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Kamal Nath to review FTAs, may change stance on rules of origin

Times of India

9 June 2004

Kamal Nath to review FTAs, may change stance on rules of origin



NEW DELHI: Commerce Minister Kamal Nath has put the proposed free trade agreements (FTAs) under the scanner amid fears that in many of the upcoming FTAs India might give away more than it would take, unless the country repositions its stance in many cases.

The move will impact India’s approach to trade negotiations that are currently underway with Asean, Safta, Mercosur, Thailand and Singapore. Chiefly, the review is likely to alter India’s position on the Rules of Origin criteria under the emergent FTAs. The minister reckons that FTA norms must be beneficial to all countries involved in the agreements. Although there is a scarce chance of reversing the ongoing processes toward clinching FTAs, the domestic norms for accession to the agreements could change significantly, sources said.

The commerce minister’s move to reappraise the proposed FTAs follows growing apprehensions that India might concede liberal access to its markets, without commensurate reciprocal gestures.

Domestic norms regarding Rules of Origin are likely to need change, particularly with regard to the proposed agreements with countries like Singapore, which are known for trading rather than for manufacturing. An expert committee has already been formed under PVR Ramanan, former member of the Central Board of Excise and Customs. The mandate of this committee is to study the pros and cons of each proposal received so far and also those that are likely to come, especially with reference to the Rules of Origin, and develop India’s negotiating position.

India’s current position on Rules of Origin is largely the same as under its FTA with Sri Lanka. Under the Indo-Sri Lanka FTA, Sri Lankan exporters to India will receive the FTA benefit of concessional import tariff if 35% of the value addition in the good took place in Sri Lanka and if the conversion of the good due to the new value corresponds to a change in tariff heading at the four digit level of the WTO’s harmonised system (HS) code.

Also, for regional cumulation, the value addition shall be 35% of the FOB (free on board), subject to a value addition of not less than 25% of FOB in the exporting country.

These criteria, with slight variation in value addition, have been proposed by India in the ongoing negotiations for other potential FTAs. The negotiations under Safta, India-Mercosur PTA, India-Thailand framework agreement, India-Singapore comprehensive economic co-operation agreements are currently on and the India-ASEAN framework agreements are currently on, with Indo-Sri Lanka FTA forming the grounding for the Indian position on Rules of Origin. Reciprocally, the potential FTA partners have also placed their demands. For example, Thailand has insisted during bilateral talks that it would want to limit the conditions of value addition to the percentage criterion. Thailand said it would not accept the Change of Tariff Heading (CTH) criterion. The Mercosur said it would accept either of the two criteria.

In fact, an agreement has already been reached with Singapore that it would agree to the general rules of origin, adhering to both criteria. The Rules of Origin are designed to prevent trade deflection, facilitate value addition and promote intra-regional trade.