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Canada-India Joint Study Group Report: Exploring the Feasibility of a Comprehensive Economic Partnership Agreement
Chapter 2: Trade Liberalisation in Goods
Whereas the previous chapter presented a profile of Canada's and India's economies and the bilateral trade and investment relationship, Chapter 2: Trade in Goods, will look at Canada's and India's respective tariff profiles and trade policy considerations, in the context of a Canada-India comprehensive economic partnership agreement, for facilitating the trade of goods. As tariffs can have a dampening effect on trade, so too can non-tariff barriers. Technical regulations, industrial standards, and sanitary and phytosanitary (SPS) requirements play an important role in facilitating trade in goods and protecting public health and safety and animal and plant health, but they vary from country to country and may impose unnecessary restrictions on trade.
2.1 Tariff Profiles
Canada's Tariff Profile
Trade is an important part of Canada's open economy. Alongside India, Canada is one of the original signatories of the General Agreement on Tariffs and Trade (GATT). In addition to the tariff reductions brought about by the successive rounds of the GATT, Canada has also engaged in a number of free trade agreements and instituted unilateral tariff reductions. Most recently, tariffs were eliminated on a broad range of machinery & equipment in 2009 in recognition of the productivity and competitiveness benefits to domestic manufacturers and to the overall economy. The most recent federal Budget, presented on March 4, 2010, implemented a second phase of tariff relief by unilaterally eliminating all remaining tariffs on manufacturing inputs and machinery & equipment. Three-quarters of the affected tariffs were eliminated immediately with the balance being gradually phased out by no later than January 1, 2015. This historic step will position Canada as the first among its G20 partners to allow manufacturers to operate without the cost of tariffs on inputs and machinery and equipment.
The World Trade Organization calculated that Canada's average applied Most-Favoured Nation (MFN) tariff in 2008 was 4.7%, including ad valorem equivalents where applicable. Of the 8464 tariff lines in effect at the end of March 2010, 68% had an MFN applied tariff rate of Free. Canada has eliminated all quantitative restrictions on imports, having converted any former import quotas to tariff-rate quotas. These tariff-rate quotas exist for a small number of agriculture products including: supply managed products (poultry, eggs and dairy); beef; and wheat, barley and their products. A sectoral profile of Canada's MFN tariffs is included in the graph below (see Figure 2.1).
Canada also features a broad tariff preference program for developing countries, including India, called the General Preferential Tariff (GPT). Of those 32% of tariff lines that had a non-Free MFN tariff rate at the end of March 2010, 48% featured a lower GPT rate, often of Free.
Because of tariff preferences such as the GPT and various FTAs, the trade-weighted average applied tariff for global imports in 2008 was only 1.0%. (The trade-weighted average applied tariff is calculated by dividing duties collected by imports.) The trade-weighted average applied tariff on Canada's imports from India was 4.6% in 2008, evidencing potential gains that could accrue to India through a free trade agreement with Canada.
India's Tariff Profile
India gives primacy to engagements in multilateral negotiations at the WTO, and attaches significance to her participation in regional trading agreements within the framework of multilateral regulations. It has accepted the Fourth and Fifth Protocols and is a Member of the Information Technology Agreement. As a long term objective of achieving a high growth rate, India embarked on unilateral tariff liberalisation as a part of comprehensive economic reforms and is increasingly involved in bilateral and regional trade agreements.
India undertook comprehensive economic reforms in the aftermath of the balance-of-payments crisis in 1991. India's customs tariff regime underwent drastic changes in recent years, showing some forward movement in tariff reforms with the objective of making India's tariff structure comparable to international standards, particularly to those of its immediate competitors in the South and South East Asia. Customs tariff reforms in recent years involve lowering of the peak customs duty rate progressively, reducing end-use exemptions to check revenue loss due to duty foregone and streamlining export promotion schemes.
Tariff policy has occupied the centre stage of trade policy for quite some time in India. Customs tariff has been an important source of revenue in the total collection of revenue of the Union Government. India has been effectively lowering its average customs duty since the beginning of the present decade, and a substantial number of national lines are clustered around the tariff band of 10% in 2008-09, resulting in surging economic activities and higher revenue realisation. On account of falling customs duty rates and exemption on various counts, customs duty as a percentage of value of imports declined significantly to 7.4% in 2008-09 from 21.88% in 1999-2000. Along with declining tariff rates, customs duty exemptions over and above the basic duty, have given rise to keeping the collection rate below the average customs duty rate.
