Indian Economy (Part I) - FTA, PTA, CECA, CEPA etc..

International Trade, FTA, PTA, ASIDE, E-BRC, CEPA vs CECA Difference Explained Baltic Dry Index (BDI)
• • London based Baltic Exchange, releases this index number on daily basis. It measures changes the cost to transport raw materials by sea. • If Baltic Dry index number increases = more raw material is getting shipped= world economy is doing good (and will do good). • If Baltic Dry index number decreases = there is decrease in export of raw material / pre-production items= something bad is about to happen with world economy. • In the recent times, BDI was highest in 2008 and then started falling. There was a small rise in BDI index during Nov.2012, but still it is nowhere near to the high level of 2008. • Meaning, world economy hasn’t yet recovered from the fallout in US and EU.

India’s Chief import exports
Import 1. Petroleum 2. Gold 3. Electronic goods 4. Pearls, precious stones 5. Machinery except electronics Export 1. Petroleum (crude and products) 2. Gems and jewelry 3. Transport equipment, machinery 4. Drugs, pharmaceuticals, chemicals

^As per Commerce chapter India 2013 (Yearbook.) • Compositional changes in India’s export basket have been taking place over the years. • The share of manufacturing exports fell drastically, mainly due to the fall in shares of traditional items like textiles and leather and leather manufactures even though the share of engineering goods and chemicals and related products increased. The rise or fall in India’s export depends mainly on following factors • World growth • • Trading partner’s growth Exchange rates

Market Diversification

This is one of the highest in the world. • In 2001. its exports to Asia and Africa have increased Top three trading partners • In recent years. Trade agreements What? • Level of integration shallow PTA Preferential trade agreements . • For 2011-12: first is China. UAE (this turned negative in 2012 though) 2. WTO started Doha Round of trade negotiations. the regional trading agreements are on rise. China (whoever their rank /position keeps changing like in the game of musical chairs). and hence very disturbing. • Since multilateral trade negotiations (WTO) are stalled/pending. 3. Trade deficit with 1. • Region-wise. Switzerland (mainly due to gold imports) WTO Negotiations and India • Pascal Lamy= Chief of WTO. Hong Kong. • As per 2011-12 data. India has Trade surplus with 1. UAE. (Doha is the capital and chief port of Qatar) • Doha negotiations are still unfinished due to differences among members on various issues. the top three trading partners of India = US. Singapore 4. (2012-13 data yet to come) Trade surplus / deficit? • India’s trade deficit = 10% of GDP. China 2. USA. second is UAE and third is USA.• India has been fairly successful in diversifying its export markets from developed countries like the US and Europe to Asia and Africa • This has helped us get reduce the damage from global crisis of 2008 and the recent global slowdown. Countrywide. while India’s exports to Europe and America have declined.

India has CECA with CEPA Comprehensive Economic partnership Agreement Reduce tariffs + cooperation in trade in services. Example. CEPA vs CECA Both are examples of Free trade agreements. • Example NAFTA (among Mexico. • Customs Unions typically contain mechanismsShallow Union to redistribute tariff revenue among members • Example: Mercosur • Free flow labour. • • products FTA Free Trade Agreements • It is a special case of PTA where all tariff and non-tariff barriers are abolished • Free access is allowed to the products of Shallow member countries. = wider scope. European Union. members and non-members. Countries sign CECA first and then gradually move towards CEPA like agreement. and Common (goods/services) among the members. • A Customs Union moves beyond a free trade area by establishing a common external tariff on all Customs trade between. US andCanada). India has CEPA With . CECA Comprehensive Economic Cooperation Agreement Reduce the tariffs (custom/import duties). Example. SICA (in Central America) output Deep • Members share a common currency and Economic macro-economic policies (Example European Union). Market • Example. capital. investment. deep union • Example.Lower customs duty on the originating from the member countries.

