Financial Express (India) | May 22, 2006

Proposed FTA with Thailand in choppy waters

AMITI SEN

NEW DELHI, MAY 21: The proposed India-Thailand free trade agreement (FTA), which was to follow the early harvest programme (EHP) implemented in September 2004, seems to be in trouble. The Thai side is refusing to budge from its new demand of making the rules of origin (ROO) norms for the agreement less stringent than the norms being followed under the EHP.

India, which is already taking a beating after reducing import tariffs on 82 items under EHP, is unwilling to make the ROO less harsh as it could lead to even higher flow of imports due to third country imports coming into the country. This had delayed the FTA which was to be implemented in March last year.

ROO lays down the rules for determining which product originates from the partner country and should qualify for benefits under the FTA. If ROO norms are loose, an FTA partner country can make superficial changes to imports made from third countries, and then export it into its other partner’s market on preferential terms.

To prevent this from happening while negotiating the EHP, India had insisted on a twin criteria of ROO with strict guidelines under each criteria. Under the first criteria of value addition, it was agreed that a product would qualify as originating from a partner country only if the value added by the partner country to imported inputs is at least 40% of the total value of the final product.

To ensure adequate physical changes made in the imported input, the second criteria of change in tariff heading at four digit level was also imposed It requires that the finished product should belong to a different tariff classification than the imported input

Although Thailand agreed to India’s ROO proposals while negotiating the EHP, it is not prepared to follow the same criteria for the FTA. It wants the ROO norms to be more relaxed and in line with the ROO norms agreed under the India-Asean FTA being currently negotiated (Thailand is also a member of the Asean).

Under the India-Asean FTA, India has agreed to a 35% value addition and a change in tariff heading at six digit level. Under the relaxed norms, more products can qualify for preferential access.