Average tariff rates in all the broad trade sectors have been declining significantly in the present decade. Noticeable reduction in the average tariff rates is observed in the manufacturing and the mining sectors, though decline in the average tariffs is registered in the agricultural sector as shown in Figure 2.2.
Because of livelihood concerns of a large section of population dependent on agriculture, tariff rates in agriculture are more variable (See Table 2.1). They range from 0-150% but were clustered around 30% in 2008-09. Average customs duties have declined significantly in the present decade in almost all manufacturing sectors, and some sectors are subject to double digit average tariffs, such as vehicles, aircraft, vessels, etc.; arms and ammunitions; and miscellaneous manufactures. For social/ religious reasons, special rates are applicable to alcohol products.
Table 2.1: Sector-wise Simple average tariff of India during the period 2001-08 (in percentage)
|1||Live Animals and Animal Products||36.6||31.1||30.4|
|3||Animal or Vegetable Fats & Oils||67.0||65.4||27.0|
|4||Prepared Foodstuff, Beverages, etc.||47.5||42.5||39.4|
|6||Products of Chemicals||33.4||15.6||8.2|
|7||Plastics & Articles thereof||34.7||15.3||9.4|
|8||Raw Hides & Skins, Leather, etc.||21.9||12.8||7.4|
|9||Wood & Articles of Wood||29.0||13.6||9.3|
|10||Pulp of wood or of other Fibres||28.8||13.3||8.8|
|11||Textile & Textile Articles||30.9||15.4||9.4|
|12||Footwear, Headgear and Umbrella||35.0||15.0||9.8|
|13||Articles of Stone, Plaster, Cement||34.4||15.0||9.7|
|14||Natural or cultured pearls, Jewellery||35.0||15.0||8.9|
|15||Base Metals & Articles of Base Metal||33.4||16.5||7.3|
|16||Machinery & Mechanical Appliances||26.3||13.6||7.0|
|17||Vehicles, Aircraft and Vessels||39.7||23.9||19.5|
|18||Optical, Photograph & Cinematography||28.1||13.7||8.3|
|19||Arms and Ammunition||35.0||15.0||10.0|
|20||Miscellaneous Manufactured Articles||33.4||15.0||10.0|
|21||Works of Art Collectors' Pieces||30.0||12.9||8.6|
Source: Estimation based on Trains Wits Online, ITC/World Bank.
Taking development priorities into account, export duty is levied on selected commodities including ores and concentrates of iron and chromium and certain varieties of leather, as presented in the budget for 2009-2010.
Although India has been a firm supporter of multilateral liberalisation, it has acknowledged the relevance of regional trade agreements in recent years. India believes that regional trade agreements (RTAs) are building blocks that supplement the gains from multilateral trade liberalisation.
Since signing the Bangkok Agreement in 1975, India has signed agreements mainly with other developing countries (such as the Global System of Trade Preferences - GSTP), with certain regions in Asia (SAFTA and ASEAN), and with some of her neighbours (Sri Lanka, Nepal and Bhutan). India is also seeking to develop ties with other regional groupings, such as SACU, MERCOSUR, among others. India is a participant in the GSTP among developing countries, and offers tariff preferences on a sizable number of products on a reciprocal basis. India has offered duty-free and quota-free market access to least developed countries.
Trade agreements with Sri Lanka and Singapore go beyond negotiations on goods to include services and investment.
The recently signed India-ASEAN Trade in Goods Agreement has come into effect on January 1, 2010. India has signed India-South Korea Comprehensive Economic Partnership Agreement in 2009, covering substantial amount of trade in goods and services. Several such negotiations are underway with the European Union, EFTA, Japan, among others.
2.2 Rules of Origin
In the context of a CEPA, the rules of origin negotiated by the Parties are used to determine when goods have undergone sufficient production within the free trade area or territory established by that agreement to qualify for preferential access under that CEPA.
Globalisation has made it increasingly difficult to determine the basis of a good's origin since raw materials and parts used to make finished goods are drawn from multiple sources. Rules of origin must reflect to the greatest extent possible the production realities of industry.
