Reply: Government has granted "in-principle" approval to a total of 20 National Investment and Manufacturing Zones (NIMZs), out of which 12 NIMZs are located outside the Delhi-Mumbai Industrial Corridor (DMIC) region. These are: (i) Nagpur in Maharashtra (ii) Prakasam in Andhra Pradesh (iii) Chittoor in Andhra Pradesh (iv) Medak in Telangana and (v) Tumkur in Karnataka (vi) Kolar in Karnataka (vii) Bidar in Karnataka (viii) Gulbarga in Karnataka (ix) Kalinganagar, Jajpur District in Odisha (x) Ramanathapuram District of Tamil Nadu (xi) Auraiya District in Uttar Pradesh and (xii) Jhansi District in Uttar Pradesh.

Under phase-I of the DMIC project, 8 Investment Regions have also been accorded "in-principle" approval of Government for setting up as NIMZs as per guidelines approved by the Government. These are (i) Ahmedabad-Dholera Investment Region, Gujarat; (ii) Shendra-Bidkin Industrial Park city near Aurangabad, Maharashtra; (iii) Manesar-Bawal Investment Region, Haryana; (iv) Khushkhera-Bhiwadi-Neemrana Investment Region, Rajasthan; (v) Pithampur-Dhar-Mhow Investment Region, Madhya Pradesh; (vi) Dadri-Noida-Ghaziabad Investment Region, Uttar Pradesh; (vii) Dighi Port Industrial Area, Maharashtra; and (viii)Jodhpur-Pali-Marwar Region in Rajasthan.

The Report mentions "In addition to compulsory industrial licensing and reservations for the public sector, environmental clearance under the Environment Protection Act, 1986, is required from the Ministry of Environment and Forests, for 29 industries prior to establishing industrial units".

EU Question 11: Is there a defined timeline for obtaining these clearances? Is MoEF a single window for obtaining clearances for all 29 industries?

Reply: Environmental Impact Assessment (EIA) notification, 2006 is a subordinate legislation under Environmental (Protection) Act, 1986 requiring mandatory prior environmental clearance for 39 types of economic activities. The notification provides for defined time limits for each stage of environmental clearance process. The EIA notification, 2006 is administered by Ministry of Environment, Forest & Climate Change but has delegated the powers for consideration of environmental clearances at State level in each 39 types depending upon size and capacity of the project.
Page 27, Para 2.15 - import

EU Question 12: Could India clarify if there is a longer term strategy to ensure predictable, more trade facilitating polices for import with a view to create a better and more predictable business environment for trade?

Reply: Indian maintains a limited number of tariff lines under "prohibited" and "restricted" list. A few items are for exclusive trading by the State Trading Enterprises. The list has remained more or so stable for the last ten years. Even for exports, the item wise provisions clearly indicate that over the last few years, India has stable trade policy regime.
Page 32 para 2.35 Micro, small and medium enterprises
Micro, small and medium enterprises (MSMs) as defined in the Micro, Small and Medium Enterprises Development Act, 2006 (Section 3), account for around 8% of India's GDP, 45% of manufacturing output and 42% of exports, and provide employment for a significant share of the population according to estimates by the Ministry of Micro, Small and Medium Enterprises. Historically, in order to support these enterprises, the production of certain products could only be carried out by them. The number of such reserved items has been reduced gradually over the years with around 20 items currently on the list (see Section 3.3.1.4). Despite this reservation, approved non-medium and small-scale companies may also produce items reserved on condition they obtain an industrial license from the DIPP and undertake to export at least 50% of their annual production.

EU Question 13: Are there any benefits and incentives schemes that are available to foreign entities that would contribute to support the MSMs sector in India?

Reply: No such scheme is operating under Ministry of MSME.

Page 34 Para 2.42 on BIT model

EU Question 14: India recently published its new model BIT. Could India clarify the timeframe for further developing its BIT model? Could India indicate if it has intentions to replace or modify its existing BITs? If so, could India provide further information regarding the planned steps in this regard?

Reply: The Draft Indian Model Bilateral Investment Treaty (BIT) is awaiting the approval of the Competent Authority. Once the model BIT text is approved, BITs would be negotiated on the basis of this model.
Page 35 Para 3. 4. On risk management and customs.

It is stated that "India uses a RMS as a trade facilitation measure to selectively screen only high and medium risk cargo for customs examination ", but the regulations of FSSAI (India's Food Safety and Standards Authority" impose 100% sampling and testing for all imported agri food entering India. This de facto imposes high costs of transaction, including for products that have repeatedly and successfully passed the sampling/testing (also taking into account the perishable nature of food items stored in precarious facilities for several days due to the limited available test laboratories)

EU Question 15: Could India explain the rational of pre-shipment inspections for certain textiles and clothing articles? Does India intend to simplify this procedure for example by providing exemptions? Could India confirm that the legal basis for these pre-shipment inspections consists of "Paragraphs 25 and 27 of the Export and Import Policy" as notified to the WTO Secretariat and that no additional legislation has been adopted?

