the harmonized commodity description and coding...
TRANSCRIPT
126
Appendix 1
The Harmonized Commodity Description and Coding System
1. Introduction: Harmonized Commodity Description and Coding System (HS
in short) is a commodity coding system in international trade. In the pre HS code era
countries followed different coding systems for export-import operations. In 1983 for
the sake of convenience a standard coding system, the HS, was evolved under the
aegis of the Customs Co-operation Council (now named as World Customs
Organization).
2. HS Code: The basic Harmonized System uses a 6-digit number to identify
basic commodities. Each country is allowed to add additional digits for statistical
purposes.
How the HS works: The Harmonized System is a commodity classification system in
which articles are grouped largely according to the nature of the materials of which
they are made, as has been traditional in customs nomenclatures. The HS contains
approximately 5000 headings and subheadings covering all articles in trade. The
products are organised in 97 chapters (Chapter 77 reserved for future use by World
Customs Organization) arranged in 21 sections, which, along with the interpretive
rules and legal notes to the chapters and sections, form the legal text of the
Harmonized System. At the HS 4-digit level there are 1255 product headings. At HS
6-digit level there are 5427 sub-headings. Till this all countries have same
classification of products. At the HS 8-digit level for India there are 15077 items.
3. The basic 6-digit code that makes up the HS is made of three parts. The first
two digits identify the chapter the goods are classified in. For example:
07 Edible Vegetables and Certain Roots and Tubers
127
The next two digits identify groupings within that chapter:
07.06 Carrots, Turnips, Salad Beetroot, Salsify, Celeriac,
Radishes and Similar Edible Roots, Fresh or Chilled.
The next two digits are even more specific:
07.06.10 Carrots and Turnips
This is the last point at which different countries’ classification codes are identical.
After this point countries can add more digits to make the HS classification numbers
even more specific. India has evolved the Indian Trade Classification based on
Harmonized System [ITC (HS)] from 1987. India uses two additional numbers for
both imports and exports. In India for exports the next step in the above progression
is:
07.06.10.10 Carrots, fresh or chilled
128
Appendix 2.1
India’s engagement in future PTAs
Agreement Coverage Implementation
status
Bay of Bengal
Initiative for
Multi-Sectoral
Technical and
Economic
Cooperation (BIMSTEC)
FTA
Trade and investment, technology, transportation and
communication, energy, tourism and fisheries.
Negotiations under
progress
Preferential
Trade
Agreement
(PTA) between
India and SACU
---
Framework
agreement finalised
but not yet signed
India – EU Trade
and Investment
Agreement
(TIA)
---
Negotiations under
progress
India – EFTA
Trade and
Investment Agreement
(TIA)
---
Negotiations under
progress
Free Trade
Agreement(FTA)
between India
and Gulf
Cooperation
Council(GCC):
FTA in Goods, Services and Investment; areas of cooperation
to be mutually decided
Negotiations started
Comprehensive
Economic
Cooperation and
Partnership
Agreement
(CECPA) between India
with Mauritius.
Trade in goods.
For trade in services: Issues relating to Financial Services
sector, Mutual Recognition Agreements and Movement of
Natural Persons are being deliberated upon. Both sides have
agreed to explore the possibility of expanding trade in
services by synergizing with the Common Market for Eastern and Southern Africa (COMESA) and Southern African
Development Community (SADC) markets.
Investment measures: Issues relating to improving the
effectiveness of the existing Double Taxation Avoidance
Agreement for the mutual benefit of the two countries and
review of the existing Bilateral Investment Protection
Agreement to enhance its scope and effectiveness are being
deliberated upon. Discussions have been held for improving
the existing legal framework in both countries in this regard
and other issues related to facilitation of investment.
Negotiations started
129
Comprehensive
Economic
Cooperation
Agreement
(CECA)/ Free
Trade
Agreement (FTA) between
India and New
Zealand.
---
Feasibility report,
tabled in 2009 by
the Joint Task
Force, gives the go
ahead
Comprehensive
Economic
Cooperation
Agreement
(CECA) between
India and
Indonesia
---
Joint Study Group
constituted to study
feasibility of the
PTA
Free Trade
Agreement
(FTA) between
India and Australia
---
Joint Study Group
constituted
India - China
RTA ---
Joint task force
constituted to study
feasibility of the
PTA
Source: Author’s compilation from information available at Department of Commerce website.
130
Appendix 2.2
Top trade items with PTA partners
The data source for calculation of these tables is India Trades database. The shaded
items represent preferential items. Average export and import values are calculated as
there are yearly fluctuations in trade data at the disaggregate level. Before PTA
indicates three years average before the PTA came to force. After PTA indicates the
average of last three fiscal years (2007-08 to 2009-10). So here we break up the data
series into pre-PTA and post-PTA groups with the year when PTA came to force as
the point of inflection.
Table A: Top 10 export items to Sri Lanka (in Million US dollars)
HS
Code Product description
Before
PTA
After
PTA
271019 Other petroleum oils, ATF, HSD etc 0.00 636.66
271011 Light petroleum oils 0.00 203.29
870321 Motor cars with cylinder capacity <1000 cc 1.37 73.79
720719 Other semi-finished products of iron & non-alloy steel 0.74 61.33
871120 Motorcycles with cylinder capacity between 50-250 cc 8.71 53.62
300490 Other medicines, ayurvedic, unani, homeopathic etc 9.83 48.76
170199 Other sugar: sugar cubes 0.65 45.09
740811 Copper wire 0.05 42.36
170111 Cane sugar 0.12 37.42
230400 Oil-cakes/residue from soyabean extraction 10.50 35.90
Source: Author.
131
Table B: Top 10 import items from Sri Lanka (in Million US dollars)
HS
Code Product description
Before
PTA
After
PTA
151620 Vegetable fats and oils 0.00 64.41
854419 Insulated wire, other than copper 0.01 17.37
230990 Animal feed, other than dog/cat food 0.01 17.35
090411 Pepper, neither crushed nor ground 5.96 16.32
090700 Cloves 1.48 15.76
680221 Marble 0.00 12.88
400121 Natural rubber in smoked sheets 0.15 12.42
470790 Waste and scrap of paper of paper-board, unsorted 2.43 11.44
841850 Refrigerating counters/cabinets 0.00 8.94
854411 Insulated wire, of copper 0.00 8.70
Source: Author.
Table C: Top 10 export items to Afghanistan (in Million US dollars)
HS
code
Product description
Before PTA After PTA
300490 Other medicines, ayurvedic, unani 1.66 36.86
540761 Woven fabrics of synthetic filament yarn containing ≥85
polyester by weight 0.00 21.97
540710 Woven fabrics obtained from high tenacity yarn of nylon or
polyesters 0.18 21.41
540752 Woven fabrics, dyed 0.03 15.45
854460 Other electric conductors 0.00 13.65
240399 Other tobacco, chewing, snuff etc 1.42 9.70
040700 Birds eggs 0.00 9.49
170199 Other sugar: sugar cubes 1.59 6.92
854140 Photosensitive semiconductor devices 0.00 5.56
090240 Other black tea (fermented) 0.56 5.48
Source: Author.
132
Table D: Top 10 import items from Afghanistan (in Million US dollars)
HS
code
Product description
Before PTA After PTA
131090 Natural gums 0.51 21.36
080420 Figs 1.98 21.13
080250 Pistachios 2.42 14.74
080620 Grapes, dried 5.36 10.12
080212 Almonds, shelled 4.56 7.87
081310 Apricots, dried 1.84 6.16
080211 Almonds, fresh or dried ,in shell 1.57 4.16
090940 Seeds of caraway 0.00 2.44
081090 Other fruits (fresh pomegranates) 0.09 0.87
081340 Other fruits, dried 0.01 0.67
Source: Author.
Table E: Top 10 export items to Thailand (in Million US dollars)
HS code Product description Before PTA After PTA
710239 Diamonds, other 196.89 296.55
740311 Cathodes and sections of cathodes of refined copper 34.03 115.90
230400 Oilcakes and other solid residues 40.48 111.96
271019 Other petroleum oils, ATF, HSD etc 3.47 66.54
720110 Non-alloy pig iron 16.03 65.18
520100 Cotton, not carded or combed 2.45 46.63
851712 Mobile phone sets, wireless phone sets 0.00 42.00
870840 Gear boxes 0.29 33.37
710399 Semi-precious stones 16.60 26.89
740811 Copper wire 0.77 26.85
Source: Author.
133
Table F: Top 10 import items from Thailand (in Million US dollars)
HS
code
Product description Before PTA After PTA
840820 Engines for vehicles, other than railway or tramway 21.51 111.90
847170 Storage units of automatic data processing machines 3.28 91.23
271019 Other petroleum oils, ATF, HSD etc 0.00 74.31
852872 Reception apparatus for colour TV 0.08 72.88
760120 Aluminium alloys 0.12 70.92
400121 Natural rubber in smoked sheets 5.35 47.64
841510 AC machines, window or wall types 5.30 46.78
720890 Flat-rolled products of iron or non-alloy steel 0.44 38.80
720421 Waste & scrap of stainless steel 2.26 38.12
390740 Polycarbonates 5.09 36.54
Source: Author.
Table G: Top 10 export items to Singapore (in Million US dollars)
HS code Product description Before
PTA
After
PTA
271019 Other petroleum oils, ATF, HSD etc 586.55 1844.06
271011 Light oils and preparations; motor spirit 131.54 1541.27
890190 Other vessels for the transport of goods & persons 4.74 240.32
760110 Aluminium, not alloyed 48.78 233.61
710239 Diamonds, other 288.52 200.28
890590 Floating docks, platforms etc 9.69 152.90
890520 Floating or submersible drilling/production platforms 17.41 145.14
740311 Cathodes and sections of cathodes of refined copper 40.29 94.13
711319 Jewellery articles of other precious metal, gold/platinum 10.30 91.45
290220 Benzene 586.55 1844.06
880330 Other parts of aeroplane/helicopters 1.68 89.38
Source: Author.
134
Table H: Top 10 import items from Singapore (in Million US dollars)
HS
code
Product description Before PTA After
PTA 271019 Other petroleum oils, ATF, HSD etc 0.00 1743.88
290250 Styrene 60.65 206.26
490700 Unused postage, revenue or similar stamps 85.30 192.74
847330 Parts and accessories of the automatic data processing machines 160.88 185.36
890190 Other vessels for the transport of goods & persons 22.10 144.96
847150 Digital processing units 37.86 140.05
890590 Other light vessels 58.91 133.36
851769 Other apparatus for telephony/telegraphy 34.32 122.63
847130 Laptops, palmtops etc 16.57 120.24
271011 Light oils and preparations; motor spirit 0.00 116.68
Source: Author.
Table I: Top 10 export items to Chile (in Million US dollars)
HS
code Product description Before
PTA
After
PTA
870321 Motor vehicles of cylinder capacity less than 1000 cc 14.45 25.51
280700 Sulphuric acid; oleum 0.00 24.77
730511 Pipe of iron or steel for oil/gas 0.00 19.30
283329 Sulphates 3.52 12.46
710239 Diamonds, other 2.23 12.36
420329 Gloves & mittens of leather 7.19 11.74
850423 Electrical transformers having power handling capacity>10,000 kva 6.55 10.93
300490 Other medicines, ayurvedic, unani, homeopathic etc 5.94 8.32
870322 Motor vehicles of cylinder capacity more than 1000 cc 0.03 8.18
294200 Other organic compounds 4.45 6.78
Source: Author.
