New rules for Asean FTA in July
OUR ECONOMY BUREAU
Saturday, June 11, 2005
NEW DELHI, JUNE 10: India will formulate a new set of rules of origin (ROO) for its free trade agreement (FTA) with the Association of South East Asian Nations (Asean) by mid-July. ROO is a safeguard to prevent third countries from taking advantage of FTA between two other countries. Asean had rejected India’s twin criteria of determining ROO which it generally uses in its various FTAs with other countries.
Addressing an interactive session organised by Ficci on Friday, chairman of the expert group on preferential rules of origin PRV Ramanan said the group would round off consultations with the industry by June-end and will be ready with its new formulation by mid-July.
ROO is a vital component in any FTA as it determines the country of origin of products to be traded. If a product does not satisfy the ROO criteria then it is deemed as originating from a third country and cannot be traded under the FTA.
The two criteria being followed by India are the value addition method and change in tariff heading (CTH). The Asean countries use the value addition method which specifies a minimum percentage of value addition to be achieved with domestic inputs to make a product eligible for concessional treatment under FTA.
RULES OF ORIGIN
What India wants
• Twin criteria of value addition and change in tariff heading to determine products eligible for FTA concessions
What Asean seeks
• Just one criteria, specifying a minimum percentage of value addition to be achieved with domestic imports
However, India feels that the value addition method is not adequate as high wage rates or high rent can increase the product value even without substantial physical addition. To prevent this, India has been insisting on the change in tariff heading method, under which a product has to fall into a different tariff heading than the imported inputs used in its production.
Asean had not agreed to India’s suggestion of applying the twin criteria on a list of items under the early harvest programme and the programme had to be dropped.
If India agrees to Asean’s approach on ROO, it would have to apply only the value additionnorm as against the twin criteria.