Antonio Mcgowan
In 2019, India restricted the import of Vietnamese incense, causing misery to hundreds of Vietnamese incense export enterprises. The import regime for incense products was changed from ordinary imports to limited imports, requiring a permit from an Inter-ministerial Committee for each shipment. This move was seen as a trade barrier by Vietnamese authorities, who claimed that it would harm local incense firms and affect the supply of Vietnamese enterprises. The Indian government did not provide a clear reason for the implementation of the restriction. However, there were reports of a smuggling racket from Vietnam that misused the free trade agreement between the two countries.
| Characteristics | Values |
|---|---|
| Reason for ban | Indian government reclassified the import of agarbattis and other odoriferous preparations which operate by burning from ‘free’ to ‘restricted’ |
| Date of ban | August 31, 2019 |
| Reason for reclassification | To protect domestic industries |
| Countries affected | Vietnam, China |
| Impact on Vietnam | Vietnam accounts for about 90% of agarbatti imports into India. The ban has caused misery to hundreds of Vietnamese incense export enterprises. |
| Impact on India | The ban has led to the arrest of Bharat H. Shah and his son, Ronik Shah, in Chennai for smuggling agarbattis from Vietnam. |
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What You'll Learn
- India's import restrictions on Vietnamese incense cause local firms to face bankruptcy
- The new regulations require import permits for each shipment
- The restrictions have caused misery for Vietnamese exporters, with large inventories and no alternative market
- Indian import enterprises are also suffering due to a lack of goods
- India has not provided a good reason for the trade barrier
India's import restrictions on Vietnamese incense cause local firms to face bankruptcy
On August 31, 2019, India's Ministry of Industry and Trade reclassified the import of incense products from Vietnam from ordinary imports to restricted imports. This meant that incense imports now required a permit from an Inter-ministerial Committee for each shipment.
This move has caused significant disruption to Vietnamese incense companies, with hundreds of enterprises facing large inventories and financial difficulties. For example, the Liem Thanh Trading and Import-Export Company Limited in Ho Chi Minh City had an inventory of 10,000 tonnes of finished goods, worth about $5.6 million, and about 30,000 tonnes of raw materials, worth approximately $17.4 million, due to the Indian import restrictions.
The import restrictions have also impacted Indian import enterprises, leaving them without goods to sell. Furthermore, the restrictions have led to job losses and affected related industries, particularly during the peak demand season in India, which falls in September and October.
The Vietnamese government and businesses have criticized the Indian import restrictions, arguing that they are unfounded and constitute a trade barrier. They have called for a meeting between the two governments to discuss the issue and find a solution.
In addition to the economic impact, there have been concerns raised about the quality of imported incense sticks. In 2015, a member of the Indian National Congress (INC), Hussain Dalwai, alleged that cheap and hazardous incense sticks were being imported from Vietnam and China. He claimed that the incense sticks contained harmful mosquito repellents that were dangerous for children.
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The new regulations require import permits for each shipment
On 31 August 2019, the Ministry of Industry and Trade of India issued a notice to change the import regime for incense products from ordinary imports to limited imports. This meant that incense imports now required a permit from an Inter-ministerial Committee for each shipment.
The new regulations caused an uproar among Vietnamese incense companies, which stood to lose a significant amount of business. Vietnam accounts for about 90% of India's incense imports, and the companies affected were mainly producing raw products. The new regulations meant that these companies faced bankruptcy, with some claiming that they would be eliminated if the problem was not solved within a month.
The Indian government did not give any explicit reason for the implementation of the trade barrier, which was seen as a serious issue by Vietnamese State management agencies and local enterprises. The sudden and unannounced requirement of licences was expected to cause huge damage to Vietnamese businesses, especially during the peak demand season in India, which falls in September and October.
In response to the new regulations, a meeting was held between Vietnamese businesses and State agencies to discuss solutions to this serious trade barrier. Representatives of a number of Vietnamese authorities affirmed their support for Vietnamese enterprises in solving the difficulties caused by India's new regulations. The Director of the WTO Centre and Integration, Nguyen Thi Thu Trang, claimed that India's new regulations were completely unfounded in the provisions of the WTO and the ASEAN-India Trade in Goods Agreement.
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The restrictions have caused misery for Vietnamese exporters, with large inventories and no alternative market
On August 31, 2019, the Indian Ministry of Industry and Trade issued a notice to change the import regime for incense products from ordinary imports to restricted or limited imports. This meant that incense imports now required a permit from an Inter-ministerial Committee for each shipment. This sudden change in policy has caused misery for Vietnamese exporters, who have large inventories and no alternative market.
Vietnam accounts for about 90% of India's incense imports, and the main export market of Vietnamese incense is India. The export products of Vietnamese enterprises are mainly raw products. The import restrictions have resulted in a significant backlog of inventory for Vietnamese companies, with some reporting inventories worth tens of billions of dong.
