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CII, FICCI to set up taskforces

MoC assigns IIFT to conduct study on safeguard measures in FTAs/PTAs/RTAs

The Indian government finally looks to have woken up to the opportunities and challenges of entering into trade agreements, which are today ruling world trade. But trade bodies and the industry are stressing the need for safeguard measures in the FTAs, RTAs, PTAs that India enters into, to protect the Indian industry, while enhancing market access. The IIFT is conducting a study on the various precautions needed while entering such agreements, and the CII and FICCI are setting up taskforces to advice the government on the issues related to these agreements. A report by Reena Mital

The ministry of commerce (MoC) has assigned the Indian Institute of Foreign Trade (IIFT) to conduct a detailed study on the various precautions that need to be taken while drafting such trade agreements. The paper is expected to be complete by mid February. Moreover, two of the leading trade bodies - CII and FICCI are in the process of forming taskforces on free trade agreements (FTAs), to advise the government on the various issues relating to FTAs, regional trade agreements (RTAs) and preferential trade agreements (PTAs). According to industry sources, chemicals, petrochemicals and textiles are the three major sectors in India which would get affected by any such trade agreement.

According to a recent approach paper on FTAs, “A study of all the anti-dumping actions taken by various countries will show that the largest number of anti-dumping duties pertain to chemicals and textile chain, particularly where Asian countries are involved.”

Speaking to Express Textile, Mr C S Gokhale, president, corporate development, Reliance Industries, and co-chairman of the FICCI taskforce, said, “FTAs can lead to better market access, or it could prove to be a threat, depending on how the agreement has been drafted. It is important to put in place safeguard measures that will protect local industries, prevent a surge in imports, while enhancing market access. Value caps, rules of origin, etc need to be properly defined. In this regard, the two trade agreements between the US and Singapore, and the US and Israel, should form the benchmark, as these take care of all aspects of trade and market access.”

According to sources, these factors have not been taken into account in the few FTAs that India has entered into. “The Indo-Sri Lanka FTA has no mention of rules of origin, and no major safeguard measures are in place. One important reason for this is that these FTAs are not basically ministry of commerce-driven, but ministry of external affairs-driven. This holds true for the FTA that India is signing with Singapore too. If the safeguard provisions are not in place, FTAs will be a threat for the Indian industry,” they aver.

Over 250 FTAs are already in existence which are registered with the WTO. In addition, there are over 2,500 unregistered PTAs/FTAs. “Almost 65 per cent of world trade today is accounted for by trade within such trade arrangements. This trend is set to get stronger post-2004. Such agreements are extremely beneficial, and the Indian government needs to start working on these seriously and in an informed manner,” state sources.

According to Mr Gokhale, “Three crucial issues need to be very carefully handled while entering into FTAs/PTAs - what products is India genuinely short of; safeguard measures; and rules of origin.” A recent approach paper on FTAs states that safeguard measures should deal with the import volume and price thresholds, injury standard, value and volume caps. “A safeguard should be available to address the effects of either an increased volume of imports or adverse price effects. For this, online information of imports is essential under each FTA. This requires computerisation of all the ports and ICDs, and till such time as the systems are not ready, it is necessary to specify the ports of entry where FTA products can arrive,” according to the approach paper.

The paper further states that injury standards should be based on market disruption and should be lower than either the ‘material injury’ test or the ‘serious injury’ standard. In case of injury, the FTA should provide a tariff snap-back remedy, withdrawing the FTA tariff preference and raising the duty rate back to the MFN level, termination of FTA for unfairly traded goods, etc.

The rules of origin should address such issues as tariff shifts, duty drawback, value addition, customs fraud, outside trade processing or manufacture in third country, transshipment, etc. Moreover, as per the paper, “Rules of origin should not be conferred on any traders. Only manufacturers should be allowed to be exporters in FTAs. This will substantially reduce the frauds in terms of mis-declaration of origin.”

The paper further notes that textiles has been treated differently in almost all the FTAs, as this is a very sensitive sector in most countries. “More so in India, where the sector provides direct and indirect employment to as many as 20 million people. So, there is need to have more stringent rules of origin and the safeguard provisions for the textile chain. The rules of origin pertaining to HS codes 51 to 63 need to be very carefully drafted, and the tariff shift should be based on 6- or 8-digit custom codification system.”

Besides these issues, the paper further emphasises the need for internal reforms. “Internal reforms ought to have preceded external reforms, but we have gone in the reverse direction. Thus, our conversion costs continue to be very high. The tariffs keep coming down, and the infrastructure continues to be in a hopeless situation. With these factors in mind, the government must provide adequate safeguard measures while entering into FTAs.”