1. broader framework already in force. on all items. Malaysia Singapore ASEAN (under negotiation) 1.India has granted zero basic custom duty to all LDCs. India has signed 10 free trade agreements (FTAs) and 5 preferential trade agreements (PTAs) and these FTAs/PTAs are already in force. Global system of trade preferences (GSTP) 3.Bangladesh. South Korea: CEPA 9. IndiaThailandFTA Signed but negotiations still on. India-ASEAN CECA Signed. Bhutan. Bhutan 5. Japan 2. India is currently negotiating 17 FTAs. Asia Pacific Trade Agreement (APTA):Bangladesh. Afghanistan 4. Singapore (CECA) 7. Sri Lanka. South Korea 3. Chile ^as per commerce chapter. except alcohol and tobacco products. Sri Lanka (under negotiation) India’s trade agreements • So far. South Asia Free Trade Area Under SAFTA. Issue: Government needs to review the inverted duty structure under the India. Sri Lanka 2. 3. MERCOSUR 5. ASEAN (CECA) 8. Pakistan. Nepal. India. Minor details remain to be negotiated. + early harvest Scheme (EHS) 6. India 2013 (Yearbook). Thailand. 2. Further. Japan: CEPA 10. viz. and Maldives. Because finished jewelry imports from Thailand are cheaper than primary gold (raw material) available in India! SAFTA Signed and came into force. SAFTA (India. including review/expansion of some of the existing ones. Nepal 4. .Thailand FTA.Sri Lanka 2. Afghanistan. Bangladesh. 10 FTA with 1. Malaysia: CEPA • • 5 PTA with 1. China. Bhutan and Maldives) 3. South Korea.

During 20th ASEAN summit in Phnom Penh Cambodia (in 2012). with good practice economies like France needing 2. Japan. Negotiations still going on.RECP among ASEAN+6 Regional Comprehensive Economic Partnership (RCEP) Agreement among ASEAN + 6 (Australia. the ASEAN states agreed to move towards this agreement. 2012. (Singapore at first) • India requires 9 export documents to be cleared. • On an. India has unilaterally offered special concessions to Least developed countries under this agreement. . while China needs 8. India has also unilaterally offered special concessions to LDC In Nov. (This will help reduce Japan’s reliance on China for rare earth minerals). India-EU GSTP Japan Problem Areas: Export • Jawaharlal Nehru Port Trust (JNPT) Port at Mumbai. and New Zealand). India and Japan signed a pact to enable Japan to import rare earth minerals from India. • Time to export is 16 days for India and five for Denmark. India ranks 132. IPR. Rare earth minerals are important for high-tech electronics. services. RCEP will cover trade in goods. India. then Government must reduce these procedures and costs need to the barest minimum. It’ll provide economic partnership among ASEAN + its FTA partners. Global System of Trade Preferences among Developing Countries (GSTP) It is a preferential trade agreement to increase trade between developing countries in the framework of the UNCTAD (United Nations Conference on Trade and Development). China. missile guidance systems etc. mobile phones and hybrid cars. entry gates closing prematurely resulting in export consignments being dumped in the buffer yard at a very high cost and delay in shipments Problem Areas: Ease of Doing business • • Ease of doing business index is an index created by the World Bank. Korea. average an Indian exporter is required to sign at about 130 places to complete an export transaction! • If we want to increase our exports. dispute settlement etc. Cabinet approved implementing India’s schedule of concessions under GSPT. Broad based trade and investment agreement.

