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Deep Interpretation: FTAs & the Indian Textile Industry

Explore the impact of existing and prospective FTAs on the Indian textile industry & gain insights from Mr. Shailesh Martis, Joint Director at TEXPROCIL. Learn about trade agreements, FTA types, elements, Indian FTAs, and their influence. Obtain key conclusions and recommendations for the textile sector’s future growth and competitiveness.

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Deep Interpretation: FTAs & the Indian Textile Industry

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  1. Deep Interpretation on Existing and Prospective FTAs and their Influence on the Indian Textile IndustryByMr. Shailesh MartisJoint Director, TEXPROCIL Indian Cottons, Global Reach 1

  2. Contents • Types and Objectives of Trade Agreements • Elements in an FTA • Indian FTAs • Impact on the Textile Industry • Conclusions & Recommendations Indian Cottons, Global Reach 2

  3. FTAs and their objective • Economic integration by partial or full abolition of tariff and non-tariff barriers • Objective of this integration is to increase the combined economic productivity • of the countries by economic cooperation, allowing free trade among them • Leads to welfare of the people of the integrating economies • Other by-product of integration is competitiveness There is a gradient in degrees of cooperation in the economic integration Indian Cottons, Global Reach 3

  4. Types of Trade Agreements • Commonly used Agreements • Preferential Trade Agreement (PTA) • Free Trade Agreement (FTA) • Comprehensive and Economic Cooperation Agreement (CECA) • Comprehensive and Economic Partnership Agreement (CEPA) • Customs Union Indian Cottons, Global Reach 4

  5. Participants in a Trade Agreement • Bilateral – Between two countries • Plurilateral – One country with few countries • Multilateral – One country with many countries • Regional – One country with a region The choice would depend on the market access strategy of participating economies Indian Cottons, Global Reach 5

  6. Elements in an FTA • Tariff measures • Non-tariff measures • Rules of Origin • Product Specific Rules • Short Supply Rule Each element has its own significance and importance whilst negotiating FTAs Indian Cottons, Global Reach 6

  7. Elements of FTA - Tariff Measures • Broad Classification of Tariff Categories • Entry into Force (EIF) • Normal Track 1 – NT1 • Normal Track 2 – NT2 • Sensitive Track – ST • Highly Sensitive – HSL • Exclusion / Negative – EL or NL Indian Cottons, Global Reach 7

  8. Elements of FTA – Non Tariff Measures • Non tariff measures include those areas of cooperation where • trade is affected through certain policies and regulations adopted by • participating FTA economies. • Sanitary and Phyto-Sanitary measures • Labelling / Packing instructions • Rigid rules and regulations by Customs Authorities • Stringent Quality Standards Indian Cottons, Global Reach 8

  9. Elements of FTA – Rules of Origin • Rules of origin - used to determine the country of origin of a product • For products manufactured in more than one country the product shall be • determined to have origin in the country where the last substantial • transformation took place. • Two general rules: • Change of tariff classification (through 4-digit level is the most common) • Value added-rule • In textiles “Yarn forward” / “Fabric forward” rules Indian Cottons, Global Reach 9

  10. Elements of FTA – Product Specific Rules Substantial transformation requirements / sufficient working or processing criteria" for a good or a group of goods which have to be fulfilled in order that the good(s) may be considered as "originating" according to the FTA Combination of the various Rules of Origin available which will be applied to an HS line or a group of HS lines (to be defined by each participating economy) Indian Cottons, Global Reach 10

  11. Elements of FTA – Short Supply Rule • This Rule gives the flexibility of importing raw material from third party • countries which are not party to a particular FTA • All U.S. Free Trade Agreements with a “yarn-forward” rule of origin include • short-supply provisions • Such rules are meant to encourage investments in regional partners so that • raw material produced within the region is only used Indian Cottons, Global Reach 11

  12. India’s FTAs • Some major FTAs among India’s 13 FTAs • India – ASEAN Trade in Goods Agreement (TIGA) • India – Japan CEPA • India – Korea CEPA • India – Malaysia CECA • India - SAFTA • Under Negotiation • Regional Comprehensive Partnership Agreement (RCEP) • India - Australia Indian Cottons, Global Reach 12

  13. India – ASEAN TIGA • India – ASEAN TIGA - signed in 2009 & came into force in 2010 • India and 10 countries within ASEAN (Brunei, Cambodia, Indonesia, Laos, • Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) • Progressive tariff reduction / elimination of originating goods • In 2012 the TIGA was complemented by CECA. Services and investment • agreement augment the economic integration of India with ASEAN • Aim is to plug into the supply chain in ASEAN nations at different stages of • the textile value chain Indian Cottons, Global Reach 13

