Business Implications of India’s Trade Agreements

Tamanna ChaturvediConsultant

Indian Institute of Foreign Trade

WTO ObjectivesWTO Objectives

WTO came into existence on 1st Jan 1995 for the purpose of :

Transparent, free and rule-based trading system

Provide common institutional framework for conduct of trade relations among members

Facilitate the implementation, administration and operation of Multilateral Trade Agreements

Rules and Procedures Governing Dispute Settlement

Trade Policy Review Mechanism Concern for LDCs and NFIDCs Concern on Non-trade issues such as Food

Security, environment, health, etc.

BASIC PRINCIPLESBASIC PRINCIPLES

1. NON-DISCRIMINATION MFN (Most Favored Nation) Members are bound to grant to the products of

other members treatment not less favorable than that accorded to the products of any other country.

National Treatment Once goods have cleared customs, imported

goods must be treated no less favorably than the equivalent domestically produced goods.

2. PREDICTABLE AND GROWING ACCESS TO THE MARKETS

Prohibition of Quantitative Restrictions Binding of Tariffs Bound Tariffs cannot be increased Progressive reduction in the protection. Exceptions: Safeguards, BOP.

3. FAIR COMPETITION4. TRANSPARENCY5. ENCOURAGE DEVELOPMENT

Then why entering into trade agreements?

 MFN range NTM% NTM Description

Switzerland 0-0  50% Labelling requirement

Japan 0-10 8%

Product ch.requirement to protect human health (cert req)

USA 0-6 60% Testing and sampling

Tariff and Non Tariff barriers For Herbal exports

Tariffs and NTMs on Indian Exports

(i) Tariffs and NTMs together imposed on Oilseeds in Taiwan Cane Sugar in Bangladesh Bovine meat in Egypt Crustaceans in Thailand Malt extract in USA Bangladesh

(ii) Only NTMs Pepper in Canada Rice in Nigeria Oilseeds in USA, Taiwan Cane sugar in Malaysia, Indonesia Fish products in USA Tea in USA

Major Export Markets for Herbal Products

Germany

UK

FranceSwitzerland

Japan

ItalyUSA

India(0.28%) Switzerla

nd

France (36.03%)

UK(7.37%)

Germany (23.16%)

Preference for EU Countries

Existence of Preferential Trade Arrangements

Stages of an Regional Trading Arrangement

Preferential Trading Arrangement

Free Trade Areas

Custom Unions

Common Market

Economic Union

Monetary Union

CET

Free movement of factors of production

Macroeconomic policy coordination

Common currency

(BTIA)

GSTP Global System of Trade preferences

What all can possibly be added in an FTA? Economic Co-operation in identified sectors Institutional framework to enable environment for greater flow of

investments SPS-TBT considerations

MRA on standards, mutual recognition, assessment procedures, equivalence

MOU on harmonization on Ayurvedic/traditional medicines Custom clearance agreement

Consumer Protection and legal meteorology Trade defense measures Double taxation Avoidance Convention (DTAC) Bilateral Investment Promotion & Protection Agreement (BIPA) Treatment of “Shell Companies” Air services agreement & open skies for charter flights Health care, education, media, tourism Unauthorized trade Govn procurement, IPRs & GIs Dispute Settlement process

Which Arrangement to choose from?

E-0 Tariff will be entirely eliminated on the date the agreement enters into force (January 01, 2010)

E-5 Tariff will be removed in 5 equal annual stages beginning on the date the agreement enters into force, effective January 1 of the year* four

E-8 Tariff will be removed in 8 equal annual stages beginning on the date the agreement enters into force, effective January 1 of the year* seven

RED Tariff will be reduced to 1 – 5 % from the base rate (2006) in 8 equal annual stages beginning on the date the agreement enters into force, effective January 1 of the year seven

SEN Tariff will be reduced by 50% of the base rate (2006) in 8 equal annual stages for India and 10 annual stages for Korea on the date the agreement enters into force, effective January 1 of the year seven (for Korea) and year nine (for India)

EXC Tariff is exempted from the obligation of tariff reduction or elimination

CEPA: Tariff Elimination on goods

Let’s check the implications

out of a total of 5227 tariff lines, 14.7% of the tariff lines have been placed under the Exception list, which accounts for 14.5% of the import value.

