To Stop Misuse of free Trade Agreements, Finance Ministry Plans Text Review

The finance ministry is pushing for a review of the model text for free trade agreements (FTAs) after recent misuse of bilateral pacts exposed many loopholes in the pacts India has entered into with its trading partners.

The North Block wants the agreements to provide more teeth to revenue authorities such as powers of automatic suspension of trade in a particular good if gross misuse of the provisions of agreement is discovered. It has asked the commerce department to review the draft.

The draft text should be tighter and provide for specific provisions to deal with situations when an agreement is misused,” said a ministry official familiar with the discussions on the issue. Indian industry has repeatedly raised the issue of negative impact of free trade agreements on the domestic manufacturing sector. “There is no provision for suspension of a class of goods,” the official said.

For example, in the absence of such a provision in the India-Thai early harvest scheme, New Delhi had to alert its Customs ports to disallow jewellery imports.

India had disallowed gold jewellery from Thailand under the FTA after revenue authorities raised an alarm over the violation of rules of origin that mandated 20% value addition in Thailand. Gold jewellery was allegedly being imported via Thailand to take advantage of the lower duty available under the bilateral trade agreement with India.

An explicit suspension provision should have been invoked easily after gross misuse of the agreement was detected by revenue authorities, the official said.

Some trade pacts also do not have specific provisions to deal with situations when a partner does not carry out a requested investigation or verification in agreed time frame.

For example, in the case of India-Thailand, the latter is yet to respond to New Delhi’s request of verification of rules of origin certificates.

The finance ministry had earlier sought a review of the country’s FTA strategy to ensure an optimum deal for the country. India’s manufacturing sector grew by 0.1% in 2012-13 raising all round concerns over the sector taking a big hit from rising imports, in particular the capital goods sector.

India imports of capital goods are nearing the $100-billion mark while domestic production continues to disappoint, as evident from the index of industrial production ( IIP) numbers.

The government has consciously attempted to compress imports this year to rein in current account deficit after it rose to alarming levels of 4.8% of GDP in 2012-13.

Commerce & industry minister Anand Sharma has said all FTAs have an inbuilt review mechanism providing an opportunity for mid-course correction.

Economic Times, New Delhi, 19-11-2013

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