Introduction:
minimum import price Innovative trade theories, such as Ricardo’s Theory of Comparative Advantage and Heckscher Ohlin’s Theory of Factor Endowments opened the floodgates to trade between nations which exploded during the period of hyper-globalization in the beginning of the 21st century. While trading on the basis of abundance of factors or costs is a great way to justify the economic logic behind joining in but it is also influenced by several non-economic variables that can amplify the concept.
Non-economic aspects like the geo-political and political realities of nations as well as the socio-economic and demographic profile, and the resulting obligations that result from it and lastly, the economics of politics.
To accommodate these aspects, non-tariff and tariff measures, such as import duty and export restraints that are voluntary, export subsidies and SPS measures are often used by different countries. A prime instance of this is the voluntary restrictions on exports (VERs) that were enacted in Japan during the year 1981 in order to limit its exports of cars to the USA under the Raegan administration. This was done in an effort to protect the local manufacturing sector of the USA from a fierce foreign competition.
What is Minimum Import Price?
A tool used in this kit is minimum import price (minimum import price) A price that is set by the government to ensure that the item for the list of which it is imposed not imported lower than it. If the price for imports is lower than the minimum price then an more cost is imposed or no imports are permitted. India has often resorted to implementation of MIP mostly on imports of steel and iron commodities and agricultural commodities.
The reason for this is multi-faceted. First, India, through minimum import price has energetically protected itself from dumping practices that are a result of predatory pricing by a few nations of their export goods. It has also resulted in an improve in its current deficit in its account, which places an upward pressure on the rupee’s exchange rate. In addition, minimum import price is also believed to be more effective than alternatives like import taxes and complete bans.
The reason for this is that the imposition of import duties can result in products being shipped through countries that India is a member of Free Trade Agreements (FTAs)which is in contravention of ‘rules on origin’ rules. Additionally, these prohibitions violate the spirit and letter of WTO rules and rules, in the which India has been an active and committed member. In addition, MIPs are only temporary measures that are designed to combat seasonal fluctuations in the demand supply gap. The main reason for this is to protect the rights of those in need such as farmers, and to help the country attain its long-term goals, such as attaining self-sufficiency in the production of these products.
minimum import price case could be better understood if it is viewed in the context of an agricultural product- arecanut. Arecanut is cultivated throughout India across the States in Karnataka, Assam and Kerala. Most imports are coming from Bhutan, Bangladesh, Nepal and SriLanka as per the enabling clauses of the South Asian Free Trade Agreement. In 2017, the government introduced MIP of the price of Rs. 251 per kilogram with an intention to protect domestic farmers. In 2018, imports of areca nuts regardless of its form was permitted only if their price exceeded the figure of. 251 per kg.
When the Cost, Insurance and Freight (CIF) price was less than the minimum import price specified and no imports were permitted. The enabling notification was replaced by a different notification on September 27, 2022. DGFT permitted the import of up to 17,000 Metric Ton (MT)per year of green Areca Nut with no MIP requirement from Bhutan with an Registration Certificate that was issued by DGFT. According to the RC the maximum imported amount is 500 MT.
MIP, just like every other measure, has been criticized due to similar reasons. The first reason is that MIP is believed to be in opposition to commerce and potential benefits generated by it. But, absolute gains from trade do not always focus on providing a full picture, and a cost-benefit analysis must be favored over it. A second reason is that a trade transaction has different stakeholders with their own short and long-term stakes in it. So, the imposition of these measures must not just account for the short-term nominal cost but also the long-term benefits and externalities that result from the trade process.
In the end, it’s an ongoing endeavor for each country to pursue a steady import policy. There are however certain industries, such as agriculture that are highly active and require constant monitoring, evaluation and, in cases like India an active intervention because concerns of more than 40 percent of India’s population is tied to it.
Impact of minimum import price on Trade Dynamics:
India has been able to achieve a delicate equilibrium between its diplomatic interests and the interests of farmers. It is possible to invite references to arecanut. MIP of Rs. 251 per kilogram is in place and imports from Bhutan is permitted of the green variety from the 4 lines that are made of. This is a sensible equilibrium since Bhutanis an ancient strategic and cultural ally produces just 1.5 percent of the total arecanut production in India. This is why allowing 17000MT of green arecanuts was a restriction on quantity that was combined by MIP.
India as a country, through it’s 1991 LPG reforms and its accession to the WTO at the time of 1995 displayed the world its determination to be a part of globalization as well as the trade that follows. But a nation with a population as varied in its diversity as India that has different stakeholders, is unable to permit a blanket export or import of commodities. Trade is a combination of economic logic and non-economic realities. Any country that wants to be viable, must include some shock absorbers. minimum import price has proven to be an effective shock-absorbing device, which is in accordance with the principle of WTO standards and also.
