Framework Agreement on Comprehensive Economic Co-Operation Between the Association of South
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FRAMEWORK AGREEMENT ON COMPREHENSIVE ECONOMIC CO-OPERATION BETWEEN THE ASSOCIATION OF SOUTH EAST ASIAN NATIONS (ASEAN) AND INDIA. ******
1. India’s engagement with the Association of South East Asian Nations (ASEAN) started with its "Look East Policy" in the year 1991. ASEAN has a membership of 10 countries namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. India became a Sectoral Dialogue Partner of ASEAN in 1992 and Full Dialogue Partner in 1996. In November 2001, the ASEAN-India relationship was upgraded to the summit level.
2. The 1st ASEAN Economic Ministers (AEM) – India Consultations were held on 15th September 2002 in Brunei Darussalam where the Ministers, after discussing the Joint Study Report decided to establish an ASEAN-India Economic Linkages Task Force (AIELTF). The AIELTF was asked to prepare a draft Framework Agreement to enhance the ASEAN-India trade and economic cooperation before the 2nd AEM – India Consultations. Subsequently, at the First ASEAN-India Summit held on 5 November 2002 in Phnom Penh, Cambodia, the erstwhile Prime Minister of India made the following major announcements:
i. India will extend special & differential trade treatment to ASEAN countries, based on their levels of development to improve their market access to India;
ii. FTA within 10 years timeframe; and
iii. India is committed to aligning its peak tariffs to East-Asian levels by 2005.
3. A Framework Agreement on Comprehensive Economic Cooperation between the Association of South East Asian Nations (ASEAN) and India was signed by the Prime Minster of India and the Heads of Nation/Governments of ASEAN members during the Second ASEAN – India Summit on 8th October 2003 in Bali, Indonesia.
4. The key elements of the Framework Agreement on Comprehensive Economic Cooperation between the Association of South East Asian Nations (ASEAN) and India cover FTA in Goods, Services and Investment, as well as Areas of Economic Cooperation. The Agreement also provides for an Early Harvest Programme (EHP) which covers areas of Economic Cooperation and a common list of items for exchange of tariff concessions as a confidence building measure. The highlights of the Framework Agreement are as follows:
(I) FTA in Goods Negotiations to commence from January, 2004 and to be concluded by 30th June, 2005. The tariff reductions will start from 1st January, 2006 and Most Favored Nations (MFN) tariff rates to be gradually eliminated. While India will eliminate tariffs in 2011 for Brunei Darussalam, Cambodia, Lao PDR, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam; Brunei Darussalam, Indonesia, Malaysia, Singapore and Thailand will eliminate in 2011 and new ASEAN Member States i.e. CLMV will eliminate in 2016 for India. India and Philippines will eliminate tariffs for each other on a reciprocal basis by 2016.
(II) FTA in Services Negotiations to commence in 2005 and concluded by 2007. The identification, liberalization etc. of the sectors of services to be finalized for implementation subsequently.
(III) FTA in Investments Negotiations to commence in 2005 and concluded by 2007. The identification, liberalization etc. of the sectors of investment to be finalized for implementation subsequently.
(IV) Areas of Economic Cooperation Areas of economic cooperation to include trade facilitation measures; sectors of cooperation; and trade & investment promotion measures.
(V) Early Harvest Programme (EHP) Based on the inter-Ministerial consultations and apex chambers of commerce, the items for EHP were finalized for exchange of concessions. The EHP covers the following schedules as specified in the Annexes to the Agreement: -
Annex – A Exchange of tariff concessions and elimination of tariffs on (105 items) agreed common list of items based on full reciprocity between India and ASEAN – 6 within three years. While India will remove tariffs on these items within three years for Cambodia, Laos, Myanmar and Vietnam, they will do so for India in six years.
Annex – B India’s unilateral tariff concessions to Cambodia, Laos, (111 items) Myanmar and Vietnam
Annex – C Possible Areas of Economic Cooperation
Current Status:
5. The ASEAN-India TNC was constituted and three meetings have been held so far. The ASEAN-India TNC is undertaking negotiations to establish an ASEAN-India Regional Trade and Investment Area (RTIA) which includes a Free Trade Area in goods, services and investment as per timeframes prescribed in the Framework Agreement. The TNC has finalized the modalities for progressive tariff elimination for EHP items and is currently discussing the Rules of Origin. The tariff concessions on EHS items are expected to begin now from 1.1.2005 and the Protocol to implement the EHP is expected to be signed during the Third Summit on 30th November, 2004 at Vientiane, Lao
****** BIMST- EC FTA ***** 1. The initiative to establish Bangladesh-India-Sri Lanka-Thailand Economic Cooperation (BIST-EC) was taken by Thailand in 1994 to explore economic cooperation on a sub regional basis involving contiguous countries of South East & South Asia grouped
around the Bay of Bengal. Myanmar was admitted in December, 1997 and the initiative was renamed as BIMST-EC. It may be mentioned that the initiative involves 3 members of SAARC (India, Bangladesh & Sri Lanka) and 2 members of ASEAN (Thailand, Myanmar). BIMST-EC is visualized as a ‘bridging link’ between two major regional groupings i.e. ASEAN and SAARC. BIMST-EC is an important element in India’s "Look East" strategy and adds a new dimension to our economic cooperation with South East Asian countries.