71.5% of the tariff lines are subjected to tariff elimination, most of this (over 90%) is accounted by E8.

However, in terms of import value, E0 accounts for 38.4% while E8 accounts for 22.1%.

Compared to this, the combined import significance of RED and SEN is low at 11%.

Out of a total of 11261 tariff lines, about 89% is subjected to tariff elimination, whose share in import value is 84.5% Unlike India, about for 61% of the total imports.

The relative importance of E5 in much higher for Korea as compared to India.

The Exception list account for only 7% of the imports.

India's Export to Korea

HS 2 Digit HS 6 Digit Tariff rates in Korea

Korea's Schedule of tariff concessions

1 27 (Mineral Fuel, Oil, etc) 271011 (Light Oil, Preps (Not Crude)) 5 RED

2 29 (Organic Chemicals) 290124 (Buta-1,3-Diene and Isoprene) 0 E-0

3 26 (Ores, Slag, Ash) 262030 (Mainly Containing Cooper) 2 E-0

4 52 (Cotton + Yarn, Fabric) 520523 (Single Yarn, Combed, 43-52Nm) 8 EXC

5 72 (Iron & Steel) 720241 (Chromium >4% Carbon) 3 E-0

6 71 (Precious Stones, Metals) 711299 (Waste And Scrap of Precious metals) 2 E-0

7 84 (Machinery) 840999 (Spark-ignition Parts) 5 E-0

8 23 (Food Waste; Animal Feed) 230649 (Rape/Colza Seed Oilcake) 0 E-0

9 76 (Aluminum) 760110 (Not Alloy) 3 E-0

10 79 (Zinc + Articles Thereof) 790111 (N Al=>99.99% Zinc Weight) 5 E-0

11 32 (Tanning, Dye, Paint, Putty) 320417 (Pigments & Preparations) 8 E-5

12 85 (Electrical Electrodes) 854511 (Furnace Carbon Electrode) 5 E-0

13 24 (Tobacco) 240120 (Stemmed/Stripped) 20 EXC

14 12 (Misc Grain, Seed, Fruit) 120740 (Sesame Seed) 630% or 6660/kg

EXC

15 38 (Misc Chemical Products) 380891 (Insecticides, In Forms) 6.5 E-0

16 78 (Lead) 780199 (Other Non Refined) 5 E-0

17 41 (Hides & Skins) 411410 (CHAMOIS Leather Prep Tan/Crust ) 5 E-5

18 87 (Vehicles, Not Railway) 870899 (Other 8708) 8 E-0

19 73 (Iron/Steel Products) 730490 (Other 7304) 0 E-0

20 03 (Fish & Seafood) 030379 (Other 0303) 10 to 63 E-8 & EXC at 8th HS level

Staging Category Exports to KoreaE-0 Naphtha, benzene, polycarbonates

E-5 Lubricating oil, u-sonic scanning applications, glass beads

E-8 Antibiotics, other residues, non-industrial / unworked diamonds

RED Cashew nuts, turmeric (curcuma), gasoline

SEN Corn for animal feed, mango, single cotton yarn

EXC Meat of bovine animals, meat of swine, pure cotton yarn

Major Goods Benefiting from CEPA

Analyzing Indo ASEAN agreement

Thailand: Electrical machinery, Nucler reactors, Vehicles, Mineral Fuels, Pearls

Malaysia: Cereals, Copper, Organic Chemicals

Idonesia: Electrical Machinery, Vehicles, Cotton, Iron, Iron & Steel, Ships & boats

Electrical Machinery, Vehicles, Cotton, Iron, Iron & Steel, Ships & boats

Philippines: Meat, Food residues, Pharmaceutical, Rubber, Electrical machinery, Vehicles

Vietnam: Meat, Electrical machinery, Ships & boats

Thailand:Vehicles (87) Malaysia: Electrical machinery

(85) Indonesia: Edible Fruits & nuts

(08), Electrical machinery (85), paper board (48)

Philippines:Vehicles (87), Optical photo (90), Paper Board (48)

Vietnam: Coffee, Tea, Spices (09), Electrical machinery (85)

Export opp. in ind ASEAN countries

Import Duty concessions. structure

Duty Concessions for Sri Lankan Exports to India

Tariff Reduction

Tariff Lines Remarks

1998200

5  

100% 1351415

0  

50% 2799 0  To be made duty free from 2004

50%-Tea

5 550% fixed tariff concession for imports of tea from Sri Lanka (Annual maximum quota of 15 million Kilograms)

50%-Garments

233 233

Garments covering Chapters 61 & 62 while remaining in the negative list, will be given 50 percent tariff concessions on a fixed basis, subject to an annual restriction of eight million pieces, of which six million shall be extended the concession only if made of Indian fabric. On utilization of the unrestricted quota, an additional quota of 2 million pieces out of 8 million pieces is permitted. The quota level per category is increased from 1.5 million to 2 million pieces per category per year.

