VZCZCXRO6567
RR RUEHBI RUEHCI
DE RUEHNE #2526/01 2630849
ZNR UUUUU ZZH
R 190849Z SEP 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3462
INFO RUEHCI/AMCONSUL KOLKATA 2762
RUEHCG/AMCONSUL CHENNAI 3519
RUEHBI/AMCONSUL MUMBAI 2577
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 NEW DELHI 002526 
 
SIPDIS 
SENSITIVE 
 
STATE FOR SCA/INS AND EEB 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR CLILIENFELD/AADLER 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECON ECPS EFIN EINV ENRG EPET ETRD BEXP
IN 
 
SUBJECT: COMMERCE A/S BOHIGIAN MEETS WITH MINISTRIES OF FINANCE AND 
COMMERCE 
 
Reftel: Mumbai 428 
 
¶1. (SBU) Summary: Commerce Department Assistant Secretary for Market 
Access David Bohigian met on September 8 with Ministry of Finance 
Revenue Secretary Bhide and Ministry of Commerce Joint Secretary 
Mukim to discuss US industry concerns on tariff and non-tariff 
barriers to US exports to India.  Bohigian raised boric acid, 
remanufacturing, tires, cosmetics, McDermott and Federal Mogul with 
Mukim.  Bohigian noted that while US-India trade was surging, it was 
important to resolve these issues which had the potential to 
undermine the positive momentum in the bilateral trade relationship. 
 In a separate meeting, Revenue Secretary Bhide defended much of the 
government's tariff actions, but pledged to look into the individual 
cases that Assistant Secretary Bohigian brought to his attention. 
End Summary. 
 
¶2. (SBU) On September 8, Assistant Secretary Bohigian met with 
Ministry of Commerce and Industry (MOCI) Joint Secretary Anil Mukim. 
 Bohigian began by noting the recent visit of Commerce Deputy 
Assistant Secretary Holly Vineyard and a request she had made on 
August 25 for a GOI response to US concerns over barriers to the 
export of boric acid to India.  Bohigian queried Mukim on the status 
of that reply, which Mukim had promised to Vineyard in one week. 
The GOI official replied that it was awaiting clearance and had 
taken longer than expected because MOCI had needed input from the 
Ministry of Agriculture.  "You should not make promises you cannot 
keep," Bohigian emphasized to Mukim.  Mukim replied that he would 
try to get a response out as soon as possible. 
 
¶3. (SBU) Turning to the issue of McDermott and the more than $110 
million now owed to the company by the GOI for the construction of 
oil platforms in the 1980s, Bohigian asked where discussions to 
resolve the issue stood.  Mukim referred Bohigian to Additional 
Secretary Surjit Mitra in the Ministry of Heavy Industry. 
 
¶4. (SBU) Bohigian raised the issue of remanufactured products, 
noting how they are different from used products, and explained the 
basis for categorizing them separately.  He stated to Mukim that the 
Indian WTO delegation in Geneva had told the US delegation that the 
issue of remanufactured goods was both a bilateral as well as 
multilateral issue.  Mukim responded that it was his understanding 
that this was a multilateral issue, not bilateral, but that he would 
seek to clarify this. 
 
¶5. (SBU) Next, Bohigian asked about tires and cosmetics regulations. 
 Mukim replied that on tires there was a positive interaction 
between the USG and GOI during a DVC that took place a couple of 
weeks previously.  The GOI had given a presentation during the DVC 
with which the US side, according to Mukim, was "happy."  As of now, 
Mukim continued, there was "no restriction" on tire imports.  On 
cosmetics, Bohigian noted that the USG was not notified when the 
last set of regulations came out.  Mukim replied that the draft 
standards would be shown to the USG in a DVC seminar on standards on 
September 11. 
 
¶6. (SBU) Turning to Federal Mogul, Bohigian noted that there was a 
letter from Minister Nath indicating that the issue was resolved, 
but confusion continues to persist.  Federal Mogul is keen to set up 
a seals and gaskets factory in India, but cannot proceed because of 
objections raised under GOI Press Note 1, which allows Federal 
Mogul's joint venture partner to veto the company's plans.  Mukim 
said he understood that the company would get a new hearing (a 
"request for reconsideration") to resolve this. 
 
¶7.  (SBU) Also on September 8, Assistant Secretary Bohigian met with 
Ministry of Finance Revenue Secretary Bhide to discuss several 
tariff classification concerns raised by US industry.  The first 
that Bohigian raised was the government's reclassification of 
aviation equipment used for private passengers to 3% import duty, 
where previously it had been scheduled at 0% import duty, along with 
equipment for unscheduled service.  Revenue Secretary Bhide asserted 
that there had been no change in the import duty for private 
passenger aviation machinery.  The only change he claimed had 
happened was that Indian Customs' offices were going after 
 
NEW DELHI 00002526  002 OF 003 
 
 
individual importers who had misused their license to avoid any 
import duty.  Customs officers were simply following the "law of the 
land" to enforce license requirements, Bhide concluded. 
 
