India's Strategy for Economic Integration with CLMV

India's Strategy for Economic Integration with CLMV Dr. RAM UPENDRA DAS

Department of Commerce Ministry of Commerce and Industry Government of India

India’s Strategy for Economic Integration with CLMV


by

Dr. Ram Upendra Das


ISBN:81-7122-109-2

Published by: Department of Commerce Ministry of Commerce and Industry Government of India New Delhi © 2015

All rights served. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior notice to or permission from the Publishers.

Contents Foreword by Shri Rajeev Kher, Commerce Secretary, Government of India .....................................vii

Acknowledgements.............................................................................................................................ix Executive Summary............................................................................................................................xi Chapter 1:

Introduction.............................................................................................................1

Chapter II:

Why CLMV?: Rationale for Economic Integration between India and CLMV.....................................................................................................5

Chapter III: Where cooperation?: Potential Goods, Services and FDI Sectors with complementarities.........................................................................................21 Chapter IV: How?: RVCs-Stages of Production in Identified Sectors Relevant for India...................................................................................................25 Chapter V:

Integrated Approach: Trade in Goods & Services and O-FDI in RVCs ........31

Chapter VI: Challenges in the Existing Scenario.....................................................................37 Chapter VII: Insights gained from Stakeholders’ Consultations............................................41 Chapter VIII: What and How of Cooperation?: Policy Strategy and Recommendations-RVCs and an Integrated Approach...................................45 References

...................................................................................................................................55

Annexures

...................................................................................................................................57

Room No. 143, Udyog Bhawan, Tel.: 23063664 / Fax: 23061796 / E-mail : [email protected]

Acknowledgments Author is immensely grateful to Mr. Rajeev Kher, Commerce Secretary, GOI for getting this study initiated. Important insights received from Mr Ravi Capoor, Joint Secretary and Ms. Amrit Raj, Director, Ministry of Commerce and Industry, GOI are gratefully acknowledged. The study benefitted from valuable discussions during the InterMinisterial Meetings convened by the Commerce Secretary on 8 July 2014 and 10 March 2015 New Delhi including the submissions made by stakeholders and Ministries. Thanks are also due to Ms. Gamika Takkar for sincere research support, as well as Ms. Nitya Batra at the final stages of the study. The funding received from the Ministry of Commerce and Industry, GOI is also gratefully acknowledged. Thanks are also due to Mr. Tish Malhotra and Mr. Sachin Singhal for publication-related valuable technical support. However, usual disclaimers apply.

Executive Summary

I. Why CLMV?: Rationale for Economic Integration between India and CLMV

• G r e a t e r h e a d r o o m f o r e s t a b l i s h i n g commercial and economic linkages: Since CLMV are lesser developed economies, characterized with untapped potential for development, they offer more scope for scaling up economic linkages with India. They have also displayed tremendous GDP and GDP per capita growth dynamism in recent years. The development divide between the CLMV region and the rest of the ASEAN region is also evident. Thus, a better understanding of CLMV economies is needed, also as their developmental challenges are similar to India. • Imperatives of economic cooperation are even more pronounced due to locational proximity with India. These also reflect in lower transportation costs and time. • Cheap labour cost advantage in CLMV, open trade and FDI policy regimes and gradually improving infrastructure make CLMV an ideal setting for India to

harness the untapped economic potential that may exist in these countries. • CLMV are keen to collaborate with India also due to the fact that they do not get adequate support from other ASEAN members – this could be helpful in India’s negotiations in RCEP i.e. ASEAN+6 etc. as they look up to India for leadership. • Despite these advantages, the present India-CLMV economic linkages, both in trade and FDI, are considerably weak. • O n t h e o t h e r h a n d , t h e m a j o r multinationals are already present in CLMV and there is a downside risk that India may miss the bus in terms of harnessing perhaps the last opportunity in terms of labour-cost arbitrage. • There are several sectors in CLMV that have been identified as focus sectors by the CLMV governments such as agroprocessing, oil and gas, pharmaceuticals, wood and timber, light engineering, garments, automobiles, education, IT, SMEs, tourism, skill development. These need to be taken cognizance of.


• It has also been found that one of the most important ingredients of setting up business is skill availability and there exists considerable skill complementarity between India and CLMV in terms of skill availability in India matched with unavailability in CLMV.

II. Where Cooperation?: Potential Goods, Services and FDI Sectors with Complementarities • Various methodologies have been used to identify potential sectors for cooperation and building RVCs between India and CLMV. These include Dynamic RCA, Intra-Industry Trade, Cosine Index, Stakeholders’ Consultation, and secondary material. In doing so, by combining goods, services and FDI, an integrated approach is adopted. • Potential sectors in goods’ trade and manufacturing are identified as Textiles and Garments, Processed Food, Electrical and Electronic Equipments, Pharmaceuticals, Gems and Jewellery, Marine and Seafood, Oil and Natural Gas, Automobile parts, Iron and Steel, Articles of Iron and Steel, Leather and Rubber and Rubber articles. • Potential sectors in trade in services are identified as Software and ICT Services, Telecommunication services, Capacity Building, Agri-Diagnostic services, Health, Financial services, Professional Services, Education, Transport , Tourism and Travel Related Services. • Potential sectors for India’s OutwardFDI (O-FDI) are identified as Marine Sector, Agriculture, Electrical and Electronic Equipments, Pharmaceuticals, Petroleum, Automobiles, Steel, Leather, Gems and Jewellery and Textiles and Garments.

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• These together provide the basis for combining the sectors from goods, services and O-FDI into one whole integrated framework. • The question where India could fit into the value chains was also identified through specific stages of production.

III. Challenges in the Existing Scenario Some of the major challenges confronting the India-CLMV economic relations include: • Information gap • Asymmetric • Inconsistent • Inadequate • Communication gap: limited interactions at various levels • Integrating SME in RVCs • Banking constraints • Capacity building/Skill development • Technical support • Facilitating O-FDI • Infrastructural constraints-Physical/ Digital/soft

IV. What and How of Cooperation?: Policy Strategy and Recommendations-RVCs and an Integrated Approach The underdevelopment of CLMV is a developmental opportunity for India is the backdrop in which this study has provided sufficient rationale for economic integration between India and the CLMV region. In doing so, the study has found that the present levels of economic linkages including trade and investment between the two remain weak and low. On the other hand, the study finds

E x ec u tive S u mmar y

enormous potential for a more heightened economic integration between India and the CLMV region in the domains of trade in goods, trade in services and FDI. Not only the sectors have been identified for this purpose in the study, they have also been placed in an Integrated Framework to enhance trade and investment flows as well as to tap skill complementarities so that regional value chains between India and CLMV could be created and strengthened. The study also finds that while there are enormous challenges that may have to be addressed, one of the important ways of utilising the CLMV’s economic space is by setting up manufacturing units in the region and access the Chinese markets through exports originating from CLMV under the China-ASEAN FTA. Given these, a summary of findings of the study for creating potential RVCs is presented in Table A. In the light of broad concluding insights that the study presents, some broad contours of India’s strategy for economic integration with the CLMV region are presented by way of Policy Recommendations. They are divided into two parts, viz. theme-specific and horizontal. For theme-specific recommendations one may refer to Table B.

Key Horizontal Recommendations

Policy

• Creating India-CLMV Convergence of Interests in Regional Trade Negotiations: India must engage CLMV as it wants India to play a more pro-active role. This is because these countries often do not get their voices heard in the ASEAN Caucus. Therefore, India-CLMV relations could be important bedrock for even the RCEP negotiations where India can get support from these countries. • Regional Value Chains (RVCs): Given the backdrop of India’s participation in RVCs being relatively low and the fact that

RVCs are not well-developed in CLMV, one of the prime strategies for India’s economic integration with CLMV region is to create RVCs. This is in contrast to the fact that RVCs have huge presence in ASEAN. Regional value chains entail relocation of production bases at different stages of production and manufacturing in different countries that are linked with services. The net outcome of such relocation is in terms of efficiency-seeking industrial restructuring. For this to be achieved, an integrated approach towards policy strategy is required. • Integrated Approach: Identified Sectors and Integrated Policy Responses: As the study has highlighted, instead of addressing issues for trade augmentation and increase in FDI in an isolated manner, we need to adopt an integrated approach. For this to happen, trade in goods, trade in services and especially India’s outward FDI to CLMV region need to have integrated policy responses whereby interlinkages across these are well recognised. In addition, these would have a bearing on the evolving policy responses to interlinkages across sectors in the realms of agriculture, manufacturing and services. These need to be further aligned with the national level focus sectors in the CLMV region in order to harness inter-sectoral complementarities between India and each country of the CLMV region. • Alignment of India’s Commercial Interests with CLMV’s Policy Focus: India must economically integrate with the CLMV also due to enormous comparative advantage and developmental experience that exist in India in areas that are identified as focus sectors as part of the respective national vision of each of the countries of the CLMV region. There are several sectors that qualify for such economic

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xiv Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. Transport & infrastructure: Internal Waterways- Passenger & Freight transportation, Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services, Rail- Passenger &Freight transportation, Pushing towing services, Maintenance & repair of rail equipment, Road- Passenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment.

Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. Transport & infrastructure: Internal Waterways- Passenger & Freight transportation, Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services, Rail- Passenger &Freight transportation, Pushing towing services, Maintenance & repair of rail equipment, Road- Passenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment.

Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. T r a n s p o r t & infrastructure: Internal Waterways- Passenger & Freight transportation, Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services, Rail- Passenger &Freight transportation, Pushing towing services, Maintenance & repair of rail equipment, RoadPassenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment.

Trade Services

in

Textiles and Garments; Pharmaceuticals; Gems and Jewellery; Marine and Seafood; Automobile, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Rubber and Rubber articles; Pharmaceuticals, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Textiles and Garments; Gems and Jewellery; Automobile parts; Leather; Rubber and Rubber articles, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Trade in Goods

Myanmar

Laos

Cambodia

Focus Sectors/ Areas for India

Table A: Summary of Findings for Potential RVCs

Table A: continued...

Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. Environment and energy saving: conservation of nature and its resources; protection of environment from pollution, conservation of ecology; Community and Habitat Ecology; environmental economics; conservation of priority medicinal plants; pollution and rehabilitation of displaced people due to developmental activities; Environmental Sciences and Engineering; New and Renewable Energy; solar energy technology; energy-saving techniques in manufacturing and consumer durables

Textiles and Garments; Pharmaceuticals; Gems and Jewellery; Marine and Seafood; Automobile ; Leather; Rubber and Rubber articles, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Vietnam




Myanmar Telecommunication services: Voice telephone services, Packetswitched & Circuit-switched data transmission services, Telex services, Telegraph services, Private leased circuit services, Electronic mail, Voice mail, On-line information and data base retrieval, electronic data interchange (EDI). Financial services: Insurance and related, Banking. Tourism and Travel Related Services: Hotels and restaurants (incl. catering), Travel agencies and tour operators’ services, Tourist guides services Health: H o s p i t a l s e r v i c e s leading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.

Laos Education: Educational institutes, universities, English Language training centres, Social Science & Humanities, Medical Science , Management Education. Software and ICT Services: Computer software, Data processing services, Data base services. Professional/ Light Engineering Services: Legal Services, Accounting, auditing and bookkeeping services, Taxation Services , Engineering services , Urban planning and landscape architectural services Tourism and Travel Related Services: Hotels and restaurants (incl. catering), Travel agencies and tour operators’ services, Tourist guides services. Health: H o s p i t a l s e r v i c e s leading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.

Cambodia

Human Resource Development/ Capacity Building: Training of farmers, Training of extension personnel, Vocational training. Education: Educational institutes, universities, English Language training centres, Social Science & Humanities, Medical Science , Management Education. Tourism and Travel Related Services: Hotels and restaurants (incl. catering), Travel agencies and tour operators’ services, Tourist guides services Health: Hospital servicesleading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.


Health: Hospital servicesleading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.

Vietnam


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Indian OFDI



Laos Agriculture: Farm Mechanization: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. P h a r m a c e u t i c a l s : Pharmaceutical products mfg.: chemistry and process reengineering skills Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Cambodia

Oil & Gas: Oil and gas Exploration, Light Petroleum oils and preparations, Other petroleum oils and preparations. Agriculture: Farm Mechanization: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training Oil & Gas: Oil and gas Exploration, Light Petroleum oils and preparations, Other petroleum oils and preparations. Agriculture: Farm Mechanization: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. Pharmaceuticals: Pharmaceutical products mfg.: chemistry and process reengineering skills Textiles and Garments: Cotton, Silk, Wool, Manmade staple fibres, Manmade filaments, Articles of apparel, accessories, knit or crochet, Impregnated, coated or laminated textile fabrics Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Myanmar


Agriculture: Farm Mechanization: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. Electrical and Electronic Equipments: Electronic components, Motors, Sim Cards, Parts of Radio & transformers, Printed circuits, Transformers; Computer hardware: Disc Drives, Personal Computers, Smart cards ; Telecom: Mobile Phones, Telecom &Television Reception apparatus, optical fibre cable, Set Top box. Automobiles: Motorcycles with reciprocating piston engine d i spl a c i n g> 5 0 c c t o 2 5 0 c c , Automobiles with reciprocating piston engine displacing> 1000 cc to 1500 cc; > 1500 cc to 3000, Motor Vehicle parts, Drive Transmission, Engine Parts, Passenger & Commercial vehicles, Two-wheelers & Three wheelers Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Vietnam


Bamboo sector: Machinery with latest technology, including splitting process

Rubber and Rubber articles: Rubber planting techniques

Marine and Seafood: hygienic handling, sorting, weighing and packing fish, creation of storage facilities and modern equipments

Pharmaceuticals and Medicine: Doctors, Pharmacists, Nurses

Automobile parts: Mechanical engineers

I C T a n d Telecommunication: s o f t w a r e a n d telecommunications engineering

Bamboo sector: technology

Modern

Wood sector: Traditional sectors of carpentry, furnituremaking, construction

Rubber and Rubber articles: Lacks appropriate rubber development technology; most of the districts have unskilled labor

E l ectr ical and Electr o nic Equipments: Engineers and technicians

Textiles and Garments: High technology, fashion and management

Skills available in India and required by CLMV

Laos

Cambodia



Oil and Natural Gas: Experienced and skilled technicians in oil and gas exploration and development

Marine and Seafood: Modern technology

Gems and Jewellery: equipment and computer-aided manufacturing

Pharmaceuticals and Medicine: Dentists and pharmacists


ICT and Telecommunication: shortage of manpower (technicians) Marine and Seafood: Outdated preservation techniques; Development plans include adoption of advanced technologies and improved training for staff and technicians Oil and Natural Gas: Shortage of technical expertise Automobile parts: Rising labour cost for unskilled labour and the shortage of skilled engineers; Needs upgradation of skills and technology Wood sector: Outdated and unsynchronized machines and tools used for processing of natural wood, especially for the processing of fine products Bamboo sector: Needs capital and updated technology

Textiles and Garments: Human resource training of middle and high class management, technology, and fashion design are weak; Lack of skilled workers with experience in technology Processed Food: Currently, faces deficit in technical experts, lack of high-tech equipments; Imports modern equipments; The government is implementing several programs to enhance food (including Dairy) processing technologies.

Textiles and Garments: skilled textile workers ICT and Telecommunication: IT technicians, engineers

Vietnam

Myanmar


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xviii Increase investment in this sector to tap its full potential: Iron, aluminium, tin and copper

Increase investment in this sector to tap its full potential: gold, copper and base metals, iron ore and other industrial metals such as zirconium, graphite and titanium

Mining

Increase investment in this sector to tap its full potential: mineral fuels, such as coal, natural gas, and crude petroleum

Increase investment in this sector to tap its full potential: chromium, copper, gold, lead, silver, tin, tungsten, and zinc; industrial minerals, such as barite, clays, dolomite, feldspar, gypsum, limestone, precious stones, and salt;

Substitute Wood with Bamboo: Substituting bamboo with timber seems to be the most viable and green solution especially for the long run and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies.

Import from Malaysia: Increase wood imports from Malaysia. Although Malaysia does not offer teak, Indian importers will have to make do with other kinds of wood.

Myanmar

Use of equal Indian standards for testing stainless steel manufactured in India can be adopted and also request acceptance of these test reports by the authorities in Vietnam. Also, Indian agencies may be authorised to conduct testing and certification of Indian manufacturer importer in India as per standards prescribed and the result be accepted under the notification.


Import wood products from Vietnam and Laos in the CLMV region. These economies other than having location proximity can make use of the skilled labour and modern technology that India has to offer in exchange for supplying it high quality wood products and timber.

Vietnam

Sectors with Horizontal Implications across countries 1. Pharma: India should consider organising a “CLMV-India Health Care Seminar “in venue outside India (on the line of CLMV conclave done in India) to get the participation of the regulators and take the agenda of harmonisation of the health sector forward. 2. Processed Food: APEDA should take the lead to propose capacity building program for these countries to evolve their regulatory systems where the ESCAP/ ADB platform can also be considered in areas of organic export, Import control systems including the SPS/TBT protocols etc. 3. Rubber: Rubber Board should examine the possibility of investments in plantation sector to source rubber from CLMV especially Vietnam keeping in mind the future requirement of rubber in the auto industry. 4. Project Exports: EXIM bank should take up project exports also in the region as there is not much visible presence of India in this region.

Steel (w.r.t to an order requiring to announce the applying s t a n d a r d for goods in the relevant import contract for customs clearance)

Hydrocarbons

Import wood products from Vietnam and Laos in the CLMV region. These economies other than having location proximity can make use of the skilled labour and modern technology that India has to offer in exchange for supplying it high quality wood products and timber. Substitute Wood with Bamboo: Substituting bamboo with timber seems to be the most viable and green solution especially for the long run and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies.


Agriculture Timber (w.r.t to the ban on export of raw timber effective from April 1, 2014 in Myanmar)

Laos

Cambodia

Sectors

Sectoral Considerations India’s Strategy for Economic Integration with CLMV


Table B: Theme-Specific Policy Recommendations Focus Sectors/ Areas for India

Policy Recommendations

Trade in Goods

Prioritization of areas in identified Sectors for trade: Leather, Textiles, Garments, Oil and Gas, Engineering Use of equivalent Indian standards for testing stainless steel manufactured in India that can be adopted and also request acceptance of these test reports by the authorities in Vietnam. Also, Indian agencies may be authorized to conduct testing and certification of Indian manufacturer importer in India as per standards prescribed and the result be accepted under the notification. To combat the effect of ban on export of raw timber from Myanmar: Import wood from Malaysia, import wood products from Laos and Vietnam and substituting wood for bamboo and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies. Utilizing China-ASEAN FTA: Detailed empirical exercise identified products at HS 6 digit level which if exported by manufacturing in CLMV to the Chinese market under the China-ASEAN FTA in goods, additional export expansion to the tune of US$ 100 billion is feasible via normal track, sensitive track and highly sensitive track, combined. This can thus be an important component of overall strategy of India to integrate with the CLMV region especially harnessing the possibilities of manufacturing led exports from the CLMV region with the help of Indian OFDI. (Items that can be focused under this are identified as in Annexure 1)

Trade in Services

Relevant Service exports in the identified sectors: IT, especially in Myanmar, Offshore consultancy and onsite BPO, Urban development related services, transport, energy, engineering, architectural, Mode of services: both offshore project design and onsite project implementation and Health services

O-FDI

Have a national level O-FDI strategy, address protective dimensions of CLMV FDI regimes, Investment security/protection, Mechanism: discussion with counterparts and bilateral treaties, create business forum, web-portal, visa facilitation. Sectors: Leather and Footwear, Infrastructure, Oil, Mining, Pharma, Textile, power, automobiles. Partnership Framework Development for Infrastructure in CLMV Countries: The concept of Project Development Company (PDC) for the CLMV is basically conceived to optimize on the existing Trade Institutions/infrastructure in these countries to get access to countries/ region where India does not have presence. India can also work on the space and opportunity which is being developed in these countries because of China moving out from the lower manufacturing segment. In addition, there are apprehensions about China in some of these countries on which India can capitalize because of its proximity to the region. The PDC can, therefore, anchor in these countries for the first mover advantage especially in trade and commerce sectors of potential interest to India in which we can integrate into the regional value chains. EXIM Bank should do a seminar with the identified sectors keeping the PDC contours in mind. The seminar can consider inviting the economic administrators from these countries to also familiarise them with the PDC project.

Skills

Capacity building and technical support: Efforts should be made to have a dedicated programme on capacity building for the CLMV countries’ officials, entrepreneurs and academia on various issues of international economic linkages and negotiations. Collaboration between Indian vocational training institutions and young workforce in CLMV countries also needs to be worked out to harness the full potential of creation of RVCs.

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I ndia ’ s S trateg y for E conomic I ntegration with C L M V

interactions between India and the CLMV region including Agricultural and seafood processing, Agricultural machinery, Oil and gas exploration, Extraction and export of metals, Small and Medium Enterprises, Labour-intensive industries, Processing and manufacturing industries such as Pharmaceuticals and healthcare, Wood and timber industry, Garment industries, Electronics, Ship-building, Manufacture of automobiles and spare parts, and Service sectors that include Transport, infrastructure and telecommunications, Energy and electricity, Tourism, Human resource development, education, Information Technology (IT), Light engineering, Financial Services, Banking and Insurance, Electricity generation and Environment and energy-saving services. • Integrating the SME involvement in RVCs: Three-pronged Strategy

• Increasing presence of Indian banks: No amount of commercial and economic linkages especially in the framework of RVCs would be possible without enhancing the number of Indian banks present in CLMV in their full-fledged form rather than just being representative offices. • Bridging information gap: In order to address information gap, its asymmetry, inconsistency and inadequacy, it is important that a dedicated web portal on India-CLMV economic linkages is created. • Outreach Programme: RIS and FIEO could organise 5-6 outreach events to familiarise issues and potentials in IndiaCLMV economic cooperation, especially keeping in mind the PDC related issues.

It would be important to integrate the employment-intensive SMEs in RVCs through India-CLMV economic integration. This could be achieved with a three-pronged strategy:

•

◊ Linking SMEs with large companies locally and the latter gets engaged in O-FDI

• Time frame: One year / Interim strategy in six months

◊ Linking SMEs with MNCs in CLMV ◊ Linking SMEs on a stand-alone basis

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with their counterparts in CLMV

Joint ventures for digital and physical connectivity: The suggested PDC could also focus on initiating joint ventures in different areas of digital and physical connectivity.

India’s strategy needs to be set in place in an year’s time with the interim strategy including the PDC evolved in six months’ time.

I

Introduction

Historically, India and Cambodia, Laos, Myanmar and Vietnam (CLMV) region has had civilisational, cultural and economic relations since ancient times. People, goods, capital and ideas have travelled between India and the CLMV countries over a long period. However, these linkages today are characterised by untapped potential. It is noticed that while there is a development. divide between the CLMV region and the rest of the ASEAN region, India’s Look East policy has also not focused adequately enough in terms of IndiaCLMV economic integration. The trade and FDI linkages of India are asymmetric between the CLMV region and the rest of the ASEAN region. It is also important to highlight that India’s trade and FDI linkages are asymmetric even within the CLMV region with relatively stronger linkages vis-à-vis Vietnam and Myanmar. This presents with an opportunity for greater economic integration between India and the CLMV region. However, this would have to be situated in the realities of underdevelopment of the CLMV region and the production networks that have got evolved in the South-east Asian region.

