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
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Contents
 Types and Objectives of Trade Agreements
 Elements in an FTA
 Indian FTAs
 Impact on the Textile Industry
 Conclusions & Recommendations
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
Sens. Track
0 HS Line
77 HS Lines at 5-8%
Excl. List
0 HS Line
0 HS Line
Sens. Track
5 HS Line at 5%
53 HS Line at 5%
Excl. List
1 HS Line at 10%
6 HS Line at 10%
Sens. Track
2 HS Line at 1%
12 HS Line at 5-10%
Excl. List
0 HS Line
5 HS Line at 5%
Sens. Track
0 HS Line
0 HS Line
Excl. List
0 HS Line
0 HS Line
13 HS Line at 5%
15 HS Line at 5%
0 HS Line
0 HS Line
7 HS Line at 5%
58 HS Lines at 5-6%
0 HS Line
13 HS Line at 12%
1 HS Line at 5%
20 HS Lines at 5%
0 HS Line
1 HS Line at 5%
Indonesia
Malaysia
Myanmar
Philipinnes
Cambodia
Sens. Track
Excl. List
Vietnam
Sens. Track
Excl. List
Thailand
Sens. Track
Excl. List
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India – ASEAN: Trade in Textiles
Textiles & Clothing
HS Code
Million USD
Description
2010
2011
2012
2013
2014
2015
2016
Textiles & Clothing
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
107
131
127
112
109
115
61
Knit Apparel
47
45
33
43
60
63
66
63
Miscellaneous Textile Articles
45
50
95
86
42
45
46
56
Wadding, Felt, Twine
37
47
46
49
48
26
28
57
Textile Floor Coverings
96
16
20
21
30
19
17
51
Animal Hair and Yarn, Wool
12
13
14
14
17
17
16
58
Special Woven Fabrics
17
20
17
23
22
21
16
60
Knit, Crocheted Fabrics
8
11
8
6
7
8
11
59
Impregnated Text Fabrics
6
6
7
11
45
17
8
50
Silk; Silk Yarns
24
14
13
13
11
8
6
53
Other Vegetable Textiles
12
16
12
6
8
8
6
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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
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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
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India – Japan Trade
Textiles & Clothing
HS Code
Million USD
Description
2010
Textiles & Clothing
2011
2012
2013
2014
2015
2016
261
397
402
418
423
373
373
111
176
204
193
179
153
152
62
Woven Apparel
52
Cotton and Yarn, Fabric
61
88
56
65
73
56
55
63
Miscellaneous Textile Articles
28
50
56
55
59
51
50
61
Knit Apparel
13
17
21
28
32
33
32
57
Textile Floor Coverings
18
19
26
29
26
22
22
51
Animal Hair and Yarn, Wool
3
9
10
8
8
17
20
54
Manmade Filaments
2
5
5
6
15
13
13
59
Impregnated Text Fabrics
9
9
4
10
8
7
11
55
Manmade Staple Fibers
4
11
8
11
11
11
10
53
Other Vegetable Textiles
5
5
6
4
5
4
5
56
Wadding, Felt, Twine
3
4
4
6
5
4
2
58
Special Woven Fabrics
1
1
1
2
1
1
2
50
Silk; Silk Yarns
2
3
3
1
1
1
1
60
Knit, Crocheted Fabrics
0
0
0
0
0
0
0
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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
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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%
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India – Korea Trade
Textiles & Clothing
HS Code
Millions USD
Description
2010
2011
2012
2013
2014
2015
2016
Textiles & Clothing
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
11
12
14
15
20
24
61
Knit Apparel
6
10
15
17
17
18
19
62
Woven Apparel
7
11
15
18
19
19
17
55
Manmade Staple Fibers
8
4
2
2
4
10
17
51
Animal Hair and Yarn, Wool
7
12
12
11
8
17
16
56
Wadding, Felt, Twine
2
2
1
4
2
5
10
63
Miscellaneous Textile Articles
3
5
5
8
7
9
8
57
Textile Floor Coverings
3
5
4
4
6
5
5
60
Knit, Crocheted Fabrics
0
2
1
0
1
4
4
59
Impregnated Text Fabrics
1
1
1
1
1
1
1
58
Special Woven Fabrics
1
1
1
1
1
1
1
50
Silk; Silk Yarns
1
0
0
0
0
0
1
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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
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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%
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India – Malaysia Trade
Textiles & Clothing
HS Code
Millions USD
Description
2010
Textiles & Clothing
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
66
72
53
46
39
61
Knit Apparel
5
11
9
9
12
14
17
63
Miscellaneous Textile Articles
10
11
13
14
17
16
15
55
Manmade Staple Fibers
7
7
6
11
8
8
10
57
Textile Floor Coverings
87
4
5
6
14
6
6
60
Knit, Crocheted Fabrics
0
1
1
1
3
3
4
56
Wadding, Felt, Twine
2
4
2
5
5
2
3
58
Special Woven Fabrics
1
3
1
3
2
3
2
50
Silk; Silk Yarns
10
4
5
4
4
2
2
51
Animal Hair and Yarn, Wool
1
1
2
2
3
1
2
53
Other Vegetable Textiles
1
1
1
1
1
1
1
59
Impregnated Text Fabrics
0
0
1
1
8
2
1
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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
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India – SAFTA Trade
Textiles & Clothing
HS Code
Millions USD
Description
2010
2011
2012
2013
2014
2015
2016
Textiles & Clothing
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
136
127
152
169
163
170
61
Knit Apparel
23
44
58
69
61
100
116
63
Miscellaneous Textile Articles
17
18
27
22
26
43
41
53
Other Vegetable Textiles
31
22
24
26
29
27
30
58
Special Woven Fabrics
14
17
17
19
18
25
29
59
Impregnated Text Fabrics
6
8
13
18
31
22
20
56
Wadding, Felt, Twine
5
8
12
12
15
16
14
51
Animal Hair and Yarn, Wool
3
6
4
6
7
7
8
50
Silk; Silk Yarns
2
2
2
5
4
5
3
57
Textile Floor Coverings
1
1
1
1
4
1
1
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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.
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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
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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: [email protected] Website: www.texprocil.org.in
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