2. The First meeting of the Economic/Trade Ministers of BIMST-EC which was held in Bangkok in August, 1998 imparted a new dimension to economic cooperation between the member states. It was agreed that BIMST-EC should aim and strive to develop into a Free Trade Area, and should focus on activities that facilitate trade, increase investment & promote technical cooperation among member countries. It was further reiterated that BIMST-EC activities should be designed to form a bridge linking ASEAN and SAARC. Six areas were identified for cooperation in BIMST-EC, namely, trade and investment, technology, transportation and communication, energy, tourism and fisheries. In the 4th BIMST-EC Trade & Economic Ministers Meeting held in Colombo on 7th March, 2003, the Ministers decided to constitute a Group of Experts (GOE) for drafting the Framework Agreement on BIMST-EC Free Trade Area (FTA). Sri Lanka was the Chair for the GOE to draft this Agreement. The GOE finalized the text of the draft Framework Agreement on BIMST-EC FTA, in its four meetings and submitted its Report for consideration to the Ministers, through the BIMST-EC Senior Trade/Economic Official’s meeting that was held on 14-15 January, 2004 in Bangkok, Thailand.
3. The Framework Agreement on the BIMST-EC FTA was signed on 8th February, 2004 in Phuket, Thailand by Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand during the Fifth BIMST-EC Economic Ministers’ Meeting. Bhutan and Nepal had joined BIMST-EC as new members formally only the day prior to the signing of the Framework Agreement. Bangladesh had participated in the GOE all along for drafting the Framework Agreement, but did not sign it. In February 2004, however, it later expressed its interest in signing the Agreement and has acceded by signing a Protocol to this effect in June 2004.
4. The Framework Agreement includes provisions for negotiations on FTA in goods, services and investment. The major highlights of the Framework Agreement are as follows:
(i) FTA in Goods :
The negotiations for tariff reduction/elimination for FTA in goods shall commence in July 2004 and be concluded by December 2005. The negotiations will be held to finalize the negative list items, on which no-tariff concessions will be exchanged to begin with. The tariff liberalization on rest of the items would be done by following the two tracks mentioned below:
Fast Track: Products listed in the Fast Track by a Party on its own accord shall have their respective applied MFN tariff rates gradually reduced/eliminated in accordance with specified rates to be mutually agreed by the Parties, within the following timeframe:
Countries For Developing Country Parties For LDC Parties
India, Sri Lanka & 1 July 2006 to 30 June 2009 1 July 2006 to
Thailand 30 June 2007
Bangladesh, Bhutan, 1 July 2006 to 30 June 2011 1 July 2006 to Myanmar & Nepal 30 June 2009
Normal Track: Products listed in the Normal Track by a Party on its own accord shall have their respective applied MFN tariff rates gradually reduced/eliminated in accordance with specified rates to be mutually agreed by the Parties, within the following timeframe :
Countries For Developing Country Parties For LDC Parties
India, Sri Lanka & 1 July 2007 to 30 June 2012 1 July 2007 to Thailand 30 June 2010
Bangladesh, Bhutan, 1 July 2007 to 30 June 2017 1 July 2007 to Myanmar & Nepal 30 June 2015
(ii) FTA in Services and Investments :
For trade in services and trade in investments, the negotiations on the respective Agreements shall commence in 2005 and be concluded by 2007. The identification, liberalization, etc., of the sectors of services/investments shall be finalized for implementation subsequently in accordance with the timeframes to be mutually agreed; (a) taking into account the sensitive sectors of the Parties; and (b) with special and differential treatment and flexibility for the LDC Parties.
Current Status:
5. Member countries have constituted the Trade Negotiating Committee to carry forward the programme, as stipulated in the Framework Agreement. Thailand is the chair country for the TNC. The First TNC meeting was held in Bangkok on 7-8 September, 2004 where the TNC finalized its Terms of Reference as well as work programme for the year 2004.
***** INDIA-SINGAPORE COMPREHENSIVE ECONOMIC COOPERATION AGREEMENT (CECA) ****
1. As agreed during the visit of Prime Minister to Singapore in April 2002, a Joint Study Group (JSG) for establishing a Comprehensive Economic Cooperation Agreement (CECA) between the two countries was set up on 8th April 2002. The JSG submitted its report to the two Prime Ministers on 8th April 2003.
2. The JSG identified areas of increased economic engagement between the two countries and also recommended measures to be taken. The JSG recommended the early launching
of negotiations for CECA to be structured as an integrated package of agreement between India and Singapore including :
A Free Trade Agreement, which would include, inter-alia, trade in goods and services and investment. A bilateral agreement on investment promotion, protection and cooperation; An improved Double Taxation Avoidance Agreement; A more liberal Air Services Agreement and Open Skies for Charter Flights; and A work program of cooperation in a number of areas including health care, education, media, tourism and the creation.
3. As per ‘Declaration of Intent’ signed between the two countries on 8th April 2003, negotiations on CECA were launched in New Delhi on 27-28 May 2003. Commerce Secretary headed the team of Indian negotiators while Permanent Secretary, Ministry of Trade & Industry, Singapore is the Chief Negotiator for Singapore. The 10th round of negotiations was held in New Delhi from 18-20th October, 2004. The negotiations on CECA are targeted to be concluded by mid of November, 2004 for early signing of the Agreement between the two countries.
***** FRAMEWORK AGREEMENT FOR ESTABLISHING FREE TRADE BETWEEN INDIA AND THAILAND *****
1. In November 2001, the Prime Minister of Thailand, Dr. Thaksin Shinawatra and the Prime Minster of India agreed to set up a Joint Working Group (JWG) to undertake a feasibility study on a Free Trade Agreement between India and Thailand. The Joint Working Group observed that the present policy regimes in both the countries are quite conducive to more intensive bilateral economic integration and a Free Trade Agreement could prove to be a building block for other sub-regional, regional and global economic integration processes of which both countries are a part. Having observed rich potential of trade expansion, the study concluded that the proposed Free Trade Agreement between India and Thailand is feasible, desirable and mutually beneficial. Accordingly, a Joint Negotiating Group was set up to draft the Framework Agreement on India-Thailand FTA.