The ASEAN region as a whole is characterized by the presence of strong production networks and Regional Value Chains (RVCs) both within and outside the ASEAN. On the other hand, India is almost left out of any significant regional value chains in its neighbourhood. It is now a common knowledge that regional value chains in different sectors act as a driver for regional economic integration, especially given the experiences in the South-east and East Asian regions. These are accomplished through private sector-driven flows of trade in goods, trade in services, FDI and movement of natural persons facilitated by conducive policy regimes. Such endeavours unleash a dynamic process that creates positive developmental pressures on forging better infrastructural linkages. They also bring to the fore the imperatives of addressing behind the border and non-trade issues including trade facilitation, border trade, visa facilitation, customs procedures, regulatory regimes, etc. in order to exploit potential economic complementarities. Thus, the evolution of regional values chains go beyond mere trade and investment integration but offer important avenues for a comprehensive economic integration across countries.


The regional value chains, though present, have somewhat bypassed the CLMV region when compared to the rest of the ASEAN. Thus, the situation in India and the CLMV is not very different from the point of view of regional value chains. The CLMV region can also be viewed as offering significant factor cost advantages and labour cost arbitrage possibilities, in India’s quest for developing regional values chains. Given this and the development deficit in CLMV countries along with India’s need to create advantageous regional value chains in different sectors, it is only natural that India focuses on the geographically proximate CLMV region in terms of economic integration.

I.2 Objectives It is against this backdrop that the proposed study has the following objectives: • Identifying potentials and challenges in regional value chain creation between India and CLMV region encompassing trade in goods, trade in services and FDI. • Other issues of cooperation including infrastructural connectivity, behind the border issues and non-trade issues. • Recommending an appropriate policy and institutional framework for economic integration between India and CLMV through creating regional values chains.

I.3 Issues In order to achieve the above mentioned objectives, the proposed study focuses on the following issues: • Analytical basis of regional value chain encompassing trade in goods, trade in services, FDI, movement of people and connectivity. • Present status of regional value chains in the CLMV region.

2

• Existing trade and investment linkages between India and CLMV. • Assessing the potential for India-CLMV economic integration and regional value chain creation • Identifying constraints on economic integration and regional value chain creation. • Addressing other issues including infrastructural connectivity, behind the border and non- trade issues • M a k i n g p o l i c y s u g g e s t i o n s f o r augmenting India-CLMV economic integration through an institutional framework that facilitates regional value chain creation. Against this backdrop, the rationale for economic integration between India and CLMV are provided in Section II. This section tries to answer the question as to why India should be integrating economically with the CLMV region. The areas for potential economic integration are identified with the help of various methodologies in Section III. In doing so, an integrated approach towards trade in goods, trade in services and FDI has been adopted. While the potential sectors have been identified on the basis of deploying several research techniques, in order to make them more business-friendly and policy-oriented extensive sectoral stakeholders consultations involving both policymakers and the private sector representatives were held in India, Myanmar and Vietnam. Based on the preceding analysis, the conceptual basis of RVCs and India-CLMV integration in identified sectors for creating RVCs is elaborated in Section IV. In a novel attempt, considering that trade in goods, trade in services and FDI cannot be viewed in isolation, an integrated approach towards these within the framework of RVCs is presented in Section V. The specific structure and policy constraints that are expected to come in the way

I ntrod u ction

of India-CLMV economic integration process have been identified and are summarised briefly in Section VI. In this backdrop, Section VII dwells on evolving a strategy for India for

economic integration with the CLMV countries. Broad conclusions and policy recommendations are presented in Section VIII.

3

II

Why CLMV?: Rationale for Economic Integration between India and CLMV

In this section we try to provide arguments in favour of more strengthened economic integration between India and CLMV. As it would be evident, there are various reasons why India must evolve a national level strategy for integrating with the CLMV region.

II.1 More headroom for establishing commercial and economic linkages One of the main reasons for establishing greater commercial and economic linkages between India and CLMV is due to the fact that there is much untapped headroom. This is based on several major observations. First, the CLMV region is lesser developed. The underdevelopment of CLMV is a developmental opportunity for India. Second, these economies have shown tremendous growth dynamism, both in terms of annual growth in GDP and GDP per capita. This is especially important given the fact that since 2008 countries are mostly adversely affected by the global economic meltdown, more so for these countries as they have market size constraints and, are therefore; quite dependent on their external economic linkages covering trade and investment, among others (Table 1).

Third, it has been empirically demonstrated that the underdevelopment of CLMV region vis-a-vis rest of the ASEAN region has been enormous and on various variables, such as level of GDP, quality of life, social infrastructure, poverty profiles, the gap between the former and latter has remained wide (Das 2009). Finally, the developmental challenges of CLMV region are quite similar to India, on various dimensions that include poverty alleviation, inequality reduction, scaling up health and educational facilities, relieving infrastructural bottlenecks and balanced sectoral development across agriculture, industries and services.

II. 2 Weak economic linkages between India and CLMV In this section, we present a synoptic view of existing economic linkages between India and CLMV especially in realms of trade in goods and FDI. These would serve as additional rationale for greater trade and FDI linkages between the two.

II.2.1 Trade Linkages India’s trade has risen exponentially to CLMV since 1990 (Table 2). While exports from India


to CLMV rose from a meagre US$ 11 million in 1990 to US$ 6.14 billion in 2013, imports increased from US$ 150 million to US$ 4.33 billion during the same period. However, the bilateral trade relations with individual countries is quite asymmetric with most of the trade linkages accounted for by Vietnam and followed by Myanmar, calling for a course correction through direct policy measures that focus relatively more on Cambodia and Laos in terms of tapping trade complementarities as well as create a broader set of trade complementarities, possibly through evolving RVCs.

II.2.2 Trade Trends The bilateral trade trends offer some additional insights (Figures 1 and 2). In terms of India’s exports to the CLMV as a whole, most of the recent export dynamism is accounted for by Vietnam as destination, whereas Vietnam is followed by Myanmar as dynamic sources of imports. India’s trade surplus has shown an upward trend since 2000 (Figure 3).

II.2.3 Mutual Importance It is discernible from Table 3 that the mutual importance of India in CLMV and vice versa is insignificant in terms of both exports and imports, suggesting enormous bilateral trade potential, with some exception in the case of Myanmar’s exports to India.

II.2.4 Sector-wise Trade The export and import composition of India’s bilateral trade with individual CLMV countries present a very common but disheartening picture (Table 4). In most cases, trade basket is very concentrated across low value items, more so in terms of India’s imports from them. This may suggest very low export supply capacities in these countries, which could serve as an argument for building RVCs across them, converting them into significant FDI-led export platforms. Vietnam does appear to be an exception in terms of diversification to a small extent but surely not in terms of high volume export supply capacities.

Table 1: Macro Profile of CLMV countries for 2012 Macro Indicators

Cambodia

Lao PDR

Myanmar

Vietnam

Population (Total in million)

14.86

6.65

52.80

88.77

GDP (constant 2005 US$ billion)

9.98

4.70

22.85

87.53

GDP growth (annual %)

7.26

8.20

6.3

5.25

GDP per capita (constant 2005 US$)

671.64

707.41

433.00

986.01

GDP per capita growth (annual %)

5.39

6.17

5.4

4.14

Overall Trade of goods and services (constant 2005 US$ billion)

16.82*

3.98

18.01*

141.21

Trade (% of GDP)

113.58*

84.68

0.2*

156.55

Source: World Bank, World Development Indicators 2014. Notes: a) *Data is for 2011; b) Data for Myanmar’s GDP, GDP growth rate, GDP per capita and GDP per capita growth rate has been taken from UNCTAD 2013, Overall Trade and Trade as a per centage of GDP is obtained from Asian Development Bank Indicators 2013-2014; c) Trade is the sum of exports and imports of goods and services representing the value of all goods and other market services received from and provided to the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments.

6

W h y C L M V ? : R ationale for E conomic I ntegration between I ndia and C L M V

Table 2: India’s Exports to and Imports from CLMV (Amount in US$ Million) Country

Partner

India

Cambodia

India

Laos

India

Myanmar

India

Vietnam

India

CLMV

Trade

1990

2000

2010

2013

Exports

1.31

7.9

61.07

122.13

Imports

0

1.03

7.68

12.64

Exports

0.07

5

8.23

45.52

Imports

0.37

0

20.04

111.73

Exports

1.43

48.05

273.26

673.70

Imports

90.14

179.18

1121

1372.73

Exports

8.26

208.03

2485.12

5302.62

Imports

59.48

12.18

996.62

2838.08

Exports

11.07

306.33

3275.42

6143.98

Imports

149.99

192.39

2145.34

4335.19

Source: Based on IMF DOTS 2014.

The threshold value of India’s exports and imports is often below the threshold level of US $50,000 and is thus, represented by 0. The data suggests that the export/import trends are very erratic. For instance, exports of coffee, tea, mate and spices to Cambodia were there in 2007 and 2008 but not there after that, whereas in case of Laos, imports of ores, slag and ash started only in 2010.However, in most cases, major items of exports/imports show the feature of consistently being exported/imported with

very few exceptions. In addition, we observe that the exports are very low in value terms showing that there is far more potential in these areas taking further the case for creating RVCs.

II.3 FDI Linkages India’s FDI Outflow vis-a-vis CLMV countries Due to data limitations, it is quite difficult to obtain the extent and direction of India-CLMV FDI linkages, especially on the front of India’s

Figure 1: India’s Imports from CLMV (US$ Million) 4500.00 4000.00 3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 MYANMAR

CAMBODIA

LAOS

VIETNAM

CLMV

Source: Based on IMF DOTS 2014

7


Figure 2: India’s Exports to CLMV (US$ Million) 6500.00 5500.00 4500.00 3500.00 2500.00 1500.00 500.00 -500.00

2000

2001

2002

MYANMAR

2003

2004

2005

2006 2007

CAMBODIA

2008

LAOS

2009

2010

VIETNAM

2011

2012

2013

CLMV


Table 3: Relative Trade Shares Figures in per centage Country

Partner

Cambodia India

Laos

India

Myanmar India Vietnam India

India

India

India

India

Cambodia

Laos

Myanmar

Vietnam

Relative Trade

2000

2010

Exports to India as a proportion of total exports

0

0.013

0.0145

Imports from India as a proportion of total imports

2.57

0.651

1.072


0.527

0

0.829


0.054

0.797

0.253


10.816

8.225

15.79 3.022


0.216

1.738


0.804

0.326

1.42


0.152

1.14

2.114

Exports to Cambodia as a proportion of total exports

0.007354

0.018533

0.027395

Imports from Cambodia as a proportion of total imports

0

0.00205

0.00219

Exports to Laos as a proportion of total exports

0.0003

0.011

0.004

Imports from Laos as a proportion of total imports

0.0015

0

0.0057

Exports to Myanmar as a proportion of total exports

0.008

0.113

0.123

Imports from Myanmar as a proportion of total imports

0.376

0.356

0.139

Exports to Vietnam as a proportion of total exports

0.046

0.488

0.115

Imports from Vietnam as a proportion of total imports

0.247

0.242

0.284


8

1990


Table 4: Composition of Trade India- Cambodia

India- Laos

India-Myanmar

India -Vietnam

Pharmaceutical Products


Residues, wastes of food industry, animal fodder

Meat and edible meat offal

cotton

Articles of iron or steel


Fish, crustaceans, molluscs, aquatic invertebrates


Nuclear reactors, boilers, machinery etc.

Iron and Steel

Oil seed, oleagic fruits, grain, seed, fruit, etc.

Manmade staple fibres

Electrical, electronic equipment

Articles of iron or steel


Nuclear reactors, boilers, machinery etc.

Vehicles other than railway, tramway


Cereals

Animal, vegetable fats and oils, cleavage products, etc.

Ores, slag and ash

Edible vegetables and certain roots and tubers


Edible fruit, nuts, peel of citrus fruit, melons

Wood and articles of wood, wood charcoal

Nuclear reactors, boilers, machinery, etc

Major Item of Exports

Major Item of Imports

Iron and steel

Rubber and articles thereof Coffee, tea, mate and spices


FDI outflows. As Table 5 suggests, India’s FDI to CLMV presents a dismal picture by being very low and directed to sectors (except agro processing) that are important but not so from the point of view of the RVCs, which is the prime focus of this study. This only points to the fact that RVCs have not been the focus of Indian FDI to these countries, highlighting the importance of this study, given that the analytical literature considers FDI as one of the important determinants of RVCs. The investment projects, joint ventures and lines of credit, all point to the same tendency. According to Exim Bank’s study (2013), during April 1996-March 2012, India’s direct investments in CLMV region amounted to approximately US$ 700 million with Vietnam receiving bulk flows. However, in a more

recent study, it has been established that India’s investment has been consistently rising in this region and is currently valued at US$ 1100 million in the form of both joint ventures and wholly owned subsidiaries. The oil and gas sector in Myanmar has been the focus area with consistent investments throughout the period with a peak in 2013. Similar trend is observed in the case of Vietnam with processed food sector receiving steady investments. This observation is consistent with our findings that except processed food sector, India’s FDI to CLMV countries has not been in the areas crucial from RVCs perspective. In order to promote bilateral relations and strengthen regional commercial relations, Exim Bank has extended 17 LOCs amounting US$ 558 million to the CLMV countries. 9


Table 5: FDI Stock for 2012 (Amount in US$ Million) FDI Stock (up to 2012)

Cambodia

Laos

Myanmar

Vietnam

Inward Stock from the world

8413

2483*

11910*

72530*

India's outward stock

10.05

0.25

11.48

2.60

Source: UNCTAD World Investment Report, 2013; RBI Data on Overseas Investment. Note: * Estimates; Data from RBI not available before June 2011 in public Domain.

II. 4 CLMV Focus Sectors Another reason why India must economically integrate with the CLMV is due to the enormous comparative advantage and developmental experience that exists in India in areas that are identified as focus sectors as part of the respective national vision of each of the countries of the CLMV region. As evident from Table 6, there are several sectors that qualify for such economic interaction between India and the CLMV region. It may be emphasized that the CLMV region is quite rich in natural and mineral resources, including hydrocarbons. Some of the include gold, copper and base metals, iron ore and other industrial metals such as zirconium, graphite and titanium (Cambodia), Iron, aluminium, tin and copper (Laos), chromium, copper, gold,

lead, silver, tin, tungsten, and zinc; industrial minerals, such as barite, clays, dolomite, feldspar, gypsum, limestone, precious stones, and salt (Myanmar).

II.5 Cheaper labour cost advantage in CLMV One of the main reasons why India must look at CLMV for manufacturing projects is due to the fact that CLMV countries possibly provide the last opportunity for labour cost arbitrage in India’s extended neighbourhood. This is quite evident from Table 7 where wage rate comparisons suggest that all the CLMV countries have lower wage rates as compared to India. What is more, they are considerably lower when compared to wage rates prevailing in China. This is important because this

Figure 3: India’s Trade deficit/surplus with CLMV (in US$ million) 2000 1500 1000 500

Source: Based on IMF DOTS 2014.

10

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

-500

1990

0


Table 6: CLMV Countries’ Vision / Focus Sectors Cambodia

Laos

Myanmar

Vietnam

Agriculture and Mining Agriculture and agroindustry Oil & Gas, Mining

I. Agriculture and Mining Agriculture Mining

I. Agriculture and Mining Agricultural and seafood processing Agricultural machinery

II. Manufacturing Small and Medium Enterprises Labor-intensive industries Processing and manufacturing industries

II. Manufacturing Small and Medium Enterprises Agro processing Food processing sectors Pharmaceuticals and healthcare Wood and timber industry

I. Agriculture and Mining Agro-tech Mining, Hydrocarbons Oil and gas exploration Extraction and export of metals

III. Services Transport, infrastructure and telecommunications Energy and electricity Tourism Human resource development, education

III. Services Tourism Education Information Technology (IT) Infrastructure Light engineering

II. Manufacturing Pharmaceuticals and Healthcare Garment industries Small and Medium Enterprises III. Services Transport Infrastructure Telecommunication services Financial Services Tourism Banking and Insurance Electricity generation

II. Manufacturing Electronics Ship building Manufacture of automobiles and spare parts III. Services Environment and energy saving

Source: Royal Government of Cambodia, Ministry of Planning, April 2013; Ministry of Commerce, Cambodia; Myanmar’s Foreign Investment Law 2012; Ministry of Planning and Investment, Investment Promotion Department, Lao PDR; Vietnam Draft Industrialisation Strategy.

has already spurred a spate of relocation of industries from China to the CLMV region and it is quite obvious that India too must take advantage of the available production space in the CLMV region.

II.6 Lower Land Prices Land prices are a major determinant of setting up any new industries in any country. Despite data difficulties it was somewhat possible to compare land prices in certain representative areas in India and the CLMV region. The fact

that land prices are lower than India, although not in all cases, is the inference that one can draw from Table 8.

II.7 Location proximity with India Yet another rationale provided for enhanced India-CLMV economic integration is embedded in the fact that the CLMV region is characterised by lower transportation costs and time (Table 9). Further access to major industrial areas in CLMV to ports and harbours is quite easy, both in terms of distance to be travelled and 11


Table 7: Wage Rate Comparison ( in US$/Year, at Current Prices )

2000 874.63

Cambodia Laos Myanmar Vietnam India China

2005

2007

2009

2010 960**

439* 13.51# 802.17 1356.38

31.89# 1794.47 1915.35

132.74# 1338.73 2351.99 2898.71

1844.81 2461.29 4915.34

674.76** 2009.73 5550.95

Source: 1. Author’s own calculations using UNIDO Database 2. * Data on Laos has been obtained from World Bank Report on Laos (2012) 3. # Data on Myanmar from LABORSTA, ILO, is wage rate per hour for men only in Kyat. 4. ** For the year 2014 sourced from ‘Comparative Wages in Selected Countries’, Department of Labor and Employment, National Wages and Productivity Commission. It may be noted that these are Minimum Wages as on 31 March 2014

time taken (Table 10). This means that any industrial activity in the industrial region need not be for the respective domestic markets but also for making them export platforms and reaching the regional and global markets at a much faster pace.

II.8 Skill Complementarity An attempt was made to match skill availability in India with those of the CLMV, in some of the major sectors wherein possibilities of greater economic linkages may exist. It is quite

amply demonstrated in Table 11 that there is tremendous complementarity in terms of skills/personnel/technology in a wide range of sectors including textiles and garments, processed food, electrical and electronic equipments, ICT and telecommunication, pharmaceuticals and medicine, gems and jewellery, marine and seafood, oil and natural gas, iron and steel, articles of iron and steel, leather, rubber and rubber articles, wood sector and bamboo sector.

Table 8: Land Prices in India and CLMV Country Cambodia Laos Myanmar

Vietnam

India

Industrial Zone Prime Locations

2.5

Lower quality areas

≤2

Vientiane (prime areas)

3-5

Other areas

≤0.5

Yangon

0.26-0.36

Thang Long

0.75

Noi Bai

0.45

Binh Xuyen

0.25

Pho Noi A

≈0.25

Falta SEZ

0.91

Kandla SEZ

2.07

Cochin SEZ

1.79

Source: Data collected from various sources.

12

Land Rental (US$ per sq.m per annum)


Table 9: Transportation time Between India and CLMV Indian Ports

Chennai Terminal

Kolkata (Calcutta) Terminal

Vishakhapatnam (Andhra Pradesh)

Mumbai (Maharashtra)

Cochin (Kerala)

Partner Country (Ports)

Time taken

Distance (in Kilometres)

Cambodia (Sihanouk Ville Terminal)

10 Days, 6 hours

4691.116

Cambodia (Phonm Penh) Myanmar (Yangon)

10 days, 9 hours 4 days, 8 hours

4841.128 2120.54

Vietnam (Ho Chi Minh Terminal)

11 Days

4870.76

Vietnam (Haiphong Terminal) Singapore (Singapore terminal)

14 Days, 5 hours 7 Days, 9 hours

6461.628 3502.132

Thailand (Bangkok Terminal)

11 Days, 5 hours

5124.484

Cambodia (Sihanouk Ville Terminal) Cambodia (Phonm Penh) Myanmar (Yangon)

11 Days, 1 hour 11 Days, 4 hours 4 Days, 1 hour

4926.32 5076.332 1805.7


11 Days, 5 hours

5104.112

Vietnam (Haiphong Terminal) Singapore (Singapore terminal) Thailand (Bangkok Terminal)


6696.832 3737.336 5359.688


11 Days, 1 hour

4926.32

Cambodia (Phonm Penh) Myanmar (Yangon)

11 Days, 4 hours 4 Days, 1 hour

5076.332 1807.552


11 Days, 5 hours

5105.964

Vietnam (Haiphong Terminal) Singapore (Singapore terminal) Thailand (Bangkok Terminal)


6696.832 3737.336 5359.688


13 Days, 7 hours

6072.708

Cambodia (Phonm Penh)

14 Days

6222.72

Myanmar (Yangon)

9 Days, 8 hours

4359.608

Vietnam (Ho Chi Minh Terminal) Vietnam (Haiphong Terminal) Singapore (Singapore terminal) Thailand (Bangkok Terminal)

14 days, 1 hour 17 Days, 6 hours 11 Days 14 Days, 6 hours

6252.352 7843.22 4883.724 6506.076

Singapore (Singapore terminal)

11 Days

4883.724

Thailand (Bangkok Terminal) Cambodia (Sihanouk Ville Terminal)

14 Days, 6 hours 11 Days, 2 hours

6506.076 4980.028

Cambodia (Phonm Penh)

11 Days, 5 hours

5130.04

Myanmar (Yangon) Vietnam (Ho Chi Minh Terminal) Vietnam (Haiphong Terminal)

7 Days, 4 hours 11 days, 6 hours 15 Days, 2 hours

3266.928 5159.672 6750.54

Singapore (Singapore terminal)

8 Days, 5 hours

3791.044

Thailand (Bangkok Terminal)

12 Days, 2 hours

5413.396

Source: Ports.com Notes: a) Days are calculated when travelling at speed of 10 Knots b) The Indian ports chosen are the major ports handling 90 per cent of sea trade c) The ports chosen for partner countries are the ones with nearest access to the respective major industrial areas.

