India’s Trade Agreements

Indian Council for Research on International Economic Relations

Nisha TanejaNisha Taneja

India and Regional Trade Agreements2

Trade Agreement Year Type

Asia Pacific Trade Agreement

1975 Goods

India-Sri Lanka FTA 1998 Goods

India-Afghanistan PTA 2003 Goods

India-MERCOSUR PTA 2004 Goods

SAFTA 2004 Goods

India-Chile PTA 2005 Goods

India-Bhutan Trade Agreement

2006 Goods; Transit

India-Nepal (Revised) FTA 2009 Goods

SATIS 2010 Services

India and Regional Trade Agreements

Trade Agreement Year Type

India-Singapore 2005 CECA

India-Korea 2009 CEPA

India-Japan 2011 CEPA

India-Malaysia 2011 CECA

India-ASEAN2010; 2015

Goods; Services, Investment

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India’s FTAs and the Mega Regionals

Mega regionals

TPP 12 countries include Australia, Brunei, Canada, Chile, Japan, Malaysia,Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.Accounting for 40% of global GDP

TTIP when concluded will be a PTA between the US and the EU memberstates accounting for 50% of world GDP.

Why Mega regionals?

These agreements are being concluded in a WTO + framework to support theemerging production patterns of global value chains.

With a number of disciplines e.g. investment, government procurement,regulatory coherence, competition policy, e-commerce, telecommunications,SPS and TBT standards, supply chains, SOEs, labour, environment, movementof natural persons, customs trade facilitation

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India’s FTAs and mega regionals

India is a member of RCEP

Regional Comprehensive Economic Partnership (RCEP)

ASEAN + 6 (Australia, China, India, Japan, South Korea, andNew Zealand) with whom ASEAN has FTAs

RCEP is viewed as an alternative to the TPP tradeagreement, which includes China but excludes US.

The scope of RCEP is likely to be far more limited than theTPP and is not likely to be as deep as the TPP

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Scope of CEPAs6

Chapters Korea CEPA Japan CEPA Singapore CECA Malaysia CECA ASEAN

Trade in Goods

Rules of Origin

Customs and Trade FacilitationTBT, SPS Measures, Trade Remedies

Trade in Services

Telecommunication

Financial Services

Movement of Natural Persons

Scope of CEPAs7

Chapters Korea CEPA Japan CEPA Singapore CECA

Media / Audio-Visual Coproduction

Investment

Competition

Intellectual Property

Government Procurement

Improvement of Business Environment

E-Commerce

Cooperation (in fields such as education, science and technology etc)

Dispute Settlement

Final Provisions

Key Issues

Tariffs

Reduction in tariffs and trade trends under RTAS

Rules of Origin

Regulatory Issues and India’s preparedness

SPS and TBT

Investment

Competition

Intellectual Property Rights

Government Procurement

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Trade in Goods ‒tariff reduction and trade imbalance

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Source: Author’s calculations, UN COMTRADE WITS Database

Trade balance in India’s favour only with respect to Singapore Trade imbalance risen over 2009-2014 with the rest

Structure of India’s Exports

India’s Exports Classification (2014)

WTO Classification

Korea Japan ASEAN Australia New Zealand China

$ Mn % $ Mn % $ Mn % $ Mn % $ Mn % $ Mn %

Raw Materials 390.2 8 877.2 15 6755.0 22 94.0 4 21.7 7 3187.1 24Intermediate Goods

2220.6 46 1518.0 26 8071.2 26 548.3 21 71.8 22 6784.2 50

Consumer Goods 1839.2 38 2750.9 48 10934.6 35 1694.4 65 205.4 64 2051.9 15

Capital Goods 308.7 6 487.0 8 5397.5 17 253.2 10 20.4 6 1371.3 10

Unclassified 36.1 1 123.8 2 135.9 0 3.7 0 1.0 0 39.8 0

TOTAL 4794.9 100 5756.9 100 31294.2 100 2593.5 100 320.3 100 13434.3 100

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Source: Author’s calculations, UNCOMTRADE WITS Database

Structure of India’s Imports

India’s Imports Classification (2014)

