Overlaps in trade pacts leave industry in a bind

By: and |
January 6, 2015 8:10 AM

Multiple 'rules of origin' norms & 'negative lists' creating problems

trade pact, India trade pact, FTA, fta india, Thailand, Malaysia, Singapore, indo nepal trade, indo nepal trade Treaty, South Asia Free Trade AreaIndia’s trade pact signing frenzy over the last decade that include several instances of multiple pacts inked with the same country has triggered two undesirable consequences. (Reuters)

India’s trade pact signing frenzy over the last decade that include several instances of multiple pacts inked with the same country has triggered two undesirable consequences.

While the multitude of trade pacts has led to a general confusion within Indian industry on the multiplicity of ‘rules of origin’ norms and ‘negative lists’ applicable on imports from a single country under the numerous agreements signed with it, this has also resulted in a sharp increase in the discretionary powers of those manning the customs posts.

For instance, India has signed separate FTAs and cooperation agreements with Thailand, Malaysia and Singapore. All three countries are also ASEAN members, with which India has recently concluded pact on services and investment in September this year after having implemented a pact covering trade of goods in 2010. With Nepal, India already has a trade pact (the Indo-Nepal Trade Treaty, signed in 1996 and revised in 2009) while the agreement on South Asia Free Trade Area (SAFTA), under which Nepal is included, was signed in January 2006 and an pact with the Bay of Bengal Initiative for Multi Sectoral Technical and Economic Co-operation (BIMSTEC FTA) is on the anvil. India also has an FTA with Sri Lanka (since March 2000), while the nation is also part of both BIMSTEC and SAFTA blocs, resulting in the possibility of three sets of ‘rules of origin’ norms and ‘negative lists’ for imports in the future.

trade pact, India trade pact, FTA, fta india, Thailand, Malaysia, Singapore, indo nepal trade, indo nepal trade Treaty, South Asia Free Trade Area

While the government contends that the Certificate of Origin would be the overriding factor in deciding preferential access from a country, industry says that the norm is already under “misuse”. Plus, with no roadmap to subsume bilateral deals with multilateral pacts over a given period of time, the confusion on multiple pacts is likely to linger.

“There is bound to be confusion, and the discretion of the customs officer becomes a factor when products are stuck at ports,”D K Nair, secretary general, Confederation of Indian Textile Industry said. However, customs officials are arguing that they have no discretion when it comes to deciding on the preferential rates. “We completely go by the claims made by importer. We just look at the veracity of certificate of origin to ensure that the claims being made are right. If all the documents are in place, we allow the rates sought,” a custom official told The Indian Express, on the condition of anonymity.

He added that it is only in some cases where the claims are denied. “Last year before suspending gold import from Thailand, we saw instances where importers were showing certificate of origin of Thailand after substantial value addition in gold jewellery, which is not possible,” the official added.

While the rationale for signing these pacts by the UPA was ascribed to geopolitical reason, the new government is now seeking a review of the economic impact of such pacts. All the same, industry has raised concerns that besides the technical difficulties, there are issues regarding the opening up of the Indian markets to imports from non-FTA partners, especially from China.

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