The role of trade agreements, either free trade or preferential trade has contributed a lot to the international trade. India has also entered various agreements with various countries in order to reduce the tariff based barriers between the contracting parties. The objective of this article is to throw light on the various agreements where India is party, so that the exporters and importers can take advantage of the same.
These agreements boost the confidence of the Indian exporters and place them ahead in the competition while dealing with the signatory parties. For example, a person located in country ‘A’ has an option to import certain goods say, computers either from India or country ‘B’. If import is made from country ‘B’ the import duties shall be 20%. However, if the same goods are imported from India, the import duty for the person located in country ‘A’ is 0%, since India and country ‘A’ has entered an agreement.
Further, these agreements also attract investments from other non-signatory countries. For example, consider two countries ‘P’ and ‘India’ having an agreement. Country ‘P’ has high infrastructure cost and large domestic market. The companies located in country ‘R’ may decide to invest in country ‘P’ to cater to its domestic market. However, if India offers better business environment and it is having an agreement with country ‘P’, ‘R’ may decide to invest in India to cater to the needs of ‘P’.
Hence, the agreements entered by India with other foreign countries contribute a lot to the exports and also safeguards the domestic manufactures from paying high import duties. The agreements generally aim at reducing or granting complete exemption from import duty when goods are imported to India from other signatory countries.
As far as the India is concerned, the agreements entered with other countries to participate in International Trade can be represented as under, for easy understanding:
As represented above, the agreements entered by India with various countries can be grouped under two main buckets namely Unilateral and Bilateral or Multilateral, which we shall understand in the following paragraphs.
Unilateral Tariff Preferences:
Unilateral tariff preferences benefits or concessions flow from one country to another country and there shall be no reciprocity. There are two types of unilateral tariff preferences namely ‘Generalized System of Preference’ (for brevity ‘GSP’) and ‘Duty Free Tariff Preference Scheme’ for Least Developed Countries.
Generalized System of Preference - GSP:
The GSP is a commercial policy instrument aimed towards development. The objective of GSP is to offer the developing countries a more preferential tariff compared to the developed countries. For example, an importer in New Zealand buys material from India, by virtue of GSP with New Zealand Government, such material might attract lower customs duty in New Zealand when compared with same import from United States of America.
As of now, Australia, Canada, EU, Iceland, Japan, New Zealand, Norway, Russian Federation, Belarus, Kazakhstan, Switzerland, Turkey and United States of America extend GSPs. The Indian exporters shall submit Certificate of Origin (for brevity ‘CoO’) issued by designated authorities to the importer, so that the importer can avail such reduced tariff or exemption as per the concerned GSP.
Duty Free Tariff Preference (DFTP) for Least Developed Countries:
One of the obligations from the sixth Ministerial Conference of WTO, also known as WTO Hong Kong Ministerial Conference (MC6) was to provide duty free tariff preferences for least developed countries. In order to stand up to this obligation, the Department of Commerce, India now provides duty free/preferential access to 98.2% of tariff lines. India has 31 least developed countries as beneficiaries to this scheme.
Bilateral or Multilateral Agreements:
Free Trade Agreements (for brevity ‘FTA’) and Preferential Trade Agreements (for brevity ‘PTA’) are either in form of ‘bilateral agreements’ where only India and counterpart alone entered into an agreement or in the form of ‘multilateral agreements’ where India and group of countries enter into an agreement. As on date, 619 notifications of RTA/FTAs had been received by WTO, where 413 RTA/FTAs are in force and there are 28 PTA’s.
Free Trade Agreements - FTA:
In terms of WTO, FTAs are defined as reciprocal trade agreements between two or more signatory countries. That is to say, in FTAs tariff on items covering substantial bilateral trade are eliminated between As on November, 2015 Source: https://www.wto.org/
the signing countries, however the countries maintains an individual tariff structure when dealing with non-singing countries. Under FTAs the signing countries agrees on a list of goods called as negative list for which the FTA shall not be applicable. Except such goods mentioned in the negative list, all other goods can be freely traded between the signing countries. As on date India has entered 10 FTAs as per Para 2.103 of Handbook of Procedures. India is in the process of negotiating another 18 FTAs.