2. During the visit of Indian Prime Minister to Thailand, a Framework Agreement for establishing Free Trade Area between India and Thailand was signed by the Commerce Ministers of the two sides on 9th October, 2003 in Bangkok, Thailand. The signing of the Framework Agreement was done in the presence of the Prime Ministers of India and Thailand. The key elements of the Framework Agreement cover FTA in Goods, Services and Investment, and Areas of Economic Cooperation. The Framework Agreement also provides for an Early Harvest Scheme (EHS) under which common items of export interest to the sides have been agreed for elimination of tariffs on a fast track basis. The EHS items were finalized in consultation with the apex Chambers and Ministries / Departments concerned. The EHS list has been finalized through negotiations based on full reciprocity in terms of trade value between India and Thailand. For the period 2001-2002, exports to Thailand on the EHS items amounted to US$ 33.3 million while imports from Thailand during the same period were to the tune of US$ 38.5 million. The other highlights of various components of the Framework Agreement are as follows:
(i) FTA in Goods Negotiations to commence in January, 2004 and concluded by March 2005. Establishment of Free Trade Area (zero duty imports) by 2010.
(ii) FTA in Services Negotiations to commence in January 2004 and concluded by January 2006.
(iii) FTA in Investments Negotiations to commence in January 2004 and concluded by January 2006.
(iv) Areas of Economic Cooperation Areas of economic cooperation to include trade facilitation measures; sectors identified for cooperation; and trade & investment promotion measures.
(v) Early Harvest Scheme (EHS) Both sides have agreed to have a common list of items for exchange of tariff concessions. Tariffs on these items will be phased out in 2 years timeframe starting from 1 st March, 2004. Since the two sides were not able to finalize the Interim Rules of Origin in time, the implementation of the EHS had to be deferred.
Current Status:
3. The tariff concessions on 82 items of EHS list began from 1.9.2004 with the signing of the Protocol between India & Thailand on 30th August, 2004 in New Delhi.
4. India Thailand Trade Negotiating Committee (TNC) has been constituted to carry forward the programme of negotiations as per the Framework Agreement. Four meetings of the TNC have been held so far.
****** INDIA-SRI LANKA BILATERAL FREE TRADE AREA AND THE PROPOSAL FOR COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT ******
1. A Bilateral Free Trade Agreement was signed between the Prime Ministers of India and Sri Lanka in New Delhi on 28th December, 1998 and has been in operation since March 2000. This was the first FTA India had signed by then.
2. The Agreement seeks to establish a Free Trade Area (FTA) through elimination of tariffs in a phased manner as under:
India’s Commitments: India would reduce tariffs to zero on 1350 tariff lines immediately on implementation of the Agreement. For the rest, except 429 items included in the Negative List, across the board duty free access would be given over a period of 3 years from the date of implementation of the Agreement. There is a tariff rate quota on tea for 15 million kgs. and on garments for 8 million pieces. From 18th March 2003, India’s commitment of duty reduction has been competed. The items in the Negative List of 429 tariff lines at 6 digit level of Harmonized Code are from various sectors like rubber and rubber products,
paper and paper boards, plastics and products thereof, coconuts, alcoholic beverages and textile items, etc.
Sri Lanka’s Commitments: Sri Lanka would give 100% duty concessions on 319 tariff lines on the date of operationalization of the Agreement. In addition, it has given 50% tariff concessions on 839 tariff lines on the date of operationalization of the Agreement which has been deepened to 100% as on today. For the remaining items, Sri Lanka would reduce tariffs to zero percent over a period of 8 years in three phases i.e. by 35% & 70% & 100% before the expiry of 3rd, 6th and 8th year respectively. In other words, India’s exports on these items get 35% duty concessions from Sri Lanka as on today. Sri Lanka’s Negative List comprises of 1180 tariff lines.
3. The preferential trade under the FTA is governed by the Rules of Origin which specify three criteria namely: (i) the domestic value addition should be 35%, (ii) inputs to undergo substantial transformation at 4 digit level of customs harmonized code and (iii) a list of operations like simple packing, cutting and assembly etc. have been defined which would not qualify for duty free market access. If the raw material/inputs are sourced from one country by the other, the value addition is reduced to 25% within the overall limit of 35%.
4. The lists for exchange of tariff concessions and procedures were finalized through Letters of Exchange between Commerce Secretary, Government of India and Treasury Secretary, Government of Sri Lanka on 2nd February, 2000. Subsequently, the Agreement was implemented after issuance of Customs Notification by Sri Lanka on 15th February, 2000 and by India on 1st March, 2000 and related notifications issued in May, 2000. The Tariff Rate Quota Mechanisms for import of Tea and Garments were finalized in April 2000 in New Delhi.
From FTA to Comprehensive Economic Partnership Agreement (CEPA):
5. When the Prime Ministers of India and Sri Lanka met in New Delhi in June 2002, they took cognizance of the significant expansion of trade made possible by the ISLFTA. However, they also noted that there was much scope for expanding the areas of coverage of economic cooperation. Accordingly, a Joint Study Group (JSG) was set up to explore ways and means of deepening and widening economic cooperation through a Comprehensive Economic Partnership Agreement (CEPA). Dr. Rakesh Mohan, Dy. Governor of RBI was the Co-Chair of the JSG. The JSG completed its study and had submitted its report to two Prime Ministers in October 2003 in New Delhi.
