Buoyed by tariff removal, the US walnut industry aims to crack India's market.

India's decision to remove retaliatory customs tariffs on some US products, including walnuts, has cheered up the California walnut industry, which is hopeful that the move will help it increase its exports to India and further firm up trade ties between the two strategic allies.

Two days ahead of US President Joe Biden's visit to New Delhi to attend the G20 Summit on September 9-10, India dropped the retaliatory customs duties on about half a dozen US goods which were imposed in 2019 after America hiked its tariffs on certain steel and aluminium products coming from India.

Welcoming India's decision, Pamela Graviet, Senior Director, Global Programmes, California Walnut Commission and Board, said it is a "positive step" that will improve bilateral trade relations.

"Recently, the Indian government and the United States have been in discussions about mutually beneficial things, not just agriculture, but also across a wide variety of subjects. And, it was determined to remove a 20 per cent retaliatory tariff," she told PTI.

"I think when countries talk, and they have a positive dialogue, it's beneficial, and that trickles down to something like walnuts," she said.

India had imposed customs tariffs on 28 American products in June 2019 in retaliation to the US' move. It raised the import duty on American walnuts from 30 per cent to a whopping 120 per cent.

During Prime Minister Narendra Modi's first state visit to the US in June, both India and America decided to terminate six WTO (World Trade Organisation) disputes and also remove the retaliatory tariffs on some US products.

As part of the agreement, India dropped additional duty on chickpeas (10 per cent), lentils (20 per cent), almonds fresh or dried (Rs 7 per kg), almonds shelled (Rs 20 per kg), walnuts (20 per cent), and apples fresh ( 20 per cent).

"So, the 20 per cent retaliatory tariff is gone, but the 100 per cent remains for walnuts coming from the US, Chile, or anywhere," Graviet said.

"We would like to see it go back to what it was, which is 30 per cent. It makes the product more affordable for the local population. The other thing is India imports walnuts in the shell. And in the store, you buy them either in the shell, or it's the kernels. When you find kernels, those are done within India. So, it is also job creation. When you have affordability for a product, we hope that also has more job creation locally," she said.

The extra 20 per cent in tariff meant that it changed the price of California walnuts, Graviet said, adding that this is the reason there are more Chilean walnuts available in the Indian markets right now.

But now that we both pay the same tariff level, we expect over the next couple of years that it will even out and that you will be able to find pretty much equal amounts of walnuts from California and Chile...You can buy local, produced in India, you can buy Chilean and you can buy what comes from California, she said here on Friday.

Everything that comes into India, that is not produced in India has the same tariff level of 100 per cent. The government is still looking out for local producers, but also allowing the importation of walnuts on a fair level playing field, Graviet said.

Asked if she was hopeful that the Indian government will further bring down the import duties on walnuts, she said, "It's the government's decision. What's best for their population, we will work with that." She said the market for walnuts in India is huge and the consumption is growing and is yet to reach its peak.

The US is the largest trading partner of India. In 2022-23, the bilateral goods trade increased to USD 128.8 billion against USD 119.5 billion in 2021-22.

The exports of California walnuts to India declined from nearly 19,000 metric tonnes in 2020 to just 6,500 metric tonnes last year, largely because of high tariffs coupled with Covid-19, which disrupted global supply chains.

California walnuts account for 99 per cent of the commercial US supply and nearly 50 per cent of the world trade. Germany is the top export market, followed by the Middle East and Turkiye.

The article refers to India's decision to remove the retaliatory tariffs against California's walnuts in response to USA hiking "tariffs on certain steel and aluminium products coming from India". A tariff is a tax raised on an imported good, these tariffs raised the import duty on California's walnuts from 30 percent to 120 percent. This action had a significant impact on California's walnut exports to India, causing a decline from 19,000 metric tons to 6,500 metric tonnes in two years. The significance of California in global walnut production is underscored by the fact that \(99 \%\) of commercially produced walnuts in the United States originate from the state, and nearly \(50 \%\) of the world's walnut trade involves California-produced walnuts. Decreasing California's supply has led to a decrease in exports to other major exporting countries like Germany and Turkiye. However, India has dropped the additional duty on multiple US products which has led to an increase in bilateral trade between these countries. This case exemplifies the economic interdependence between nations.

