Group 3 & 4 (Section B) Mohit Batra 12P086 Nikhil Gupta 12P087 Pankaj Singla 12P089 Amanpreet 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 proposes to gradually slash tariffs for over 4,000 product lines. Currently the FTA Currently restricted to trade in goods while negotiations for a similar agreement for services are currently under way

FTA Provisions
National Treatment The Agreement stipulates that each Party shall accord national treatment to the goods of the other Parties in accordance with GATT principles, i.e., domestic taxes and regulations cannot be biased against imports from other Parties Rules of Origin In addition to goods wholly obtained or produced in the exporting Partys territory, products with at least 35% of AIFTA content are eligible for preferential 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 Measures May 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 (or threaten to cause) serious injury to its domestic import-competing industry

Category of goods
Norma l Track
Tariff Reduced to 0%

Sensitive Track
Reduced to 5% for 50% goods and 4.5 % for remaining 50%

Special Products
Reduced by 50% from current base rates

Highly Sensitive List

Category 1 Category 2 Category 3

Exclude d List
No reduction in tariff but subject to annual review with a view to improve market access

Reduced to 50%

Reduced by 50%

Reduced by 25%

Deadline

Decem ber 31, 2019

December 31, 2019

December 31, 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 efficient member country resulting in an inefficient allocation of resources market at a price that is lower than its fair value.

Dumping: Practice of a foreign country selling its product in the home Unemployment: The reduction of tariff barriers leads to greater
competition in the domestic market for the imported product leading to loss of market share and laying off of workers in that sector. In the short run, this kind of dislocation can cause considerable hardship to the affected workers down of a number of industries that are unable to compete with cheaper imports. This may lead to excessive dependence on foreign supplies for a number of commodities a situation that could have adverse effects if there were a disruption in any of the foreign supplies

Excessive Dependence: Free trade can result in the shutting

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 than the 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(except rubber) is lower than that in other ASEAN countries Cost of cultivation in Kerala is also way higher than that cultivated in other ASEAN countries

Multiple FTAs and Noodle Bowl Effect

KeyWords Trade Deflection Redirection of international trade due to the formation of a free trade area With the tariffs removed between the other countries an Exporting company would simply export all the goods for the Free Trade Area Market into the country with lowest external tariff Rules of Origin Used in determining the country of origin of the goods for preferential tariffs and to stop trade deflection India's FTAs usually employ the twin criteria of value-added content and change in tariff Heading to determine the origin of goods that are not wholly produced or obtained in the territory of the FTA parties Value Added (VA) Content Rule Specifies that a certain specified minimum percentage of local content be added to a product in the country where the origin is being claimed Drawback : High wage rates or high rent can increase the product value even without substantial physical addition. Change in Tariff Heading (CTH) Rule the final good obtained from the manufacturing or processing operation should be classified in a heading which is different from the headings of all non-originating inputs used in the manufacturing / processing in order to be eligible for duty concession

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 IndiaSingapore and India-Thailand Noodle Bowl Effect Complications arising from a country agreeing to grant different levels of duty concession to a particular imported good from the same country under multiple FTA A product may originate from the partner country under one FTA, it may 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 valueadded content requirement of an FTA can be cumbersome and requires sophisticated accounting systems.

Impact of China ASEAN Trade Impact

India and ASEAN trade has stagnated under $80 billion, for

the last two years, though the target is $100 billion by 2015 Indian industry claims that it has not benefited much from the arrangement because of the neighbouring countrys more liberal trade pact with the 10-member bloc ASEAN has offered lower tariffs to China under their FTA implemented in 2010, which gives Chinese manufacturers an edge in the ASEAN market

Source : FICCI Survey, October 2013

Productivity gain issue (1/3)

Disadvantage of Labour The risk while they dont 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. So they 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 nation always import from other country to face the demand for their people

Productivity gain issue (2/3)

Indias share in ASEANs trade is very small. It

constitutes about 2 per cent of ASEANs total trade Over the last few years Indias imports from ASEAN have been increasing at a faster rate than Indias exports to the regional bloc Indias tariff levels today are such that the concessional treatment on offer in the FTA will imply definite advantages for the ten country regional bloc 1 billion large Indian market that will be opened up to the ASEAN member countries as a consequence of the FTA

Productivity gain issue (3/3)

The future potential for services trade and investment opportunities is large ($150 billion)
The states 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 to possibly less efficient countries inside the bloc Trade liberalization within ASEAN may also lead to further trade diversion and to possible welfare reduction in non-member countries (resulting from the 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 the cost of compliance Incorporate FTA in services with ASEAN soon where India is more 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 seek to converge the existing ASEAN bilateral FTAs and will in simplifying 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/ptistories/govt-approves-india-asean-fta-in-services114021201280_1.html http://commerce.gov.in/trade/ASEANIndia%20Trade%20in%20Goods%20Agreement.pdf https://www.deloitte.com/assets/DcomIndia/Local%20Assets/Documents/India_ASEAN_FTA.pdf http://www.ipcs.org/pdf_file/issue/IB116-SEARPBatraFTA.pdf http://commerce.gov.in/trade/ASEANIndia%20Trade%20in%20Goods%20Agreement.pdf