6. The summary of recommendations of the JSG was to :
Enter into a Comprehensive Economic Partnership Agreement Build upon the ISLFTA by deepening and widening the coverage of trade in goods. Enter into broad negotiations covering all service sectors and modes of supply under the GATS framework. Facilitate greater investment flows by addressing identified regulatory and operational constraints. Implement measures to enhance economic cooperation to complement trade and investment liberalization. Complete negotiations on the CEPA within 4-6 months.
Establish institutional mechanisms to monitor the progress of the CEPA so that the objectives are realized. Facilitate interaction between, and participation of, the private sectors of the two countries in the negotiations of the CEPA and its implementation.
7. The first meeting on CEPA at the Commerce Secretary level was held on 18th August, 2004 in Colombo. In this meeting, both sides highlighted the importance of deepening and broadening the scope of ISLFTA to CEPA. It was primarily an exploratory discussion broadly covering the scope of CEPA as well as use of JSG Report as a reference document for possible approaches and negotiations. This Ministry is having inter-ministerial consultations for proceeding further in this regard.
***** AGREEMENT ON SOUTH ASIAN FREE TRADE AREA (SAFTA) *****
1. South Asian Association for Regional Cooperation (SAARC) consists of seven countries, namely, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. A regional trade block among these members was formed when SAARC Preferential Trading Arrangement (SAPTA) was signed in April, 1993 for giving preferential market access to the exports of the member countries in a limited way. Four rounds of negotiations have been completed and no further round is now contemplated following the signing of Agreement on SAFTA.
2. At the 9th SAARC Summit held in Male in May 1997, the Heads of State or Government recognized the importance of achieving a free trade area by the year 2001 A.D. and reiterated that steps towards trade liberalization must take into account the special needs of the smaller and the Least Developed Countries and that benefits must accrue equitably.
3. The mandate of the Tenth SAARC Summit held at Colombo in July, 1998, reads as follows:
“The Heads of State or Government reiterated the importance of achieving SAFTA as mandated by the Ninth SAARC Summit. To this end they decided that a Committee of Experts, in consultation with Member States, be constituted with specific Terms of Reference (TOR) to work on drafting a comprehensive treaty regime for creating a free trade area. The Heads of State or Government expressed the view that such a treaty must incorporate, among other things, binding time- frames for freeing trade, measures to facilitate trade, and provisions to ensure an equitable distribution of benefits of trade to all States, especially for smaller and least developed countries, including mechanisms for compensation of revenue loss. They emphasized the importance of finalizing the text of regulatory framework by the year 2001."
4. In its first meeting held at the SAARC Secretariat, Kathmandu, in July, 1999, the Committee of Experts (COE) finalized the Terms of Reference for drafting the SAFTA treaty. However, further meetings of the COE could not take place for almost three years due to inconvenience of dates proposed by the SAARC Secretariat for some Member countries.
5. In the 11th SAARC Summit held at Kathmandu, Nepal in January, 2002, the following was decided:
"Recognizing the need to move quickly towards a South Asian Free Trade Area, the Heads of State or Government directed the Council of Ministers to finalize the text of the Draft Treaty Framework by the end of 2002. They also directed that in moving towards the goal of SAFTA, the Member States expedite action to remove tariff and non-tariff barriers and structural impediments to free trade."
6. The COE held several meetings during 2002 and 2003 in Kathmandu to finalize the text of the Agreement. Some of the contentious issues were finally resolved in the Council of Ministers (Foreign Ministers) Meeting on 2-3rd January 2004 and the Agreement was signed during the 12th SAARC Summit held in Islamabad on 4-6th January, 2004.
7. The Agreement provides for free trade in goods among SAARC member countries. The highlights of the Agreement are as under :
a) Trade Liberalization Program (TLP): The Agreement provides for the following schedule of tariff reductions :
I. Non-Least Developed Country (Non-LDC) Members of SAARC (India, Pakistan and Sri Lanka): Non-LDC countries would reduce their existing tariffs to 20% within a time frame of two years from the date of coming into force of the Agreement. If the actual tariff rates are below 20% then there shall be an annual reduction of 10% on Margin of Preference basis for each of the two years. The subsequent tariff reductions from 20% or below to 0-5% shall be done within a period of five (for Sri Lanka it is six) years, beginning from the third year from the date of coming into force of the Agreement.
II. Least Developed Country (LDC) Members of SAARC (Bangladesh, Bhutan, Maldives and Nepal): The LDC Member countries would reduce their existing tariff to 30% within a time frame of two years from the date of coming into force of the Agreement. If actual tariff rates are below 30% there will be an annual reduction of 5% on Margin of Preference basis for each of the two years. The subsequent tariff reductions from 30% or below to 0-5% shall be done within a period of eight years, beginning from the third year from the date of coming into force of the Agreement. Notwithstanding the above provisions the Non-LDC member States shall reduce their tariffs to 0-5% for the products of the LDC member States within a period of three years beginning from the date of coming in to force of the Agreement.