Reply: For import of textile and textile articles, pre-shipment certificate ensures that the consignment is permitted subject to the condition that they shall not contain any of the hazardous dyes whose handling, production, carriage or use is prohibited by the Government of India under the provisions of Environment (Protection) Act, 1986.

Page 36 section 3.1.2 - customs valuation

EU Question 16: Could India clarify what are the conditions for accepting import prices between related parties and how such conditions comply with the WTO Customs Valuation Agreement?

Reply: Rule 2(2) of the Custom Valuation Rules 2007 enumerates the persons who shall be deemed to be "related". It has made clear by explanation thereto that the sole agent, sole distributor or sole concessionaire can be termed as related only if they fall within the criteria of this sub rule. Further, Rule 3(3) provides that where buyer and seller are related, the transaction value can be accepted if the examination of circumstances of the sale of the imported goods indicate that the relationship did not influence the price or if the importer demonstrates that the declared value of the goods being valued, is approximately close to one of the test values namely transaction value of identical/similar goods, in sales to unrelated buyers in India, deductive value for identical/similar goods or computed for identical/similar goods ascertained at or about the same time can be used.

India's Custom valuation rules are compatible with WTO Custom valuation Agreement

P. 37, para 3.14 – tariff values

The WTO Secretariat states that the transaction value is also generally used to assess the additional duty on imports. Nonetheless, for imports of some packaged goods, which, if produced domestically, would be subject to a maximum retail price (MRP), the value of the goods is determined using the MRP declared on the package minus an "abatement" for like domestic goods. The latter practice is not in line with the WTO Customs Valuation Agreement. However, this is not the only concern as regards maximum retail price. Indian rules lay down that products (there are some products though exempted by India in 2011) have to be labelled with the MRP before they arrive to India. This is a significant burden for exporters to India. Moreover, different VAT rules in each Indian State result in different MRPs. This makes labelling costly and complicated.

EU Question 17: Has India any intention to amend the MRP rules in order to facilitate for trade and business?

Reply: India is open to any constructive suggestions for facilitating trade. In the meanwhile, as per amendment order No. GSR-385(E) dated 14.5.2015, it has been stipulated that necessary declarations may be made on a sticker at the principal display panel of the pre-packaged commodity.

Page 37, para 3.16 - custom procedures

EU Question 18: Could India provide more information on the number of cases where appeals were launched against customs valuation decisions?

Reply: There is no separate data readily available on the number of cases where appeals were launched against customs valuation decisions. However, details of total appeals is as under:

Year 2012-13

	Commissioner (Appeal)	CESTA T	High Court	Supreme Court
Appeal by trade	8286	2518	1136	79
Appeal by Department	1172	624	179	46

Year 2013-14

	Commissioner (Appeal)	CESTA T	High Court	Supreme Court
Appeal by trade	11694	1992	828	62
Appeal by Department	882	1080	365	48

Page 38 Para 3.18 - applied tariffs

India applies a complex system of tariffs with separate published MFN and effective rates in addition to ad-hoc exemptions notified by Customs Notifications that decreases predictability and can act as impediment to trade.

EU Question 19: Does India intend to modernize its tariff information system so as to provide information to traders in a single form or gateway?

Reply: The current rate of Customs duties for each tariff line is available at the ICEGATE "Customs Duty Calculator" [https://www.icegate.gov.in/Webappl]

Page 40 Para 3.27-3.29 – applied tariffs

The WTO Secretariat rightly notes that applied tariffs increased by 1%. Given the additional taxes, As noted by the Secretariat, applied tariffs have not decreased but increased by 1%. Para. 3.29 states "The addition of these duties and charges to the applied tariff raises the actual duty paid by the importer significantly above the effective applied tariff rate. All imports, unless exempt, must pay the effective rate of customs duty, plus the AD, plus any cess applicable, and the Education and Higher Education Cess; the 4% SAD is then calculated as a share of this final value. As a result, the overall average applied tariff including such charges rises from 13% to 28.3%".

EU Question 20: Does India intend to suppress the additional duty and the special additional duties when the Goods and Services Tax will start being applied? (those duties were created to offset local taxes as the paragraphs 3.27-3.30 of the WTO Secretariat report recall).

Reply: Normally, since the local taxes such as VAT, CST, etc. and the central excise duty are proposed to be subsumed in the GST, AD and SAD will also be subsumed into GST and a unified IGST rate will be applicable on imports.

Page 43 para 3.29 - Other charges affecting imports

EU Question 21: Will India consider either suspending the Special Additional Duty on products for which the former Additional Duty has already been suspended or making a commitment to adopt concrete measures in order to simplify the refund mechanism?

