( ) Page: 1/8 FREE TRADE AGREEMENT BETWEEN THE ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN) AND INDIA (GOODS) QUESTIONS AND REPLIES

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1 7 March 2017 ( ) Page: 1/8 Committee on Trade and Development Dedicated Session on Regional Trade Agreements Original: English FREE TRADE AGREEMENT BETWEEN THE ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN) AND INDIA (GOODS) QUESTIONS AND REPLIES The following communication, dated 6 March 2017, is being circulated at the request of the Parties to the Free Trade Agreement between ASEAN and India. The document reproduces the questions addressed to the Parties and the responses submitted. Questions from the Delegation of Canada Question 1 In addition to incorporating key provisions from the WTO TBT Agreement, Canada has included WTO-plus TBT provisions in most of its recent free trade agreements in the areas of transparency and national treatment of conformity assessment bodies. Enhanced notifications and information exchanges can create transparency and openness in the regulatory process while according national treatment to conformity assessment bodies can decrease costs for exporters and facilitate trade between trading partners. In this context, Canada notes the non-tariff provisions in the ASEAN-India Free Tree Agreement and asks if WTO-plus provisions, such as enhanced transparency and national treatment for conformity assessment bodies, were considered during the negotiation? If yes, which ones? If no, why not? Response: While the ASEAN-India FTA is consistent with WTO, it does not include the enhanced transparency and national treatment for conformity were not included under AIFTA. The idea behind concluding the India-ASEAN FTA was to have a greater understanding of the trade perspective between the Parties with an objective to facilitate trade. Since the Parties are developing nations, it was a challenge to agree to WTO plus provisions in the trade environment prevailing at the time of the negotiations. In all earnestness, the FTA is WTO consistent and the Parties have been consistently striving to adhere to the transparency provisions of WTO even in the India-ASEAN FTA. As far as the conformity assessment bodies are concerned, the Parties have been careful in the implementation of the FTA so as not to be biased towards the national accreditation bodies, but at the same time having clear priorities of not supporting cross frontier accreditation except in cases defined in the international guidelines.

2 - 2 - Question 2 Did India and ASEAN consider including environment provisions in this Free Trade Agreement? Response: ASEAN-India FTA does not have dedicated chapter or provision on Environment. If in the future, Parties wish to add a provision on environment, it will be done through agreement by all Parties. Questions from the delegation of the United States Characteristic Elements of the Agreement Question 1 Can the Parties please explain why the early harvest programme was discontinued? (Paragraph 2.1) Response: The Early Harvest Programme was discontinued as a result of deliberations between the parties and hence the information may be privy to the parties of the deliberations. Question 2 We would like to note that the link to the agreement that ASEAN provided does not work (Paragraph 2.2). Can the Parties please provide a functioning link? Response: Information on ASEAN-India Free Trade Agreements is available on the ASEAN website as well as on the website of Ministry of Commerce of India as follows: Provisions on Trade in Goods Question 3 Can the Parties provide data on how much of the current trade between the Parties is covered by the preferential treatment extended under the Agreement? Response: Based on India s preferential import data analysis, the rate of utilisation of the India- ASEAN FTA, which is the ratio of preferential imports to total-imports, was 24.4% in In the meantime, based on ASEAN Secretariat s data, each ASEAN+1 FTAs in average is used by 26% of ASEAN exporters not specific data on AIFTA. Question 4 Have all the Parties applied all their tariff commitments consistent with the Agreement s tariff schedules since implementation of the Agreement? Response: Parties have applied the tariff commitments in accordance with the Agreement. Question 5 Article 4 of the Agreement allows for Parties to unilaterally accelerate their tariff liberalization and reduction commitments. Have any Parties undertaken unilateral liberalization? If so, which Parties, and how many tariff lines have they accelerated? Response: For India, unilateral liberalization does happen on the basis of assessment of domestic concerns/interest. It happens on MFN basis, while for AMS, so far no AMS have unilaterally accelerated tariff liberalization.

