Frictionless Trade Can Deliver Faster Growth

Context: The compliance burden of New Delhi’s ‘rules of origin’ could deter our trade partners from enhancing their relations with us, since our economy needs greater trade intensity, not less.

Significance of the  “Rules of Origin” norms

• Check Dumping of goods from China: While India still has a set of Free Trade Agreements (FTAs) with Asian nations, China could route its goods through these nations and dump it in India.
• Features include:

• Setting the Minimum Threshold of Product origination: a minimum proportion of an imported product’s value must originate in a country for it to be marked as made there.
• Demands strict disclosure: on value addition by our trade partners after an elaborate process of pre-export verification.
• Calculation of Value Addition may vary: from agreement to agreement.

Issues with the norms:

• Complexity in implementation: No matter how clearly, we spell out the acceptable break-ups of how much value was added where such fine calculations are difficult to make.
• Increased Compliance Burden: would deter the partners from enhancing trade.

• Verifying foreign certification would delay the process.
• The net effect could be higher costs borne out by Indian producers.

• May hurt India’s trade share: which is already in a deteriorating condition.

• Global trade today occupies a much smaller part of our economic pie than it did eight years ago. After a peak back then, India’s trade intensity has slid.