Growth of exports through Free Trade Agreements

Press Release

20 Oct 2023

We have set a very ambitious target of US $ 1000 Billion for merchandise exports and another US $ 1000 billion for service exports to be achieved by 2030. Needless to say, we need to explore all possibilities of developing exports wholeheartedly.
 

• In today’s competitive scenario, Market Access primarily depends on four issues:-
  • Quality
  • Technical standards
  • Tariff and Non-Tariff Barriers
  • Competitive cost

• At the importer’s factory / warehouse and
• At the hands of customer wherever he is (E-commerce transactions)

• Preferential Trade Agreement (PTA):
  In a PTA, two or more partners agree to reduce tariffs on small number of tariff lines which is called “positive list”. Such agreements are at the beginning  of trade negotiations and normally they offer duty concessions but not duty exemptions. Example:- India MERCOSUR PTA
• Free Trade Agreement (FTA):
  In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries. In every FTA there is a “negative list” which covers items on which no concessions are given and a “sensitive list” on which duty concessions are given in a phased manner. FTAs are more ambitious in coverage of tariff lines (products).
• Comprehensive Economic Cooperation Agreement (CECA) and
• Comprehensive Economic Partnership Agreement (CEPA):
  These terms describe agreements which consist of an integrated package on goods, services and investment along with other areas including IPR, competition etc.

• Wholly Obtained (WO):-
  WO are those, which are made from originating materials e.g. in India-Korea agreement goods manufactured by using Indian and Korean ingredients would be called WO. If such goods have import content (ingredients obtained from other countries) then they would be called Partially Produced.
  
  A certain % of ingredients which consist of non-originating materials can also be covered under the principle of de-minimis. 1% of FOB value is normally permitted as “Di-minimis”.
• Partially Produced (PP):-
  Normally there are Three conditions:-
  • Change in HS Code at 6 digit level
    • It relates to the conversion of inputs into a new product, when change gets carried out @ Six digit level of HS Code. It is normally a process of manufacture and simple processes like job work (without changing characteristic) of a product, re-packing, re-labelling etc. are not covered.
  • Definition of process of manufacture
    • Simple processes and operations such as cutting, mixing, change of packing, simple assembly are not considered as “manufacturing processes/operations”, It is always defined in the agreement.
    • If for some product specific processes are to be defined then they will be separately mentioned. In such cases, process plays an important role. It can be a process of manufacturing,. It may not change the basic characteristic but such product may have different uses in different industries.
  • Regional Value Content (RVC):-
    It means, the value addition done in the country of origin which includes cost of material, labor, other associated costs etc. etc. e.g. if a product is exported at Dollar 100 FOB, what should be % of imported material of other origins used in the manufacture of a product needs to be calculated.
    • Most of the existing FTAs permit 60 to 65% imported material, thereby accepting RVC of 35 to 40% for the purpose of Preferential Certificate of Origin.

1. Market access at ZERO duty:-
   This can be offered when agreements come into force on the basis of finalized negotiations based on HS codes. Zero duty treatment can be given at one go or annualized basis e.g. a product may attract Zero customs duty on the date of entry of agreement or a product may get Zero duty from the current rate say 5% in 5 equal annual instalments. In other words, such product will be subjected to 4,3,2,1 and 0% duty in a period of 5 years.
2. Market access for sensitive products:-
   If the item is included in sensitive list duty concessions would be given  but normally Zero duty access is not given and duties are reduced in equal annual installments. For. E.g.; if BCD is 10% and item is covered in sensitive list, India may offer duty concession upto 5% and may agree to further negotiation at a later date.
3. Concept of exclusion list:-
   These are lists of those products which may have adverse impact on local industry if import duty is reduced. It is also an important aspect for protecting national interest. It should be remembered when item is included in the exclusion list, duty concessions are not considered.  Exclusion list is that list where Government is not prepared to negotiate the duty concessions.

1. Licensing
   When a product is subjected to import licensing Market Access is governed be the Government. Unless the Government grants import license, industry cannot import the goods. This automatically limits Market Access.
2. Quantitative restrictions:-
   In this arrangementgovernment allows import but limited to quantity e.g. if government says particular chemical (A) HS code (X) is allowed for import only to the extent of 10,000 MT p.a. then market access is available only for 10,000 MT annually. Further quantities can not be imported. This arrangement is normally taken into account for sensitive items.
3. Technical barriers to Trade:-
   Import of goods is also governed by compliance with technical standards, such standards at times work as entry barriers.