135
Table J: Top 10 import items from Chile (in Million US dollars)
HS code Product description Before PTA After PTA
260300 Copper ores & concentrates 1081.63 1491.52
261310 Molybdenum ores & concentrates 21.35 37.99
280120 Iodine 28.37 33.86
80810 Apples, fresh 2.93 16.00
740200 Unrefined copper 0.00 9.27
480100 Newsprint, in rolls & sheets 5.48 4.32
282520 Lithium oxide & hydroxide 1.89 4.31
120991 Vegetable seeds 0.39 3.70
720421 Waste & scrap of stainless steel 0.37 3.11
470321 Bleached chemical wood pulp sulphate 0.30 2.87
Source: Author.
136
Appendix 2.3
Panel Unit root tests and Cointegration tests for panel data analysis
(Results generated using E-views 7)
For imports from Sri Lanka
Panel unit root test: Summary
Series: IMPORTSL
Date: 07/15/11 Time: 11:08
Sample: 1990 2009
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0 to 4
and Bartlett kernel Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* 4.97704 1.0000 15 251
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -1.06686 0.1430 15 251
ADF - Fisher Chi-square 123.961 0.0000 15 251
PP - Fisher Chi-square 30.4362 0.4435 15 285 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality. Panel unit root test: Summary
Series: D(IMPORTSL)
Date: 07/15/11 Time: 11:06
Sample: 1990 2009
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0 to 3
and Bartlett kernel Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -10.2101 0.0000 18 301
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -12.1919 0.0000 18 301
ADF - Fisher Chi-square 231.817 0.0000 18 301
PP - Fisher Chi-square 506.601 0.0000 18 324 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
137
Panel unit root test: Summary
Series: TARIFFPREF
Date: 07/15/11 Time: 11:13
Sample: 1990 2009
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0
and Bartlett kernel
Balanced observations for each test Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -0.33183 0.3700 5 95
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat 0.25901 0.6022 5 95
ADF - Fisher Chi-square 9.37408 0.4970 5 95
PP - Fisher Chi-square 9.06669 0.5258 5 95 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
Panel unit root test: Summary
Series: D(TARIFFPREF)
Date: 07/15/11 Time: 11:16
Sample: 1990 2009
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0
and Bartlett kernel
Balanced observations for each test Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -12.7140 0.0000 12 216
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -10.0970 0.0000 12 216
ADF - Fisher Chi-square 129.696 0.0000 12 216
PP - Fisher Chi-square 144.004 0.0000 12 216 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
138
Pedroni Residual Cointegration Test
Series: IMPORTSL TARIFFPREF
Date: 07/15/11 Time: 11:20
Sample: 1990 2009
Included observations: 400
Cross-sections included: 20 in non-parametric (PP) test; 19 (1 dropped)
parametric (ADF) test
Null Hypothesis: No cointegration
Trend assumption: No deterministic trend
Automatic lag length selection based on SIC with a max lag of 3
Newey-West automatic bandwidth selection and Bartlett kernel Alternative hypothesis: common AR coefs. (within-dimension)
Weighted
Statistic Prob. Statistic Prob.
Panel v-Statistic 3.645290 0.0001 0.166340 0.4339
Panel rho-Statistic -7.396728 0.0000 -6.315175 0.0000
Panel PP-Statistic -10.08375 0.0000 -8.186018 0.0000
Panel ADF-Statistic -9.117597 0.0000 -7.898737 0.0000
Alternative hypothesis: individual AR coefs. (between-dimension)
Statistic Prob.
Group rho-Statistic -4.337688 0.0000
Group PP-Statistic -9.086102 0.0000
Group ADF-Statistic -9.014197 0.0000
Cross section specific results Phillips-Peron results (non-parametric)
Cross ID AR(1) Variance HAC Bandwidth Obs
1 0.336 1216.663 1254.222 1.00 19
2 0.477 206.2700 218.6467 2.00 19
3 0.327 67.28315 66.13392 1.00 19
4 -0.300 876.6859 92.90818 13.00 19
5 0.459 69.23154 63.21118 3.00 19
6 0.368 8.895182 8.895182 0.00 19
7 0.035 27.09558 22.63826 5.00 19
8 0.732 37.21786 48.45020 1.00 19
9 0.067 14.04895 14.04895 0.00 19
10 0.152 51.81560 50.96370 1.00 19
11 0.457 6.728999 4.693624 4.00 19
12 0.427 29.25385 24.75843 3.00 19
13 -0.834 35.34198 44.68001 2.00 19
14 -0.071 158.3737 158.3737 0.00 19
15 0.051 1.576324 1.575352 1.00 19
16 0.680 8.357386 11.83729 1.00 19
17 -0.360 2.580912 2.654770 1.00 19
18 0.477 7.675923 8.373051 2.00 19
19 1.040 1.077076 1.415899 2.00 19
20 0.470 3.220738 3.531558 1.00 19
Augmented Dickey-Fuller results (parametric)
Cross ID AR(1) Variance Lag Max lag Obs
1 -0.913 547.5075 3 3 16
2 0.477 206.2700 0 3 19
3 0.327 67.28315 0 3 19
4 -18.32 128.3133 3 3 16
139
5 0.216 60.76615 1 3 18
6 0.368 8.895182 0 3 19
7 0.035 27.09558 0 3 19
8 -0.289 19.47638 2 3 17
9 0.067 14.04895 0 3 19
10 -2.746 29.85679 3 3 16
11 -0.016 5.440758 1 3 18
12 -1.015 6.115348 3 3 16
13 Dropped from Test
14 -0.071 158.3737 0 3 19
15 0.051 1.576324 0 3 19
16 2.261 1.172580 3 3 16
17 -0.360 2.580912 0 3 19
18 0.244 6.468237 1 3 18
19 1.040 1.077076 0 3 19
20 -1.130 1.832239 3 3 16
For imports from Thailand
Panel unit root test: Summary
Series: IMPORTTHA
Date: 11/03/11 Time: 17:27
Sample: 1990 2009
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0 to 4
Newey-West automatic bandwidth selection and Bartlett kernel Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* 9.16148 1.0000 20 327
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat 7.79123 1.0000 20 327
ADF - Fisher Chi-square 32.1926 0.8055 20 327
PP - Fisher Chi-square 11.5417 1.0000 20 380 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
140
Panel unit root test: Summary
Series: D(IMPORTTHA)
Date: 11/03/11 Time: 17:28
Sample: 1990 2009
Exogenous variables: Individual effects
Automatic selection of maximum lags
Automatic lag length selection based on SIC: 0 to 3
Newey-West automatic bandwidth selection and Bartlett kernel Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -1.46022 0.0721 20 324
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -3.51530 0.0002 20 324
ADF - Fisher Chi-square 116.396 0.0000 20 324
PP - Fisher Chi-square 216.951 0.0000 20 360 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
Panel unit root test: Summary
Series: TARIFFPREF
Date: 11/03/11 Time: 17:30
Sample: 1990 2009
Exogenous variables: Individual effects
User-specified lags: 1
Newey-West automatic bandwidth selection and Bartlett kernel
Balanced observations for each test Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* 2.26547 0.9883 20 360
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat 4.23274 1.0000 20 360
ADF - Fisher Chi-square 9.89533 1.0000 20 360
PP - Fisher Chi-square 9.10040 1.0000 20 380 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
141
Panel unit root test: Summary
Series: D(TARIFFPREF)
Date: 11/03/11 Time: 17:31
Sample: 1990 2009
Exogenous variables: Individual effects
User-specified lags: 1
Newey-West automatic bandwidth selection and Bartlett kernel
Balanced observations for each test Cross-
Method Statistic Prob.** sections Obs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t* -12.5942 0.0000 20 340
Null: Unit root (assumes individual unit root process)
Im, Pesaran and Shin W-stat -10.6027 0.0000 20 340
ADF - Fisher Chi-square 181.080 0.0000 20 340
PP - Fisher Chi-square 247.412 0.0000 20 360 ** Probabilities for Fisher tests are computed using an asymptotic Chi
-square distribution. All other tests assume asymptotic normality.
