Financial Express, India

Tough FTA rules to curb trade diversions

By Arun S

10 July 2007

NEW DELHI, JUL 9: Being on an overdrive to ink several free trade agreements (FTA) following the recent collapse of the WTO talks, India is now mulling tightening standards on rules of origin (ROOs) of goods by including new ‘product-specific’ norms.

The government is considering inclusion of a clause in its FTAs for a periodic review of ROOs based on industry suggestions. Also, the value-addition norms will be increased to over 60% to ensure major product transformation. These measures were aimed at protecting sensitive sectors in the country and preventing them from being victims of trade diversion, government officials said.

The move assumes significance with allegations that cheaper goods from countries like China (with which India has not signed an FTA) are flooding Indian markets after being routed through neighbouring countries having bilateral agreements with India, and that, too, without much value-addition.

Goods from a partner country have to meet with the ROO norms to avail of tariff benefits mentioned in an FTA. The government will now insist on ‘product-specific’ ROOs to ensure that sectors like chemicals, clothing, textiles and auto components-facing greater threat of ‘trade deflection’ from non-partner nations-are protected by separate, tighter criteria.

In the proposed India-Japan FTA, India has insisted on a combination of value-addition norms and change in tariff heading (CTH), while Japan is keen only on either of the two. Earlier, under the ROO in bilateral pacts, goods from a partner country had to confirm to a 40% value addition norm or a CTH to 4-digit HS Code, (eg: from fabric to t-shirt). The CTH is seen as more difficult to meet than making a change in tariff subheading (CTSH - ‘6-dight HS code’, i.e, from one type of fabric to another).

However, Biswajit Dhar, head, Centre For WTO Studies, IIFT, said, “Stricter norms will fail if field officers are not trained and made aware of these to catch the violators. Also, there should also be cooperation from a partner country.” TS Vishwanath, head, International Trade Policy, CII, said, “Industry wants the government to specify that operations like polishing, painting, assembling, labelling and packaging should not be counted for value-addition.”