Canada seeks to include rules of origin that are clear, as simple as possible, and leave little room for administrative discretion. Canada's rules of origin are based on the Harmonised Commodity Description and Coding System.
Canada's FTAs generally include two rules of origin elements: (i) a chapter on general rules of origin, and (ii) an annex of product-specific rules of origin. The general rules of origin set out the criteria to determine the originating status of a good as well as other general conditions and requirements.
Canada's FTAs contain product-specific rules of origin for all goods, comprised of foreign components, that establish at which point such materials or components have undergone sufficient production within the free trade area for the good produced there to be considered originating. The annex of product-specific rules of origin reads like a telephone book, such that once a producer or exporter of a specific good locates the tariff provision under which that good is classified, the rule or rules of origin applicable to that good is immediately adjacent.
Canada's product-specific rules of origin are predominately based on the tariff shift approach. When there is a concern that a rule of origin requiring a tariff shift alone might be difficult to meet, an alternative rule of origin may be provided. That alternative rule of origin may require, in addition to a lesser tariff shift or no change of tariff classification, that a value test be met. In the case of such rules of origin, Canada uses the focused value approach, whereby the first rule of origin explicitly states that certain non-originating inputs cannot be used in the production of the good for the purposes of origin. The second or alternative rule of origin explicitly states that these same non-originating inputs can be used in the production of the good, provided that only the value of those non-originating inputs, and not that of the non-originating inputs that have already met the tariff shift requirements of the first rule of origin, be taken into consideration in determining whether the value test is met.
To permit possible future linking of FTAs between common partners, Canada has negotiated cross-cumulation provisions in several recently concluded FTAs, and is seeking similar provisions in its ongoing FTA negotiations. Canada supports full, reciprocal cross-cumulation as a way of integrating otherwise independent FTAs for the purpose of determining the origin of goods.
India considers Rules of Origin (ROO) as a critical component of an FTA. Goods qualify for receiving preferences subject to satisfying the underlying rules of origin. Appropriate rules of origin can facilitate movement of trade by providing traders with certainty regarding the tariff treatment of their goods at the border and predictability of receiving same facilities over a period of time.
The relevance of the ROO is important in checking any possibility of third-country goods entering into a country's markets through the partner country on a preferential basis under the FTA. This phenomenon is known as 'trade deflection,' which has the potential to undermine a country's MFN-customs' regime. The role of ROO is not to restrict bilateral flow of trade but to safeguard against deflected imports from third countries.
The ROO are responsible for determining origin of a product and also check substantial transformation in inputs. Thus, rules of origin together, facilitate value-addition in the country of manufacturing. Such requirements, checking the import content of value addition, have the potential for generating backward and forward linkages in a country adhering to the rules. Thus, a member country is prevented from becoming a mere trading country as these requirements act as a deterrent to assembly kind of production activities. The ROO can have important implications for the development of the manufacturing sector as a whole which, in turn, contributes towards enhancing the export supply capabilities of the member country.
There are three different ROO methods to determine whether a product qualifies as 'originating' and is therefore eligible for tariff preference. First, there is a change in tariff classification test, implying that the tariff classification of the final product is different from the tariff classification of its inputs. Second, a percentage test is applied, according to which a minimum percentage of total value addition should be achieved with the help of domestic inputs. Finally, specified process tests require a product to undergo certain stipulated processes.
India's approach, in its recently concluded RTAs, is to have a general rule of origin which is applied across a majority of the tariff lines. This general rule employs a twin criteria of change in tariff classification coupled with a percentage test. Product specific rules, as derogations from the general rule, are employed for a limited number of products where the general rule may not be adequate to address issue of origin.
At the present moment, India does not contemplate cross-cumulation across its different RTAs.
However, consensus on applications of these rules is often difficult to achieve. For example, the extent of 'substantial transformation' for different products depends on the level of disaggregation, at HS heading and sub-heading level, on which tariff-shift is technically possible. In addition, percentages of minimum value addition also vary from product to product, depending on the prevailing exchange rates, labour costs and the product-specific import dependence of the country in terms of raw materials and intermediates.
