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Singapore Ceca hits a roadblock

Financial Express, India

deadlock on roo norms for 480 items

Singapore Ceca hits a roadblock


11 November 2004

NEW DELHI, NOV 10: The proposed Comprehensive Economic Co-operation Agreement (Ceca) between India and Singapore has hit a bump. The Singapore government has made out a strong case for product-specific relaxation of the rules of origin (ROO) criteria for over 480 items of trade in sectors including chemicals, petrochemicals, food processing, electronics and automobiles.

It has rejected India’s proposal for simultaneous application of all the three ROO criteria for these items, saying they are “sensitive” as far as Singapore’s economy is concerned.

With the Indian government firmly resisting the move, Ceca negotiations are now deadlocked and the December 2004 deadline for ratifying the agreement may not be met.

According to government sources, Singapore’s insistence on waiver from the ‘generic’ ROO criteria for a number of products could result in gross violation of the principle of the rules of origin, i.e., avoidance of trade deflection.

The three criteria of rules of origin are: fixed level of minimum value addition in the relevant country, change of tariff heading (CTH) at the 4-6 digit level as per the WTO’s harmonised system (HS) code (defining the product) and specifications of the kind of value addition. These criteria are inter-related. For example, a CTH could, in practice, require an obligatory degree of value addition.

Sources said that Singapore, which has already agreed to a 40% domestic value addition and a CTH at 4-digit level for the generic ROO criteria for the FTA with India, has pitched for a special dispensation for the 480-odd items. During bilateral negotiations with New Delhi, Singapore has said that it would comply with any of the three ROO criteria for these items, instead of complying with all the three criteria.

India, on the other hand, is learnt to have stuck to the three criteria formula, which the country has generally maintained for all free/ preferential trade pacts and Cecas being negotiated. New Delhi thinks that it is crucial to have full compliance with ROO criteria because of Singapore’s large exposure to transit trade.

“The value addition criterion alone may not serve the purpose as it factors in labour cost and profits as well. Nominal manufacturing activities like cutting, repackaging, mixing etc cannot be reckoned as sufficient value addition, even if the percentage norm is met,” said a commerce department official.

Ceca, which comprises investment as well as trade in goods and services, is designed to include a free trade agreement (FTA). India is keen to extract a liberal regime on services from Singapore under the proposed FTA. It wants Singapore to liberalise movement of natural persons from India to that country in a manner enabling them to find professional employment in financial services, hospitality, healthcare, and educational services.

Even as India has generally adopted the ROO criteria in the free trade agreement with Sri Lanka as its domestic position in this regard, a committee headed by PVR Ramanan, former member of the Central Board of Excise & Customs (CBEC) is having a fresh look at these criteria.