From Figure 1, at the \(120 \%\) tariff, all domestic producers will produce at Q5 at Pretaliatorytariff and they will import from Q5 to Q6. Because of this, the foreign producer revenue has decreased as they are importing less at Pindia. This has increased the domestic producer surplus from J to \(\mathrm{I}+\mathrm{E}+\mathrm{J}\) and decreased the foreign producer surplus from \(\mathrm{K}+\mathrm{F}+\mathrm{G}+\mathrm{H}\) to \(\mathrm{F}+\mathrm{G}\). Domestic producers can now sell more at a higher price, but this has led to less efficient Indian producers producing more and a misallocation of resources. The consumer surplus has also decreased from \(\mathrm{A}+\mathrm{B}+\mathrm{C}+\mathrm{D}+\mathrm{I}+\mathrm{E}+\mathrm{L}+\mathrm{M}\) to a due to fewer choices and higher prices. However, the government gains from this as their revenue increased from nothing to \(\mathrm{L}+\mathrm{M}+\mathrm{C}+\mathrm{D}\). At Pfinaltariff, domestic producers will produce up to Q7 and they will import from Q7 to Q8. Now, California's revenue has increased and the domestic producers' revenue has decreased to \(\mathrm{F}+\mathrm{G}\) from \(\mathrm{K}+\mathrm{F}+\mathrm{G}+\mathrm{H}\). The \(100 \%\) tariff on all walnut industries was to "look out for local producers". Because the price of imports is still high, it gives the walnut industry in India an unfair advantage by increasing the quantity they sell.

The change in tariff levels had impacted the price of California walnuts, leading to an influx of Chilean walnuts in the Indian markets. The reduced tariff burden enhances the competitiveness of California walnuts in the Indian market, from importing Q5-Q6 to Q7-Q8. With the market for walnuts in India still growing and the US being India's largest trading partner, the California walnut industry is well-positioned to capitalise on the expanding consumer demand. The removal of the additional \(20 \%\) tariff reduces the competition of other foreign producers for the USA, however, it's still at a disadvantage compared to the domestic producers. Reducing the tariffs can also contribute to the provision of jobs in India. By making it cheaper and increasing domestic consumption, job creation will increase through the in-country processing of imported walnuts into kernels. This can potentially contribute to India's economic growth and social development.

With an increase in the number of goods that have a bilateral goods trade, the trade relations between India and the USA have been improving "In 2022-23, the bilateral goods trade increased to USD 128.8 billion against USD 119.5 billion in 2021-22." This puts both these countries in a position where they are both able to work interdependently to achieve goals of economic growth. By eliminating trade barriers, the countries create opportunities for increased trade, benefiting industries on both sides. As the USA anticipates an increase in exports, the potential increase in foreign exchange reserves from walnut trade could contribute favourably to the USA's current account balance.

In the long run, while the removal of the \(20 \%\) retaliatory tariff is a step in the right direction, the existence of a \(100 \%\) tariff on walnuts imported from all countries, including the USA, raises concerns for the California walnut industry. The prolonged high tariff may hinder the industry's competitiveness in the Indian market, affecting export volumes and revenue over the long-run. In terms of job creation and local impact, the short-term expectation is that the removal of the \(20 \%\) tariff will contribute to affordability for the local population and potentially lead to job creation within the Indian walnut industry. However, the long-term job creation prospects hinge on achieving a more balanced tariff structure, such as the suggested \(30 \%\), which could sustain affordability and lead to continued industry growth.

In conclusion, the removal of this tariff enhances opportunities for both countries through increased trade. However, without further reduction of the tariff in the long-run can harm the interdependence and lead to retaliation from the USA.