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Bilateral Trade Agreements:

Issues and Concerns for India


Bilateral Trade Agreements: Issues and Concerns for India

C 2005 Equations

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Bilateral Trade Agreements: Issues and Concerns for India

Table of Content
1.0 Background _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 5
1.1 Unraveling the complex rationale of RTAs _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 8
1.2 Rising interest seen for giant Asia-pacific free trade pact _ _ _ _ _ _ _ _ _ _ _ 9
1.3 US, Australia finalise free trade pact _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 10
1.4 A new form of regionalism — South-South trade _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 10
2.0 India’s exploits! _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 12
2.1 Singapore, India to sign pact after Asean meet _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 15
2.2 India, Chile sign Framework Agreement on Economic Co-operation _ _ _ _ 15
2.3 Build institutional capacities for greater trade creation _ _ _ _ _ _ _ _ _ _ _ _ 16
2.4 Tread with caution for a credible benefit-risk balance _ _ _ _ _ _ _ _ _ _ _ _ _ 18
2.5 Safta will anchor Indo-Pak rapprochement: World Bank _ _ _ _ _ _ _ _ _ _ _ 19
2.6 Let’s go on a long drive _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 19
2.7 “India’s Political Stability Is A Great Asset” _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 21
2.8 Finland seeks to boost biz ties with India _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 22
2.9 India, US discuss FTA on services _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 22
2.10 New opportunity in Latin America _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 23
2.11 AP ryots to till land in Africa _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 24
3.0 Millstones before reaching Milestones _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 25
3.1 Fools rush in where angels fear to tread _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 27
3.2 ‘Attractive’ partner, but look before the plunge _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 28
3.3 Think-tanks lock horns over FTAs _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 31
3.4 US Opposes Limited FTA with India _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 31
3.5 Phase II of Indo-Thai FTA talks hit ROO bump _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 32
3.6 Singapore Ceca hits a roadblock _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 33
3.7 India turns down Mauritius FTA proposal _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 34
3.8 India to align ROO on ASEAN model _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 35
3.9 Indo-Malaysian pact to be tightened on treaty shopping _ _ _ _ _ _ _ _ _ _ _ 35
3.10 FTA with Gulf hits a roadblock _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 36
4.0 FTAs: A ‘win-win situation’? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 37
4.1 Cheap Sri Lankan imports hurt local copper markets _ _ _ _ _ _ _ _ _ _ _ _ _ 38
4.2 Anti-dumping duty on Chinese raw silk hits domestic units _ _ _ _ _ _ _ _ _ 39
4.3 Duty cuts to help auto cos absorb FTA shocks _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 40
5.0 Bilateralism/Regionalism vs. Multilateralism _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 41
5.1 Regional pacts threaten global trade talks _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 42
5.2 WTO hampered by ’spaghetti bowl’ deals _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 43
Bilateral Trade Agreements: Issues and Concerns for India

5.3 There are many promises to keep _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 44


5.4 A decade of influence and growth _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 45
5.5 ‘Go the whole hog on regional trade ties’ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 46
5.6 Don’t go whole hog on FTAs: Supachai _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ 47
5.7 India, WTO lock horns over FTAs _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 47
5.8 All FTAs to go beyond trade _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 48
6.0 Sulfurous Denunciation _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 49
6.1 An India-US FTA: Free Trade for America? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 49
6.2 Investment: NAFTA illegal? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 53
6.3 Stop the mad pursuit of bilateral free trade and economic partnership agreements! _ 56
7.0 Conclusion _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 59
Bilateral Trade Agreements: Issues and Concerns for India 5

1.0 Background

It is not very difficult to see how the concept pursued totally free trade policies, with virtually
of international trade agreements came up. Till no tariff or trade barriers. The other countries of
about a century back, free trade was as free as it the region adopted interventionist although
ever has been. Britain, being the supreme power market-friendly policies, to varying degrees.
then, traded unbridled with all its colonies and Whatever be the case, trade agreements signed
accumulated phenomenal riches. The industrial with other countries never figure as a probable
revolution of the late 18th century had put Britain reason for the miracle. It was internal policies that
at an incomparable advantage. However, the start raised the national GDPs and the standards of
of the twentieth century saw the momentum of living like never before. Similar policies adopted
British imperialism dying down; the colonies were by some Latin American countries were not
still there, but the British found themselves unable sustained.
to control them – politically or economically. By Once the entire breadth of the continent was
the time the World Wars were over many of the covered, USA soon moved to countries in other
British colonies wanted their sovereignty back. continents, hungrily swallowing up their markets
Before the end of the 19th century, the United with its now efficient manufactures. No trade
States had already caught up with the technology barriers were in place then and their need was
and the economic efficiency that comes with it. beginning to be felt by the political leaders of many
The assembly line system of Ford Motor Company of the Third World countries. These governments
was an exemplar of the American industrial used their newly acquired sovereignty to erect
revolution. The world wars only put a confirmatory barriers to trade with the developed world that
seal on the American victory. was starting to be seen as the villain. This caused
Soon after, the East Asian countries opened countries to become very cautious of the trade
their doors to foreign competition. Their policies that they adopted. It was now obvious
performance over the next four decades shocked that mimicking the East Asian development
the rest of the world. Various reasons are ascribed strategy is not the answer to their economic
to this ‘miracle’, the most common ones being problems.
outward orientation, macroeconomic discipline, The Bretton Woods conference of 1944 had
high savings and investment rates, etc. But a closer given birth to the Fund-Bank duo that was meant
look reveals that only Honk Kong and Singapore to assist the devastated post war world in the
6 Bilateral Trade Agreements: Issues and Concerns for India

process of economic recovery. The large-scale embodies the principle of non-discrimination and
structural adjustment programmes prescribed by has been the cornerstone of trade liberalisation
them incited the masses in all the concerned since the Second World War. For many developing
developing countries. Not much was changing in countries this may seem like a risky proposition.
the developing world’s standard of living. In fact, Compared to this, they may see an agreement
economic inequalities increased and the situation signed with one other country or a small group of
of the people below the poverty line worsened. neighbouring countries as not only less dangerous,
Dumping of American goods was hampering but also beneficial. Policy makers may study the
growth of the domestic industry; the help of trade trade prospects with the potential partner and set
barriers was sought. the guidelines accordingly. The proliferation of
Sensing this urgent need for protection, bilateral trade agreements over the past year by
developing countries erected various tariff and both the developed and developing world,
non-tariff barriers to trade with the outside world. demands attention.
The most common argument used in favour of Two of the largest trade agreements outside
such protection was the ‘infant industry’ argument the WTO’s multilateral framework are the
- that protection from competition must be granted agreements establishing the European Union (EU),
until such a time that domestic industry can grow and the North American Free Trade Agreement
out of the initial teething troubles and be able to (NAFTA). These account for a major proportion
face stiff competition – domestically and from of world trade carried out under the FTA banner.
abroad. Although this argument was structured The idea of European integration was first
in the context of newly independent developing proposed by the French Foreign Minister Robert
economies, it is often resorted to even by the Schuman in a speech on 9 May 1950 to prevent
developed world whenever free trade has killing and destruction like in Second World War.
threatened certain sectors of their domestic As a result, the European Coal and Steel
economies. In academic circles, inside and out of Community (ECSC), European Atomic Energy
the GATT/WTO, such conservative policies have Community (EURATOM) and the European
always been frowned upon on the grounds that Economic Community (EEC) were set up with six
they were trade distorting; liberal trade policies members: Belgium, West Germany, Luxembourg,
were propagated as a remedy. To end such France, Italy and the Netherlands. By adding inter-
protection and bring down barriers to trade is the governmental co-operation to the existing
essence of the free trade argument. "Community" system, the Maastricht Treaty (1992)
The two routes that any country can take to created the European Union (EU). The EU has
freer trade are – the multilateral, through the WTO, progressed from being a free trade area, to a
and at a bilateral/regional level where trading monetary union and is today the largest political
partners can be chosen. In the last decade, the union in the world. Where this may lead in the
emergence of the WTO as the multilateral forum future is only left to imagination. Starting with six
professing free trade has eclipsed the importance members, it now has a membership of 25 and is
of regional trade agreements. However, the slow presently negotiating trade agreements with
progress of multilateral negotiations and various third parties, having concluded agreements
developing countries’ scepticism about their with at least ten1.
potential gain has led them to revert to regionalism NAFTA is a regional agreement between
and bilateral agreements. One significant reason Canada, Mexico and the United States of America
for this is that once they sign an agreement to implement a free trade area. It was signed in
proposed in this multilateral forum, their economy December 1992 and entered into force in January
must be open to trade with all the other 147 1994. There are voices that cite NAFTA as a
member countries. This is the essence of the Most successful example of an FTA, but there is an equal
Favoured Nation (MFN) Treatment, which number, if not more, violently against it. NAFTA,

1 europa.eu.int
Bilateral Trade Agreements: Issues and Concerns for India 7

dubbed a “death sentence” for Mexico’s deep analysis, as it contradicts with the official
campesinos and Indigenous Peoples, has led to position of loyalty to the WTO system. The Indian
strong and sustained resistance from a broad representatives have a duty to the Indian citizens.
spectrum of Mexico’s population. And the Indian citizens have not only a right but
Over the last one year, India – not to miss the also a duty towards the leaders to make their
trade agreements bandwagon – has entered or is opinions heard and heeded. This publication aims
negotiating at least 25 bilateral and regional trade to assist in the making of an informed decision in
agreements with many parts of the developed and this regard.
developing world. Policy makers, economists and In the pages that follow, information that is
analysts in academic circles see this as an efficient relevant to a clearer understanding of the bilateral
and probably the only way to put their countries trade agreements, the multilateral trade agenda,
on the fast track to growth. It is widely and where India stands in the international
acknowledged that liberalisation in the present economic order, is collected, and presented as an
world is unavoidable, as are its influences on every assistance tool. The first article talks about the
section of the economy. What there is considerable general nature of bilateral or regional agreements
disagreement about, though, is whether these and how they are structured. It touches upon most
influences are negative or positive. For a country of the issues that will be presented in the course
as large and diverse as India, it is not possible to of this dossier and forms a basis for an informed
make any statements that are at all very broad in reading on this issue. The gravity of the situation
their scope. The traditional theoretical reasons becomes evident from a few reports of agreements
given for countries entering into free trade in the rest of the world. Then, the 25
agreements comes from David Ricardo’s theory bilateral/regional agreements that India is
of comparative advantage first published in his negotiating are listed out, followed by more
1817 work, ‘On The Principles of Political Economy detailed reports of a few major ones that highlight
and Taxation’. It argues that free trade allows a specific problems in the negotiating process. Issues
country to consume a larger quantity and better like consensus among lobbies and research bodies,
quality of goods and services. Through imports, rules of origin and treaty shopping are brought
a country can acquire goods and services that it out here. Some of these concerns are presented.
either cannot produce at home or can, only at a Since the beginning of the trend of entering
cost that is too great, greater than that of BTAs/RTAs, there has been a conflict between the
exchanging them for the exports it produces multilateral and the bilateral frameworks – between
cheaply and efficiently at home. It is clear enough, the WTO and its member countries. The press
though, to the discerning eye, that political needs releases presented regard these conflicts. The
and ambitions drive many agreements. problems that these trade agreements create are
The right to information warrants a closer aggressively fought against by activist groups
scrutiny of the ostensible rationale behind free together with the sufferers. The articles selected
trade agreements, the one projected in press are primarily from newspapers; some research by
releases. The urgency of this need makes itself quasi-government bodies has been used as
evident in the light of the fact that the year just conjunctive material (for reasons of space, the
passed has seen many changes in the brand of entire text of these papers is not produced here,
growth faith that the government adheres to. but a citation directs the interested reader to the
International relations are seen to benefit the original article). Important sections of these articles
country primarily through freer trade. The current are in Bold. Square brackets [ ] contain comments
year is one when a lot of these changes are expected from the compilers.
to be concretised at the WTO’s 6th Ministerial
Meeting in Hong Kong. The surge of FTAs that
the Indian government has entered into requires
8 Bilateral Trade Agreements: Issues and Concerns for India

1.1 Unraveling the complex rationale of RTAs


These can impact development and trade only if domestic policies are supportive
The Financial Express - Insight - REGIONAL TRADE AGREEMENTS, Bangalore, Wednesday, November 3, 2004

CHARLOTTE export to RTA member


SEYMOUR-SMITH countries as well as countries
outside of the RTA. They say
Proliferation of regional trade creation is unlikely if
trade agreements (RTAs) has members of the RTA are
been a striking development Preferential Trade Free Trade Customs Union Common Market Economic Union small in relation to the
in the world’s trading systems Agreements Area Common level of Free movements Integrating national outside world. Consequently,
Partial preference to Elimination of all trade barriers of factors economic policies trade diversion is likely to be
since the mid-1990s. trading partners tariffs, QRs and vis-a-vis of production and a common
According to the World Trade NTBs non-members currency the more dominant effect.
Organisation (WTO), some In practice, trade
250 RTAs are in force, and agreements that provide for
the number might well comprehensive liberalisation
approach 300 by the end of of trade across all major
2005. Preferential/reciprocal sectors and non-restrictive
trading agreements The Integration Cake rules of origin are more likely
reportedly cover as much as to be successful.
two-fifths of world trade. Proponents of RTAs
complex underlying preferences. Needless to say, argue that they help nations
RTAs are defined as
rationales, rooted in foreign an RTA would be welfare- gradually work towards
groupings of countries
policy and in development enhancing only when its trade global free trade by
formed to enter into
policy. But in nearly all creation effects outweigh its allowing countries to
preferential trading
cases both politics and trade diversion effects. increase the level of
arrangements with each
economics are important. The relative dominance competition slowly and give
other. These groupings may
Economists analyse the of the two effects has been domestic industries time to
be of countries not
welfare impact of RTAs in debated among economists adjust.
necessarily belonging to the
terms of ‘trade creation’ and for several decades now. A Opponents of RTAs
same geographical region.
‘trade diversion’. Trade group of economists led by point at the whole range of
RTAs, depending level of
creation occurs when an RTA Lipsey (1957), Summers problems to do with defining
integration, can be divided
member switches from (1991) and Krugman (1991) and policing rules of origin
into five categories (see
inefficient domestic argue that risk of trade (ROOs) in any RTA to
chart). A majority of RTAs
producers to lower cost diversion is minimal in the prevent goods produced
fall into what is described as
producers in other RTA case of formation of RTAs outside of the RTA obtaining
shallow integration i.e. PTAs
member-countries. But the among geographically preferential duties through a
(e.g., Sapta) or FTAs (e.g.
problem is that these lower proximate countries, with
Safta and Nafta). Deep member country.
cost producers may not be high trade dependence
integration agreements are Proliferating RTAs can
the world’s lowest cost among each other. Another
only a handful i.e., custom impose tremendous burden
producers. This leads to trade group of economists, led by
unions (e.g. Mercosur), on customs administration
diversion, which occurs when Bhagwati (1995) and
common markets (e.g., and they do absorb scarce
low cost imports from Panagariya (1996), however,
Comesa) and economic negotiating resources,
countries outside of the RTA argues that trade diversion
unions (the EU). especially in poorer
are replaced by higher cost is inevitable because trade is
Proliferation of RTAs countries, and crowd out
imports from partner by nature multilateral i.e.,
highlights differing but countries import from and
countries because of tariff
Bilateral Trade Agreements: Issues and Concerns for India 9

policy-makers attention from has increased substantially. boost to intra-regional trade. the proliferation of RTAs on
multilateral trade The share of inter- In the absence of substantial development and multilateral
negotiations. regional trade for Asean comparative advantage, they trade liberalisation. The
Trade performances in remained fairly flat over the are better off trading with the evidence does indicate a
several RTAs (Nafta, EU, 1990s. An interesting aspect, rest of the world than tactical behaviour in trade
Mercosur, and Sapta) show however, is that except for amongst themselves. negotiations that may lead to
substantial increase in inter- Mercosur, all RTAs that have H o w e v e r, d e v e l o p i n g additional incentives for
regional trade. The share of experienced an increasing countries are likely to gain greater liberalisation.
intra-Nafta trade rose from share of inter-regional trade from the economies of scale On balance, trade policy
less than 35% to nearly 50% have also witnessed a resulting from regional also requires a sound
between late 1980s and 1999. growing share of extra- integration. Schiff and domestic policy framework
Trade between Mercosur regional trade in GDP — an Winters argue that the small for success. Entrepreneurs
members doubled to 20% indication, perhaps, that size and closed structure of can take advantage of new

* Created version of the original article.


over the same period. The openness to trade and many developing countries market access opportunities
evidence from Africa, expansion of inter-regional means that there is scope for — whether they flow from
however, is mixed — trade go hand-in-hand. more fully exploiting bilateral, regional or
regional integration among The literature seems to economies of scale and for multilateral trading
Comesa has been static, suggest that if the member- removing local monopoly arrangements — only if the
whilst trade for Ecowas countries are similar and power. domestic investment climate
[Economic Community Of produce simple final In short, theoretical is supportive.
West African States] and products, typically labour- literature and empirical The writer is minister
SADC [Southern African intensive, free trade amongst studies provides mixed (development) and head,
Development Community] them is unlikely to give a big evidence about the impact of DFID India

1.2 Rising interest seen for giant Asia-pacific free trade pact
The Economic Times, Bangalore, Thursday, November 18, 2004

Wellington a report from the Chilean year. It’s a bit radical for negotiations on trade
November 17 capital of Santiago where he some of the members to liberalisation. The APEC
is attending meetings to set digest all at once ... it’s the proposal could also provide a
the stage for the Asia-Pacific sort of idea that will be a plan ‘B’ if the current round
PROPOSED giant
Economic Co-operation source of discussion and of World Trade Organisation
Asia-Pacific free trade pact,
(APEC) summit later this analysis for a year or two”. negotiations failed to reach a
encompassing 60% [of] the
week. Sutton said the basis of conclusion, he said.
w o r l d ’s e c o n o m y, i s
“We’re talking about a the proposal was that the pact APEC comprises Australia,
attracting significant
free trade area of the Asia- would be open to any Brunei, Canada, Chile, China.
* Created version of the original article.

interest at the top levels of


Pacific that includes 60% of member country to join and Hong Kong, Indonesia, Japan,
APEC but is unlikely to be
the world’s economy because those who did not want to South Korea, Malaysia,
adopted this year, New
it includes the United States, would not have to. Mexico, New Zealand, Papua
Zealand Trade Negotiations
Canada, Japan, China, Korea “It would be a ‘coalition New Guinea, Peru, the
Minister Jim Sutton said on
and other big players,” Sutton of the willing,’ if you like, for Philippines, Russia.
Wednesday.
said. trade liberalisation”. Sutton Singapore, Taiwan. Thailand,
The proposal has been
“There’s a lot of said that the proposed pact the United States and Vietnam.
mooted by APEC’s business
interest in this proposal would avoid the need for – AFP
advisory council, a private
although I sense it isn’t consensus that is holding up
sector group, Sutton said in
going to be adopted this World Trade Organisation
10 Bilateral Trade Agreements: Issues and Concerns for India

1.3 US, Australia finalise free trade pact


The Economic Times, Friday, November 19, 2004

Santiago (Chile) 1988. Australia has ever subsidies world-wide.