13


Table10: Access of Major Industrial Areas in CLMV to Ports and Harbors Country Cambodia

Industrial Area

Port

Distance

Phnom Penh

Sihanouk Ville

220km

Time

4-6h

Phnom Penh

Phnom Penh

13km

Lao PDR

Vientiane

Khlongtoey, Bangkok

650km

10h

Myanmar

Yangon

Yangon

16km

1h

Vietnam

Hanoi

HaiPhong

100km

3h

Bien Hoa

Ho Chi Minh

18km

0.7h

Bien Hoa

Caimep&Thivai

60km

1h

Source: Ishida (2010)

II.9 Open trade and FDI policy regimes Trade Regime The CLMV economies have a liberal trade regime and several initiatives have been taken by the respective economies to expand market access through trade agreements and improve their international competitiveness. As per the latest trade policy review by WTO, Cambodia has radically reformed its tariff structure and has bound 100 per cent of tariff lines besides reducing the heavy dependence on traderelated taxes. Following suit, Myanmar has bound 18.5 per cent of its tariff lines at the HS eight-digit level whereas Vietnam bound the entire tariff schedule in the context of its WTO accession mostly in the 0-40 per cent range. Myanmar government has adopted several measures to open up the economy including revising trade-related legislation, preparing a competition law, a Consumer Protection Law, and comprehensive IPR legislation, among others. In addition, Cambodia and Myanmar grant at least MFN treatment to all their trading partners (See Annexure II for further details). In order to streamline and enhance the effectiveness of customs operations and to facilitate trade, CLMV economies have been reforming their custom regime to make it more liberal. Being a member of ASEAN, participation in ASEAN’s free-trade agreements with third countries strongly influences CLMV’s trade 14

policy. Moreover, the CLMV countries benefit from India’s trade policy for least developed countries, which places most imports from such countries under the zero-tariff regime. FDI Regime Recognising that CLMV region needs foreign capital and technology for continuous and sustainable development, these economies have liberal foreign investment regime. The respective governments provide various investment, tax and non-tax incentives and investment guarantees to the investors along with tax exemptions and reliefs. The economies are headed towards a system in which foreign investors face the same tax and tariff incentives as do the domestic investors. In order to encourage more foreign investment, the Lao PDR government, for instance, maintains lower business tax rates for foreign companies than those applicable to domestic companies. Lease of land is also permitted by all the countries in the region. These countries do require that foreign companies employ the local workforce and only when qualified nationals are not available, they bring their experts and technicians (See Annexure III for further details). However, barring Vietnam, all other CLMV countries showcase a poor business environment as reflected by their ranking in terms of Ease of Doing Business. On the contrary World Bank’s Ease of Doing Business index is a shaky parameter as it gives high marks to fewer restrictions on permits for


Table 11: Skill Availability and Non-Availability Sectors

Skills/Personnel/ Technology available in India

Skills/Personnel/Technology required by CLMV

Skills/ Personnel/ Technology available in CLMV

Textiles and Garments

Known for fine craftsmanship; Integrated Skill Development Scheme (ISDS) launched in order to upgrade the skills of textile workers/ handloom weavers and develop competitiveness in the textile industry

Cambodia: Lack of skilled workers with experience in technology, fashion and management Myanmar: Lack of skilled textile workers Vietnam: Human resource training of middle and high class management, technology, and fashion design are weak; Lack of skilled workers with experience in technology

Processed Food

Presence of relatively low-cost and skilled workforce; offers high tech equipments

Vietnam: Currently, faces deficit in technical experts, lack of hightech equipments; Imports modern equipments; The government is implementing several programs to enhance food (including Dairy) processing technologies.

Electrical and E l e c t r o n i c Equipments

Civil Engineers, Electrical and Electronic engineers, Mechanical engineers, Other engineers

Laos: Shortage of skills and personnel in electrical and electronics industry

ICT and Telecommunication

Large technical pool of skilled professionals, IT technicians, engineers Have set up IndiaMyanmar Centre for Enhancement of IT Skills

Cambodia: software and telecommunications engineering Myanmar: Shortage of manpower, IT technicians, engineers Vietnam: shortage of manpower (technicians)

Pharmaceuticals and Medicine

Inherent strengths in Organic Chemistry, availability of skilled Manpower: Physicians and Surgeons( all fields); Nursing, Sanitary and Other Medical and Health Technicians and a well established domestic industry

Cambodia: Doctors, Pharmacists, Nurses Myanmar: Dentists, Local talent pool for executive positions is limited

Gems and Jewellery

Gems cutting and polishing techniques ; artisans have specialised skills in processing small diamonds

Myanmar: Labor intensive industry, limited equipment and absence of any automation; involves child labor

Table 11: continued...

15



16

Marine and Seafood

m-Krishi Fisheries Advisory Service; Post harvest management: Shelf life extension of freshwater fish in round polypropylene rigid containers, insulated boxes for storage

Vietnam: Outdated preservation techniques; Development plans include adoption of advanced technologies and improved training for staff and technicians Cambodia: inadequate facilities for hygienically handling, sorting, weighing and packing fish, and lack of storage facilities and modern equipment Myanmar: lack of modern technology

Oil and Natural Gas

High-quality technical manpower. But currently faces an acute skill crisis due to challenges arising from an aging workforce. Lack of student Interest in petroleum further compounds the problem

Myanmar: lacks experience and skilled technicians in oil and gas exploration and development Vietnam: Shortage of technical expertise

Automobile parts

Availability of skilled human capital

Laos: Limited human resources,

Myanmar:

Iron and Steel ; Articles of Iron and Steel

Highly skilled manpower; expected shortage in skilled workforce by 2025; Faces problem of migration of manpower to the West

Leather

Indian Leather ind us try h as sk illed manpower, Modernized manufacturing units as well as innovative technology

Vietnam: Leather tanneries that apply advanced technology and modern equipment.

Rubber and Rubber articles

Rubber technology such as Rubber roller ginning machine

Cambodia: Lack of skill in rubber planting techniques Laos: Lacks appropriate rubber development technology; most of the districts have unskilled labor

weak capacity and Skill shortages in automotive and mechanics industry Vietnam: Rising labour cost for unskilled labour and the shortage of skilled engineers; Needs upgradation of skills and technology

Availability of mediumeducated technicians



Wood sector

Advance technology, institute of wood science and technology

Laos: Skill and personnel shortages in traditional sectors of carpentry, furniture-making, construction Vietnam: Outdated and unsynchronized machines and tools used for processing of natural wood, especially for the processing of fine products

Bamboo sector

Centre for Indian Bamboo Resource and Technology; regular workshops and seminars held by National Mission on Bamboo Application; Have expertise and skills of processing bamboo

Cambodia: Most of the bamboo used is split by hand. Needs machinery with latest technology Vietnam: Needs capital and updated technology Laos: Lack of modern technology. Uses only manual tools

L a o s : Traditional handicraft making skills

Source: Data compiled using varied sources

construction, ignoring safety and environment concerns. This index is widely used to improve business conditions around the world as its underlying premise is that less regulation is better. Having a higher place on this index cannot be a true reflection of a country’s business setting and the need of the hour is the revamp of the influential Easy of Doing Business Index (Economic Times, 2014).

II.10 Already Improving infrastructure in CLMV, Global players’ presence: Is India missing the bus? The CLMV region due to its underdevelopment as well as recent economic dynamism has caught the imagination of the world. This can be highlighted with the help of two illustrations; first by providing a glimpse of high quality infrastructural facilities present in what is known as Vietnam Singapore Industrial Park (VSIP). The Vietnam Singapore Industrial Park (VSIP) is a flagship project initiated by the governments of Vietnam and Singapore. The maiden VSIP project is located in Binh Duong province’s Thuan An district and is the most successful industrial park with 240 investors

from 22 countries establishing their long-term investment projects. Some of the contours of VSIP include strong customer service support and availability of institutional infrastructure geared up to skilling of workforce within the same vicinity of VSIP, alongside state of the art industrial park which already has presence of companies from all over the world.

Customer service Support: VSIP provides

investors a wide array of services:

• Assist investors in the Investment Certificate applications. • Guide investors in company start-up • H e l p i n v e s t o r s t o h a n d l e d a i l y operational matters. • On-Site Customs Office and Yard: • Goods will be inspected and cleared at Customs yard in VSIP. • Q u i c k c u s t o m s p r o c e d u r e s a n d formalities of in-coming and out- going shipments for customers in VSIP. • Efficient and experienced team of Customs officers at your service.

17


Vietnam Singapore Vocational College The Vietnam Singapore Vocational College, (VSVC) located in close proximity to VSIP, was jointly initiated by the Vietnam and Singapore Governments and sponsored by VSIP aiming to improve the technical skills of the Vietnamese workforce. The courses include Electrical Maintenance, Mechanical Maintenance,

Machining, Electronics, Automobile Repairing, Accounting, etc. The second illustration is manifested in Myanmar’s Economic Dynamism. It is clear from Box 1 that Myanmar is considered to be the next foreign investment hotspot with some of the major industrial players already present that include Mercedes.

Table 12: Accessing China via CLMV: Identification of products where India can access these markets through China-ASEAN FTA

Normal Track

Sensitive Track

Highly Sensitive Track

Number of products at HS6-Digit

119

152

87

Amount of Exports (in US$ Billion)

25.8

58.8

15.5

2012

Source: Author’s own calculation based on UN COMTRADE 2014.

Box 1: Myanmar: The Next Foreign Investment Hot Spot Mercedes Steps into Myanmar Car Market Automobile Alliance Co. Ltd of Myanmar partnered with Singapore’s Jardine Cycle and Carriage Co. Ltd. to import luxury Mercedes Benz cars into Myanmar. A Satellite workshop is fully operational and Mercedes plans to open a showroom and a workshop early next year. Mercedes aims to serve Myanmar’s luxury segment with its friendly staff and world-class facilities and services. China’s Hin Leong Group Invests US$ 200m in Myanmar Oil sector Hin Leong Group, a Singapore-based oil trading company has entered into Myanmar market to meet the rising consumer demand for the commodity, which in turn is a consequence of increased business activity. As first step, the company will supply kerosene, gasoline, jet fuel and asphalt in amount of 100,000 cubic meters of storage in East Timor. EU and US try to Extend their Garment Manufacturing in Myanmar Accordingly to Daw KhineKhine Ngwe, secretary of Myanmar Garment Manufacturers Association, Europe and United States will invest in Myanmar garment manufacturing industry. Earlier, companies used to study Myanmar’s garment industry and then return to their native land. With the improved situation, there is an increasing number of companies willing to invest in Myanmar. For instance, Dewhurst Company, a UK-based garment manufacturing company, plans to extend its operations in the country with more than 2,000 workers. A Project That Will Change the Face of Myanmar Thailand and Myanmar governments signed an MoU on July 23, 2012 to develop Dawei Special Economic Zone and its related project areas. The investment is aimed at developing a deep sea port facility, an industrial estate dividend into six zones, a petrochemical complex with oil and gas pipelines for the Gulf of Martaban to the Myanmar/Thailand border along a road and rail link from Dawei to Thailand. Source: Myanmar B2B Management Magazine ACUMEN, September 2013; Myanmar Insider, Vol. 1, Issue 1, November 2013.

18


II.11 India-CLMV convergence of interests in regional trade negotiations CLMV wants India to play a more pro-active role as they often don’t get their voices heard in the ASEAN Caucus. Therefore, India-CLMV cooperation could be important bedrock for even the RCEP an negotiations where, India can get support from these countries.

II.12 Utilising ASEAN-China FTA in goods The study undertook a detailed empirical exercise to identify products at HS 6 digit level which if exported by manufacturing in CLMV to the Chinese market under the China-ASEAN FTA in goods, additional export expansion to the tune of US$ 100 billion is feasible via normal track, sensitive track and highly sensitive track combined. This can thus be an important

component of overall strategy of India to integrate with the CLMV region especially harnessing the possibilities of manufacturing led exports from the CLMV region with the help of Indian OFDI. As is seen in Table 12, the number of products at HS6 digit level which India can export from CLMV to China under the ChinaAsean FTA in goods are 119 (normal track), 152 (sensitive track) and 87 (highly sensitive track). The details of these specific products are given in Annexure I. It is evident from the annexure that these are the products that invite lower tariff levels if the products originate in CLMV as compared to China’s MFN duty on same HS6 digit products. It may thus safely be concluded that accessing Chinese market for India’s exports is not only feasible under ChinaASEAN FTA in goods but also imperative to make CLMV as manufacturing base for India’s exports to China.

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III

Where Cooperation?: Potential Goods, Services and FDI Sectors with Complementarities

In this section we try to identify areas and sectors for cooperation between India and CLMV with the help of different methodologies.

Methodology

For identifying the constraints in regional economic integration secondary material is supplemented with direct interaction with the stakeholders in India and the CLMV region (primarily Myanmar and Vietnam) that includes policy makers, businesses and academia.

The analysis in the study would be based on the existing material on the subject but more importantly it has deployed advanced empirical techniques for assessing the potential for regional value chain creation. This would be complemented with identifying potential items for trade between India and CLMV at disaggregated HS 6-digit level.

Trade in Goods Potential: Indices Used

Potential for trade in services is identified by analysing the domestic regulations in different sectors such as tourism, education, health, banking, IT, transport, etc. apart from analysis based on available trade in services statistics.

I. Revealed Comparative Advantage (RCA)

The Sectors for cooperation in FDI especially from the point of view of evolving regional value chains are explored encompassing a full range of economic activities such as design, production, marketing, distribution and aftersales services.

The potential for bilateral trade in goods between India and CLMV was ascertained with the help of methodologies that included dynamic RCA, IIT, and Cosine indices.

RCA = [Xij/Xtj] / [XiT/ Xw] where X is exports, i is product, j is country, t is total exports to world of country j, T is total exports to world of all countries and w is total exports to world of all products of all countries.


Dynamic RCA It is calculated over time to identify items at HS 6-digit level gaining comparative advantage and those having disadvantage. This is to avoid any anomaly that might be due to an RCA estimate for a single year and improve the efficacy of the Index.

of exports and imports, A and B, the cosine similarity, θ, is represented by formula given The resulting similarity ranges from −1 meaning exactly opposite, to 1 meaning exactly the same, with 0 usually indicating

II. Intra-Industry Trade (IIT) The Intra-industry trade refers to the exchange of similar products belonging to the same industry. The term is usually applied to international trade, where the same types of goods or services are both imported and exported. The Grubel–Lloyd index measures intraindustry trade of a particular product. It was introduced by Herb Grubel and Peter Lloyd in 1971.

independence, and in-between values indicating intermediate similarity or dissimilarity. The above methodologies were complemented by a review of existing information on the subject, as well as stakeholder consultations in India and in Myanmar and Vietnam (See Annexure IV).

Inter-Ministerial Meetings in India where Xi denotes the export, Mi the import of

good i.

If GL i = 1, there is only intra-industry trade, no inter-industry trade. This means for example the country in consideration exports as same quantity of good i as much at it imports. Conversely, if GLi = 0, there is no intra-industry trade, only inter-industry trade. This would mean that the country in consideration only either exports or only imports good i.

III. Cosine Index One way of ascertaining trade complementarities is by matching the exports vector of one Central Asian country with import vector of another Central Asian country to determine similarity or dissimilarity in them, implying absence or presence of trade complementarity between the country under question. This is best given by the well-known Cosine index. Given two vectors

22

In the inter-ministerial meetings convened by the Ministry of Commerce and Industry inputs were sought in a Common Template with a 5-point Action Plan. This included dimensions such as the following: • Prioritisation of areas in identified Sectors for trade • Relevant service exports in the identified sectors • How to mobilise O –FDI • How to integrate the SME involvement in RVCs • Feasibility of time frame Private sector stakeholder consultations These were held both within the country as well as in Myanmar and Vietnam. Potential goods sector Having presented a detailed account of justification on why India and CLMV region

W here cooperation ? : P otential G oods , S ervices and F D I S ectors

Table 13: Potential Sectors for RVC Potential Sectors for RVC Textiles and Garments Processed Food Electrical and Electronic Equipments Pharmaceuticals Gems and Jewellery Marine and Seafood Oil and Natural Gas Automobile parts Iron and Steel ; Articles of Iron and Steel Leather Rubber and Rubber articles

Cambodia

Laos

Grey colour implies potential

Myanmar

Vietnam

Source: Based on Author’s calculations.

should have a strategy for economic cooperation, it is important to make a thorough assessment of areas where potential for such cooperation exists. This also needs to be extended in terms of identifying specific sectors for trade in goods cooperation.The rigorous empirical excersise based on various techniques helped us in identifying various potential sectors for

bilateral trade in goods between India and CLMV. As was mentioned earlier, this was done on the basis of detailed examination of HS6-digit level data of trade with the help of indices mentioned above. The potential sectors with possibilities of trade cooperation in India and individual CLMV country is marked in grey are Table 13.

23

IV

How?: RVCs-Stages of Production in Identified Sectors Relevant for India

While the preceding section has identified the potential for trade in goods between India and CLMV, in order to harness the fullest potential of both sides it is imperative that the analysis is extended beyond the realms of trade in goods and is situated within the framework of RVCs.

IV.1 RVCs Simply defined, a production/value chain is the “full range of activities that firms and workers do to bring a product from its conception to its end use and beyond” (Gereffi and FernandezStark, 2011). It consists of various activities such as design, production, marketing, distribution and support to the final consumer. On the other hand, when two or more value-chains are considered with at least one common network linkage, it is known as a production network. In today’s world, most of the goods and a fair share of services are produced by various countries specialising in different functions and tasks as opposed to being produced by a single country, thus forming a Global Value Chain (GVC). Technological advancement along with trade and investment liberalisation has played a vital role in the emergence of GVCs. As a

result, economies become more interconnected and specialise in different stages of production rather than specific products or industries. For developing countries, GVCs prove to be extremely beneficial. The trade, investment, and knowledge flows, that underpin GVCs, can provide mechanisms for rapid learning, innovation and industrial upgrading (Humphrey and Schmitz, 2002). Apart from benefitting from economies of scale, firms through participation in GVCs are pushed to acquire new competencies and be more quality centric. Such improvements have far reaching effects beyond exporting firms and sectors. The attributes and determinants of GVC are quite similar to those of Regional Value Chain (RVC). RVCs are production hubs connected with service links that prosper with improvements in soft and hard connectivity. In other words, RVC is nothing but GVC in a regional context. Production fragmentation essentially means when in order to reduce the total production cost incurred, firms/industry classify the various production processes according to their types, design, etc. and avail different location


advantages. Jones and Kierzkowski (1990) made an early start in developing the theory of fragmentation. According to them, it is the benefits of inter-firm specialisation of factors that motivates fragmented production process connected by service links. The main idea of fragmentation is presented in Figure 4. Fragmentation theory has played a central role in explaining the functioning of production networks. However, several conditions such as availability of different location advantages, transport and coordination costs, technical separability of production processes etc. need to be met for fragmentation of production process, to be economically viable and efficient. In order to form decisions regarding relocation or fragmentation, a number of factors need to be considered which are as follows: • Land and Utilities: Land price for owning or leasing; price of energy and electricity; public services; price of water for industrial use • Macro Indicators: population and GDP per capita of the country; Political stability

• Skill Availability: Educational level of workers; wage level for workers; availability of managerial and technical staff • Investment Regime: Incentives like tax holidays; tax exemptions • Infrastructure: Digital infrastructure such as ICT availability; internet users; telephone lines; mobile cellular subscriptions; Soft connectivity such as efficiency of the clearance process (i.e. speed, simplicity and predictability of formalities) by border control agencies, including customs; quality of trade and transport related infrastructure (e.g. ports, railroads, roads, information technology);ease of arranging competitively priced shipments; competence and quality of logistics services (e.g., transport operators, customs brokers);ability to track and trace consignments; timeliness of shipments in reaching destination within the scheduled or expected delivery time; Physical infrastructure such as access to ports and markets;

Figure 4: The Fragmentation Theory: Production Blocks and Service Links

Source: Kimura, F., and A. Obashi. 2011.

26

H ow ? : R V C s - S tages of P rod u ction in I dentified S ectors R elevant for I ndia

quality of port infrastructure; rail lines; air transport

IV.2 Where can India fit into the Value Chain vis-à-vis CLMV? While we have identified potential trade in goods sectors it is still, as we have argued, that one of the ways in which India can integrate with CLMV is through RVCs. We are still not clear where India fits into the value chain vis-a-vis CLMV region. Consequently, a three dimensional mapping was undertaken. This is captured in terms of sector-stage of production-country mapping and presented in Table 14, which suggests that which country has comparative advantage in relocating manufacturing in which stage of manufacturing/processing in which country.

These are also relevant from the point of view of SMEs in India and CLMV given their operational level relevance in RVCs (Abonyi 2005).

IV.3 Potential Services for RVCs Having identified potential sectors for trade in goods and undertaken the three dimensional mapping in those very sectors in the preceding section, we try to identify the kind of potential trade in services for such RVCs that exist. For this India’s services export capacity to CLMV was assessed based on the requirements in the CLMV countries in different sectors of services. This is summarised in Table 15 on the basis of stakeholder consultations, both within India and Myanmar and Vietnam. Supplementary information from the existing literature was

Table 14: Sector wise stages of Production Sectors

Electronics Industry

Stages in the Production process Stage I: Supply of Raw Materials Stage II: Manufacture of electronic components from raw materials by Component Manufacturers Stage III: Designing the look of the electronic goods by Enclosure manufacturers Stage IV: Contract manufacturers make the printed circuit boards Stage V: Electronics distributors stock and keep a wide variety of electronic goods Stage VI: End markets carry out the final transaction by making the product available for customers.

Food Processing Industry

Gems and Jewellery Industry

Regional Value Chain

India

India , Vietnam

Stage I: Procurement of Raw materials Stage II: Primary Processing

India , Vietnam

Stage III: Secondary Processing

India , Vietnam

Stage IV: Tertiary Processing

India , Vietnam , Cambodia

Stage I: Mining and Extraction from natural deposits Stage II: Processing including planning, cutting and polishing of Diamonds Stage III: Fabrication including melting, setting, polishing and finishing Stage IV: Retail including marketing, branding and selling

India , Vietnam Table 14: continued...

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Textile Industry

Stage I: Spinning

India, Cambodia

Stage II: Weaving/ Knitting

India, Cambodia

Stage III: Dyeing and Finishing

Pharma Industry

Leather Industry

Stage IV: Designing, cutting, sewing, buttonholing, ironing

India , Vietnam , Cambodia

Stage I: Research and development

India

Stage II: Conversion of organic and natural substances into bulk pharmaceutical substances through chemical synthesis, fermentation and extraction

India

Stage III: Formulation of the final pharmaceutical product

India

Stage IV: Sales and marketing

India

Stage I:Dairy, draught and meat animals are sent to slaughterhouses

Vietnam

Stage II: Hide Processing( Tanning and Finishing)

India

Stage III: After the leather is obtained than Other inputs such as design are added Stage IV: Final output such as Footwear, Garments, Saddlery, Leather cloth are obtained

Steel Making Industry

India

Stage I:Sourcing of Raw materials from scrap metal, direct reduced iron and hot metal Stage II: Melting in EAF(Electric Arc Furnace) Stage III: Secondary Metallurgy Stage IV: Continuous Casting

Petro-chemical Industry

Stage V: Rolling

India , Vietnam

Stage VI: Finished products

India , Vietnam

Stage I: Sourcing Raw materials of petroleum(hydrocarbon) origin Stage II: Distillation of crude oil yields naphtha, gas oil, natural gas and petroleum gases

India

Stage III: Cracking of Naphtha/Natural gas Stage IV: Olefins such as ethylene, propylene, butadiene and aromatics such as benzene, toluene and xylene are obtained Table 14: continued...

28

H ow ? : R V C s - S tages of P rod u ction in I dentified S ectors R elevant for I ndia Table 14: continued...

Rubber and rubber articles

Production of Synthetic rubbers Stage I.1: Refining of oil, coal or other hydrocarbons Stage I.2: Distillation of crude oil yields naphtha Stage I.3: Naphtha is then combined with natural gas to produce monomers such as styrene and isoprene Stage I.4: Monomers are then subjected to either an emulsion polymerisation process or a solution polymerisation process Stage I.5: Chains of polymers are created which results in a latex or rubber substance Stage II: Processing into finished goods consists of: (a) Compounding (b) Mixing (c) Shaping (d) Vulcanizing

Production of Natural rubber Stage I.1: Tapping of the tree to collect latex Stage I.2: Latex is then mixed with a diluted acid Stage I.3: The rubber/acid mixture is then rolled to remove excess water Stage I.4: Rolling is again done to texture the rubber

India, Vietnam (natural and synthetic) Cambodia (natural)

India

Source: Based on Author’s calculations and secondary sources.