3 - 3 - Question 6 Have any Parties unilaterally reduced their overall applied MFN tariff rates so that they are lower than the tariff rates in their AIFTA schedules? If so, which Parties and how many tariff lines? Response: For India, it does happen in some cases, while for ASEAN, no AMS have unilaterally accelerated tariff liberalization. Question 7 Paragraph 3.3. What percentage of tariffs fall in Normal Tracks 1 and 2, Sensitive Track, and Special Products lists respectively? Response: India s offer to ASEAN under India-ASEAN Trade in Goods Agreement is: NT %; NT2-9.17%; ST-11.20%; HST-0.10% and EL-9.36% as per available records. For ASEAN, see table below Tariff Category (%) Party NT-1 NT-2 ST HST EL Special Products BN KH ID LA MY MM PH SG TH VN Note: Based on available data under HS 2007 Question 8 Section of the Secretariat report describes the tariff cuts under the agreement. The parties to the agreement started in different places, that is, the number of MFN free tariff lines prior to the agreement varied significantly among the parties. According to the Secretariat report, the percentage of MFN free lines prior to 2010 ranged from zero (Lao PDR) to 99.9 percent (Singapore). After the implementation of the tariff elimination and reductions, a significant number of lines will still be subject to duties. If one were to omit Singapore, which had only six dutiable lines at the time of entry into force, the figure ranges from 14.8 percent of lines (Cambodia), to 49.6 percent (Indonesia). The average for the parties is about 24.6 percent of lines. Can the Parties explain why so many tariff lines were left untouched? Response: The number of tariff lines agreed for reduction/elimination of duty is an outcome of negotiation. Question 9 In addition, the average final tariffs remain quite high for some sectors, particularly for Sections I through IV of the Harmonized System. Chart 3.1 indicates that for some parties to the agreement, there was very little or no reduction in duties for goods in Chapters 1 through 24.

4 - 4 - Response: The tariff reduction in the Agreement is outcome of negation between the parties and during the course of negotiations each party try to have balance between safeguard of the domestic industry/farmer and tariff concessions being offered. In addition, these goods under the abovementioned sections (Chapter 1 24) are considered domestically sensitive for most Parties of the Agreement. Question 10 Paragraph 3.38 of the report describes the cuts made by India: Moreover, while average preferential tariffs are lower in many industrial Chapters than the corresponding MFN average, this is not the case for most agricultural chapters suggesting fewer preferential tariff concessions in agriculture than in industrial products. The highest average preferential tariffs (equivalent to the MFN average) are found in HS 22 (preferential and MFN average of 149 percent), 17 (60 percent), 10 (57.5 percent) and 6 (50 percent). Paragraph 11 on page 44 of the report notes that India s average MFN tariff for agricultural products was 33.3 percent. After implementation, the average tariff fell only to about 31 percent. Why did a number of the parties make relatively small duty reductions for agricultural products? Response: In the India-ASEAN FTA, India has maintained a number of items under Exclusion List, such as vegetables, fruits/nuts, spices, cereals/grains, Oilseeds/Oils, fish/fisheries, textiles, auto, chemicals, rubber, tobacco, milk butter, sugar etc, where no tariff concessions have been granted. It has been done keeping in view domestic sensitivities & interest in agriculture sectors Question 11 The tariff lines that remain subject to duties are not insignificant. Tables A1.4 and A1.5 list the top 25 exports of each of the parties. After tariff reductions, many of these major exports remain subject to duties. In several cases, tariff cuts will affect less than half of the number of lines that cover the major exports. If it is correct, how are the parties benefitting from this agreement on the tariff side given the agreement s significant tariff exclusions? Response: Tariff exclusion was mainly found under Chapter 1-24 (agricultural goods) while Chapter (industrial goods) give better preferential access. Despite the tariff exclusions, total trade between ASEAN and India has increased substantially, from US$ 39.1 billion in 2009 to US$ 58.6 billion in 2015 (based on ASEAN statistics), whereas according to India s statistics, India s trade with ASEAN has increased from US$45.34 billion in to US$ billion in Furthermore, ASEAN trade with India has increased substantially from US$ 12.1 billion in 2002 to US$ 58.6 billion in 2015 Question 12 The Secretariat report includes graphs that display trade between the parties. Chart 1.1 seems to indicate that at least two ASEAN countries (Philippines and Singapore) actually export less to India than they did before the agreement entered into force. Chart 1.2 indicates that India s trade with ASEAN is generally the same as it was at the time of entry into force. Are the Parties contemplating additional tariff elimination to spur increased trade? Response: Additional tariff elimination under the India-ASEAN Trade in Goods Agreement is not on the Agenda as of now. Moreover, sometimes increase in trade cannot be the single yardstick to measure the performance of a FTA. There may be several factors impacting the trade.