18 NOVEMBER Trading in goods and concluded,” Vaile said at a Zoellick said he met Vaile
The United States and services between both nations news conference at the APEC on Wednesday and completed
Australia settled last-minute totalled nearly $29 billion in Forum. the detail.
differences over a free trade 2003, marking a 53% “It will deliver real “By opening markets for
deal Wednesday, concluding increase since 1994 as benefits to all sectors, across goods and services, promoting
an agreement to take effect Australia took in US all states and territories”. investments and enhancing
in January 2005 that would manufactured aircraft, Over 97% of Australian protection for intellectual prop-
add billions of dollars in new automobiles, auto parts, exports to the United States erty ... this agreement will
trade benefits for both computers, machine, wood will be duty-free from next create real economic
nations. and other products. year, Vaile said. opportunities in both the
The deal was announced The agreement had He added that he United States and Australia for
on the sidelines of the annual been held up at the expected the deal to add more businesses, farmers, ranchers
Asia Pacific Economic Co- negotiating table by US than 30,000 jobs and an esti- and workers,” Zoellick said in
operation forum, being held concerns over Australia’s mated annual benefit of $6 a statement. Zoellick noted

* Created version of the original article.


in Santiago, by Australian price protection on billion for Australia’s earlier US concerns about
Trade Minister Mark Vaile pharmaceuticals and economy. Australia’s protections of
and US Trade Representative copyright laws. Australia is one of the intellectual property, but said
Robert Zoellick. But officials said they world’s largest exporters of those had been surmounted.
The US-Australia Free settled differences without farm products and Vaile said Australia has committed
Trade Agreement is the first reopening negotiations that he wants APEC ministers to to take steps, including
‘FTA’ between the United began in March 2003 and discuss a World Trade legislative and regulatory
States and a developed concluded last February. Organisation framework set changes, to address these
country since the US-Canada “this is the most out in July that aims to issues”. —AP
Free Trade Agreement in important bilateral deal that eliminate agricultural export

1.4 A new form of regionalism — South-South trade


It can result in virtuous circles where increased trade flows reduce unit costs of transport
and insurance

The Financial Express - Insight - REGIONAL TRADE AGREEMENTS, Bangalore, Wednesday, November 3, 2004

VEENA JHA countries, rising from 34% Raison d’etre: South- number of sectors,
in 1990 to around 40% South trade as well as the exporters from developing
There has been renewed toward the end of the decade. interest in South-South countries continue to face
and growing interest in Second, the number of South- trade agreements can be problems of market access
South-South trade South regional trade explained by a number of on account of tariff and
cooperation. First, there has agreement (RTAs) has been factors: non-tariff barriers in
been continued growth in the increasing rapidly in recent • Despite liberalisation developed countries.
share of South-South trade years and is expected to under Gatt/ World Trade • South-South RTAs
in total trade of developing increase further. Organisation (WTO), in a offer opportunities for
Bilateral Trade Agreements: Issues and Concerns for India 11

economies of scale and gradual integration of regional component of 12%. expansion of intra-regional
specialisation. developing countries into Wi t h r e s p e c t t o a l l trade, potential of South-
• Exploring opportuni the global economy. South- commodities, developing South cooperation through
-ties for increased trade South integration could countries absorb 46% of the GSTP in expanding inter-
with other developing lead to the removal of total exports of other regional trade, and the
countries, in particular several invisible trade developing countries. These potential of RTAs to address
those with high growth barriers, such as border figures suggest that there is supply-side constraints.
rates, makes developing norms, customs formalities, scope and potential for intra- Models of open regionalism
countries less vulnerable to testing and other trade and inter-regional South- which are inclusive, outward-
movements in demand in facilitation measures. South trade that needs to be looking and trade-creating
developed countries, their Challenges to S-S tapped for optimising the need to be explored.
traditional markets. agreements: Many South- development gains from Deepening integration among
• Changes in industrial South RTAs are yet to exploit trade. developing countries can
and market structures have their full potential by One interesting question, provide further opportunities
made developing countries effectively implementing however, is whether the for enhanced South-South
more competitive vis-a-vis their internal liberalisation geographical distance factor trade. Increased attention
developed countries, programmes and by would outweigh such should be given to the
including in developing encompassing a wider range advantages, if any. It has been liberalisation of services,
country markets. of economic objectives and argued that countries that are investment and labour
• Market dynamism in deeper integration agenda. geographically contiguous or markets; harmonised trade
the South for both capital Protectionism may occur proximate are “natural” remedy policies; rules of
goods and consumer goods, not only through tariffs, but trading partners because of origin, and technical
combined with also through trade-related lower transport costs regulations and standards.
demographic factors, policies such as anti- compared with the rest of the This requires building trade
would indicate a shift in competitive practices, world. But transportation and financial institutions and
growth centres to standards and restrictions on costs need not be a crucial strengthening technological
developing countries. capital and labour mobility. factor. and scientific cooperation.
• Enhanced South- These appear to remain Ways forward: South- Also, South-South
South trade also serves as significant barriers to South trade cooperation cooperation may result in
a basis for coordinating regional trade. In this context, through the Global System virtuous circles where
negotiating positions and the major challenge facing of Trade Preference among increased trade flows reduce
advancing issues of interest developing countries is to developing countries (GSTP) unit costs of transport and
to developing countries in design an appropriate form provides a promising insurance.
multilateral forums, such of regional integration and complementary avenue for
as the WTO. closer cooperation while developing countries to The writer is media
South-South trade ensuring their effective liberalise and expand South- coordinator, UNCTAD, Delhi
offers possibilities for implementation. South trade, in particular on
spillovers of knowledge, While South-South trade an inter-regional basis. An
technology and sharing of remains predominantly intra- Unctad secretariat study
* Created version of the original article.

experiences and strategies regional, particularly in estimates that a 30%


among developing manufactured goods, the reduction in tariffs among
countries. A recent Unctad inter-regional component is GSTP members would result
study concludes that most assuming dynamism. In in an increase in GSTP trade
South-South RTAs have agricultural products, the by $7.5-8.5 billion ($15-18
been trade-creating. The intra-regional component is billion in case of a 50%
study suggests that regional 73%, whilst the inter-regional reduction).
and sub-regional South- component is 27%. South- Important issues that
South RTAs could be used South trade in manufactured need to be addressed include
as a mechanism for the goods has a smaller inter- the elements impeding the
12 Bilateral Trade Agreements: Issues and Concerns for India

2.0 India’s exploits!

India’s history of bilateral/regional trade pacts that more than the formal provisions of the trade
till about two years back was rather sparse. The treaty, the open border with India makes Nepal
only two FTAs negotiated and in force were ones unable to protect its infant industries from the
with Sri Lanka (effective since March 2000) and a competition. In fact, India enjoys de-facto free
long-standing one with Nepal (signed in 1996). access to the Nepalese market due to the open
Sri Lankan exports to India reached the highest border accompanied by the latter’s low tariff level
ever value of Rs 16,153 million (US $ 167.7 million) and the virtual absence of non-tariff barriers.
in 2002 – far exceeding the Rs 6,266 million (US $ Nepal’s many textile industries closed down in
69.4 million) worth of exports in 2001 – an recent years due to substantial flow of unofficial
impressive growth of 158 per cent (142 per cent in and unrecorded imports from across the open
US $ value)2. It is a matter of some debate if all border with India. For this reason, the real influence
this increase can be attributed to the FTA. But there of this FTA is difficult to ascertain. Under the treaty
are concerns being voiced by researchers and terms, either country can export goods to the other,
industry lobbies in both countries about the copper without respect to the origin of raw material inputs
industry. The Indian Industry’s stand is that cheap in the process, as long as there is some local value
imports of copper from Sri Lanka have flooded added in manufacturing. Second, the negative list
the Indian market leading to a drastic reduction is relatively very small. Nepal’s many textile
in the market share of local manufacturers. This industries closed down in recent years due to
is significant in that it was the ISFTA that caused substantial flow of unrecorded imports from across
a large number of copper industries to mushroom the border. A larger and more powerful country
in Sri Lanka to cater to the growing Indian demand; like India has a clear advantage in a trade
at least 30 projects are currently operating in Sri agreement with a country as small as Nepal3. It
Lanka, mostly controlled by Indian entrepreneurs. must be noted then that countries that are larger
There are complaints that the copper being than India, economically, may take advantage of
imported into India are not undergoing the such bilateral agreements just so. Diplomatic arm-
requisite value addition for rightful classification twisting is possible at all levels of economic growth.
as Sri Lankan copper. These cases highlight that India’s attempts at
In the case of Nepal, it should be emphasised securing free trade with Sri Lanka and with Nepal

2 Sri Lankan Exports to India: Impact of Free Trade Agreement, July 26, 2003, Saman Kelegama
3 http://www.nepalnews.com.np/contents/englishdaily/ktmpost/2001/apr/apr03/editorial.htm, Issues and Opportunities in Trade By Binod K Karmacharya
Bilateral Trade Agreements: Issues and Concerns for India 13

have not been without their share of problems. have signed a framework agreement for economic
They illustrate the need for thorough research on cooperation in August 2004. The feasibility of an
how an FTA will impact the small, medium and FTA is being considered. India-GCC trade is not
large players over the short and long-term. If not, limited to oil and oil products only.
trade agreements may easily run into troubled 11. Te agreement with Russia commenced
waters, defeating the very purpose of their creation when President Putin visited India in the first
– mutual economic benefit. week of December. The negotiations presently
India has gone the “whole hog on regional trade focus only on arms trade, but it has been said
ties”, as the Minister for Commerce and Industry, officially that a CECA is on the drawing board.
Mr. Kamal Nath enthusiastically told The Financial 12. Framework agreements for co-operation
Express on November 18, 2004. Reflecting this have been signed with the South Africa Customs
resolve is the following list of trade agreements Union (SACU) and Common Market for Eastern
that India has negotiated over the last year: and Southern Africa (COMESA) in Africa. It will
1. The Comprehensive Economic Cooperation be at least two years before the deal is finalised.
Agreements (CECA) with Mauritius planned. 13. India has also signed an MoU with eight
2. Agreement to create South Asia Free Trade West African countries called TEAM-9 (Burkina
Agreement (SAFTA) with seven countries by Faso, Chad, Equatorial Guinea, Ghana, Guinea
January 2006. Bissau, Ivory Coast, Mali and Senegal) in March
3. Framework agreement on the Bay of Bengal 2004 for economic, commercial and technical co-
Multi Sectoral Technical and Economic operation.
Cooperation (BIMSTEC), with Bangladesh, India, 14. A framework trade agreement was signed
Myanmar, Sri Lanka and Thailand as members, with Merco-sur (Brazil, Argentina, Uruguay,
was signed in February 2004. Paraguay) in June 2004.
4. A framework agreement signed in October 15. India and Chile have signed a Framework
2003 to establish a Free Trade Area with ASEAN+3 Agreement on Economic Cooperation on the 20th
(including South Korea, China and Japan) in ten of January 2005. It has also been agreed to set up
years. a Joint Study Group to study the present status of
5. Talks were launched early in 2004 to sign the commercial and economic exchanges between
an FTA with China. A joint study group (JSG) is India and Chile and to identify the potential for
at work. cooperation between the growing economies of
6. A CECA with Singapore is in the pipeline. the two countries as well as the bottlenecks both
The December 2004 deadline for ratifying the in goods, services and investment and to make
agreement has been missed. recommendations for moving towards a Free Trade
7. The framework agreement, which is a Agreement (FTA) or a Comprehensive Economic
precursor to the CECA with Thailand, has been Cooperation Agreement (CECA) if such, an
signed and an ‘Early Harvest Scheme’ has been in arrangement is found to be feasible.
effect since October 2004. 16. Framework agreements for economic co-
operation have been signed with the Andean
8. The Japanese Minister for Economy, Trade Community, Caricom (Caribbean Community)
and Investment (METI) Mr. Nakagawa made a and Central America.
proposal to the Indian Government about an 17. A strategic trilateral group IBSA (India,
Economic Partnership Agreement (EPA). Brazil and South Africa) was also formed. Talks
9. A Joint Study Group was set up to study are in progress. This agreement is seen to be
the feasibility of an FTA between India and South significant, as India and Brazil have cooperated
Korea. The countries will hold three more joint deeply even on the political front. This FTA is
study group meetings this year with the second being mooted as strategically significant because
one due in Seoul in April. it will link the largest countries in the South
10. India and the Gulf Co-operation Council American and African continents with India, which
14 Bilateral Trade Agreements: Issues and Concerns for India

Countries that have/are Planning Trade Agreements with India

is seen as a major upcoming market. But it recently hit a stumbling block when the US
18. India and the European Union have agreed Ambassador to India made it clear that it wanted
to conclude a bilateral investment agreement and a more broad based agreement rather than one
institute early warning system to identify and dealing only in services.
remove trade irritants to give a new impetus to 23. India has signed a framework agreement
India-EU investment and trade. for a PTA with Afghanistan.
19. Mr. Kamal Nath met with his Norwegian 24. An agreement with Egypt is in the pipeline.
counterpart, Borge Brende, who noted that bilateral During the bilateral meeting between the two
merchandise trade between the two countries had countries on 15th January 2002, it was decided to
grown by over a 100% over the last year to touch constitute a Joint Working Group to negotiate a
$340 million. India announced its decision to PTA. There are some differences between the two
pursue liberal economic policies and increase this sides regarding the criteria of ‘originating
share. products’. The Wish List from the Indian side has
20. The Finnish Minister for Foreign Trade and been sent. India is awaiting the Egyptian Wish
Development was in India recently with a List.
delegation of about 30 industrialists to strengthen 25. India and Serbia and Montenegro are likely
business ties with India. to sign an Agreement on Bilateral Trade very soon.
21. The Italian Minister for Productive Affairs, This was indicated at a meeting between the
Mr. Antonio Mazano, is keen to boost bilateral ties visiting Serbian Minister of Economy and
with India. It is expected that a large business Privatisation, Mr. Predrag Bubalo and Shri E.V.K.S.
delegation will visit India soon. Both sides are Elangovan, Minister of State for Commerce &
exploring enhances co-operation in textiles, leather, industry, in Delhi on the February, 1 2005. The
gems and jewellery, food processing, IT, tourism Agreements on Bilateral Investment Promotion and
and energy. The Italian side sees its own strengths Protection, Civil Aviation; on Cultural Cooperation;
as infrastructure, transport, food processing, and on Scientific & Technical Cooperation are
agriculture machinery, cold chain management already in place. The Indian Embassy in Belgrade
and packaging. Co-operation in services sectors is currently exploring the possibilities of having a
like tourism are being discussed. India has urged "Made in India" Exhibition in Belgrade some time
Italy to participate in the infrastructure projects between October 2005 and April 2006
and special economic zones.
22. FTA on services with USA being discussed.
Bilateral Trade Agreements: Issues and Concerns for India 15

2.1 Singapore, India to sign pact after Asean meet


The Economic Times, Bangalore, Saturday, November 13, 2004

Singapore, 12 Asian Nations (Asean) Co-operation Agreement Trade between the two is

* Created version of the original article.


November 2004 summit in Laos later this comes into effect, the Strait worth about $5billion, it said.
month, the government and Times said. Commerce Minister
Singapore will become local media said on Friday. India will gain greater Kamal Nath, who met his
only the second country to Resource-poor access to Singapore’s Singapore counterpart Lim
sign a comprehensive trade Singapore will receive services industry while Hng Kiang on Thursday, said
pact with India when they concessions on its $3billion airlines in both countries the pact will be signed after
ink a deal after the worth of exports “almost would be looking at the Asean summit in Laos
Association of South East immediately” after the increasing flights and later this month, The Strait
Comprehensive Economic destinations, the paper added. Times said. --AP

2.2 India, Chile sign Framework Agreement on


Economic Co-operation
Historic moment in bilateral relations, says Kamal Nath – big boost to trade with Latin America
Ministry of Commerce & Industry (New Delhi), economy in the South American region.
20 January 2005 Negotiations for PTA with Chile will commence
subsequent to the signing as per mutual
[www.bilaterals.org, Posted January 22, 2005] consultations and would conclude by 2005.
It has also been agreed to set up a Joint Study
India and Chile have signed a Framework Group to study the present status of the commercial
Agreement on Economic Cooperation. Shri Kamal and economic exchanges between India and Chile
Nath, Union Minister of Commerce & Industry, and to identify the potential for cooperation
has described the signing here today as a historic between the growing economies of the two
moment, which would open new avenues to boost countries as well as the bottlenecks both in goods,
bilateral trade. The agreement is meant to promote services and investment and to make
expansion of trade by providing limited recommendations for moving towards a Free Trade
preferential access to each other initially. The Agreement (FTA) or a Comprehensive Economic
Minister has said that the signing of the Framework Cooperation Agreement (CECA) if such, an
Agreement is part of the strategy to boost India’s arrangement is found to be feasible. The
exports and improve its share of world trade, Framework Agreement was signed by Shri Kamal
which at present is less than 1%. India, of late, has Nath on behalf of Government of India and the
been engaging itself with various regions/countries Chilean Minister of Foreign Affairs, Mr. Ignacio
for preferential trading arrangements (PTA). Walker, in the presence of Prime Minister Dr. Man
Besides countries in her immediate neighbourhood, Mohan Singh and the Chilean President, Mr.
India has entered into a Preferential Trade Ricardo Lagos.
Agreement (PTA) with MERCOSUR (Brazil, Chile has FTAs with USA, Canada, Mexico,
Argentina, Paraguay and Uruguay) which is likely EU and South Korea. It is also an associate member
to be operational in April, 2005 and Chile is a major of MERCOSUR and has bilateral trade agreements
with the Andean nations and Central America. It
16 Bilateral Trade Agreements: Issues and Concerns for India

is an active member of the Asia Pacific Economic programme called “Focus: Latin America” to
Cooperation (APEC). It is also currently negotiating sensitise the Indian industry about the possibility
comprehensive FTAs with New Zealand and of this region. “This has delivered welcome results
Singapore and negotiations are at preliminary and our bilateral trade with Latin America has
stage for FTAs with China and Japan. India’s grown by over 130% since the launch of this
exports to Chile were US $ 80 million during 2003- programme. The Framework Agreement with
04 and imports from Chile were US $ 157 million MERCOSUR was a step in this direction, and now
in the same period. The total global imports of the Framework Agreement with Chile is testimony
Chile were US $ 17.94 billion during 2003. The to the genuine desire of ours to improve our
region still has a huge potential for Indian commercial and economic ties with this region”,
exporters, as India’s share was just 0.45% of the he said.
global imports of Chile during 2003-04.
Later, addressing Business Session in honour
of Dr. Ricardo Lagos, Shri Kamal Nath said that
considering the potential of the Latin American
Region, the government had launched a

2.3 Build institutional capacities for greater trade creation


Though there’s much to gain, India should do proper homework for negotiating sensitive areas

The Financial Express - Insight - REGIONAL TRADE AGREEMENTS, Bangalore, Wednesday, November 17, 2004

VEENA JHA of over 25% in total trade. will come into effect from highest share of Thailand’s
India’s exports grew by September 1, 2005 — with exports. However, Thai
Trade between India and 19.9% while imports grew the final zero-duty regime on export has been experiencing
Thailand has been steadily by 34.5% during the year, these items coming into a declining share in the US
expanding in recent years. with a balance of trade in existence from September 1, market while some countries,
However, in 1997, due to India’s favour. Bilateral trade 2006. Currently, 82 items are notably China and Mexico,
economic problems faced by crossed $1 billion in 2002- covered by the FTA, and they have seen their shares
the East Asian region, Indian 03. The target now is $2 account for 7% of Indo-Thai growing rapidly.
exports to Thailand declined. billion, which is much lower trade, which amounted to It is expected that the
During 1998-99, although than the potential of both $1.4 billion in 2003-04. proposed FTA can help
there was a slight countries. One of the Initial simulations increase Thailand’s exports
improvement in the overall instruments that can be carried out with annual to India and vice-versa by
trade ($594), yet Indian utilised to achieve this tariff cuts of 20% show that reducing tariff and non-tariff
exports declined and Thai potential is a free trade for the next few years the barriers between the two
exports increased. The agreement (FTA) between welfare effects would be countries. Overall, there are
subsequent years have shown the two countries. This is positive. The effects would some trade creation
consistent increase in currently under active be more significant at the possibilities. The effects on
bilateral trade. The total consideration on both sides. bilateral level, showing a an aggregate level are,
bilateral trade in 1999-2000 The FTA has taken higher possibility of trade however, minor and not
increased to $777.66 million, effect from September 1, diversion, where export statistically significant. Some
while during 2000-01, 2004 with an ‘early harvest growth is likely to be slower industries, such as machinery
bilateral trade further grew scheme’ under its than import growth for India. and parts, especially
to $842.28. During 2001-02, ‘framework agreement’. The At present, around 20% of electronics, however, may
bilateral trade grew to scheme (delineated in Article Thai goods export goes to the face significant trade
$1,055.63 with an increase 7) says a reduction of 25% US market, representing the adjustment costs.
Bilateral Trade Agreements: Issues and Concerns for India 17