Most ROO modalities incorporate some kind of mixture of these approaches together with regional cumulation, treatment of packaging and non-qualifying operations. However, the exact mechanisms differ in NAFTA, the EU, ASEAN, MERCOSUR and its partners, and FTAs of Japan-Singapore, Australia-Thailand, and Singapore-USA, among others.
India has recently signed and negotiating with number of CEPAs, and will seek ROO with Canada that are consistent with her currently pursued practices.
Recommendations on Rules of Origin
The following recommendations may be considered for the India-Canada JSG for Rules of Origin:
- are clear and simple in design with low compliance costs;
- are economically efficient;
- recognise the increasingly globally integrated nature of manufacturing process;
- acknowledge the principles of competitive and comparative advantage; and
- facilitate trade between the two countries.
2.3 Customs (Origin) Procedures
Customs (Origin) Procedures in CEPAs establish the method to administer the rules of origin in a transparent, predictable, and user-friendly manner. The establishment of effective and uniform procedures to be applied by the customs administration in each Party is essential to administer and enforce the rules of origin.
Canada seeks to develop procedures by establishing obligations for importers, exporters, and the Parties pertaining to such areas as certification of origin, record keeping, origin verifications, advance rulings, appeals, penalties and co-operation. In all its FTA negotiations, Canada seeks to establish a Customs (Origin) Procedures Chapter that reflects Canadian interests and best practices. The procedures strive to facilitate the movement of goods, enhance security, be adaptive to the pace of trade, support a paperless environment, and ensure the integrity of the Agreement. To the extent possible, Canada promotes procedures that are consistent with our current free trade agreement practices in order to minimize the administrative burden of new free trade agreements.
Canada's and India's approach to the administration of the rules of origin differ. The difference is created by the certification of origin process, a process that directly impacts the remainder of the procedures to administer the rules of origin. Canada's procedures are based on an exporter self-certification process, whereas, India's agreements support a government certification process.
Customs rules and procedures should be simple, transparent and user-friendly. Lack of adequate Customs procedures can become a major hindrance to preferential trade flows. Therefore, Customs procedures need to be strengthened to enhance trade flows and reduce business costs. India may be interested for a Customs procedure which will serve the interest of both the partner countries. Therefore, it is necessary to have close cooperation in the matter of verification of the certificates of origin, which is required to check trade deflection and circumvention of rules of origin.
Recommendation on Customs (Origin) Procedures
A Canada-India CEPA should include provisions that allow for the effective and transparent administration of the rules of origin. Such procedures should help ensure compliance with the rules of origin without creating unnecessary obstacles to trade. The broad objectives could include:
- simplify and harmonise customs procedures;
- ensure predictability, consistency and transparency in the application of customs laws, regulations and administrative policies and procedures;
- facilitate bilateral trade and ensure the security of such trade;
- provide a means for customs-customs consultation to enable early resolution of any issues affecting the movement of trade across borders; and
- rules of origin should be readily enforceable at the border without involving additional administrative costs.
Based on previous agreements, Canada and India have different views in respect of certification and verification of origin. In the framework of a bilateral agreement, we may have an opportunity to find innovative solutions for customs procedures.
2.4 Trade Facilitation
Trade facilitation is an extension of broader trade liberalisation and market access efforts and can be defined as the simplification and standardisation of procedures and associated information flows required to move goods internationally. Governments, with the support of their trade and business communities, recognise that the transaction costs associated with international trade can be reduced through the harmonisation, modernisation, simplification and standardisation of trade procedures. In this regard, customs processes and procedures may be, to the extent practicable, standardised, harmonised and benchmarked.
Trade facilitation provisions are primarily customs and trade related border procedures that aim, in addition to reducing transaction costs, to maintain appropriate security measures, and facilitate the movement of goods.
In 1996, WTO Members acknowledged the importance of trade facilitation and directed the WTO Council for Trade in Goods to actively pursue opportunities for the simplification of trade procedures. In 2004, the WTO launched formal negotiations on trade facilitation "with a view to further expediting the movement, release and clearance of goods, including goods in transit." Canada and India are active participants in the WTO Negotiating Group on Trade Facilitation.
An FTA Chapter on trade facilitation should complement and build upon trade facilitation provisions under negotiation at the WTO and avoid duplicating the work undertaken there.
Canada would also be seeking to include key provisions such as: transparent rules and procedures, risk management practices, alignment of procedures and adherence to international conventions, use of automated systems, avoidance of duplication, harmonisation of data requirements and document formats.