Table15: Potential Services for RVCs Sectors Software and ICT Services Telecommunication services Capacity Building

India's Services' exports capacity: Potential based on requirements Computer software, Data processing services, Data base services Voice telephone services, Packet-switched & Circuit-switched data transmission services, Telex services, Telegraph services, Private leased circuit services, Electronic mail, Voice mail, On-line information and data base retrieval, electronic data interchange (EDI) Capacity Building, Training of farmers, Training of extension personnel,Vocational training

Agri Diagnostic services

Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres

Health

Hospital services: leading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and para-medical personnel

Financial services

Insurance and related, Banking

Professional Services

Legal Services, Accounting, auditing and bookkeeping services, Taxation Services , Engineering services , Urban planning and landscape architectural services

Education

Educational institutes, universities, English Language training centres, Social Science & Humanities, Medical Science , Management Education

Transport

Internal Waterways: Passenger & Freight transportation , Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services Rail: Passenger &Freight transportation, Pushing towing services , Maintenance &repair of rail equipment Road : Passenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment

Tourism and Travel Related Services

Hotels and restaurants (incl. catering), Travel agencies and tour operators services, Tourist guides services

Source: Based on Author’s calculations.

29


Table16: Potential O-FDI from India Sectors

India's Outward FDI capacity: Potential based on requirements

Marine Sector

India's m-krishi advisory services; Post harvest management

Agriculture

Farm Mechanisation: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; ;Rubber technology such as Rubber roller ginning machine

Electrical and E l e c t r o n i c Equipments

Electronic components, Motors, Sim Cards, Parts of Radio & transformers, Printed circuits, Transformers; Computer hardware: Disc Drives, Personal Computers, Smart cards ; Telecom: Mobile Phones, Telecom &Television Reception apparatus, optical fibre cable, Set Top box

Pharmaceuticals

Pharmaceutical products mfg.: chemistry and process reengineering skills

Petroleum

Oil and gas Exploration, Light Petroleum oils and preparations, Other petroleum oils and preparations

Automobiles

Motorcycles with reciprocating piston engine displacing> 50 cc to 250 cc , Automobiles with reciprocating piston engine displacing> 1000 cc to 1500 cc; > 1500 cc to 3000, Motor Vehicle parts, Drive Transmission, Engine Parts, Passenger & Commercial vehicles, Two-wheelers & Three wheelers

Steel

Iron and Steel, Articles of Iron and Steel

Leather

Raw hides, Skins and Leather

Gems and Jewellery

Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Textiles Garments

Cotton, Silk, Wool, Manmade staple fibres, Manmade filaments, Articles of apparel, accessories, knit or crochet, Impregnated, coated or laminated textile fabrics

and

Source: Author’s calculations.

also used. It is quite evident from the table that, India has enormous supply capacity in different services sector which would be crucial to link production hubs across India, Cambodia, Laos, Myanmar and Vietnam.

IV.4 Potential of O-FDI from India Our analysis does not stop here and tries to stretch to include identification of sectors that have potential for outward FDI from India to

30

CLMV countries. This was based on, again, the requirements in the CLMV region that emerged during stakeholder consultations as also secondary material. Such an exercise was carried out with the objective of adopting RVCs as a strategy to integrate India and CLMV by keeping in mind the interlinkages among potential trade in goods sectors, trade in services sectors and O-FDI sectors (Table 16).

V

Integrated Approach: Trade in Goods & Services and O-FDI in RVCs

The section on potentials for trade in goods, services and O-FDI would only be relevant for creating RVCs between India and CLMV only when all these three are linked together in a common template. We first give the rationale for doing so which is followed by the actual template of interlinkages. Trade in goods cannot be stepped up unless institutional mechanisms exist for facilitating concomitant trade in services. For instance, trade in goods is incumbent upon the presence of facilitative services, like postshipment credit, consignment-insurance, bank-guarantees, shipping services, etc. that not only facilitate trade but also contribute to the competitiveness of exports. On the other hand, trade in services in a sector like health is dependent upon trade in goods pertaining to this specific service sector such as medical equipment and medicines. Thus, any regional trade agreement needs to recognize the twoway linkages between trade in goods and services. However, in reality the converse of it could also be observed. Given the increasing trend of disconnect between tangibles and

intangibles, for instance, in the case of real sector and financial sector, trade in goods and trade in services follow their independent growth dynamics. In any case, the autonomous flows in both trade in goods and services need to be reckoned with. The added argument stems from the fact that cooperation in upgrading infrastructural services helps reducing the transaction costs, making products cheaper in the regional context. It needs to be further acknowledged that the strengthening of trade-investment linkages is crucial for achieving higher levels of regional trade and for its developmental impact. Such linkages help improving export supply capabilities in the countries of a regional grouping. They are also more employment generating with the different types of investment made to take advantage of trade liberalisation, regionally. While an FTA can spur investment flows in terms of efficiency-seeking regional restructuring, it is the trade-creating joint ventures that ultimately have a decisive impact on regional trade flows. The trade-creating joint ventures are in a position to take advantage of the regional FTA.


In this context, if vertical integration and horizontal specialisation are also focused upon with the help of cross-country investment flows that strengthen trade-investment linkages, the gains in terms of higher trade and investment flows leading to greater employment generation become possible. This may essentially mean distribution of different stages of production in a particular industry regionally in an integrated manner viz. the vertical integration and specialisation in the same stage of production with the help of product differentiation across the region viz. the horizontal specialisation.

32

Given the analytical rationale for adopting an integrated approach Table 17 presents a common template for creating RVCs between India and CLMV through an integrated approach towards trade in goods, trade in services and India’s O-FDI. This includes sector wise different stages where different countries have comparative advantage and economic complementarities waiting to be tapped in the realms of towards trade in goods, trade in services and India’s O-FDI.

Food Processing Industry

Electronics Industry

Industry

India , Vietnam India , Vietnam

Stage IV: Tertiary Processing

India, Vietnam

India , Vietnam

India

Stage III: Secondary Processing

Stage II: Primary Processing

Stage I: Procurement of Raw materials

Stage II: Manufacture of electronic components from raw materials by Component Manufacturers Stage III: Designing the look of the electronic goods by Enclosure manufacturers Stage IV: Contract manufacturers make the printed circuit boards Stage V: Electronics distributors stock and keep a wide variety of electronic goods Stage VI: End markets carry out the final transaction by making the product available for customers.

Stage I: Supply of Raw Materials

Stages in the Production process

Trade in Goods: India’s Exports potential

Packaging services

Services of engineers, line supervisors and technicians are required Design and developmentservices of design engineers, technical officers and project leads are required Sales- services of sales managers and executives are required

Services required in production

Storage and distribution facilities Controlled atmosphere storage facilities, and refrigerated transportation Refrigerated transport facilities Distribution, refrigerated transport facilities

Services required between stages

Quality control

Grading and packing centers, testing laboratories

After sales services- repair mechanics and service support executives are required

Services required after production


Electronic components, Motors, Sim Cards, Parts of Radio & transformers, Printed circuits, Transformers; Telecom: Mobile Phones, Telecom &Television Reception apparatus, optical fibre cable, Set Top box

India’s exports of potential Services and O-FDI

Table 17: RVCs between India and CLMV: An Integrated Approach towards Trade in Goods, Services and O-FDI

I ntegrated A pproach : T rade in G oods & S ervices and O - F D I in R V C s

33

34

Pharma Industry

Textile Industry

Gems and Jewellery Industry

Stage II: Conversion of organic and natural substances into bulk pharmaceutical substances through chemical synthesis, fermentation and extraction Stage III: Formulation of the final pharmaceutical product Stage IV: Sales and marketing

Stage I: Research and development

Stage IV: Designing, cutting, sewing, buttonholing, ironing

Stage III: Dyeing and Finishing

Stage II: Weaving/ Knitting

Stage I: Spinning

Stage II: Processing including planning, cutting and polishing of Diamonds Stage III: Fabrication including melting, setting, polishing and finishing Stage IV: Retail including marketing, branding and selling

Stage I: Mining and Extraction from natural deposits


India

India

India

India

India , Vietnam

India

India , Vietnam India

Clinical research and trialsscientists required Production - Managers, Supervisors, Workmen and Technicians(Lab)

Managers for procurement, production maintenance and quality control Engineering/ maintenance Dyeing and printing Designing and merchandising

Jewellery Designing Marketing, Advertising, And Sales services

Transporting the procured raw material to the textile manufacturers Engineering/ maintenance, Quality Control

Transportation facilities

Quality Control Sales and Marketing services

Branding, advertising and transport to retail outlets

Quality Control Transport to apparel manufacturers

Operational planning (demand forecasting, distribution planning)


Pharmaceutical products mfg.

Cotton, Silk, Wool, Manmade staple fibres, Manmade filaments, Articles of apparel, accessories, knit or crochet, Impregnated, coated or laminated textile fabrics

Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training


Stage II: Distillation of crude oil yields naphtha, gas oil, natural gas and petroleum gases Stage III: Cracking of Naphtha/ Natural gas Stage IV: Olefins such as ethylene, propylene, butadiene and aromatics such as benzene, toluene and xylene are obtained

Stage I: Sourcing Raw materials of petroleum(hydrocarbon) origin

Stage VI: Finished products

Stage II: Melting in EAF(Electric Arc Furnace) Stage III: Secondary Metallurgy Stage IV: Continuous Casting Stage V: Rolling

Stage I:Sourcing of Raw materials from scrap metal, direct reduced iron and hot metal

India

India, Vietnam India, Vietnam

India

India

Vietnam

Engineering and preparation of design standards, water treatment plants, systems and process control, operational support, environmental planning

Tanning and Finishing Designing

Note: Laos and Cambodia not covered because of lack of trade data and necessary information.

Source: Based on Methodologies explained in the text.

Petrochemical Industry

Steel Making Industry

Leather Industry

Stage II: Hide Processing( Tanning and Finishing) Stage III: After the leather is obtained than Other inputs such as design are added Stage IV: Final output such as Footwear, Garments, Saddlery, Leather cloth are obtained

Stage I:Dairy, draught and meat animals are sent to slaughterhouses


Refrigerated Transportation facilities Transport facilities Distribution, Marketing and Sales services

Oil and gas Exploration, Light Petroleum oils and preparations, Other petroleum oils and preparations

Iron and Steel, Articles of Iron and Steel

Raw hides, Skins and Leather

I ntegrated A pproach : T rade in G oods & S ervices and O - F D I in R V C s

35

VI

Challenges in the Existing Scenario

In this section, a brief overview of the challenges confronting India-CLMV economic relations is presented.

VI.1 Information Gap The information gap between India and CLMV countries is enormous due to the four prime reasons: (a) asymmetry, (b) inconsistency, (c) inadequacy, and (d) communication gap. It is asymmetric as various sources like UNCOMTRADE, IMF, national sources, etc. show varying data for different CLMV countries. For instance, statistics and databases are relatively more equipped to Myanmar and

Vietnam but not so for Cambodia and Laos. Also, the data available is inconsistent in terms of number of years and data for latest years is not the same. The web-based-information is inadequate as much as published sources. Additionally, due to limited interactions at various levels there is a huge communication gap that needs to be addressed as it gets manifested in the information gap.

VI.2 Banking Constraints

Another constraint in strengthening IndiaCLMV economic integration is the thin representation of Indian Banks in CLMV

Table 18: Overseas Branches/Representative Offices of Indian Banks in CLMV Countries Country

City

Name of Indian Banks*

Cambodia

Phnom Penh

Bank of India

Myanmar

Yangon

United Bank of India

Myanmar

Yangon

Exim bank of India

Vietnam

Ho Chi Minh City

Indian Overseas Bank

Vietnam

Ho Chi Minh City

Bank of India

Source: Reserve Bank of India and Exim Bank of India Note*: As on September 30, 2013


countries. As is evident from Table 18, very few Indian banks have branches present in CLMV nations.

VI.3 Capacity Building/Skill Development As discussed previously, skill availability remains a huge challenge for the CLMV countries. There exists a mismatch between the skill/personnel/technology required by the CLMV economies and that which is available. To this end, effective collaboration for sectorspecific skill sets’ availability would have to be addressed.

VI.4 Technical Support Inadequate availability of technical support was highlighted as a major constraint during stakeholders’ consultation. These include onsite and off-site technical assistance and during the phase of after-sales services. Collaborative ventures to enhance the availability of such human resources through vocational training endeavours need to be strengthened.

VI.5 Limited O-FDI of India Indian O-FDI has remained low, especially as compared to global players’ presence in the CLMV region. This acts as a major constraint in any economic cooperation strategy between

Table 19: Digital Connectivity Indicators of Digital Connectivity

Cambodia

Laos

Myanmar

Vietnam

India

Communications, computer, etc. (% of service exports, BOP)

12.84127

12.20686d

12.00620d

N.A

68.07937d

Communications, computer, etc. (% of service imports, BOP)

20.72705

11.28522d

19.8249d

N.A

32.02447d

Fixed broadband Internet subscribers

29734

93200

5400

4446600

14306000

Fixed broadband Internet subscribers (per 100 people)

0.205369

1.462205

0.0110827

4.9555181

1.1368847

High-technology exports (current US$)

5139291d

N.A

41739c

4020110739c

12870672544d

ICT service exports (% of service exports, BOP)

8.416617

N.A

N.A

N.A

61.49208d

ICT goods imports (% total goods imports)

2.11683d

N.A

1.68706c

8.40372c

5.9735d

ICT goods exports (% of total goods exports)

0.048715d

N.A

0.02181c

7.90945c

2.1826d

Internet users (per 100 people)

4.939861

10.74768

1.0691

39.49

12.5800609

Mobile cellular subscriptions

19105115

6492000

5440000

134066000

864720000

Mobile cellular subscriptions (per 100 people)

131.9567

101.8523

11.164840

149.40999

68.718506

Technicians in R&D (per million people)

13.20102a

N.A

142.49289a

N.A

92.81055b

Telephone lines

584475

112000

556000

10191049

31080000

Telephone lines (per 100 people)

4.03689

1.757157

1.1411123

11.357425

2.4698991

Source: World Bank, WDI Database (2013) Notes: *Data has been taken for the year 2012 but in case of some indicators, data has been taken for the latest available year as indicated by the superscripts - a: 2002, b: 2005, c:2010, d: 2011 **Data for ICT service imports (% of service imports, BOP) is not available

38

C hallenges in the E xisting S cenario

India and CLMV. This cooperation needs careful consideration as these can hinder the process of RVCs creation as well as manufacturing by Indian entrepreneurs in CLMV for tapping market access in China under the ASEAN-China FTA in goods.

infrastructure in CLMV countries is improving, still connectivity with India is less. In terms of the three dimensions of connectivity digital, soft and hard/physical, CLMV countries lag behind India on many counts, with some exceptions in the case of Vietnam (Tables 19 and 20).

VI.6 Infrastructural ConstraintsDigital/Physical

These highlight the imperatives of India’s greater O-FDI in some of the areas of connectivity in which India has capacity to do business, such as in the areas of digital connectivity and soft connectivity.

I nfrastructure and Connectivity between

India and CLMV countries remains a major area of concern. Although the status of

Table 20: Physical Connectivity Indicators of Physical Connectivity

Cambodia

Laos

Myanmar

Vietnam

India

Air transport, freight (million ton-km)

0.07766

0.96648

3.53038

485.09239

1712.966

Air transport, passengers carried Transport services (% of service exports, BOP) Transport services (% of service imports, BOP) Travel services (% of service exports, BOP) Travel services (% of service imports, BOP) Motor vehicles (per 1,000 people)

380422

877950

1539676

17053248

70501495

14.01932

9.33454

25.87596

N.A

12.75077

54.04326

6.88586

68.85861

N.A

45.51398

70.70170

73.8997

41.77118

N.A

12.75659

18.77572

71.7010

11.31647

N.A

11.01353

21c

20e

7.18067h

13e

18.34957g

Passenger cars (per 1,000 people)

18c

2e

5.41483h

13e

11.83506g

Quality of port infrastructure, WEF (1=extremely underdeveloped to 7=well developed and efficient by international standards)

4.2

N.A

N.A

3.4

4

Rail lines (total route-km)

650c

N.A

N.A

2347i

63974i

Road density (km of road per 100 sq. km of land area)

21.88356g

17g

5.080920h

48e

125f

Roads, paved (% of total roads)

6.28999b

13.7g

11.9c

47.6e

49.5f

Roads, total network (km)

39618g

39568g

34377h

160089e

410959f

40100000d

1500000g

N.A

155000000h

16570100000i

2.2

2.4

2.1

2.68

2.87

Machinery and transport equipment (% of value added in manufacturing)

0.13068a

N.A

N.A

11.81179a

17.90563a

Vehicles (per km of road)

7b

3e

10c

7e

5f

Investment in transport with private participation (current US$) Logistics performance index: Quality of trade and transport-related infrastructure (1=low to 5=high)

Source: World Bank, WDI Database (2013) Notes: Data has been taken for the year 2012 but in case of some indicators, data has been taken for the latest available year as indicated by the superscripts - a: 2000, b: 2004, c: 2005, d: 2006, e: 2007, f: 2008, g: 2009, h: 2010, i: 2011

39

VII

Insights Gained from Stakeholders’ Consultations

The study undertook detailed stakeholders’ consultations. The insights and inputs gathered through this process are summarised in this section.

VII.1 Summary of Inputs Received from Ministerial Meetings • Sources of inputs: a. Council for Leather Exports b. Ministry of Road Transport and highways c. Indian Chamber of Commerce (inputs provided only for Myanmar but SMEs inputs can be generalised across CLMV)

ii. Relevant service exports in the identified sectors: IT, especially in Myanmar, offshore consultancy and onsite BPO, urban development related services, transport, energy, engineering, architectural, Mode of services: both offshore project design and onsite project implementation, health services, iii. How to mobilise O–FDI: a. Have a national level o-FDI strategy, address protective dimensions of CLMV FDI regimes, Investment security/ protection,

d. EEPC India

b. Mechanism: discussion with counterparts and bilateral treaties, create business forum, web-portal, visa facilitation.

e. Ministry of New and Renewable Energy submitted that they do not have any inputs

c. S e c t o r s : l e a t h e r a n d f o o t w e a r , infrastructure, oil, mining, pharma, textile, power, and automobiles.

• Dimensions of inputs: i. Prioritisation of areas in identified Sectors for trade: Leather, Textiles, Garments, Oil and Gas, Engineering

iv How to integrate the SME involvement in RVCs: a. Linking SMEs with large companies locally and the latter gets engaged in O-FDI?: Yes


b. Linking SMEs with MNCs in CLMV?: Yes c. Linking SMEs on a stand-alone basis with their counterparts in CLMV?: Yes v. Feasibility of time frame: One year/ Interim strategy in six months (For further details see Annexure V)

VII.2 Summary of Inputs Received from Private Sector • Case Study: Timber from Myanmar Issue: Myanmar’s Ministry of Environmental Conservation and Forestry implemented a ban on export of raw timber effective from April 1, 2014. This move was undertaken in keeping with Myanmar’s Forest Policy (1995) which focuses on addressing environmental protection and management, reforestation, forest industry and trade, forest research, institutional strengthening, and people’s participation and public awareness. As per the official figures from the Ministry, almost three quarters of the timber trade has been illegal amounting to almost $6 billion. In an effort to conserve the country’s natural timber resources and layoff the illegal timber trade, the country has finally imposed a blanket ban on export of raw logs.

The Way Forward • Import from Malaysia: To combat the effect of the ban, India can increase its wood imports from Malaysia although Malaysia does not offer teak and Indian importers will have to make do with other kinds of wood. • Import from Laos and Vietnam: Another alternative would be to import wood products from Vietnam and Laos in the CLMV region. Given that India heavily relies on imports to satisfy the country’s

42

growing appetite for wood products and Vietnam and Laos are both net exporters catering to all big markets such as US, EU, China, etc. but not India highlights the untapped potential that exists for linking Vietnam and Laos with India. These economies other than having location proximity can make use of the skilled labour and modern technology that India has to offer in exchange for supplying it high quality wood products and timber. • Substitute Wood with Bamboo: In order to fulfill the growth in demand for wood, the strategies being explored suggest that relying on imports alone may not be the right course for India. Substituting bamboo with timber seems to be the most viable and green solution especially for the long run. From being able to replace wood in construction business to providing nutrition in the form of food, there are over 1500 uses of Bamboo. Everything from its leaves to its root is of value and can be used in various forms. For instance, furniture; fuel-wood, matchsticks, agarbattis, toothpicks, earthquake-resistant and long-lasting conventional housing and buildings, pulp and paper, particle board, MDF, handicrafts, bamboo shoots as food, leaves for medicinal uses, decorative and shuttering plywood, various board products such as wafer board, strip board, laminated boards, roofing sheets etc. are among various other products (National Bamboo Mission). With the use of modern industrial techniques, the spectrum of bamboo usage can be expanded in such a manner that it can easily substitute wood. Bamboo is the 21st century eco-friendly alternative to timber and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies.

I nsights gained from S takeholders cons u ltations

•

Case Study: Steel from Vietnam Issue: The Joint Circular No. 44/2013/ TTLT-BCT-BKHCN dated 31 December 2013 (taking effect from 01 June 2014) issued by the Ministry of Industry and Trade and the Ministry of Science and Technology, Vietnam provides for management of domestically-produced and imported steel quality. According to it, organisations and individuals who import steel have to announce the applying standard (basic standards, national standards of Vietnam, standards of other countries, international standards and regional standards) for goods in the relevant import contract for

customs clearance instead of only the origin of products and import contracts as done earlier. The Way Forward: The use of equal Indian standards for testing stainless steel manufactured in India can be adopted and also acceptance of these test reports by the authorities in Vietnam. Also, Indian agencies may be authorised to conduct testing and certification of Indian manufacturer importer in India as per standards prescribed and the result be accepted under the notification. (For further details see Annexure VI)

43

VIII

What and How of Cooperation?: Policy Strategy and Recommendations-RVCs and an Integrated Approach

The underdevelopment of CLMV is a developmental opportunity for India is the backdrop in which this study has provided sufficient rationale for economic integration between India and the CLMV region. In doing so, the study has found that the present levels of economic linkages, including trade and investment, between the two remains weak and low. On the other hand, the study also finds enormous potential for a more heightened economic integration between India and the CLMV region in the domains of trade in goods, trade in services and FDI. Not only that the study has identified sectors for this purpose in the study, these sectors have also been placed in an Integrated Framework to enhance trade and investments flows as well as to tap skill complementarities so that regional value chains between India and CLMV could be created and strengthened. The study also finds that while there are enormous challenges that may have to be addressed, one of the important ways of utilising the CLMV’s economic space is by setting up manufacturing

units in the CLMV region and access the Chinese markets through exports originating from CLMV under the China-ASEAN FTA. Given these, a summary of findings of the study for creating potential RVCs is presented in Table 21. In the light of the concluding insights that the study presents, some broad contours of India’s strategy for economic integration with the CLMV region are presented by way of Policy Recommendations. The Policy Recommendations are divided into two parts, viz. theme-specific and horizontal. For themespecific recommendations one may refer to Table 22.