Considering the S i m i l a r l y, for important to make clear coverage and sequencing that
emphasis given to services agricultural liberalisation to where the boundary of is appropriate to the
in the framework bring tangible benefits, Thai protection ends, so that there development needs of both
agreement, both countries and Indian negotiators need will not be excessive countries. Given the
propose to liberalise trade to cooperate with each other disputes that will be costly comprehensive nature of the
in services, especially to reduce existing barriers, to settle. The service sector FTA, many complicated
information technology. e.g., quotas, administrative can also gain from greater issues will need to be
The fact that liberalisation of measures, tariffs etc. This competition, e.g. in addressed. It is essential that
trade in goods may increase may involve dealing with construction, information the Indian side is fully
imports more than exports complicated technical aspects technology, entertainment prepared for the negotiation
should not be a matter of in each area. That will take and the like. However, the process.
concern. considerable time. balance between free and fair The writer is with UNCTAD.
The success of India’s Finally, rules of origin trade must be ensured, in These are her personal views
external sector reform can be need to be carefully designed particular in service markets
seen from a sharp spurt in t o f a c i l i t a t e e ff i c i e n t where there are only few
India’s foreign exchange preferential treatment. In large players in the market.
reserves to over $125 billion. addition to export, potential Hence, liberalisation
This is more than adequate benefits to both countries are must be complemented by
from the point of view of likely to arise from more strong disciplines imposed
‘self-insurance’ against the investment, intensified on large multinational
possible impact of increased competition in service sectors companies and cooperation
imports. The provision of and improvement in between competition
cheap imported inputs as well regulatory regimes. More authorities. On this note, a
as competition from Thailand investment inflow into both more transparent and
may help the domestic countries should enable them effective implementation of
industry to gear up better to to grow more rapidly, since the domestic competition law
the challenge of an FTA. FDI has always been a key should help to promote the
It should be noted, growth engine. However, cause.
however, that the increase in benefits in these areas will In conclusion, an FTA
export in many sectors will not be realised unless between Thailand and India
not be automatic. To capture institutional capacities are has the potential to increase
potential benefits in the sufficiently developed. This trade and investment between

* Created version of the original article.


automobile sector, for development process is likely the two countries and
example, India-based to take a long time. generate net benefits for both.
assemblers and suppliers may It is important that the The broad coverage of the
need to reorient their product scope of foreign investment FTA beyond goods, to
lines to match consumer covered in the FTA and the include services and
demand in the Thai market. extent of protection investment, will lead to a
They also need to improve guaranteed are well defined balanced outcome for both.
their product quality, reduce and suitable to the local Some of the key sensitive
costs and shorten delivery environment. In the areas will need careful
time. negotiation, it is also negotiations to schedule
18 Bilateral Trade Agreements: Issues and Concerns for India

2.4 Tread with caution for a credible benefit-risk balance


India does not benefit much from an FTA here; tariff preferences should be explored instead
The Financial Express - Insight - TRADE AGREEMENTS, Bangalore, Wednesday, November 17, 2004

GEETHANJALI Partnership Agreement in the small island country. this FTA, as the scope for trade
NATARAJ (CECPA) with that country. Moreover, it is believed that between the two countries is
The post-Cancun regional Historically, India and India’s corporate sector will get very low, Mauritian exports to
trading environment is Mauritius have had cordial a boost, as Indian investors India being on a declining trend.
characterised by a rapid process economic and political relations. planning to invest abroad can India would prefer to avoid trade
of liberalisation and proliferation Moreover, 68% of Mauritius benefit from the location, just diversion and also major revenue
of regional and bilateral trade population is of Indian origin. off the south-east coast of Africa. losses on account of the
agreements of varying sorts, Trade between the two countries Indian investors can use the decreased level of tariffs to
scope and depth, which are has been on the increase for the port as a base to tap markets in Mauritius. Rather, it is being
under various stages of last three years, and India’s other continents, especially suggested that it would be better
negotiation. Though India for exports to Mauritius are growing African markets. The reduction if the two countries explored the
long has been a campaigner for at the rate of 13.34%, though in tariffs will certainly help the possibility of giving tariff
multilateralism and has acted as only 0.32% of India’s total Indian pharmaceutical industry, preferences to each other for
a responsible member of the exports go to Mauritius. Being as drugs are one of the principal items of export interest to each
World Trade Organisation, it has a large economy, India’s exports items of export to the Mauritius. other.
recently concluded several FTAs to Mauritius are far greater than India is also likely to benefit A s o f n o w, l a r g e
with countries in the region its imports, which constituted a from cheap imports of textiles investment flows come into
because it realises that whatever negligible 0.02% in 2003. India’s from Mauritius. India through Mauritius because
the implications and impacts of imports from Mauritius are in But there are not many of tax concessions. Better
RTAs and BTAs, they are a fact growing at the rate of 2.15%. positive signals emerging from investment relations would only
reality and cannot be ignored. An FTA with Mauritius the Indian side with regard to come about if there is a two-way
Many developed and developing will definitely benefit that this FTA. In fact, the flow. There are many areas of
countries, like India, have small country, not only possibility of an India- cooperation where the two
actively formed regional enabling it to make inroads Mauritius FTA coming countries can join hands and
groupings to enhance their trade into India, but also provide it through as of now seems a enhance their trade and
and development objectives. with a base to explore other remote possibility. This is development opportunities, but
The New Foreign Trade Asian markets, especially the primarily for one reason: trade diversion and rules of
Policy announced by the Saarc countries. Mauritius is Mauritius is the centre for origin are major obstacles in the
government on August 31, 2004 also contemplating FTAs with trade activity and a major way of an India-Mauritius free
has set a target of 2% for India several other nations in the Asian international port. India is trade agreement.
in world trade by 2009. This region for the basic reason that apprehensive of the fact that There is no harm in concluding
may be possible to achieve given it is set to lose when quotas are many countries may start FTAs with other countries in the
that exports have been growing eliminated and the international routing their products into region, especially if India is
at the rate of 20% in the last few trading environment becomes India through Mauritius and, intent on achieving 2% share in
years and India’s share in global more competitive. So far, therefore, the question of rules world trade. But a cautious
trade has been increasing. An Mauritius had benefited from of origin becomes crucial. This approach, especially in cases
* Created version of the original article.

alternate means to enhance this preferential access to western is also the case with other like the India-Mauritius FTA
trade is through the bilateral markets for its textiles and sugar, FTAs, such as the India- where the risks outweigh
route of signing FTAs with but may be unable to do so in Thailand FTA. Rules of Origin benefits, is a welcome measure.
countries in the region. the future. are an important issue for
One such initiative is the It is envisaged that the India, so that goods from other The writer is a member of the
forming of the India-Mauritius agreement between India and countries do not enter India faculty, Indian Institute of
Joint Study group (JSG) which Mauritius has a few through Mauritius and get an Foreign Trade, Delhi, and can
has been set up to examine the advantages for India as well. unfair advantage. be contacted at
modalities for a Comprehensive First of all, it will help India Moreover, there are no geethanjali@iift.ac.in
Economic Cooperation and to establish a niche for itself major benefits for India from
Bilateral Trade Agreements: Issues and Concerns for India 19

2.5 Safta will anchor Indo-Pak rapprochement: World Bank


The Financial Express, Islamabad, November 19, 2004

Islamabad, Nov 18 the local media here on preparatory meeting of the after a prolonged drought,
Ahead of Saarc Thursday said Safta would Saarc commerce secretaries helped boost real GDP
commerce ministers meeting spur intra regional trade, beginning from November growth in Afghanistan by an
here next week the World provided that most products 20. estimated 16%, excluding
Bank has said that expansion are included and the regional In its report the World opium which accounts for
of trade relations between strategy is embedded in the Bank said trade as a share of about one-third of output.
India and Pakistan and steps larger trade strategy of GDP remains smaller in Regional GDP is
to implement the South Asia gradually opening to South Asia than in any other forecast to accelerate,
Free Trade Area (Safta) international markets. developing region. Excluding expanding by 6.3% in 2005,
agreement could anchor the The report was released India, growth in the region before moderating somewhat
India- Pakistan as the commerce ministers is projected to rise to 6% in in 2006. The acceleration is

* Created version of the original article.


rapprochement and spur of the Saarc Countries poised 2004 from 5.6% in 2003, l a rg e l y d r i v e n b y a n
intra-regional trade. to meet here on November supported by robust anticipated recovery of
A World Bank report on 22 and 23 Indian commerce manufacturing in Bangladesh agricultural growth in 2005,
global economic prospects minister Kamal Nath was and Pakistan, and it said. Long-term growth in
2005 said expanded trade expected to arrive here on strengthening services and South Asia is forecast to
between India and Pakistan November 21 to take part in agriculture sector growth in average about 5.5% during
creates new constituencies the meeting. Nepal and Sri Lanka. 2006-05 as the contribution
favouring reduced tensions Commerce Secretary S Donor assistance and to growth from the private
and anchor peace. K Menon will arrive here on incipient peace, combined sector accelerates, it said.
The report published in Friday to take part in the with a recovery in agriculture (PTI)

2.6 Let’s go on a long drive


The Economic Times, Bangalore, Guest Column, Monday, November 22, 2004

TK Bhaumik Manmohan Singh on than a typically sporting) Malaysia, the Philippines,


November 23 from venture. The car rally, which Singapore, and Thailand). On
IT IS a case of stealing Guwahati. It’s undoubtedly is not competitive, intends to her part, India too had little
the treasure house of a daredevil rally that has a master the spirit of time to assuage her eastern
imagination. This time the plan to meander through cooperation. neighbours. To the Aseans,
Confederation of Indian many difficult terrains, before Asean’s formation in India was not in an Asia they
Industry (CII) has rallied it- ending in the soothing 1967 was motivated by the could see.
self into a mega partnership landscapes of Indonesia. security concerns arising out A lot has changed
with the ministry of external Except for some Northeast- of the geo-political ordering since then, once again
affairs and governments of based insurgents, everyone effected by the Cold War. bringing India and Asean
the Asean countries to is mobilised behind the rally India’s tilt in favour of the increasingly closer to each
organise an 8,000-km-long that incidentally happens to erstwhile Soviet bloc was
other. Particularly, the end
India-Asean car rally, to be be a, first -of-its-kind, joint viewed with suspicion by the
of Cold War and collapse
flagged off by Prime Minister India-Asean cultural (rather original Asean-5 (Indonesia,
20 Bilateral Trade Agreements: Issues and Concerns for India

of the USSR had melted with the EU’s. The car rally I don’t know how many of long history of
the ice, and since then both is fine, but India’s ultimate the rally participants are conservative trade regime.
India and Asean have engagement with the 10- aware of that. Trade alone India now has to think
taken significant steps member Asean has to be on will not do, though. India and big and play in the league of
towards each other to build trade, investment and the Asean would need to look the fast-moving economies.
economic matters, and that at each other as long-term The logical conclusion of that
a new bond of partnership.
is something the Indian partners in investment as process, already initiated,
Finally, they’re going to industry must keep in well. The onus, I feel, is on would be to take a proactive
be wedded into a free trade mind. For the Asean the Indian side. We have to initiative towards forging a
agreement on which the countries, economy is the move faster on an expanded greater Asian Economic
Framework Agreement primary field of adventure. FTA. Union. Dr Singh spoke about
has been signed. The car Economic prosperity is what The success of the rally it recently in the presence of
rally comes in the wake of rallies the interests. Hence, will lie in its ability to invoke the Asean leaders, and we
this agreement by way of how should the car rally be the much-needed spirit of think it is a feasible idea. To
an unnoticed coincidence. followed up? wider economic partnership begin with, India should take
It was not conceived as a The bilateral trade between India and the Asean. the initiative of launching a
flag-off to the Indo-Asean between India and the Asean, The Asean has nearly single India-Asean market,
FTA, but the car rally is almost $10 billion, is yet to completed FTAs with China, something that will have a
be vigorously rallied around. Korea and Japan, and they combined market size of
likely to rekindle the trade
It’s a slow moving vehicle. are apparently working for a nearly 1.6 billion people with
talks and hopes. If Singapore and Thailand single market as well.
Already, trade appears an average per capita income
are excluded, trade between India, too, is moving of around $600. What is
to be the central focus of the
India and the rest of the forward on its ‘Look East’ significant is that the
current India-Asean interface.
Asean is nominal. Trade per policy. Apart from combined economic territory
With the Asean, other nations

* Created version of the original article.


route kilometre is only about Comprehensive Economic of India and the Asean is not
hardly talk anything but
$1.25 million on an average. Cooperation Agreement only a fast-growing
trade. Though born out of
Per capita trade of the economic territory, but also
security concerns, the Asean with Singapore (which is
combined population is about a huge reservoir of resources
is now about primarily trade
$5. Good news is that it has
an FTA-plus arrangement)
and economic growth. of all types.
been growing in recent years. and an FTA with Thailand,
Having arranged for Asean (The author is senior
But both sides would need to the Framework of FTA advisor, CII. Views are
Free Trade Area (AFTA), Agreement has been
concentrate on promoting personal)
they are now toying with the signed with the Asean. All
mutual commercial interests
idea of a single market in line
that lie in faster trade growth. that is great, given India’s
Bilateral Trade Agreements: Issues and Concerns for India 21

2.7 India’s Political Stability Is A Great Asset

The Financial Express, JAPAN, Tuesday, November 16, 2004

A string of high profile of issues and initiatives that growth till the year 2050, between Japan and India. It
delegations from Japan have will bring the two countries which is very attractive. The is very important. The second
visited India in the last few even closer in times to come. third factor is India’s low is to start dialogue among
m o n t h s . Tw o C a b i n e t Excepts: dependency on external officials of two countries on
ministers, some former trade and foreign direct economic partnership
Cabinet ministers and several How does Japan view investment (FDI) which agreement (EPA). The
CEOs of large Japanese India as an investment protects it from external foreign ministers of both the
transnational corporations destination in the backdrop shocks. Except the crisis of countries also agreed on
descended on India recently. of massive levels of foreign 1991 in India, the country starting preparation for
Another high profile business direct investment that is keeps healthy condition setting up of Joint Study
delegation will be in India on flowing into China from all even when there have been Group USG). It is not the
November 1, many of who over the world, including global economic crisis. negotiating body for EPA.
are also participating in the Japan? It is not a secret that
India Chem exhibition China did attract huge I believe that Japan’s India is ambitious in
beginning November 3, investments but the Minister for Economy, Trade expanding EPA network in
where Japan is the partner significance and value of the and Investment (METI) Mr Asia, Singapore was first,
country. Indian model should not be Nakagawa proposed then Thailand and now
Japan’s Ambassador to under estimated, Even when initiation of a dialogue with ASEAN. Japan,
India, Yatsukuni Enoki, has comparisons are made between the two countries likewise, is pursuing EPA
played a critical role in between India and China, during his visit to India in networking with other
reigniting the economic and Japanese business appreciates August for signing of an countries and is in very
bilateral relations between India from three aspects first economic partnership serious negotiations with

* Created version of the original article.


the two countries over the is democracy. Second is agreement (EPA). Could you ASEAN countries.
last 10 months or so. He I n d i a ’s s u s t a i n a b l e throw some more light on this Indian and Japanese
believes there is immense development prospect as we issue? business is already linked
potential for growth of believe that India is entering Mr Nakagawa made two with each other so why not
bilateral and economic into a new phase of 7-8 per important proposals to the have a EPA between the two
relations between Japan and cent annual economic Indian government. First Is countries Instead of utilising
India. In an interview with growth. organisation of annual India’s EPA with other
VEESHAL BAKSHI, Mr Only India has capacity economic ministers dialogue countries like Thailand.
Enoki talks about a variety to sustain a 5 per cent-plus by alternating the venue

[Mr. Enoki cites India’s isolation from the world economy as one of the reasons for its attractiveness as a potential trade
partner. He also notes, in the next section that India is signing many agreements with ASEAN and other countries. This,
taken to its logical conclusion, points to the distinct possibility that if and when all the agreements being negotiated today
come into effect, India will not remain as resilient to external shocks as it was, any more. With free trade being allowed
with almost all the countries of the globe, the Indian economy will rise and fall with the crests and troughs of the world
business chart.]
22 Bilateral Trade Agreements: Issues and Concerns for India

2.8 Finland seeks to boost biz ties with India


The Economic Times, Bangalore, Friday, February 4, 2005

Our Bangalore Bureau get partners for local markets future.” encouraged.
3 February and also for technological co- She called for India and Finland’s population at
She is perhaps the most operation back in Finland. To Finland to cooperate in about five million is much
good-looking minister for a charmed audience attending several areas. less than that of Bangalore,
foreign trade and a trade seminar in Bangalore, “We are a world leader which is estimated to be
development we have seen Ms Lehtomaki said: “I have in electronic banking to the seven million now. However,
in India. But Ms Paula been able to familiarise extent that cheques have now this tiny country with a tiny
Lehtomaki, the Finnish myself with the skills and been completely abolished. population manages to have
minister with the powerful opportunities which booming In addition, we have now exactly the same share of
portfolio mentioned earlier, Bangalore and Karnataka are connected all of Finland’s world trade as India; 0.7%
is also as dynamic as as they offering us by way of schools to the internet. In Business delegates from
get. She is in India – for the production, outsourcing, many residential areas, several organisations showed
first time, but she can be business alliances and broadband facilities are interesting setting up

* Created version of the original article.


excused as she is still only in purchase of productivity tools provided as a basic manufacturing plants close
her 30s. Ms. Lehtomaki has for knowledge management, infrastructure and most of to where OEMs were coming
brought along with her a as well as string support by Finnish public libraries offer up. Elcoteq. The Finnish
business delegation of over the authorities. I have also free access to the internet. handset maker has set up a
30 businesspersons from notices that there is healthy Linux, the open source plant near Bangalore and if
Finland, perhaps the single competition between various operating system, was Nokia decides to do the same,
largest from that country so IT destinations here in India developed by a Finn,” said several Finnish
far to India. and I see that Bangalore is Ms. Lehtomaki, pointing out manufacturers will follow to
They are all here to try determined to maintain its to the innovation and feed and complete the
and strengthen business ties, leading position also in the research that the country ecosystem.

2.9 India, US discuss FTA on services


[www.bilaterals.org, posted: The Hindu, Larson said more work was needed.
September 15, 2004] Larson, who is here as part of the ongoing
Indo-US economic dialogue, had one-to-one
New Delhi, Sept. 15. (PTI): The United States meetings today with Planning Commission Deputy
today said it discussed with the Indian authorities Chairman Montek Singh Ahluwalia, Commerce
the issue of forging a bilateral Free Trade Minister Kamal Nath and Finance Secretary D C
Agreement on services but felt that more study Gupta.
was needed to be done before any commitment On WTO issues, Larson maintained that the
was made. framework agreement was "very consistent" with
"We did discuss the issue of FTA on services India’s interests in agriculture, especially in
between the two countries," US Under Secretary protecting poor farmers.
for Economic, Business and Agricultural Affairs, Regarding the dismantling of quota system on
Alan P Larson said, adding that further study will textiles, he said US was confident that it would
have to be carried out on this proposal made by happen as scheduled by January one 2005.
the Indo-US joint business council particularly on Countries like China and India stand to benefit
retail, financial and telecom services. from it.
Asked if US agreed to the idea in-principle,
Bilateral Trade Agreements: Issues and Concerns for India 23

2.10 New opportunity in Latin America


Emergence of the Left in South America has opened up new business opportunities for India.
Indian business should seize this opportunity and intensify their export flow to South America,
says R Viswanathan.

