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Business Implications of India’s Trade Agreements

Business Implications of India’s Trade Agreements. Tamanna Chaturvedi Consultant Indian Institute of Foreign Trade. WTO Objectives. WTO came into existence on 1 st Jan 1995 for the purpose of : Transparent, free and rule-based trading system

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Business Implications of India’s Trade Agreements

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  1. Business Implications of India’s Trade Agreements Tamanna Chaturvedi Consultant Indian Institute of Foreign Trade

  2. WTO 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.

  3. BASIC 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.

  4. 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 COMPETITION • 4. TRANSPARENCY • 5. ENCOURAGE DEVELOPMENT Then why entering into trade agreements?

  5. Tariff and Non Tariff barriers For Herbal exports

  6. Tariffs and NTMs on Indian Exports • 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 • Only NTMs • Pepper in Canada • Rice in Nigeria • Oilseeds in USA, Taiwan • Cane sugar in Malaysia, Indonesia • Fish products in USA • Tea in USA

  7. Major Export Markets for Herbal Products USA Italy Germany Japan UK Switzerland France

  8. Existence of Preferential Trade Arrangements Germany (23.16%) UK(7.37%) India (0.28%) Switzerland France (36.03%) Preference for EU Countries

  9. Stages of an Regional Trading Arrangement Common currency Macroeconomic policy coordination Free movement of factors of production CET

  10. how different are these? (BTIA) GSTP Global System of Trade preferences

  11. 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

  12. Which Arrangement to choose from?

  13. CEPA: Tariff Elimination on goods

  14. 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.

  15. Major Goods Benefiting from CEPA

  16. 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) Analyzing Indo ASEAN agreement Export opp. in ind ASEAN countries Import Duty concessions. structure

  17. 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.

  18. Regional 0rientation Index (Rj) Where: • Xrjrepresent the value of exports of j (Commodity )in RTA’s intra trade • Xtrreflect the total value of member countries’ exports within RTA • Xojrepresent 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

  19. Let’s Analyse this….. • 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?

  20. 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

  21. 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

  22. Ready reference for Indian Exporters ROO :30% Tea, medicines refined sugar white cement ROO :10-100% plastics rubber pharma dyes and resins leather textiles Vanaspati(one lakh mt), copper products (10,000mt), acrylic(10,000mt), Zinc oxide(2,500mt) ROO :10-20-100% organic chemicals, pharma, essential oils, plastics, rubber, electric machinery

  23. 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

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