Finally, Canada is of the view that any customs cooperation provisions in the trade facilitation chapter need to be in accordance with its domestic confidentiality requirements, law and regulations.
India has recognised the relevance of trade facilitation policies in promoting bilateral trade and therefore, her approach towards this issue has been consistent in the WTO and also in regional trading agreements.
Adoption of various trade facilitation measures could be very effective in intensifying trade linkages between the two countries. Measure such as customs cooperation; harmonisation of standards and conformity assessment; and enhancing business to business dialogue may be discussed in this study. It is also necessary to put in place various measures as mutually acceptable, designed in such a way as to facilitate trade creation between the two countries. The scope of this cooperation could extend to various Customs related procedures and valuation methods.
The scope of this cooperation could extend to various Customs related procedures and valuation methods.
India has acceded to the World Customs Organisation's (WCO) revised Kyoto Convention, which aims at simplifying and harmonising customs procedures. It provides the core principles for modern, efficient and effective customs procedures. In accordance with international standards, a uniform system of customs valuation, duties and documentation may be evolved across all notified/authorised ports of entry in India and Canada. An important aspect of customs cooperation in the context of trade facilitation is to facilitate clearance of consignments through increasing use of electronic means. Both parties may explore the feasibility of custom cooperation agreement. India has recently signed and is negotiating a number of CEPAs, and will consider the negotiation of Trade Facilitation with Canada consistent with her currently pursued practices.
Recommendation on Trade Facilitation
The Trade Facilitation provisions of a Canada-India CEPA should:
- Facilitate trade between the two countries;
- Build upon the WTO work with a view of avoiding duplication;
- Support the objective of reducing cost for the trading community;
- Support innovation and promote the use of new technologies where appropriate;
- Are in accordance with the Parties respective confidentiality and protection of information requirements; and
- Ensure that appropriate security measures are maintained.
In the context of a CEPA, India and Canada should initiate negotiations related to Trade Facilitation as early as possible so as to improve customs efficiency through bilateral cooperation. Such cooperation could include:
- Appropriate controls to combat offences against law administered by customs and facilitate legitimate trade;
- ensuring efficient, economical customs border administration and the expeditious clearance of goods;
- ensuring harmonised systems of customs valuation, in line with the Agreement on Implementation of Article VII of the GATT, 1994), duties and documentation may be evolved across all notified or authorised ports of entry in both the countries; and
- procedures of handling of goods at ports and customs clearance that may be simplified and made more efficient.
2.5 Technical Barriers to Trade
As tariff barriers are eliminated, non-tariff barriers, such as technical barriers, become significant obstacles to international trade. A record number of 74 new issues were raised in 2009 (compared to 33 in 2008) in the WTO Technical Barriers to Trade (TBT) Committee, related to globally-traded products such as chemicals, toys, cosmetics, wine and automobiles.
Governments use technical regulations, standards and conformity assessment procedures to achieve a range of policy goals, such as ensuring the health and safety of their citizens, protection of the environment, and consumer protection. While these measures may vary from country to country for a number of reasons, such as climactic conditions, or cultural, socio-economic or geographical factors, if set arbitrarily or made more trade-restrictive than necessary, they can also unnecessarily restrict trade, or introduce market distortions.
Differences in regulations, standards and conformity assessment procedures from market to market may have several effects on exporting countries, such as unnecessary compliance costs for companies operating in multiple markets, onerous documentation requirements and duplicative testing or certification requirements, amongst others. In recent years, the number of technical regulations and standards adopted by countries has grown significantly.
Canada and India are both Members of the WTO and signatories to the WTO TBT Agreement. The WTO TBT Agreement aims to ensure that technical regulations, standards and conformity assessment procedures do not constitute unnecessary obstacles to trade, while recognising countries' rights to adopt product standards and regulations to pursue legitimate objectives, such as the protection of human health, safety or the environment. The WTO TBT Agreement also requires Members to use international standards as the basis for their technical regulations and conformity assessment procedures.
Canada's recent FTAs have included a TBT Chapter with provisions that reaffirm, build on and enhance the provisions of the WTO TBT Agreement, including in the areas of transparency, international standards, technical regulations and conformity assessment.