25%-Textil

es528 528

Concessions of Textile items restricted to 25 percent on Chapters 51-56, 58-60, & 63. Four Chapters under the Textile sector retained in the negative list (Chapters 50, 57, 61, and 62)

0% 196 196 Negative List

The Rules of Origin (RoO) criteria have also been defined under ISLFTA. The preferential duties will be applicable only if the domestic value-addition is at a minimum of 35 percent or 25 percent when Indian inputs comprise 10 percent.

Commodity description/code

Total Tariff

Lines at 6 digit

Duty Free Tariff Line

Concessional Tariff Lines

Negative List Tariff Lines

(01) Live Animals 28 0 23(100.0) 0

(02) Meat & Edible Meat 70 38 21(36.0) 0

(03) Fish & Crustaceans 95 0 94(100.0) 0

(04) Dairy Products 28 0 27(100.0) 0

(05) Products of Animal Origin

17 0 17(100.0) 0

(06) Live Trees & Other Plants

14 5 7(58.0) 0

(07) Edible Vegetables 64 43 13(23.0) 0

(09) Coffee, Tea, Mate & Spices

34 0 28(100.0) 0

(10) Cereals 16 0 16(100.0) 0

11 Products of Milling Industry

35 0 29(100.0) 0

(18) Cocoa & Cocoa 11 0 11(100.0) 0

(19) Preparation of Cereal 20 0 19(100.0) 0

(20) Preparation of Vegetables, Fruits

57 0 50(100.0) 0

(21) Miscellaneous Edible Products

17 0 15(100.0) 0

(40) Rubber & Articles thereof

101 0 54(63.0) 32(37.0)

Where:

• Xrj represent the value of exports of j (Commodity )in RTA’s intra trade

•Xtr reflect the total value of member countries’ exports within RTA

•Xoj represent the value of exports of j in trade with third countries

•Xto reflect the total value of member countries’ exports outside RTA

Value of > 1 indicates greater tendency to export to regional markets

Regional 0rientation Index (Rj)

Indian shrimp exporter has two choices say USA and Australia where India does not have RTA with either of these countries.

Your competing supplier of shrimps in these markets is Vietnam who in turn has an RTA with both these countries.

ROI of Vietnam-USA is 3.5 and ROI of Vietnam-Australia is 4.2.

In this condition, if you were to choose between USA and Australia, which market will you choose and why?

Let’s Analyse this…..

Nature of RTA Status of the partner countries in an RTA Strength of an RTA: RO index Negative List Sensitive List Concessional list Duty Free list Rules of Origin Time periods of the Concessions

Parameters to analyze an RTA

Ready reference for Indian Exporters

Tea, medicines refined sugar white cement

plastics rubber pharma dyes and resins leather textiles

Vanaspati(one lakh mt), copper products (10,000mt), acrylic(10,000mt), Zinc oxide(2,500mt)

organic chemicals, pharma, essential oils, plastics, rubber, electric machinery

Ready reference for Indian Exporters

Tea, medicines refined sugar white cement

plastics rubber pharma dyes and resins leather textiles

Vanaspati(one lakh mt), copper products (10,000mt), acrylic(10,000mt), Zinc oxide(2,500mt)

organic chemicals, pharma, essential oils, plastics, rubber, electric machinery

ROO :30%

ROO :10-100%

ROO :10-20-100%

Ready reference for Indian Importers

raisins, dry fruits, fresh fruits, spices

meat, fish, rock salt, iodine, copper ore, chemicals, leather, newsprint, paper, wood/plywood

all products of nepalese interest

Meat products, chemicals, dyes and pigments, raw hides and skins, leather, glass, wool, articles of iron and steel, electrical machinery