CEPA vs CECA Foreign Trade Policy annual supplement 2013 Released in April 2013. infrastructure. No minimum land requirement for setting up IT SEZ 3. • • Support for export of green technology products Incentives for labour intensive industries. North East. Permitted sale and transfer of units inside SEZ. Zero Duty Export Promotion Capital Goods Scheme 5. mining. • Salient Features FTP Annual Supplement 2013 1. Commerce Ministry (and not finance ministry) releases Annual supplement to foreign trade policy every year. Import of cars/vehicles is permitted through designated ports only. E-BRC. 8. Focus 7. Product Scheme and Vishesh Krishi Gramin Udyog Yojana(VKGUY) can be used for payment of service tax. 4. by Ministry of Commerce. Duty Credit Scripts issued under Focus Market Scheme. Industry and Textiles • Although Government did not launch any new scheme in it • But the existing schemes were modified to provide for more relaxations and benefits to importers who are also exporters. • Under that. Now import of cars/vehicles would also be allowed at Faridabad and Ennore Port (TN) 9. Cotton Yarn. . by half 2. agriculture etc.Measures to improve trade? • India’s foreign trade policy covers the period of 2009-14. Reduced Minimum land area requirement for SEZ. • 2012: Government has reduced the import duty on various capital goods/ machinery required for fertilizer. System for online issuance of Registration Certificate for export of Cotton. (upto 31st March 2014) 6. Non Basmati Rice. Wheat and Sugar. E-BRC • The exporter will not be required to make any request to the bank for issuance of a bank export and realization certificate (BRC). Government will give 2% Interest Subvention Scheme for more sectors. ASIDE. • Thus their time and money will be saved. horticulture projects etc.

(Why? Think about the geographical. A’bad Kolhapur Shaharanp Morbi Gurgaon Textiles Sector Handicraft Ceramic Apparel 201 3 ^this list in not exhaustive. economic factors). toys. Tamil Nadu. Karnataka. and readymade garments. • Top 5 exporter states in India (also top-5 in terms of ASIDE allocation): Gujarat. 5. carpets. and Andhra Pradesh. ur 4. processed agricultural products.• For electronic transmission of foreign exchange realization from the respective banks to the Directorate General of Foreign Trade (DGFT) server on a daily basis. yea Place r 1. Towns of Export Excellence These get more attention / funds under ASIDE scheme and other schemes of commerce ministry for boosting exports. political. handicrafts. • Scheme is applicable upto 31 March 2014. Special Economic Zones . sports goods. 201 2 2. only listed the new towns of export excellence under 2012 and 2013’s annual supplements to foreign trade policy. and SMEs • This scheme has been extended to labor-intensive sectors viz. social. Interest Subvention • Earlier Government gave 2% interest subvention on handlooms. ASIDE scheme • Assistance to States for Developing Export Infrastructure and Allied Activities (ASIDE) Scheme • It provides assistance to State and union territories to create infrastructure for export Development. But if and when preparing for UPSC interview. dig all the export excellence towns in the respective home state.Maharashtra. 3.

Saudi Arabia. • That is why I have been at pains to state over and over again that India. SEZs have provided employment to more than 9 lakh people. gram udhyog etc. (Some of that is addressed under the 2013’s annual supplement to Foreign trade policy. Mexico. of which 384 have been notified. 2. 1965 • Special Economic Zones (SEZ) Act. 3. FDI FII External Commercial Borrowing (ECB). there are only three ways before us: 1.) VKGuy • • Vishesh Krishi and Gram Udyog Yojana (VKGUY) To promote the export of produce from agro. 2. • (To finance Current Account deficit) . does not have the choice between welcoming and spurning foreign investment. and perhaps next year too. Malaysia. The CAD continues to be high mainly because of 1. enacted in 2005 and Rules were notified in February 2006. 3. Turkey. Chidambaram’s budget speech (2013): Foreign Trade CAD worrysome • • • India is part of the global economy: our exports and imports amount to 43% of GDP But my greater worry is the current account deficit (CAD). South Korea. Thailand. at the present juncture. Against China PR. • This year. minor forest.Taiwan. Anti-Dumping • Directorate General of Anti-dumping and Allied Duties (DGAD) has initiated 10 fresh cases. the high volume of coal imports. 100 per cent FDI is allowed in SEZs through the automatic route • Problem area: land acquisition. RBI’s measures • RBI increased ceilings for External Commercial Borrowings (ECBs) • RBI allowed the banks to determine their interest rates on loans to exporters (in foreign currency). • Government has given formal approvals to setup 579 SEZs. • • As a whole. our passion for gold slow down in exports. 4. the European Union. and the USA. . • DGAD falls under Commerce Ministry.• Asia’s first Export processing zone (EPZ) was setup in Kandla. we have to find over USD 75 billion to finance the CAD. Gujarat. our excessive dependence on oil imports.