WTO Classification

Korea Japan ASEAN Australia New Zealand China

$ Mn % $ Mn % $ Mn % $ Mn % $ Mn % $ Mn %

Raw Materials 79.4 1 27.9 0 14704.0 33 7317.2 74 485.8 81 587.7 1

Intermediate Goods

6154.6 46 3644.0 37 16032.1 36 2421.0 24 80.8 14 21409.8 37

Consumer Goods 1974.3 15 1022.4 10 5421.4 12 82.8 1 6.3 1 7953.6 14

Capital Goods 4943.6 37 4973.6 50 8099.7 18 100.3 1 25.0 4 26280.9 45

Unclassified 285.4 2 296.1 3 200.3 0 13.4 0 0.6 0 1998.6 3

TOTAL 13437.3 100 9964.0 100 44457.6 100 9934.7 100 598.5 100 58230.5 100

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Source: Author’s calculations, UNCOMTRADE WITS Database

Changes in Export-Import Structure 2009-2014 India has primarily been an exporter of consumer goods, especially to Japan,

Australia and New Zealand during 2009 and 2014.

To Korea: Shift from consumer goods to intermediate goods in 2014

To ASEAN: From intermediate goods in 2009 to consumer goods in 2014

To China: From raw materials in 2009 to intermediate goods in 2014

India has primarily been an importer of:

Capital goods from Japan and China

Intermediate goods from ASEAN

Raw materials from New Zealand during 2009-2014

Korea: Shift from capital goods to intermediate goods

Australia: From intermediate goods to raw materials

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Rules of Origin

India still following conventional Rules of Originin its FTAs

change in tariff classification (this could be at thetariff chapter, tariff heading or tariff sub heading level)

regional value addition

substantial manufacturing or processing by excludingsome minimal operations.

Global Supply Chains functioning without Rules ofOrigin

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SPS and TBT

Standards will be at the cornerstone of global supply chains.

TPP members will focus on harmonizing standards and reduce the need to test their products twice

This will be achieved by agreements on equivalence of standards, mutual recognition of conformity assessment reports and designation of CABs

India’s RTAs do not have well developed features except to some extent in India Malaysia

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contd,…..

What needs to be done in India?

Developing institutional means for low cost conformity assessment

Developing disciplines that reduce the need for further inspections

Adopting international standards, participating in international standard setting bodies.

E.g adopt CODEX standards for agriculture items

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Investment

GVCs

National treatment and MFN for investors for the whole life cycle of investments. This includes in particular pre-establishment of the investment and this is also paired with a negative list approach .

Right to international arbitration for an investment dispute with the host country with no requirement to resort to domestic courts

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Investment

India’s autonomous FDI regime: India has liberalized its FDI regime bybroadening sectoral coverage and raising equity caps with a small negative list.

India has signed 84 bilateral investment treaties (MFN and NT not applied toentire life cycle of investment)

Under CEPA, investment has been included with Singapore, Japan, Korea andMalaysia and in several on-going FTAs

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Investment- Issues

Under CEPA countries have also made commitments related toinvestment under Mode 3.

This web of investment agreements and the provisions therein hasencouraged ‘treaty shopping’

Disputes are being dealt with under different agreements: Vodafoneunder India Netherlands BIT; Sistema under India Russia BIT;Telenor under India Singapore CECA

2003 model BIT revised

Draft BIT 2015

Revised Model BIT adopted in2015

Revised model BIT text

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Contd…

The Draft BIT faced criticism because it revealed a bias towards the Host State and its right to regulate. The Model BIT, has a balanced approach and has managed to strike a balance between the interests of the nation as well as that of investors, both inbound and outbound.

The Model BIT has a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration, and limiting the power of the tribunal to awarding monetary compensation alone.

The model excludes matters such as government procurement, taxation, subsidies, compulsory licenses and national security to preserve the regulatory authority for the Government

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Competition

Competition policy is still evolving in India

India has had a Competition Law since 1969- MRTP Act: to preventconcentration of economic power, control monopolies, and prohibit monopolisticand restrictive trade practices. Consumer protection was brought in through anamendment in 1984.

The Act did not take into account the key attributes of competition such assuch as entry, price, scale, location etc

Competition Act of 2002 was revised to provide a modern framework ofcompetition focusing on four core areas namely anti competitive agreements,abuse of dominant position, combinations, and competition advocacy. Consumerprotection was left outside the purview of this Act.