  14. India – ASEAN Framework • Tariff measures – Each country has a specified tariff reduction • schedule along with an individual definition of Normal tracks etc. • Non-tariff measures: • Safeguard duties (Indonesia) – now removed • Sanitary and Phyto Sanitary (Vietnam) – use of Azo dyes / cotton • contamination • Rule of Origin – More than 35% Value Addition • No Product Specific Rules Indian Cottons, Global Reach 14

  15. India – ASEAN: HS lines Framework Indian Cottons, Global Reach 15

  16. India – ASEAN: Trade in Textiles Indian Cottons, Global Reach 16

  17. India – Japan CEPA • India – Japan CEPA came into force in 2011 • On trade value basis the CEPA eliminates bilateral tariffs on • 94% of trade over the next 10 years • Zero for zero tariff in textiles • Has helped in movement of personnel between 2 countries Indian Cottons, Global Reach 17

  18. India – Japan Framework Tariff – Zero for zero in textiles Non-tariff measures Strict Quality Standards and Norms Product Specific Rule of Origin – Two Step Rule Indian Cottons, Global Reach 18

  19. India – Japan Trade Indian Cottons, Global Reach 19

  20. India – Korea CEPA • India – Korea CEPA came into force in 2010 • By 2015, Korea eliminated tariff on about 2312 products compared to India’s • list of 456 products • Inverted duty structure adopted by Korea Korea has major FTAs with Vietnam and EU Indian Cottons, Global Reach 20

  21. India – Korea Framework • Tariff • 4% for yarns and zero for fabrics and home textiles • 95% of yarn lines in Sensitive Track • 5% of yarn lines in Exclusion List • Non-tariff measures – Nothing in particular • Product Specific Rule of Origin – Value addition of 40% Indian Cottons, Global Reach 21

  22. India – Korea Trade Indian Cottons, Global Reach 22

  23. India – Malaysia CECA • India – Malaysia CECA came into force in July 2011 • Comprehensive agreement that covers trade in goods, trade in services, investments and movement of personnel. • No Product Specific Rule of Origin for Textiles • Follows the India-ASEAN RoO i.e. more than 35% of value addition • No non-tariff measures specified Indian Cottons, Global Reach 23

  24. India – Malaysia Framework   Cotton yarn Cotton Fabric Cotton Made-ups Sens. Track 5 HS Lines at 5% 53 HS Lines at 5% 47 HS Lines at 5% Excl. List 1 HS Lines at 10% 6 HS Lines at 10% 20 HS Lines at 10-15% Indian Cottons, Global Reach 24

  25. India – Malaysia Trade Indian Cottons, Global Reach 25

  26. India & SAFTA • Initially SAPTA in 1993 and formalised as SAFTA in 2006 • Promote common contract among the member-nations and provide them • with equitable benefits. • Aimed at increasing the level of cooperation in economy and trade among • the SAARC nations by lowering the tariff and barriers and give special • preference to the least developed countries in the SAARC region • No Product Specific Rule for textiles • Sensitive Lists up for review every 4 years Indian Cottons, Global Reach 26

  27. India – SAFTA Trade Indian Cottons, Global Reach 27

  28. Conclusions • FTAs gain importance as they are more than just trade policy tools • Should not be looked only for market access but to develop strong value • chains within FTA partners • FTAs should be leveraged to source raw materials and intermediate products • and plug into the supply chain • Need periodic review to check utilization by all partners • An oft-taken route for encouraging investments and movement of services • as well as human capital etc. Indian Cottons, Global Reach 28

  29. Recommendations • Address issues of inverted duty structures • Certificate of Origin need better validations to check Rule of Origin violations • Broader look at incentives to be offered to offset disadvantages created • through FTAs • Data constraints must be addressed in a manner that enables uniform • analysis of impact of FTAs • Closer examination of investment chapters so that linkages between • trade and investment can be examined Indian Cottons, Global Reach 29

  30. Thank You The Cotton Textiles Export Promotion Council of India (Sponsored by GOVERNMENT OF INDIA) Engineering Centre 5th Floor, 9 Mathew Road, MUMBAI – 400 004 Tel: (022) 2363 2910 to 12 Fax: (022) 2363 2914 E-mail: info@texprocil.org Website: www.texprocil.org.in 30

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