IB AIFTA Against Section B Group 3&4

8/13/2019 IB AIFTA Against Section B Group 3&4

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Group 3 & 4 (Section B)

Mohit Batra 12P086

Nikhil Gupta 12P087

Pankaj Singla 12P089Amanpreet Singh 12P123

Mayur Srivastava 12P151

Nikhil Rana 12P153

Prateek Nagori 12P155



Introduction The India ASEAN Free Trade Agreement (FTA) was signed

in Bangkok on August 13, 2009 and came into effect from January 1, 2010 with Malaysia, Thailand and Singapore

Expected to be in place with all member countries by 2016

Covers a market of nearly 1.8 billion people and proposesto gradually slash tariffs for over 4,000 product lines.Currently the FTA

Currently restricted to trade in goods while negotiations fora similar agreement for services are currently under way



FTA Provisions National TreatmentThe Agreement stipulates that each Party shall accord national treatment to the

goods of the other Parties in accordance with GATT principles, i.e., domestictaxes and regulations cannot be biased against imports from other Parties

Rules of OriginIn addition to goods wholly obtained or produced in the exporting Party’s

territory, products with at least 35% of AIFTA content are eligible forpreferential tariff treatment

Non-Tariff Measures All Parties are required to avoid the use of quantitative trade barriers, such as

import quotas, and to forgo the payment of export subsidies

Safeguard MeasuresMay be taken by an importing Party if it can demonstrate that its tariff reduction

on a good has resulted in such increased imports of that good so as to cause (orthreaten to cause) serious injury to its domestic import-competing industry



Category of goodsNormal Track

SensitiveTrack

SpecialProducts

Highly SensitiveList

Excluded List

Category1

Category2

Category3

Tariff Reducedto 0%

Reduced to 5%for 50% goodsand 4.5 % forremaining 50%

Reduced by50% fromcurrent baserates

Reducedto 50%

Reducedby 50%

Reducedby 25%

Noreductionin tariffbutsubject toannualreview with a

view toimprovemarketaccess

Deadline December 31,

2019

December 31,2019

December31, 2019

December 31, 2019 N/A



Potential Negative Effects of FTAs Trade Diversion: Possibility of an FTA member country switching its

import supplier from a more efficient (low cost) country to a less efficientmember country resulting in an inefficient allocation of resources

Dumping: Practice of a foreign country selling its product in the homemarket at a price that is lower than its “fair value”.

Unemployment: The reduction of tariff barriers leads to greatercompetition in the domestic market for the imported product leading to loss ofmarket share and laying off of workers in that sector. In the short run, this kindof dislocation can cause considerable hardship to the affected workers

Excessive Dependence: Free trade can result in the shuttingdown of a number of industries that are unable to compete with cheaper

imports. This may lead to excessive dependence on foreign supplies for anumber of commodities – a situation that could have adverse effects if there were a disruption in any of the foreign supplies



Trade Deficit Trade has increased but so has trade deficit

Trade deficit rose from $3.5 billion to $14.5 billion

15% of overall trade deficit of India is on account of ASEAN countries

Between 2005-06 and 2006-07 India's exports to ASEAN grew at 20.67% while imports grew at 66%

Even though India has much higher tariff rates thanthe ASEAN countries



Plantation Industry Thailand imports 9 lakh tonnes of wheat every year

primarily from USA. It has signed an FTA with Australia

Vietnam is a huge importer but India already controls

about 42% of wheat market there 70% demand of Malaysia for wheat is met by Australia

For Kerala, production of all plantation crops(exceptrubber) is lower than that in other ASEAN countries

Cost of cultivation in Kerala is also way higher than thatcultivated in other ASEAN countries





Multiple FTAs and Noodle Bowl Effect

Rules of Origin Issue AIFTA uses only RoO based upon Value Added rule on a mere 35

percent value addition criteria The dilution will significantly impact in light of both the twin criterion

and the 40 per cent VA rule that is operative in the cases of the India-Singapore and India-ThailandNoodle Bowl Effect Complications arising from a country agreeing to grant different levels

of duty concession to a particular imported good from the samecountry under multiple FTA

A product may originate from the partner country under one FTA, itmay not satisfy the rules of origin under another Structuring production processes specifically for each FTA raises

compliance costs as calculating whether a product satisfies the value-added content requirement of an FTA can be cumbersome and requiressophisticated accounting systems.