The Economic Times, Bangalore, Guest Column, Friday, December 3, 2004

IN THE last week of oblivion the two major and monetary discipline de- these had not helped solve
October, the Left won a political parties which had manded by the Wall Street. the socio-economic
historic victory in Uruguay held power in the past 20 The example of Brazil has problems, but only
and Tabare Vazquez became years. boosted the confidence of the aggravated them. The voters
the President. The two In November ‘02, Lucio Left in South America, were disenchanted with the
traditional political parties Gutierrez, a leftist military neutralised the Left-baiters neo-liberalism and wanted to
which ruled alternately in the man won the elections in and has laid the foundation give a chance to the Left.
last 170 years, were out of Ecuador, defeating Alavaro for the new Left. The new They rejected those
power for the first lime. The Naboa, the country’s richest finance minister of Uruguay traditional political elites who
new coalition includes former man. Gutierrez won despite announced that he plans “to stood for “business as usual”.
Tupamaro guerrilla leaders, the stigma attached to his follow the example of Lula”, The most telling
who won impressive unsuccessful bid to as part of his government’s example is Venezuela, which
victories despite the criticism overthrow the elected assurance to the investors. has the potential to be one of
that their ideologies were government through a coup Chile and Argentina also the richest countries in Latin
outdated. Uruguay, cons- in January 2000, in the same have Left-of-Centre America. It exports three
idered as the Switzerland of way as Chavez did in governments. The Centre- million barrels of oil per day
Latin America, with its small Venezuela. Right government of De la and is called the Saudi Arabia
and relatively affluent po- Election of Lula from Rua in Argentina had a of Latin America. If the
pulation, has gone through the Workers Party in premature exit in December earnings were simply
economic crisis in the last October’02 in Brazil was the ‘01, unable to continue distributed, each of the 24-
three years and one third of defining moment for Latin amidst popular uprisings million population would get
its population has been American Left. He was caused by the socio- over $10,000 per year.
pushed below poverty line. almost written off after economic crisis. His Besides petroleum,
It is they who caused the having lost the previous three government lasted only two Venezuela has huge reserves
change. elections. Vested interests years. of minerals and large and
What has happened in both inside and outside Brazil The leftist leaders have inexpensive hydroelectric
Uruguay forms part of an carried out a vicious come to power tiding on the power capacity. Despite
emerging pattern of historic campaign predicting doom wave of anti-neo-liberalism. these, 50% of the population
shift in South America. In and scaring voters and In the ’80s and ’90s, South is below poverty line. Chavez
Venezuela, leftist President foreign investors. Lula has America opened up their is a product of this incredible
Chavez, who came to power disproved all these economies, undertook situation.
in ‘99, won a thumping predictions and has proved privatisation and followed The rise to power by the
majority in the state elections that it is possible to achieve the line advised by the Left has reconfigured the
held in October ’04, on top a balance between the “Washington consensus”. power equation in Americas.
of his resounding win in the inclusive development Argentina went to the The leftist governments
August Recall Referendum. agenda for the poor in the extreme of privatising even attach importance to
He has consigned to near streets of Rio and the fiscal their petroleum company. But collective strength through
24 Bilateral Trade Agreements: Issues and Concerns for India

formation and strengthening portant supplier of goods. and provide affordable before there was such
of the regional groups, Chinese exports to Latin medicines to the poor by interest in India among
Mercosur and Andean America in ‘03 were $17 importing pharmaceuticals Brazilian business.
Community. They signed a billion, 10 times the exports from India. They are Indian business should
FTA in October ‘04 between of India. China is the second impressed by India’s seize this opportunity and
the two groupings, bringing largest trading partner of IT success and want to intensify their export flow to
about a South American Free Chile. The growth of South follow our example in South America. Besides
Trade Area. These countries American countries in the human resource exports, they should look at
have also decided last month past two years is partly due development. The the possibilities for invest-
to create a South American to the large buying of agro importers look to countries ment and JVs there. TCS,
Community of Nations, and mineral products by such as China and India for Reliance, Tata International,
which plans to include later China and the rise in prices less expensive products. M&M are some which have
Chile, Guyana and Suriname. of commodities generated by Mercosur and Chile are realised this and are setting
These governments try to the Chinese thirst. There has keen to conclude PTA with up operations in Uruguay
reduce the dependence on been extensive investment by India. The. presidents of using it as a hub for South
North America and China in these countries; the these countries want to visit America. Indian pharma
diversify their trade and most notable being the $1 India with business majors are already well

* Created version of the original article.


cooperation partners. The billion already invested in the delegations. The historic established in Brazil. For
trendsetter for this is Chile, Venezuelan oil sector and the visit of President Lula to others who want to do
which does more trade with $2 billion to be invested in a India in January ‘04 with business with South Am-
Asia than with Nafta or EU. steel plant in Brazil. a large business team has erica, this is the best time to
The emergence of the The leftist wave in opened the eyes of the make a move.
Left has coincided with the South America has opened Brazilian businessmen.
aggressive penetration of the a window of opportunity About 80 Brazilian (The author is head of the
South American markets by for Indian business. These companies took part in the Latin America division of the
China, a major buyer of their governments want to India International Trade ministry of external affairs.
commodities and an im- reduce cost of health care Fair last month. Never Views are personal.)

2.11 AP ryots to till land in Africa

* Created version of the original article.


The Economic Times, Thursday, November 18, 2004

Hyderabad The state government with Kenya for 50,000 acres investment promotion C C
has signed Letters of Intent and with the Uganda Reddy said.
ANDHRA Pradesh (LoI) with Kenya and Investment Authority for As per the plan, the land
government has come up Uganda to send farmers in 20,000 acres. Our farmers will be given to farmers’ co-
with a novel idea to tackle batches to cultivate lands in will work there as operative society from AP on
the agrarian crisis — ‘ex- the two east African nations entrepreneurs and are a 99-year lease to enable
porting’ farmers to far-off in, what is being billed as a allowed to repatriate their them develop it using their
foreign lands in search of ‘win-win arrangement’. earnings back home/advisor expertise and prosper in the
prosperity. “We’ve signed the LoI to the state government on process. —PTI

[This decision to ‘export’ farmers to African countries to cultivate the land has been met with some degree of surprise by readers.
There are a lot of factors that will need to be taken into consideration before implementation, and it is not known if the due
intelligence has been consulted or stakeholders’ needs looked at. This also makes clear, in a very direct way – if any clarification
was required at all - that trade deals that are formulated by political leaders/trade negotiators have a very deep-rooted impact
on lives at the grassroots. When one considers that about 72 percent of India lives in villages, such decisions at made the upper
echelons of governance need much more than a political motive to enter an agreement with another country – any other country.]
Bilateral Trade Agreements: Issues and Concerns for India 25

3.0 Millstones before


reaching Milestones

When there are so many trade agreements Why this decision came as suddenly as it did is
being planned with different parts of the world, something that has not become apparent.
there are also bound to be many different kinds These are only the beginnings of the problems
of problems in negotiating each. Firstly, the various that arise when negotiating trade agreements.
lobbies that influence the government’s negotiation Probably the most contentious issue surrounding
position on these agreements are also not in these agreements is that of the ‘rules of origin’
agreement about their stand. In India, the two (RoO).
leading industry lobbies, viz. Confederation of “Rules of origin have become an essential part
Indian Industry (CII) and Federation of Chambers of any trade policy regime, for commercial policy
of Commerce and Industry (FICCI) take strikingly tools, more often than not, discriminate among
differing positions on the Indo-Singapore CECA countries. Administration of quotas, preferential
alone. tariffs, anti-dumping actions, countervailing duties,
It is not only industrial lobbies that are arguing government procurement, etc, requires clearly
over the acceptability of trade agreements, with defined rules of origin. The rules of origin are also
their motives of profit making; research bodies, important for application of labelling and
that are supposed to be non-partisan and provide marketing requirements as well as for collection
intelligence to the policy-makers in matters of of trade statistics. But, the process of determining
international economic and political relations, ‘lock origin might have been relatively easy and dispute
horns over FTAs’. The inconsistency of the research free until recently, because production of individual
base of the country could lead to confused decision commodities rarely involved more than one
making or one depending on which party was country. It is the growing internationalisation of
able to influence the government better. An production and consequent involvement of more
example is the Indo-US FTA, which was first being than one country in the production of most
negotiated in services only. Deviating from this commodities that made the origin of commodities
position, the US government has now stated that a contested terrain.” (CDS WP 353, Dec 2003)4
it would like the FTA with India to be more It is almost rare today that a product being
comprehensive and cover other sectors as well. exported, is made wholly by the exporting country,

4 Centre for Development Studies, Tiruvanantapuram, Working Paper 353 December 2003. The WTO Agreement on Rules of Origin: Implications for South
Asia. K N Harilal and P L Beena}
26 Bilateral Trade Agreements: Issues and Concerns for India

that all the inputs in the manufacture are accountants offer complete secrecy to clients and
domestically acquired. This coupled with the other the currency is completely convertible. Salubrious
recent trend of countries offering preferential tariff climate and the golden beaches are, of course, the
rates to certain other countries raises important icing on the cake.
trade related issues. It has become vital for any “At the core of the controversial DTAT between
importing country to know precisely where the India and Mauritius is the incidence of what is
product is coming from to be able to make sure euphemistically referred to as ‘treaty shopping’.
that the tariff concessions that it is giving to one In essence, this means that foreign investors in
trading partner is not being taken advantage of third countries with relatively high rates of taxation
by another third country by routing its own on income/profits earned by companies and/or
manufactures through the agreement member capital gains accruing from transactions in shares
country. and securities are using the Mauritius route to
India specifies three very strict RoO. First and bring investments to India by taking advantage
most important; a minimum percentage of the of the DTAT.”6 After the abolition of the capital
value addition in the product to have occurred in gains tax in July 2004, the potential benefits to any
the exporting country. Second; change of tariff investor were significantly diluted, but the short-
heads – classification norms. Third: specification term capital gains are still taxed at 10%. This causes
of the kind of value addition. There have been treaty shopping to continue unabated as Indian
problems with all the Asian countries that India investors continue to park their money in
is negotiating FTAs with, regarding these stringent Mauritius. The loophole is still not plugged, though
rules. For long, India refused to budge, but it has there are negotiations between the two
finally conceded, and agreed to align its RoO with governments to take a second look at the DTAT.
ASEAN standards. These suggested changes are part of the
Treaty shopping is another problem that has Comprehensive Economic Cooperation Agreement
brought agreement negotiations to a halt. Treaty (CECA) with Mauritius. A joint study group has
shopping becomes an issue when one or both of been constituted to look into this. In fact, a model
the agreement member countries has very liberal double taxation avoidance agreement that the
tax provisions or is a tax-free destination. Talks Finance Ministry has formulated may be
with the Gulf Cooperation Council (GCC) and implemented with all the other countries with
with Mauritius were met with these problems. which India has such tax related agreements. One
India signed a Double Taxation Avoidance of the changes suggested are that the basis of the
Treaty (DTAT) with Mauritius in 1982 and renewed taxation be changed from ‘residence’ of the firm
it ten years later. This was a measure that was to the ‘source’ of the funds. There may also be a
expected to boost the economies of both countries ‘limitation of benefit’ clause so that the benefits of
by encouraging investment flows. With the help the DTAT are confined to ‘genuine’ residents only.
of this treaty, Mauritius was able to call ‘financial The two concerned countries may decide to co-
services’ its most important economic activity after operate on information collection on tax matters
tourism. India has more than 50 agreements of and share databases to keep track of treaty
this nature with different countries, 16 of which shoppers.
are identical to the one signed with Mauritius. But These are again, issues that need to be looked
Mauritius seems to be the preferred route for into keeping specific countries in mind. It may not
investments coming to India for a range of reasons. be wise to formulate one common policy for all
Geographical proximity and the fact that persons the 50 countries that India has tax treaties with.
of Indian origin control the Mauritian government
are significant factors5. Mauritian lawyers and

5 The Hindu Business Line, Tuesday, 14 December 2004, Opinion – Taxation, Treaty Shopping – Plugging the Mauritius Loophole, Paranjoy Guha Thakurta
(http://www.thehindubusinessline.com/bline/2004/12/14/stories/2004121400320800.htm)
6 See footnote 3
Bilateral Trade Agreements: Issues and Concerns for India 27

3.1 Fools rush in where angels fear to tread


Tread warily on the Indo-Singapore Comprehensive Economic Cooperation
Agreement (Ceca)

The Financial Express, Bangalore, Saturday, November 13, 2004

TK Bhaumik viewed as a sign of concerned about the deadline in total economic integration
difficulties. than consultations. When the and much beyond what was
THE idea of an Indo- Most free trade negotiations began, the possible in a normal free
Singapore Comprehensive a g r e e m e n t s ( F TA ) Indian side of the trade agreement. The idea
Economic Cooperation negotiations take time and stakeholders were asking was to extend the integration
Agreement (Ceca) was are not concluded in a rush. “Why Singapore?” process to almost all aspects
received with great The North American Free The idea of Ceca was of bilateral economic
excitement when it was first Trade Agreement (Nafta) the first ever bold initiative, relationship.
mooted jointly by the heads negotiations, for instance, after the announcement of This brings us to the
of the two governments. The took about seven years. Good lndia’ s Look East policy in second aspect of Ceca i.e. Its
joint cask forces (JTF), setup agreements are usually well- 1992, and a political signal WTO-plus character. It again
to study the scope and lay the negotiated agreements that to India’s commitment to means two things. One, it
broad structure, had also take care of all the concerns. pander to the expectations of talks of areas such as
acted with determination and What is of concern to me is, the Asean leaders. Earlier, investment, competition
speed. The report of the task however, visible signs of India had committed itself to policy, environment, etc that
force was produced within negotiating fatigue, and some bring its tariffs down to are not currently under the
the prescribed deadline. Since kind of frustration, about the Asean level. The choice of WTO. Two, in those areas
then, however, the spur Ceca. Singapore as a Ceca where there are WTO
seems to have been lost The hitch has been partner was a matter of agreements, it talks of
somewhere during the presumably around the rules official recognition of the extensive forms of
negotiation process. of origin criteria in particular, role played by Singapore in cooperation agreements e.g.
The deadlines for but there are more the recognition that we had WTO-plus agreement on
conclusion of negotiations fundamental issues involved received from the Asean in Trips. From this angle, Ceca
have been missed several in the current deadlock on the post-Cold War period. is highly ambitious and
times and negotiations are negotiations that need to be The idea of lndo-Singapore broad-based in scope;
continuing. I am not understood. Ceca is, in this context, a something for which the
particularly worried about First, the idea of Ceca political, though not Indian stakeholders are
missed deadlines. On the was imposed from the top. politically motivated, probably not ready. They
c o n t r a r y, n e i t h e r t h e It is not an idea whose need decision. There were, of are not quite clear as to how
Singapore side, nor the Indian was felt at the bottom course, genuine strategic Ceca is going to benefit them.
side, should rush to conclude layers of the stakeholders. angles as well in the choice So far as the FTA
the negotiations. The For the latter, it was given of Singapore as a Ceca component of Ceca is
negotiations should result in to accept and assimilate. partner. concerned, the feeling here
a kind of agreement that is Second, the joint task force In retrospect, two things is that if free trade has to take
beneficial to both and also was left with little time can be said about the Ceca. place, a higher value addition
something that serves the for a wider consultation First, it is an FTA-plus norm has to be in place to
mutual interests. To achieve with the cross-section of agreement, meaning thereby keep the possible flooding of
this objective, prolonged stakeholders. that the two economies had goods from third countries
negotiations should not be The JTF was more decided to engage themselves under check. This has given
28 Bilateral Trade Agreements: Issues and Concerns for India

rise to a hurdle, with India But there are other issues A particular aspect in sufficient time and greater
insisting on 40% value as well in Ceca negotiation. this context is the idea display of transparency. We
addition norm against For instance, there are of India-Singapore need to remember that Ceca
Singapore’s insistence on negotiations involving Investment Fund of $10 is FTA-plus, meaning FTA
30%. investment, competition billion, that according to the is just one component. The

* Created version of the original article.


What is much more p o l i c y, g o v e r n m e n t JTF report, was to be set up rest of the issues are of no
important to negotiate than procurement, trade and managed by the private less importance, and we
value addition norms, facilitation and a plethora of sector in both the countries. cannot afford to be relaxed
however, is the formula you services and the associated The idea seems to be getting on these. Hence, the need to
choose to calculate value issues. Most of us are not a quiet burial, even as this is be patient with Ceca.
addition. Both should aware of the status of what we were able to manage
observe the same, mutually negotiations on these issues. in return for tree trade. For The writer is senior
agreed, formula. This, Some of the issues mentioned our own benefit, the advisor, CII. These are his
however, is not getting in the JTF are seemingly negotiations on non-trade personal views.
attention it deserves. getting overlooked. issues need to be allowed

3.2 ‘Attractive’ partner, but look before the plunge


A carefully crafted agreement with clear, predictable, strictly enforceable rules
of origin needed

The Financial Express - Insight - TRADE AGREEMENTS, Bangalore, Wednesday, November 17, 2004

AMIT MITRA FTAs, then Singapore measures like anti-dumping its ‘Look East’ policy. A
emerges as one of the duty. 75% of Singapore’s carefully-crafted CECA
The Comprehensive ‘attractive’ partners. The ‘standards’ are aligned to would have the benefit of
Economic Cooperation reasons are not far to seek. international standards. expanding space for
Agreement (CECA) between Singapore has progressively Further, it is ranked as the bilateral trade, investment
India and Singapore has to liberalised over a relatively most competitive economy and economic cooperation.
be viewed in light of the fast- short period of time, while among countries with It would improve
growing importance of FTA fostering democracy, respect population below 20 million, connectivity between India
paradigm. Recent spurt in for the rule of law, and and it is also regarded as the and Singapore not only for
such agreements worldwide putting in place a strong, world’s second freest flow of merchandise and
and upswing in the share of transparent and predictable economy. investment, but for the
intra-regional trade make it regulatory framework. Its It is obvious that any movement of professionals,
imperative that India too exemplary economic free trade agreement with talent and ideas as well.
plays a leading role in this strengths are based on Singapore would help India Take the case of two-
process. This is, of course, prudent macro-economic attain a “benchmark”, and way trade which currently
not to suggest any policies and remarkable raise our preparedness and stands at just over $4 billion.
undermining or dilution of openness to international ability to negotiate quality Ficci’s projection is, provided
its priority and commitment trade. It uses very few border FTAs in future. Indeed, the right policies are in place,
for multilateralism. measures (only six tariff lines CECA is a significant the bilateral trade would go
If India has to take a are subject to import duty) milestone not only in India’s up to $10 billion within three
plunge into the world of and makes very little use of FTA-initiatives, but also in years. When it comes to
Bilateral Trade Agreements: Issues and Concerns for India 29

investment, the scope is seeking joint ventures in First, the potential advantages any worthwhile duty
really enormous because India in the areas of bio- from the agreement could be concession to India in goods
C E C A - i n d u c e d l a rg e r technology, pharmaceuticals wiped out in the event of (because of its practically
markets, more competition and information technology. possible “trade deflection” zero-duty structure), we have
and enhanced policy Similarly, Singapore is which occurs in the absence to insist for significant non-
credibility would amplify the likely to attract Indian of strong and effective Rules reciprocal gains in services
investment opportunities. investment in knowledge- of Origin (ROO). Hence, to and investment. The area of
And this is going to be a two- driven activities such as effectively minimise the risks services is particularly
way process depending on healthcare, education, of imports from third important from India’s point
the respective country’s creative industries and countries, appropriate ROO of view both because of our
strengths. advanced IT. Lower tax would have to be devised and competitive advantages and
As it stands, in terms of rates, flexible wage system, strictly enforced. Broadly, it due to the large imports of
cumulative FDI approvals in skilled manpower, strong is necessary to base the ROO services by Singapore (over
India (from January 1991 to supply chain, and world- on the simultaneous $27 billion in 2003).
July 2004), Singapore’s 11th class infrastructure are application of (a) value We have to negotiate
rank is none-too-impressive; only few of the advantages addition, (b) change in tariff hard and obtain more
but things are getting better that India Inc. can bank on classification, and (c) simple liberalised and easier access
as the island nation has while doing business in operations defined as ‘non- to Singapore market for our
improved its position to Singapore. qualifying’. service-providers and
‘fourth’ in the first seven Again, a number of In order to plug any possible professionals. In other words,
m o n t h s o f t h i s y e a r. already concluded FTAs and loophole, adoption of all the Indian business will feel
Singapore’s FDI in India is several others under three criteria together is more comfortable if
projected to rise of $1 billion negotiation by Singapore, necessary which would Singapore could go few
within three years of signing would open up fresh trade provide a set of clear, “extra miles” within the
the comprehensive avenues and business transparent and predictable framework of CECA to allow
agreement. opportunities for nearly 1,500 rules to use in conferring more liberalised access for
Temasek Holdings has Indian companies operating ‘origin’. Derogations from Indian service-suppliers. This
just picked up a 7% stake in there. And evidently, this is this general principle in terms will go a long way in

* Created version of the original article.


our leading basmati rice going to be an eminently of product-specific ROO ensuring a “win-win”
exporter, Satnam Overseas, successful illustration of the should be kept at the outcome for both the
this being the fourth big trade-investment nexus in the minimum, and should be partners.
investment by the Singapore context of regional allowed only after adequate
firm in Indian companies, integration. research and intensive The writer is secretary-
including ICICI Bank, Apollo However, several key consultations with the general, FICCI
Hospital and Matrix points have to be kept in industry.
Laboratories. In addition, mind to ensure the success Second, since Singapore is
Singapore businesses are and sustainability of CECA. not in a position to extend
30 Bilateral Trade Agreements: Issues and Concerns for India

The preceding two articles are on the indo- Chambers of Commerce and Industry (FICCI).
Singapore CECA, one by a Confederation of Indian The following table juxtaposes the points of
Industry (CII) senior advisor and the other by the differences between the stances of the two
Secretary-General of Federation of Indian representative organisations.

CII says… FICCI says…

When the negotiations began, the If India has to take a plunge into the
Indian side of the stakeholders were world of FTAs, then Singapore
asking “Why Singapore?” emerges as one of the ‘attractive’
partners. The reasons are not far to
seek…

The choice of Singapore as a Ceca It is obvious that any free trade


partner was a matter of official agreement with Singapore would help
recognition of the role played by India attain a “benchmark”, and raise
Singapore in the recognition that we our preparedness and ability to
had received from the Asean in the negotiate quality FTAs in future… A
post-Cold War period. The idea of carefully-crafted CECA would have
lndo-Singapore Ceca is, in this context, the benefit of expanding space for
a political, though not politically moti- bilateral trade, investment and
vated, decision. economic cooperation.