142
Appendix 2.4
Results of Panel data analysis
(Results generated using E-views 7)
Imports from Sri Lanka
Dependent Variable: IMPORTSL
Method: Panel EGLS (Cross-section weights)
Date: 11/03/11 Time: 16:06
Sample (adjusted): 1994 2007
Periods included: 14
Cross-sections included: 20
Total panel (balanced) observations: 280
Iterate coefficients after one-step weighting matrix
White cross-section standard errors & covariance (d.f. corrected)
Convergence achieved after 14 total coef iterations Variable Coefficient Std. Error t-Statistic Prob. C 2.813476 0.240858 11.68106 0.0000
TARIFFPREF 0.672123 0.050761 13.24085 0.0000
D(TARIFFPREF) -0.358005 0.046885 -7.635830 0.0000
D(TARIFFPREF(-1)) -0.224003 0.050842 -4.405895 0.0000
D(TARIFFPREF(1)) 0.273251 0.055193 4.950830 0.0000
D(TARIFFPREF(-2)) -0.041853 0.059498 -0.703428 0.4824
D(TARIFFPREF(2)) 0.078734 0.014109 5.580337 0.0000
AR(1) 0.543647 0.098209 5.535611 0.0000 Effects Specification Cross-section fixed (dummy variables) Weighted Statistics R-squared 0.675964 Mean dependent var 11.53408
Adjusted R-squared 0.642664 S.D. dependent var 21.95277
S.E. of regression 13.15625 Sum squared resid 43790.98
F-statistic 20.29911 Durbin-Watson stat 1.735713
Prob(F-statistic) 0.000000 Unweighted Statistics R-squared 0.344700 Mean dependent var 5.796500
Sum squared resid 52664.28 Durbin-Watson stat 1.820316 Inverted AR Roots .54
143
Redundant Fixed Effects Tests
Equation: EQ01
Test cross-section fixed effects Effects Test Statistic d.f. Prob. Cross-section F 4.857207 (19,274) 0.0000
Cross-section fixed effects test equation:
Dependent Variable: IMPORTSL
Method: Panel EGLS (Cross-section weights)
Date: 11/03/11 Time: 16:09
Sample (adjusted): 1993 2007
Periods included: 15
Cross-sections included: 20
Total panel (balanced) observations: 300
Use pre-specified GLS weights
White cross-section standard errors & covariance (d.f. corrected) Variable Coefficient Std. Error t-Statistic Prob. C 0.729209 0.170524 4.276275 0.0000
TARIFFPREF 0.344522 0.066385 5.189790 0.0000
D(TARIFFPREF) -0.022469 0.074262 -0.302562 0.7624
D(TARIFFPREF(-1)) 0.141454 0.076291 1.854135 0.0647
D(TARIFFPREF(1)) 0.292383 0.042815 6.829039 0.0000
D(TARIFFPREF(-2)) 0.299862 0.091435 3.279504 0.0012
D(TARIFFPREF(2)) 0.081170 0.029264 2.773670 0.0059 Weighted Statistics R-squared 0.535489 Mean dependent var 10.88319
Adjusted R-squared 0.525976 S.D. dependent var 23.28211
S.E. of regression 15.77752 Sum squared resid 72936.56
F-statistic 56.29505 Durbin-Watson stat 0.907491
Prob(F-statistic) 0.000000 Unweighted Statistics R-squared 0.102552 Mean dependent var 5.433433
Sum squared resid 72656.60 Durbin-Watson stat 0.965925
144
Imports from Thailand
Dependent Variable: IMPORTTHA
Method: Panel EGLS (Cross-section weights)
Date: 11/03/11 Time: 16:38
Sample (adjusted): 1995 2008
Periods included: 14
Cross-sections included: 20
Total panel (balanced) observations: 280
Iterate coefficients after one-step weighting matrix
White cross-section standard errors & covariance (d.f. corrected)
Convergence achieved after 13 total coef iterations Variable Coefficient Std. Error t-Statistic Prob. C 10.70850 8.137036 1.316020 0.1894
TARIFFPREF 0.794652 0.073226 10.85205 0.0000
D(TARIFFPREF) -0.586028 0.027657 -21.18935 0.0000
D(TARIFFPREF(-1)) -0.308008 0.013695 -22.48994 0.0000
D(TARIFFPREF(1)) -0.001208 0.030814 -0.039187 0.9688
AR(1) 1.159532 0.044670 25.95783 0.0000
AR(2) -0.070856 0.138637 -0.511090 0.6097
AR(3) -0.148736 0.101350 -1.467552 0.1435 Effects Specification Cross-section fixed (dummy variables) Weighted Statistics R-squared 0.901689 Mean dependent var 6.092427
Adjusted R-squared 0.891586 S.D. dependent var 10.04282
S.E. of regression 3.454561 Sum squared resid 3019.299
F-statistic 89.24900 Durbin-Watson stat 1.922029
Prob(F-statistic) 0.000000 Unweighted Statistics R-squared 0.876996 Mean dependent var 5.142857
Sum squared resid 3807.684 Durbin-Watson stat 1.845105 Inverted AR Roots .89 .56 -.30
145
Redundant Fixed Effects Tests
Equation: Untitled
Test cross-section fixed effects Effects Test Statistic d.f. Prob. Cross-section F 7.761044 (19,316) 0.0000
Cross-section fixed effects test equation:
Dependent Variable: IMPORTTHA
Method: Panel EGLS (Cross-section weights)
Date: 11/03/11 Time: 16:41
Sample (adjusted): 1992 2008
Periods included: 17
Cross-sections included: 20
Total panel (balanced) observations: 340
Use pre-specified GLS weights
White cross-section standard errors & covariance (d.f. corrected) Variable Coefficient Std. Error t-Statistic Prob. C 0.863183 0.189920 4.544979 0.0000
TARIFFPREF 1.485585 0.036284 40.94336 0.0000
D(TARIFFPREF) -1.071522 0.137024 -7.819969 0.0000
D(TARIFFPREF(-1)) -0.417854 0.026587 -15.71654 0.0000
D(TARIFFPREF(1)) 0.132168 0.093782 1.409310 0.1597 Weighted Statistics R-squared 0.640386 Mean dependent var 6.879094
Adjusted R-squared 0.636092 S.D. dependent var 13.21113
S.E. of regression 7.721739 Sum squared resid 19974.46
F-statistic 149.1384 Durbin-Watson stat 0.456012
Prob(F-statistic) 0.000000 Unweighted Statistics R-squared 0.273524 Mean dependent var 4.302912
Sum squared resid 23377.62 Durbin-Watson stat 0.212870
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Appendix 3.1
The Honda Case
The much-debated and publicised Honda case may be regarded as the classic
illustration of the technical complexities of RoO, globalisation and relocation of
industries and the policy and industry decisions underlying them. Ultimately, the
Honda case, which arose in the context of the United States/Canada FTA, became the
test case for the importance attached to rules of origin in the subsequent NAFTA
negotiations.
From a technical point of view and in the opinion of those familiar with rules of
origin, the issue at stake had to do with some of the traditional problems linked to
origin determination: inadequacy of the change of tariff heading (CTH) rule in
specific cases, definition of allowable costs under the percentage criterion and origin
determination of intermediate input or components, the latter aspect being
particularly related to the increasing globalization of production and the increasing
practice by companies, especially in the automobile sector of subcontracting the
manufacturing of sub-assemblies according to just-in-time agreements with suppliers.
Under the United States/Canada FTA, the origin of automobiles and their components
was subject to a CTH test plus a requirement for a minimum of 50 per cent local
content. Parts or components of an automobile (intermediate products) were also
subject to the same rules. Thus, if a subcomponent of an automobile - for example,
the engine as in the Honda case - meets the CTH requirement plus the 50 per cent
local content requirement in the United States, it can be considered to be of American
origin. Then, when it is used to complete the automobile manufactured in Canada the
value of the engine as a whole (100 per cent) will be counted as North American
content (and not only the 50 per cent of US original local content), and its whole
value will be added to the local content acquired in Canada to fulfil the 50 per cent
local content requirement for the complete automobile. This rule is called the “roll up
rule”. Conversely, when the subcomponent did not acquire originating status the
whole value of the component would be counted as foreign (roll-down rule).
147
In the Honda case, Honda of Canada and the Canadian Customs for a certain period of
time treated the engines manufactured in the United States as originating and
imported them duty-free into Canada. When the engines were subsequently
assembled into the Honda Civic their full value was counted as being of North
American content in order to reach the minimum 50 per cent local content
requirement to be re-exported to the United States duty-free. This trend continued
until 1992 when a US Customs investigation determined that the Honda Civic
manufactured in Canada and exported to the United States did not meet the 50 per
cent requirement because it contained too many Japanese parts. Honda was then asked
to pay a retroactive bill of US$ 17 million for the 2.5 per cent ad valorem tariff
evaded on the Honda Civics re-exported to the United States. More specifically, the
US Customs ruled that engines manufactured in the Ohio plant did not qualify as
North American. Then, according to the roll-down rule, their whole value could not
be counted as local content when calculating the required 50 per cent local content for
the Honda Civic. As a consequence, the complete Honda Civic manufacture in
Canada was not considered North American since the automobiles no longer met the
50 per cent domestic content requirement, and had to pay duties as if they were
exported direct from Japan.
In particular, the engine was considered not to have US origin following the US
Customs interpretation which did not allow certain “processing costs and indirect
cost” incurred in the United States to be counted as local content. The determination
of allowable costs and the accounting method to impute such costs to local content
have been a traditional and classic pitfall of the percentage criterion.
These technical details gave rise to various political considerations. First, at that time,
the US authorities were arguing with the EEC that Honda Accords made in Ohio were
of American origin and that they should therefore not be counted as Japanese cars
against the quota that the French authorities maintained on Japanese car imports.
Second, Honda’s reputation and naturalized American image were affected following
the finding by the US Customs investigation, which accused Honda Japan of price-
setting with regards to its Honda Canada related suppliers (some of them were 100 per
cent Japanese-owned) and transfer-price manipulation. Third, the issue became the
subject of a political debate in which US policy makers started to weigh and review
148
all aspects of the value of transplant operations in the United States and how they
helped or competed with US automobile.
Some Canadian policy makers, on the other hand, regarded the US Customs ruling as
a means of diverting Japanese investment from Canada to the United States. The core
of the problem, which was heatedly debated at the technical level, lay, as admitted by
a senior US official, in a flaw or (as others argue) a loophole in the drafting of the
FTA rules of origin, namely in the roll-up rule. Taking this rule to its extreme, a
senior US official admitted that it was possible, through breaking up the car into as
many subassemblies as possible, to obtain a 100 per cent American car on paper with
less than 50 per cent local content in reality. Most likely, the original drafters of the
NAFTA rules could not imagine, or perhaps underestimated, the practices of
multinational corporations and the possibilities offered by the globalisation of
production which have finally overtaken the traditional concept of origin and the
classic method of origin determination. A number of the technical problems in origin
determination connected with the Honda case were only a few years ago regarded as
existing solely in the imagination of some customs officials. The realities of
technological progress and economic interdependence made them real, however. As
one executive said, “we have arrived in the era not only of multinational enterprises
but of multinational goods”. It goes without saying that the roll- up and roll-down
rules did not acquire a new lease of life in the NAFTA rules. The domestic content
requirement for cars was fixed, after lengthy negotiations, at 62.5 per cent, to be
implemented progressively.
(Source: UNCTAD 1998, following Palmeter 1987 and Cantin & Lowenfeld 1993)
149
Appendix 3.2
Restrictiveness index for preferential RoO — index in detail
Weight Score Restriction category Rationale for provision
PRIMARY CRITERIA
0.2 Change in tariff classification
The CTC method can be applied at different levels in the HS. A change
in tariff classification at the broad (2-digit) chapter level provides the
highest hurdle for conferring origin and is therefore given the highest
restrictiveness score of one. Progressively lower scores are assigned to
the heading (4-digit), sub-heading (6-digit) and tariff item (8-digit)
levels.
0 Tariff item (HS 8-digit)
0.2 Sub-heading (HS 6-digit)
0.5 Heading (HS 4-digit)
1 Chapter (HS 2-digit)
ISFTA score = 0.2 * 0.5 = 0.1 0.1 Regional value content or percentage criterion
The pivotal sub-criterion for the application of RVC method is the
threshold percentage adopted, expressed as either a minimum percentage
of value that must have been added in the PTA region or a maximum
percentage of value of imports from non-member economies allowed.
This sub-category takes the highest weight of 0.1. The remaining five
sub-criteria is given an equal weight of 0.02 each. The rule used in
Percentage of originating material 1
0 Less than 25%
0.2 26-35%
0.4 36-45%
0.6 46-55%
0.8 56-65%
1 Agreements applying regional content thresholds to confer origin can use different valuation methods. To improve comparability of thresholds in alternate agreements, the
thresholds have been normalised to a factory cost basis. In case of ISFTA transaction value method, defined as the value of locally sourced materials expressed as a
percentage of the value of the final product, is used. Thus a conversion factor of 1.20 is used which makes the 35% domestic value addition norms to 42 %.
150
1 More than 65% assessing restrictiveness in the percentage criterion is unambiguous. The
higher the percentage of originating material required, the higher the
restrictiveness score.
ISFTA score = 0.1 * 0.4 = 0.04
Weight Score Restriction category Rationale for provision
0.02 Formulation of regional value content
The percentage of originating and non-originating materials can be
formulated in three different ways: value of parts, domestic content and
import content. Wherever the value of parts test is used, it is assessed as
the most restrictive of the alternatives because it focuses on a very small
set of either local or non-local material inputs. Formulation of the
percentage criterion based on domestic content is considered to be more
restrictive than a specification based on the imported content because it
is considered to facilitate manipulation and to add to compliance and
administration costs.
0 Any method
0.3 Import content
0.6 Domestic content
1 Value of parts
ISFTA score = 0.02 * 0.3 = 0.006
0.02 Elements of production costs for domestic content
Typically, the narrower the range of qualifying expenditures relative to
total costs, the harder it would be for a firm to reach the origin threshold
and the more restrictive would be an origin rule. Accordingly, RoO
which include fewer expenditure items as qualifying expenditures are
considered to be more restrictive and are given a higher score. It does
not apply to ISFTA as it goes by import content method.
