Project Report on

International Business
Environment- Black
Fermented Tea

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 Content-
1. Product Information
a. Trade Code
b. Product Description
2. Competition Type
3. International Business Model
4. Market
5. Competitiveness
6. Policy Framework in India
a. Export Policy
b. GST Description
c. Merchandise Exports from India Scheme (MEIS)
d. Duty Drawback
7. WTO Policy Framework
8. Policy framework in identified countries
9. Cultural Factors
10. International legal Environment
11. Competitive Strategy

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1. Product Information-
a. Trade Code- HS090240
b. Product Description-
Black fermented tea and partly fermented tea, whether or not flavored, in
immediate packing of >3kg.

2. Competition type-
Perfect Competition

3. International Business Model-

As far as the export of black fermented tea is concerned, the product

sector falls under home replication strategy. Because it usually follows
other’s distribution channels. The production of the tea takes place in
India and then it is exported to other countries rather than producing
there. This is mainly because the environmental conditions of India are
suitable for the production of tea. India's exports represent 17.5% of
world exports for this product, its ranking in world exports is 2.

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4. Market

From bubble graph on prospect for market diversification, the top 10

countries where black fermented tea is exported are-
1. Iran
2. Russian Federation
3. United Arab Emirates
4. United Kingdom
5. Germany
6. USA
7. Kazakhstan
8. China
9. Pakistan
10.Egypt
These countries contributes to almost 72% of total Indian export of black
fermented tea. In 2018, India exported 179144 tons of black fermented
tea to these 10 countries. Total value of product exported in 2018 was
$485million. The average unit value was $2784.3/ton.
5. Competitiveness-
Since 2000, Indian tea has experienced a lot of problems such as land use
change of plantation, lower selling prices, and low productivity. The
methods used to analyze the competitiveness were the Revealed

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 Comparative Advantage (RCA) and the Export Intensity Index (EII).
Based on RCA, the types of Indian tea which have strong
competitiveness are HS 090 210 and HS 090240. The EII analysis
showed that only tea of HS 090210 is in the rising star position, while the
HS 090220, HS 090230 and HS090240 tea types are on the retreat
position. Based on IPA, sub-determinants which are priority to improve
consists of five sub-factors, namely the availability of human resources
with the capability of production management, marketing and possess an
entrepreneurial spirit; availability and ease of access to capital;
strengthening of the structure of Indian tea agribusiness; the government
policies in improving domestic demand conditions and in encouraging the
development of tea processing industry.

6. Policy Framework in India

a. Export Policy-
Export Permitted Freely
Note: (a) The Spices Board India is designated as the competent
authority to issue Health Certificates to European Union countries in
respect of export of spices; (b) The Spices Board India shall issue such
export certification within a period of 48 to 72 hours after receiving
the sample from the exporter.
b. GST Description-

c. Merchandise Exports from India Scheme (MEIS)-

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 d. Duty Drawback-

The Tea Board of India is responsible for the implementation of

Government regulations and policies. It promotes research and exports of
tea worldwide. To ensure the health and vibrancy of the world's largest
producer of tea, the tea board collects and disseminates statistical data as
well as encourages labour welfare programs. Its activities include
processing development, providing extension services, research, and
promotion through its overseas offices. The board arranges participation
in trade fair, organizes trade delegations, and buyer liaisons. The
promotional activities of the board aim to popularize the high-quality
Darjeeling, Assam and Nilgiris tea. It also participates in generic
promotion programs conducted by tea councils in the United Kingdom,
Germany, the United States and Canada.

7. WTO Policy Framework-

Trade Policy Reviews- The reviews focus on members’ own trade
policies and practices. But they also take into account the countries’
wider economic and developmental needs, their policies and objectives,
and the external economic environment that they face.
Tariffs and imports-
a. Final bound duties- 133.1 %
b. Most Favored Nation (MFN) applied duties- 56.3 %
The Uruguay Round of Multilateral Trade Negotiations was the most
comprehensive of the eight round of negotiations held under the auspices
of the GATT.
Important agreements which have an impact on the tea trade are:
1. Agreement on agriculture.
2. Agreement on the application of Sanitary Measures.
3. Agreement on Trade Related aspects of Intellectual Property Rights.
4. Agreement on Safeguards.