Reply: Countervailing duty is charged at a rate equal to the excise duty, for the time being leviable, on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional dutyto which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article. [Section 3(1) of the Customs Tariff Act, 1975 (51 Of 1975)]
Special Additional Duty is charged so as to counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India [Section 3(5) of the Customs Tariff Act, 1975 (51 Of 1975)].
Both "countervailing duty" (AD) and "Special Additional Duty" (SAD) are in the nature of equalizing duties so as to ensure that imports goods suffer the same level of domestic duties that indigenous goods suffer. Moreover, input tax credit of both "countervailing duty" (AD) and "Special Additional Duty" (SAD) are available for manufacturers using imported goods as inputs. Therefore these duties are in the nature of equalizing duties.
The EU notes that imported spirits face 29 different state markets within India, each with different internal tax structures. A variety of apparently discriminatory tax and other market access measures imposed by state governments continue to compound the market access problems created by national measures such as the 150% tariff. Some of the worst such state measures have been raised in WTO Consultations initiated by the EU under DS380. That Consultation was requested in 2008 and has resulted in some improvements, but there are a number of apparently discriminatory measures implemented by state governments which continue to seriously impair access to the state markets concerned. New forms of seemingly discriminatory measures are regularly proposed by different states (for example Delhi's pricing restrictions for imported spirits). The EU notes that there is no effective resort to domestic Indian law for challenges covering discriminatory measures applied by state governments.

EU Question 22: What are the steps considered by India to ensure that Indian States bring their practices in conformity with India's WTO obligations?

Reply: Under the federal structure in India, the Constitution provides powers to the State Governments to levy Excise duties on certain products including wines and spirits. Pursuant to the discussion with various State Governments, a number of State Governments have amended the same and it is understood that the same have been rationalized. However, the Government of India is continuously working with the concerned State Governments to rationalize the duty, if any, on wines and spirits.

The EU also notes that cut and polished diamonds have been made subject to a 25% effective import duty in September 2014.

EU Question 23: What is the rationale behind such decision, bearing in mind that such hike can contribute to illicit customs value declaration and the expansion of unregistered supply channels at the detriment of transparent suppliers, such as those operating in the EU? Does India contemplate any further import duties or levy increases on cut/polished diamonds?

Reply: Changes in import tariffs are done keeping in view interest of consumer and domestic industry. It may not be possible to discuss the reasons for specific changes.
Page 45, Table 6.3 -Tariff Rate quotas

EU Question 24: Can India provide further information in particular on the rate of use of these quotas as the last notification by India dates back 2011 and covers 2004-10? In case they were not 100% used, would India consider facilitating importers' use of these quotas?

Reply: Information is being collected and will be provided in India's notifications.

Page 47 para 3.40 - Import prohibitions

EU Question 25: The report states that "import prohibitions are mainly for health reasons and safety reasons and include a wide range of products." Can India provide a scientific justification for the prohibition of the items listed in table 3.8.? Could India explain the rationale for prohibiting the imports of mat and offal of wild animals and animal fats? Could India clarify whether a similar ban on domestic production and commerce of animal fats is in place?

Reply: Prohibition on imports of certain products and the reasons thereof are:-
i.Import of Wild Animals (including their Parts and Products) as defined in the Wild Life (Protection) Act, 1972 is "Prohibited".

ii.Animal fats under Chapter 15 of ITC (HS) is "Prohibited" in terms of Principles of restrictions related to protection of human, animal or plant life and health.

Page 51, para 3.51-and para 3.53 import quotas and import restrictions

EU Question 26: Regarding the import quotas on marble and similar stones, how does India justify such quantitative restriction to imports, effetely depriving its processing industry of a supply source? In relation to Trade Notice No. 12/2014 of 8^th January 2015 on the Allocation of Quantity of Rough Marble and Travertine Blocks for import, can India confirm that the 472 companies listed in annex cannot import more than the quantity allocated, which results in a de facto maximum import limit per applicant? Could India explain why imports of new motor vehicles are restricted to specified ports? Could India provide further justification regarding the obligation to import second hand cars only through a single port?

Reply: Marble is a sensitive item for India because of ecological and health safety reasons. A fine balance has to be maintained between requirement of mineral resource vis-à-vis environment/ecological concerns. On account of this, mining is allowed only after environmental clearance and there are several conditions stipulated in mining licenses.

Regarding motor vehicles, Import clearance requires assessment of value, duty, compliance to quality and other parameters. Whereas , most of the items are allowed to be imported from all Custom designated ports, port restriction criteria has been introduced for few items where the above mentioned parameters (assessment of value, duty, compliance to quality and other parameters) cannot be assessed in all ports. The designated ports ensure quick clearance of the goods for imports and exports purposes.