Rules of origin in India s free trade agreements: a case study of India - Sri Lanka free trade agreement: ISLFTA

Abstract

Since 1980s, the adoption of two-track commitment to the free trade by way ofchampion.in g the multilateral trade while pursuing the preferential trade agreements, by major economies of the world has resulted in proliferation of preferential trading agreements with the proliferation of preferential trade agreements, Rules of Origin (ROO),Q - ==:?central market access tools in any trade agreement have also proliferated. ROO determine the nationality of goods in the international trade to subject them to various trade disciplines such as preferential tariffs and quotas. The main purpose of the ROO is to prevent trade deflection - to prevent the goods of the third country from entering the preferential area the through the PTA partner country with low external tariffs. Rules of Origin that were originally designed as neutral instruments to authenticate the goods for preferential treatment among the PTA partner countries have increasingly become complex. ROOs are turning into powerful trade policy instruments in guiding the investment and out sourcing decisions and are feared to cause distortionary effects. Therefore, there is an enhanced attention to ROO in the various preferential trading agreements. The purpose of this dissertation is four fold. (1) to provide a overview of the objectives, types of ROO and their effects around the world with special emphasis on ROO of India's PTAs; (2) to analyse the Indian experience with ROO with the help of the case study of ROO regimes in the first full fledged FTA of India, India Sri Lanka Free Trade Agreement (lSLFT A); (3) to decipher the pattern in ROO regimes in the major PT As across the world, specially the PTAs between the Northern and Southern partners and draw lessons from the experience; (4) to analyse the policy implications of various types of ROO that India is adopting in its PTA engagement and put forth policy recommendations for effective design and implementation of ROO protocols in India's PTAs. The methodology of this research is exploratory, adopting a case study method using both qualitative and quantitative approaches to study the ROO protocols in India- Sri Lanka Free Trade Agreement and sector specific issues in ROOs of ISLFTA to arrive at specific recommendation for the sectors' and the general recommendations for an effective ROO disciplines. The dilemma of the ROO regimes of the present times, whether ROO should be restricted as neutral trade policy instruments or should be used as developmental tools to promote regional integration and cooperation to meet economic as well as political and security needs is an issue that cannot be easily resolved. However, consensus is emerging that ROO regimes should promote integration of developing nations with the world economy. Finally, the dissertation puts forth policy recommendations for effective design and implementation for ROOs that are development friendly and truly trade creating.