0 All costs included
0.1 Taxes and duties paid on materials excluded
0.2 Indirect labour also excluded
0.3 Other capital costs also excluded
0.4 Inner containers also excluded
0.5 Other packaging expenses also excluded
0.7 Selling, general and administrative expenses also
excluded
1 Profits also excluded
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0.02 Treatment of determined manufactured raw
materials
Determined manufactured raw materials (DMRM) provisions allow for
certain materials of third country origin that are not manufactured in
either partner economy to be defined as ‗manufactured raw materials‘
and treated as qualifying expenditures for the determination of origin.
The inclusion of DMRM provisions in a trade agreement tends to have a
liberalising effect. Thus, origin rules without such provisions are treated
as more restrictive than rules that allow the inclusion of certain materials
from third countries. It does not apply to ISFTA as it goes by import
content method.
0 Imports from all zero tariff line items to member
economies are treated as eligible expenditures
0.5 Imports from selected zero tariff line items to
member economies are treated as eligible
expenditures
1 No provision for allowing DMRM in calculating
domestic content
0.02 Methods of qualifying production costs
Of the RVC methods applied, the factory cost method is typically
considered to have the narrowest cost base (since it focuses on the
manufacturing aspect of the production and distribution chain), affording
the least flexibility to businesses in making their input choices. It is also
administratively more complicated. This method is treated as most
restrictive. On the other hand, the transaction value method is typically
considered to have the widest cost base (since it focuses on transaction
values, typically including transport and distribution costs) that affords
the most flexibility to firms in making their input choices.
0 Any method
0.25 Transaction value method
0.5 Net cost method
1 Factory cost method
ISFTA score = 0.02 * 0.25 = 0.005
0.02 Valuation of non-originating materials
An ‗ex-factory‘ cost basis is considered to be the narrowest valuation
basis and origin rules incorporating this provision are treated as the most
restrictive on this account. Less restrictive valuation bases, in order of
restrictiveness, include free on board at port of embarkation (fob), cost
0 Not relevant or unspecified
0.25 Free into store (fis)
0.5 Cost, insurance and freight (cif)
0.75 Free on board (fob)
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1 Ex-factory cost insurance and freight at port of unloading (cif) and free into store (fis).
ISFTA score = 0.02 * 0.5 = 0.01
0.1 Type of specified manufacturing process test
applied
The inclusion of specific process tests adds to the restrictiveness of
origin rules. Such tests typically are specified in terms of particular
industrial processes and ways of working, limiting the prospect for
technological or organisational change and productivity improvement.
Variants of the method prescribe at the outset certain production or
sourcing requirements that must be met — termed the positive test — or
must not be evident — the negative test — to confer origin. The negative
test is treated as being the more restrictive, as it may indiscriminately
and unintentionally exclude products on the basis of a particular product
characteristic rather than the characteristics of the full production
process. In ISFTA no specific manufacturing tests are present.
0 No test
0.5 Positive test for specific process
1 Negative test for specific process
0.1 Sector-specific rules
The presence of sector-specific rules for more than one sector is treated
as the most restrictive variant. RoO including sector-specific rules for
only one manufacturing sector (the less common case) are treated as
moderately restrictive. In ISFTA no sector specific rules are present.
0 All sectors treated uniformly
0.5 Single manufacturing sector only
1 Multiple sectors
SUPPLEMENTARY CRITERIA
0.05 Type of cumulation
Origin rules that involve no cumulation in the valuation of regional
content are treated as being the most restrictive, and rules allowing
bilateral cumulation as being more restrictive than methods involving
full or diagonal cumulation. Diagonal cumulation is treated as least
0 All
0.2 Diagonal
0.4 Full
0.6 Bilateral
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1 No cumulation restrictive on the grounds that it allows specified materials from non-
member countries to be counted as qualifying materials.
ISFTA score = 0.05 * 0.6 = 0.03
0.05 Provisions that go beyond cumulation
Some provisions in PTAs go beyond cumulation in allowing origin of
non-members‘ materials. For any cumulation method, detailed testing of
the source of inputs can influence the restrictiveness of the origin rules.
Of the alternatives, tracing tests are treated as the least liberalising
because they restrict valuations to include only originating materials. By
contrast, under the absorption principle, the full value of the material
input is given originating status if an initial test is satisfied. Tolerance
tests are treated as the most liberal of the options because they are
regarded as providing the greatest scope for raising the level of
‗originating‘ content.
0 Cumulation allowed
0.1 Tolerance or de minimis allowed
0.25 Absorption principle
0.5 Tracing test
1 Absorption principle, tracing and tolerance tests not
used
ISFTA score = 0.05 * 1 = 0.05
0.05 Duty drawback
Duty drawback schemes allow tariffs due on imported materials used in
the production of export items to be waived or refunded. Such schemes
selectively lower the cost of inputs used to produce goods for export. In
origin rules, access to drawback provisions generally available to
exporters can be restricted, or denied entirely, raising the cost of
exporting to member economies and encouraging firms to purchase
inputs from potentially higher-cost local sources. Origin rules that
disallow or derogate drawback arrangements for exporters are treated as
more restrictive than rules that do not. Drawback neither allowed nor
disallowed under ISFTA as there is no mention of it.
0 Drawback allowed
1 Drawback not allowed
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0.05 Territoriality or outward processing
Territoriality provisions go beyond the cumulation provisions in PTAs in
allowing the use of materials from non-member countries. However, this
is treated as a separate item in the index because of its importance in
modern industrial manufacturing and organisation (e.g. through
contracting-out and commission work). Origin rules that limit or
disallow origin being conferred on goods produced using outsourcing
and outward processing arrangements are treated as more restrictive than
rules that do not.
0 Territoriality or outward processing included
1 Territoriality or outward processing excluded
ISFTA score = 0.05 * 1 = 0.05
0.05 Geographic location of manufacturing process
RoO specifying the location of the last place of manufacture receive a
higher restrictiveness score than RoO that do not. Rules allowing the last
stage of manufacture to occur in any partner country (e.g. when the last
process is contracted out) receive a lower restrictiveness score than rules
requiring that the last place of manufacture be in the ‗exporting‘ partner
country only.
0 Anywhere or not specified
0.5 Any partner country
1 Exporting partner country only
ISFTA score = 0.05 * 1 = 0.05
OTHER EFFECTS OF RoO
0.05 Degree of certainty
Regulatory risk associated with uncertainty of origin determination (e.g. 0 Higher certainty (e.g. CTC alone or technical test)
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1 Lower certainty (e.g. RVC or combination of CTC
and RVC or technical test)
arising out of exchange rate fluctuations) would be expected to influence
the way businesses act, thereby adding to the restrictiveness of an origin
regime. It is therefore possible for origin regimes to be highly restrictive
(e.g. CTC method applied at the 2-digit chapter level) but it is relatively
certain. On the other hand, other methods that may be less restrictive,
including those based on an RVC requirement with a relatively low and
uniform threshold, could be less certain because of exogenous factors
(e.g. exchange rate fluctuations). RoO based purely on RVC methods are
considered less certain and hence more restrictive according to this
criterion. RoO based on a combination of RVC and CTC methods are
relatively less certain and given the highest restrictiveness score.
ISFTA score = 0.05 * 1 = 0.05
0.05 Compliance and administration costs
Membership of multiple agreements involves additional coordination
effort (the ―spaghetti-bowl‖ effect). In such cases, the existence of
multiple agreements would add to the trade restrictiveness of individual
agreements. The restrictiveness of an agreement is considered to be at its
highest when most member countries are also members of more than one
agreement and those agreements invoke more than one method for
determining origin, while membership of only a single agreement is
considered the least restrictive according to this criterion.
0 Most PTA members are only a member of one PTA
0.5 Most PTA members are involved in more than one
PTA with similar RoO
1 Most PTA members are involved in more than one
PTA with multiple RoO
ISFTA score = 0.05 * 0.5 = 0.025 0.05 Rigidity
RoO that do not allow waivers for origin determination based on
product-specific requirements are treated as more restrictive than origin
rules that allow waivers. ISFTA does not have any product specific
rules.
0 No rigidity: waiver provision applied to all tariff
items
0.25 Partial rigidity: waivers allowed for a minority of
tariff items
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0.5 More than partial rigidity: waivers allowed for a
majority of tariff items
1 Global rigidity: no waiver, RoO applies to all tariff
items
1 GRAND TOTAL
Index value 0.481 for ISFTA RoO
Note: Index value of ISFTA is calculated by analysing the provisions of the ISFTA as given in the text of the agreement and using the index provided in the Productivity
Commission study.
Source: Compiled from ―Rules of Origin under the Australia–New Zealand Closer Economic Relations Trade‖, Productivity Commission (2004).
157
Appendix 3.3
Restrictiveness index for preferential RoO - detailed results by RTAs
Restriction category Weight sgp-aus sapta sl npl afg tha sgp safta apta chl
mercosur asean kor nafta
Primary criteria 0.6 0.093 0.081 0.161 0.161 0.201 0.257 0.249 0.231 0.081 0.181 0.121 0.165 0.177 0.462
Change in tariff classification 0.2 0 0 0.1 0.1 0.1 0.1 0.1 0.1 0 0.1 0 0.04 0.04 0.2
Tariff item (HS 8-digit) 0
Sub-heading (HS 6-digit) 0.2
Heading (HS 4-digit) 0.5
Chapter (HS 2-digit) 1
Regional value content or percentage criterion 0.2
Percentage of originating material 0.1 0.04 0.06 0.04 0.04 0.08 0.06 0.06 0.06 0.06 0.06 0.1 0.04 0.04 0.06
Less than 25% 0
26-35% 0.2
36-45% 0.4
46-55% 0.6
56-65% 0.8
More than 65% 1
Formulation of regional value content 0.02 0.012 0.006 0.006 0.006 0.006 0.012 0 0.006 0.006 0.006 0.006 0 0.012 0.012
Any method 0
Import content 0.3
Domestic content 0.6
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Value of parts 1
Elements of production costs
for domestic content 0.02 0.006 0 0 0 0 0 0.004 0 0 0 0 0 0 0.01
All costs included 0
Taxes and duties paid on
materials excluded 0.1
Indirect labour also excluded 0.2
Other capital costs also excluded 0.3
Inner containers also excluded 0.4
Other packaging expenses also excluded 0.5
Selling, general and administrative expenses also excluded 0.7
Profits also excluded 1
Treatment of determined
manufactured raw materials 0.02 0 0 0 0 0 0.02 0.02 0 0 0 0 0.02 0.02 0.01
Imports from all zero tariff line items to member economies are treated as eligible expenditures 0
Imports from selected zero tariff line items to member economies are treated as eligible expenditures 0.5
No provision for allowing DMRM in calculating domestic content 1
Methods of qualifying production costs 0.02 0.02 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005
Any method 0
Transaction value method 0.25
159
Net cost method 0.5
Factory cost method 1
Valuation of non-originating materials 0.02 0.015 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.015
Not relevant or unspecified 0
Free into store (fis) 0.25
Cost, insurance and freight (cif) 0.5
Free on board (fob) 0.75
Ex-factory cost 1
Specified manufacturing process test and/or sector-specific rules 0.2
Type of specified manufacturing process test applied 0.1 0 0 0 0 0 0.05 0.05 0.05 0 0 0 0.05 0.05 0.05
No test 0
Positive test for specific
process 0.5
Negative test for specific
process 1
Sector-specific rules 0.1
All sectors treated uniformly 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.1
Single manufacturing sector only 0.5
Multiple sectors 1
Supplementary criteria 0.25 0.035 0.18 0.18 0.2 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.085 0.085
Type of cumulation 0.05 0.03 0.03 0.03 0.05 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03
All 0
Diagonal 0.2
Full 0.4
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Bilateral 0.6
No cumulation 1
Provisions that go beyond cumulation 0.05 0.005 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.005 0.005
Cumulation allowed 0
Tolerance or de minimis
allowed 0.1
Absorption principle 0.25
Tracing test 0.5
Absorption principle, tracing
and tolerance tests not used 1
Duty drawback 0.05 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Drawback allowed 0
Drawback not allowed 1
Territoriality or outward processing 0.05 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0 0.025
Territoriality or outward processing included 0
Territoriality or outward processing excluded 1
Geographic location of manufacturing process 0.05 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.025
Anywhere or not specified 0
Any partner country 0.5
Exporting partner country only 1
Other effects of RoO 0.15 0.1 0.1 0.1 0.1 0.1 0.15 0.1125 0.1 0.1 0.1 0.1 0.15 0.125 0.125
Degree of certainty 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
Higher certainty (e.g. CTC alone or technical test) 0
Lower certainty (e.g. RVC or combination of CTC and 1
161
RVC or technical test)
Compliance and administration costs 0.05 0.025 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.025
Most PTA members are only a member of one PTA 0
Most PTA members are involved in more than one PTA with similar RoO 0.5
Most PTA members are involved in more than one PTA with multiple RoO 1
Rigidity 0.05 0.025 0 0 0 0 0.05 0.0125 0 0 0 0 0.05 0.025 0.05
No rigidity: waiver provision applied to all tariff items 0
Partial rigidity: waivers allowed for a minority of tariff items 0.25
More than partial rigidity: waivers allowed for a majority of tariff items 0.5
Global rigidity: no waiver, RoO applies to all tariff items 1
Total weight 1 0.228 0.361 0.441 0.461 0.481 0.587 0.5415 0.511 0.361 0.461 0.401 0.495 0.387 0.672
Note: Sgp-Aus – Singapore Australia FTA; sl – India Sri-Lanka FTA; afg – India Afghanistan PTA; npl – India Nepal PTA; mercosur – India MERCOSUR PTA; chl – India Chile PTA; sgp – India Singapore CECA; tha – India Thailand FTA; asean – India ASEAN CECA; kor – India Korea CEPA.