The restrictions have also impacted the labour source and related industries, with companies threatening to shut down if the problem is not solved within a month. The companies are in rural areas, and the employees are mainly disabled, middle-aged people from 40-60 years old. If these companies stop operating, the employees will struggle to find other jobs.
Vietnamese authorities have affirmed their support for enterprises in solving these difficulties, with the Director of the WTO Centre and Integration, Nguyen Thi Thu Trang, stating that India's new regulations are unfounded in the provisions of the WTO and the ASEAN-India Trade in Goods Agreement. Trang also noted that India has been sued for eight out of 48 cases at the WTO, and that this measure is an excuse to completely ban the import of Vietnamese incense.
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Indian import enterprises are also suffering due to a lack of goods
On August 31, 2019, the Ministry of Industry and Trade of India issued a notice to change the import regime for incense products from ordinary imports to restricted or limited imports. This meant that incense imports now required a permit from an Inter-ministerial Committee for each shipment.
This sudden change in policy has negatively impacted Indian import enterprises, leaving them without goods to sell. For instance, Chu Thi Nguyet of Anh Hong Co., Ltd., which has exported incense for over 10 years, stated that the company now has an inventory of 1,000 employees and 800 machines to make incense, but no stock to use them for. Furthermore, the company has invested 30 billion in building new factories, with the financial source being bank loans. If the problem is not solved within a month, the company will collapse.
The Indian government's decision to restrict incense imports has also disrupted the labour market. Anh Hong Co., Ltd. stated that their employees are mainly disabled, middle-aged people from 40-60 years old, and if the company stops operating, these employees will struggle to find alternative employment.
The import restrictions have also impacted Indian importers, with one importer, Bharat H. Shah, and his son, Ronik Shah, being arrested for smuggling agarbatti (incense sticks) from Vietnam. The pair had attempted to conceal 161.94 metric tonnes of agarbatti and 68.36 metric tonnes of agarbatti powder behind a consignment of joss powder and premix powder for making incense sticks, which are not subject to import restrictions.
Overall, the Indian government's decision to restrict incense imports has had far-reaching consequences, affecting not only Vietnamese exporters but also Indian importers and employees, and leading to shortages of goods for Indian import enterprises.
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India has not provided a good reason for the trade barrier
India's import restrictions on Vietnamese incense have caused significant disruptions to the Vietnamese incense industry, with enterprises facing financial losses and even bankruptcy. The Indian government's decision to reclassify the import of incense products from 'ordinary' to 'limited' or 'restricted' has resulted in a requirement for a permit from an Inter-ministerial Committee for each shipment. This sudden change has negatively impacted Vietnamese exporters, particularly as it coincides with the peak festive season in India, when demand for incense is typically higher.
While India has implemented these trade barriers, it has not provided a clear and valid justification for its actions. This lack of explanation has left Vietnamese state management agencies and local enterprises confused and struggling to adapt. The Director of WTO and Integration Centre, Nguyễn Thị Thu Trang, acknowledged the difficulty of requesting the Indian government to revoke its regulatory document. However, she emphasized the need for bilateral discussions between the two countries to address the legality and rationale behind India's import quotas.
The impact of these trade barriers extends beyond Vietnamese exporters to Indian import enterprises, which are now facing challenges in obtaining goods. Furthermore, there are concerns about the potential harm to the reputation of Indian businesses due to this abrupt regulatory change. The Vietnamese government and affected enterprises are urging India to engage in dialogue and find a solution that considers the interests of all stakeholders.
It is worth noting that India has faced issues with the illegal importation of incense sticks from Vietnam. Customs officials in India have intercepted attempts to smuggle large quantities of incense sticks and powder, with some importers misusing the free trade agreement between India and ASEAN. However, this does not explain why Vietnam-based exporters are now facing stricter import regulations and the requirement for permits.
In conclusion, India's imposition of import restrictions on Vietnamese incense has resulted in significant disruptions and financial losses for Vietnamese enterprises. The lack of a clear and valid rationale for these trade barriers has further exacerbated the situation, leaving Vietnamese businesses and state agencies confused and seeking solutions. While there may be concerns about smuggling or the misuse of trade agreements, India's failure to provide a good reason for the trade barrier has negatively impacted legitimate exporters and their Indian counterparts.
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Frequently asked questions
India did not completely ban Vietnamese incense, but it did reclassify the import of incense from 'free' to 'restricted' in 2019. This was done to protect domestic industries.
The restriction had a significant impact on Vietnamese incense companies, with many facing bankruptcy. It also affected Indian importers, who were left without goods to sell.
The Vietnamese government claimed that India's new regulations were unfounded and that they would support local enterprises in solving the difficulties caused by the restrictions.
Yes, in 2020, Customs officials arrested Bharat H. Shah and his son, Ronik Shah, in Chennai for smuggling Vietnamese incense into the country.