The TBT Chapter also enhances joint cooperation between the Parties in order to resolve specific issues related to the development and application of standards, technical regulations and conformity assessment procedures, thereby facilitating the conduct of trade in goods between the parties. Canada typically creates a mechanism of some kind (e.g., a committee) to facilitate joint cooperation as well as to address specific TBT issues that arise.
Canada's experience with Mutual Recognition Agreements (MRA) has been mixed. As a result, Canada typically assesses the needs and benefits of MRAs on a case-by-case basis.
India is a signatory to the WTO Agreement on TBT and has accorded priority to mutual recognition of standards and conformity assessment procedures in most of its recent FTAs to facilitate bilateral/regional trade through cooperative arrangements. In this context, it is imperative to have clear and transparent rules with respect to harmonisation of standards, equivalence principle, and criteria for risk assessment. In terms of implementation, it is also necessary that issues relating to, inter alia, approval procedures, inspection requirements, testing, and certification are also addressed. TBT measures should be practical and consistent with the TBT Agreements in the WTO.
It is often expensive for suppliers to comply with foreign requirements in situations where domestic regulatory measures differ. These technical regulations can create significant transaction and compliance costs for exporters and give rise to higher costs for consumers. The objective is to reduce transaction costs in a timely and effective way. Such regulations could become TBT if they do not comply with good regulatory practice principles.
Member countries are required under the TBT Agreement to use international standards as the basis for their technical regulations. However, countries need sufficient time, capacities and resources to adopt international standards, especially when international standards are not constant but evolving.
In India's view enhanced consultations leading to cooperation between regulatory agencies would need to be evolved. This cooperation could also be extended to include activities for development of capacity of institutions in both countries in identified priority sectors.
While recognising that legitimate measures to protect public health, safety and the environment can be acceptable, reduction of compliance cost for exporters needs to be addressed within the bilateral initiatives.
India's Approach to Mutual Recognition Agreements
The World Trade Organization (WTO) Agreement on Technical Barriers to Trade provides for countries to develop and apply three important trade facilitation devices: harmonisation, equivalence, and mutual recognition of conformity assessment procedures. A mutual recognition agreement is an international agreement by which two or more countries agree to recognise one another's procedures for assessing the conformity of goods with technical regulations and standards. MRAs are one of the means to facilitate trade through agreement to eliminate duplicative conformity assessment and approvals. MRAs can also lead to harmonisation of each other's regulations and measures.
India seeks to place emphasis on bilateral initiatives for implementation arrangements through coordination among regulatory authorities in both the countries. India feels that mechanisms need to be evolved for facilitating increased dialogue between the regulatory bodies of the two countries for possible Mutual Recognition Agreements (MRAs).
In India's view, in order to facilitate trade in goods both sides could explore opportunities for mutual recognition of technical regulations, standards and conformity assessment procedures. India notes that existing voluntary arrangements between conformity assessment and accreditation bodies could provide a basis for exploring opportunities for recognition of conformity assessment at a regulatory level in the two countries.
In its approach, India usually considers mechanisms which facilitate the Parties':
- agreement on the recognition of conformity assessment procedures on products of their export interest;
- acceptance of approval procedures, inspection requirements, testing and certification; and
- acceptance of conformity assessment including inter alia recognition of each others' testing laboratories or certification bodies.
Other issues that India typically seeks to discuss are cooperation for the development of capacity of institutions and comprehensive confidence-building process to demonstrate equivalence of regulatory standards, inspection competence and effective enforcement in both countries in identified priority areas.
Recommendation on Technical Barriers to Trade
A Canada-India CEPA should include a TBT Chapter, which should:
- build on the foundations of the WTO TBT Agreement and seek to improve its implementation;
- ensure that standards, technical regulations, and conformity assessment procedures do not create unnecessary obstacles to trade, primarily by establishing enhanced transparency disciplines;
- seek to reduce transaction costs for exporters by exploring methods to facilitate the recognition of conformity assessment;
- enhance joint cooperation between the Parties; and
- create a bilateral mechanism to address specific TBT issues.
In addition, in order to facilitate trade in goods, both sides could explore opportunities for mutual recognition in the area of technical regulations, standards and conformity assessment procedures.