The Competition Commission of India was set up to enforce the provisions ofthe Act.

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Competition Bill in India

Competition Bill 2007 (Amendment): Enforcement began in 2009

Strengths:

Extraterritorial jurisdiction amended to make it effective to deal with internationalcartels

CCI had the power to deal with dominant undertakings directly, unlike earlier whenCentral Government had the power to do so

Notification of a merger became mandatory instead of voluntary as earlier

Not only the Central Government but State governments were also allowed to seek theopinion of CCI

CCI allowed to act on basis of information received, and not only on the basis of aformal complaint

Weaknesses

Guidance on determining how large the Appreciable Adverse Effect on Competition is, isunsatisfactory

There are exceptions to anti-competitive agreements, e.g IPRs, but there is no clarityin the provisions on this

For predatory pricing, Indian law provides for protection of competitors not competition

Autonomy of CCI is still questionable

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Contd….. Sector driven

Two of the most notable developments in Indian competition law have to do with the CCI's increasing attention to issues in high technology ‒ FRAND (Free, Reasonable and Non-Discriminatory terms for the licensing of Standard Essential Patents) and Search Neutrality. These are concerns that are shared by competitions regulators across the world.

Recently, (1st March 2016) the Department of Industrial Policy and Promotion has released a discussion paper that seeks public comments on many of the issues that the commission is grappling with.

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Intellectual Property Rights

Under India-Korea and India-Japan CEPA IPRs are protected in accordance with theprovisions of the TRIPS agreement

India has TRIPS compliant laws in place

Key concerns include weak protection and enforcement of intellectual property rights

Large scale copyright piracy, especially in the software, optical media, and publishingindustries, continues to be a major problem

In addition, India’s criminal IPR enforcement regime remains weak

India EU negotiations are discussing TRIPS +

India not ready for TRIPS + commitments

Important to strengthen the IPR regime

Now a serious effort to undertake reforms to strengthen the IPR regime in India

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Features of enforcement provisions

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Phenomenon Examples

Expand the scope of TRIPS enforcement regime

Digital enforcement, plant variety rights

Clarify and expand ambiguous TRIPS enforcement provisions

Border enforcement provisions become more specific. E.g provisions on transit control

Do not differentiate the level of exigency depending on the level of development

Provisions are even more demanding in the case of developing economies than developed economies

Government Procurement

India NOT a signatory to WTO Plurilateral Agreement on GovernmentProcurement (GPA); but is an observer.

Enormous scale of public procurement in India ‒ estimates between 20% and30% of GDP

Purchase preference to SMEs and public sector units

General Financial Rules (GFRs) issued by MOF lay down rules and proceduresfor procurement at the Centre level.

Rules framed by individual departments and at state/local levels are basedon their individual interpretations of GFRs

As a result, different procurement practices apply at the centre level and atthe state level

These guidelines have no legal standing and are therefore not enforceable aslaw

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Government Procurement - Issues

Main problem with existing system is lack of transparency

Public Procurement Bill introduced in 2012, but problems in system remain

No standardized tender document- different ministries, agencies follow their own tenderdocument.

According to an estimate, there are more than 150 different contract formats used bythe government and its agencies

Currently bidding follows a two envelope system-

Bidders submit all administrative, qualification-related and technical information in oneenvelope and the price in another envelope

More often than not price envelopes are opened first and a set of lowest bidders areselected

No effective dispute settlement mechanism

New Public Procurement Bill introduced in 2015:

Structure consistent with the UN Commission on International Trade Law model

Geared towards greater transparency, strengthened grievance redressal, competitiveand healthy bidding, and facilitation of free trade talks with other countries

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Government Procurement - Issues

Limited in scope

The jurisdiction of the Bill covers any Ministry/ Department/public sectorundertaking of the Union government, or any company in which the governmenthas a stake of more than 50 per cent. The procurement processes of theStates and the local governments are thus not covered by the Bill.

Design could be improved:

Objectives are too complex which reduces accountability. Objective shouldbe simple.

The procurement process excludes post tendering steps such as contractmanagement, payment monitoring etc.

The bill is not applicable to procurement of less than Rs. 5 million

Implementation challenge concerning skill sets of officials who will be at theinterface of public procurement

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Thank You

Indian Council for Research on International Economic Relations