First, the idea of Ceca was imposed [That FICCI assumes India wants this
from the top. It is not an idea whose CECA is seen from sweeping
need was felt at the bottom layers of statements like]… Singapore is likely
the stakeholders. For the latter, it was to attract Indian investment in
given to accept and assimilate. Second, knowledge-driven activities such as
the joint task force also was left with healthcare, education, creative
little time for a wider consultation with industries and advanced IT.
the cross-section of stakeholders.

Ceca is highly ambitious and broad- Lower tax rates, flexible wage system,
based in scope; something for which skilled manpower, strong supply
the Indian stakeholders are probably chain, and world-class infrastructure
not ready. are only few of the advantages that
India Inc. can bank on while doing
business in Singapore.

…negotiations on non-trade issues [FICCI highlights only the economic


need to be allowed sufficient time and advantages of this CECA]
greater display of transparency
Bilateral Trade Agreements: Issues and Concerns for India 31

3.3 Think-tanks lock horns over FTAs


The Financial Express, Bangalore, Thursday, October 28, 2004

AMITI SEN method for determining the value added method, an value added method as the
New Delhi Feb 6 ROO. As per the method, any additional criteria of change determinant of ROO.
product, which has at least in tariff heading should be Officials said that this
Negotiation on the 40% value addition from the imposed. Under this method, was unacceptable to India as
second phase of the Indo- participating countries and at substantial transformation is it used the change in tariff
Thai free trade agreement most 60% imported inputs, said to occur if a good is heading rule in all its trade
(FTA), which is to replace could be considered to be classified to a different tariff agreements.
the early harvest scheme in originating from the heading than that of its The FTA between India
September 2006, has hit a participating countries. component materials after and Thailand is being
familiar road- block. production. Therefore, if the implemented in two phases.
Disagreement over the ideal India feels that the value of a product processed The first phase, also known
formula for determining rules percentage value addition in a country goes up because as the early harvest scheme,
of origin (ROO) of a product, method is not enough to of inputs like wages and rent, took off in September 2004
which had delayed the ensure that an imported the tariff heading of the final under which tariff reduction
implementation of the early product is not re-exported by product will not be much on 82 agreed items would
harvest scheme, has revisited a country as it does not stress different from the un ported take place in three years time.
officials negotiating the physical value addition. If product. It would thus not be In the first year, tariffs
second phase of the FTA. An input costs like wages and considered to be originating would be reduced by 50% on
agreement on ROO is an rent are high, then it could from the country. the 82 items and in the

* Created version of the original article.


important part on any trade artificially increase the value Thailand agreed to accept second year by 75%. From
agreement as it is used to of the final product even if the use of both September 1, 2006, both
determine whether a product very little physical value methodologies for countries would have duty
originates from the addition has taken place and determining ROO in the early free regime on all these items.
participating country and it could be passed off as harvest scheme after The second phase would
qualifies for duty-free originating from the prolonged negotiations. begin from then onwards and
treatment. participating country. To However, in the on-going the two countries would have
Thailand, like before, is ensure adequate physical FTA negotiations, it has gone a free trade regime by 2010.
stressing the use of value addition, India back to its earlier stand of
percentage value addition suggested that in addition to having just the percentage

3.4 US Opposes Limited FTA with India


The Economic Times, Bangalore, Wednesday, February 9, 2005

New Delhi, 8 February comprehensive. “I am not interactive session with the Business Council’s proposal
against free trade agreement Forum of Financial Writers. for a FTA between the two
United States today said between US and India, but it “I do not think it is practical countries in the services
it was against entering into a would have to be and desirable to have a FTA sector. He said an agreement
limited free trade agreement comprehensive,” US sector by sector,” he said. like North American Free
with India and any bilateral ambassador to India David Mulford’s observation came Trade Agreement (Nafta)
FTA will have to be C Mulford said at an in the wake of Indo-US with India would be hugely
32 Bilateral Trade Agreements: Issues and Concerns for India

ambitious. Mulford said US development because many and increasing standards of programme of reform
was very supportive of of the things that India wants living. “Subsidies in India because you have to modify
India’s goal to be a regional to do, especially are significant as compared what you really like to be
and global power and infrastructure financing, can to gross national product…in doing to satisfy other member
underlined steps it must take only be accomplished if it many cases these of the coalition who may not
towards this end. allows private markets to subsidies are not going to be as willing to support
“India has a very develop, Mulford said. those they are targeted at. reforms,” he said. “there is
aggressive The US ambassador said Reducing subsidies will free significant reform going on
vision for itself that is India needs to transform rural up resources for the and some of these reforms

* Created version of the original article.


dependent on producing economy, reform read estate government to fund the social look they can be done. If they
continuing economic growth and retail sector, put in place sector,” Mulford said. He said can be done they will have
at a very significant level. To string intellectual property India still has large barriers their own internal dynamics
do that, world class regime apart form to foreign direct investment and will create further
infrastructure is needed. rationalising subsidies. He (FDI). Movement in India on change,” Mulford said. He
Infrastructure has to be put said large scale foreign reforms is likely to be slower said tax reforms like VAT
on war footing,” he said. investment in retail would be less direct, Mulford said. would create a single market
“India has very sophisticated being efficiencies in the “Coalition (government) all over India and make it a
financial markets. They still system that products thereby makes it more difficult to more attractive Fdu
need liberalisation and “empowering the consumer” have a clearly defined destination. —PTI

3.5 Phase II of Indo-Thai FTA talks hit ROO bump


The Financial Express, Bangalore, Thursday, October 28, 2004

AMITI SEN determine whether a product


ensure that an imported said to occur if a good is
New Delhi Feb 6 originates from the product is not re-exported by classified to a different tariff
participating country and a country as it does not stress heading than that of its
Negotiation on the qualifies for duty-free physical value addition. If component materials after
second phase of the Indo- treatment. input costs like wages and production. Therefore, if the
Thai free trade agreement Thailand, like before, is
rent are high, then it could value of a product processed
(FTA), which is to replace stressing the use of artificially increase the value in a country goes up because
the early harvest scheme in percentage value addition of the final product even if of inputs like wages and rent,
September 2006, has hit a method for determining very little physical value the tariff heading of the final
familiar road- block. ROO. As per the method, any
addition has taken place and product will not be much
Disagreement over the ideal product, which has at least
it could be passed off as different from the un ported
formula for determining rules 40% value addition from the
originating from the product. It would thus not be
of origin (ROO) of a product, participating countries and at
participating country. To considered to be originating
which had delayed the most 60% imported inputs, ensure adequate physical from the country.
implementation of the early could be considered to be value addition, India Thailand agreed to accept
harvest scheme, has revisited originating from the suggested that in addition to the use of both
officials negotiating the participating countries. the value added method, an methodologies for
second phase of the FTA. An additional criteria of change determining ROO in the early
agreement on ROO is an India feels that the in tariff heading should be harvest scheme after
important part on any trade percentage value addition imposed. Under this method, prolonged negotiations.
agreement as it is used to method is not enough to substantial transformation is However, in the on-going
Bilateral Trade Agreements: Issues and Concerns for India 33

* Created version of the original article.


FTA negotiations, it has gone heading rule in all its trade under which tariff reduction countries would have duty
back to its earlier stand of agreements. on 82 agreed items would free regime on all these items.
having just the percentage The FTA between India take place in three years time. The second phase would
value added method as the and Thailand is being In the first year, tariffs begin from then onwards and
determinant of ROO. implemented in two phases. would be reduced by 50% on the two countries would have
Officials said that this The first phase, also known the 82 items and in the a free trade regime by 2010.
was unacceptable to India as as the early harvest scheme, second year by 75%. From
it used the change in tariff took off in September 2004 September 1, 2006, both

3.6 Singapore Ceca hits a roadblock


The Financial Express, Bangalore, Thursday, October 28, 2004

KG Wi t h t h e I n d i a n kind of value addition. preferential trade pacts and


NARENDRANATH & government firmly resisting These criteria are inter- Cecas being negotiated. New
P VAIDYANATHAN the move, Ceca negotiations related. For example, a Delhi thinks that it is crucial
IYER are now deadlocked and the CTH could, in practice, to have full compliance with
December 2004 deadline for require an obligatory ROO criteria because of
NEW DELHI, NOV 10: The ratifying the agreement may degree of value addition. Singapore’ s large exposure
proposed Comprehensive not be met. Sources said that to transit trade.
Economic Co-operation According to Singapore, which has already “The value addition criterion
Agreement (Ceca) between government sources, agreed to a 40% domestic alone may not serve the
India and Singapore has hit Singapore’ s insistence on value addition and a CTH at purpose as it factors in labour
a bump. The Singapore waiver from the ‘generic’ 4-digit level for the generic cost and profits as well.
government has made out a ROO criteria for a number ROO criteria for the FTA Nominal manufacturing
strong case for product- of products could result in with India, has pitched for a activities like cutting,
specific relaxation of the gross violation of the special dispensation for the repackaging, mixing etc
rules of origin (ROO) criteria principle of the rules of 480-odd items. During cannot be reckoned as
for over 480 items of trade origin, i.e., avoidance of trade bilateral negotiations with sufficient value addition,
in sectors including deflection. New Delhi, Singapore has even if the percentage norm
chemicals, petrochemicals, The three criteria of said that it would comply is met,” said a commerce * Created version of the original article.

food processing, electronics rules of origin are: fixed with any of the three ROO department official.
and automobiles. level of minimum value criteria for these items, Ceca, which comprises
It has rejected India’s addition in the relevant instead of complying with all investment as well as trade
proposal for simultaneous country, change of tariff the three criteria. in goods and services, is
application of all the three heading (CTH) at the 4-6 India, on the other hand, designed to include a free
ROO criteria for these items, digit level as per the WTO’s is learnt to have stuck to the trade agreement (FTA). India
saying they are “sensitive” harmonised system (HS) three criteria formula, which is keen to extract a liberal
as far as Singapore’ s code (defining the product) the country has generally regime on services from
economy is concerned. and specifications of the maintained for all free/ Singapore
34 Bilateral Trade Agreements: Issues and Concerns for India

3.7 India turns down Mauritius FTA proposal


Govt Apprehensive That Pact Could Aid Import Duty Evasion, Moots Preferential
Trade Agreement

The Economic Times, Bangalore, Tuesday, November 16, 2004

G Ganapathy agreements with Thailand, becoming a centre for re- population is just 1.25 million
Subramaniam Singapore, Asean, Gulf export of goods from other and the Indian side feels that
countries, South Africa and countries. This view was there are no major benefits
New Delhi 15 NOVEMBER Latin American countries. highlighted during the last for Indian Inc. on the other
Mauritius was keen on a FTA meeting of the India- hand, the benefits to
India has rejected a with India and new Delhi’s Mauritius joint study group Mauritius are significant as
proposal from Mauritius for decision has come as a on the proposed CECPA in the huge Indian market is
a free trade agreement (FTA) disappointment to the Port Louis. The Mauritius going through rapid growth.
sue to apprehensions that it Mauritius side. The FTA was side was informed that FTA To assuage the feelings of
could turn into a channel for supposed to be part of the was out of question. Mauritius government, the
goods from other countries comprehensive economic co- The official reaction of Indian side has offered an
to evade import dity in the operation and partnership Mauritius is awaited but the PTA and selective tariff
Indian market. agreement (CECPA) between Indian side feels there is no concessions through a

* Created version of the original article.


Stipulations related to India and Mauritius. scope for a rethink. The framework compatible with
rules of origin would not be According to proposed CECPA is on track World Trade Organisation
good enough to prevent such government sources, the and we (WTO) norms. Business
trade diversion and commerce department argues may offer a preferential trade competitiveness of joint
unintended benefits to goods that a FTA with agreement (PTA) instead of ventures, which will focus
from other countries, the Mauritius would result in the FTA sought by Mauritius, on exports to third countries,
Indian side feels. The move trade diversion, with the sources said. would be enhanced through
comes at a time when India island–nation located on the Mauritius is a very small such duty sops.
is working on trade Indian Ocean market as the country’s
Bilateral Trade Agreements: Issues and Concerns for India 35

3.8 India to align ROO on ASEAN model


The Financial Express, Bangalore, Thursday, January 20, 2005

PRESS TRUST OF thus making them more delayed due to differences basis in 2009, it could
INDIA liberal than those withother over ROOs as India was complicate matters, as ROOS
trading partners like insisting for 40 per cent value would be different for
NEW DELHI, Thailand, Singapore and addition plus change in tariff ASEAN and its individual
JANUARY 20: India will SAFTA, where the criterion head at six digit level. members Thailand and
adopt the Indo-ASEAN FTA also included change in However, later when Singapore with which
criterion for Rules Of Origin tariff head besides 40 per Prime Minister Manmohan negotiations were currently
(ROO) for all the other trade cent value addition. Singh visited that country to on. India has been pressing
pacts with Asian countries, Rules of origin govern attend the BIMSTEC for 40 per cent value addition
including Thailand and the process of determining summit, differences were plus change in tariff head
Singapore, and the commerce origin of products in a sorted out after his meeting with Singapore also.
ministry is expected to take particular country. with his Thai counterpart India and China are also
a proposal in this regard to The early harvest Thaksin Shinawatra. exploring the possibility of
the cabinet by February. scheme under the Indo-Thai The interim ROOs for an economic cooperation
This is being worked out to free trade agreement is early harvest into operation agreement which is at the

* Created version of the original article.


bring about uniformity in the already under operation and from September 1, 2004, joint study group stage.
rules and align them with a full-fledged FTA would were subsequently firmed up
ASEAN countries, which come into operation from at 40 per cent value addition
will serve as the model for 2006 while the first phase of and change in tariff heading
other trade pacts in the ASEAN agreement is at four-digit level besides
region, official sources told expected to come into specific rules for some
PTI. implementation from April products.
ROO with ASEAN One. Wi t h t h e A S E A N
have been agreed at 40 per It may be noted that agreement coming into
cent value addition only, Indo-Thai FTA had got operation on a full-fledged

3.9 Indo-Malaysian pact to be tightened on treaty shopping


India Pushes For Including ‘Limitation Of Benefit’ Clause
The Economic Times, Friday, November 19, 2004

Lubna Kably & Hema Treaty shopping arises when among the Asean in the case of the Indo-
Ramakrishnan a resident of a third country (Association of South East Mauritius tax treaty. Based
takes unfair advantage of the Asian Nations) countries, on this experience, India is
The ink has hardly dried beneficial provisions of a tax with bilateral trade recording on a high alert. Treaty
on the recently notified treaty between two other $3.2 billion and projected to shopping can be prevented,
revised tax treaty with countries, in this case— the cross $4 billion by this year- if there is a ‘limitation of
Malaysia. But India is set to Indo-Malaysian tax treaty. end. benefit’ clause in the treaty.
renegotiate this treaty mainly Malaysia is one of India’s There have been India is pushing for insertion
to prevent treaty shopping. largest trading partners instances of treaty shopping of this clause in the indo-
36 Bilateral Trade Agreements: Issues and Concerns for India

Malaysian tax treaty. It has clause exists in the indo- would help in recovery of (MoUs) to jointly bid for
adopted a similar stand in Malaysian tax treaty, it is the taxes from defaulting foreign projects in telecom,
other tax treaties that are process for such exchange companies that have assets infrastructure and
currently under renegotiation. on a continual basis that outside India in Malaysia. biotechnology.
“The Malaysian requires strengthening. This would be a reciprocal The revised tax treaty
authorities have given their Another crucial issue for arrangement. with Malaysia was notified
in-principle nod to the discussion will revolve The discussions with recently on October 12, 2004.
renegotiation,” according to around co-operation for Malaysia assume great Post renegotiations, the

* Created version of the original article.


senior revenue officials. collection of taxes. At importance, especially as amendments to the revised
Further, India will also present, in cases of tax they follow the visit of tax treaty will be brought in
hold discussion with the default by a foreign company, Malaysian premier Mr by a protocol to the tax treaty.
Malaysian authorities to India can only attach the Abdullah Ahmad Badawi to This means that the
strengthen the process of assets in India. India. agreement reached will be
exchange of information India hopes to negotiate During this visit, India attached to the newly revised
between tax authorities of the for insertion of the ‘collection and Malaysian companies treaty and will be part of the
two countries. While the assistance’ clause in the indo- entered into as many as 12 tax treaty.
‘exchange of information’ Malaysian tax treaty. This memoranda of understanding

3.10 FTA with Gulf hits a roadblock


The Financial Express, Bangalore, Thursday, January 20, 2005

HUMA SIDDIQUI GCC comprises countries has increased exported to GCC member
six countries — Saudi Arabia, consistently, it is not states from India include
NEW DELHI, DEC 12: Bahrain, Kuwait, Oman, commensurate with the gems and jewellery, textile
Despite a framework Qatar and the United Arab potential. During 2003-04, products, metal manufactures,
agreement signed with the Emirates (UAE). while India’s exports to GCC machinery and instruments,
Gulf Cooperation Council According to officials, were $7.02 billion, imports iron and steel etc, while major
(GCC) early this year, the the meeting that took place from GCC, excluding oil, was non-oil items imported from
proposed free trade agreement last month is suggestive of $3.25 billion. UAE is the GCC countries include gold,
(FTA) shows little signs of both India and GCC being second largest importer of organic and inorganic
taking off in the near future. desirous of exploring Indian goods, after the US. chemicals, non-ferrous metals
Commerce ministry has possibilities of giving a boost Saudi Arabia is the 16th etc.
expressed reservations about to their commercial and largest destination for Indian GCC had launched a
the tax structure since GCC economic ties, including trade goods. Oil and gas reserves customs union in January
is a tax-free destination. and investment. India and of the GCC region play a vital 2003 creating the biggest
According to official GCC had already signed an role in fulfilling India’s energy economic block in the West
sources, feasibility study is India-GCC framework needs and are integral to Asia with a combined GDP
on, and commerce ministry agreement on economic country’s energy security. of $330 billion. It has
officials will leave for the cooperation (FAC) in August. India-GCC trade, having approved a time table for
second round of talks with As per FAC, both sides become extremely diversified, monetary union planned for
GCC in Riyadh next month. have to consider ways and is not limited to oil and oil 2005 and a single currency in
* Created version of the original article.