III. Sensitive List: Each country will maintain a sensitive list to protect the interests of the domestic stakeholders. This will be subject to a maximum ceiling and shall be finalized after negotiations among the Contracting States with flexibility to the Least Developed Contracting States to seek derogation in respect of the products of their export interest. This in effect means that the Non-LDC Member States would maintain smaller Sensitive List for the LDC Member States. The Sensitive Lists are subject to review after every four years or earlier with a view to reducing the number of items which are to be traded freely among the SAARC countries.
b) The Agreement also provides for Institutional mechanism of SAFTA Ministerial Council (SMC); Safeguard Measures in case of surge in imports of product(s) covered under SAFTA concessions; and a detailed Dispute Settlement Mechanism.
c) Special Provisions for LDCs: Apart from provisions for longer phase out schedules and longer Sensitive Lists to be maintained by the LDCs, it provides for technical assistance in trade related areas and some relaxations for imposing safeguard measures against LDCs. The Agreement also provides, as mandated in the 10th SAARC Summit, for compensation of revenue to LDCs who suffer from loss of customs revenue due to the implementation of the Trade Liberalization Programme, the operational modalities of which are to be worked out through further negotiations.
d) Implementation: SAFTA agreement will enter into force on 1st January 2006 upon completion of negotiations on Sensitive Lists, Rules of Origin, Revenue loss Compensation Mechanism for LDCs. These negotiations would be carried out by the existing Committee of Experts and are expected to be completed by the end of June, 2005.
Current Status:
8. The Committee of Experts (COE) has already had five rounds of negotiations since January this year when the Agreement was signed. The discussions on the left over agenda as reflected in (d) above are proceeding on the expected lines and we are hopeful that the COE would be able to complete its task by the end of June 2005. 9. This Agreement shall supersede the Agreement on SAARC Preferential Trading Arrangement (SAPTA).
****** INDIA-MERCOSUR PTA ******
1. MERCOSUR is a trading block in Latin America comprising Brazil, Argentina, Uruguay and Paraguay as its members. It was formed in 1991 with the objective of free movement of goods, services, capital and people and it became a Customs Union in 1995. It has become a successful market of 200 million people, 1 trillion dollars of GDP and 150 billion dollars of trade. It is the fourth largest integrated market after the European Union (EU), North American Free Trade Agreement (NAFTA) and ASEAN.
2. India had a total trade of US$ 1247.32 million with MERCOSUR during 2003- 2004. Our exports to MERCOSUR were approx. US$ 385.45 million during 2003-2004 and our imports from MERCOSUR were approx. US$ 861.87 million in the same period. The region still has a huge potential for Indian exporters as our share is just 0.83% of the global imports of MERCOSUR. Our major items of exports to MERCOSUR are drugs, pharmaceuticals and fine chemicals, transport equipment, inorganic/organic/agro chemicals, cotton yarn & fabric, made-ups, readymade garments, cotton & manmade yarn fabrics, dyes, intermediates and coal tar. The major imports into India from MERCOSUR are edible (vegetable) oils, metalliferous ores, metal scrap and non-electrical machinery.
3. A Framework Agreement had been signed between India and MERCOSUR on 17th June 2003 at Asuncion (Paraguay). The aim of this Framework Agreement was to create conditions and mechanisms for negotiations in the first stage, by granting reciprocal
tariff reductions and in the second stage, to negotiate a free trade area between the two parties in conformity with the rules of the World Trade Organization.
4. As a follow up to the Framework Agreement, a Preferential Trade Agreement (PTA) was signed in New Delhi on January 25, 2004, coinciding with the visit of the President of Brazil. The aim of this Preferential Trade Agreement is to expand and strengthen the existing relations between MERCOSUR and India, promote the expansion of trade by granting reciprocal tariff reductions and ultimately to create a free trade area between them.
5. There are five Annexes, namely, legal texts on Rules of Origin, Safeguard Measures and Dispute Settlement and two Offer Lists (one from each side) which are yet to be finalized. Both sides are constantly in touch with each other through video conferencing and e-mail for finalizing the three legal texts and two Offer Lists. The 4th round of negotiations between the two sides were held in Brasillia, Brazil on 8-10th September, 2004. The Text on Safeguard Measures and Dispute Settlement Mechanism have been frozen. The two Offer Lists covering 450 items from each side are also at the final stage. However, some ground is still to be covered before the criteria for the Rules of Origin can be given final shape. The two sides have mutually agreed to try to finalize all the five annexes by the end of 2004.
****** INDIA-SACU (SOUTHERN AFRICAN CUSTOMS UNION) FRAMEWORK AGREEMENT ******
1. South Africa is the largest, most diverse and most sophisticated country in Africa with a Gross Domestic Product (GDP) three times that of Nigeria or Egypt. South Africa’s economic infrastructure dominates Africa though it covers less than 4% of the continent and accommodates less than 6% of its population. South Africa provides more than half of the electricity output of Africa, moves more tonnage through its ports, and has more air transport facilities than all the other countries of Southern, Central and East Africa together. The number of motor vehicles at nearly 5 million in that country is more than half of those in the rest of Africa. South Africa has also the advantage of a developed and systematic banking system.
2. South Africa along with Lesotho, Swaziland, Botswana and Namibia has formed the Southern African Customs Union (SACU) with a common custom tariff policy. Since most of the imported goods enter the sub-region through South African ports, a system of custom revenue sharing is in place. South Africa and India are members of the Indian Ocean Rim Association for Regional Cooperation. South Africa is a member of the World Trade Organization and has also finalized a free trade and development agreement with European, which provides for gradual liberalization of the two way trade between South Africa and European Union. South Africa has also signed a Framework Agreement for the creation of a Free Trade Area with Southern Common Market (MERCOSUR).
3. The level of bilateral trade between India and South Africa is quite low at present. South Africa is not a major export destination for India; neither is the latter figuring in the list of principal trading partners of South Africa. The market share enjoyed by either of them in each other’s market is quite insignificant. Less than one per cent of India’s exports go to South Africa. However, in the last few years bilateral trade between the countries has recorded a double-digit growth rate. During 1998-1999 to 2002-2003, India’s imports from
South Africa increased by more than 54% per cent, while exports increased by more than 22 per cent.