2.6 Sanitary and Phytosanitary Issues
Sanitary and phytosanitary measures are applied by governments to protect human, animal and plant life and health, to ensure that food is safe for consumers and to prevent the spread of diseases or pests among animals or plants. As signatories to the WTO, Canadian and Indian SPS measures are subject to the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (the WTO SPS Agreement). Canada and India are of the view that the WTO SPS Agreement establishes an appropriate balance of rights and obligations based on science.
A Canada-India CEPA should affirm that SPS measures shall be governed by the WTO SPS Agreement. That being said, there is a lack of knowledge about and experience with each others regulatory systems. This can result in unresolved bilateral SPS issues, which, can effectively undermine market access concessions negotiated in a CEPA.
Canada's experience with many markets is that an effective bilateral mechanism to provide a forum for ongoing cooperation and information exchange and facilitate discussions on bilateral SPS issues has been useful as an effective means to avoid disputes. Canada would want to build on existing bilateral mechanisms with India. In this regard, Canada and India have a bilateral mechanism in place to deal with plant health issues at the technical level. On July 17, 2006, the Canadian Food Inspection Agency (CFIA) and the Department of Agriculture and Cooperation, Ministry of Agriculture of India signed a Memorandum of Understanding on Plant Health Cooperation. On October 8, 2008, the CFIA wrote to Indian authorities to establish a Working Group on Pulses under the 2006 Memorandum of Understanding on Plant Health Cooperation. On January 9-14, 2009, a meeting of the Working Group on Pulses took place in New Delhi.
The existing bilateral mechanism, however, does not offer full coverage of issues, and, notably, there is currently no mechanism to deal with animal health or food safety issues at the technical level. Moreover, Canada and India do not have a bilateral SPS mechanism which provides for broader policy level discussion of all SPS issues, which Canada has also found helpful in some of its other bilateral relationships.
In India, import control measures have been put in place by the Bureau of Indian Standards (BIS), the Directorate General of Foreign Trade (DGFT), the Ministry of Health and Family Welfare (MoHFW) and the Ministry of Agriculture (MoA). Inspection and certification of exportable commodities is the responsibility of the Export Inspection Council (EIC).
The Government of India has enacted several laws to regulate import of food products, livestock and its products, plant materials and other agricultural commodities into the country. Import of plants and plant materials is regulated in accordance with the provisions of Plants, Fruits, Seeds (Regulation of Import into India) Order [PFS] Order, 1989, which was issued under the Destructive Insects & Pests Act, 1914, to prevent introduction of exotic pests and diseases into the country. Besides, the Plant Quaratine Organisation of India is also responsible to arrange for the issue of phytosanitary certificate in compliance with the provisions of International Plant Protection Convention and to undertake that the post entry inspection, wherever necessary.
The Livestock Importation Act, 1898 regulates the imports of livestock and livestock products in a manner that such imports do not adversely affect the health of human and animal population of the country. As per the Prevention of Food Adulteration Act, 1954, any product not fulfilling the statutory provisions is not allowed to be imported into the country. Likewise, there are several rules, regulations, orders, notifications, etc. issued by the Government, laying down procedures as to how the imports of above products are to be dealt with. The Customs has a pivotal role to play because, it is the agency stationed at the border to enforce the rules, regulations and orders issued by various administrative Ministries.
The import control in India for the food sector is operated under the Prevention of Food Adulteration Act by the Ministry of Health and Family Welfare (MoHFW) for health and safety aspects and the Ministry of Agriculture (MoA) for quarantine aspects. All products which are under compulsory certification by the BIS for the domestic market should conform to BIS standards when imported as well. The Export Inspection Council (EIC) is the only agency in India responsible for export inspection and certification of a range of commodities in areas like food, chemicals, leather, engineering and footwear as commodities notified under the Export (Quality Control & Inspection) Act, 1963. To date, nearly 1000 commodities have been notified by the central government under the Act. The EIC also operates export inspection and certification on a voluntary basis by developing suitable inspection/certification schemes. EIC is offering one such service in the tea sector, although it is not a notified commodity. The export inspections and certifications are based on standards recognised under the notification. These standards may be international standards, standards of importing countries, national standards prescribed in the notification, or even contractual specifications. Accordingly, EIC has statutory authority to certify against the standards and technical regulations of certain importing countries. At present EIC's certificates are recognised in a number of countries including, European Union, the United States, Australia, Korea, Japan, China and Singapore, and which cover areas like fish and fish products, poultry meat and products, rice, miscellaneous food products, iron ore and pharmaceutical products.