In the first round of talks, last means to expand and products only. 2010, aiming at the formation
month, the issue of tax liberalise their trade relations, I n d i a ’s t r a d i t i o n a l of a trade block on the lines
structure was raised, officials including initiating economic ties with GCC have of the European Union.
said. discussions on the feasibility become stronger in recent An FTA in the region
Several more meetings of an FTA among them, make years, primarily due to will benefit India substantially
were scheduled to take place arrangements for setting up increasing imports of oil and as the six members control
to give a formal shape to of joint investment projects gas, growing trade and around 45% of the world’s
certain key areas for and facilitate corporate investment opportunities and recoverable oil wealth and
furthering economic and investments in various fields. presence of 3.5 million Indian 20% of gas resources.
commercial relations between Though bilateral trade workers in the region.
India and GCC, sources said. between India and the Gulf Major commodities
Bilateral Trade Agreements: Issues and Concerns for India 37

4.0 FTAs:
A ‘win-win situation’?
Free Trade Agreements are usually purported Ravi Raina is an excitable kind of guy. A director
as resulting in win-win situations for all the parties of Letha-Tech Associates, a leather exporting
involved. Ground realities counter this opinion. firm in Kanpur, he remains bubbly and
The kinds of influences that free trade agreements exuberant, even as he recounts an unpleasant
can possibly have on the various domestic sectors story, in what are difficult times for him. ''Two
of any economy are infinite and complex. For years ago, I met an American buyer, who said
instance, the imposition of an import duty on a that he wanted 60,000 rexin belts. We had no
certain good may protect domestic manufacturers work, so I did my costing and offered a
from competition, but might also hurt other ridiculously low price of Rs 22 a strip,'' says
domestic producers who might be using that Raina. ''He laughed at me and said your cost
imported good as raw material. It cannot be said should be Rs 6 a unit.'' That was what units in
that one influence is less severe than the other and China were willing to do it at. How? Because
therefore the duty should be imposed or done their cost of raw material was so much cheaper.
away with. The determining factors are ultimately, Eventually, that's the price Raina charged, as the
who is the more enthusiastic lobbyist, which American imported the raw material, supervised
research body was consulted, and which the work and even took the waste strips away.
individuals were the negotiators. It is hence beyond Raina made marginal money, but that's when he
the scope of this publication to represent them all. realised what India's small-scale leather
How the government regulates the domestic manufacturers were up against.
economic scene in the light of increasing trade From Rs 2.38 crore in 1998-99, his turnover dipped
agreements is also significant because this has to Rs 1.8 crore in 1999-2000. This year? ''I'm not
important ramifications for competitiveness. A sure if it'll even cross Rs 1 crore,'' says Raina.
reduction in the excise duties on Indian companies And profits? That's a dream. Earlier, Raina's
is a measure that has been welcomed by the company used to export to both Canada and the
industrialists who can remain competitive even United Kingdom, now it's only Canada. ''I am
with the intense foreign competition coming in quite sure that this is the case for all small
form around the world. tanneries across the country,'' says Raina.
38 Bilateral Trade Agreements: Issues and Concerns for India

What's gone wrong? Primarily the fact that we've Government Assistance? That's A Joke
already exploited most markets. Making an entry
into new markets like South Africa, Israel and In fact, sometimes the government is more of a
Turkey is expensive for small companies. Add hindrance. Take the leather chemicals business,
to that, the fact that the Chinese with their lower for instance. Till a few years ago, they were
cost of production are trying to beat the hell out competing successfully, on all fronts, against the
of us in the market. And don't forget the transnationals. Then, a vanaspati manufacturer
advantages that a large scale domestic was caught using imported refined tallow to
manufacturer has even in the export market. All blend with other vegetable oils. The government
three together are sounding the death knell for tried to solve the problem with a sledgehammer:
small leather exporters in the country. This, when it banned the import of animal oil altogether.
Indian leather exports are growing at an Now, fish oil happens to be an important
impressive 20 per cent annually. ''But it's the ingredient for some leather chemicals. So, not
large exporter who is cornering the benefit,'' says only did the government's move bust the leather
Raina. ''He can afford to work at 1-2 per cent chemicals business, it also increased costs for the
margins, we can't''. domestic leather business.
-- Business Today, April 21, 2001 -- Business Today, April 21, 2001
Small Industry: Indian Small Business, Small Industry: Indian Small Business,
Languishing at Death’s Door Languishing at Death’s Door

4.1 Cheap Sri Lankan imports hurt local copper markets


Industry alleges that the metal is being imported into India at zero duty
without the requisite value-addition
The Economic Times, Bangalore, Friday, February 11, 2005

Suresh Nair Sri Lanka under cover of 70,000 tonnes of copper may According to ISFTA,
Mumbai, 10 February the Indo-Sri Lanka Free have been imported into copper items can be imported
Trade Agreement (ISFTA). India. from Sri Lanka into India at
THE INDIAN copper What hurts the Indian The Sri Lankan zero customs duty, provided
industry, which has seen copper manufacturers most delegation, which is visiting 35% value addition is carried
profit margins eroding as a is that these quantities are India on February 11 to out in Sri Lanka. The country
being imported at zero duty
result of lowering of customs discuss the misuse of ISFTA, has no copper smelting
under ISFTA. Domestic
duty, is sinking in to deeper would find it difficult to face facility.
trouble as copper imports copper manufacturers sell Indian authorities who may Indian copper
from Sri Lanka have around 2.2 lakh tonnes of stand firm this time and crack manufacturers have alleged
reached alarming levels, copper in India while rest of the whip. Copper and that copper imported from
gobbling up around a third their produce is exported. aluminium in small quantities Sri Lanka has had an adverse
of the domestic manufact Estimates based on data constitute over 70% of Sri impact on the industry,
-urers’ market share. provided for the last six Lankan imports into India. pulling down the domestic
Copper is imported from months show that at least prices of copper, which is
Bilateral Trade Agreements: Issues and Concerns for India 39

priced at a months average manufacturers who use with director general of feel that by fixing a floor
LME prices plus the 15 % copper bought from domestic foreign trade (DGFT) deputy price for import of copper
customs duties and manufacturers have been the director P K Santra and scrap that are way below the
countervailing duty which is most effected as cable department of revenue, legitimate price of imported

* Created version of the original article.


equal to the excise duty paid manufacturers using duty deputy director Nazim Arshi, copper scrap, under in-
on copper that is 16%. exempted copper from Sri during their visit to Sri Lanka voicing becomes easy.
According to an industry Lanka can price its products copper units to verify if the During December 2004
official, copper remelted wire lower. necessary value addition was almost 6000 tonnes of copper
bars imported from Sri Lanka Indian copper producers possible have in their report remelted wire bars were
costs Rs 20,000 less per allege that 35% value observed that value addition imported in to India from Sri
tonne than the copper addition is impossible. A was shown only by under Lanka at nil duty.
manufactured in India. team led by ministry of mines invoicing of imported scrap.
Cable and enamel wire director Vinod Kumar along Indian copper producers

4.2 Anti-dumping duty on Chinese raw silk hits


domestic units
The Economic Times, Bangalore, Tuesday, February 15, 2005

Rajiv Jayaswal 15,000 MT of silk, whereas China is being checked,” a per kg whereas, the Indian
New Delhi 14 February it consumes 30,000 MT of government official said. georgette is sold at Rs 135
silk for both domestic and A group of silk exporters per kg in the Indian market.
Anti-dumping duty on exports (after value have approached the The quality of Indian fabric
mulberry raw silk from addition),” Mr Bimal government to reconsider its is far below the Chinese
China is doing more harm Mawandia, chairman, Indian decision of imposing anti one,” Mr P Jacob Samuel,
than good to the domestic Silk Export Promotion dumping duty. “We do not silk garment exporter and
industry. Shortage of raw Council (ISEPC) told ET The produce silk in enough former chairman ISEPC said.
material in the domestic anti dumping duty on raw quantity. Whatever little we Another fear is haunting
market has forced the silk silk (of grade ZA and below) produce domestically are silk garment and made up ex-
garment manufacturers to in 2003, has pushed up its below the required quality porters. China may capture
pay a premium for the price to $27 per kg from $ for high-end exports. We are, even our domestic market
Chinese silk fabric. 18 per kg. As yam and fabric therefore, dependent on the unless we remain
“The shortage of good manufacturing has Chinese silk,” Mr Atul competitive,” he added.
quality raw silk has put slowed domestically, silk Kumar Gupta, partner Significantly, China does
* Created version of the original article.

domestic yarn and fabric fabric is being smuggled Fashion House said. not have a significant
manufacturers under from across the boarder. According to exporters, domestic market for its silk
pressure. Instead of paying “Importers are also “despite restrictions and products whereas India has
anti-dumping duty to the misdeclaring grades of raw smuggling” Chinese silk a well-developed domestic
government, Chinese silk consignments coming fabric is cheaper than the silk market. In the global
companies have increased the from China in order to avoid Indian silk fabric. “Take silk trade, India is number
price of raw silk, assured of payment of antidumping georgette (a silk fabric of 60 two after China, which
their export to India. Indian duty. Therefore, every gram weight). The Chinese controls 90% of the over-$2.5
companies produce only consignment coming from fabric is available for Rs 102 billion market.
40 Bilateral Trade Agreements: Issues and Concerns for India

4.3 Duty cuts to help auto cos absorb FTA shocks


The Economic Times, Bangalore, Thursday, 10 February 2005

G Ganapathy The package could imports, primarily form the while other minor levies like
Subramaniam translate into benefit for Asean region. As of now, the national calamity cess,
New Delhi 9 February consumers in terms of imports duty on metals and automobile cess and
cheaper cars as well as two- plastics is around 20%. The education cess would persist,
To meet enhanced wheelers if the benefits of current expectation is that it the lower excise would also
competition arising from lower duty are passed on. may be brought down to a result in lower countervailing
concessional imports under Considering that competition range of 10% to 15%. The (CVD) on imports.
the free trade agreements would intensify once cheaper excise duty on components, Combined with a reduction
(FTAs) proposed by the imports start flowing due to however, is likely to remain in basic customs duty to 50%
government, the auto the FTAs, the industry might at 16%. from the current level of
industry is likely to get a have to share the benefits The Commerce and 60%, cost of importing cars
package of sops in the 2005 with consumers sooner rather Industry Minister has backed should come down
Budget. According to highly than later. the demand of the domestic significantly.
p l a c e d s o u r c e s , the The automobile industry industry as it wants a cushion The Commerce and
government is considering has sought scrapping of the to push through the FTAs. Industry Department has
halving of the additional additional excise duty on cars Otherwise, the auto industry supported the domestic

* Created version of the original article.


excise duty on cars to 4% which now stands at 8%. feels there would be strong industry’s case for tariff
and lowering of customs They had also called for resistance to inclusion of rationalisation since the total
duty on plastics and reduction on metals as well automobiles and components incidence of taxes is nearly
metals—key raw materials as plastics to 5% --at the in the early harvest 50% in the case of cars. In
for auto components. The same level as Asean’s. This programmes under these other words, half of what a
package would be rounded it is argued, is necessary to FTAs. consumer pays for a car goes
off with a reduction in import meet competition from The net result of the to the government in the form
duty on both cars as well as cheaper imports that may package would be excise of various taxes.
two-wheelers. materialise due to FTA duty of 20% on automobiles
Bilateral Trade Agreements: Issues and Concerns for India 41

5.0 Bilateralism/
Regionalism vs. Multilateralism

Another important issue is that of the interplay Kong is expected to be rather focused on services.
between the bilateral trade scenario, in which a This is why the General Agreement on Trade in
few countries are involved at once, and the Services is one agreement that warrants some
multilateral one in which all of 148 countries are study. The GATS has one article allowing
the players under the one umbrella – the WTO. individual member countries to enter into bilateral
Under the WTO are further agreements that deal trade agreements with each other as long as they
with specific sectors like agricultural products are more open than the GATS would expect them
(Agreement on Agriculture), non-agricultural to be. It is required that all the bilateral trade
manufactures (Non-Agricultural Market Access), agreements that WTO member countries enter into
services (General Agreement on Trade in Services), be notified to the organisation. Though an
intellectual property (Trade Related aspects of authorisation is not required, it is clear from the
Intellectual Property), etc. One important difference sections 1 (a) and (b), and 3 (a) of Article V in the
between the bilateral and multilateral frameworks GATS that the conditions are rather stringent.
is that with the WTO, the agreements are sector
specific, whereas, bilateral agreements are country Article V: Economic Integration
specific and generally include a whole range of
products – they are more comprehensive in that 1. This Agreement shall not prevent any of
respect. Each one has important influences on the its Members from being a party to or entering
other. These influences are so complex and into an agreement liberalizing trade in services
notoriously difficult to track that their ultimate between or among the parties to such an
influence on one specific country remains not only agreement, provided that such an agreement:
intensely debated but also a bone of contention (a) has substantial sectoral coverage, and
between stakeholders and government, and (b) provides for the absence or elimination
between the different power players. These issues of substantially all discrimination, in the sense
have raised serious questions about the WTO of Article XVII, between or among the parties,
leadership as well. in the sectors covered under subparagraph (a),
The upcoming 6th WTO Ministerial in Hong through:
42 Bilateral Trade Agreements: Issues and Concerns for India

(i) elimination of existing discriminatory It is partly a violation in these conditions that


measures, and/or the WTO bureaucracy sees as a thorny problem.
(ii) prohibition of new or more discriminatory But more importantly, it must be noted that the
measures, GATS does permit countries to negotiate bilaterally,
either at the entry into force of the agreement and does not require authorisation; then expecting
or on the basis of a reasonable time-frame, except countries to tow the multilateral line is expecting
for measured permitted under Articles XI, XII, too much. After all, negotiations on individual
XIV and XIV bis. products and, probably more importantly,
3. (a) Where developing countries are parties exchange of political or economic favours is
to an agreement of the type referred to in possible and is wanted only with a few other
paragraph 1, flexibility shall be provided for counties - not with 147 others. India’s stand on
regarding the conditions set out in paragraph 1, this issue is unclear in that it openly supports WTO
particularly with reference to subparagraph (b) negotiations at the WTO’s Ministerial Meetings
thereof, in accordance with the level of and simultaneously hits the silver number of
development of the countries concerned, both bilateral/regional trade agreements.
overall and in individual sectors and sub sectors.

* Created version of the original article.


5.1 Regional pacts threaten global trade talks

The Financial Express, Bangalore, Thursday, January 20, 2005

A top world trade agreements threatens to interested in multilateral the office of WTO in
organisation official has wreck global trade agreements and it is time we Santiago on Saturday.
warned that a growing web negotiations. “there are more did something on this,” said
of regional trading voices saying we are not Stuart Harbinson, director in
Bilateral Trade Agreements: Issues and Concerns for India 43

5.2 WTO hampered by ’spaghetti bowl’ deals


The Financial Express, London, Monday, January 17, 2005

By Alan Beattie, World proposed a series of tangible every two years, and for poor drivers, each seeking a
Trade Editor but limited reforms, was countries to be given the right different destination, with no
commissioned by Supachai to aid and technical assistance map and no intention of
The World Trade Panitchpakdi, the WTO’s to implement new asking the way.”
Organisation is being current director-general, amid agreements. But the report stopped
undermined by the fears that the current Doha It also called for the short of proposing radical
intransigence and short- round of trade talks was WTO director-general to play changes to the decision-
sightedness of its member revealing strains in the a stronger leadership role, making processes in WTO
countries, according to the system. noting that the position had negotiations, once described
report of a high-level It said that the “spaghetti evolved into one of as “medieval” by Pascal
commission released on bowl” of bilateral and “international spokesperson Lamy, the former European
Monday. regional trade deals was and marketing executive” Union trade commissioner
The commission, led by undermining the principle of rather than the leader of and candidate to replace Mr
Peter Sutherland, former treating all trading partners world trade talks. Supachai as head of the
WTO chief, said the equally. The report argued The WTO has always WTO.
proliferation of bilateral trade that the best way of been regarded as a system There were good
agreements outside the WTO combating this would be to driven by its member reasons for decisions to be
process was betraying the outflank bilateral agreements countries rather than by the taken by consensus, as at
multilateral ideals that with a multilateral deal for director-general and the present, it said, since this
underlay the WTO and its far-reaching cuts in trade Geneva-based secretariat. gave more leverage to poor
forerunner, the General protection, and urged rich But the report said: “A countries.

* Created version of the original article.


Agreement on Tariffs and countries to set a date for the member-driven organisation But the potential for
Trade. complete elimination of trade is a valuable concept...as long gridlock among the WTO’s
“The reality today is that tariffs. as the vehicle is being driven 148 member countries meant
the WTO presides over a Other specific carefully in a direction that any nation wanting to
world trading system that is suggestions included consistent with its overall block a measure that had
far from the vision of the increasing political objectives. In recent years, widespread support should
architects of GATT”, the involvement by requiring the impression has often been give the reasons in writing
report said. ministers to meet annually given of a vehicle with a why it was contrary to its
The report, which for WTO talks, rather than proliferation of back-seat vital national interest.
44 Bilateral Trade Agreements: Issues and Concerns for India

5.3 There are many promises to keep


The time is right to reflect on the ramifications of non-tariff measures
The Financial Express - insight - THE FUTURE OF THE WTO, Bangalore, Wednesday, February 9, 2005

Rajesh Mehta regional/bilateral can probably give some offer improved dispute
arrangements are crafted preferential tariffs. However settlement procedures. Some
THE World Trade not it should be remembered that notable success was also
Organisation (WTO) is 10 for promoting trade, but though Singapore has a low achieved in reaching
years old — the youngest for ‘political’, and level of tariffs, it has not substantive agreements
multilateral organisation, to economic diplomacy bound tariffs of a large clarifying the system that
be born from the old Gatt “cartel” for negotiations, number of industrial products members may use.
system. The main objectives etc. Slow progress of in the WTO. Singapore has Nevertheless, many of
are similar to those of other multilateralism may be given tariff binding for only the rules fall short of
multilateral organisations: to another reason for the 65% of industrial effectively controlling the use
lift the living standards, proliferation of the PTAs products/lines. Further, a of NTMs. There are instances
generate employment and and FTAs. large number of lines (2,506) of flagrant violation of these
accelerate economic growth India has already signed are bound at 10%. rules, or their unreasonable
by negotiating market access. free or preferential trading PTAS can prove to be a application. Some of these,
However, unlike Gatt, WTO arrangements with a large building block for future such as anti-dumping, are
is a rules-based system and number of countries, such as agenda of WTO. The India- used sometimes to foster a
is trying to push its agenda Sri Lanka, Thailand, Asean, Singapore PTA will probably climate of uncertainty for
through these rules. In this Mercosur, etc., and plans are also have arrangements for foreign suppliers, and or a
process, some member also on to sign PTAs with many other sectors, including method of harassment
countries are facing real many other countries, market access for ‘services’ designed to bring about
problems in implementing including Singapore. and ‘agriculture’. In the WTO changes in foreign trading
existing WTO programmes. Keeping in view the trade negotiations, market access practices and policies. In the
A major challenge to policy regime of Singapore, in agriculture and services same way, domestic policies
WTO is the proliferation of the question is how much are going to be on the top of and regulations may also
free and preferential additional market access a the future agenda. The result in a variety of
regional /bilateral trading country like Singapore can agriculture and services impediments to trade,
arrangements. More than provide to goods through sectors constitute a sizeable depending upon their intent
half the existing 300 tariff concessions or share of the world economy. and behavioral responses that
regional/bilateral trading preferences in bilateral Negotiations in these sectors are induced.
arrangements have trading arrangements. It is must take into account The ascent of NTMs
emerged in the past 10 apparently clear that problems of poor countries. holds special significance to
years. Currently, a major Singapore can provide very Many countries are developing countries. They
portion of international little tariff preference (or resorting to a form of have had difficulties in
trade is being carried out concession) to India, because administered protection accessing developed country
* Created version of the original article.

through preferences it applies tariff rates only on known as non-tariff measures markets because of restrictive
granted in these four commodity lines in the (NTMs) . In the Uruguay standards, burden some
arrangements. A large beverages industry. The Round, the approach was to regulations, and expensive
number of these PTAs will t a r i ff s o n a l l o t h e r bring existing barriers in to compliance. This is an
become redundant if tariffs commodities tariff lines are the realm of multilateral opportune time to reflect on
and other trade barriers zero. negotiations, strengthen rules the NTMs.
are eliminated in future. India does not have governing their use, develop
But a regrettable fact is that export competitiveness in the surveillance mechanisms to The writer is senior fellow,
some of these four lines where Singapore enforce compliance, and RIS. The views expressed are
Bilateral Trade Agreements: Issues and Concerns for India 45

5.4 A decade of influence and growth


It has emerged as a powerful body, but its constitutional needs revisiting

The Financial Express - insight - THE FUTURE OF THE WTO, Bangalore, Wednesday, February 9, 2005

James Nedumpara initiative. It is true that some consent of all members for bilateralism/regionalism is
of the issues, such as trade an affirmative decision often beset with internal
The traditional role of facilitation, competition had almost broke the process. power disparity and could
Gatt, the predecessor of normative linkages with trade Particularly the inability of eventually beget
WTO, was to eliminate tariff and could have ideally linked political organs to take unilateralism. Considering
and non-tariff barriers as well to market access, whereas decisions brought adverse that an integrated, more
as to reduce trade-distorting certain other issues, such as comments on the consensus viable, durable multilateral
practices such as subsidies investment, labour had only approach, to the effect that trading system is the telos of
on commodities. But with the strategic linkages. Although WTO is a medieval WTO, the organisation has
establishment of WTO, the some of these issues occupied institution, not open to the to devise a mechanism to
traditional role changed. the centre stage of discussion realities of geo-politics. review the spawning
Trade rules, apart from for some time, it augured In other words, political preferential trade
affecting business well for the system that most stalemate and an increasingly arrangements (PTAs) and
opportunities in external of such issues, except trade active dispute settlement their consistency with the
market, affect numerous facilitation, have found their system could provide the WTO rules.
social, environmental, way out from the ongoing right recipe for judicial The WTO rules
development, cultural and round of negotiations. activism. The mechanism for concerning PTAs are rather
ethical concerns. Now, 10 One of he significant giving a somewhat large role imprecise and the existing
years after the establishment achievements of the Uruguay for the key countries may be mechanism for review of
of the WTO, one can Round was that it introduced necessary if the system has PTAs is not at all
proclaim that the WTO is no the concept of “one country, to be durable, although this satisfactory. The WTO has
longer a commercial contract one vote,” with consensus may not exactly be desirable. achieved great deal of
with provisions the member forming the underlying Perhaps this is an area where transparency in regard to
governments can interpret in philosophy. The reasons for the WTO constitution should member countries’ trade
their own way, or withdraw consensus voting are not be revisited. and regulatory policies, but
at their convenience. necessarily that it is popular, The multilateralism often attracts the criticism
The WTO, in its short but for both developed and advocated by WTO suffered that its own operations are
life, has emerged as the most developing countries, it is the serious setbacks in the wake steeped in secrecy. Its
stable, influential and least bad alternative. The of failures of the ministerial constitution does not posit
powerful organisation consensus approach at the conference meetings at openness and transparency
dealing with international WTO was highly successful Seattle and Cancun. The new as a fundamental feature
economic relations. In recent in the context of dispute move to bilateralism and of the institution and limits
times, its trading system has settlement, where it required regionalism, at least in the access to governments and
come under stress because a consensus vote to prevent short term, tends to promote their representatives. It is
some member countries the authority from not mercantilist outcomes among desirable that social and
proposed to broaden its adopting a report. Whilst in the members at the expense economic actors need
agenda. The so- called the context of political of the non-members. It is also information about how the
“Singapore issues” could be decisions, the consensus felt that the inherent trading system could affect
characterised as one such approach which required the discriminatory nature of them. For instance, the
46 Bilateral Trade Agreements: Issues and Concerns for India

submission of amicus curiae issues, including the


briefs in WTO dispute International Court of Justice, ‘reciprocity’. The call for free in areas where they have
settlement has attracted International Tribunal for the trade will have little appeal comparative advantage.
widespread controversy in Law of the Sea and the if the interests of the WTO as an institution has
the past. The civil society European Court of Human developing and LDCs are not also to ensure that that prior
heralded amicus discussions Rights are open to the public. given acceptance. In this commitments are respected

