Apple Deprivileged As India Bows To Washington Consensus On Mobile Phone Import Tariffs

The most recent Indian budget contained a provision about import tariffs upon mobile phones and their components which was seen as giving Apple a certain privilege in the marketplace. Only a couple of weeks later this has been rethought and the differential rates collapsed down to just the one single rate. This is a good move: it accords with the basic ideas of the Washington Consensus. Tariffs aren't a good idea in themselves, but if you are going to have them then they should be at broadly equivalent rates across close substitutes. To do otherwise will privilege certain business structures above others. And that's really something that government shouldn't be trying to do, micromanaging who has preferential access to a market and who does not. It has to be said that Apple's privilege here was not all that great: but the rethink, the change, is still a welcome removal of a distortion in the market.

The specific point is this:

The government has partly rolled back 29% import duty on mobile phone chargers and batteries, giving in to the demand of most leading smartphone manufacturers that argued the move only benefited Apple and was against the spirit of the "Make in India" initiative.

This can be looked at as ever so slightly odd. Because you might think that things like batteries and chargers are the sort of thing that might be manufactured in India, thus boosting that local manufacturing aim. They're not entirely difficult things to make, after all, nowhere near as difficult as processing chips and screens. However, the differential duty did introduce a distortion:

Make in India; the initiative, the current government is pushing has already tasted success, that we have seen with the significant developments happening in the country. Major brands including Apple have promised to make their iPhones in India. There are already many investments made in the factories set up in Noida & also Sri City where Gionee had started their assembly units. All these brands have been importing the phone components mostly from China, where there was a 29.44% of tax levied on the batteries and few other parts that comprise upto 20% of the cost of the phone.

The point being that what India is trying to do is gain some portion of that Chinese mobile business. We all know of those vast Foxconn and Pegatron sheds which produce millions upon millions of phones each year. Yet the business is not actually the making of those phones in China, not at all. It's the assembly of those phones from imported components. This figure is a couple of years old now but the actual value added in China from the assembly of an iPhone is in the $8 to $10 per handset range. And to gain that minimal value add of course the components have to be imported duty free. Or at the very least, to be able to do this you need the local assembly plants not to be at a disadvantage to imported and complete phones and that's where the problem was:

“The Budget 2016 proposals had resulted in duty structure with high duty of 29.441 per cent on key parts like batteries, chargers and headsets compared to complete mobiles which were at low duty of 12.50 per cent.The finance minister corrected this anomaly in his reply to Parliament Budget debate on 5th May by cutting the duty on the three parts to bring them to the 12.5 per cent rate for mobiles,” said Pankaj Mohindroo, ICA’s national president.

You can see an argument for the way that the budget set these rates. The low end components, the simpler to manufacture, why not encourage local manufacture with higher tariffs? You can also see the problem: Apple can import the batteries, headphones and so on at lower tariff rates as part of a full mobile phone than the local assemblers can import the components. That's something of a privilege for Apple there over those local assemblers. And it's the assemblers, rather than the component manufacturers, that India is trying to encourage. On exactly the same basis that China has been working: they know the industrial base cannot produce all of the components but it should be able to manage the assembly.

All of which is an interesting example of something the Washington Consensus points out. No, that consensus is not the blueprint for neoliberal global domination. It is rather simply a list of ten stupid things you shouldn't do to an economy. And on the subject of tariffs it says this:

Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;

Here it is "relatively uniform" that matters. Economies are horribly complex things and the bureaucrats and the Finance Ministry are simply not able to micromanage them. The general idea of having more manufacturing, more assembly done in India? Sure, a valid and noble goal and one that will indeed make the country richer. But exactly which products should be locally, made, which imported, that's something for those actually doing that work to decide upon. For they're the only people who will possibly have the relevant information. Thus perhaps a low and relatively uniform tariff barrier to provide a little impetus but not a series of different tariffs among close substitutes in order to favour one or another player in the market nor one or other very specific practice.

My own view of course is to have no tariffs on anything at all. But then I'm not Indian nor the Indian government and it's not my place to tell people what they should do. If there are going to be tariffs though they should be as they are now: general, relatively similar, and not tipping the market to privilege one particular method of production or producer. It's fair enough for government to set general goals if that's the way the people want it done. But trying to micromanage the process will always end in something between inefficiency and disaster.