Source: Indian PTA scores calculated by author; Sgp-Aus FTA and NAFTA calculations from Productivity Commission (2004).
162
Appendix 3.4
Rules of Origin of India-Sri Lanka FTA and India-Japan CEPA
A. India Sri Lanka FTA
(Text available from the Department of Commerce website1)
Annexure – ‘C’
Rules of Origin
1. Short title/commencement
These rules may be called the rules of Determination of Origin of Goods under the
Free Trade Agreement between the Democratic Socialistic Republic of Sri Lanka and
the Republic of India.
2. Application
These rules shall apply to products consigned from the territory of either of the
Contracting Parties.
3. Determination of Origin
No product shall be deemed to be the produce or manufacture of either country unless
the conditions specified in these rules are complied with in relation to such products,
to the satisfaction of the appropriate Authority.
4. Claim at the time of importation
The importer of the product shall, at the time of importation:
1 http://commerce.nic.in/trade/international_ta_indsl_1.asp viewed 17 August 2006.
163
a. make a claim that the products are the produce or manufacture of the country
from which they are imported and such products are eligible for preferential treatment
under the Agreement, and
b. produce the evidence specified in these rules.
5. Originating products
Products covered by the Agreement imported into the territory of a Contracting Party
from another Contracting Party which are consigned directly within the meaning of
rule 9 hereof, shall be eligible for preferential treatment if they conform to the origin
requirement under any one of the following conditions:
a. Products wholly produced or obtained in the territory of the exporting
Contracting Party as defined in rule 6; or
b. Products not wholly produced or obtained in the territory of the exporting
Contracting Party, provided that the said products are eligible under rule 7/ rule 8.
6. Wholly produced or obtained
Within the meaning of rule 5(a), the following shall be considered as wholly produced
or obtained in the territory of the exporting Contracting Party:
a. raw or mineral products extracted from its soil, its water or its seabed;
b. vegetable products harvested there;
c. animals born and raised there;
d. products obtained from animals referred to in clause (c) above;
e. products obtained by hunting or fishing conducted there;
f. products of sea fishing and other marine products from the high seas by its
vessels3,4
;
164
g. products processed and/or made on board its factory ships exclusively from
products referred to in clause (f) above4,5
;
h. used articles collected there, fit only for the recovery of raw materials;
i. waste and scrap resulting from manufacturing operations conducted there;
j. products extracted from the seabed or below seabed which is situated outside
its territorial waters, provided that it has exclusive exploitation rights;
k. goods produced there exclusively from the products referred to in clauses (a)
to (j) above.
7. Not wholly produced or obtained
a. Within the meaning of rule 5(b), products worked on or processed as a result
of which the total value of the materials, parts or produce originating from countries
other than the Contracting Parties or of undetermined origin used does not exceed
65% of the f.o.b. value of the products produced or obtained and the final process of
manufacture is performed within the territory of the exporting Contracting Party shall
be eligible for preferential treatment, subject to the provisions of clauses (b), (c), (d)
and (e) of rule 7 and rule 8.
b. Non-originating materials shall be considered to be sufficiently worked or
processed when the product obtained is classified in a heading, at the four digit level,
of the Harmonised Commodity Description and Coding System different from those
in which all the non-originating materials used in its manufacture are classified.
c. In order to determine whether a product originates in the territory of a
Contracting Party, it shall not be necessary to establish whether the power and fuel,
plant and equipment, and machines and tools used to obtain such products originate in
third countries or not.
d. The following shall in any event be considered as insufficient working or
processing to confer the status of originating products, whether or not there is a
change of heading:
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(i) Operations to ensure the preservation of products in good condition during
transport and storage (ventilation, spreading out, drying, chilling, placing in salt,
sulphur dioxide or other aqueous solutions, removal of damaged parts, and like
operations).
(ii) Simple operations consisting of removal of dust, sifting or screening, sorting,
classifying, matching (including the making-up of sets of articles), washing, painting,
cutting up;
(iii) changes of packing and breaking up and assembly of consignments,
(iv) simple slicing, cutting and repacking or placing in bottles, flasks, bags, boxes,
fixing on cards or boards, etc., and all other simple packing operations.
(v) the affixing of marks, labels or other like distinguishing signs on products or their
packaging;
(vi) simple mixing of products, whether or not of different kinds, where one or more
components of the mixture do not meet the conditions laid down in these Rules to
enable them to be considered as originating products;
simple assembly of parts of products to constitute a complete product;
a combination of two or more operations specified in (a) to (f);
slaughter of animals.
e. The value of the non-originating materials, parts or produce shall be:
i. The c.i.f. value at the time of importation of the materials, parts or produce
where this can be proven; or
ii. The earliest ascertainable price paid for the materials, parts or produce of
undetermined origin in the territory of the Contracting Parties where the working or
processing takes place.
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8. Cumulative rules of origin
In respect of a product, which complies with the origin requirements provided in rule
5(b) and is exported by any Contracting Party and which has used material, parts or
products originating in the territory of the other Contracting Party, the value addition
in the territory of the exporting Contracting Party shall be not less than 25 % of the
f.o.b. value of the product under export subject to the condition that the aggregate
value addition in the territories of the Contracting Parties is not less than 35 % of the
f.o.b. value of the product under export.
9. Direct consignment
The following shall be considered to be directly consigned from the exporting country
to the importing country:
a) if the products are transported without passing through the territory of any
country other than the countries of the Contracting Parties.
b) The products whose transport involves transit through one or more
intermediate countries with or without transshipment or temporary storage in such
countries; provided that
i. the transit entry is justified for geographical reason or by considerations
related exclusively to transport requirements;
ii. the products have not entered into trade or consumption there; and
iii. the products have not undergone any operation there other than unloading and
reloading or any operation required to keep them in good condition.
10. Treatment of packing
When determining the origin of products, packing should be considered as forming a
whole with the product it contains. However, packing may be treated separately if the
national legislation so requires.
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11. Certificate of origin
Products eligible for a Certificate of origin in the form annexed shall support
preferential treatment issued by an authority designated by the Government of the
exporting country and notified to the other country in accordance with the
certification procedures to be devised and approved by both the Contracting Parties.
12. Prohibitions
Either country may prohibit importation of products containing any inputs originating
from States with which it does not have economic and commercial relations.
13. Co-operation between contracting parties
a. The Contracting Parties will do their best to co-operate in order to specify
origin of inputs in the Certificate of origin.
b. The Contracting Parties will take measures necessary to address, to investigate
and, where appropriate, to take legal and/or administrative action to prevent
circumvention of this Agreement through false declaration concerning country of
origin or falsification of original documents.
c. Both the Contracting Parties will co-operate fully, consistent with their
domestic laws and procedures, in instances of circumvention or alleged circumvention
of the Agreement to address problems arising from circumvention including
facilitation of joint plant visits and contacts by representatives of both Contracting
Parties upon request and on a case – by – case basis.
d. If either Party believes that the rules of origin are being circumvented, it may
request consultation to address the matter or matters concerned with a view to seeking
a mutually satisfactory solution. Each party will hold such consultations promptly.
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14. Review
These rules may be reviewed as and when necessary upon request of either
Contracting Party and may be open to such modifications as may be agreed upon.
Notes:
1. Includes mineral fuels, lubricants and related materials as well as mineral or
metal ores
2. Includes agricultural and forestry products
3. "Vessels" shall refer to fishing vessels engaged in commercial fishing,
registered in the country of the Contracting Party and operated by a citizen or citizens
of the Contracting Party or partnership, corporation or association, duly registered in
such country, at least 60 % of equity of which is owned by a citizen or citizens and/or
Government of such Contracting Party or 75 % by citizens and/or Governments of the
Contracting Parties. However, the products taken from vessels, engaged in
commercial fishing under Bilateral Agreements which provide for chartering/leasing
of such vessels and/or sharing of catch between Contracting Party will also be eligible
or preferential treatment.
4. In respect of vessels or factory ships operated by Government agencies, the
requirements of flying the flag of the Contracting Party does not apply.
5. For the purpose of this Agreement, the term "factory ship" means any vessel,
as defined, used for processing and/or making on board products exclusively from
those products referred to in clause (f) of Rule 6.
6. Cumulation as implied by Rule 8 means that only products which have
acquired originating status in the territory of one Contracting Party may be taken into
account when used as inputs for a finished product eligible for preferential treatment
in the territory of the other Contracting Party.
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B. India Japan CEPA
(Text available from the Department of Commerce website2)
Chapter 3
Rules of Origin
Article 26
Definitions
For the purposes of this Chapter:
(a) the term “exporter” means a natural or juridical person located in an exporting
Party who exports a good from the exporting Party;
(b) the term “factory ships of the Party” or “vessels of the Party” respectively means
factory ships or vessels:
(i) which are registered in the Party;
(ii) which sail under the flag of the Party;
(iii) which are owned to an extent of at least 50 percent by nationals of the Parties, or
by a juridical person with its head office in either Party, of which the representatives,
chairman of the board of directors, and the majority of the members of such board are
nationals of the Parties, and of which at least 50 percent of the equity interest is
owned by nationals or juridical persons of the Parties;
(iv) of which at least 50 percent of the total of the master and officers are nationals of
the Parties; and
(v) of which at least 25 percent of the crew are nationals of the Parties;
2 http://commerce.nic.in/trade/IJCEPA_Basic_Agreement.pdf August 3 2011.