* Created version of the original article.


as a significant development, It could, therefore, be argued offer and exchange of in letter and spirit if it has to
but many members felt that that WTO should promote concessions, the concept of preserve its credibility.
allowing non-governmental openness, subject to adopting special and differential
parties access to the judicial measures to ensure that the treatment, based on “less The writer is with UNCTAD,
process is not mandated control is not lost non-state than full reciprocity” Delhi. The views expressed
under the agreements. It may actors. occupies an important place. are personal
be noted that a number of Lastly, WTO is a venue It is, therefore, essential that
international fora that deal for negotiations and operates liberal market access is
with inter-governmental on the principle of extended to these economies

The statement…
5.5 ‘Go the whole hog on regional trade ties’
The Economic Times, New Delhi, Wednesday, November 17, 2004

OUR ECONOMIC agreement (CECA) with emphasis today is on on the post multi-fibre
BUREAU Singapore and is interested employment generating agreement scenario he said
in greater economic co- exports as opposed to dollar the European Union was
Commerce and industry operation through Safta generating exports as in the excluding India from the
minister Kamal Nath said at (South Asia free trade past. India needs to enhance generalised system of
the economic editors con- agreement), its capability for export of preferences (GSP) as it
ference here on Wednesday, South Asian Association for value-added products.” qualified high and did not
that bilateral trade agree- Regional Co-operation Indian merchandise exports need these preferences.
ments will serve as engines (Saarc) and Association of are surging and are likely to The government, * Created version of the original article.
for international trade. South-East Asian Nations touch $75 billion. If we however, has managed to
India would prefer to (Asean). subtract oil imports our retain India as part of the
term such co-operation as Globally, at least 50- exports exceed imports today, system. “While textile
economic partnership rather 60% of trade is already he added. exports to the US are likely
than free trade agreements outside multilateral system. “The government will to go up from 4% to 15%
(FTAs),” he said. The country Regional and bilateral trade also conclude all trade related with the dismantling of MFA,
is already in the process of is on the rise. India should issues with Bangladesh Indian textile industry must
finalising comprehensive also go by this trend. within three months,” he said. consolidate,” he added.
economic cooperation Mr Nath said, “the - Addressing a question
Bilateral Trade Agreements: Issues and Concerns for India 47

The knuckle rapping…


5.6 Don’t go whole hog on FTAs: Supachai
The Economic Times, New Delhi, Monday, December 6, 2004

OUR ECONOMY general said, “Multilateral markets”, they cannot let the Mr. Supachai said that
BUREAU shou1d retain its primacy organisation (of world trade) there were no longer any
over bilateral trade move forward in multiple irreconcilable conflicts
WTO director-general agreements.” tracks. At the same time, he between the north and the
Supachai Panitchpakdi on He added, “These conceded that special south, and there should not
Monday cautioned India agreements (FTAs and RTAs) treatments are needed to be any wither among the
against going the whole hog have brought down tariffs by safeguard the interest of poor developing countries. Many
with regional trade 10% or so, whereas the nations, as many countries countries, for instance,
agreements and free trade multilateral process under the have not benefited from believe that with
agreements. He said WTO WTO has reduced tariffs by multilateral trade as they liberalisation of agriculture,
would institute a mechanism around 25%”. should have. “The WTO many will lose tariff and
to ascertain whether FTAs The rules of origin - must look global,” he said. other preferences they
and RTAs contributed to the meant for adversarial trade Mr. Supachai advocated currently enjoy.
multilateral process of deflection – and complexity a five-pronged approach for While he was
integrating and easing world of tariff lines that the FTAs developing countries. appreciative of the fact that
trade. would bring in are “both Through their powerful South-South trade had
Speaking at the India confusing and costly,” Mr grouping G-20, developing increased from 6% to 10%,

* Created version of the original article.


Economic Summit, Mr Supachai said, adding that countries are increasingly interests of the least
Supachai said that Indiamember-countries of the asserting their rightful place developed countries must
WTO have rights as well as
would benefit more by using in multilateral negotiations, also be taken care of. “Apart
its energy for early obligations to fulfill in order he said, referring to the from benefiting they
conclusion of the Doha to strengthen the mu1tilateral agricultural package in the (countries like India and
trading system.
Round in WTO, rather than August 2004 framework South Africa) must lead and
entering into FTAs and Developing countries agreement for further uplift the lesser developed
RTAs. Making his choice must realise that with their negotiations on Doha Work countries”, he said.
clear, the WTO director new authority as “emerging Programme.

The resulting conflict…


5.7 India, WTO lock horns over FTAs
RTAs will drive global trade: Kamal Nath
The Economic Times, New Delhi, Monday, December 6, 2004

OUR ECONOMY attached importance to the agreements will be building through RTAs in the next 10
BUREAU multilateral trading system. blocks and drivers of global years. “There are over 200
Addressing the plenary trade. The multilateral system RTAs in operation, and it is
India made it clear on session on international trade cannot drive south-south estimated that over half of
Monday that it would aggres- commerce and industry trades.” global trade now takes place
sively push for more regional minister Kamal Nath said, According to him, 60- within the umbrella of some
trade agreements, though it “Economic cooperation 70% of world trade will come RTA or the other,” he said.
48 Bilateral Trade Agreements: Issues and Concerns for India

Indicating that agricul- a bid to attract state-of-the- phase out of quotas under the there are forces as well to
ture will remain a con- art technology India multi-fibre agreement and negate this and we shall not
tentious issue in the course welcomed FDI both as a expiry of the Agreement on allow it,” Mr. Nath said.
of WTO negotiations, Mr source of capital as well as a Textiles and Clothing. The minister said that
Kamal Nath pointed out vehicle for technology The phase out would be there is a growing need to
that the developed world transfer, he said, adding, effective from January 1. consolidate the gains while

* Created version of the original article.


extended $1 billion as sub- ‘technology alone can enable “The expiry of being vigilant on the
sidies to farmers. Indian developing countries to do Agreement on Textiles and emerging trade policy
farmers could not compete the catching up.” Clothing does not ensure that conditions to be able to
with western governments, The minister also said protectionism will disappear collectively resist pressure
he said. that India will resist all kinds form the stipulated date. for any new form of
The minister also said of pressures for any new While developing countries protectionism in the sector.
that the government would form of protectionism in the poise themselves to fully
soon come out with a new world exploit the opportunities that
technology transfer policy in textile trade following the will open up before them,

The compromise…
5.8 All FTAs to go beyond trade
The Financial Express, Ceca between India and Singapore

KG Delhi on Tuesday “Cecas Progressive reorientation Lanka. The preferential


NARENDRANATH might be a more saleable of the components of the trade agreement (PTA)
proposition in multilateral agreement would be with the South Africa
In a major policy shift, fora,” is how an official possible, he said, whereas Customs Union (Sacu)
the Government has decided phrased it. bilateral agreements have would be merged with a
to convert all preferential/free PTAs/FTAs usually a limited mandate. new Ceca with South
trade agreements (PFA/FTA) involve structured reduction The UPA government Africa.
into comprehensive in tariffs between two also wants to allay domestic Other proposed
economic cooperation countries. Cecas would cover concerns over FTAs harming alliances with Russia,
agreements (Ceca). This goes preferential relaxation of FDIIndian industry and China and Israel would also
b e y o n d t h e U PA rules vis-a-vis the partner consumers “While FTA be Cecas, rather than mere
Government’s bid in recent country tax holidays on proposals are seen with FTAs, officials added. The
months to embrace bilateral- investment and income, scepticism by sections of the proposed agreement with
ism aggressively. easing of visa restrictions etc.
domestic industry, the PTAs the Gulf Cooperation
The decision seems to Trade in services too would often give an impression to Council (GCC) is envisaged
* Created version of the original article.

be aimed at mollifying the come under the purview of a the partner-country that it is to be a Ceca. So is the
World trade Organisation Ceca. highly restrictive,” the India-Singapore
(WTO), whose director- An official said the new official said. agreement.
general Supachai arrangement would make The proposed free
Panitchpakdi cautionedthe ‘distance and content’ trade agreements (FTAs)
of such agreements open-
India against going the with Thailand, Mercosur
ended and lead to greater,
whole hog with PTAs/FTAs and Asean would now be
at the World Economic continuous engagement made Cecas. This has
Forum’s summit in New between the two countries. already been done with Sri
Bilateral Trade Agreements: Issues and Concerns for India 49

6.0 Sulfurous Denunciation

6.1 An India-US FTA: Free Trade for America?


By Shefali Sharma and handicap government (and industry) ability
EQUATIONS, Bangalore to pursue long-term development strategies.
September 1, 2004 Insight into how the US has treated its “FTA
partners” both weak and strong can give us an ex-
[www.bilaterals.org, posted September 13, 2004] ante look at what India can expect when the US
comes to the “negotiating table.” This article
There are rumours that the Congress-led presents a brief and preliminary look at
Government is set to decide upon a potential free implications of an India-US FTA through a wider
trade agreement (FTA) with the US government. lens. It addresses the India-US economic
Strong lobbies such as NASSCOM (National relationship, the US FTAs with other countries
Association of Software Companies) are pushing and lessons India can draw from potential impacts
an FTA for services with the belief that it will on the economic, political and social fronts.
resolve their BPO (business process outsourcing) India and US economic relations: A balance of
problems. Those painting glowing “all gain, no payments?
loss” scenarios of an FTA where Indian companies According to a Business line article, the US
can “render unhindered services in the US” and now accounts for 28% of India’s trade. The total
where Indians “can take up jobs without worrying value amounts to $18 billion/year. Two lakhs
about H1B visas” seem to be utterly ignorant of Indians are currently employed through BPO,
the complex politics and legal loopholes of trade most for US companies. The US is also India’s
negotiations (much less of internal US politics and biggest investor at 20% of the total FDI. On the
the global competitiveness of Indian services). A other hand, India accounts for less than 1% of the
reality check is in order. US global trade. Apparently India’s “untapped
While India has played cautiously in the WTO retail market” values at $180 billion and is predicted
on services and investment, a potential India-US to double by 2010. The implication, according to
FTA now could undermine its work in the WTO this Business line article, is that India needs the
US much more than the other way around,
50 Bilateral Trade Agreements: Issues and Concerns for India

especially when it comes to trade and investment. Agriculture


However, the reality of who benefits from
whom might be something else. In agriculture (a Hiding behind the European Union, the US is
sector India is keen to promote in the export actually one of the biggest contributors of low
market), the trade to the US in edible fruits and world prices of major agriculture commodities
nuts declined by 13% and from coffee and tea by (wheat, corn, cotton, soybeans, rice etc.). A US
4% in 2003. On the other hand, US trade to India based NGO, the Institute for Agriculture and Trade
in fertilizers increased by 206% in the same year. Policy (IATP) calculates US “dumping” (the selling
India’s cotton yarn and fabric trade to the US of products below the cost of production) of crops
dropped by 12% while from the US increased by as 57% below the cost of production for cotton
40% to India. India is the next biggest destination from 1990-2001, 30% below the cost for corn and
for US products after China with a growth of over 40% below the cost for wheat. The mass quantities
22.5% in 2002. In the same year, services exports of these crops distributed by powerful US
(though economists admit that statistics are hard agribusinesses in turn put local farmers in
to track) from the US to India were double those developing countries out of business because they
from India to the US in with US accruing $6.8 can no longer compete with the cheap imports
billion and India, $3.5 billion. Perhaps, the US from the US. These imports also crowd out
“needs” India more than we think it does. The US developing country exports.
has a $300 billion services industry that is eager The US is an aggressive agriculture negotiator
to get its hands on India’s growing market. What in FTAs, demanding extremely low or zero tariffs
will happen to the Indian Services industry when on commodities and regulatory changes in
the floodgates open? The Business line article asks: agriculture schemes. Mechanisms targeted are
“Can New Delhi afford to antagonise Washington often those that protect countries from US
however much its backlash on BPO seems dumping. This is clearly visible in the case of
unreasonable and against the tenets of free trade?” Mexico and Chile.
The solution proposed is an FTA. However, before In Mexico, there are at least 2 million corn
jumping on the FTA bandwagon, perhaps India producers. Mexico was importing 2.5 million tons
needs to weigh how other US FTA partners have of corn prior to NAFTA (1994). By 2001, it was
fared in this game. importing 6 million tons of corn that the US sold
The US Negotiation Agenda in FTAs: A look at 30% below the cost of production. Mexican corn
at the weak and strong prices paid to farmers fell by 70% after large
The US has been steadfast and unrelenting in quantities of US yellow corn was dumped on the
its commercial interests in FTAs, acquiring Mexican market. Even as Mexican farmers (who
commitments from both strong and weak nations had no other employment alternatives) produced
that far surpass any commitments the US is able 18 million tons of corn in 2001, 3 million went
to get through the WTO. The European Union is unused. This has created immense political
playing a similar game. The race is on between problems for the Mexican government and
the two major powers on who can capture contributed to severe poverty amongst corn and
developing country markets faster. Covering all other farmers in Mexico who comprise 70% of the
areas-- intellectual property; agriculture; services; Mexican population.
manufacturing; investment and even government Chile used to have a “price band” system that
procurement--the US has negotiated well for its would stabilize the prices of cheap imports such
multinational companies. Here are some key areas as wheat and sugar in order to support its 200,000
where the US has been able to gain: farmers who specialize in products such as wheat,
dairy, beats (which they primarily sell to their
Bilateral Trade Agreements: Issues and Concerns for India 51

domestic market). The US agribusiness sold wheat investment treaties and in the most recent US
to the world market at 44% below the cost of FTAs), investors can sue host country governments
production in 2001. When Chile negotiated its FTA for an alleged breach of IIA rules and obligations.
with the US, it was forced to remove this price The claim can be brought either to the ICSID (the
band. International Center for Settlement of Investment
Disputes, at the World Bank), UNCITRAL (United
Intellectual Property: Access to Medicines Nations Commission on International Trade Law
or other arbitration bodies. Under these systems,
Another area of key US interest is intellectual the companies and governments fight it out behind
property (IP) rights and thus markets for its closed doors, the public unaware of the
pharmaceutical and biotech industry. The US proceedings.
typically demands monopoly rights of patents up As a result of such an “Investor-State” suit
to 20 years. It also demands provisions that limit under NAFTA, Mexico was ordered to pay around
governments from enacting laws that promote $16.7 million to an American company (Methalclad
cheap generics and issuing compulsory licenses Corp) because Mexico’s local administration
to combat epidemics. Such licensing allows rapid prohibited the company to build a toxic-waste
and cheap distribution of drugs in times of crisis. dump in the area . The company saw this as
In country after country, the US has targeted IP “expropriation”-denying the company profits that
laws and forced governments to adopt WTO-plus it felt it was owed. In another case, the US’s United
commitments thereby violating the WTO Parcel Service (UPS) challenged Canada for
declaration that recognizes the right of denying it similar treatment as was granted to the
governments to regulate in the interest of public Canadian Postal Service (essentially UPS claimed
health. that Canada denied it market opportunity for
In the Australia-US FTA, Australia is fighting delivering packages).
to preserve its Pharmaceutical Benefits Scheme These examples show that local and national
(PBS) which the US congress might find laws and regulations could be subject to court
objectionable. Immense pressure has been put on claims if they are considered to violate IIA rules
Australia to change its scheme that allows and obligations. These could also include
consumers to benefit from affordable medicines. obligations to refrain from using certain
Negotiations between the US and Bahrain are performance requirements (a policy tool essential
resulting in similar conditions placed on Bahrain to ensure that countries benefit from FDI)
that would limit its ability to bring and market regardless of the public good they may provide.
generics for Bahrainian consumers. It is generic Essentially, Investor-State processes grant more
medicines that induce competition for lower priced powers to foreign companies than to governments
medicines. AIDS anti-retrovirals that once cost up and their national interests. Such processes are an
to $15,000 now cost $140/year/patient. The US is essential feature of recent US FTAs, such as the
demanding similar provisions in FTAs with Singapore-US.
Australia, Chile, Morocco, Singapore and in the
Latin America-wide Free Trade Agreement of the Services
Americas (FTAA).
Similarly, US FTA negotiations on services are
Investor to State extremely ambitious and demand drastic and
unconditional cuts on tariffs while major elements
An important feature in the US approach of services negotiations are still ill-defined and
towards international investment agreements unclear in the WTO GATS negotiations (such as
(IIAs), is Investor-State dispute settlement. Under classification, government regulation and rules
these rules (enshrined in NAFTA, in many bilateral regarding government procurement and subsidies).
52 Bilateral Trade Agreements: Issues and Concerns for India

The US services industry usually knows exactly dumping on Indian farmers since all of the US
which national and sub-national laws of any given support schemes come under “non-distorting” or
country to target for market access-this is obvious “minimally trade distorting” categories in the
from the few leaked US GATS requests in Geneva. WTO. Over 60% of India’s population depends
Meanwhile, understanding US national, state and directly or indirectly on agriculture and currently
municipal laws and regulations on various services the countryside is in deep trouble.
sub-sectors requires expertise that the Indian Rural farmers are being “squeezed between
services industry and the government is currently falling output prices and rising input prices” with
ill-prepared to handle. limited support from India’s banking structure for
Industry pundits such as CII’s Senior Advisor, credits. As a result, numerous farmer suicides and
TK Bhaumik rightly suggests that most of India’s increased landlessness in the last six years have
services are still unorganized and the time has not occurred . It has, in turn, drastically reduced the
yet arrived to engage in a sweeping services purchasing power of 60% of the Indian population,
agreement with the US. He notes: one or two strong even to purchase foodgrains. This phenomenon
sectors (i.e. software) “does not make the whole led to the famous “60 million tonnes” of foodgrain
sector competitive.” Importantly, he suggests that stocks in 2002 even as many in the countryside
an FTA on services would have implications for went hungry. During the following year and half,
other sectors such as industrial goods-another area India exported 17 million tones of foodgrains.
of aggressive market interests for the US. According to Utsa Patnaik’s research, the latest
NSS survey of 1999-2000 cites 75% of the rural
Implications for India population in India as suffering from poverty. In
Andhra Pradesh, one of the largest agriculture
Economic and Social Consequences producing states, as much as 84% of the rural
population was in poverty.
In February of this year, US Trade Before India engages in further tariff reductions
Representative (USTR) Robert Zoellick stated that in goods or services (as it continues under-investing
India’s average applied tariff in agriculture is 38%, in the agrarian sector and/or is prevented from
three times the level of the United States and the doing so through FTAs and multilateral
US manufacturing tariff at 3% compared to India’s agreements), it might want to reconsider the dire
20% . And he wants further reductions from India. economic and social consequences for the majority
Given that of the Indian population. Without purchasing
the WTO has taken away other types of border power, there is no Indian market to speak of, be
measures, tariffs are the last remaining resort for it for domestic or foreign companies.
India to collect revenues and to protect its domestic
agriculture and manufacturing industries. In an Political Consequences
FTA, these applied rates would drastically come
down with the US having to make little An FTA with US will have broader political
compromise from its own minimal tariffs. impacts. In May of this year, the US named India
Meanwhile, agriculture dumping and protection once again on its “Special 301 Priority Watch List”
of its steel and other manufacturing sectors would for “weak protection and enforcement of its
continue. intellectual property rights laws.” From 1992-2001,
India boasts of having protected its small the US removed India from its Generalized System
farmers and allowed for potential to export of Preferences (GSP) scheme which allowed duty-
agriculture into the world market through its new free entry to Indian products valued up to $1.1
deal at the WTO in July of this year. The reality is billion. It did so, on the grounds of “inadequate
that actual details are yet to be negotiated in the intellectual property rights protection” .
WTO and will do nothing to curb US agriculture Clearly, though India has made its intellectual
Bilateral Trade Agreements: Issues and Concerns for India 53

property laws WTO compatible, the US is watchful cater towards US interests at the threat of economic
of its IP interests and is targeting India. The more sanctions. It is a double-edged sword.
dependent India is on the US market (as opposed Clearly, the US unashamedly used the trade
to numerous markets in demand of India’s cheap weapon with Chile during the finalization of the
medicines), the more vulnerable India will be to Chile-US FTA when Chile refused to support the
economic and political pressures by the US. This US war in Iraq. The formal signing of the agreement
is at a time when India’s AIDS epidemic is just was held up for several months when Chile refused
coming to light (5.1 million Indians recorded as to give its support to the US at the UN. USTR’s
infected as of 2003). India’s ability to produce and Zoellick was quoted as saying “the U.S.
distribute cheap drugs is essential. The experience government expects ‘cooperation-or better-on
of African governments in the WTO shows that foreign policy and security issues’ from its potential
tremendous trade/aid dependency on the US or partners in trade agreements” .
the EU leaves these governments virtually
powerless to assert their own national interests. Final Comment
Though India is not there yet, it may want to Given these preliminary considerations,
consider whether it wants more or less perhaps India should consider taking care of its
vulnerability to the US government and its business at home first with its “$180 billion
commercial interests. Isn’t allowing the US market.” Rather than eagerly sitting down with
dominated World Bank into the Planning the US at the “negotiating table,” India might be
Commission’s consultative committees for the Xth wiser to continue building South-South relations
Five Year Plan (2002-20007) enough? as it is doing with China, Brazil, South Africa and
Academics and World Bank officials suggest in its own backyard.
that an FTA with the US could “strengthen India’s
hand in its broader strategic engagement with the (The author is temporarily researching with
U.S. by creating a stake for American business in EQUATIONS and formerly managed the Geneva office
India.” On the other hand, a stronger hand of US of the Institute for Agriculture and Trade Policy [2000-
business could also force India to increasingly 2003], monitoring WTO trade negotiations.)

