Australia-India ECTA (Economic Cooperation and Trade Agreement)

 India unhappy with many Free Trade Agreements (FTA) it signed, walked out of Regional Comprehensive Economic Partnership (RCEP). Australia is one of the 15 countries that signed RCEP. Now India signed separate bilateral agreement with Australia. Many of India's concerns appear to have been addressed in this ECTA.

SANITARY AND PHYTOSANITARY MEASURES

        Where certification is required for trade in a product, the importing Party shall ensure that such certification is applied, in meeting its SPS objectives, only to the extent necessary to protect human, animal or plant life or health. The importing Party shall accept certificates issued by the competent authorities of the exporting Party that are in compliance with the regulatory requirements of the importing Party. Import checks, conducted in accordance with the importing Party’s laws, regulations, and sanitary and phytosanitary requirements, shall be based on the sanitary and phytosanitary risk associated with importations. The import checks shall be carried out in a manner that is least trade-restrictive and without undue delay.

TECHNICAL BARRIERS TO TRADE

        Where technical regulations are required and relevant international standards exist or their completion is imminent, each Party shall use them, or relevant parts of them, as a basis for its technical regulations except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued, for instance because of fundamental climatic or geographical factors or fundamental technological problems. Where a Party does not use such international standards, or their relevant parts, as a basis for its technical regulations and these may have a significant effect on its trade with the other Party, it shall, upon request of the other Party, explain the reasons therefore.

PROFESSIONAL SERVICES

       Each Party shall encourage the mutual recognition of the relevant qualifications, licensing or certification requirements, including in regulated or licensed occupations under various industry and business sectors. Each Party shall encourage its relevant bodies to organise or facilitate bilateral discussions on occupational skill sets and standards in specific regulated or licensed occupations, based on the request of the other Party. The Parties shall endeavour to work towards sharing of information on the skill shortage and skill sets desirable for those occupations.

Rules Origin under FTA- India enforces new guidelines.

Finance Minister in her Budget Speech 2020 had said “Undue claims of FTA benefits have posed threat to domestic industry. Such imports require stringent checks. In this context, suitable provisions are being incorporated in the Customs Act, 1962. Accordingly The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020), was notified on 21st August, 2020.  The new Rules will support the importer to correctly ascertain the country of origin, properly claim the concessional duty and assist Customs authorities in smooth clearance of legitimate imports under FTAs.

India has FTAs with more than 30 countries including Japan, South Korea and Singapore, and is in the process of negotiating trade agreements with the USA, Australia, Switzerland, Norway and Iceland among others.

Reading: https://www.mondaq.com/india/international-trade-investment/986004/rules-of-origin-under-trade-agreements

Why India is reluctant to sign RCEP?

India seemed to have pulled out of RCEP. Regional comprehensive Partnership Agreement (RCEP) is a proposed free trade agreement (FTA) between 10 ASEAN countries and their six FTA partners, namely Australia, China, India, Japan, Korea and New Zealand. It accounts for 25% of global GDP, 30% of global trade, 26% of FDI flows and 45% of the total population. From India’s point of view RCEP is critical. RCEP countries account for almost 27% of India’s total trade. Exports to RCEP account for about 15% of India’s total exports and imports from RCEP comprise 35% of India’s total imports. India runs a trade deficit with ASEAN as well as the partner countries of RCEP. India’s trade deficit with the bloc has risen from $9 billion in FY05 to $83 billion in FY17, of which China alone accounts for over 60% of the deficit. The primary reason is India's limited success with FTAs.

India’s experience with FTAs

Regional trade agreements (RTAs) have become increasingly prevalent since the early 1990s. RTAs cover more than half of international trade and operate alongside global multilateral agreements under the World Trade Organization (WTO). The first eleven years (1995-2005) of the WTO were paralleled by a tripling of RTAs from 58 to 188. Currently, 455 RTAs are in force globally. India is one among top countries in Asia with the maximum number of FTAs either in operation or under negotiation or proposed. According to the Asian Development Bank Institute, as of now, India has 42 trade agreements (including preferential agreements) either in effect or signed or under negotiation or proposed. Out of this, 13 are in effect, one is signed but not yet implemented, 16 under negotiation and 12 are proposed/under consultation or study. Most of India’s existing FTAs are with Asian countries which are quite different from each other in terms of the level of their economic development. The major FTAs that India has signed and implemented so far include South Asia Free Trade Agreement (SAFTA), India-ASEAN Comprehensive Economic Cooperation Agreement (CECA), India-Korea Comprehensive Economic Partnership Agreement (CEPA) and India-Japan CEPA.

Indian exports to SAFTA countries have increased faster than its imports from them leading to a significant rise in trade surplus with these economies from about US$ 4 billion to US$ 21 billion. The maximum growth in exports to SAFTA region has been recorded with Bangladesh and Nepal. contrary to India-SAFTA trade India’s imports from ASEAN has increased at a significantly higher rate than Indian exports to ASEAN. Another important point worth to be noted is that the imports from ASEAN grew much faster than India’s imports from the world. The faster growth in imports has resulted in a significant increase in India’s trade deficit with ASEAN from less than US$ 8 billion in 2009-10 to about US$ 22 billion in 2018-19. With CEPA, India’s trade deficit with Korea from US$ 5 billion in 2009-10 to US$ 12 billion 2018-19. As in the case of ASEAN and Korea, India’s trade deficit with Japan has not only increased during2011-12 to 2018-19 but grown faster than India’s trade deficit with the world.

India seems to have underutilised its existing FTAs. The percentage of India’s international trade routed through the preferential route/FTAs is very low. According to the Asian Development Bank, the utilisation rate of India’s FTAs varies between 5% and 25%, which is one of the lowest in Asia. Moreover, exports to FTA partner countries and non-partner countries have grown at the same pace. Complex rules of origin criteria, lack of information on FTAs, higher compliance costs and administrative delays dissuade exporters from using preferential routes. The compliance cost of availing benefits under these FTAs is so high that exporters prefer using the normal route. India has actively pursued FTAs with several major trading partners in the past without benefitting much.

NITI AAYOG recommendation

Before getting into any multilateral trade deal india should

·        firstly, review and assess its existing FTAs in terms of benefits to various stakeholders like industry and consumers, trade complementarities and changing trade patterns in the past decade.

·        Second, negotiating bilateral FTAs with countries where trade complementarities and margin of prefeence is high may benefit India in the long run.

·        Third, higher compliance costs nullify the benefits of margin of preference, thus reducing compliance cost and administrative delays is extremely critical to increase utilisation rate of FTAs.

·        Fourth, proper safety and quality standards should be set to avoid dumping of lower quality hazardous goods into the Indian market.

·        Fifth, circumvention of rules of origin should be strictly dealt with by the authorities. In case of India- SriLanka FTA, Srilanka had started exporting copper to India by under invoicing of imported scrap to in order to show higher value addition for qualifying for preferential rates under the FTA. Thus, Rules of Origin (ROO) norms can easily be circumvented by simple accounting manipulation to flood Indian markets.The over-arching conclusion of this report is that FTAs have to be signed keeping two things in mind, mutually reciprocal terms and focusing on products and services with maximum export potential.