170
(c) the term “fungible originating goods of a Party” or “fungible originating materials
of a Party” respectively means originating goods or materials of a Party that are
interchangeable for commercial purposes, whose properties are essentially identical;
(d) the term “Generally Accepted Accounting Principles” means the recognised
consensus or substantial authoritative support within a Party at a particular time as to
which economic resources and obligations should be recorded as assets and liabilities,
which changes in assets and liabilities should be recorded, how the assets and
liabilities and changes in them should be measured, what information should be
disclosed and how it should be disclosed, and which financial statements should be
prepared. These standards may be broad guidelines of general application as well as
detailed practices and procedures;
(e) the term “good” means any merchandise, product, article or material;
(f) the term “importer” means a natural or juridical person who imports a good into
the importing Party;
(g) the term “indirect materials” means goods used in the production, testing or
inspection of another good but not physically incorporated into the good, or goods
used in the maintenance of buildings or the operation of equipment associated with
the production of another good, including:
(i) fuel and energy;
(ii) tools, dies and moulds;
(iii) spare parts and goods used in the maintenance of equipment and buildings;
(iv) lubricants, greases, compounding materials and other goods used in production or
used to operate equipment and buildings;
(v) gloves, glasses, footwear, clothing, safety equipment and supplies;
(vi) equipment, devices and supplies used for testing or inspection;
(vii) catalysts and solvents; and
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(viii) any other goods that are not incorporated into another good but whose use in the
production of the good can reasonably be demonstrated to be a part of that production;
(h) the term “materials” means any matter or substance consumed in the production of
a good, physically incorporated into a good, or used in the production of another
good;
(i) the term “non-originating material” means any materials whose country of origin is
other than the Parties (imported non-originating) and any material whose origin
cannot be determined (undetermined origin) under this Chapter;
(j) the term “originating material” means any material that qualifies as originating
under this Chapter; and
(k) the term “production” means a method of obtaining goods including
manufacturing, assembling, processing, raising, growing, breeding,mining, extracting,
harvesting, fishing, trapping, gathering, collecting, hunting and capturing.
Article 27
Originating Goods
Except as otherwise provided for in this Agreement, a good shall qualify as an
originating good of a Party where:
(a) the good is wholly obtained or produced entirely in the Party, as provided for in
Article 28; or
(b) the good is not wholly obtained or produced in the Party, provided that the good
satisfies the requirements of Article 29.
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Article 28
Wholly Obtained or Produced Goods
For the purposes of subparagraph (a) of Article 27, the following goods shall be
considered as being wholly obtained or produced in a Party:
(a) live animals born and raised in the Party;
(b) animals obtained by hunting, trapping, fishing, gathering or capturing in the Party;
(c) goods obtained from live animals in the Party;
(d) plants and plant products harvested, picked or gathered in the Party;
Note: For the purposes of this subparagraph, the term “plant” refers to all plant life,
including fruit, flowers, vegetables, trees, seaweed, fungi and live plants.
(e) minerals and other naturally occurring substances, not included in subparagraphs
(a) through (d), extracted or taken in the Party;
(f) goods of sea-fishing and other goods taken by vessels of the Party from the sea
outside the territorial seas of the Parties;
(g) goods produced on board factory ships of the Party, outside the territorial seas of
the Parties from the goods referred to in subparagraph (f);
(h) goods taken from the sea-bed or subsoil beneath the sea-bed outside the territorial
sea of the Party, provided that the Party has rights to exploit such sea-bed or subsoil in
accordance with the provisions of the United Nations Convention on the Law of the
Sea, done at Montego Bay, December 10, 1982;
(i) articles collected in the Party which can no longer perform their original purpose in
the Party nor are capable of being restored or repaired and which are fit only for
disposal or for the recovery of parts or raw materials;
(j) scrap and waste derived from manufacturing or processing operations or from
consumption in the Party and fit only for disposal or for the recovery of raw materials;
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(k) parts or raw materials recovered in the Party from articles which can no longer
perform their original purpose nor are capable of being restored or repaired; and
(l) goods obtained or produced in the Party exclusively from the goods referred to in
subparagraphs (a) through (k).
Article 29
Goods Produced Using Non-Originating Materials
1. For the purposes of subparagraph (b) of Article 27, a good shall qualify as an
originating good of a Party if:
(a) the good has a qualifying value content, calculated using the formula set out in
Article 30, of not less than 35 percent; and
(b) all non-originating materials used in the production of the good have undergone in
the Party a change in tariff classification at the six-digit level (i.e. a change in tariff
subheading) of the Harmonized System.
Note: For the purposes of this subparagraph, “Harmonized System” is that on which
the product specific rules set out in Annex 2 are based.
2. Notwithstanding paragraph 1, a good subject to product specific rules shall qualify
as an originating good of a Party if it satisfies the applicable product specific rules set
out in Annex 2.
3. For the purposes of subparagraph 1(b) and the relevant product specific rules set
out in Annex 2, the rule requiring that the materials used have undergone a change in
tariff classification or a specific manufacturing or processing operation, shall apply
only to non-originating materials.
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Article 30
Calculation of Qualifying Value Content
1. For the purposes of calculating the qualifying value content of a good, one or the
other of the following formulas shall be applied:
(a) Q.V.C. = {(F.O.B. – V.N.M)./ F.O.B.} x 100
Where:
Q.V.C. is the qualifying value content of a good, expressed as a percentage;
F.O.B. is, except as provided for in paragraph 2, the free-on-board value of a good
payable by the buyer of the good to the seller of the good, regardless of the mode of
shipment, not including any internal excise taxes reduced, exempted, or repaid when
the good is exported; and V.N.M. is the value of non-originating materials used in the
production of a good;
(b) Q.V.C. = {(V.O.M. + Direct Labour Cost + Direct Overhead Cost +
Profit)/F.O.B.}
x 100
Where:
V.O.M. is the value of originating material used in the production of the good.
Note: For the purpose of calculating the qualifying value content of a good, the
Generally Accepted Accounting Principles in the exporting Party shall be applied.
2. F.O.B. referred to in paragraph 1 shall be the value:
(a) adjusted to the first ascertainable price paid for a good from the buyer to the
producer of the good, if there is free-on-board value of the good, but it is unknown
and cannot be ascertained; or
(b) determined in accordance with Articles 1 through 8 of the Agreement on Customs
Valuation, if there is no free-on-board value of a good.
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3. For the purposes of paragraph 1, the value of a material used in a production of a
good in a Party:
(a) shall be the CIF value; or
(b) shall be the first ascertainable price paid for the material in the Party, but may
exclude all the costs incurred in the Party in transporting the material from the
warehouse of the supplier of the material to the place where the producer is located
such as freight, insurance and packing as well as any other known and ascertainable
cost incurred in the Party.
Note: For the purposes of this paragraph, the term “CIF value” means the customs
value of the imported good in accordance with the Agreement on Customs Valuation
and includes freight and insurance where appropriate, packing and all other costs
incurred in transporting the material to the importation port in the Party where the
producer of the good is located.
4. For the purposes of subparagraph 2(b) or 3(a), in applying the Agreement on
Customs Valuation to determine the value of a good or non-originating material, the
Agreement on Customs Valuation shall apply mutatis mutandis to domestic
transactions or to the cases where there is no domestic transaction of the good or non-
originating material.
Article 31
Accumulation
For the purposes of determining whether a good qualifies as an originating good of a
Party, an originating good of the other Party which is used as a material in the
production of the good in the former Party may be considered as an originating
material of the former Party, provided that such good has undergone its last
production process in the former Party which goes beyond the operations provided for
in Article 33.
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Article 32
De Minimis
Non-originating materials used in the production of a good that do not satisfy an
applicable rule for the good shall be disregarded, provided that the totality of such
materials does not exceed specific percentages in value or weight of the good. Such
percentages shall be:
(a) in the case of a good classified under Chapters 15 through 24 (except 1604.20,
1605.20, 1605.90, 2101.11, 2101.20, 2106.10, 2106.90, 2207.10 and 2207.20),
2501.00, 2906.11, 2918.14, 2918.15, 2940.00, 3505.10, 3505.20, 3809.10 and
3824.60 of the Harmonized System, 7 percent in value of the good;
(b) in the case of a good classified under Chapters 28 through 49 (except 2905.44,
2906.11, 2918.14, 2918.15, 2940.00, 3502.11, 3502.19, 3505.10, 3505.20, 3809.10,
3824.60, 4601.29, 4601.94 and 4602.19) and 64 through 97 of the Harmonized
System, 10 percent in value of the good; and
(c) in the case of a good classified under Chapters 50 through 63 (except 5001.00,
5003.00, heading 51.02, 51.03, 52.01 through 52.03, 53.01 and 53.02) of the
Harmonized System, 7 percent in weight of the good.
Note 1: For the purposes of this Article, the term “value of the good” means the free-
on-board value of the good referred to in paragraph 1 of Article 30 or the value set out
in paragraph 2 of that Article.
Note 2: For the purposes of this Article, “Harmonized System” is that on which the
product specific rules set out in Annex 2 are based.
Note 3: This Article shall not be applied in calculating the qualifying value content set
out in Article 30.
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Article 33
Non-Qualifying Operations
A good shall not be considered to be an originating good of the exporting Party
merely by reason of having undergone the following:
(a) operations to ensure the preservation of products in good condition during
transport and storage (such as drying, freezing, keeping in brine, removal of damaged
parts) and other similar operations;
(b) changes of packaging and breaking up and assembly of packages;
(c) disassembly;
(d) placing in bottles, cases, boxes and other simple packaging operations;
(e) collection of parts and components classified as a good pursuant to Rule 2(a) of
the General Rules for the Interpretation of the Harmonized System;
(f) simple operations consisting of removal of dust, sifting or screening, sorting,
classifying, matching (including the making-up of sets of articles), washing, painting;
(g) simple cutting, slicing and repacking or placing in bottles, flasks, bags or boxes,
fixing on cards or boards, and all other simple packing operations;
(h) affixing or printing marks, labels and other like distinguishing signs on products or
their packaging;
(i) simple mixing of products whether or not of different kinds;
(j) simple assembly of parts of goods to constitute a complete product;
(k) slaughter of animals;
(l) mere dilution with water or another substance that does not materially alter the
characteristics of the goods; or
(m) any combination of operations referred to in subparagraphs (a) through (l).
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Note: For the purposes of this Article, an operation is described as “simple” if neither
special skills nor machines, apparatus or equipment especially produced or installed
for carrying it out are needed.
Article 34
Consignment Criteria
1. An originating good of the other Party shall be deemed to meet the consignment
criteria when it is:
(a) transported directly from the other Party; or
(b) transported through one or more non-Parties for the purpose of transit or
temporary storage in warehouses in such non-Parties, provided that it does not
undergo operations other than unloading, reloading and any other operation to
preserve it in good condition.
2. If an originating good of the other Party does not meet the consignment criteria
referred to in paragraph 1, the good shall not be considered as an originating good of
the other Party.
