Tariff concessions on gold shadow India-Peru FTA talks

The issue of tariff concessions on gold is looming large over the latest round of discussions on a bilateral Free Trade Agreement (FTA) between India and Peru as negotiators from the two countries assemble in Lima.

Gold, constituting a substantial 80% of India’s imports from Peru, presents the most formidable hurdle in the proposed FTA, according to a report released by the Global Trade Research Initiative (GTRI).

According to the report, even minor adjustments to the current 10% basic customs duty on gold in India could lead to a substantial increase in imports.

Ajay Srivastava, co-founder of GTRI, warned that Peru, as India’s fifth-largest supplier, may also witness a surge in gold imports should concessions be granted.

“Excluding gold from an FTA would violate the World Trade Organization’s Article XXIV, which requires duty cuts on substantial trade for FTAs,” Srivastava said.

The ongoing sixth round of talks, slated from 12-15 February, comes amid heightened expectations for progress.

However, the deadlock over gold tariffs underscores the complexity of reaching an agreement.

In 2023, India’s global imports of unwrought gold reached a staggering $43 billion, with Switzerland dominating 40% of the imports.

Given Peru’s significant gold mining industry, it stands well-positioned to meet the Rules of Origin criteria, used to determine an imported product’s country of origin.

While India’s bound duty on gold stands at 40%, the current applied tariff is 10%. Free Trade Agreements (FTAs) typically offer concessions on effective duties rather than on bound duties.

In FY 23 India imported $2.25 billion worth of goods from Peru and its exports stood at $865.91 million.

Key Indian exports to Peru include automobile ($282 million), cotton yarn ($101 million), electrical and electronics ($51.3 million), machinery ($50.2 million), tires ($17 million), and pharmaceuticals ($87.3 million).

Major imports from Peru include gold, copper ores, silver, and agricultural products like avocados, fresh grapes, and blueberries. Gold ($1.77 billion), copper ores and concentrates ($391 million), and silver ($14.5 million) dominated the import portfolio from Peru.

Despite Peru’s relatively low tariff barriers, with 70.4% of items in its tariff schedule being duty-free and a simple average tariff of 2.2%, tariff elimination alone may not substantially enhance market access for Indian products.

In its report, GTRI underscored the need for broader discussions, particularly in the services sector, where India may seek commitments in areas such as IT, finance, and tourism.

However, the potential gains in services trade could be constrained by existing policy commitments and the modest levels of trade between the two nations.

Since 2017, India and Peru have been engaged in intensive negotiations to finalize an FTA that could reshape their economic ties. While progress has been made on various fronts, the contentious issue of gold tariffs remains a formidable obstacle that must be addressed for any agreement to materialize.

“In global trade, India’s exports for FY2023 amounted to $760 billion, significantly higher than Peru’s exports of $66 billion. Similarly, India’s imports were also greater, $840 billion, compared to Peru’s imports of $56 billion,” GTRI said.