FTA partners unhappy with Indian ROR rider

Economic Times, India, 11 July 2005

FTA partners unhappy with Indian ROR rider

MAYUR SHEKHAR JHA

NEW DELHI: India is under pressure from the Asian countries for relaxation in the rules of origin, commonly referred to as RORs.

The government has recently signed a free trade agreement (FTA) with Singapore, but it is believed that the latter is not happy with the stringent rules of origin imposed by India. Similarly, there has also been a growing pressure from countries like Sri Lanka and Thailand, with whom India had signed FTAs in the past.

Rules of origin defines the minimum local content or value addition for manufactured goods to enjoy the duty benefits of a free trade agreement. For example, ROR rules under Indo-Thai FTA, mandates that a manufacturer in exporting country must add a minimum value of 40% to an imported commodity, before exporting the finished product. In case of Indo-Singapore, minimum value addition requirement is 60%.

Government fears that if ROR norms are not diluted, the proposed investments from Singapore may not materialise. Indian businessmen, however, are against any dilution.

To find a practical solution to this crisis, the commerce ministry has called a meeting of various chambers of commerce on July 13. According to sources, the ministry is expected to come out with a twin formula to resolve the crisis. Various trading commodities listed in the FTA could be classified under two heads-sensitive sectors comprising products related to defence, telecom, power, petroleum etc, and non-sensitive sectors comprising fast moving consumer goods.

Whereas, there will not be any dilution in rules of origin for sensitive products, value addition may be withdrawn from non-sensitive ones.

This has put the chambers in a tight spot as they don’t know which of the two proposals to support. All the chambers have membership from companies operating in both ‘sensitive’ and ‘non-sensitive’ sectors.

Supporting the government line will harm domestic FMCG companies manufacturing personal care and daily consumption goods such as soaps, shampoos, detergents and processed food. Relaxation in the ROR could potentially turn India’s FTA partners such as Thailand, Singapore and Sri Lanka into re-export hubs for cheap FMCG products from other South East Asian countries including China.

The ball is however in the commerce ministry court at the moment and all eyes are focussed on next week’s meeting.

source: Economic Times