The new eight-digit Customs duty came into effect on February 1.

The duty is now aligned with the Indian Trade Classification (Harmonised System) of Export and Import Items and the eight-digit classification the Director-General of Commercial Intelligence and Statistics uses to compile trade data.

The central government has introduced the new Customs duty through Ordinances that also save the existing norms, anti-dumping notifications and duty exemptions. Effectively, there is no change in the duty rates at the moment.

The government claims the eight-digit classification will help remove divergence of classifications by different agencies, reduce scope for disputes and help get more specific trade data.

The Ordinance also prescribes the units in which exports and imports must be expressed in shipping bills or bills of entry.

Although the Central Board of Excise and Customs says the stipulations regarding the units will take effect from a date to be notified later, the Ordinance prescribes immediate effect to the stipulation.

The switchover to the Harmonised System of Classification at the eight-digit level is in line with the recommendations of the commerce ministry in the Medium Term Export Strategy.

The commerce ministry had argued the effective rate of protection for value-added products in many cases were lower than those at the lower segments of the value-chain and, therefore, the eight-digit classification would help reduce the import duties on inputs required for export production and raise the import duties on sensitive items requiring higher protection.

The idea was to maintain average duty rates with wide variations on either side through peak tariffs and tariff escalations, it had said.

Ironically, at the World Trade Organisation negotiations, India has repeatedly criticised the rich countries for maintaining tariff escalations and peak rates.

Trade ministers at the WTO launched fresh negotiations on non-agricultural products at Doha in November 2001 and one of the directives of the ministers was to eliminate tariff escalations and peak tariffs.

At the moment, the WTO negotiations are stuck because of the rigid positions of the member countries, and chances of a consensus look bleak. The deadline to complete the Doha Development Round by the end of 2004 looks unrealistic.

According to the government, the new classification system gives greater flexibility in the negotiation of industrial tariffs.

The government hopes to negotiate special and differential measures for developing countries, which will include the right to maintain peak tariffs and tariff escalations.

The eight-digit classification will be a useful tool to give legal effect to its policies in order to discourage imports of sensitive items and make it easy to import inputs and intermediates required for exports.

The trade apprehends the proposal to selectively reduce or increase duty rates will intensify lobbying.

Another worry for the trade is the government has, through the Ordinance, usurped Parliament's power to alter the tariffs, introduce new codes or amend product descriptions.