Impact of China ASEAN Trade Impact

India and ASEAN trade has stagnated under $80 billion, forthe last two years, though the target is $100 billion by 2015

Indian industry claims that it has not benefited much fromthe arrangement because of the neighbouring country’smore liberal trade pact with the 10-member bloc

ASEAN has offered lower tariffs to China under their FTA

implemented in 2010, which gives Chinesemanufacturers an edge in the ASEAN market

Source : FICCI Survey, October 2013



Productivity gain issue (1/3) Disadvantage of Labour

The risk while they don’t have enough ability to compete with other labour to earn and salary. In the year of 2015,compete mean to fight, and to win by the economics. Sothey need a high ability labour to work for the investor

Disadvantage Of Production some nation have a low ability and capacity of export,

these countries might face with the high risk

It mean that all product the people need in those nationalways import from other country to face the demand fortheir people



Productivity gain issue (2/3)

India’s share in ASEAN’s trade is very small. Itconstitutes about 2 per cent of ASEAN’s total trade

Over the last few years India’s imports from ASEANhave been increasing at a faster rate than India’s

exports to the regional bloc India’s tariff levels today are such that the

concessional treatment on offer in the FTA will implydefinite advantages for the ten country regional bloc

1 billion large Indian market that will be opened up tothe ASEAN member countries as a consequence of theFTA



Productivity gain issue (3/3) The future potential for services trade and investment opportunities is large

($150 billion) The state’s role assumes importance in this respect

The Indian government has even come up with various schemes like SPTF(Rs 5 billion) etc.

But there is nothing much happening on the ground



Trade Diversion (1/2) The intra-ASEAN exports only fell in 1998 from 22% to 19% when ASEAN

members prefer to trade with non-member countries When they began to recover from the crisis, the intra-ASEAN trade slowly

increased from 21% of their total exports to the world in 2001 to 23% in 2003 In the early formation of AFTA, the intra-ASEAN export grew by 108 percent,

higher than those to the world and rest of the world which only experience a

growth at a rate 64.2 percent and 72.4 percent



Trade Diversion (2/2) AFTA may be causing some trade diversion and

shifting trade from countries outside the bloc topossibly less efficient countries inside the bloc

Trade liberalization within ASEAN may also lead tofurther trade diversion and to possible welfarereduction in non-member countries (resulting fromthe trade shifting to the members).



Recommendation and Recent

Developments Harmonising the varying rules of origin requirements under

different FTAs for the same products will help in reducing thecost of compliance

Incorporate FTA in services with ASEAN soon where India ismore competitive to reach the trade goal of $100 billion in 2015

Recent Developments

Cabinet Has approved FTA on services in December Last Year

RCEP ( Regional Comprehensive Economic Partnerships), a

grouping of 16 countries comprising 10 ASEAN countries + Australia, China, Japan, Korea, New Zealand and India) will seekto converge the existing ASEAN bilateral FTAs and will insimplifying current tax and regulatory compliance issues

RCEP is expected to be concluded by the end of 2015



Other Impediments to Trade with ASEAN and

India Initiating Business

Source: FICCI Survey , October



Financial and Tax Issues



Regulatory Environment Issues



References http://www.ficci.com/Sedocument/20270/ASEAN-Survey-

Report-24-Oct-2013.pdf http://www.business-standard.com/article/pti-

stories/govt-approves-india-asean-fta-in-services-114021201280_1.html

http://commerce.gov.in/trade/ASEAN-India%20Trade%20in%20Goods%20Agreement.pdf

https://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/India_ASEAN_FTA.pdf

http://www.ipcs.org/pdf_file/issue/IB116-SEARP-BatraFTA.pdf

http://commerce.gov.in/trade/ASEAN-India%20Trade%20in%20Goods%20Agreement.pdf