After a six-year-long wait, the Trade in Goods Agreement (TIG) under the proposed Comprehensive Economic Cooperation Agreement, between India and the 10 member Association of South East Asian Nations (Asean), was finally signed on August 13, 2009 in Bangkok. The Asean, a collaboration between Indonesia, Malaysia, Singapore, Thailand, Vietnam, Brunei, Philippines, Cambodia, Laos PDR and Myanmar has been established with the objective of accelerating economic growth, social progress and cultural development amongst the member nations.

The TIG would come into force with effect from January 1, 2010 or from such date by which the Centre and the government of at least one Asean state issue notifications in relation to the same.

Salient features of the TIG

The essential benefit of the TIG, is the phased elimination/reduction of customs duty applicable on the import of goods between the signatory countries. With the implementation of the TIG, not only would the cost of procurement of imported goods from the signatory countries become lower, but manufacturers in India as well as the Asean countries will have greater access into the markets of the other signatory countries.

The TIG is applicable on around 90% of the goods that are traded between India and the Asean and with the implementation thereof, the 1.7 billion consumers? market in South East Asia would be open for free flow of trade. Therefore, the TIG is expected to have an unparalleled impact on trade, both in terms of volume and quality between the signatory countries.

Rules of origin

Benefit under free trade agreements (FTAs) is available subject to the goods having ?originated? in one of the signatory countries. The determination of whether the goods have so originated, is made in accordance with the rules of origin that are agreed between the countries.

As per the rules of origin accompanying the TIG, benefit would be available if the twin conditions of value addition as well as change in tariff classification are cumulatively satisfied. The value addition norms mandate a 35% value addition to the imported goods (to be calculated in accordance with the prescribed formula) used in the manufacture of the final product being exported in the exporting country, per the change in tariff classification requirement. Additionally, there has to be a change in the tariff sub-heading level of the imported raw material vis-?-vis the final exported good. Additionally, the final process of manufacture should have been undertaken in the country from which the export is taking place.

Phased removal/reduction of duties

The TIG prescribes a phased reduction of the tariff rate applicable on the import of goods from within the signatory countries. To implement such phased reduction/elimination, the products to which the TIG is applicable have been divided into four lists depending upon the duration over which the phased reduction/ elimination has to be completed.

The products for which reduction in customs tariff and subsequent removal is to be carried out in accordance with the duration prescribed in the schedule, have been listed under the Normal Track. The products covered within this list include specified iron and steel products, copper products, machinery and mechanical appliances, electrical/electronic equipment, photographic, medical and measuring instruments, etc

With respect to the goods covered within the Sensitive List, there has to be a reduction to the level of 5% customs duty in accordance with the duration prescribed in the schedule. The goods under the Sensitive Track include medicaments, essential oils, insecticides, floor coverings, plastics and fabrics.

Given the heavy opposition raised by various plantations in India, crude and refined palm oil, coffee, black tea and pepper have been placed with the list of Special Products for which a special track for tariff reduction has been prescribed.

Products with respect to which limited benefit would be available under the TIG have been placed under the Highly Sensitive List. Modest reduction of tariff for the products covered within this list has to be achieved by December 31, 2019 for Indonesia, Malaysia and Thailand, December 31, 2022 for the Philippines, and December 31, 2024 for Cambodia and Vietnam.

Exclusion list

The TIG also contains an exclusion list that comprises of those goods over which benefit of concessional rate of customs duty would not be available. India, as well as the Asean countries has prescribed their exclusion lists.

The exclusion list for India contains 489 items, including 303 items of agriculture sector, 81 items of textiles sector, 50 items of auto sector and 17 items of chemical sector. In this, products such as coconut, cashew, vanilla, nutmeg, coriander, cardamom, ginger, turmeric, copra, coconut oil, tobacco, natural rubber, and certain items of textiles have been incorporated.

Safeguard measures

With a far-sighted approach, in addition to providing concessional duty benefit, the TIG also prescribes bilateral safeguard measures which would get triggered if there is an influx of goods causing injury to the domestic industry of a signatory country as a consequence to the TIG. These safeguard measures would be applicable for a specified period.

Further, such safeguard measures may also be initiated on a particular product within the transition period of the goods, which is to commence from the date that the TIG is implemented. Such safeguard measures will remain applicable for a period of 5 years from the date of tariff reduction/elimination of that particular product.

During the period that the safeguard measures are in force, the country invoking the same may either suspend further reduction of the tariff rate or increase the tariff rate on the good, subject to the maximum caps as prescribed under the TIG.

Expectation for the services sector: With the signing of the TIG, expectations of a similar agreement in relation to trade in services have increased multifold over the past week. The implementation of such an agreement would further boost trade relations between the participating countries.

?The writer is partner BMR Advisors. Abhishek Jain, director, contributed to the article