5 - 5 - Question 13 The report notes that the agreement includes provisions that allow for future negotiation of product-specific rules of origin. The report also notes that no such negotiations have taken place since the agreement entered into force. Have the Parties conducted any analysis that would support changes to the rules of origin which might help stimulate trade between the parties? Response: In future dates Parties may conduct the analysis as part of the review of the Agreement to help stimulate trade between the Parties. Question 14 Since implementation of the Agreement, have the Parties modified or augmented their commitments, for example by adding specific commitments related to non-tariff barriers? Are there any plans to do so in the future? Response: The ASEAN-India Trade in Goods Agreement came into effect in Since its implementations in 2010, Parties have come a long way in enhancing and promoting the trade. However, as of now, no Parties have added specific commitments related to non-tariff barriers Given the dynamic trade environment, it is a challenging task to agree to adding specific commitments related to non-tariff barriers by 11 nations that have been developing at different paces. In today s context it is more important to have discipline on non-tariff issues and hence it would be more appropriate to address them as non-tariff measures than as non-tariff barriers. As the world is moving towards reduction of tariffs to promote trade, it may be more pertinent in future to consider having special commitments relating to non-tariff measures. The changing trade and regulatory environment would be a few governing factors. Question 15 Have any Parties applied the bilateral safeguard mechanism in Article 10? If so, which Parties and for which products? Response: None of the parties to the Agreement has used the bilateral safeguard mechanism so far. Question 16 The Enabling Clause states that such agreements shall be designed to facilitate and promote the trade of developing countries. In light of the issues identified by the United States in these questions, how is the Agreement doing this? Response: Since India-ASEAN FTA is between Developing Countries, the same meets the requirement of the Enabling Clause. Facilitating and promoting the trade between the Parties is performed through liberalization of tariff and non-tariff measures. General Provisions of the Agreement Question 17 Paragraph 4.6 provides information on the process for amending the agreement. Have there been any proposals for amendments? If so, what have the topics of those amendments been? Has the Joint Committee met? If so, how often? What have been the topics of discussion? (Paragraphs 4.7 and 4.8)

6 - 6 - Response: Parties to ASEAN-India Trade in Goods Agreement have agreed for review of the Agreement and the Scope of Review of the AITIG Agreement includes: (i) implementation issues; (ii) facilitation measures; (iii) to take into account other negotiations on further liberalisation of trade in goods; (iv) sharing and exchanging of trade data and; (v) promoting AITIG Agreement to the stakeholders. However, considering that ASEAN Member States (AMS) are intensifying efforts to conclude RCEP negotiations, as well as the need to take into account the outcomes of RCEP, AMS has agreed to defer the review of the Agreement. The Joint Committee, in terms of Article 17 of the Agreement, has not yet been constituted. Question 18 Please clarify which provisions of the ASEAN-India FTA are subject to the dispute settlement mechanism. We understand that the tariff reductions and bilateral safeguards are covered by dispute settlement. What about SPS, TBT, agricultural safeguards, safeguards for balance of payments, subsidies and state-aid, and customs procedures? Response: Article 2 (Coverage & Application) of the Agreement on Dispute Settlement Mechanism (DSM) and Article 18 (Dispute Settlement Mechanism) of Agreement on Trade in Goods under India-ASEAN CECA specify that unless otherwise provided in this agreement, any dispute concerning the interpretation, implementation on application of this agreement shall be resolved through the procedures & mechanism as set out in the ASEAN-India DSM agreement. Bilateral Safeguard (Article 10) & Customs Procedures (Article 14), Non-Tariff Measures, including SPS & TBT under Para 2 of Article 8 and Measures to Safeguard the Balance of Payments (Article 11), are covered under DSM. However, the scope & coverage and the forum will be as for Paras 5 & 6 of Article 2 of DSM under the India ASEAN CECA. There is no chapter on subsidies and state aid under AIFTA Agreement on Trade in Goods. Question 19 Paragraph 4.9 provides information about which dispute settlement mechanism (DSM) will prevail if there are conflicts between the DSM and any special and additional rules and procedures for dispute settlement in other agreements. What are the conflicts that exist between the DSM and these other agreements? Response: No conflicts have existed between the DSM and the other agreements. This is a catch all clause and would be useful in case of conflict in procedure between the two Parties, when the trading partners have the bilateral FTA as well as the plurilateral FTA like India-ASEAN CECA. Question 20 Have any of the parties invoked the dispute settlement procedures? How many consultations have been requested? How many panels have been established? (Paragraphs ) Response: None of the parties to this Agreement has invoked the dispute settlement procedure under the agreement so far. Question 21 What is the role of the Liaison Office and why have the offices not been set up? (Paragraph 4.11) Response: Article 3 of DSM under ASEAN-India CECA provides for Liaison Office. Role of the Liaison Office has been stated therein. For India, the Liaison office for the stated purpose is the