4. The proposal for a bilateral Preferential Trade Agreement between India and South Africa came up for discussion during a meeting between the then Commerce & Industry Minister of India and the Minister for Trade & Industry for South Africa during the latter’s visit to New Delhi in January, 2000.
5. Following this meeting, Indian Institute of Foreign Trade (IIFT) was assigned to conduct a desktop study for ascertaining the feasibility of entering into a Preferential Trade Agreement (PTA)/Free Trade Agreement (FTA) between India and South Africa. The study found that more than 50% of India’s exports are subjected to a tariff of less than 10% in South Africa and only 33% are facing a tariff rate of more than 20%. On the other hand, 55% of imports from South Africa face high tariffs of more than 20% in India. Only 34% of imports from South Africa are subjected to low tariff of 10% and below. The weighted average tariffs in India and South Africa are 22.89% and 16.35% respectively.
6. The study concluded that even though the tariff rates are higher in India, the revenue loss that would result from bilateral elimination of tariff is greater in South Africa. The revenue loss in South Africa is projected to be 1.4 times the revenue loss in India. The study also suggested that as South Africa has a moderately large import market, an Agreement with South Africa prima facie is of importance because of its geographical location and membership of sub-regional trade agreements. The study has further suggested that a Free Trade Agreement with South Africa might also include preferential terms for bilateral investments, which may further help in promoting India’s exports in whole of Southern Africa, most of which is landlocked.
7. Following a bilateral meeting held between Indian and South African delegations in New Delhi in July, 2002, an in principle decision was taken to enter into the negotiation of a Preferential Trading Arrangement (PTA) with a view to deepen the mutual trade and investment flows, between the two countries.
8. Later on, South Africa sought confirmation whether they can include other partners of SACU for negotiating a Comprehensive Trade Agreement. This suggestion was examined in consultation with the Ministry of External Affairs and the mandate was given to negotiate with SACU as a group and not South Africa individually.
9. A Joint Working Group was set up to initiate negotiations for a Comprehensive Framework Agreement. The first meeting of the JWG took place in Pretoria on 17-18th December, 2002 and the third meeting of the JWG took place in Windhek, Namibia on 6-7th September, 2004 and the text of the Framework Agreement was finalized. The Framework Agreement provides for a limited tariff concession in the first stage and later on graduating to a Free Trade Arrangement. The negotiations for PTA are to be completed by the end of December, 2005. There is no time frame for initiating the negotiations on FTA. The necessary mandate in this regard will be sought from the cabinet very shortly.
***** JOINT STUDY GROUP (JSG) WITH MAURITIUS *****
1. An India-Mauritius Joint Study Group (JSG) has been set up under the Chairmanship of Dr. Ashok Lahiri, Chief Economic Adviser, and Ministry of Finance to examine the modalities for a Comprehensive Economic Coop and Partnership Agreement (CECPA). Other members of the group include representatives of the MEA, DEA, Dept of Revenue, DIPP and Dept of Commerce. The Group is headed on the Mauritius side by Mr. B.R. Gajadhar, Managing Director of the Bank of Mauritius and has representatives of the concerned Ministries. Altogether 4 meetings have been held the last one at Port Louis, Mauritius on September 6-7, 2004. The JSG had been appointed with the approval of the two Prime Ministers for looking into the modalities of the proposed CECPA.
2. The JSG has decided to follow the same model of the other JSGs so far appointed and prepare a report covering subjects such as trade in goods, trade in services, investment issues and general economic cooperation. The draft report of the JSG has now been prepared by the Indian side and has now been handed over to the Mauritian side for comments.
3. In this connection it is worth mentioning that the Mauritius side is very keen on a FTA with India as they have obviously a lot to gain. This Department has been consistently opposed to the idea of a bilateral FTA with Mauritius due to the likely trade diversion that this would create, i.e., Mauritius becoming a centre for re-export of goods from other countries to India after meeting all the Rules of Origin norms. Our draft report has tried to reflect our concerns by stating as follows in the relevant paras:
Para 4.9 A Free Trade Agreement (FTA) between two countries is a standard prescription for enhancing the level of bilateral trade. However, a purely tariff concession led approach focusing only on a FTA often fails to address removal of actual and more important impediments to trade. It also reduces the investment orientation of the proposed CECPA. Thus it was agreed to adopt a longer term approach to the idea of an FTA and recommend implementation of measures to expand Indian trade to and through Mauritius and vice versa on a priority basis. The emphasis should be on trade creation and minimizing trade diversion to maximize welfare.
Para 4.10. A Preferential Trade Agreement (PTA) could be considered. Enhancing the competitiveness of domestic Mauritian industries or Indo-Mauritius Joint Venture by applying selective tariff concession in a WTO compatible PTA framework could be considered in order to increase bilateral trade flows and improve business competitiveness for joint exports to third markets.
4. The above formulation was discussed with the Mauritius side and it appears that they are more or less inclined to accept it, though they will be getting back to us on the draft JSG report as a whole within the next two or three weeks. Our concern with the pattern of trade as it exists, is essentially regarding the structures that are impeding Indian market penetration in the two billion dollar imports of Mauritius. This has also been reflected in the draft chapter.
