1. FTAs and the Auto Sector
Department of Commerce
21 June, 2016

2. Overall Strategy Conservative Approach on tariff modalities
Exclusion list in FTAs with
ASEAN
Japan
Korea
Conservative Rules of Origin
CTSH + 35% (ASEAN)
CTSH +40% (Korea)
CTSH + 40%; CTH +40% (Japan)

3. Key Engagements of Interest
Expansion of India-Chile PTA
Expansion of India-Mercosur PTA
India-Peru Joint Study Group (JSG)

4. Key Issues in an FTA
Trade off between lowering tariffs & ‘Make in India’
Plugging into global value chains
Broad based “zero duty” FTAs could lead to problems of inverted duty structure
Revenue loss implications of FTAs
New TPP trade architecture that emphasises zero customs duty. Indian interest better served by moderate tariff regimes.

5. The Way Forward
Trade agreements are moving into areas beyond goods and services e.g. intellectual property rights, labour, environment, investment, government procurement, State owned enterprises
India needs to:
raise standards of products, services and diversify
move up the value chain
address constraints within the country, e.g. infrastructure bottlenecks, high transaction costs, complex procedures, constraints in manufacturing, inadequate diversification in services exports
leverage SEZs as manufacturing hubs

7. Size of mega FTAs ($ trln in 2014)
Mega FTA (major cty)
Goods trade
Services Trade
GDP
Value
% share
TPP
8.51
22.4%
2.23
22.9%
26.62
34.2% US
4.03
10.6%
1.14
11.7%
17.42
RCEP
10.78
28.3%
2.24
23.0%
22.56
29.0%
China
4.30
11.3%
0.61
6.3%
10.70
13.7%
ASEAN
2.53
6.6%
2.48
3.2%
TTIP
16.32
42.9%
5.12
52.7%
33.76
43.4% EU
12.29
32.3%
3.98
41.0%
16.34
21.0%
GLOBAL
38.09
100%
9.72
77.87

8. Timelines in the TPP
Transpacific Strategic Economic Partnership Agreement (TPSEP) was concluded in 2005 by Brunei, Chile, New Zealand and Singapore.
TPP Negotiations began in February, 2008 among 5 countries namely US and the TPSEP countries.
The other 7 countries namely Australia, Canada, Japan, Malaysia, Mexico, Peru and Vietnam joined later
TPP finalised on 5 October, 2015 in Atlanta. It has 30 chapters.
TPP signed on 4 February, 2016 in Auckland
Countries who are interested in joining the TPP: Colombia, Philippines, Thailand, Taiwan, South Korea, Indonesia with the latest country showing interest being Sri Lanka

9. Entry into force
60 days after the ratification by all the 12 TPP countries or
By 2 April, 2018 (2 years + 60 days after signature) if atleast 6 countries comprising atleast 85% of the total TPP GDP (2013 figures of IMF) ratify the same
60 days after atleast 6 countries comprising atleast 85% of the total TPP GDP ratify the same

10. Tariff modalities on goods
Highlights:
Ambitious with entry into force ranging from 77% (Mexico) to 100% (Singapore) of total lines
Tariff phase out periods vary from 3 years to 24 years
Longer phase out periods in specific sectors:
Canada: clothing, footwear, automotives
Japan: marine, leather, footwear
US: chemicals, textiles, clothing, footwear, automotives
Vietnam: leather, automotives

11. TPP Commitments (% EIF lines)
TPP Country
Percentage share of TPP lines where tariff eliminated on EIF
Iron & Steel
Base Metals
Mech. Machinery
Elect. Machinery
Auto
Instruments
Sports
Australia
81.4%
97.5%
95.3%
94.1%
78.1%
95.5%
100.0%
Canada
83.6%
Japan
99.0%
93.9%
Malaysia
54.1%
82.7%
81.8%
81.7%
29.1% US
Vietnam
47.7%
75.4%
69.6%
58.6%
4.9%
87.0%
61.8%

12. Sectors of export interest for India
TPP Country
Percentage share of sectoral exports to total exports in TPP country( )
Iron & Steel
Base Metals
Mech. Machinery
Elect. Machinery
Auto
Instruments
Sports
Australia
6.3%
1.9%
4.0%
3.2%
8.9%
1.7%
1.0%
Canada
13.3%
1.8%
5.5%
2.2%
0.5%
0.2%
Japan
5.2%
0.8%
3.7%
2.1%
2.3%
0.6%
0.0%
Malaysia
4.1%
6.1%
3.0%
1.3% US
5.3%
1.5%
4.6%
3.1%
2.9%
0.9%
0.1%
Vietnam
4.3%
2.5%
1.6%

13. Sector/Countries where Indian exports may be affected
TPP country
Iron & Steel
Australia, Canada, Japan & US
Other Base Metals
Australia, Canada & Malaysia
Mechanical Machinery
Australia, Canada, Japan, Malaysia & US
Electrical Machinery
Automotives
Australia, Japan & US
Instruments/ Appliances
Australia & Malaysia
Sports Goods
Australia

14. Possible drop in Indian Auto exports to US ($ mln)
EIF
5yr
10yr
Other
Total Loss
India Total
% loss 14
1.9
15.9
1038
1.5%

15. Rules of Origin – General
Product specific rules (PSRs)
Criteria used i.e.
CTC (change in tariff classification),
Value Addition
CTC or VA
Full cumulation: (Art 3.6)VA includes
Value of processing non originating material
Value of originating material used in TPP ctys

16. Wholly Originating or Produced
wholly obtained or produced entirely in the territory of one or more of the Parties
produced entirely in the territory of one or more of the Parties, exclusively from originating materials
a good that is:
(i) waste or scrap derived from production there; or
(ii) waste or scrap derived from used goods collected there, provided that those goods are fit only for the recovery of raw materials;

17. Value Addition
Focused Value Method: Based on the Value of Specified Non-Originating Materials (FVNM)
Value Addition = Value of the Good – FVNM x 100
Value of the Good
2. Build-down Method: Based on Value of Non-Originating Materials (VNM)
Value Addition = Value of the Good – VNM x 100
3. Build-up Method: Based on Value of Originating Materials (VOM)
Value Addition = VOM x 100
4. Net Cost Method or NC method (for Automotive Goods Only)
RVC = NC - VNM x 100 NC

18. Value Addition
Net cost = cost – (sales promotion + marketing costs + after sales + royalties + shipping + packing + non allowable interest costs)
4 categories of value addition
Options given in many HS lines
Difference in the value depending on the choice of value addition
Lowest: Build up and net cost
Lowest + 10% Build down
Lowest + 20% Focussed value method

19. Remanufactured Goods Wholly originating status:
Waste and scrap derived from imported second hand goods
Remanufactured goods from this waste and scrap
No prohibitions or restrictions on imports.
Preferential treatment for remanufactured goods

20. Certification of Origin
Self Certification
By exporter, producer or importer
5 year grace period for Brunei, Malaysia, Mexico, Peru & Vietnam
Data required – certifier, exporter, producer, importer, HS code, origin criteria
Verification Procedures:
Communication with importer, exporter, producer

21. Auto PSRs CTH, CTSH, CTH or 30%/40%/50%; 45%/55%, CTSH or 40%/50%,

22. TPP-Implications for Automotive Sector
Adverse effect on exports of Autos & auto parts to Australia, Japan & US
Auto exports may be affected due to access for remanufactured goods within TPP.
Full cumulation could also affect Indian exports

23. Thank You