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India pushes for Asean FTA update on trade gap

Mint | 5 July 2023

India pushes for Asean FTA update on trade gap

by Shashank Mattoo , Ravi Dutta Mishra

NEW DELHI : India has initiated talks with the Association of Southeast Asian Nations (Asean) to address concerns over the rules of origin and trade imbalance. The move is part of ongoing efforts to renegotiate the trade agreement following a significant increase in the trade deficit with the 10-member block. In FY23 alone, the trade gap ballooned by 70% to reach $43 billion, according to a government official familiar with the matter.

The widening trade deficit with Asean countries comes amid the bloc’s growing export and manufacturing capacity. Multinational corporations have been investing in Asean as part of their China-plus-one policy. Besides, the implementation of the production-linked incentive schemes has fuelled demand for intermediate products in India. The trade deficit with Asean was at $21.85 billion in FY19.

Experts said while India mostly imports capital goods, raw materials and intermediates from Asean, the tariff concessions under the free trade agreements (FTAs) have also been advantageous to many sectors and adversely impacted domestic companies, especially chemicals and metals manufacturers. “The discussions had stalled earlier, given the difficulties in getting the 10-member nations to the negotiating table. But the talks are now picking up pace. Both sides had preliminary meetings to renegotiate the terms, and many small working groups have been set up to examine specific issues and demands from both sides," the official cited above said, seeking anonymity.

India has taken up issues such as rules of origin, he said. The concerns over the ineffective implementation of the rules of origin follow a surge in China-Asean bilateral trade from $641.5 billion in 2019 to $975.3 billion in 2022.

“The predominance of Chinese products in Indian and Asean markets had an impact on the full benefits that one could derive from the other’s market under the Asean-India Trade in Goods Agreement (AITIGA). But with the Asean-China FTA providing even deeper access to China in Asean than India enjoys under AITIGA, the relative disadvantages to India were greater," V.S. Seshadri, a former Indian Foreign Service officer, said in a note. Seshadri said India must consider using rules of origin (RoO), generally used by Asean, comprising a single criterion of a minimum value addition of 40% instead of the dual requirement of having a minimum 35% regional value addition and a change in tariff subheading as stipulated in AITIGA. “The dual criteria makes the exporter submit additional documentation without really tightening norms."

According to a report by Delhi Policy Group, India has had some issues with verifying country of origin (COOs). In 2018-19, the sudden spike in imports from Singapore and Vietnam raised doubts about FTAs being misused for declaring third-country goods as originating from FTA partners.

Earlier, India had to impose restrictions on gold imports from Korea after it was found that it had originated from a third country but was declared as originating goods, the report added. To prevent misuse of FTAs, India tightened the rules of origin by implementing CAROTAR rules to verify the rules of origin under FTAs strictly.

In cases where the origin declared is doubtful, the customs officer under the CAROTAR is mandated to demand relevant origin details from the importer before seeking verification from the partner country.

After the CAROTAR implementation, Indonesia, an Asean member country, raised concerns stating that the verification and clearance process has become longer and is not in line with the spirit of trade liberalization as agreed in the Asean-India FTA. “Besides, the request to provide business process information for importers would also pose a risk from unauthorized parties, such as information leakage issues under the CAROTAR scheme." it added.

Queries sent to commerce ministry remained unanswered till press time.

 source: Mint