India's view is that SPS measures put in place in a CEPA should be consistent with the WTO Agreement on Sanitary and Phytosanitary (SPS) Measures. This Agreement encourages WTO Members to harmonise their SPS measures with the international standards, viz. Codex, IPPC and OIE.
In view of the above, greater cooperation between regulatory agencies would have to be ensured through the formalisation of the CEPA. This cooperation needs to be extended to include activities which enable capacity building for the relevant institutions in both countries in identified priority sectors.
Recommendations on Sanitary and Phytosanitary Issues
A Canada-India CEPA should include provisions on SPS issues that:
- affirm that SPS trade-related measures shall be governed by the WTO SPS Agreement; and
- ensure an effective bilateral mechanism to provide a forum for ongoing cooperation and information exchange, as well as facilitate discussion on bilateral SPS issues in order to avoid disputes, taking into account existing mechanisms.
2.7 Emergency Action
An emergency action or bilateral safeguard measure is a temporary measure put in place to provide a domestic industry with an adjustment period should liberalisation under an CEPA result in an injurious surge in imports. Similar measures, applicable on an MFN basis, are also provided for under the WTO Agreements.
Emergency action provisions in Canada's FTAs are aimed at permitting parties, in the event of an injurious surge in imports as a result of liberalisation under the FTA, to put in place transitional, tariff-based emergency actions that allow additional time for affected industries to adjust to a lower tariff environment. Emergency action provisions in Canada's FTAs apply only during the agreed transition period, are limited to one action per good, limit the length of an action to no longer than three years, and provide for immediate compensation in the form of equivalent offsetting tariff concessions. Canada's FTAs also contain detailed provisions to ensure that both Parties follow the same set of administrative requirements during an inquiry and during the period that an action is in effect.
India is of the view that safeguard measures should be taken only when serious injury or threat of serious injury to the domestic industry is caused by sharp increase in imports as a result of reduction of tariffs under the FTA. The bilateral safeguards measures may be in the form of stoppage of further reduction of tariff or increasing tariff to MFN level. The duration of measures can be two years plus two more years extension. There may not be an obligation to pay compensation for the first two years. The obligation to pay compensations may begin in the third year. There should also be provision for imposition of provisional safeguard measures. The inter-se relationship between global safeguard measures and bilateral safeguard measures should also be clearly spelt out.
Recommendation on Emergency Action
If necessary, a Canada-India CEPA could include an emergency action chapter that provides for a transitional, tariff-based emergency action mechanism that covers all goods and establishes clear parameters for any resulting actions, the conditions under which they may be imposed, and limits the length of time for which the action may be maintained.
2.8 Trade Remedies
While the main purpose of the CEPA is to facilitate trade, there may be times when measures might be warranted to counter injurious unfair trading practices resulting from dumping or subsidies or to provide temporary protection from injurious fairly traded import surges through safeguard action. The WTO Agreement provides a framework of rules governing the application of anti-dumping, subsidies and countervailing measures and safeguard actions.
Canada's general approach in a FTA is to include a scope provision recognising the WTO Agreement's exclusive governance of trade remedy rights and obligations, including the settlement of related disputes. The WTO Doha round of multilateral trade negotiations remains the appropriate forum in which to seek improvements to the rules governing the application of trade remedies.
India's approach on Trade remedies has been to preserve the rights and obligations in respect of the WTO Agreements on Anti Dumping, Subsidies and Safeguards. The disputes arising in the implementation of these Agreements should also be addressed under the WTO Dispute Settlement Mechanism. Some WTO plus provisions may be considered in areas such as transparency of these measures, sharing of information before initiation of investigations, and improved procedures for effective consultations prior to CVD investigations.
Recommendation for Trade Remedies
It is recommended that trade remedies could be discussed with the objective of maintaining appropriate protection from unfair trading practices, including a potential discussion of global safeguard measures, while ensuring that the benefits of trade liberalisation are not undermined and allowing potential exports to be realised, in accordance with the rights and obligations established by the WTO Agreement.
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