Article 35
Unassembled or Disassembled Goods
Where a good satisfies the requirements of the relevant provisions of Articles 27
through 33 and is imported into a Party from the other Party in an unassembled or
disassembled form but is classified as an assembled good pursuant to Rule 2(a) of the
General Rules for the Interpretation of the Harmonized System, such a good shall be
considered as an originating good of the other Party.
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Article 36
Fungible Goods and Materials
1. For the purposes of determining whether a good qualifies as an originating good of
a Party, where fungible originating materials of the Party and fungible non-originating
materials that are mixed in an inventory are used in the production of the good, the
origin of the materials may be determined pursuant to an inventory management
method under the Generally Accepted Accounting Principles in the Party.
2. Where fungible originating goods of a Party and fungible non-originating goods are
mixed in an inventory and, prior to exportation do not undergo any production process
or any operation in the Party where they were mixed other than unloading, reloading
or any other operation to preserve them in good condition, the origin of the good may
be determined pursuant to an inventory management method under the Generally
Accepted Accounting Principles in the Party.
Article 37
Indirect Materials
Indirect materials shall be, without regard to where they are produced, considered to
be originating materials of a Party where the good is produced.
Article 38
Accessories, Spare Parts, Tools and Instructional or Other Information Materials
1. In determining whether all the non-originating materials used in the production of a
good undergo the applicable change in tariff classification or a specific manufacturing
or processing operation, accessories, spare parts, tools and instructional or other
information materials delivered with the good that form part of the good's standard
accessories, spare parts, tools and instructional or other information materials, shall be
disregarded, provided that:
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(a) the accessories, spare parts, tools and instructional or other information materials
are not invoiced separately from the good, without regard to whether they are
separately described in the invoice; and
(b) the quantities and value of the accessories, spare parts, tools and instructional or
other information materials are customary for the good.
2. If a good is subject to a qualifying value content requirement, the value of the
accessories, spare parts, tools and instructional or other information materials shall be
taken into account as the value of originating or non-originating materials, as the case
may be, in calculating the qualifying value content of the good.
Article 39
Packing and Packaging Materials and Containers
1. Packing materials and containers for shipment that are used to protect a good
during transportation shall not be taken into account in determining whether the good
qualifies as an originating good of a Party.
2. With respect to packaging materials and containers that are used for retail sale of a
good:
(a) such packaging materials and containers shall be disregarded in determining
whether the good qualifies as an originating good of a Party, if they are classified with
the good pursuant to Rule 5 of the General Rules for the Interpretation of the
Harmonized System; and
(b) if the good is subject to a qualifying value content requirement, the value of such
packaging materials and containers shall be taken into account as the value of
originating materials of a Party where the good is produced or non-originating
materials, as the case may be, in calculating the qualifying value content of the good.
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Article 40
Operational Certification Procedures
The operational certification procedures set out in Annex 3 shall apply with respect to
procedures regarding certificate of origin and related matters.
Article 41
Sub-Committee on Rules of Origin
1. For the purposes of the effective implementation and operation of this Chapter, a
Sub-Committee on Rules of Origin (hereinafter referred to in this Article as “the Sub-
Committee”) shall be established on the date of entry into force of this Agreement.
2. The functions of the Sub-Committee shall be:
(a) reviewing and making appropriate recommendations, as necessary, to the Joint
Committee on:
(i) the implementation and operation of this Chapter;
(ii) any amendments to Annex 2 proposed by either Party; and
(iii) the Implementing Procedures referred to in Section 11 of Annex 3;
(b) considering any other matter, including development of an electronic system for
facilitating the issuance and verification of certificate of origin, as the Parties may
agree related to this Chapter;
(c) reporting the findings of the Sub-Committee to the Joint Committee; and
(d) carrying out other functions as may be delegated by the Joint Committee pursuant
to Article 14.
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Appendix 3.5
PUBLIC NOTICE NO. 07(RE-2008)/2004-2009 dated 22.4.2008
Procedure for import of Vegetable Fats (Vanaspati) under Indo-Sri
Lanka Free Trade Agreement
In exercise of powers conferred under paragraph 2.4 of the Foreign Trade Policy,
2004-09, as notified in the Gazette of India extraordinary Part II, Section 3, Sub
section (ii) as amended from time to time and in supersession of Public Notice No. 69
(RE- 2006) dated 21.11.2006 and Public Notice No. 13 (RE-2007) dated 02.07.2007,
so far as they apply to import of Vegetable Fats [Vanaspati], the Director General of
Foreign Trade hereby notifies the following arrangement for import of Vegetable Fats
under Indo-Sri Lanka Free Trade Agreement:
1. The total quantum of import of vegetable Fats under Indo-Sri Lanka Free Trade
Agreement shall be restricted to 2.5 lakh MT per annum. The details of the items
included under this Quota shall be as under:-
ITEM HS WCO Classification Trade Classification
1516.20 Vegetable fats and oils and their fractions Vanaspati
1517.10 Margarine, excluding liquid margarine Margarine
1517.90 Other Bakery Shortening
2. The imports of the items in India shall be allowed, based on production of Tariff
Rate Quota Certificate (TRQC) and Certificate of Origin (CoO) issued by the
Designated Authority, that is, Department of Commerce, Government of Sri Lanka.
TRQC shall be issued in advance, in duplicate. TRQC will be sent by the Sri Lankan
exporter to Indian importer. The formats of TRQC and CoO are given in Annexure
‘A’ and ‘B’ to this Public Notice.
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3. Import quota of 2.5 lakh MT refereed in Para (1) above shall be allocated by the
Government of Sri Lanka in four equal quarterly tranche. Import quota of one quarter
shall not be allowed to be carried over to the next quarter. Date of import for this
purpose shall be reckoned with reference to the Bill of Lading date.
4. Import of the items shall be allowed only through the following ports/ICDs:
Ports: Mumbai, JNPT/Nhava Sheva, Kandla, Chennai, Cochin, Tuticorin, Vizag
(Vishakhapatnam), Kolkata, Haldia, Kakinada, New Mangalore, Morgumao, Mundra.
ICDs: Tughlakabad, Ludhiana, Ahmedabad, Kanpur, Jaipur, Pithampur/Indore,
Faridabad.
5. Customs authorities shall forward a consolidated report of all such imports to
Directorate General of Foreign Trade, New Delhi, on a monthly basis, latest by 10th
of the following month.
This issues in public interest.
Sd/-
(R.S. GUJRAL)
DIRECTOR GENERAL OF FOREIGN TRADE
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Appendix 3.6
Safeguard clauses under India-Korea CEPA1 (From the text of the
Agreement)
Section B-2: Safeguard Measures
ARTICLE 2.21: DEFINITIONS
For the purposes of Section B-2:
domestic industry means the producers as a whole of the like or directly competitive
goods operating in the territory of a Party, or those whose collective output of the like
or directly competitive goods constitutes a major proportion of the total domestic
production of those goods;
serious injury means a significant overall impairment in the position of a domestic
industry;
threat of serious injury means serious injury that, on the basis of facts and not
merely on allegation, conjecture or remote possibility, is clearly imminent; and
transition period means a period for a good from the date of entry into force of this
Agreement until ten years from the date of completion of tariff elimination or
completion of tariff reduction, as the case may be for each good.
1 Source: Text available from the Department of Commerce website
http://commerce.nic.in/trade/india%20korea%20cepa%202009.pdf viewed 28 February 2010.
185
ARTICLE 2.22: BILATERAL SAFEGUARD MEASURES
During the transition period only, if as a result of the reduction or elimination of a
customs duty2 under this Agreement, an originating good of the other Party is being
imported into the territory of a Party in such increased quantities, in absolute terms or
relative to domestic production, and under such conditions that the imports of such
good from the other Party alone3
constitute a substantial cause of serious injury or
threat thereof to domestic industry producing a like or directly competitive good, the
Party may:
(a) suspend further reduction of any rate of customs duty on the good provided for
under this Agreement; or
(b) increase the rate of customs duty on the good to a level not to exceed the lesser of:
(i) the MFN applied rate of customs duty on the good in effect at the time the measure
is taken; and
(ii) the MFN applied rate of customs duty on the good in effect on the day
immediately preceding the date of entry into force of this Agreement.
ARTICLE 2.23: CONDITIONS AND LIMITATIONS ON IMPOSITION OF A
BILATERAL SAFEGUARD MEASURE
The following conditions and limitations shall apply to an investigation or a measure
described in Article 2.22:
2 A determination that an originating good is being imported as a result of the reduction or elimination
of a customs duty provided for under this Agreement shall be made only if such reduction or
elimination is a cause which contributes significantly to the increase in imports, but need not be equal
to or greater than any other cause. The passage of a period of time between the commencement or
termination of such reduction or elimination and the increase in imports shall not by itself preclude the
determination referred to in this footnote. If the increase in imports is demonstrably unrelated to such
reduction or elimination, the determination referred to in this footnote shall not be made.
3 For the purposes of certainty, the Parties understand that a Party is not prevented from initiating a
bilateral safeguard investigation in the event of a surge of imports from the territory of non-Parties. For
further certainty, the Parties understand that bilateral safeguard measures can only be imposed on the
good of the other Party when the increase in the import of such goods from that other Party alone
constitute a substantial cause of serious injury or threat of serious injury, to domestic industry
producing a like or directly competitive good.
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(a) a Party shall immediately deliver written notice to the other Party upon:
(i) initiating an investigatory process relating to serious injury or threat thereof and the
reasons for it;
(ii) making a finding of serious injury or threat thereof caused by increased imports;
and
(iii) taking a decision to apply a safeguard measure;
(b) in making the notification referred to in subparagraph (a), the Party proposing to
apply a safeguard measure shall provide the other Party with all pertinent information,
which shall include evidence of serious injury or threat thereof caused by the
increased imports, precise description of the good involved and the proposed measure,
proposed date of introduction and expected duration;
(c) a Party proposing to apply a safeguard measure shall provide adequate opportunity
for prior consultations with the other Party as far in advance of taking any such
measure as practicable, with a view to reviewing the information arising from the
investigation, exchanging views on the measure and reaching an agreement on the
compensation set out in Article 2.25. The Parties shall in such consultations, review,
inter alia, the information provided under subparagraph (b), to determine:
(i) compliance with Section B-2;
(ii) whether any proposed measure should be taken; and
(iii) the appropriateness of the proposed measure, including consideration of
alternative measures;
(d) a Party shall apply a measure only following an investigation by its competent
authorities in accordance with Articles 3 and 4.2(c) of the Safeguards Agreement, and
to this end, Articles 3 and 4.2(c) of the Safeguards Agreement are incorporated into
and made a part of this Agreement, mutatis mutandis;
(e) in undertaking the investigation described in subparagraph (d), a Party shall
comply with the requirements of Articles 4.2(a) and (b) of the Safeguards Agreement,
and to this end, Articles 4.2(a) and (b) are incorporated into and made a part of this
187
Agreement, mutatis mutandis;
(f) the investigation shall in all cases be completed within one year following its date
of initiation;
(g) no measure shall be maintained:
(i) except to the extent and for such time as may be necessary to remedy serious injury
and to facilitate adjustment; or
(ii) for a period exceeding two years, except that in exceptional circumstances, the
period may be extended by up to additional two years, to a total of four years from the
date of first imposition of the measure if the investigating authorities determine in
conformity with procedures set out in subparagraphs (a) through (f), that the safeguard
measure continues to be necessary to prevent or remedy serious injury and to facilitate
adjustment and that there is evidence that the industry is adjusting;
(h) no bilateral safeguard measure shall be taken against a particular good while a
global safeguard measure in respect of that good is in place; in the event that a global
safeguard measure is taken in respect of a particular good, any existing bilateral
safeguard measure which is taken against that good shall be terminated;
(i) upon the termination of the safeguard measure, the rate of customs duty shall be
the rate which would have been in effect but for the measure; and
(j) no measures shall be applied again to the import of a good which has previously
been subject to such a measure for a period of time equal to that during which such
measure had been previously applied, provided that the period of non-application is at
least two years.