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 5. Agreement on Technical Barriers to Trade.
6. Agreement on Subsidies and Countervailing Measures.
WTO made member nations to reduce duty by twenty four percent in the
year 2005. Among importing nations Pakistan has a high import duty of
twenty five percent. Developed nations like the UK and the US already
have nil duty and will not be affected. In India tea import is allowed only
for re-exports and not for consumption. The import duty on tea is thirty
five percent but imports from Sri Lanka are allowed at a concessional rate
of 7.5 percent only under Indo-Lanka bilateral agreement. The impact on
the domestic industry will be negligible because of the re-export clause.
Tariff reduction is likely to increase imports by Pakistan, Iran, Iraq and
Egypt. India and other exporting countries will benefit from free trade
and lower tariff barriers.
There are several deficiencies in the existing Agreement on Agriculture,
which favours developed countries. Export subsidies provided by a few
wealthy countries are prevalent only in agriculture. Dirty tariffication,
tariff escalation and tariff rate quota practiced by the developed countries
reduced the opportunities for export of agricultural products from
countries like India.
8. Policy Framework in identified countries-
State-trading, state owned enterprises (STEs) in China have the exclusive
right to import or export tea. The authorities indicate that state trading
enterprises operate following the market mechanism, with no government
interference. Agricultural products (WTO definition) are, with the
exception of some animal products, all subject to ad valorem applied
rates. 4 In 2017, the average tariff on agricultural products remained
unchanged, at 14.8%. The product groups subject to higher-than-average
tariff protection included tea with 14.9% tariff.
Free Zones in Dubai- Free zones play a considerable role in the UAE
economy. The UAE is home to nearly 40 free zones and economic
specialized zones, all of which offer incentives to expatriate workers and
investors. Free zones have their own independent authority with
responsibility for licensing and helping companies establish their
business. Dubai free zones includes the Dubai Multi Commodities Centre
(DMCC), with over 8,000 licensed businesses trading across a range of
commodities which includes tea as well.
In Egypt, The National Nutrition Institute (NNI) is responsible for the
registration of foodstuffs for special dietary uses which includes tea.

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 Most Favoured Nation (MFN) tariff summary
1. European Union-

2. United States of America-

3. China

4. United Arab Emirates-

9. Cultural Factors-
The global tea demand in the coming years is expected to be driven by a
number of several factors. There is a global revolution in tea culture;
consumers and operators appear ready to stimulate a global revolution in
tea culture such as the coffee one. There is an increasing demand from a
growing segment of the population for new ingredients and new types of
flavours such as spices (cinnamon, cardamom etc.), fruit and flavour
combinations, flower and herbs (jasmine, mint etc.) and other substances
into tea blends. Addition and diversification for a wide range of tea
products need to be developed for balancing the supply demand chain.
Health is also a great influence on tea consumption. Emergence of a class
of consumers who are health conscious are interested in health benefits
that tea may provide as well as functional enhancements such as weight
management or relaxation. Organic certification (pesticide-free products)
and social enhancement, such as Fairtrade certification, is often an
additional feature. The perceived health benefits of tea among health
conscious consumers are often at the expense of other hot drinks.

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 Strengthening consumer awareness of the health benefits of tea
consumption through promotion program is a leverage.

10. International Legal Environment-

The European market has strict demands regarding food safety and
quality. The most important being the legislation regarding residue limits
of pesticides. Other important issues are hygiene and contaminants. In
addition, sustainability has become an increasingly important condition
for market access. Mainstream certifications (e.g. Rainforest Alliance and
UTZ Certified) are commonly required in the mass-market segment.
Fairtrade certification also becomes increasingly adopted in the mass-
market segment. In the higher quality and specialty segment, Fairtrade
and organic certification prevail.
Food safety and food control are key issues in European food legislation.
The General Food Law is the legislative framework regulation for food
safety in the European Union. To guarantee food safety, it must be
traceable throughout the supply chain, and risks of contamination must be
limited. Implementing a quality management system can be an important
tool in controlling food safety hazards.
The use of pesticides is permitted in tea cultivation, but it should be
strictly controlled. Pesticide residues are an important issue in the tea
trade, particularly for tea from Asian countries (e.g. China, Vietnam,
India, Indonesia and Sri Lanka). The European Union sets maximum
levels on the amount of pesticides allowed on imported foods including
tea. However, individual buyers in Germany for example, may have
stricter requirements on MRLs than the official limits as part of their
private standard (such as 30% of the level of the European Union). In
addition, thresholds have become more rigorous as accredited
laboratories are increasingly able to detect lower residue levels on dried
tea leaves. The residues that are most commonly found in tea are Dicofol,
Ethion, Quinalphos, Hexaconazole, Fenpropathrin, Fenvalerate and
Propargite. Residues vary by country of origin, however, and are
constantly changing.
India has a well-established legislative, administrative and judicial
framework to safeguard Intellectual Property Rights (IPRs), which meets
its international obligations while utilizing the flexibilities provided in the
international regime to address its developmental concerns. India has a
Trade Related Aspects of Intellectual Property Rights (TRIPS) compliant,
robust, equitable and dynamic IPR regime.
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11. Competitive Strategy-
Export subsidies have caused large scale distortions in International trade.
The agreement on agriculture has therefore aimed at controlling those
export subsidies which are:
a. Direct subsidies given by the government or their agencies.
b. Exports by governments or their agencies at prices lower than those
for the like products in the buyers' domestic market. 483 Regulations
and promotion of tea export trade.
c. Payments on the export of agricultural produce financed by
government action.
d. Subsidies to reduce the costs of marketing agricultural exports.
e. Subsidies on internal transport and freight charges for export
shipment.
f. Subsidies on agricultural products incorporated in exported products.
For developed countries the value of export subsidies must be reduced by
thirty six percent from the 1986-1990 base level over a period of six years
and the volume of exports benefiting from such subsidies must be
reduced by twenty one percent over the same period. For developing
countries the subsidies must fall by twenty four percent over ten years
and the volume of exports by fourteen percent. Less Developing
Countries are not required to reduce their export subsidies.

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