6.2 Investment: NAFTA illegal?


CUPW, Council of Canadians, launch constitutional challenge against NAFTA in
Ontario Superior Court.

Straight Goods (Golden Lake, Ontario) NAFTA’s Chapter 11 rules before the Ontario
by Steven Shrybman Superior Court of Justice. This is the first time that
a court will consider the constitutionality of
Dateline: Saturday, January 22, 2005 international trade rules.
Chapter 11 of NAFTA, which allows foreign
[www.bilaterals.org, posted 7/2/2005] corporations to sue governments, if they feel that
they are being discriminated against by that
On January 24, the Council of Canadians and government’s policies, is by far the most shocking
the Canadian Union of Postal Workers (CUPW) and dangerous element of NAFTA, and a profound
launched a constitutional challenge against threat to Canada’s sovereignty and the safety of
its citizens.
54 Bilateral Trade Agreements: Issues and Concerns for India

Over the ten years of NAFTA, ten investor- investments, even where such government
state disputes have been launched against Canada. measures are non-discriminatory and taken entirely
All of these were brought against Canada by US in the public interest.
corporations, which claimed that Canada’s laws These extraordinary investor rights have now
to protect the public (for example, environmental been invoked by foreign investors and corporations
regulations banning MMT, laws preventing the to challenge environmental laws, municipal land-
export of toxic waste, and laws protecting Canada’s use controls, water protection measures, the
water) were discriminatory. Two of these have activities of Canada Post, and even the decisions
already been settled, at a tremendous cost to of juries and appellate courts. Once initiated,
Canada. NAFTA investor-State claims are decided by
UPS claims that simply by having a public private international tribunals that operate entirely
postal system, Canada is allowing unfair outside the framework of Canadian law and
competition. constitutional safeguards, including those of the
This newest case was launched in response to Charter of Rights and Freedoms. Yet the $multi-
the UPS claim that Canada Post violates Chapter million damage awards against governments made
11 of NAFTA. This claim by UPS is one of the most by such tribunals are binding and may be enforced
egregious examples of how NAFTA puts corporate as judgments of domestic courts.
interests before the interests of Canadian citizens. The groups are seeking declarations that
UPS claims that simply by having a public NAFTA investor-State procedures, and the
postal system, Canada is allowing unfair Canadian laws that implement them, are void and
competition. This has enormous implications not of no force and effect.
just for Canada Post but for all public services, as The groups are seeking declarations by the
by this logic, every public service from health care Ontario Superior Court of Justice that NAFTA
to education to the CBC could face similar lawsuits. investor-State procedures, and the Canadian laws
In court, the Council of Canadians and CUPW that implement them, are void and of no force and
will argue that it is unconstitutional for the rules effect. They will argue that the federal government
of NAFTA (created to advance corporate interests acted beyond its lawful authority by establishing
and profits) to supersede the laws of NAFTA NAFTA investor-State procedures which:
member nations (made in the interest of the public * deprive Canadian courts of the authority to
good). adjudicate matters reserved to them by the
Constitution, including claims against the State by
Background material: private and corporate entities arising from alleged
government wrongdoing;
Because they share a conviction that NAFTA
investor-State procedures represent a profound * infringe and deny the rights and freedoms
guaranteed by the Charter of Rights and Freedoms
assault on the most basic building blocks of a and the Canadian Bill of Rights, including those
sovereign and democratic society, the Council of concerning fundamental justice, fairness and
Canadians (the Council), the Canadian Union of equality;
Postal Workers (CUPW), and the Charter
Committee on Poverty Issues (CCPI) have joined * exceed the treaty making powers of
government by negotiating a treaty that is
forces to challenge the constitutional validity of
NAFTA investment rules. incompatible with Canada’s most basic norms and
The case is the first to question the lawfulness values, including those of democracy,
of NAFTA, and takes aim at the trade deal’s constitutionalism and the rule of law.
investment rules that empower foreign The Applicants’ written argument is available
corporations to sue governments for taking actions at Canadians.org.
which interfere with the profitability of their
Bilateral Trade Agreements: Issues and Concerns for India 55

How NAFTA Rules are Being Used as well.


Because the case not only affects a vital public
Several investor-State claims have been made service, but also the direct interests of postal
against Canada. Two have settled in favour of the workers, both the Council and CUPW petitioned
foreign investors; two have been decided, also in the arbitrating Tribunal that will determine the
favour of the foreign investors; others are still UPS claim for standing as a party to the dispute.
outstanding. Often, simply the threat of an investor- Their petition was rejected by the Tribunal on the
State claim is sufficient to discourage government grounds that it had no authority to admit third
action, as was most recently the case when New parties to NAFTA investor-State disputes. While
Brunswick backed down from plans to establish the Tribunal left the door open to receiving a brief
a public auto insurance system. written submission by the Council and CUPW, it
In the SD Myers case, Canada was found to offered no assurance that either would see all, or
have been in breach of its obligations under even any, of the evidence upon which its decision
NAFTA by refusing to allow PCB exports to the will be based.
US for a brief period in the mid-1990s, even though The Council, CUPW and CCPI are firmly
it was obliged under an international committed to ensuring that if large foreign
environmental treaty, the Basel Convention, to corporations want to challenge Canadian public
minimize the export of such wastes. More policy and law, they must do so in our courts,
astonishing is the fact that Canada was held liable before our judges, and in accordance with
for interfering with PCB exports, when importing Canadian law, including the Constitution.
such hazardous wastes was actually illegal under
US environmental law. Nevertheless, and on these For more information, please contact: Laura
grounds, the Tribunal awarded this US- based Sewell, Media Officer, Council of Canadians, Tel:
hazardous waste company $10 million in damages, 613.233.4487 ext.234 Cell: 613.795.8685 Fax:
even though it had never operated in Canada. 613.233.6776 or on the web at Canadians.org.
If UPS wins, the result would likely create
serious pressure to privatize postal and other Steven Shrybman is a partner in the Toronto-based
public services. law firm of Sack, Goldblatt and Mitchell but he practices
In the UPS v. Canada case, a claim for $250 international trade and public interest law in Ottawa,
million against Canada by United Parcel Service Canada. Mr. Shrybman has practised environmental
of America Inc. (UPS) has far-reaching and law for over twenty years, and immediately before
potentially disastrous implications. UPS argues establishing practice in Ottawa, served as the executive
that Canada Post has somehow taken advantage director of the West Coast Environmental Law
of its letter-mail monopoly to support its parcel Association.
and courier delivery services. But in an era when For the past fourteen years his work has focused on
many Crown Corporations and public agencies international trade and investment law, a subject about
deliver at least some services in competition with which has written, spoken, and published extensively.
the private sector, that argument could apply to His most recent work, A Citizen’s Guide to the World
virtually all public sector services - from water Trade Organization, was co-published by James Lorimer
supply to health care. If UPS wins, the result would and the Canadian Centre for Policy Alternatives.
likely create serious pressure to privatize postal Mr. Shrybman has served as a member of an expert
and other public services. advisory committee on the resolution of foreign
UPS also complains about the Canada Post investment disputes to the Federal Minister of
Pension Plan, and an important cultural program International Trade, and as a member of Canada’s
that subsidizes the delivery of Canadian Sectoral Advisory Group on International Trade -
publications by Canada Post. UPS says both are Environment.
unfair and demands damages on these grounds
56 Bilateral Trade Agreements: Issues and Concerns for India

6.3 Stop the mad pursuit of bilateral free trade and economic
partnership agreements!

Independent Media Center, Quezon City should make an effort to let the people know what
by Stop the New Round! Coalition agreements we are entering into.
[www.bilaterals.org, Wednesday, January 26, 2005] The dangers of bilateral FTAs
We - farmers, fisher folks, rural women, The public must be warned that the
workers from the formal and informal sectors, and proliferation of bilateral free trade agreements is
non-government organization belonging to the yet another alarming facet of the global trade
Stop the New Round! Coalition - express our strong liberalization agenda. Hidden from view by
opposition to government’s mad pursuit of bilateral regional and global negotiations and considering
free trade agreements particularly with Japan, their secrecy, they do not attract attention and
China and the United States of America. scrutiny. Yet, they are being used as channels to
get faster, deeper free trade and investment
What’s the deal? commitments than is possible and allowable in a
malfunctioning World Trade Organization (WTO).
In the SNR! campaign on the WTO in 2003, we Bilateral negotiations are more daunting, wide-
raised the issue of information disclosure. We ranging and more detailed than the multilateral
demanded that negotiations in the WTO on approach. As is often the case, highly developed
possible new agreements, which would have far economies, which have more resources and budget
reaching implications on livelihoods and jobs, are for marathon technical negotiations, enjoy the
matters of public interest. The negotiating agenda advantage in the bilateral talks and are able to
therefore of the Philippine government should be maximize their interests.
subjected to public scrutiny and debate. The emerging trend is that the developed
Today, we raise a similar concern over the lack countries are more demanding in bilateral
of transparency over these bilateral trade negotiations than at the multilateral level. In the
negotiations. Very few Filipinos know that the area of services, the current model of EPA go
government is negotiating an economic partnership further than the General Agreement in Trade and
agreement with Japan, or is negotiating under Services (GATS), which theoretically gives
ASEAN with China and India, or that studies have developing countries the option to gradually
already been done on a possible US-Philippines liberalize and to exclude some sectors, for example,
Free Trade Agreement. These agreements remain the health and education sectors, from the
in the realm of government technocrats and the liberalization process. EPAs, on the other hand,
business community. Information and documents call for reciprocal and progressive liberalization
regarding these agreements have not been made of all service sectors as soon as possible. On the
available to the public to generate the kind of other hand, only a few developing countries
informed public debate over these agreements that committed themselves to the deregulation of the
we think is necessary. We do not know what is services sector under the WTO.
expected from deals with economic superpowers Through the EPAs and bilateral free trade
like China, Japan, India, and the United States deals, developed countries are trying to bring in
under these bilateral and regional trade new issues (e.g., investment, transparency in
agreements. At the very least, the government government procurement, competition policy and
Bilateral Trade Agreements: Issues and Concerns for India 57

trade facilitation), which were roundly rejected markets. However, the State shall protect Filipino
during the WTO negotiations. In fact, the rejection enterprises against unfair foreign competition and
of these new issues led to the collapse of the Cancun trade practices.
negotiations as the developing nations did not Article XII, Section 10. In the grant of rights,
want to negotiate on new issues before the old privileges, and concessions covering the national
issues have been exhaustively settled. economy and patrimony, the State shall give
preference to qualified Filipinos. The State shall
The case of JPEPA regulate and exercise authority over foreign
investments within its national jurisdiction and in
The negotiations over a Japan-Philippines accordance with its national goals and priorities.
Economic Partnership Agreement (JPEPA) is now Article XII, Section 12. The State shall promote
nearing completion. Unfortunately, the terms and the preferential use of Filipino labor, domestic
documents being negotiated under JPEPA materials and locally produced goods, and adopt
(especially the list of product coverage) and other measures that help make them competitive.
free trade deals in the pipeline are not publicly Article XII, Section 13. The State shall pursue
available. The JPEPA negotiating process lacks a trade policy that serves the general welfare and
transparency and is unfair! It is disturbing the way utilizes all forms and arrangements of exchange
the Philippine government has been fast-tracking on the basis of equality and reciprocity.
this highly secretive negotiation process. National treatment - the requirement that
Given the dearth of information, civil society foreign investors be treated no less favorably than
participation in these emerging trade agreements domestic investors, regardless of the circumstances
is sorely lacking. Apart from some token - is a fundamental principle of EPAs and bilateral
consultations with select private sector free trade pacts. This provision limits the array of
stakeholders, government has not provided any options and actions that could be taken by national
venue for more substantive discussions and governments in protecting their economies. Thus,
deliberations on these important trade issues and the EPA with Japan will override not only our
developments. As a result, very few people even laws governing foreign investment but the
know about these bilateral and regional trade Constitution itself. EPAs will virtually
agreements. “denationalize” the control of land, natural
resources, and public services such as water,
Possible constitutional violations energy, health, education, and other vital public
services. By extending “national treatment” to
But given its “FTA plus” nature, the Japan- foreign investors, the agreement would lead to the
Philippine Economic Partnership Agreement near total loss of national control over investment
(JPEPA), is in danger of contravening or virtually and deprive government of its ability to conduct
supplanting at least five provisions of the industrial policy and undertake strategic planning.
Philippine Constitution: Government’s failure to adequately inform the
Article II, Sec. 19. The State shall develop a public so that they can have meaningful
self-reliant and independent national economy participation in trade negotiations is in itself a
effectively controlled by Filipinos. violation of the Constitution. We are committed
Article XII, Section 1. The State shall promote to promote a broad process of participation by all
industrialization and full employment based on stakeholders, which allow them to become
sound agricultural development and agrarian informed so that they can analyze cost and benefits,
reform, through industries that make full and develop proposals and present these to government
efficient use of human and natural resources, and officials.
which are competitive in both domestic and foreign The false choice between bilateral agreements and
58 Bilateral Trade Agreements: Issues and Concerns for India

WTO agreements provision calling for the tariff elimination of select


commodities under the JPEPA would be approved.
Raising our serious concern over the bilateral It is indeed incomprehensible why the government
approach does not imply, however, that we are rabidly pursues bilateral free trade while the
amenable or contented with the current country is experiencing its worst fiscal crisis in
multilateral approach to trade liberalization decades.
under the WTO. In fact, the two approaches We are calling on the Philippine Congress to
complement each other. It is not really a question investigate the economic impact of the various
of what approach is best or optimal to promote bilateral free trade deals being pursued by the
and facilitate trade. Needless to say, both Executive branch. The Legislative branch must
approaches espouse the same neo-liberal, free now act to defend Philippine national interests
trade dogma that threatens the viability and not only in the WTO negotiations, but more
survival of small and large enterprises. importantly in bilateral and regional free trade
It is in this context that the Stop the New talks, particularly in the ASEAN Free Trade Area
Round! Coalition reiterates its opposition to further (AFTA), the Japan-Philippine Economic
trade and trade-related liberalization whether Partnership Agreement and the RP-China Free
through bilateral and regional trade agreements Trade Agreement. The protection of domestic
or the WTO. markets and local sources of livelihood should be
We urge the government to seriously rethink the guiding principle in determining the
its mindless pursuit of bilateral free trade Philippines’ decision whether or not to participate
agreements. Initial government projection shows in any form of trade agreement.
that the government stands to lose PhP16.9 billion
in foregone revenues starting this year (PhP15.37
billion in potential Customs duties and PhP1.54
billion in value-added tax payments) if the
Bilateral Trade Agreements: Issues and Concerns for India 59

7.0 Conclusion

Regional and bilateral trade agreements have or to retain the role of an influential player in the
been pursued with considerable vigour and self- multilateral arena, is unclear at the moment.
interest in the international trading scene. Nations’ Whichever be the case, the question persists and
preference for this mode of operation goes beyond warrants further in-depth political research.
reasons of geographic proximity or political Trends have indicated that unless thoroughly
ideology; it is rooted in the fact that it allows them researched, free trade agreements often cease to
to retain their right to choose their trading partners be ‘win-win situations’. In India, the disagreement
and the extent of trade liberalization that they are between the country’s most powerful and
ready for. Since 1995, the emergence of the WTO influential industrial bodies over the feasibility of
as the single most potent rule-making body for the Indo-Singapore free trade agreement and the
ensuring freer international trade had eclipsed this added confusion between research bodies
trend. But the tables have turned now and the new themselves, corroborates this statement. These
age proliferation of free trade and regional trade indicators clearly point in the direction of more
agreements has posed a serious challenge to the intensive research and consultation on behalf of
existing decade-old multilateral trading system of the government prior to the signing of such vital
the WTO. While some analysts consider this a trade agreements.
reflection of the decaying confidence of many Inter-linkages between the different sectors of
countries with the success of the WTO negotiations, the economy is another area that needs clearer
some others are vehement in their belief that the understanding. If the government is considering
new process is but feeding into the older one. opening up trade in a set of industrial goods with
In the case of India, while recent trends a country, it cannot be assumed that the other
highlight the government’s newfound enthusiasm sectors of the economy - services and agriculture
for bilateral agreements, it has continued to voice - will remain untouched. There are very strong
its staunch loyalty to the WTO’s multilateral forward and backward linkages, implying that all
trading mechanism. Whether the reason for this sections of the economy are bound to be affected.
stems from the need to tow a certain political line It must be noted too that these problems could be
60 Bilateral Trade Agreements: Issues and Concerns for India

even more complicated when the FTA is in the social crisis.


services sector, the boundaries of which are ill The opinions of the industrial lobbies and
defined and the effects of which, therefore are government bodies that have been represented
difficult to perceive. As the complications here are not truths; they are opinions based on
surrounding the proposed Indo-US Services FTA individual or group interests. These opinions have
would suggest, a comprehensive cost-benefit- the potential to shape the future of every individual
analysis of any truncated sector-specific FTA is in this world, grant or snatch human dignity – a
warranted. fundamental human right, untether or tie down
In addition to economic efficiency, there the imaginations of countries full of people.
continue to remain questions of social equity and Understanding trade agreements goes beyond
sustainability. Reports indicate that many of the economic and political needs; they are all
bilateral agreements being currently negotiated encompassing and stand to affect all aspects of
by the Indian government pose serious threats to our individual and collective existence. The
the viability of certain sections of the economy, objective of this compilation is to initiate a
especially small and medium entrepreneurs. This discussion and debate on this issue. The task of
is particularly true of proposed agreements with any willing and able Indian, whether an activist,
economies like China and Singapore, whose a trade analyst, a student or just a concerned
rapidly expanding export industries look poised observer, is to analyse the situation from their
to sweep over the Indian market and put many a perspective, and make their satisfaction or
small producer permanently out of business. In resentment heard at the level where it may have
such situations, while economic efficiency will an impact. It is important not to get swamped by
persist (as inefficient producers will be forced out the effects of the decisions taken by those we have
of the market) and the consumer will benefit empowered and to exercise the rights that every
(through more competitive pricing), the citizen of a democratic country has.
government could well be faced with a chronic
unemployment problem that could spiral into a