¶8.  (SBU) Senior Commercial Officer Carmine D'Aloisio responded, 
pointing out that the 3% tariff was being newly applied to much of 
US industry imports, and that any tariff above zero attracted 
further tariffs and surcharges.  In this case, D'Aloisio noted, the 
effective tariff rate escalated to 24%.  Such a high rate suppressed 
growth in one sector of the aviation industry, which acted as a 
brake on the entire industry.  Bhide reiterated that no change had 
occurred in the duty rate, only renewed enforcement of the license 
requirements already established.  "But let me assure you," the 
Revenue Secretary continued, "we are not going back on the aviation 
industry.  It is not a change, and in the last 10-15 years, India 
has come very far." 
 
¶9.  (SBU) Bohigian next raised the retroactive duty on DVD masters 
imports that had been imposed.  One of Bhide's subordinates claimed 
that the problem was one of valuation.  The importers had been 
allowed to declare the value for purposes of assessing the import, 
and they were not properly including the full value of the DVD 
master to include royalties. Bohigian noted that the determination 
of how to tax imported DVD masters had been decided at the WTO for 
its members.  Bhide quickly noted that the issue is only whether the 
imports are fairly stating the value.  His associate noted that 
Customs officers are looking contract by contract to determine the 
true value. 
 
¶10.  (SBU) Bohigian followed up by questioning the retroactive 
nature of the duty.  Bhide replied only indirectly, noting that the 
government has improved Customs procedures, but it cannot "promise 
yesterday."  But, Bhide assured Assistant Secretary Bohigian, his 
office will look into the issue and get back to him.  Bohigian also 
enquired about a written response to the Motion Picture Association 
of America that the government of India was supposed to provide. 
The Revenue Secretary claimed that the government always responds in 
writing, but requested a note with the details of the situation so 
he could confirm the status of events. 
 
¶11.  (SBU) Bohigian next asked about the continued high tariffs on 
heavy motorcycles.  Bhide defending the government tariff, claiming 
that the tariff for heavy motorcycles was at 91%, even though the 
peak was 105%.  Bohigian disputed the level, indicating that his 
understanding was that the actual tariff was over 100%, but Bhide 
insisted that his office had figured it out and it was 91.22%. 
Bhide then echoed previous statements made by the Finance Minister 
that the number of Indians who can buy heavy motorcycles is about 
the same as those who can buy SUVs, that is few, especially with the 
current high prices of oil. 
 
¶12.  (SBU) In response to a query from the Assistant Secretary, 
Bhide also conceded that there was a domestic industry that was 
interested in keeping heavy motorcycle imports out of the Indian 
market and that they "made noises."  Bhide pointed out that smaller 
motorcycles (less than 100 cc engines) attract only a 30% excise 
duty, as the government is trying to promote lighter motorcycles as 
more environmentally favorable.  When Bohigian asked if the Indian 
produced motorcycles met new European standards, which the US heavy 
motorcycles did, Bhide merely replied that his office would look at 
the request.  But, he warned, the decision to allow in the heavy 
motorcycles would be a political move in a coalition government, 
which might be difficult. 
 
¶13.  (SBU)  Next up, Bohigian explained that a US manufacturer of 
ATM machines was having its machines improperly classified as "cash 
dispensing machines" that attracted a duty, whereas ATM machine 
imports did not.  He noted that Customs had contacted the US 
manufacturer in writing to assert the classification and higher 
duty.  Bhide was not aware of the situation, but indicated that it 
was probably about the product description that been provided.  The 
question of whether something was a cash dispenser or an ATM was a 
matter of definition in the tariff code and depended on the product 
description.  Bhide noted that Customs officers generally seek the 
 
NEW DELHI 00002526  003 OF 003 
 
 
higher import tariff, if thre is ambiguity in the product 
description. He asked for details on the case so that his office 
could look into it. 
 
¶14.  (SBU) Bohigian lastly turned to India's investment environment, 
noting that caps remained in many areas of investment.  Bhide 
agreed, saying that the government was trying to see if it could 
move the caps up.  The government was definitely not going back on 
current investment levels, he assured Bohigian.  Maybe the insurance 
cap would get raised in the upcoming Parliamentary session.  One 
problem, Bhide asserted, was that for countries with which India had 
double taxation avoidance agreements, such as Mauritius and 
Singapore, Indian promoters tried to circumvent their tax 
obligations by using those channels.  However, for truly direct 
investment, Bhide stated, India was not worried.  Bohigian noted the 
constraints on investment in the retail sector.  Bhide seemed to 
downplay the benefits of entering the retail sector, claiming that 
domestic players in retail were not showing success.  There had been 
much hype, Bhide claimed, but nothing was happening.  (See reftel 
for update on retail efforts in the country.) 
 
¶15.  (SBU) Bhide ended with a few predictions on India's economy 
over the next few months.  He noted that his office was waiting to 
see the level of advance tax payments for the second quarter of the 
current fiscal year, which were due by September 15.  He did not 
expect as much buoyancy as was seen in the first quarter.  (Note: 
First quarter direct tax revenues were up 41% over the same period 
the year before; most observers expect that growth rate to subside 
over the rest of the fiscal year, in line with moderating economic 
growth.  End note.)  Bhide also expected inflation to remain at the 
12% level or even go higher during the next six weeks, but after 
November he thought it would go down and that by May of next year, 
inflation would be in the range of 5-6%. 
 
MULFORD