List of FTAs signed by India are:
- India – Srilanka FTA;
- Agreement on South Asia Free Trade Agreement (SAFTA);
- Revised Agreement of Cooperation between Government of India and Nepal to control unauthorised trade;
- India – Bhutan Agreement on Trade Commerce or Transit;
- India – Thailand FTA – Early Harvest Scheme;
- India - Singapore Comprehensive Economic Cooperation Agreement (CECA)
- India - ASEAN CECA (Goods, Services and Investment)
- India - South Korea Comprehensive Economic Partnership Agreement (CEPA)
- India - Japan CEPA
- India - Malaysia CECA
EHS/EH P:
Early Harvest Scheme/Early Harvest Programme is a forerunner to FTA between two trading partners. This is to help the two trading countries to identify certain products for tariff liberalization pending the conclusion of FTA negotiation. EHS has been used as a mechanism to build greater confidence amongst trading partners to prepare them for even bigger economic engagement.
CECA & CEPA:
Comprehensive Economic Co-operation Agreement (for brevity ‘CECA’) and Comprehensive Economic Partnership Agreement (for brevity ‘CEPA’) describes agreements which consists of an integrated package on goods, services and investments along with other areas including IPR.
EHS/EHP, CECA & CEPA are grouped under FTA. Preferential Trade Agreements - PTA:
Under PTAs, two or more partners agree to reduce tariffs on agreed number of products, generally called positive list. Hence, PTAs do not cover substantial trade as like in FTAs. As of Feb 2016, India has entered 6 PTAs as per Para 2.103 of Handbook of Procedures.
List of PTAs signed by India are:
- Asia Pacific Trade Agreement (APTA)
- Global System of Trade Preferences (GSTP)
- India - Afghanistan PTA
- India - MERCOSUR PTA
- India - Chile PTA
- SAARC Preferential Trading Arrangement (SAPTA)
Global System of Trade Preference - GSTP:
GSTP is entered between developing countries to exchange tariff concession to limited products. India provides tariff concessions to selective products imported from 54 countries subject to submission of CoO issued by the concerned authorities in exporting country. The goods originating from participating countries and CoO issued should comply with Customs Tariff (Determination of Origin of Goods under the Agreement on Global System of Trade Preferences among Developing Countries) Rules, 1989.
Procedure for claiming concessions & exemptions under the above agreements – General:
The basic customs duty charged under Section 12 of the Customs Act, 1961 is exempted or reduced by virtue of FTAs or PTAs. It is to be noted that other customs duties like countervailing duties are not covered under FTAs or PTAs. Further, a corresponding notification has to be issued under customs law to operationalize the promises made under FTAs or PTAs. The person intending to export or import as per the FTAs or PTAs has to satisfy the conditions mentioned in such notifications along with any rules made thereunder. The essential pre-requisite in order to avail the concessions or exemptions, is the Certificate of Origin (for brevity ‘CoO’).
The general procedure in order to avail the concession and exemptions prescribed under the FTAs/PTAs is prescribed as under. Let us a take an example of Indian manufacturer who intends to import goods from Srilanka under the India – Sri Lanka Free Trade Agreement (for brevity ‘ISLFTA’).
In order to import goods which are specified in the above agreement, the importer has to approach an exporter located in Sri Lanka, obtain CoO issued by the designated Sri Lankan authorities from such exporter, submit the CoO to the customs authorities and claim such exemption or reduced duty as place in the ISLFTA.
In the same way, if an exporter located in India wants to export specified goods in the ISLFTA, the Indian exporter has to obtain CoO from the designated authorities and pass it on to the Sri Lankan buyer, wherein such person can claim the reduced import duty or exemption as per ISLFTA.
This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
