Indian Cottons, Global Reach Deep Interpretation on Existing and Prospective FTAs and their Influence on the Indian Textile Industry By Mr. Shailesh Martis Joint Director, TEXPROCIL www.texprocil.org Indian Cottons, Global Reach 1 1

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

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 3 3

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 4 4

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 5 5

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 6 6

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 7 7

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 8 8

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 9 9

Indian Cottons, Global Reach 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) www.texprocil.org Indian Cottons, Global Reach 10 10

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 11 11

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 12 12

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 13 13

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 14 14

Indian Cottons, Global Reach India – ASEAN: HS lines Framework Break-up of Cotton Yarn and Cotton Fabric of Sensitive Track and Exclusion List under INDO-ASEAN Agreement   Coton Yarn Cotton Fabrics Indonesia Sens. Track 0 HS Line 77 HS Lines at 5-8% Excl. List Malaysia 5 HS Line at 5% 53 HS Line at 5% 1 HS Line at 10% 6 HS Line at 10% Myanmar 2 HS Line at 1% 12 HS Line at 5-10% Philipinnes Cambodia 13 HS Line at 5% 15 HS Line at 5% Vietnam 7 HS Line at 5% 58 HS Lines at 5-6% 13 HS Line at 12% Thailand 1 HS Line at 5% 20 HS Lines at 5% www.texprocil.org Indian Cottons, Global Reach 15 15

Indian Cottons, Global Reach India – ASEAN: Trade in Textiles Textiles & Clothing HS Code Description Million USD 2010  2011  2012  2013  2014  2015  2016  1119 1115 1151 1443 1589 1315 1204 52 Cotton and Yarn, Fabric 511 460 461 692 814 619 568 54 Manmade Filaments 107 197 179 203 184 166 155 62 Woven Apparel 103 114 117 150 190 189 146 55 Manmade Staple Fibers 93 131 127 112 109 115 61 Knit Apparel 47 45 33 43 60 63 66 Miscellaneous Textile Articles 50 95 86 42 46 56 Wadding, Felt, Twine 37 49 48 26 28 57 Textile Floor Coverings 96 16 20 21 30 19 17 51 Animal Hair and Yarn, Wool 12 13 14 58 Special Woven Fabrics 23 22 Knit, Crocheted Fabrics 8 11 6 7 59 Impregnated Text Fabrics Silk; Silk Yarns 24 53 Other Vegetable Textiles www.texprocil.org Indian Cottons, Global Reach 16 16

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 17 17

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 18 18

Indian Cottons, Global Reach India – Japan Trade Textiles & Clothing HS Code Description Million USD 2010  2011  2012  2013  2014  2015  2016  261 397 402 418 423 373 62 Woven Apparel 111 176 204 193 179 153 152 52 Cotton and Yarn, Fabric 61 88 56 65 73 55 63 Miscellaneous Textile Articles 28 50 59 51 Knit Apparel 13 17 21 32 33 57 Textile Floor Coverings 18 19 26 29 22 Animal Hair and Yarn, Wool 3 9 10 8 20 54 Manmade Filaments 2 5 6 15 Impregnated Text Fabrics 4 7 11 Manmade Staple Fibers 53 Other Vegetable Textiles Wadding, Felt, Twine 58 Special Woven Fabrics 1 Silk; Silk Yarns 60 Knit, Crocheted Fabrics www.texprocil.org Indian Cottons, Global Reach 19 19

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 20 20

Indian Cottons, Global Reach 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% www.texprocil.org Indian Cottons, Global Reach 21 21

Indian Cottons, Global Reach India – Korea Trade Textiles & Clothing HS Code Description Millions USD 2010  2011  2012  2013  2014  2015  2016  378 314 287 329 360 369 351 52 Cotton and Yarn, Fabric 326 230 207 227 220 213 184 54 Manmade Filaments 7 19 11 23 58 48 45 53 Other Vegetable Textiles 8 12 14 15 20 24 61 Knit Apparel 6 10 17 18 62 Woven Apparel 55 Manmade Staple Fibers 4 2 51 Animal Hair and Yarn, Wool 16 56 Wadding, Felt, Twine 1 5 63 Miscellaneous Textile Articles 3 9 57 Textile Floor Coverings 60 Knit, Crocheted Fabrics 59 Impregnated Text Fabrics Special Woven Fabrics 50 Silk; Silk Yarns www.texprocil.org Indian Cottons, Global Reach 22 22

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 23 23

Indian Cottons, Global Reach 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% www.texprocil.org Indian Cottons, Global Reach 24 24

Indian Cottons, Global Reach India – Malaysia Trade Textiles & Clothing HS Code Description Millions USD 2010  2011  2012  2013  2014  2015  2016  279 285 257 299 296 275 213 62 Woven Apparel 53 47 68 92 128 123 66 52 Cotton and Yarn, Fabric 63 114 78 80 37 48 44 54 Manmade Filaments 38 77 72 46 39 61 Knit Apparel 5 11 9 12 14 17 Miscellaneous Textile Articles 10 13 16 15 55 Manmade Staple Fibers 7 6 8 57 Textile Floor Coverings 87 4 60 Knit, Crocheted Fabrics 1 3 56 Wadding, Felt, Twine 2 58 Special Woven Fabrics 50 Silk; Silk Yarns 51 Animal Hair and Yarn, Wool Other Vegetable Textiles 59 Impregnated Text Fabrics www.texprocil.org Indian Cottons, Global Reach 25 25

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 26 26

Indian Cottons, Global Reach India – SAFTA Trade Textiles & Clothing HS Code Description Millions USD 2010  2011  2012  2013  2014  2015  2016  2460 2336 2873 3413 3643 3936 3534 52 Cotton and Yarn, Fabric 1491 1476 1905 2271 2308 2467 2217 55 Manmade Staple Fibers 136 181 280 314 422 482 398 54 Manmade Filaments 588 320 295 400 407 358 248 62 Woven Apparel 68 96 108 98 142 220 240 60 Knit, Crocheted Fabrics 75 127 152 169 163 170 61 Knit Apparel 23 44 58 69 100 116 63 Miscellaneous Textile Articles 17 18 27 22 26 43 41 53 Other Vegetable Textiles 31 24 29 30 Special Woven Fabrics 14 19 25 59 Impregnated Text Fabrics 6 8 13 20 56 Wadding, Felt, Twine 5 12 15 16 51 Animal Hair and Yarn, Wool 3 4 7 50 Silk; Silk Yarns 2 57 Textile Floor Coverings 1 www.texprocil.org Indian Cottons, Global Reach 27 27

Indian Cottons, Global Reach 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. www.texprocil.org Indian Cottons, Global Reach 28 28

Indian Cottons, Global Reach 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 www.texprocil.org Indian Cottons, Global Reach 29 29

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 30