Key Horizontal Policy Recommendations • Creating India-CLMV Convergence of Interests in Regional Trade Negotiations: India must engage CLMV as it wants India to play a more pro-active role. This is because they often do not get their voices


heard in the ASEAN Caucus. Therefore, India-CLMV could be important bedrock for even the RCEP negotiations where India can get support from these countries.

CLMV also due to enormous comparative advantage and developmental experience that exists in India in areas that are identified as Focus Sectors as part of the respective national vision of each of the countries of the CLMV region. There are several sectors that qualify for such economic interactions between India and the CLMV region including agricultural and seafood processing, agricultural machinery, oil and gas exploration, extraction and export of metals, small and medium enterprises, labour-intensive industries, processing and manufacturing industries such as pharmaceuticals and healthcare, wood and timber industry, garment industries, electronics, ship building, manufacture of automobiles and spare parts, and service sectors that include transport, infrastructure and telecommunications, energy and electricity, tourism, human resource development, education, information technology (IT), light engineering, financial services, banking and insurance, electricity generation and environment and energysaving services.

• Regional Value Chains (RVCs): Given the backdrop of India’s participation in RVCs being relatively low and the fact that RVCs are not well-developed in CLMV, one of the prime strategies for India’s economic integration with CLMV region is to create RVCs. This is in contrast to the fact that RVCs have huge presence in ASEAN. Regional value chains entail relocation of production bases at different stages of production and manufacturing in different countries that are linked with services. The net outcome of such relocation is in terms of efficiency-seeking industrial restructuring. For this to be achieved, an integrated approach towards policy strategy is required. • Integrated Approach: Identified Sectors and Integrated Policy Responses As the study has highlighted, instead of addressing issues for trade augmentation and increase in FDI in an isolated manner, we need to adopt an integrated approach. For this to happen, trade in goods, trade in services and especially India’s outward FDI to CLMV region need to have integrated policy responses whereby interlinkages across these are well recognised. In addition, these would have bearing on evolving policy responses to interlinkages across sectors in the realms of agriculture, manufacturing and services. These need to be further aligned to the national level focus sectors in the CLMV region in order to harness inter-sectoral complementarities between India and each country of the CLMV region. • Alignment of India’s commercial interests with CLMV’s Policy Focus: India must economically integrate with the 46

• Integrating the SME involvement in RVCs: Three-pronged Strategy

It would be important to integrate the employment-intensive SMEs in RVCs through India-CLMV economic integration. This could be achieved with a threepronged strategy: »» By Linking SMEs with large companies locally the latter get engaged in O-FDI »» Linking SMEs with MNCs in CLMV »» Linking SMEs on a stand-alone basis with their counterparts in CLMV

• Increasing presence of Indian banks: No amount of commercial and economic linkages especially in the framework of RVCs would be possible without enhancing the number of Indian banks present in

W hat and H ow of C ooperation ? : P olic y S trateg y and R ecommendations - R V C s

Cambodia in their full-fledged form rather than just being representative offices.

especially keeping in mind the PDC related issues.

• Bridging information gap: In order to address information gap, its asymmetry, inconsistency and inadequacy, it is important that a dedicated web portal on India-CLMV economic linkages is created.

• Joint ventures for digital and physical connectivity: The suggested PDC could also focus on initiating joint ventures in different areas of digital and physical connectivity.

• Outreach Programme: RIS and FIEO could organise 5-6 outreach events to familiarise issues and potentials in India-CLMV economic cooperation,

• Time frame:

One year with an interim strategy in six months, including the PDC could be considered for operationalising the Indian strategy for the CLMV region.

47

48 Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. Transport & infrastructure: Internal Waterways- Passenger & Freight transportation, Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services, Rail- Passenger &Freight transportation, Pushing towing services, Maintenance & repair of rail equipment, Road- Passenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment.

Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. Transport & infrastructure: Internal Waterways- Passenger & Freight transportation, Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services, Rail- Passenger &Freight transportation, Pushing towing services, Maintenance & repair of rail equipment, Road- Passenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment.

Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. T r a n s p o r t & infrastructure: Internal Waterways- Passenger & Freight transportation, Rental of vessels with crew, Maintenance repair of vessels, Pushing towing services, Rail- Passenger &Freight transportation, Pushing towing services, Maintenance & repair of rail equipment, RoadPassenger & Freight transportation, Rental of commercial vehicles with operator, Maintenance repair of road equipment.

Trade Services

in

Textiles and Garments; Pharmaceuticals; Gems and Jewellery; Marine and Seafood; Automobile, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Rubber and Rubber articles; Pharmaceuticals, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Textiles and Garments; Gems and Jewellery; Automobile parts; Leather; Rubber and Rubber articles, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Trade in Goods

Myanmar

Laos

Cambodia


Table 21: Summary of Findings for Potential RVCs


Agri Diagnostic services: Single window delivery system for technology products, diagnostic services and information through Agricultural Technology Information Centres. Environment and energy saving: conservation of nature and its resources; protection of environment from pollution, conservation of ecology; Community and Habitat Ecology; environmental economics; conservation of priority medicinal plants; pollution and rehabilitation of displaced people due to developmental activities; Environmental Sciences and Engineering; New and Renewable Energy; solar energy technology; energy-saving techniques in manufacturing and consumer durables

Textiles and Garments; Pharmaceuticals; Gems and Jewellery; Marine and Seafood; Automobile ; Leather; Rubber and Rubber articles, Electrical and Electronic Equipments; Iron and Steel, Articles of Iron and Steel; Processed Food; Oil and Natural Gas

Vietnam



Myanmar Telecommunication services: Voice telephone services, Packetswitched & Circuit-switched data transmission services, Telex services, Telegraph services, Private leased circuit services, Electronic mail, Voice mail, On-line information and data base retrieval, electronic data interchange (EDI). Financial services: Insurance and related, Banking. Tourism and Travel Related Services: Hotels and restaurants (incl. catering), Travel agencies and tour operators’ services, Tourist guides services Health: H o s p i t a l s e r v i c e s leading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.

Laos Education: Educational institutes, universities, English Language training centres, Social Science & Humanities, Medical Science , Management Education. Software and ICT Services: Computer software, Data processing services, Data base services. Professional/ Light Engineering Services: Legal Services, Accounting, auditing and bookkeeping services, Taxation Services , Engineering services , Urban planning and landscape architectural services Tourism and Travel Related Services: Hotels and restaurants (incl. catering), Travel agencies and tour operators’ services, Tourist guides services. Health: H o s p i t a l s e r v i c e s leading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.

Cambodia

Human Resource Development/ Capacity Building: Training of farmers, Training of extension personnel, Vocational training. Education: Educational institutes, universities, English Language training centres, Social Science & Humanities, Medical Science , Management Education. Tourism and Travel Related Services: Hotels and restaurants (incl. catering), Travel agencies and tour operators’ services, Tourist guides services Health: Hospital servicesleading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.



Health: Hospital servicesleading healthcare facilities, Medical and dental services, Veterinary services, Services provided by midwives, nurses, physiotherapists and paramedical personnel.

Vietnam


49

50

Indian OFDI



Laos Agriculture: Farm Mechanisation: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. P h a r m a c e u t i c a l s : Pharmaceutical products mfg.: chemistry and process reengineering skills Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Cambodia

Oil & Gas: Oil and gas Exploration, Light Petroleum oils and preparations, Other petroleum oils and preparations. Agriculture: Farm Mechanisation: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training Oil & Gas: Oil and gas Exploration, Light Petroleum oils and preparations, Other petroleum oils and preparations. Agriculture: Farm Mechanisation: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. Pharmaceuticals: Pharmaceutical products mfg.: chemistry and process reengineering skills Textiles and Garments: Cotton, Silk, Wool, Manmade staple fibres, Manmade filaments, Articles of apparel, accessories, knit or crochet, Impregnated, coated or laminated textile fabrics Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Myanmar


Agriculture: Farm Mechanisation: Paddy drum seeder, Tractors, Paddy transplanter, Power Tiller, Zero till drill; Rubber technology such as Rubber roller ginning machine. Electrical and Electronic Equipments: Electronic components, Motors, Sim Cards, Parts of Radio & transformers, Printed circuits, Transformers; Computer hardware: Disc Drives, Personal Computers, Smart cards ; Telecom: Mobile Phones, Telecom &Television Reception apparatus, optical fibre cable, Set Top box. Automobiles: Motorcycles with reciprocating piston engine d i spl a c i n g> 5 0 c c t o 2 5 0 c c , Automobiles with reciprocating piston engine displacing> 1000 cc to 1500 cc; > 1500 cc to 3000, Motor Vehicle parts, Drive Transmission, Engine Parts, Passenger & Commercial vehicles, Two-wheelers & Three wheelers Marine Sector: India's m-krishi advisory services; Post harvest management Steel: Iron and Steel, Articles of Iron and Steel Leather: Raw hides, Skins and Leather Gems and Jewellery: Cutting and polishing of Diamond and other gems, Gold jewellery exports, Diamond trading institutions: Training

Vietnam


Bamboo sector: Machinery with latest technology, including splitting process

Rubber and Rubber articles: Rubber planting techniques

Marine and Seafood: hygienic handling, sorting, weighing and packing fish, creation of storage facilities and modern equipments

Pharmaceuticals and Medicine: Doctors, Pharmacists, Nurses

Automobile parts: Mechanical engineers

I C T a n d Telecommunication: s o f t w a r e a n d telecommunications engineering

Bamboo sector: technology

Modern

Wood sector: Traditional sectors of carpentry, furnituremaking, construction

Rubber and Rubber articles: Lacks appropriate rubber development technology; most of the districts have unskilled labor

E l ectr ical and Electr o nic Equipments: Engineers and technicians

Textiles and Garments: High technology, fashion and management

Skills available in India and required by CLMV

Laos

Cambodia



Oil and Natural Gas: Experienced and skilled technicians in oil and gas exploration and development

Marine and Seafood: Modern technology

Gems and Jewellery: equipment and computer-aided manufacturing

Pharmaceuticals and Medicine: Dentists and pharmacists


ICT and Telecommunication: shortage of manpower (technicians) Marine and Seafood: Outdated preservation techniques; Development plans include adoption of advanced technologies and improved training for staff and technicians Oil and Natural Gas: Shortage of technical expertise Automobile parts: Rising labour cost for unskilled labour and the shortage of skilled engineers; Needs upgradation of skills and technology Wood sector: Outdated and unsynchronized machines and tools used for processing of natural wood, especially for the processing of fine products Bamboo sector: Needs capital and updated technology

Textiles and Garments: Human resource training of middle and high class management, technology, and fashion design are weak; Lack of skilled workers with experience in technology Processed Food: Currently, faces deficit in technical experts, lack of high-tech equipments; Imports modern equipments; The government is implementing several programs to enhance food (including Dairy) processing technologies.

Textiles and Garments: skilled textile workers ICT and Telecommunication: IT technicians, engineers

Vietnam

Myanmar


51

52 Increase investment in this sector to tap its full potential: Iron, aluminium, tin and copper

Increase investment in this sector to tap its full potential: gold, copper and base metals, iron ore and other industrial metals such as zirconium, graphite and titanium

Mining

Increase investment in this sector to tap its full potential: mineral fuels, such as coal, natural gas, and crude petroleum

Increase investment in this sector to tap its full potential: chromium, copper, gold, lead, silver, tin, tungsten, and zinc; industrial minerals, such as barite, clays, dolomite, feldspar, gypsum, limestone, precious stones, and salt;


Import from Malaysia: Increase wood imports from Malaysia. Although Malaysia does not offer teak, Indian importers will have to make do with other kinds of wood.

Myanmar

Use of equal Indian standards for testing stainless steel manufactured in India can be adopted and also request acceptance of these test reports by the authorities in Vietnam. Also, Indian agencies may be authorised to conduct testing and certification of Indian manufacturer importer in India as per standards prescribed and the result be accepted under the notification.


Import wood products from Vietnam and Laos in the CLMV region. These economies other than having location proximity can make use of the skilled labour and modern technology that India has to offer in exchange for supplying it high quality wood products and timber.

Vietnam

Sectors with Horizontal Implications across countries 1. Pharma: India should consider organising a “CLMV-India Health Care Seminar “in venue outside India (on the line of CLMV conclave done in India) to get the participation of the regulators and take the agenda of harmonisation of the health sector forward. 2. Processed Food: APEDA should take the lead to propose capacity building program for these countries to evolve their regulatory systems where the ESCAP/ ADB platform can also be considered in areas of organic export, Import control systems including the SPS/TBT protocols etc. 3. Rubber: Rubber Board should examine the possibility of investments in plantation sector to source rubber from CLMV especially Vietnam keeping in mind the future requirement of rubber in the auto industry. 4. Project Exports: EXIM bank should take up project exports also in the region as there is not much visible presence of India in this region.

Steel (w.r.t to an order requiring to announce the applying s t a n d a r d for goods in the relevant import contract for customs clearance)

Hydrocarbons

Import wood products from Vietnam and Laos in the CLMV region. These economies other than having location proximity can make use of the skilled labour and modern technology that India has to offer in exchange for supplying it high quality wood products and timber. Substitute Wood with Bamboo: Substituting bamboo with timber seems to be the most viable and green solution especially for the long run and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies.


Agriculture Timber (w.r.t to the ban on export of raw timber effective from April 1, 2014 in Myanmar)

Laos

Cambodia

Sectors

Sectoral Considerations India’s Strategy for Economic Integration with CLMV


Table 22: Theme-Specific Policy Recommendations Focus Sectors/ Areas for India

Policy Recommendations

Trade in Goods

Prioritisation of areas in identified Sectors for trade: Leather, Textiles, Garments, Oil and Gas, Engineering Use of equivalent Indian standards for testing stainless steel manufactured in India that can be adopted and also request acceptance of these test reports by the authorities in Vietnam. Also, Indian agencies may be authorized to conduct testing and certification of Indian manufacturer importer in India as per standards prescribed and the result be accepted under the notification. To combat the effect of ban on export of raw timber from Myanmar: Import wood from Malaysia, import wood products from Laos and Vietnam and substituting wood for bamboo and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies. Utilizing China-ASEAN FTA: Detailed empirical exercise identified products at HS 6 digit level which if exported by manufacturing in CLMV to the Chinese market under the China-ASEAN FTA in goods, additional export expansion to the tune of US$ 100 billion is feasible via normal track, sensitive track and highly sensitive track, combined. This can thus be an important component of overall strategy of India to integrate with the CLMV region especially harnessing the possibilities of manufacturing led exports from the CLMV region with the help of Indian OFDI. (Items that can be focused under this are identified as in Annexure 1)

Trade in Services

Relevant Service exports in the identified sectors: IT, especially in Myanmar, Offshore consultancy and onsite BPO, Urban development related services, transport, energy, engineering, architectural, Mode of services: both offshore project design and onsite project implementation and Health services

O-FDI

Have a national level O-FDI strategy, address protective dimensions of CLMV FDI regimes, Investment security/protection, Mechanism: discussion with counterparts and bilateral treaties, create business forum, web-portal, visa facilitation. Sectors: Leather and Footwear, Infrastructure, Oil, Mining, Pharma, Textile, power, automobiles. Partnership Framework Development for Infrastructure in CLMV Countries: The concept of Project Development Company (PDC) for the CLMV is basically conceived to optimize on the existing Trade Institutions/infrastructure in these countries to get access to countries/ region where India does not have presence. India can also work on the space and opportunity which is being developed in these countries because of China moving out from the lower manufacturing segment. In addition, there are apprehensions about China in some of these countries on which India can capitalize because of its proximity to the region. The PDC can, therefore, anchor in these countries for the first mover advantage especially in trade and commerce sectors of potential interest to India in which we can integrate into the regional value chains. EXIM Bank should do a seminar with the identified sectors keeping the PDC contours in mind. The seminar can consider inviting the economic administrators from these countries to also familiarise them with the PDC project.

Skills

Capacity building and technical support: Efforts should be made to have a dedicated programme on capacity building for the CLMV countries’ officials, entrepreneurs and academia on various issues of international economic linkages and negotiations. Collaboration between Indian vocational training institutions and young workforce in CLMV countries also needs to be worked out to harness the full potential of creation of RVCs.

53

References

Abonyi, G. 2005. ‘Integrating SMEs into global and regional value chains: implications for sub regional cooperation in the Greater Mekong Sub region’. Paper prepared for UNESCAP: Bangkok. Das, Ram Upendra. 2009. ‘Imperatives of Regional Economic Integration in Asia in the Context of Developmental Asymmetries: Some Policy Suggestions.’ ADBI Working Paper 172, Tokyo: ADBI Exim Bank. 2013.‘India’s Trade and Investment Relations with Cambodia, Lao PDR, Myanmar and Vietnam (CLMV): Enhancing Economic Cooperation’. Occasional Paper No. 161. Gereffi, G., & Fernandez-Stark, K. 2011. ‘Global value chain analysis: a primer’. Center on Globalization, Governance & Competitiveness (CGGC), Duke University, North Carolina, USA. Humphrey, J., & Schmitz, H. 2002. ‘How does insertion in global value chains affect upgrading in industrial clusters?’. Regional Studies, 36(9), 1017-1027. Ishida, M. 2010. ‘Possibility of Relocation or Fragmentation from Advance ASEAN Countries to CLMV Countries: Summary of Survey Results’. In Banomyong, R. and M.Ishida (eds.): A Study on Upgrading Industrial Structure of CLMV Countries. ERIA Research Project Report 2009-7-3, Jakarta: ERIA. Pp.421-470. Investor.com. 2014. ‘Timber - Myanmar’s Log Export Ban Positive for Prices’. Investor.com .March. Jones, R.W., and H. Kierzkowski. 1990. ‘The Role of Services in Production and International Trade: A Theoretical Framework’. In R.W. Jones and A. O. Krueger (eds.): The Political Economy of International Trade: Essays in Honour of Robert E. Baldwin. Oxford: Basil Blackwell. Kimura, F., and A. Obashi. 2011. ‘Production Networks in East Asia: What We Know So Far’. ADBI Working Paper 320. Tokyo: Asian Development Bank Institute. Myanmar B2B Management Magazine.2013. ACUMEN. September. Myanmar Insider.2013. Vol. 1, Issue 1. November. Myanmar Times. 2014.‘Timber trade reeks of corruption’. March. The Economic Times. 2014. ‘Government rebuts World Bank’s report which places India at 134th place on ease of doing business’. 3 September. India. WTO. 2014. ‘Trade Policy Review: Myanmar.’ March. WTO. 2011. ‘Trade Policy Review: Cambodia.’ November. WTO. 2013. ‘Trade Policy Review: Vietnam.’ September.

Annexures

Annexure 1 Utilising China-ASEAN FTA through Manufacturing in CLMV Table A.1: Accessing China via CLMV: Identification of Products where India can access these markets (Normal Track) HS6 digit Product Code

Product Description

India's exports to the World (US$ Million)

2011 90122 90190 121299 151710 170220 190120 190410 190420 190490 200110 200190 200310 200490 200551 200559 200791 200811 200919 200950 210120 210130 210690 220290 220430 220590 220710 220720 291612 291736 370231 370251 370256 390210 390319 390330

-- Decaffeinated (1996-) - Other -- Other - Margarine, excluding liquid margarine - Maple sugar and maple syrup - Mixes and doughs for the preparation of bakers' - Prepared foods obtained by the swelling or roast (1996-) - Prepared foods obtained from unroasted c - Other - Cucumbers and gherkins - Other - Mushrooms of the genus Agaricus - Other vegetables and mixtures of vegetables -- Beans, shelled -- Other -- Citrus fruit -- Ground-nuts -- Other - Tomato juice - Extracts, essences and concentrates, of tea or m - Roasted chicory and other roasted coffee substit - Other - Other - Other grape must - Other - Undenatured ethyl alcohol of an alcoholic streng - Ethyl alcohol and other spirits, denatured, of a -- Esters of acrylic acid -- Terephthalic acid and its salts -- For colour photography (polychrome) (-2011) -- Of a width not exceeding 16 mm and of a -- Of a width exceeding 35 mm - Polypropylene -- Other -Acrylonitrile-butadiene-styrene (ABS) copolymers

0.96 1.74 1.03 0.03 0.05 0.97 18.9 3.81 12.4 104.02 38.88 26.12 15.26 0 2.76 0.08 11.84 0.1 0 34.76 13.07 116.18 5.43 0.23 0.07 77.65 24.66 17.79 13 0.05 0.26 0.04 1187.2 85.11 1.94

China MFN duty 2011

Normal Track, 0% in 2010 under ChinaASEAN FTA

15 20 21 30 30 25 25 30 30 25 25 25 25 25 25 30 30 30 30 32 32 17.6 35 30 65 40 5 6.5 6.5 5 6.5 6.5 6.5

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2012 0.04 1.27 1.09 0.01 0 3.75 16.44 5.26 9.89 113.8 42.28 12.15 17.17 0 0.88 0.04 7.83 0.04 0 36.64 13.4 130.3 6.85 0.04 0 132.2 17.92 22.31 1.94 0.27 0 0.03 39.73 5.04 0.1

Table A.1: continued...

59

India’s Strategy for Economic Integration with CLMV Table A.1: continued...

