Questions On ASEAN - India FTA (AIFTA)

Under the AIFTA, ASEAN Member States and India have agreed to progressively reduce and eliminate duties on substantial number of products over a period of 3-8 years beginning 1 January 2010. The Philippines, Cambodia, Lao PDR, Myanmar and Viet Nam are given an additional 2-3 years to reduce and eliminate their duties under this FTA. 

The commitment undertaken by Malaysia in the AIFTA is to eliminate import duties on 6,792 products or tariff lines by 31 December 2013. Duties on another 1,266 tariff lines would be eliminated by 31 December 2016. The import duties on 1,336 tariff lines which are considered to be products where domestic industries require some level of protection will be reduced to 5 per cent by 31 December 2016.  The gradual reduction and elimination of duties are also to allow domestic industries sufficient time to adjust to increased competition.  

On her part, India will undertake to eliminate import duties on 7,767 tariff lines or products by 31 December 2013 and 1,260 tariff lines by 31 December 2016. The import duties on 1,810 tariff lines will be reduced to 5 per cent by 31 December 2016.

Overall, by the end of 2013, 71 percent of products exported to India will be able to enter the market duty free and another 10 per cent of products by 2016. In addition, duties on another 10 per cent of products will be reduced to 5 per cent.

This import duty elimination and reduction over the next 3-8 years will open market for Malaysian exports to India.

 

In the FTA negotiations, both ASEAN and India have agreed to allow between 7-9 per cent of tariff lines or products to be excluded from tariff reduction commitments, taking into account the level of development of these products in their respective countries.

Malaysia excluded 898 tariff lines from tariff concessions. The products excluded are selected poultry products, tropical fruits and rice, iron and steel, automotive products, chemicals, alcoholic beverages; tobacco and tobacco products, and used tyres.  These products are excluded based on intensive consultations held with the domestic industries which need longer time frame to enhance their competitiveness vis-a-vis India.  

The products excluded from concessions by India are mainly agricultural products, textiles, iron and steel, automotive and ceramic tiles and this involves a total of 1,298 tariff lines.  

However, these products are not excluded on a permanent basis but are subject to future review as provided for under the ASEAN-India Free Trade Agreement.

Compliance to Rules of Origin (ROO) is important in exporting products under the preferential trading arrangements. To qualify for preferential tariffs under ASEAN-India FTA, exporters must meet two conditions: Regional Value Content (RVC) 35% + Change in Tariff Sub-Heading (CTSH).

In other words, to qualify for the preferential tariffs under the AIFTA, exporters must have at least 35 per cent regional value content or originating materials plus the product must have undergone some form of processing at the final point of exports.

RVC is calculated as follows:

RVC =

FOB price  minus  non-originating productsX 100
FOB price

RVC = 

RM200 – RM123  X 100   =  38.5%
RM200

The originating product accounts for 38.5 %.

In addition to meeting the RVC, the product must have undergone change in tariff sub-heading. For example:

This 6-digit subheading for pneumatic rotary type (tools) is HS8467 11. However, in the processing to manufacture this product, other parts of products falling under HS8467 92 and HS8467 99 may have been used. Thus at the 6 digit level there is change from 8467 92 and HS8467 99 to become HS8467 11

Steps:

a) Obtain the ASEAN Harmonised Tariff Nomenclature (AHTN) or Harmonised System (HS) code from the Royal Customs of Malaysia for your product as well as every product and raw material used.

b) Check your product's eligibility under AIFTA based on India's schedules of tariff elimination/reduction.

c) Product for export must fulfill the condition of the rules of origin under AIFTA.

d) Download/get the Cost Analysis Application Forms i.e. BAK 1(a), BAK 1(b) and BAK 1(c). The forms can be obtained from:

i. MITI Website

ii. Service Counter (Ground Floor), Block 10, MITI, Government Offices Complex, Jalan Duta, 50622 Kuala Lumpur

iii. MITI's branch offices in respective states.

e) Completed Cost Analysis application forms must be submitted to:

Ministry of International Trade and Industry (MITI)
Trade Cooperation and Industry Coordination Section
Ground Floor, (Service Counter), Block 10
Government Offices Complex, Jalan Duta, Kuala Lumpur

Application must be also submitted with:
i. Form BAK 1(a): Details of Exporter/Manufacturer and Products
ii. Form BAK 1(b): Product's Cost Analysis
iii. Form BAK 1(c): Letter of Indemnity
iv. A copy of the following documents:
- Certificate of company's registration
- Invoices of raw material purchasing
- Sample/photograph/products catalogue.
- Flow chart of production process.

Economic factors indicate that India is a market with huge potential. Despite the global economic setback, India continues to register impressive economic growth. The country continues to be fuelled by private sector driven economic growth. There is a rising middle class population estimated at 300 million. Economists predict that by 2020, India will be among the leading economies of the world. India's global trade is expanding rapidly.

These are positive factors that have to be taken into account by Malaysia. India has traditionally maintained high tariffs and over 80 per cent of the products imported into India attract duties ranging from 15-100 per cent. Malaysia and the other ASEAN Member States stand to gain from the FTA as the ASEAN can now export to India at preferential tariffs compared to India's other major trading partners.  ASEAN has a first mover advantage.

Malaysia industries are resilient, as over the last few years these domestic industries have been subjected to competition arising from the implementation of other ASEAN FTAs, such as the FTAs with China, Korea and Japan. Nevertheless, India is emerging as an important supplier of products such as iron and steel, auto parts, textiles and pharmaceuticals which could pose challenges to these domestic industries. Malaysian industries cannot remain complacent and have to factor in possible competition from India as duties are gradually reduced or eliminated.

Rather than focusing on competition, there are ample opportunities for Malaysian and India businessmen to work together to form strategic partnership. R&D is an area where Malaysian companies can forge linkages to enhance their product strength not only for the Indian market but also the global market. Besides, other sectors where Malaysia and India can form strategic partnership are in ICT, pharmaceutical, healthcare, auto parts, machinery and equipment, rubber and palm oil based products. Many Malaysian companies are already actively involved in activities in India such as building of roads, rails, ports, airports and running of other services facilities. The FTA offers the opportunities for Malaysian companies to source their requirements for their projects in India from Malaysia.

Annex

Additional Information 

Note:

Tariff lines are at 6-digit level.