****** INDIA-GCC FRAMEWORK AGREEMENT ******
1. The Gulf Cooperation Council (GCC) consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates proposed to have a Framework Agreement between India and the GCC expressing mutual intentions of undertaking deeper integration at a future
stage. This was accepted and accordingly, a Framework Agreement has been signed on 25th August, 2004. The Agreement, prescribes mutual intention of cooperation in promoting economic ties between the two sides. The highlights of the Agreement are as under :
Both sides will promote economic cooperation in various fields including exchange of information and necessary technical expertise in this fields Explore the feasibility of entering into an FTA Provide conducive climate for promoting trade through exchange of information Appropriate arrangements for setting up joint investment projects, facilitating corporate investments Encourage exchange of visits of technical, commercial and economic delegations and promoting exhibitions in both sides A Joint Committee on Economic Cooperation to be set up to recommend for enhanced economic cooperation, handle disputes
2. The Ministry of External Affairs and the Ministry of Finance were consulted before signing this Framework Agreement. To proceed further in this regard, this Department has commissioned three studies in the areas of goods, services and investment.
***** JOINT STUDY GROUP WITH CHINA *****
1. A Joint Study Group was constituted following Prime Minister’s visit to Beijing in June 2003. The relevant declaration in this regard s reproduced below :
"The two sides will set up a compact Joint Study Group (JSG) composed of officials and economists to examine the potential complementarities between the two countries in expanded trade and economic cooperation. The JSG would also draw up a programme for the development of India- China trade and economic cooperation for the next five years, aimed at encouraging greater cooperation between the business communities of both sides. The Group should present a study report and recommendation to the two Governments on measures for comprehensive trade and economic cooperation by the end of June 2004".
2. The Joint Study Group has since been constituted and finalized its terms of reference. The Joint Study Group has had its first meeting on March 22-23, 2004 in Beijing. The 2nd meeting was held in New Delhi on July 26-28, 2004. The 3rd meeting is scheduled to be held in Beijing between the 8-10th November, 2004.
***** JOINT STUDY GROUP BETWEEN INDIA AND REPUBLIC OF KOREA, AND INDIA AND JAPAN ******
Following President Roh’s visit in first week of October, 2004, a joint communiqué was issued inter alia the following:
"They agreed to continue policy dialogues in economic and trade area with a view to developing the bilateral relations into a more comprehensive and future-oriented one. As part of such an
initiative, the two sides will establish a Joint Study Group (JSG), composed of government officials, economists and representatives of business community, to take a comprehensive view of bilateral economic linkages between the two countries, covering among others, trade in goods and services, investment flows, and other areas of economic cooperation. The JSG will, inter alia, examine the feasibility of a comprehensive economic partnership agreement between India and ROK. The JSG will give concrete suggestions on ways and means to encourage closer economic engagement between the two countries based on the result of the study. It will start its work no later than in January 2005 and submit its report within one year.”
It has been decided that JSG would be serviced by Department of Industrial Policy and Promotion. ***** BRIEF ON INDIA-EGYPT PTA *****
1. Egypt is the second largest economy after South Africa in the African Continent. It is a part of the COMESA Group and has recently concluded a Comprehensive Economic Agreement with the European Union. The Egyptian side had tabled a proposal for Counter Trade with India during 2001. The proposal was examined by the Indian side and it was informed to the Egyptian side that any counter trade arrangement with reduction of Customs duties is not possible as both countries are members of WTO and will have to provide the Most Favored Nation (MFN) treatment to other member countries of the WTO. Therefore, it was clarified if both the countries are looking for some tariff reductions on commodities of mutual interest, a bilateral Preferential Trade Agreement under the GATT Enabling Clause has to be in place.
2. Subsequently, on 30th April, 2001 in an inter-ministerial meeting, it was decided to proceed for a PTA with Egypt. During the bilateral meeting between the two countries on 15th January, 2002, it was decided to constitute a Joint Working Group to negotiate a PTA.
3. This proposal has been discussed with the Egyptian side in two successive meetings held in October 2002 and in December 2003. During these two meetings, the Draft Text of the Preferential Trade Agreement tabled by India was discussed and has been finalized. On the Rules of Origin, two rounds of discussions have been held. There are some differences between the two sides regarding the criteria of ‘originating products’. The Wish List from the Indian side has also been conveyed to the Egyptian side. We are awaiting the Egyptian Wish List.
****** BANGKOK AGREEMENT ******
1. The Bangkok Agreement is an initiative under the Economic and Social Commission for Asia and the Pacific (ESCAP) for trade expansion through exchange of tariff concessions among developing country members of the ESCAP region. This agreement was signed on 31st of July 1975. Seven countries namely, Bangladesh, India, Lao PDR, Republic of Korea, Sri Lanka, the Philippines and Thailand met at Bangkok and agreed to a list of products for mutual tariff reduction. However, this agreement was not ratified by Thailand and the Philippines due to their ASEAN commitments, which was also coming into force at that time. Lao PDR is not an effective participating member since it has not issued Customs Notification on the tariff concessions granted to other participating States. Papua
New Guinea acceded to the Agreement in December 1993, but has not yet ratified it. Thus, this agreement remained operational between four countries namely, Bangladesh, India, Republic of Korea and Sri Lanka.
2. The developing countries and associate members of ESCAP are eligible to accede to the Agreement. The applicant country may accede to the Agreement if at least two-thirds of participating states recommend its accession. China’s accession to the Agreement was approved by consensus by the member countries at the Sixteenth Session of the Standing Committee of the Bangkok Agreement in April 2000 and subsequently China deposited the Instrument of accession to the Bangkok Agreement with the ESCAP Secretariat. With China’s accession, the Agreement has acquired a altogether new importance, and provides an ideal platform for India and China to engage with each other for a meaningful exchange of tariff concessions.