390410 390421 401199 401220 440410 440420 440500 440810 440831 440839 440890 440910 441299 441300 441510 441820 441890 610210 610323 610329 610413 610423 670411 670419 670490 680911 680990 711319 711320 711411 711419 711420 711590 711610 711620 711711 711790 732490 761010 761290 840810 840991 840999 841430 841840 841861

- Poly(vinyl chloride), not mixed with any other s -- Non-plasticised -- Other - Used pneumatic tyres - Coniferous - Non-coniferous Wood wool; wood flour. - Coniferous (1996-) -- Dark Red Meranti, Light Red Meranti and (1996-) -- Other - Other - Coniferous -- Other Densified wood, in blocks, plates, strips or profi - Cases, boxes, crates, drums and similar packing’s - Doors and their frames and thresholds - Other - Of wool or fine animal hair -- Of synthetic fibres -- Of other textile materials -- Of synthetic fibres -- Of synthetic fibres -- Complete wigs -- Other - Of other materials -- Faced or reinforced with paper or paperboard on - Other articles -- Of other precious metal, whether or not plated - Of base metal clad with precious metal -- Of silver, whether or not plated or clad with o -- Of other precious metal, whether or not plated - Of base metal clad with precious metal - Other - Of natural or cultured pearls - Of precious or semi-precious stones (natural, sy -- Cuff-links and studs - Other - Other, including parts - Doors, windows and their frames and thresholds f - Other - Marine propulsion engines -- Suitable for use solely or principally with spa -- Other - Compressors of a kind used in refrigerating equi - Freezers of the upright type, not exceeding 900 -- Heat pumps other than air conditioning machines

0.86 13.09 536.85 1.55 0 0.38 0 5.8 4.52 2.74 1.06 1.29 14.3 0.49 7.14 7.03 0.25 1.31 21.3 12.54 8.59 13.7 0.01 0.17 0.11 0.09 0.42 13659.9 1.72 44.74 1333.79 264.51 2.1 0.08 4.73 0.55 167.13 4.75 3.99 19.3 12.52 209.42 605.02 25.6 1.18 2.1

18.78 0.29 5.92 0.73 1.37 0.05 0.39 4.23 4.96 7.27 2.03 0.85 0.05 14.27 15.25 0.32 0.23 2.34 10.05 39.94 13.56 37.38 282.2 0.06 2.37 2.23 0.09 923.99 17276.72 0.91 2.23 1195.29 2.23 0.82 0.02 4.52 116.46 1.2 2.25 12.95 35.98 25.6 223.78 2.16 0.53 13

6.5 6.5 25 25 8 8 8 5 5.5 5.5 3.25 7.5 8 6 7.5 4 4 25 25 25 25 25 25 25 25 28 25 30 35 35 35 35 17.5 35 35 35 35 15 25 21 5 4.33 4.35 9.57 18 12.5

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0


60

A nnex u res


841911 841919 842810 848210 848250 850110 850213 850431 850980 851010 851020 851621 851632 851640 851671 851672 851679 852110 854411 870310 870323 870333 870490 870600 870892 870893

-- Instantaneous gas water heaters -- Other - Lifts and skip hoists - Ball bearings - Other cylindrical roller bearings -Motors of an output not exceeding 37.5 W -- Of an output exceeding 375 kVA -- Having a power handling capacity not exceeding - Other appliances - Shavers - Hair clippers -- Storage heating radiators -- Other hair-dressing apparatus - Electric smoothing irons -- Coffee or tea makers -- Toasters -- Other -Magnetic tape-type -- Of copper -Vehicles specially designed for travelling on sno -- Of a cylinder capacity exceeding 1,500 cc but n -- Of a cylinder capacity exceeding 2,500 cc - Other Chassis fitted with engines, for the motor vehicle -- Silencers (mufflers) and exhaust pipes; parts t -- Clutches and parts thereof

2.61 15.18 6.44 44.34 40.92 101.29 40.15 23.49 1.34 0.24 0.03 0.01 0.23 0.29 0.28 0.09 5.05 3.85 61.91 0.63 168.36 10.60 31.7 248.72 8.83 23.52

23.09 2.67 4.42 257.56 8.09 138.87 35.31 130.11 20.43 11.64 0.91 1.4 0 0.02 3.56 0.4 0.06 1.66 84.78 19.02 2634.2 19.35 1.03 30.64 38.06 16.05

35 35 7 8 8 14.17 10 5 21.67 15 30 35 35 17 16 32 24 25 6 25 25 25 25 13 10 8.86

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

870894

-- Steering wheels, steering columns and steering

25.32

23.88

8.86

0

870899

-- Other

1838.29

0.72

13.85

0

871130

-With reciprocating internal combustion piston eng

14.44

1284.82

45

0

871140

-With reciprocating internal combustion piston eng

0.46

27.51

40

0

871190

- Other

0.35

0.09

45

0

890110

- Cruise ships, excursion boats and similar vessel

255.7

15.24

6.5

0

890190

- Other vessels for the transport of goods and oth

430.97

25.27

8.3

0

890400

Tugs and pusher craft.

1251.88

0.01

9

0

900651

-- With a through-the-lens viewfinder (single lens

0.02

0

25

0

920790

- Other

4.45

0.01

30

0

960200

Worked vegetable or mineral carving material and a

48.93

9.72

17.75

0

960330

- Artists' brushes, writing brushes and similar br

12.29

1.52

23.33

0

Source: WITS UN COMTRADE accessed on 22 August 2014, ASEAN China FTA Notes: 1. Wherever the level of exports is 0, it indicates a very small fraction since data is taken up to two decimal points. Figures are taken only for those products where exports have been made in both the years. 2. Tariff lines placed by each Party in the Normal Track on its own accord shall have their respective applied MFN tariff rates gradually reduced and eliminated to 0% not later than 1 January 2010.

61


Table A.2: Accessing China via CLMV: Identification of Products where India can access these markets (Sensitive Track) HS6 Digit Product Code

Product Description

India's exports to the World (US$ Million) 2011

2012

China MFN duty 2011

Sensitive Track, 0-5% in 2018

90111

-- Not decaffeinated

676.32

610.28

8

0-5

90112

-- Decaffeinated

0.02

0.03

8

0-5

90121

-- Not decaffeinated

2.07

0.8

15

0-5

90411

-- Neither crushed nor ground

147.17

95.05

20

0-5

90412

-- Crushed or ground

33.64

49.48

20

0-5

100110

(-2011) - Durum wheat

67.84

610.6

65

0-5

100190

(-2011) - Other

77.32

739.22

65

0-5

100640

- Broken rice

64.79

286.4

65

0-5

110319

-- Of other cereals

0.13

0.83

7.5

0-5

200820

- Pineapples

0.08

0.05

15

0-5

200899

-- Other

12.99

27.18

15.71

0-5

200941

(2002-) -- Of a Brix value not exceeding 20

0

0.02

10

0-5

200949

(2002-) -- Other

0.17

0.33

10

0-5

200980

(-2011) - Juice of any other single fruit or veget

16.47

13.67

20

0-5

240110

- Tobacco, not stemmed/stripped

81.91

90.41

10

0-5

240120

- Tobacco, partly or wholly stemmed/stripped

479.5

598.9

10

0-5

240130

- Tobacco refuse

9.54

10.33

10

0-5

271011

(2002-2011) -- Light oils and preparations

20769.78

22147.84

5.2

0-5

271019

(2002-) -- Other

33178.54

30189.09

4.73

0-5

281511

-- Solid

32.67

39.29

10

0-5

281512

-- In aqueous solution (soda lye or liquid soda)

1.18

1.08

8

0-5

290250

- Styrene

10.28

29.37

2

0-5

290315

-- Ethylene dichloride (ISO) (1,2-dichloroethane)

0.00

0.01

1

0-5

290531

-- Ethylene glycol (ethanediol)

91.17

88.74

5.5

0-5

292610

- Acrylonitrile

12.94

0.12

3

0-5

293371

-- 6-Hexanelactam (epsilon-caprolactam)

47.17

21.17

7

0-5

370110

- For X-ray

1.53

0.79

10

0-5

370130

- Other plates and film, with any side exceeding 2

0.71

0.74

20

0-5

370210

- For X-ray

0.13

0.05

10

0-5

370254

-- Of a width exceeding 16 mm but not exceeding 35

0.01

0

0-5

370255

-- Of a width exceeding 16 mm but not exceeding 35

0.05

0.01

0-5

370310

- In rolls of a width exceeding 610 mm

0.02

0.06

18

0-5

370320

- Other, for colour photography (polychrome)

0.02

0.06

26.5

0-5

370390

- Other

0.1

0.01

26.5

0-5


62

A nnex u res Table A.2: continued...

390760

- Poly(ethylene terephthalate)

530.24

74.35

6.5

0-5

400219

-- Other

10.54

11.58

7.5

0-5

440810

- Coniferous

5.8

4.23

5

0-5

440831

(1996-) -- Dark Red Meranti, Light Red Meranti and

4.52

4.96

5.5

0-5

440839

(1996-) -- Other

2.74

7.27

5.5

0-5

440890

- Other

1.06

2.03

3.25

0-5

441520

- Pallets, box pallets and other load boards; pall

2.33

11.29

7.5

0-5

441810

- Windows, French-windows and their frames

0.1

3.19

4

0-5

480100

Newsprint, in rolls or sheets.

6.75

1.58

5

0-5

480210

- Hand-made paper and paperboard

12.98

6.7

7.5

0-5

480255

(2002-) -- Weighing 40 g/m² or more but not more t

51.82

3.52

5

0-5

480256

(2002-) -- Weighing 40 g/m² or more but not more t

33.4

45.28

5

0-5

480257

(2002-) -- Other, weighing 40 g/m² or more but not

99.92

36.75

5

0-5

480258

(2002-) -- Weighing more than 150 g/m²

13.26

78.18

5

0-5

480261

(2002-) -- In rolls

40.12

4.2

6.25

0-5

480262

(2002-) -- In sheets with one side not exceeding 4

6.35

43.55

5

0-5

480269

(2002-) -- Other

14.98

25.93

6.25

0-5

480411

-- Unbleached

1.49

10.38

5

0-5

480419

-- Other

0.98

2.84

5

0-5

480421

-- Unbleached

0.4

0.41

5

0-5

480429

-- Other

0.82

0.35

5

0-5

480431

-- Unbleached

2.13

0.73

2

0-5

480439

-- Other

4.94

0.99

2

0-5

480441

-- Unbleached

0.06

4.74

2

0-5

480449

-- Other

0.31

0.05

2

0-5

480451

-- Unbleached

1.02

0.29

2

0-5

480459

-- Other

0.59

1.8

2

0-5

480610

- Vegetable parchment

0.21

2.11

7.5

0-5

480620

- Greaseproof papers

0.02

0.39

7.5

0-5

480630

- Tracing papers

0.3

0.03

7.5

0-5

480640

- Glassine and other glazed transparent or translu

0.24

0.44

5

0-5

481013

(2002-) -- In rolls

10.2

0.72

5

0-5

481014

(2002-) -- In sheets with one side not exceeding 4

0.56

8.5

5

0-5

481019

(2002-) -- Other

49.16

0.13

5

0-5

481022

(2002-) -- Light-weight coated paper

0.03

29.05

5

0-5

481029

-- Other

2.28

0

5

0-5

481031

-- Bleached uniformly throughout the mass and of w

0.06

1.05

5

0-5

481032

-- Bleached uniformly throughout the mass and of w

0.01

0.01

5

0-5

481039

-- Other

0.73

0.18

5

0-5

481092

(2002-) -- Multi-ply

6.34

0.67

5

0-5


63

India’s Strategy for Economic Integration with CLMV Table A.2: continued...

481099

-- Other

69.59

12.95

7.5

0-5

481110

-Tarred, bituminised or asphalted paper and paperb

0.28

48.78

7.5

0-5

481141

(2002-) -- Self-adhesive

14.34

0.1

7.5

0-5

481149

(2002-) -- Other

1.55

22.84

7.5

0-5

481151

(2002-) -- Bleached, weighing more than 150 g/m²

0.41

1.61

4.25

0-5

481159

(2002-) -- Other

20.86

0.88

7.5

0-5

481160

(2002-) - Paper and paperboard, coated, impregnate

3.44

20.44

7.5

0-5

481190

- Other paper, paperboard, cellulose wadding and w

38.5

3.19

7.5

0-5

481410

(-2011) - “Ingrain” paper

0

2.29

7.5

0-5

481420

-Wallpaper and similar wall coverings, consisting

0.11

0

7.5

0-5

481490

- Other

1.16

0.05

7.5

0-5

481710

- Envelopes

2.05

0.54

7.5

0-5

481720

- Letter cards, plain postcards and correspondence

0.11

2.03

7.5

0-5

481730

- Boxes, pouches, wallets and writing compendiums,

1.60

0.09

7.5

0-5

481830

-Tablecloths and serviettes

1.27

0.15

7.5

0-5

481910

- Cartons, boxes and cases, of corrugated paper or

26.04

1.97

5

0-5

481920

- Folding cartons, boxes and cases, of non-corruga

33.13

30.9

5

0-5

481940

- Other sacks and bags, including cones

2.19

1.3

7.5

0-5

481950

- Other packing containers, including record sleev

8.6

2.68

7.5

0-5

481960

- Box files, letter trays, storage boxes and simil

1.25

9.58

7.5

0-5

482010

- Registers, account books, note books, order book

47.69

2.39

7.5

0-5

482020

- Exercise books

39.53

52.67

7.5

0-5

482030

- Binders (other than book covers), folders and fi

1.06

47.62

7.5

0-5

482050

- Albums for samples or for collections

0.34

0.05

7.5

0-5

482090

- Other

5.64

0.27

7.5

0-5

482110

- Printed

12.55

5.31

7.5

0-5

482190

- Other

6.3

16.24

7.5

0-5

482210

- Of a kind used for winding textile yarn

0.7

7.78

7.5

0-5

482290

- Other

2.42

0.42

7.5

0-5

482340

- Rolls, sheets and dials, printed for self-record

0.57

0.55

7.5

0-5

482370

-Moulded or pressed articles of paper pulp

3.02

3.09

7.5

0-5

490700

Unused postage, revenue or similar stamps of curre

43.76

1.4

3.75

0-5

490810

- Transfers (decalcomanias), vitrifiable

0.67

4.9

7.5

0-5

490890

- Other

0.43

0.2

7.5

0-5

490900

Printed or illustrated postcards; printed cards be

5.26

0.45

7.5

0-5

491000

Calendars of any kind, printed, including calendar

4

4.33

7.5

0-5

491110

- Trade advertising material, commercial catalogue

6.48

3.76

3.75

0-5

491191

-- Pictures, designs and photographs

0.48

11.08

7.5

0-5

491199

-- Other

19.63

0.28

7.5

0-5

510119

-- Other

0.61

19.16

38

0-5

510129

-- Other

1.13

0.49

38

0-5


64


510310

- Noils of wool or of fine animal hair

7.11

0.21

23.5

0-5

520100

Cotton, not carded or combed.

3388.97

0.17

0-5

520542

-- Measuring per single yarn less than 714.29 deci

17.84

4.59

5

0-5

520911

-- Plain weave

46.45

24.38

10

0-5

540233

-- Of polyesters

537.08

1.07

5

0-5

540251

-- Of nylon or other polyamides

3.65

0.51

5

0-5

540252

-- Of polyesters

14.76

3.35

5

0-5

550120

- Of polyesters

0.45

0.12

5

0-5

550130

- Acrylic or modacrylic

23.99

0.28

5

0-5

550320

- Of polyesters

294.78

0.14

5

0-5

550330


12.37

261.63

5

0-5

550620

- Of polyesters

0.17

0.11

5

0-5

550630


1.54

0.03

5

0-5

830120

- Locks of a kind used for motor vehicles

22.58

1.36

10

0-5

840734

-- Of a cylinder capacity exceeding 1,000 cc

10.51

0.29

10

0-5

840820

- Engines of a kind used for the propulsion of veh

55.07

7.66

17

0-5

841520

(1996-) - Of a kind used for persons, in motor veh

0.66

7.21

10

0-5

851220

- Other lighting or visual signalling equipment

38.35

2.38

10

0-5

851230

- Sound signalling equipment

25.6

47.92

10

0-5

851240

-Windscreen wipers, defrosters and demisters

6.26

19.94

10

0-5

851531

-- Fully or partly automatic

2.77

1.35

10

0-5

854430

- Ignition wiring sets and other wiring sets of a

98.78

29.93

7.5

0-5

870120

- Road tractors for semi-trailers

12.31

0.64

6

0-5

870290

- Other

4.75

231.66

25

0-5

870422

-- g.v.w. exceeding 5 tonnes but not exceeding 20

123.50

325.63

20

0-5

870423

-- g.v.w. exceeding 20 tonnes

44.23

175.33

15

0-5

870431

-- g.v.w. not exceeding 5 tonnes

1.15

65.53

25

0-5

870432

-- g.v.w. exceeding 5 tonnes

0.12

0.1

20

0-5

870600

Chassis fitted with engines, for the motor vehicle

248.72

30.64

13

0-5

870829

-- Other

41.06

5.23

10

0-5

870840

- Gear boxes and parts thereof

189.05

115.78

9

0-5

870850

- Drive-axles with differential, whether or not pr

95.25

201.85

9.21

0-5

890120

-Tankers

24.5

229.02

7.91

0-5

890190

- Other vessels for the transport of goods and oth

430.97

25.27

8.3

0-5

890590

- Other

1851.64

622.05

5.5

0-5

940120

- Seats of a kind used for motor vehicles

8.54

0.58

10

0-5

940190

- Parts

17.48

5.36

3.33

0-5

Source: WITS UN COMTRADE accessed on 22 August 2014, ASEAN China FTA. Notes: 1. Wherever the level of exports is 0, it indicates a very small fraction since data is taken up to two decimal points. Figures are taken only for those products where exports have been made in both the years. 2. ASEAN 6 and China shall reduce the applied MFN tariff rates of tariff lines placed in their respective Sensitive Lists to 20% not later than 1 January 2012. These tariff rates shall be subsequently reduced to 0-5% not later than 1 January 2018.

65


Table A.3: Accessing China via CLMV: Identification of Products where India can access these markets (Highly Sensitive Track) HS6 Digit Product Code

India's exports to the World (US$ Million)

Product Description

2011

2012

China MFN duty 2011

Highly Sensitive Track, ≤50% in 2015

100510

- Seed

16.92

15.27

20

≤50

100590

- Other

1067.1

1117.29

65

≤50

100610

- Rice in the husk (paddy or rough)

23.8

85.61

65

≤50

100620

- Husked (brown) rice

1.43

45.63

65

≤50

100630

- Semi-milled or wholly milled rice, whether or no

3983.31

5710.32

65

≤50

110100

Wheat or meslin flour.

32.4

78.8

65

≤50

110220

- Maize (corn) flour

0.62

0.47

40

≤50

110311

-- Of wheat

0.46

0.8

65

≤50

110313

-- Of maize (corn)

13.16

12.27

65

≤50

110320

(2002-) - Pellets

0.32

0.24

42.5

≤50

110423

-- Of maize (corn)

0.55

1.13

65

≤50

150710

- Crude oil, whether or not degummed

13.08

0

9

≤50

150790

- Other

0.95

1.22

9

≤50

151190

- Other

1.67

0.27

8.67

≤50

151411

(2002-) -- Crude oil

0.03

0.04

9

≤50

151419

(2002-) -- Other

0.14

0.13

9

≤50

151491

(2002-) -- Crude oil

2.73

2.5

9

≤50

151499

(2002-) -- Other

0.64

0.56

9

≤50

170111

(-2011) -- Cane sugar

601.32

1008.7

50

≤50

170112

-- Beet sugar

4.95

2.3

50

≤50

170191

-- Containing added flavouring or colouring matter

15.65

10.71

50

≤50

170199

-- Other

1291.76

980.23

50

≤50

240210

- Cigars, cheroots and cigarillos, containing toba

2.2

0.86

25

≤50

240290

- Other

0.13

0.27

25

≤50

240310

(-2011) - Smoking tobacco, whether or not containi

22.43

24.7

57

≤50

240391

-- “Homogenised” or “reconstituted” tobacco

0

0.05

57

≤50

240399

-- Other

132.85

113.53

57

≤50

310210

- Urea, whether or not in aqueous solution

8.33

20.32

50

≤50

310530

- Diammonium hydrogenorthophosphate (diammonium ph

4.95

31.39

50

≤50

370241

-- Of a width exceeding 610 mm and of a length exc

0.01

0.02

≤50

390110

- Polyethylene having a specific gravity of less t

62.98

0.37

6.5

≤50

390120

- Polyethylene having a specific gravity of 0.94 o

327.13

46.7

6.5

≤50

400110

- Natural rubber latex, whether or not pre-vulcani

50.27

409.95

≤50

400121

-- Smoked sheets

103.09

17.26

≤50


66


400122

-- Technically specified natural rubber (TSNR)

5.45

19.72

≤50

400129

-- Other

22.85

2.36

20

≤50

441090

- Other

0.84

0.02

7.5

≤50

441400

Wooden frames for paintings, photographs, mirrors

11.46

1.76

20

≤50

441600

Casks, barrels, vats, tubs and other coopers' prod

0.22

1.87

16

≤50

441700

Tools, tool bodies, tool handles, broom or brush b

3.17

0.1

16

≤50

480220

- Paper and paperboard of a kind used as a base fo

6.69

10.33

6.25

≤50

480240

- Wallpaper base

1.11

6.5

7.5

≤50

480254

(2002-) -- Weighing less than 40 g/m²

4.03

0.03

7.5

≤50

480300

Toilet or facial tissue stock, towel or napkin sto

7.8

20.91

7.5

≤50

480511

(2002-) -- Semi-chemical fluting paper

0.03

0.74

7.5

≤50

480512

(2002-) -- Straw fluting paper

0.02

0.14

7.5

≤50

480519

(2002-) -- Other

0.24

0.04

7.5

≤50

480524

(2002-) -- Weighing 150 g/m² or less

0.19

0.76

7.5

≤50

480525

(2002-) -- Weighing more than 150 g/m²

0.1

0.1

7.5

≤50

480530

- Sulphite wrapping paper

0

0.01

7.5

≤50

480540

- Filter paper and paperboard

1.4

0

7.5

≤50

480550

- Felt paper and paperboard

0.04

1.03

7.5

≤50

480591

(2002-) -- Weighing 150 g/m² or less

7.96

0.04

7.5

≤50

480592

(2002-) -- Weighing more than 150 g/m² but less th

2.93

1.14

7.5

≤50

480593

(2002-) -- Weighing 225 g/m² or more

2.8

2.11

7.5

≤50

480700

(2002-) Composite paper and paperboard (made by st

0.75

0.22

7.5

≤50

480810

- Corrugated paper and paperboard, whether or not

0.27

1.15

7.5

≤50

480820

(-2011) - Sack kraft paper, creped or crinkled, wh

0.02

0.34

7.5

≤50

480830

(-2011) - Other kraft paper, creped or crinkled, w

0.63

0

7.5

≤50

480890

- Other

0.46

0.18

7.5

≤50

480920

- Self-copy paper

0.06

1.11

7.5

≤50

480990

- Other

0.6

0.22

7.5

≤50

481200

Filter blocks, slabs and plates, of paper pulp.

0.09

39.21

7.5

≤50

481310

- In the form of booklets or tubes

0.04

0.05

7.5

≤50

481320

- In rolls of a width not exceeding 5 cm

0.37

0.02

7.5

≤50

481390

- Other

2.31

1.11

7.5

≤50

481620

- Self-copy paper

3.67

0.16

7.5

≤50

481690

- Other

1.21

3.31

7.5

≤50

481810

-Toilet paper

1.81

1.45

7.5

≤50

481820

- Handkerchiefs, cleansing or facial tissues and t

0.1

3.48

7.5

≤50

481830

-Tablecloths and serviettes

1.27

0.15

7.5

≤50

481840

(-2011) - Sanitary towels and tampons, napkins and

3.41

1.29

7.5

≤50

481890

- Other

2.32

0.06

7.5

≤50

482320

- Filter paper and paperboard

0.81

0.66

7.5

≤50

482390

- Other

138.38

3.75

7.5

≤50


67



510510

- Carded wool

0.09

0.39

38

≤50

510521

-- Combed wool in fragments

0.08

0.01

38

≤50

510529

-- Other

56.78

0.03

38

≤50

520300

Cotton, carded or combed.

0.68

58.62

40

≤50

870210

-With compression-ignition internal combustion pis

228.48

784.81

19.75

≤50

870321

-- Of a cylinder capacity not exceeding 1,000 cc

1145.50

0.41

25

≤50

870322

-- Of a cylinder capacity exceeding 1,000 cc but n

2142.70

1135.02

25

≤50

870323


168.36

2634.2

25

≤50

870324

-- Of a cylinder capacity exceeding 3,000 cc

3.00

363.14

25

≤50

870331

-- Of a cylinder capacity not exceeding 1,500 cc

46.47

4.5

25

≤50

870332


56.50

39.18

25

≤50

870421

-- g.v.w. not exceeding 5 tonnes

182.27

710.99

25

≤50

Source: WITS UN COMTRADE accessed on 22 August 2014, ASEAN China FTA. Notes: 1. Wherever the level of exports is 0, it indicates a very small fraction since data is taken up to two decimal points. Figures are taken only for those products where exports have been made in both the years. 2. The Parties shall reduce the applied MFN tariff rates of tariff lines placed in their respective Highly Sensitive Lists to not more than 50% not later than 1 January 2015 for ASEAN 6 and China, and 1 January 2018 for the newer ASEAN Member States.