• Considering the need to conserve our natural resources. • Titanium is used in aircraft. I propose to reduce the duty on pre-forms of precious and semi-precious stones from 10 percent to 2 per cent. • Titanium dioxide is used in paint and coating industry. • Coal Streamlined • At present both Steam coal and Bituminous coal . artificial joints. sporting equipment and high performance alloys. I propose to impose a duty of 10 percent on export of unprocessed ilmenite. • Ilmenite is the primary ore of titanium. • What we can do is to encourage foreign investment that is consistent with our economic objectives. Found in Tamil Nadu. • Ilmenite Increased Prices of unprocessed ilmenite have gone up several fold in the export market. Import Machinery for Decrease leather factory Taxation: Export Precious stones exporting Decrease To encourage exports. • oil cake Eliminated Export duty on de-oiled rice bran oil cake has made our exports uncompetitive. I propose to reduce the duty on specified machinery for manufacture of leather and leather goods and footwear. To boost trade • • • Peak rate of basic customs duty = 10% (for non agro products) Normal excise duty = 12% Normal service tax= 12% What? Duty Chidambaram said Increase/decrease? Leather and leather goods are a thrust sector for exports. Hence. Odisha and Kerala. foreign investment is an imperative.• If I may be frank. I propose to withdraw the said duty. weapons. tank.

• But the American Government provides some subsidies to their exporters. we continue to import large volumes of coal. but attract different rates of customs duty and counter veiling duty. Coal ministry will announce the policies in this regard. US Department of Commerce started investigation a countervailing duty (CVD) investigation against India and six other countries on export of shrimp. And that xyz thing is also manufactured by Indian producers as well. • One of the ways forward is to devise a PPP policy framework to increase the production of coal. I propose to increase the duty on such vehicles. What is countervailing duty (CVD)? Suppose we imported xyz thing from USA. • By the way. • Luxury vehicle Increased Coal dependence • Despite abundant coal reserves. IT • The Rangachary Committee was appointed to look into tax matters relating to Development Centres & IT sector and Safe Harbour rules for a number of sectors. • In the medium to long term.are used in thermal power stations. so US Government should impose a CVD on the shrimps imported from India. I am sure they will not mind paying a little more. . motorcycles. yachts and similar vessels. • In such case. Rangachary was also a member of Shome Panel (for GAAR). we must reduce our dependence on imported coal. hence the price of imported XYZ item is less than the locally produced “desi” variety for India. In 2013. • I propose to equalize the duties on both kinds of coal and levy 2 per cent customs duty and 2 per cent CVD. there is no alternative except to import coal and adopt a policy of blending and pooled pricing. Hence. And or • The Indian producers are required to pay more taxes hence desi variety has become more expensive than the American product. subsidies and tax reliefs to Indian shrimp exporters. Because the (domestic) American shrimp industry had complained that Indian Government provides lot of incentives. There is an affluent class in India that consumes imported luxury goods such as high end motor vehicles. Indian Government can imposes addition tax on the imported item to protect the domestic industry. This is known as countervailing duty (CVD). • If the coal requirements of the existing and future power plants are taken into account.

• Ultimately. the best way to reduce gold imports in a sustainable way will be to offer the public financial investment opportunities that generate attractive returns. • This means bringing down inflation as well as expanding the range of investments investors have easy access to. Rajiv Gandhi Equity savings scheme RGESS). and chemicals and the artificial inverted duty structure caused by some FTAs/RTAs. Maldives (2011) – led to coup in that island country Kathmandu Brunei Durban.g. Particularly for exporting our technology-intensive items. textiles. unbiased. 3. 2. Mexico St. South Africa Los Cabos. Russia Brisbane. there is need to be vigilant regarding gold inflows through unauthorized channels (= Smuggling). Important Summits 2012 SAARC Addu. 4. • There is also need to address the inverted duty structure in sectors like electronics. we need to focus on Regional Trade agreements (RTAs). but since WTO negotiations are not moving in positive direction.Conclusion Gold and CAD • While the supply of gold through organized channels can be constricted. Australia 2013 ASEAN Phnom Penh. South Korea Hong Kong Singapore Taiwan Trade Blocs/ Regional Groups . international trading system. (e. Petersburg. Trade Agreement • India always stood for open. Cambodia BRICS Delhi G20 • • IMF: Advanced Economies in ASIA 1.