3. Three rounds of trade negotiations have been held. The First Round was in 1975 when the agreement was signed and the Second Round commenced in 1988 and was completed in 1990. Up to the Second Round, India’s general concessions on 106 items correspond to 188 tariff lines (six-digit HS). The 12 items on which special concessions have been provided to Bangladesh correspond to 33 tariff lines. On China’s accession to Bangkok Agreement, India has extended the concessions which it has already extended to other developing member countries of Bangkok Agreement, China has granted concessions on 217 items (ITC HS Code 8 digit) to India in addition to the concessions already granted to other member countries of the Agreement. These concessions have been made effective from 1st January, 2004.
4. The Third Round of Negotiations under the Bangkok Agreement was launched in October, 2001, and concluded recently on the basis of the mandate received from the Cabinet in its meeting dated 6th November, 2003 vide Case No.282/31/2003. The exchange of concessions during the Third Round of Negotiations can be summarized in the following manner:
(i) No concessions were exchanged with Sri Lanka as India has already entered into a bilateral Free Trade Agreement with Sri Lanka.
(ii) As Bangladesh is the only Least Developed Country (LDC) member in the Bangkok Agreement, we agreed to extend unilateral tariff preferences to Bangladesh on 25 items based on the principle of non-reciprocity.
(iii) We gave concessions to China on 311 items (6-digit HS) and received concessions from China on 589 items (8-digit HS).
(iv) We gave concessions to Republic of Korea on 88 items (6-digit HS) and received concessions from Republic of Korea on 138 items (8-digit HS).
Current Status:
5. Since the Bangkok Agreement was signed in 1975, it was felt that the text of the Agreement needed amendments, taking into account the economic developments that have taken place since then. The text was revisited and was slightly modified. It now has a Ministerial Council as the apex body which would decide policy issues relating to the Agreement. The text is required to be signed by the Ministers in their first meeting which is
scheduled to be held this year. However, prior to this meeting, Rules of Origin are required to be finalized for which purpose a meeting of the Standing committee of the Agreement will be convened by the ESCAP Secretariat. At this meeting, the dates for notifying concessions agreed during the Third Round of Negotiations would also be finalized.
****** Global System of Trade Preferences (GSTP) ******
1. The Agreement establishing the Global System of Trade Preferences (GSTP) among Developing countries was signed on 13th April, 1988 at Belgrade following conclusion of the First Round of Negotiations. The Agreement entered into force on 19th April 1989. Forty- four countries have ratified the Agreement and have become participants.
2. The GSTP establishes a framework for the exchange of trade concessions among the members of the Group of 77. It lays down rules, principles and procedures for conduct of negotiations and for implementation of the results of the negotiations. The coverage of the GSTP extends to arrangements in the area of tariffs, para-tariff, non-tariff measures, direct trade measures including medium and long-term contracts and sectoral agreements. One of the basic principles of the Agreement is that it is to be negotiated step by step improved upon and extended in successive stages. During the First Round India exchanged concessions with 14 countries. The number of tariff lines on which concessions were granted by India is 31 and in return India received tariff concessions on a wide range of products of its export interest from these 14 countries.
3. In order to carry forward the exchange of concessions, the second round of GSTP Negotiations was launched in 1991. During the Second round, India held bilateral negotiations for exchange of concessions with 12 countries. These concessions have not been implemented so far.
4. In the 16th Session of the GSTP Committee of Participants (COP) held in Geneva on 10th December, 2003 the Committee decided to constitute an Ad-hoc Technical Working Group amongst other issues to comprehensively review the operations of the GSTP Agreement and study the technical feasibility of the possible means of invigorating and furthering the objectives of the GSTP Agreement.
5. The recommendations of the Technical Working Group for a new round of negotiations were accepted by the Committee of Participants and in the Special Ministerial Session of the Committee of Participants held in Sao Paulo during UNCTAD XI on 16th June, 2004, the Ministers decided to launch the third round of negotiations under the GSTP. As per the decision taken therein, a Negotiating Committee will commence negotiations in November, 2004 and conclude the negotiations by not later than November, 2006.
INDIA TRADE AGREEMENTS
India has a number of bilateral trade agreements that allow for reciprocal duty concessions between both countries. Following are the operative trade agreements
India-ASEAN A trade agreement exists between ASEAN nations and India with an objective to establish a Regional Trade and Investment Area which includes a Free Trade Area in goods services and Investment. The ASEAN nations include: Brunei, Laos, Malaysia, Philippines, Thailand, Cambodia, Indonesia, Myanmar, Singapore and Vietnam.
India-Afghanistan A trade agreement exists between India and Afghanistan for Preferential Trading Arrangement.
India - Thailand A Free Trade Area Agreement exists between India and Thailand which is effective from 31st October, 2004.
India - Nepal An Indo Nepal Trade Treaty is also into existence for Free Trade between India and Nepal.
India-Bangladesh An Indo Bangladesh Trade Treaty is there for Preferential Trade Agreements between the countries.
India – Bhutan Trade Agreement for Preferential treatment also exists between India and Bhutan.
India – Ceylon A trade agreement is there into existence between India and Ceylon.
India - Maldives India and Maldives have also signed a treaty for Preferential Trade Arrangements between the two countries.
India – Sri Lanka FTA A Free Trade Agreement exists between India and Sri Lanka.
India – GCC States A Preferential Trade Agreement exists between India and GCC States .The GCC states are – UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.
Note: For further details on these trade agreements and latest development on India’s Trade Agreement with other countries click the following URL http://www.commerce.nic.in/
Current as of October 2005