Table A.4: Accessing China via CLMV: Identification of products where India can potentially access these markets (Normal Track) HS6 Digit Product code

Product description

China's MFN Duty 2011

Normal Track, 0% in 2010

200560

- Asparagus

25

0

220510

- In containers holding 2 litres or less

65

0

890130

- Refrigerated vessels, other than those of subheading 8901.20

9

0

890200

Fishing vessels; factory ships and other vessels for processing or preserving fishery products.

7.5

0

Source: WITS UN COMTRADE accessed on 22 August 2014, ASEAN China FTA. Notes: 1. wherever the level of exports is 0, it indicates a very small fraction since data is taken up to two decimal points. Figures are taken only for those products where exports have been made in both the years. 2. Tariff lines placed by each Party in the Normal Track on its own accord shall have their respective applied MFN tariff rates gradually reduced and eliminated to 0% not later than 1 January 2010.

68

A nnex u res

Table A.5: Accessing China via CLMV: Identification of products where India can potentially access these markets (Sensitive Track) HS6 Digit Product code


Product description

Sensitive Track, 0-5% in 2018

370293

(-2011) -- Of a width exceeding 16 mm but not exceeding 35 mm and of a length not exceeding 30m

0-5

370294

(-2011) -- Of a width exceeding 16 mm but not exceeding 35 mm and of a length exceeding 30m

0-5

480442

-- Bleached uniformly throughout the mass and of which more than 95% by weight of the total fibre content consists of wood fibres obtained by a chemical process

5

0-5

480452

-- Bleached uniformly throughout the mass and of which more than 95% by weight of the total fibre content consists of wood fibres obtained by a chemical process

5

0-5

510111

-- Shorn wool

38

0-5

510121

-- Shorn wool

38

0-5

510130

- Carbonised

38

0-5

Source: WITS UN COMTRADE accessed on 22 August 2014, ASEAN China FTA. Notes: 1.Wherever the level of exports is 0, it indicates a very small fraction since data is taken up to two decimal points. Figures are taken only for those products where exports have been made in both the years. 2. ASEAN 6 and China shall reduce the applied MFN tariff rates of tariff lines placed in their respective Sensitive Lists to 20% not later than 1 January 2012. These tariff rates shall be subsequently reduced to 0-5% not later than 1 January 2018.

Table A.6: Accessing China via CLMV: Identification of products where India can potentially access these markets (Highly Sensitive Track) HS6 Digit Product code

Product description


Highly Sensitive Track, ≤50% in 2015

151110

- Crude oil

9

≤50

310520

- Mineral or chemical fertilizers with Nitrogen

50

≤50

access these markets (Highly Sensitive Track) Source: WITS UN COMTRADE accessed on 22 August 2014, ASEAN China FTA. Notes: 1. wherever the level of exports is 0, it indicates a very small fraction since data is taken up to two decimal points. Figures are taken only for those products where exports have been made in both the years. 2. The Parties shall reduce the applied MFN tariff rates of tariff lines placed in their respective Highly Sensitive Lists to not more than 50% not later than 1 January 2015 for ASEAN 6 and China, and 1 January 2018 for the newer ASEAN Member States.

69

Annexure II Trade Regime Cambodia1 Government of Cambodia has been taking several initiatives to expand market access through trade agreements and improve Cambodia’s international competitiveness. It grants MFN status to all of its trading partners. Cambodia was the first LDC to become member of the WTO via full accession process in October 2004.It has also been a member of ASEAN since 1999 in addition to being a beneficiary of the Generalised Scheme of Preferences (GSP) operated by developed economies. Cambodian economy heavily relies on tourism and exports of garments and in order to diversify this narrow economic base, the government introduced a trade development agenda in 2008 known as SectorWide Approach (SWAp) to trade. The main aim of this approach is to focus on reforms and cross-cutting issues for trade development (legal reforms, trade facilitation, TBT and SPS regulation and practice); development of product and service sector export and capacity building for trade development. In addition, SWAp also serves as Cambodia’s Aid-for-Trade (AfT) strategy and has served to reinforce Cambodia’s ownership and management of AfT. Cambodia has radically reformed its tariff structure (Cambodia has bound 100 per cent of tariff lines. The overall average bound duty rate is 20.1 per cent while the average applied rate of duty is 11.7 per cent) besides reducing the heavy dependence on trade-related taxes. In order to streamline and enhance the effectiveness of customs operations and to facilitate trade, Cambodia has been reforming its custom regime. This includes preparing way for fulfilling its commitments to ASEAN

70

to move to the Common Effective Preferential Tariff (CEPT) scheme, to adhere to the 1999 Revised Kyoto Convention, and to implement the WTO Agreement on Customs Valuation. It also includes establishing a TBT enquiry point and a drive for full SPS compliance. However, it is the intensity of efforts to reinforce and simplify the institutional framework for consistent policy making and to endorse export and market diversification which will determine the pace and sustainability of Cambodia’s economic growth in the long run.

Laos 2 The Lao People’s Democratic Republic (PDR) gradually began its transition from a centrally planned to a market economy in 1986. Lao PDR is aiming to join the World Trade Organisation (WTO) in 2010 and further trade reforms associated with the country’s accession process continue. It is party to the Association of Southeast Asian Nations (ASEAN) free trade agreement (AFTA) and complies with the agenda of tariff elimination. Over three quarters of imports are sourced from its ASEAN neighbours, with 69 per cent from Thailand. Since the 2000s, the Lao PDR’s MFN applied simple average tariff has not changed much, and remained at 9.7 per cent in 2008, slightly above the East Asia Pacific (EAP) regional average (9.3 per cent) and below the average for low income countries. It ranks 101st of 181 countries, where 1st indicates the most open regime. When weighted by actual imports, the average tariff rises to 14.9 per cent. Agriculture receives significantly more protection than nonagricultural goods, with average tariffs of 19.4 and 8.3 per cent respectively. The maximum MFN applied tariff, excluding alcohol and tobacco, is relatively low at 40 per cent, compared to the EAP region and low-income

A nnex u res

country group means of 136.1 per cent and 78.1 per cent respectively. Lao PDR submitted to the WTO an offer of market access to services in 2008. Services liberalisation in air transport, tourism, telecommunications, and healthcare is expected in the context of ASEAN’s agenda of services liberalisation in 2010, when members will be allowed to own 70 per cent of firms in these sectors In order to cushion the impact of rising global prices for food, the government imposed a series of localised mechanisms whereby temporary rice export bans could be imposed at the province level. Rising prices for fuel also prompted the government to ease import tariffs by fixing the price at which duties are assessed for petroleum products at their April 2008 level. Due to the limited exposure of the financial system to global financial markets, Lao PDR has been less affected by the global financial crisis than its neighbouring countries. To cope with the impacts of the global recession and the expected decline in exports, the government increased tariffs on the imports of some luxury products, provided credit to boost output in the infrastructure sector, and temporarily decreased power charges for mining companies. Although most imports were subject to non-automatic licensing up to m id 2009, a new Prime Minister’s Decree was issued in July 2009 providing for automatic import licensing for all goods outside a negative list. A draft notification of the import prohibited and controlled lists reduces the number of items compared to the 2006 notification. Also in July 2009, the National Assembly approved a new investment law which merges separate foreign and domestic investment laws, provides for national treatment of domestic and foreign investors, and streamlines the investment approval process.

Myanmar 3 Reforms since 2010 have paved the way for Myanmar’s reintegration into the international community, after having been isolated from

a large part of the global economy for many years. Consequently, real GDP growth has been rising; it was estimated at 5.9 per cent in 2011/12 and 6.4 per cent in 2012/13. Myanmar’s per capita GDP was around US$900 at the end of March 2012. Myanmar has embarked on a series of reforms in its macroeconomic policies. On 1 April 2012, the Central Bank of Myanmar replaced a pegged exchange rate (to the SDR) with a managed floating exchange rate for the national currency. Prior to the reform, Myanmar had a multiple exchange rate regime comprising both the official exchange rate and the informal parallel market exchange rates. Previously, monetary policy in Myanmar was determined by the financing needs of the fiscal deficit, which resulted in high inflation. With a view to providing greater operational autonomy to the Central Bank and improving the monetary transmission mechanism, the new Central Bank Law was enacted on 11 July 2013. The new law provides for Central Bank autonomy, enabling it to function independently of the Ministry of Finance. Myanmar is an original member of the WTO and considers that the multilateral trading system can bring a wide range of opportunities for Myanmar’s exports and overcome its supply-side constraints. At the same time, Myanmar’s trade policy is strongly influenced by its participation in ASEAN, and ASEAN’s free-trade agreements with third countries. Myanmar expects to benefit from GSP schemes reinstated by the EU and Norway. Myanmar has not been party to any dispute settlement proceeding at the WTO, as complainant, respondent, or third party. In the context of economic reforms, the Government has adopted measures to open up the economy and has been revising traderelated legislation. Myanmar is preparing a competition law, a Consumer Protection Law, and comprehensive IPR legislation, among others. Recognising that the economy needs 71


foreign capital and technology for continuous and sustainable development, the Government promulgated the new Foreign Investment Law in 2012, which generally allows FDI except in activities that are restricted or prohibited. Under the Law, tax incentives are granted on profits accrued from exports, and foreign companies must employ a local workforce on the basis of increasing the share of local employees over time. Myanmar has bound 18.5 per cent of its tariff lines at the HS eight-digit level. All agricultural lines (WTO definition) are bound, compared with only 5.7 per cent of non-agricultural lines. Final bound tariffs range from 0 per cent (e.g. electrical machinery and transport equipment) to 550 per cent (e.g. chemicals, beverages, and tobacco, and cereals and preparations). The average applied MFN tariff was 5.5 per cent in 2013. Myanmar grants at least MFN treatment to all its trading partners. Myanmar has not yet applied the provisions of the WTO Customs Valuation Agreement. It has no anti-dumping, countervailing, safeguards or subsidies legislation in Myanmar. In 2012, Myanmar began to reform its nonautomatic import licensing regime. Previously, importers of all merchandise required a nonautomatic import licence before import, and it took several weeks to obtain an import licence. In April 2013, import licensing requirements for 166 products (over 1,928 tariff lines at the HS eight-digit level) were abolished. Myanmar does not impose tariff-rate quotas. Myanmar has not made a notification regarding its statetrading activities to the WTO. Myanmar is neither party to nor an observer of the WTO Agreement on Government Procurement. Exporters of most products require an export licence. Recently, Myanmar began restructuring its export licensing regime, and from 2013, 152 types of goods no longer require export licences. Myanmar also reformed its export tax regime in 2011. Prior to the reform, exporters

72

had to pay commercial tax at a rate of 8 per cent, and income tax at a rate of 2 per cent before exporting goods. Currently, commercial tax is levied on exports of only five commodities (gem, gas, crude oil, teak, and timber). Tax accounts for about 90 per cent of total government revenue, and the largest source is commercial tax. However, 70 items are exempt from commercial tax if produced domestically, while imports are subject to a 5 per cent tax, indicating different treatment for domestically produced and imported goods. According to the authorities, the private sector’s share in GDP was about 91 per cent in 2011/12. Currently, there are 41 state-owned economic enterprises. Agriculture accounted for about 30 per cent of GDP in 2012/13. Labour productivity in agriculture is less than one third of the level in the rest of the economy, probably due to the high labour/low capital structure of the sector with small farms and few machines. Main crops include rice, maize, pulses and beans, sugarcane, and cotton. Myanmar is a net food exporter. Myanmar’s simple applied MFN tariffs on agricultural products (HS01-24) and industrial products (HS25-97) were 9.0 per cent and 4.8 per cent, respectively, in 2013. Services account for about 38 per cent of Myanmar’s GDP. The main services activities included trade and transport/communications. Myanmar is a net importer of services. In the context of the General Agreement on Trade in Services, Myanmar made specific commitments in tourism and travel-related services, and transport services; it has not made horizontal commitments or listed any MFN exemptions. In general, services are characterised by state involvement through state-owned companies and restrictions on private-sector and foreign involvement. While FDI is not entirely prohibited, no foreign companies have been conducting banking or insurance businesses (except for representative offices of foreign banks). The Government is in the process of

A nnex u res

formally issuing two new nationwide basic telecommunications licences; the two licensees are to involve foreign companies. No exclusive rights are accorded to any company in civil aviation or maritime transport. Foreign direct investment, with foreign-equity participation up to 100 per cent, is allowed in the hotels and related businesses.

Vietnam 4 Following its WTO accession, Vietnam experienced a surge in foreign direct investment. FDI inflows and the total value of licensed projects peaked in 2008 but the latter declined as a result of investors’ worries, while FDI outflows grew five-fold between 2007 and 2011. Nevertheless, the country remains an attractive destination for foreign investors and has long-term growth potential. The contribution of foreign-invested enterprises to GDP, employment, and exports as well as product and market diversification have been noteworthy, although state involvement in the economy in certain activities remains relatively high, albeit declining. Vietnam went a long way in equalising the treatment accorded to Vietnamese and foreign investors with the promulgation of its enterprise and investment laws in 2005. However, some differences remain and may lead to differing interpretations, particularly when a foreign investor acquires a locally owned business. The establishment of a one stop shop system for business registration and investment licensing is a long-standing issue, and could help to address occasional allegations of inconsistent and uncoordinated implementation of laws and regulations by the responsible government agencies. Private ownership of land is not permitted in Vietnam, but land may be leased on long-term agreements. Private-public partnership projects have been implemented on a pilot basis since early 2011 to stimulate private investment in infrastructure.

Trade Policy Framework Vietnam’s hierarchy of legal documents comprises 12 levels, determined by the type of legislation and the issuing institution. Legislation issued by a lower state organ must be consistent with the legal documents of higher state organs. However, it is not always evident whether new legislation abrogates or supplements existing legislation. Ministries continue to rely on official letters, notices, or guidelines to set policy and clarify implementation issues, although the law on promulgation of legal documents stipulates that such communications have no legal or binding effect. The Ministry of Industry and Trade plays a leading role on international trade issues, although many other ministries and agencies also deal with trade-related matters. The National Committee for International Economic Co-operation serves as a coordinating body between the ministries and line agencies. Since Vietnam became a WTO Member, some 130 notifications have been submitted to the Secretariat in a number of areas. Notable gaps include agricultural and industrial subsidies, for which data remain unavailable (since 2007), and state trading, where Vietnam has provided no information despite the importance of the public sector in its economy. Concerns have been raised in the Committee on Import Licensing regarding the timeliness and completeness of information provided by Vietnam. Vietnam joined ASEAN in 1995 and is thus part of its comprehensive framework for trade in goods, services, and investment. Vietnam pursues trade liberalisation in Asia and the Pacific together with its ASEAN partners complemented by additional bilateral initiatives. Vietnam has taken advantage of these agreements to boost exports of competitive product lines, e.g. in agriculture, fisheries, textiles, footwear, and furniture. Vietnam has

73


been a full participant in the negotiations on a Trans-Pacific Partnership Agreement since November 2010, and is negotiating bilateral FTAs with the EU, the members of EFTA, the customs union of Belarus, Kazakhstan, and the Russian Federation, and Korea.

Trade Policy Developments Vietnam bound the entire tariff schedule in the context of its WTO accession, and mostly in the 0-40 per cent range. The simple average MFN tariff has declined significantly, from 18.5 per cent in 2007 to 10.4 per cent in 2013, as Vietnam has been phasing-in its tariff concessions. However, differences between bound and applied rates have left some scope for flexibility, and Vietnam has made use of this, inter alia, to reduce fluctuations in domestic energy prices, and to provide additional protection to selected industries since 2008. Tariff rate quotas regulate imports of eggs, sugar, unmanufactured tobacco and tobacco refuse, and salt. A special consumption tax is levied on certain goods and services including cigarettes, alcoholic beverages, motor vehicles, motor cycles, and golf and gambling services. Tax rates were equalised on imported and domestically produced alcoholic beverages as a result of Vietnam’s WTO accession. Nevertheless, valuation differences in the tax base may provide an advantage to local producers. Vietnam introduced an environmental protection tax on five product categories with effect from 1 January 2012, in part replacing earlier surcharges on various fuels. Valueadded tax, which is levied at a general rate of 10 per cent, constitutes almost one third of the Government’s total tax revenue, while trade taxes seem to account for one tenth. As for non-tariff measures, Vietnam prohibits the importation of goods generally considered harmful to human health and safety, or national security. Import restrictions may be applied to comply with international treaties and conventions to which Vietnam is a party. 74

“Line management”, i.e. licences issued by the Ministry of Industry and Trade for imports regulated by other ministries, is applied to the importation of various goods. According to the authorities, the system includes automatic and non-automatic licensing procedures. In 2008, Vietnam introduced what it considers to be automatic licensing for a wide range of consumer products and agricultural items. The product coverage was extended in 2010, reduced somewhat in 2011, and temporarily suspended as from September 2012. However, certain steel products are still affected by this measure. In April 2010, the Ministry of Industry and Trade issued a long list of “non-essential” imported commodities and consumer goods not encouraged for import, and the State Bank of Vietnam discourages the granting of loans by credit institutions to finance imports of such items. A requirement to channel all imports of wines, spirits, cosmetics, and mobile phones through three seaports only was in effect from May 2011 until the end of 2012. Although Vietnam has legislation and institutions to conduct anti-dumping and countervailing investigations, no such action has been taken. An investigation into possible safeguard measures on imported float glass was terminated with no safeguards imposed in February 2010. In an ongoing investigation on certain imported vegetable oils, the imposition of a provisional safeguard measure (5 per cent additional duty) was announced in May 2013. Standards and technical regulations are drawn up by technical committees with support from the Directorate for Standards, Metrology and Quality (STAMEQ), under the Ministry of Science and Technology. STAMEQ, which is the WTO TBT enquiry point, also represents Vietnam in a number of international and regional standards organisations and its subsidiary bodies are responsible for metrology, conformity assessment, quality assurance, and certification. Accreditation of laboratories is the responsibility of the Bureau

A nnex u res

of Accreditation, also under the Ministry but not part of STAMEQ. At the end of 2012, Vietnam had 6,800 national standards, 40 per cent of which were harmonized with international, regional, or foreign standards, and 116 technical committees with plans to complete 813 standards in 2013. A number of government ministries are responsible for sanitary and phytosanitary measures. The Ministry of Agriculture and Rural Development is the WTO SPS enquiry point. As is the case for standards and technical regulations, the legislation for SPS measures comprises a number of ordinances, laws, decisions, decrees, and circulars. The measures generally correspond to standards established by the OIE, Codex Alimentarius, and the IPPC; the official objective is to harmonize them fully, although no date has been set. Among measures affecting exports, Vietnam levies export duties on certain products and royalties on certain natural resources. Export duties on scrap metal have been reduced by approximately 50 per cent since 2006, in accordance with Vietnam’s WTO commitments. Numerous other changes since 2006 have added or deleted items, and increased or eliminated tax rates. Some goods are subject to export controls. The Ministry of Industry and Trade does not appear to have applied legal provisions to regulate or monitor exports through automatic licences. However, other measures imposed by the authorities include quality standards and bans on exports of certain minerals. Vietnam provides subsidies, mainly in the form of tax incentives, for example to encourage research and development; the development of infrastructure of special importance; to assist enterprises involved in education, training, and health care; and the establishment of businesses in geographically disadvantaged areas. The Vietnam Development Bank (VDB) finances infrastructure as well as business development. An interest rate support programme is available.

Support for trade promotion activities is modest and, according to the authorities, well below the level requested by Vietnamese businesses. Nearly 300 industrial parks and exportprocessing zones account for a significant share of Vietnam’s industrial output, investment, exports, and employment. Although the performance of the industrial parks is highly uneven and the average occupancy rate has been falling in recent times, many new parks and zones are on the drawing board. Although Vietnam has made no formal commitment to join the Agreement on Government Procurement, it currently has observer status. Under existing legislation, preferences are available to local suppliers in international tenders, and imports are discouraged when machinery, equipment, and materials used in the procurement can be produced domestically. Vietnam began the process of reforming its state-owned enterprises more than 20 years ago. Many enterprises have been privatised and further divestment of state holdings is foreseen. Nevertheless, the state-owned sector continues to account for 38 per cent of GDP, and the fundamental approach to state ownership is a mixture of renovation, preservation, and expansion. In 2005, Vietnam began establishing pilot State Economic Groups, i.e. loose alliances of SOEs with similar business interests. The financial difficulties of one of these groups, exposed in 2010, revealed a number of structural weaknesses in large Vietnamese SOEs, including complex corporate structures, lack of effective oversight, and expansion well beyond the stated core business activities. A Steering Committee for the restructuring of SOEs was set up in 2011. Vietnam has also begun the process of legally separating state ownership rights from the State’s regulatory functions.

75


Intellectual property protection is the focus of attention of Vietnam and many of its trading partners. Vietnam is party to a number of WIPO-related treaties and continues to integrate the IP-innovation-trade triangle in international and regional fora. Vietnam’s legislation was reviewed by the Council for TRIPS in 2008. The enforcement system in Vietnam is highly complex.

76

Regulation is provided through various legal and administrative texts, and the responsibilities for IPR enforcement are shared among a considerable number of central and local authorities. Issues such as counterfeited and pirated goods, and cable and satellite signal theft, remain matters of concern.

Investment Regime in CLMV Cambodia5 a) Investment Policies: In order to attract FDI, the government of Cambodia has strengthened the country’s legal framework, bolstered its institutions and liberalized the relevant regulations in ways that are conducive to private sector investment and business activities in Cambodia. The government provides investors with a guarantee neither to nationalise foreignowned assets, nor to establish price controls on goods produced and services rendered by investors, and to grant them the right to freely repatriate capital, interest and other financial obligations. Generally, there are no restrictions on the setting up of businesses. However, many businesses require a license or permit to operate, including areas such as banking and finance institutions, tour agencies, real estate agencies, telecommunication, industrial factories, etc. Investors can set up 100 per cent foreign-owned investment projects and employ skilled workers from overseas, in cases where these workers cannot be found in the domestic labour force. Attention is also accorded to private investment in Build-Operate-Transfer (BOT) projects, and private investment in infrastructure, including public utilities such as electricity, water supply and telecommunications. In order to facilitate investors in their applications for investment approval, the government has established an institution to oversee investment policy and strategy called the Council for the Development of Cambodia (CDC). The Cambodian Investment Board (CIB), the operational arm of the CDC, has been designated as the major and one-stop service of the government, responsible for the evaluation of investment proposals and projects from all investors, both individual and corporate.