5. China 6. Bangladesh China India South Korea Sri Lanka Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam APTA (Asia Pacific Trade Agreement) ASEAN (Association of South East Nation) . South Korea 10. United States 21. Chile 5.APEC (Asia-Pacific Economic Cooperation) 1. 8. Japan 9. 6. Mexico 12. Taiwan 19. Thailand 20. Russia 17. Papua New Guinea 14. 5. 2. Brunei 3. 3. New Zealand 13. 7. 10. 1. Peru 15. Indonesia 8. Canada 4. 9. 2. Philippines 16. Australia 2. 4. Singapore 18. Malaysia 11. Vietnam 1. 3. Hong Kong 7. 4.

5. Iceland Liechtenstein Norway . CIS (Commonwealth of Independent States) 1. 3.Bangladesh Bhutan Myanmar BIMSTEC India (Bay of Nepal Bengal Initiative for Sri Lanka Multi-Sectoral Technical Thailand and Economic Cooperation) 1. 1. 2. Brazil Russia India China South Africa BRICS CELAC (Community of Latin American and CaribbeanStates) 33 countries in that region. 9. 15 members in Western Africa. 5. 4. 7. 6. 8. 3. 2. Armenia Azerbaijan Belarus Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Uzbekistan COMESA (Common Market for Eastern and Southern Africa) ECOWAS (Economic Community of Western African States) EFTA (European Free Trade Association) 20 member states stretching fromLibya to Zimbabwe. 3. 4. 2.

11. 18. Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK Argentina Australia Brazil Canada China European Union France Germany India G20 . 22. 8. 3. 1. 24. 3. 17. 13. 21. 9. 7. 6. 2. 4. 20. 5. 12. 15. 7. 26.4. Switzerland EU 1. 6. 10. 8. 9. 2. 5. 16. 14. 25. 27. 19. 4. 23.

8. 3. 3. Qatar 4. 12. 1. 4. India Brazil South Africa Australia Bangladesh Comoros India Indonesia Iran GSTP (Global System of Trade Preferences) IBSA IORARC/Ocean Rim (Indian Ocean Rim Association of Regional Cooperation) . 13. 16. 4. 1. 6. 5. 3.10. 15. Oman 6. 19. 20. Bahrain 2. Indonesia Italy Japan Mexico Russia Saudi Arabia South Africa South Korea Turkey United Kingdom United States Canada France Germany Italy Japan Russia UK US G8 GCC (Gulf Cooperation Council) 1. 1. United Arab Emirates (UAE) 44 developing countries. 6. 11. Saudi Arabia 5. 14. 5. 18. 2. 2. 7. 17. 2. Kuwait 3.

15. 14. 1. 3. 4. 2. 6. 1. 12. 8. 4. 4. 10. 17. 1. 3. 1. 2. 3. 8. 16. 5. 13. 5. 19. 11. 2. 7. 2. 18.7. 9. 2. 1. Kenya Madagascar Malaysia Mauritius Mozambique Oman Seychelles Singapore South Africa Sri Lanka Tanzania Thailand UAE Yemen Argentina Brazil Paraguay Uruguay Canada US Mexico Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka South Africa Botswana Lesotho Swaziland Namibia India Paki MERCOSUR NAFTA (North American Free Trade Agreement) SAARC (South Asian Association for Regional Cooperation) SACU (South African Customs Union) SAFTA (South Asian Free . 20. 3.

6. Nepal Lanka Bangladesh Bhutan Maldives Afghanistan China Kazakhstan Kyrgyzstan Russia Tajikistan Uzbekistan SCO (Shanghai Cooperation Organisation) . 1. 4. 5. 6. 2. 3. 4.Trade Agreement) 3. 8. 7. 5.

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