ARTICLE 2.24: PROVISIONAL MEASURES
In critical circumstances, where delay would cause damage which would be difficult
to repair, a Party may take a measure described in Article 2.22 on a provisional basis
pursuant to a preliminary determination that there is clear evidence that imports from
the other Party have
188
increased as the result of the reduction or elimination of a customs duty under this
Agreement, and such imports constitute a substantial cause of serious injury, or threat
thereof, to the domestic industry. The duration of such provisional measure shall not
exceed 200 days, during which time the requirements of Articles 2.23(d) and (e) shall
be met. Any tariff increases shall be promptly refunded if the investigation provided
for in Article 2.23(d) does not result in a finding that the requirements of Article 2.22
are met. The duration of any provisional measure shall be counted as part of the
period described in Article 2.23(g) (ii).
ARTICLE 2.25: COMPENSATION
1. The Party proposing to apply a measure described in Article 2.22 shall provide to the
other Party mutually agreed adequate means of trade liberalising compensation in the
form of concessions having substantially equivalent trade effects or equivalent to the
value of the additional duties expected to result from the measure. If the Parties are
unable to agree on compensation within 30 days in the consultations under Article
2.23(c), the Party against whose originating goods the measure is applied may take
action having trade effects substantially equivalent to the measure applied under this
Article. This action shall be applied only for the minimum period necessary to achieve
the substantially equivalent effects.
2. The right to take action referred to in the second sentence of paragraph 1 shall not be
exercised for:
(a) the first two years that the measure is in effect; and
(b) the first three years that the measure is in effect where it has been extended beyond
two years in accordance with Article 2.23(g) (ii);
provided that the measure described in Article 2.22 has been taken as a result of an
absolute increase in imports and that such a measure conforms to the provisions of
this Section.
189
ARTICLE 2.26: ADMINISTRATION OF EMERGENCY ACTION
PROCEEDINGS
1. Each Party shall ensure the consistent, impartial and reasonable administration of its
laws, regulations, decisions and rulings governing all safeguard investigation
proceedings.
2. Each Party shall entrust determinations of serious injury or threat thereof in safeguard
investigation proceedings to a competent investigating authority, subject to review by
judicial or administrative tribunals, to the extent provided for in its laws. Negative
injury determinations shall not be subject to modification, except by such review.
3. Each Party shall adopt or maintain equitable, timely, transparent and effective
procedures for safeguard investigation proceedings.
ARTICLE 2.27: GLOBAL SAFEGUARD MEASURES
Each Party retains its rights and obligations under Article XIX of GATT 1994 and the
Safeguards Agreement. This Agreement does not confer any additional rights or
impose any additional obligations on the Parties with regard to measures taken
pursuant to Article XIX of GATT 1994 and the Safeguards Agreement, except that a
Party taking a safeguard measure under Article XIX of GATT 1994 and the
Safeguards Agreement may, to the extent consistent with the obligations under the
WTO Agreement, exclude imports of an originating good of the other Party if such
imports are not a substantial cause of serious injury or threat thereof.
190
Appendix 4.1
Questionnaire for exporter survey
Exporter Survey
Questionnaire on India-Sri Lanka FTA
This questionnaire is part of my Ph.D. research work and any information shared will
be treated as confidential.
Name of the exporting firm:
Name of the respondent:
Designation:
Q1: Trade profile
Country Product(s) Export value to partner
(last financial year)
Using RTA
Sri Lanka
ISFTA
SAPTA
SAFTA
APTA
Any other FTA
partner(s)
a)
b)
c)
Q2: If not using ISFTA, why not?
1. Not aware
2. Aware but Sri Lanka offers limited market, so no use of FTA route
3. Aware and want to use but going by FTA route difficult
4. Aware but cannot use as product(s) is (/are) in negative list
5. Aware but importer asks to send exports through SAPTA/SAFTA/APTA
6. Any other reason:
191
Q3: Did the ISFTA increase exports? Yes / No / Can’t Say
Q4: What is the overall experience of doing business with Sri Lanka?
a. Satisfactory
b. Unsatisfactory (due to):
i. Port congestion
ii. Customs problems
iii. SLSI
iv. Tariff barriers (additional cess)
v. Any other reason:
Q5: From where does the firm get Certificates of Origin for ISFTA? ____________
Q6: Do the export product(s) have any imported components?
Yes / No
Q7: If yes, do the product(s) fulfill the Rules of Origin requirements of ISFTA:
a. the domestic value added criterion? Yes / No / Not aware
b. the change in tariff heading rule? Yes / No / Not aware
Q8: What problems do fulfilling RoO requirements pose for the firm?
a.
b.
c.
Q9: How much cost firm incurs for satisfying RoO?
a. Less than 1% (of total export value of products)
b. 1% - 2%
c. 2% - 3%
d. 3% - 4%
e. 4% - 5%
f. Above 5%
Q10: Any suggestions regarding FTAs & RoO:
a.
b.
c.
Thank you for your time
& kind cooperation
Ms. Sejuti Jha
PhD Scholar
IIFT, New Delhi.
192
Appendix 4.2
Firm profiles from PROWESS
Information on firms from Prowess database is got for only 40 out of the 51 firms. As
can be seen from the tables below there are different kinds of firms in the sample
surveyed. There are big, medium and small firms with respect to annual income and
export orientation.
Ownership Frequency
Private Indian 32
Private Foreign 4
Government 4
Age Frequency
Less than 25 years 10
25-50 years 21
Above 50 years 9
Annual Income Frequency
Up to 500 Rs Crore 11
500-1000 Rs Crore 8
1000-3000 Rs Crore 11
Above 3000 Rs Crore 10
193
Exports as % of total sales Frequency
0-10% 14
10-20% 9
20-30% 7
Above 30% 10
194
Appendix 4.3
Codification of the responses
Q1a: Products metals chemicals
machinery & electrical
equipments
plastics &
rubber paper products veg products others
Codes 1 2 3 4 5 6 7
Q1b: Using ISFTA yes no
Codes 1 2
Q2: Not using ISFTA not aware
aware but product in
negative list
aware but cannot use
ISFTA due to RoO
importer
asking to go
through
another route other
Codes 1 2 3 4 5
Q3: ISFTA increased
exports yes no can't say
Codes 1 2 3
195
Q 4: Experience of
doing business with
SL satisfactory
satisfactory with
minor issues unsatisfactory
Codes 1 2 3
Q5: Agency giving
CoO EIC/EIA other
Codes 1 2
Q6: Export product
have imported
components yes no
Codes 1 2
Q7: Export product
fulfillls RoO yes no
Codes 1 2
196
Q8: Problems with
RoO problem with RVC problem with CTC
problem with certifying
authority/
process no problems
Codes 1 2 3 4
Q9: Cost to satisfy
RoO
less than 1% of total
export value of
products more than 1%
Codes 1 2
Q10: Suggestions regarding FTAs &
RoO
more information
needed
product should get
preferences RoO related issues
Certifng authority
issues awareness + RoO
product preference +
RoO no suggestions
Codes 1 2 3 4 5 6 7
197
Appendix 4.4
Cross-tabs and significance test
Out of the 51 firms surveyed, for 40 firm-specific financial data could be obtained
from PROWESS. In the tables below Cross tabulations have been done between use
of ISFTA and specific firm characteristics like age of firm, income of firm and export
percent of firm. The significance tests (Chi-sqaure test) are also given. SPSS version
16 was used to do this analysis.
1. Independence between Using ISFTA & Age of firm
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
Percentile Group of age
of firm * Using ISFTA 40 100.0% 0 .0% 40 100.0%
Percentile Group of age of firm * Using ISFTA Crosstabulation
Using ISFTA
using
ISFTA
not using
ISFTA Total
Percentile Group of
age of firm
newer Count 11 8 19
% within Percentile
Group of age of firm 57.9% 42.1% 100.0%
older Count 10 11 21
% within Percentile
Group of age of firm 47.6% 52.4% 100.0%
Total Count 21 19 40
% within Percentile
Group of age of firm 52.5% 47.5% 100.0%
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Chi-Square Tests
Value df
Asymp. Sig.
(2-sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square .422a 1 .516
Continuity Correctionb .111 1 .739
Likelihood Ratio .423 1 .515
Fisher's Exact Test .545 .370
Linear-by-Linear
Association .412 1 .521
N of Valid Cases 40
a. 0 cells (.0%) have expected count less than 5. The minimum expected count is 9.03.
b. Computed only for a 2x2 table
2. Independence between Using ISFTA & Total income of firm
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
Percentile Group of
total income * Using
ISFTA
40 100.0% 0 .0% 40 100.0%
Percentile Group of total income * Using ISFTA Crosstabulation
Using ISFTA
using
ISFTA
not using
ISFTA Total
Percentile Group of
total income
smaller Count 13 7 20
% within Percentile
Group of total
income
65.0% 35.0% 100.0%
bigger Count 8 12 20
% within Percentile
Group of totalincome 40.0% 60.0% 100.0%
Total Count 21 19 40
% within Percentile
Group of totalincome 52.5% 47.5% 100.0%
199
Chi-Square Tests
Value df
Asymp. Sig.
(2-sided)
Exact Sig.
(2-sided)
Exact Sig.
(1-sided)
Pearson Chi-Square 2.506a 1 .113
Continuity
Correctionb
1.604 1 .205
Likelihood Ratio 2.533 1 .111
Fisher's Exact Test .205 .102
Linear-by-Linear
Association 2.444 1 .118
N of Valid Cases 40
a. 0 cells (.0%) have expected count less than 5. The minimum expected count
is 9.50.
b. Computed only for a 2x2
table
3. Independence between Using ISFTA & Export percent of firm
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
Percentile Group of
export percent * Using
ISFTA
40 100.0% 0 .0% 40 100.0%
200
Percentile Group of export percent * Using ISFTA Crosstabulation
Using ISFTA
using
ISFTA
not using
ISFTA Total
Percentile Group of
export percent
minor
exporter
Count 8 12 20
% within Percentile
Group of export
percent
40.0% 60.0% 100.0%
major
exporter
Count 13 7 20
% within Percentile
Group of export
percent
65.0% 35.0% 100.0%
Total Count 21 19 40
% within Percentile
Group of export
percent
52.5% 47.5% 100.0%
Chi-Square Tests
Value df
Asymp. Sig.
(2-sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square 2.506a 1 .113
Continuity Correctionb 1.604 1 .205
Likelihood Ratio 2.533 1 .111
Fisher's Exact Test .205 .102
Linear-by-Linear
Association 2.444 1 .118
N of Valid Cases 40
a. 0 cells (.0%) have expected count less than 5. The minimum expected count is 9.50.
b. Computed only for a 2x2 table