7 - 7 - Department of Commerce in the Ministry of Commerce & Industry, Udyog Bhavan, New Delhi. For ASEAN, no Liaisons Office has been set up. Question 22 Paragraph 4.18 describes the relationship between this agreement and other agreements. We are aware that ASEAN, India and ASEAN s other +1 FTA partners are in the process of negotiating the Regional Comprehensive Economic Partnership (RCEP). What is the plan for how the existing ASEAN+1 agreements, such as the ASEAN-India FTA, will be treated once the RCEP negotiations are concluded? Will the existing agreements continue to exist or will they be replaced by RCEP? Response: ASEAN +1 FTAs are considered as building block toward wider scope of ASEAN FTA under RCEP. The ASEAN-India FTA would co-exist with the Regional Comprehensive Economic Partnership (RCEP) Agreement, once the latter is operationalized. The proposed RCEP Agreement would build upon the existing ASEAN-India FTA. Question 23 Why did the parties not notify the Agreement under GATT Article XXIV? Response: Vide WT/COMTD/N/35 dated 23 August 2010 and WT/COMTD/N/35/Add. 1 dated 31 May 2012, India-ASEAN Trade in Goods Agreement was notified to the WTO, under Paragraph 4 (a) of the Enabling Clause, as per the differential and more favourable treatment accorded to developing countries under the Decision of 28 November 1970 (L/4903). The Framework Agreement of India-ASEAN FTA was also notified vide WT/COMTD/N/35 dated 23 August 2010 and WT/COMTD/N/35/Add. 1 dated 31 May Question 24 Were parties to the agreement concerned that their agreement, which lacks significantly in tariff reduction and elimination, would not satisfy the substantially all trade test? Response: ASEAN-India FTA is classified as an FTA concluded between developing countries. Hence, it could apply GATT decision promulgated on 28 November 1979, which is called the Enabling Clause. The Enabling Clause provides an exemption from the MFN requirement in GATT Article 1 with respect to regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs. The Enabling Clause states that developing countries are not required to liberalize substantially all of their trade as long as FTAs between developing countries offer mutual reduction or elimination of tariffs. Furthermore, Substantially all trade has not been defined in the WTO text nor clarified under WTO jurisprudence so far. Moreover, FTAs are signed between the Parties based on the negotiations keeping in mind various factors, including sensitivities thereof. Question 25 In the view of the parties, how does this agreement contribute positively to the multilateral trading system? Response: FTAs provide WTO plus provisions. These provisions may vary in their scope & coverage in different FTAs. Furthermore, all ASEAN +1 FTAs, including AIFTA, are aimed at building blocks toward the multilateral trading system. Question 26 When do the parties to this agreement that continue to maintain non-notified RTAs plan to notify them to the WTO, as required under the Transparency Mechanism? Response: India will notify them as explained in the responses for the Questions below.

8 - 8 - Question 27 Specifically, can the Parties explain why the ASEAN Framework Agreement on Services has not been notified? Response: This is a question on AFAS, which is not relevant with AIFTA Question 28 Can Thailand explain why it has not notified the Chile-Thailand FTA, or the Peru-Thailand early harvest? Response: The question is not relevant with AIFTA. Question 29 Can the Parties explain why they have not notified the Thailand- India early harvest Agreement? Response: The notification process is ongoing. Question 30 Can Malaysia explain why it has not notified the Malaysia Turkey Agreement? Response: The Malaysia- Turkey Agreement has been notified to the CRTA under Article XXIV Question 31 Can Indonesia explain why it has not notified the Indonesia- Pakistan Agreement? Response: Indonesia and Pakistan are still discussing on the notification process of this Agreement, and will notify it to the WTO once it has accomplished. Question 32 Can India explain why it has not notified the SAARC Agreement on Trade in Services? Response: The notification of the SAARC Agreement on Trade in Services (SATIS) will be proposed by all Member States and notified to the WTO.