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ANALYSING INDIA’S STEEL TRADE UNDER ITS FREE TRADE AGREEMENTS WITH ASEAN, JAPAN, AND KOREA
Clinic: CTIL/National Law University, Jodhpur, Fall 2020
Executive Summary
There is evidence to show that India’s FTAs with Japan, Korea, and ASEAN have not benefited the parties equally. An examination of India’s MFN tariffs and preferential tariffs on steel, as compared to those of its trading partners, indicates an asymmetry in advantages that have accrued. In light of this, it is recommended that India’s preferential tariff schedule for steel be revised. An analysis of technical regulations governing steel in ASEAN, South Korea, and Japan shows that standards is a common technical regulation. To reduce the costs to steel exporters, the Report suggests negotiation of mutual recognition agreements between the parties. Another important regulation is import licensing. WTO’s Agreement on Import Licensing Procedures (AILP) governs import licensing by Members. Indonesia, Malaysia and Vietnam practice a system of import licensing for statistical, data collecting and monitoring purposes. As per our analysis, these import licensing regimes qualify as automatic import licensing. However, Indonesian import licensing system has been criticised as costly, complicated and tedious. None of the abovementioned FTAs cover import licensing. The Report recommends that provisions on import licensing, in conformity with AILP, are negotiated in India’s future FTAs. Further, specific transparency obligations in import licensing procedures may be drafted. Notably, not only has the use and proliferation of FTAs seen a monumental spike, but they have also become more expansive and comprehensive in their coverage. In particular, trade facilitation issues and customs procedures, i.e., measures aimed at increasing the efficiency of trade procedures, are now almost systematically included in bilateral and regional trade agreements. Prominently, two issues arise with respect to trade facilitation – first, cumbersome data and documentation requirements; and second, complex customs and border facilitation procedures. This report finds that the India – Korea CEPA deals with a variety of aspects in this regard, and is fairly comprehensive in scope. In stark contrast, the AIFTA has only one provision dealing with customs procedures. The report delves into the efficacy of the customs and trade facilitation measures contained in the three agreements, and suggests how they may be made more comprehensive.
Another important consideration in the examination of these FTAs are rules of origin, which consists of comprehensive tests and administrative rules that collectively assist in identifying the origin of the product. HS Chapter 72 goods are subject to Product-Specific Rules [“PSRs”] in Indian FTAs with Japan and Korea which requires a CTH degree change in tariff headings. However, in India FTAs with Malaysia and Singapore, Chapter 72 is subject to the stricter twin test rule. This displays the absence of harmonisation in PSRs applicable to Chapter 72 goods across various FTAs. It has been recommended that India should shed its hesitance towards PSRs. It should embark on a harmonisation mission of formulating PSR models for its FTA negotiations and reviews. This will help businesses plan out their preferential claims under FTAs especially if the originating tests conform to their continuous production cycles. Approved exporter system present in the PEM Convention can be adopted by India as it is a favourable middle ground of assuring trust and authenticity and facilitating the compliance process for businesses that are established. India should also place strong focus on freeing up the burden on customs authorities and formulate systems to strengthen its risk assessment systems, record keeping systems and improving communication channels with competent authorities of partner countries. Lastly, an examination of India’s position vis-à-vis others would be incomplete without examining exit / termination clauses in FTAs. An agreement without an exit clause can be terminated by utilizing the customary international laws. The report has recognized three ways to address termination without an exit clause under Vienna Convention on the Law of Treaties, i.e., termination with mutual consent, Unilateral Termination and modification. While customary international can be utilised in absence of an exit clause, one cannot deny the utility of exit clauses as they create certainty in the agreement. Thus, a model clause has been formulated and proposed by the report based on the minor modifications in the standard exit clause in the FTAs in question.