Importance of Free Trade Agreement for exporters and importers

Couple of days back I read wonderful representation of #PSR's (Product Specific Rules) of origin on this platform.

Since I am working in Chemical trade promotion council from long time, thought to give some more clarity with on this PSRs issue.

Friends various territorial divisions of #departmentofcommerce #governmentofindia are working on this important trade aspect to help exporters and importers for the benefit of country.

Whenever any #freetradeagreement (FTA) is signed among (between) countries, PSRs plays important role in negotiations in order to give duty concessions to the partner country.

Needless to mention, there is a lot of information already available on the internet regarding Free Trade Agreements

Interestingly such FTA talks are always in news/media. These talks are initiated on #government level of partner countries. Concerned ministerial officials along with ministers are involved in these important negotiations.

Various rounds of negotiation (meetings) are conducted in order to thoroughly understand the market access of various commodities in the respective countries.

Every country would like to protect their domestic industry by providing safer access to their country by the partner country.

In simple words FTA is an acceptance of certain things among /between the countries for their mutual benefits.

It affects costing of the exporting, importing product.

During the FTA negotiations concerned government bodies always?interacts with various #stakeholders in their countries to get inputs on products so that they can further negotiate with the partner country/es.

?Various Stakeholders involved in consultation are as

?1. #Industry representatives,

2. #trade bodies,

3. #exportpromotion Councils,

4. #commodity boards,

5. #Export Development authorities of specific products.

6. Others, etc.

?

These stakeholders further interacting with their concerned members by communicating with them and requesting them to share inputs on the same.

I came across many such communications from #departmentofcommerce on time to time on following FTAs viz.

1. #india -#uae FTA

2. #India- #australia FTA

3. #India- #Canada #cepa

4. #India- Republic of #southkorea CEPA

As per practice we use to send/shares FTA list to our concerned members with request to comment on their product of interest and comment on Product specific rules so that we get some inputs for onward communication.

Unfortunately, we did not receive any reply from members. Factually only 0.1% - 0.5% (not even 1%) of our total membership responds to such important matters.

Reason???? Lack of #awareness on the said subject as a result, almost all industry concerns neglect such important communication and do not bother to respond.

Result: Product specific trade issues to domestic producers, exporters after FTA comes in to effect such as . ?

?·??????Inverted duty structure,

·??????PSRs,

·??????Incompetence in spite of having sufficient capacity of Production.

·??????And many more (directly or indirectly)

Best example #India-#asean FTA.

In this FTA there is an issue of inverted duty structure in #oleochemicals sector. Raw materials required to manufacture oleochemicals are imported with applicable duty in India whereas the finished products are coming with zero duty.

This results in injury to the domestic industry. In this case traders would like to import finished products in India with zero duty and sell it at cheaper price where domestic industry becomes incompetent to sell such products manufactured by them domestically in their plant.

Result ... Difficulty in flourishing concerned domestic industries in India.End result could not generate #employment for the nation.

?Anyways in order to avoid such complex situation my suggestions to Industry is as under.

Whenever they receive any such FTA related communication from their concerned trade body. Do not ignore it. Go through it properly.

• Generally, such communications are backed by wish lists of countries.
• Go through the lists, Check the product HS codes of your company.
• Check what kind of concession are asked by partner country? There are various terms of concessions which are as under?
• EXC: Exclusion List is a list of all items on which no tariff concessions/ any other form of barrier reduction has been offered by individual parties.
• TEI (Tariff Elimination Immediate):?Customs duty to be made 0% in the first year.
• TR (Tariff Reduction): Customs duty to be reduced
• TEP (Tariff Elimination Phased): Customs duty to reach 0% in 5, 7 or 10 years.
• TRQ: Tariff-rate quotas (TRQs or tariff quotas) are predetermined quantities of goods which can be imported at a "preferential" (i.e. lower) rate of customs duty ("in quota tariff rate"). Once the TRQ has been filled, one can continue to import the product without limitation but paying a higher tariff rate
• Check whether it is favourable to your product industry ? If no then please comment on it with proper justification.
• Check the PSR rules proposed by country, as this will helps you to get duty concession in partner country.
• There are various of types of PSR’s viz.

1. Wholly Obtained, (WO)
2. Change in Tariff Heading, (CTH) and Chapter Change (CC) or ?Change in Tariff Sub-Head (CTSH)
3. Regional Value Content
4. Special Processing Rule

Let us understand one by one

• Wholly Obtained, (WO): - Goods are manufactured with all raw material originated from the country. (No Import of any raw material)
• Change in Tariff Heading, (CTH): Use of imported raw materials with different HS codes to make final product, and as a result, the HS code of final product changes.
• Regional Value Content (RVC): It means that there should be value addition in certain percentage (e.g., not less than 30%, 35% 40%, etc.)?on production of goods from imported raw material.

It is calculated as under

RVC= {(FOB-VVM)/FOB} X 100

FOB: FOB value of final product

VNM: Value of Non-Originating Material (CIF value of imported raw material used for manufacturing raw material)

• Special Processing Rule: Product to be manufactured by specific reaction/method or technique.
• Change in Tariff Sub-Head (CTSH): Imported raw materials to make final product. Because of this, the subcategory code (HS) for the final product changes.

Members, please understand that this subject is important because in the future, India will sign more FTAs with countries or groups of countries around the world, and your input will play a vital role in the negotiations.

Feedback welcome on [email protected]