Business Implications of India’s Trade Agreements Tamanna Chaturvedi Consultant Indian Institute of Foreign Trade
Dec 25, 2015
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
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
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
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