Annexure III

Foreigners are not authorised to acquire ownership rights in buildings located within 30 kilometers of the land borders of Cambodia, except in Special Economic Zones or other areas, as determined by the government. b) Taxation6: Most foreign investments and foreign investors are affected by the following taxes: • Tax on Profit • Minimum Tax • Various withholding taxes (e.g. Tax on profit withholding obligations) • Value Added Tax • Turnover Tax • Import Duties • Salary Tax on Cambodian and expatriate employees Investment sectors in which special incentives do not apply include the telecommunication sector, and the exploitation of natural resources, with the exception of oil and natural gas exploration. All fuels, lubricants and other petroleum-based products used as raw materials or intermediate goods are not eligible for exemptions from import duties. c) Investment Incentives The Law on Investment provides the following incentives to investment projects in Cambodia: • A corporate income tax rate of 9per cent, except for the exploration and exploitation of natural resources, including timber, oil and gas, gold, and precious stones. • 100 per cent import duty exemption on construction materials, means of production, equipment, intermediate goods, raw materials and spare parts used by:


- An export-oriented project with a minimum of 80 per cent of the production set apart for export - Projects located in the designated Special Promotion Zone (SPZ) • 100 per cent exemption of export tax, if any. d) Investment Guarantees - Equal treatment of all investors - No nationalisation adversely affecting the property of investors - No price controls on products or services produced by licensed investors - Remittance of foreign currencies abroad e) Sectors in which investment is encouraged: • Pioneer and/or high-technology industries • Job creation •

Export-oriented industries

• Tourism industry • Agro-industry and processing industry •

Infrastructure and energy

•

Provincial and rural development

• Environmental protection • Investment in the Special Promotion Zone (SPZ) f) Business Environment Cambodia ranked poorly (137th out of 189) in ease of doing business7 in Doing Business 2013 conducted by the World Bank and International Finance Corporation (IFC). However, according to World Economic Forum’s Global Competitiveness Index ranking 8 2013-14, Cambodia was ranked 88 out of 148 countries.

Laos: a) Investment incentives9 Tax and Duty Incentives The Department for Promotion and 78

Management of Domestic and Foreign Investment (DDFI) automatically awards all approved foreign investors an incentive tax rate of 20 per cent, compared to the general tax rate of 35 per cent. Unlike most other countries, this 20 per cent rate applies to foreign investment in all sectors of the economy and does not depend on company or performance. Foreign investors must pay a 10 per cent dividend withholding tax. Foreign investors and expatriate personnel pay a flat 10 per cent personal income tax. There is a minimum tax on all companies (unless tax holidays are granted) of 1 per cent of turnover, i.e., foreign-owned companies pay either 20 per cent tax on profits or 1per cent tax on turnover, whichever is greater. In special cases, primarily for hydroelectric projects or resource-based development projects, tax holidays can be negotiated. As an incentive to all foreign investors, a duty of only 1 per cent is charged for imports of capital equipment, spare parts, and other means of production. No duties or import turnover taxes are payable on any imported inputs for export production. Foreign investors whose products substitute for imports can negotiate incentive duties and turnover taxes on imported inputs on case by case basis. At present, an administrative ruling of the Minister of Finance allows all imports subject to incentive duty rates to be free of turnover tax and excise tax. Producers, whose output is sold in both domestic and export markets, pay no duty on the inputs for export production and pay a negotiated rate on inputs for import substituting production. In the future, however, the government may move to a system in which foreign investors face the same tax and tariff incentives as do domestic investors. Under this system, investment in “promoted industries” would receive tax and duty reduction incentives, but investment in other sectors would pay the normal corporate profit tax, turnover tax and duty rates.

A nnex u res

Non-tax incentives

• Telecommunications

The government provides the following incentives to all foreign investors:

• Manufacturing • Agro processing and Food processing

• Permission to bring in foreign nationals to undertake investment feasibility studies.

• Pharmaceuticals and Healthcare

• Permission to bring in foreign technicians, experts, and managers if qualified Lao nationals are not available to work on investment projects.

• Small and Medium Enterprises

• Permission to lease land for up to 20 years from a Lao national and up to 50 years from the government. • Permission to own all improvements and structures on the leased land, transfer leases to other entities, and permission to sell or remove improvements or structures. • Facilitation of entry and exit visa facilities and work permits for expatriate personnel. • The government also offers guarantees against nationalisation, expropriation, or requisition without compensation. Under the Foreign Investment Law, the government does not offer incentives of import protection (in the form of increasing duties or banning imports) for import substituting investments and it does not provide measures to restrict further entry to reduce competition for current investors. Such a policy of not reducing market competition is not a feature of the foreign investment systems of most other countries, such as Thailand and Vietnam, in the region. b) Sectors in which investment is encouraged: • Hydroelectric Power

• Education • Information Technology c) Taxation The Lao PDR government is seeking to encourage more foreign investment and maintains lower business tax rates for foreign companies than those applicable to domestic companies. Foreign investments subject to the Foreign Investment Law pay an annual profit tax at a rate of 10 per cent , 15 per cent, and 20 per cent according to the promotion zone (other investments are taxed at 35 per cent). In highly exceptional cases, and by specific decision of the Lao Government, foreign investors may be granted special privileges and benefits which include a reduction in or exemption from the 20 per cent profit-tax rate. Such reductions are normally given if size of an investment is large and it’s expected to have significant positive impact upon the socioeconomic development of the Lao PDR. The law places no limitations on foreign investors transferring after tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries provided that they request approval from the Lao government. d) Business Environment Lao PDR was ranked 159 thin ease of doing business out of 189 countries. According to World Economic Forum’s Global Competitiveness Index ranking10 2013-14, Laos was ranked 81 out of 148 countries.

• Mining

Myanmar11:

• Tourism

a) Investment Policies

• Infrastructure

The Foreign Investment Law in Myanmar 79


has no minimum capital requirement for foreign ownership, except for joint ventures in restricted sectors, although individual ownership requirements can be established by the Myanmar Investment Commission (MIC). Foreign investors may, depending on the type and value of investment, lease land for a period of up to 50 years and renewable for a further two 10 year periods. Investors can sub-lease or mortgage permitted leased land and building without changing type of investment with the permission of lessor. If the land is free land, fallow land and waste land, the permit from the Government shall be attached. Investors can sell and/or transfer of all shares to foreigners or local citizens. If foreigner possesses all shares, he can apply for company registration or can use existing company name with the approval of transfer or according to MCA 27(a) Foreign investments shall be made in accordance with the following basic principles: • Promotion and expansion of exports • Exploitation of natural resources which require heavy investment • Acquisition of high technology • Supporting and assisting production and services involving large capital • Opening up of more employment opportunities • Development of works which would save energy consumption • Regional development Foreign investment may be made in any of the following forms: • Investment made by a foreigner to the extent of 100 per cent foreign capital

80

b) Exemptions and Reliefs The Commission shall, for the purpose of promoting foreign investments within the State, grant the investor exemption or relief from taxes. In addition the Commission may grant any or more than one or all of the remaining exemptions or reliefs from taxes: • In respect of any enterprise for the production of goods or services, exemption from income-tax for a period extending to three consecutive years, inclusive of the year of commencement of production of goods or services; • Exemption or relief from income tax on profits of the business if they are maintained in a reserve fund and reinvested therein within 1 year after the reserve is made; • Right to accelerate depreciation in respect of machinery, equipment, building or other capital assets used in the business, at the rate fixed by the Commission; • If the goods produced by any enterprise are exported, relief from income-tax up to 50 per cent on the profits accrued from the said export; • Right of an investor to pay income tax payable to the State on behalf of foreigners who have come from abroad and are employed in the enterprise; • Right to pay income-tax on the income of the above-mentioned foreigners at the rates applicable to the citizens residing within the country; •

• Joint-venture made between a foreigner and a citizen. If a joint-venture is formed then foreign capital shall be at least 35 per cent of the total capital.

Right to deduct from the assessable income, such expenses incurred in respect of research and development relating to the enterprise which are actually required and are carried out within the State;

• A sole proprietorship, a partnership and a limited company may be formed

• Exemption or relief from customs duty or other internal taxes or both on

A nnex u res

machinery, equipment, instruments, machinery components, spare parts and materials used in the business, which are imported as they are actually required for use during the period of construction • Exemption or relief from customs duty or other internal taxes or both on such raw materials imported for the first three years’ commercial production following the completion of construction c) Investment Guarantees • The Government guarantees that an economic enterprise formed under a permit shall not be nationalised during the term of the contract or during an extended term, if so extended • On the expiry of the term of the contract, the Government guarantees an investor of foreign capital, the rights he is entitled to, in the foreign currency in which such investment was made • Foreign investors have the right of remittance of foreign currency. Foreign investors are allowed to remit foreign currency overseas through banks which are authorized to conduct foreign banking business at the prevailing exchange rate. d) Sectors in which investment is encouraged: • Transport Infrastructure •

Telecommunication services

•

Financial Services

• Hydrocarbons •

Healthcare

• Oil and gas exploration • Agro-tech e) Taxation Any enterprise operating under the Foreign Investment Law (FIL) or the Myanmar Companies Act must pay income tax at a 25 per cent tax rate.

f) Business Environment Myanmar ranks at the bottom in terms of starting a new business and has a very difficult business environment with its rank of ease of doing business being 182 out of 189 countries. According to World Economic Forum’s Global Competitiveness Index ranking12 201314, Myanmar is ranked 138 out of 148 countries.

Vietnam: a) Investment Policies Foreign investors are beginning to regard Vietnam as a key strategic investment location to achieve cost effectiveness of their global supply chains. Vietnam is becoming more attractive with its tax incentives, low cost labour and long coastline with increasingly modern and sophisticated port infrastructure. Forms of Investment Foreign investors may invest in Vietnam in any of the following forms: • Business co-operation on the basis of a business co-operation contract • Joint venture enterprise • Enterprise with 100 per cent foreign owned capital b) Focus sectors for Investment • High-tech production: high technology and modern equipment, bio-tech products, telecom, electronics, clean & green industries; • Infrastructure • Education and training, vocational training • Healthcare: hospitals, pharmaceutical productions • Environment: industrial water treatment, waste and rubbish treatment, other environment measures Supporting/

81


Auxiliary industry: materials, supplies and spare parts for textile and garment, footwear, auto • Manufacturing industry: to produce competitive products for export and domestic consumption. Foreign participation in distribution services, including commission agents, wholesale and retail services, and franchising, opened to fully foreign owned businesses in 2009. Distribution of alcohol, cement and concrete, fertilizers, iron and steel, paper, tires, and audiovisual equipment opened to foreign investors in 2010. The sectors where certain conditions are applicable to foreign investors include telecommunications, postal networks, ports and airports, and other sectors as per Vietnam’s commitments under international and bilateral arrangements. c) Investment Incentives • Corporate Income tax (CIT) exemption and CIT reduction from the first profit making year • Preferential CIT rate of 10-20 per cent

d) Taxation Preferential tax treatment such as tax exemption, tax reduction and preferential rates are limited to: • Encouraged sectors such as healthcare, education, high-tech, infrastructure development and software • Encouraged special economic zones, or areas with difficult socioeconomic conditions Vietnam does not tax profits remitted by foreign-invested companies. However, companies are required to fulfill their local tax and financial obligations before remitting profits overseas and are not permitted to accumulate losses. e) Business Environment The Doing Business 2013 conducted by the World Bank ranked Vietnam 99th in ease of doing business. According to World Economic Forum’s Global Competitiveness Index Ranking 2013-14, Vietnam was ranked 70 out of 148 countries.

• Import duty exemption on imports of equipment, materials, means of transportation and other goods for implementation of investment projects in Vietnam in accordance with the law on Export and Import Duties

Endnotes

• Land rental exemption or reduction

4.

1.

2.

3.

• Accelerated depreciation of fixed assets

5.

• Losses carry forward

6.

Foreign investors are exempt from import duties on goods imported for their own use and which cannot be procured locally, including all equipment, machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing and construction materials that cannot be produced domestically.

7.

8. 9.

10. 11. 12.

82

See also http://www.wto.org/english/tratop_e/ tpr_e/s253_sum_e.pdf Extracted from: http://info.worldbank.org/etools/ wti/docs/Lao%20PDR_brief.pdf See also http://www.wto.org/english/tratop_e/ tpr_e/s293_sum_e.pdf See also http://www.wto.org/english/tratop_e/ tpr_e/s287_sum_e.pdf. http://www.embassyofcambodia.org.nz/investment. htm Exim Bank (2013). http://www.doingbusiness.org/rankingsEconomies are ranked on their ease of doing business, from 1 – 189. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. www.weforum.org/gc http://www.investlaos.gov.la/show_encontent. php?contID=16 www.weforum.org/gc Exim Bank (2013) www.weforum.org/gc

Tin Maung Htay

Dr Myo Lwin

Mr. Thein Zaw Dr Khin Zaw Win

U Thang Do Cin

Kanti Raman

1

2

3 4

5

6

Bui Thi ThanHan

Tran Duc Dung

V.D. Pani

Tran Duc Thein

Vu Cao Dam

Nguyen The Hung

9

10

11

12

13

14

8

Naresh Kumar Dinodiya Vietnam Phan Ngoc Mai Phuong, MDM

Myanmar

7

Name

S.No.

Vietnam Chamber of Commerce and Industry, Hochiminh City Branch, 171 Vo Thi Sau Str., Dist. 3, Hochiminh City, Vietnam

Ministry of Transport, Enterprise Management Department, 80 Tran Hung Dao Str., Hoan Kiem Dist., Hanoi, Vietnam

Deputy Director GeneralEnterprise Management Dept. Deputy Director General

Peiple's Committee of Hochiminh City, Investment & Trade Promotion Centre (ITPC), 51 Dinh Tien Hoang St., Dist. 1, Ho Chi Minh City, Vietnam

Strate and Improve your business, SIYB HCM Business Club, SIYB Unit, 69 Nguyen Van Cong St., GO Vap Dist., HCM City, Vietnam Indian Overseas Bank, No. 710, Floor 7, Me Linh Point Tower, 2 Ngo Duc Ke Street, District 1, Ho Chi Minh City, Vietnam

Ministry of Industry and Trade, Vietnam Trade Promtoion Agency, Representative Office in Hochiminh city, 8 Nam Ky Khoi Nghia Str., 4th Floor, Dist. 1, HCMC, Vietnam

Ministry of Planning and Investment, Development Strategy Institute, 65 Van Mieu St., Ha Noi, Vietnam

P.L. Global Impex Ptd Ltd, Yangon, Myanmar

Embassy of India, 545-547, Merchant Street, Yangon, Myanmar, Post Box: 751, Myanmar

Ministry of National Planning and Economic Development, No. 1, Nay Pyi Taw, Myanmar

Small and Medium Industrial Development Bank, No. 102/104, Pansodan St Kyauktda, Township, Yangon, Myanmar Arkar OO Co., Ltd, No. 124, Wetmsutt Wun Htaut St., Industrial Tharyar Tsp, Yangon Myanmar Ministry of Construction Public Works, Build No. 11, Nay Pyi Taw, Myanmar Tampadipa Institute, 10 Myathida Road, Pyithayar, Bauktaw, Yangon, Myanmar

Organisation

Official Trade Promotion Department

Chief Representative

Chairman

Deputy Director General, Head of Vietrade Representative Office in HCMC

Vice President

Managing Director

Attache

Chief Engineer (Building) Director Deputy Director General, Planning Department

Managing Director

Managing Director

Designation

Stakeholder Consultation in HCM City and Yangon: List

Table A.7: Stakeholders’ Consultations in HCM City and Yangon

Annexure IV

A nnex u res

83

84 Bank of India, 201-A Hoa Lam Building, 2 Thi Sach Street, District 1, Ho Chi Minh City, S.R. Vietnam Ministry of Industry and Trade, Agency for Industrial Promotion, 8 Nam Ky Khoi Nghia St., (7 floor), Nguyen Thai Binh Ward, Dist 1, Vietnam

Deputy General Director Chief Representative Head of Representative Office

V. Sridharan

Tran Xuan Trang

V. Rajumar

Jay Prakash Shriram

Vu Van Thanh

Suvendu Kumar Behera

Do Kim Hung

19

20

21

22

23

24

25

Chief Representative Marcom Officer, Marketing Department

Mr Vivek Joshi

Tran Thi Quynh Thanh

30

Chairman

International relations Dept.

Director

Head of Trade Promkotion Division

Production Director

Director(Customer Service Division) Deputy Director General, Asia-Pacific Market Department

29

28

27

Nguyen Xuan Thanh Dang Tuan Phuong, Mohan Ramesh Anand

Indian Business Chamber in Vietnam, Room 103, 1st Floor, Seaprodex Building, 2-4-6 Dong Khoi Street, Ben Nghe Ward District 1, Ho Chi Minh City, Vietnam

Member, Board of Governors(Investment & Trade)

Le An Hai

18

26

Rals International Vietnam Co., Ltd. AB Tower, Unit 3, Floor 16th, 76 Le Lai, Ben Thanh Ward, District 1, Ho Chi Minh City, Vietnam

Chairman

Victor Lim

Fulbright Economics Teaching Program, 232/6 Vo Thi Sau, District 3, Ho Chi Minh city, Vietnam Vietnam Chamber of Commerce and Industry, Hochiminh City Branch, 171 Vo Thi Sau Str., Dist. 3, Hochiminh City, Vietnam Indian Business Chamber in Vietnam, Room 209, 2nd Floor, Seaprodex Building, 2-4-6 Dong Khoi Street, Ben Nghe Ward District 1, Ho Chi Minh City, Vietnam Pacific Impex Pvt Ltd, Vietnam office: 45D/9, D5 Street, Ward 25, District- Binh Thanh, Ho Chi Minh City, Vietnam Vietnam singapore Industrial Park J.V. Co., Ltd, No. 8, Dai Lo Huu Nghi, VSIP, Thuan An Town Binh Duong Province, Vietnam

Hoa Sen Group, No. 9 Thong Nhat Boulevard, Song Than II IP., Di An Dist. Di An Town, Binh Duong Pro., Vietnam

Rals International Vietnam Co., Ltd. AB Tower, Unit 3, Floor 16th, 76 Le Lai, Ben Thanh Ward, District 1, Ho Chi Minh City, Vietnam Peiple's Committee of Hochiminh City, Investment & Trade Promotion Centre (ITPC), 51 Dinh Tien Hoang St., Dist. 1, Ho Chi Minh City, Vietnam

Ministry of Industry and Trade, 54 Hai Ba Trung St., Hoan Kiem Hanoi, Vietnam

Godrej (Vietnam) Co., Ltd, 10 Tu Do Avenue, Vietnam Singapore, Industrial Park, Binh Duong Vietnam Vietnam singapore Industrial Park J.V. Co., Ltd, No. 8, Dai Lo Huu Nghi, VSIP, Thuan An Town Binh Duong Province, Vietnam

17

Managing Director

Kershaw Rustomji

Godrej (Vietnam) Co., Ltd, 10 Tu Do Avenue, Vietnam Singapore, Industrial Park, Binh Duong Vietnam

16

General Manager (Plant)

A. Sathyamoorthy

15


During the recent visit of Leather Industry Delegation to Vietnam, July 13-17, 2014 it was noticed that there is scope for export of finished leather and footwear components to Vietnam. The following are the potential products (HS 6 digit) for export to Vietnam & Cambodia: 64061010 Embroidered uppers of textile materials 64061020 Leather Uppers (prepared)

Prioritization of areas in identified Sectors for trade

41079900 Other/Hides/ skins including sides 41120000 Leather further prepared after tanning/ crust leather of sheep/ lamb without wool w.o.n. split 41131000 Leather further of goats/kids 41139000 Leather further of other animals 41141000 Metallised leather.

41079100 Full grains unsplit of other hides/ skins including sides

41071900 Other whole hides/skins

41071200 Leather further of bovine grain split of whole hides/skins

41071100 Leather further of bovine full grains unsplit of whole hides/skins

64061090 Other Footwear Components

Council for Leather exports

Inputs by Ministries Highways

Ministry of Road Transport & Textile & Garments, Pharmaceuticals, Oil & Gas

Indian Chamber of Commerce (for Myanmar)

Table A.8: Inputs Received Under Inter-Ministerial Input Template


Inputs have been provided encompassing India’s potential items of export to CLMV for the Engineering sector. 16 products at HS6 digit level have been identified as potential items for export to CLMV region. they have identified priority areas for trade among all CLMV countries separately by providing a list of 100 products at HS6 digit level which India exports to the world and Cambodia, Laos, Myanmar and Vietnam imports from the world, respectively. Among them, top 20 potential products where India can penetrate are given in word file, attached in appendix along with the methodology used.

EEPC INDIA

Annexure V

A nnex u res

85

86

Relevant Service exports in the identified sectors

Can we have national level O-FDI strategy?


Poor connectivity is one of the major hurdles facing Myanmar. The country has a low mobile penetration rate of just 1.5% (around 800,000 subscribers), and an Internet penetration rate of 0.2%. Telecommunications and Internet access are expected to become more widespread within Myanmar as the government seeks to develop its information and communications infrastructure. The Ministry of Communications, Post & Telegraphs has indicated plans to release four more telecommunications licenses for both domestic and foreign investors companies engaging the government through training and advisory support, and investment in telecommunications infrastructure. The development of the sector will present further opportunities in areas such as wireless broadband, VoIP (voice over internet protocol) services, & even information and communications technology training & education. India is leader in IT & ITES and this certainly is huge opportunity for Indian co. with possibility of both off shore consultancy and onsite BPO/ training centre / network setting up opportunities. Currently there are IT companies offering training services in Myanmar.

1.Information & CommunicationTechnology

Mode of Service - both be offshore project design and onsite project implementation.

While Yangon already benefits from being developed on an orderly grid plan, urban development plans are needed at the municipal level to avoid the excesses of unmanaged urbanisation seen in other developing cities. Myanmar is a growing economy and is currently developing its cities; India with its strength of highly skilled professionals such as construction engineers, architects and town planners certainly has opportunities. India has its own national standard GRIHA for sustainable environment friendly buildings.

2.Urban development Myanmar is an urbanising country and seeks a conceptual master plan to manage the planned growth of Yangon and other urban areas. At the national level, a master plan that incorporates transport, energy and broad-level economic policies is required.

There is huge influx of medical patients to India especially at facilities in Kolkata/ Delhi and other locations. Medical tourism as well as Joint ventures with medical facilities at Myanmar is a potential area for Indian health care providers.

services sector offers opportunities for foreign partnered healthcare facilities that presently do not exist in Myanmar. Due to the lack of quality healthcare services, many well to do Myanmar citizens frequently fly out to neigbouring countries such as Thailand, Malaysia, India and Singapore for medical treatments. Thailand is most preferred choice currently owing to close proximity, cheaper cost of living and similar cultures. For Thailand Myanmar is the 3rd largest market with about 20% annual growth of patients.

3.Health Services Myanmar’s healthcare


8.4 billion in 2012, followed by Myanmar with US$ 2.2 billion worth of inflows and Cambodia with US$ 1.6 billion.

“Look East Policy” by India in 1992 was an initiative towards developing extensive economic and strategic relations with the ASEAN nations. Since then India has progressed from a dialogue partner to the present status of a strategic partner. Among the CLMV countries, FDI inflows into Vietnam were the highest at US$

EEPC India believes that there should be a national level O- FDI in India to encourage businesses who are interested to invest in the CLMV countries. The adoption of


How to mobilise O–FDI?

Can we have national level O-FDI strategy?


Investment security Concern: The Myanmar FDI law has specific provisions that protect foreign investment from nationalization and guarantees repatriation of profits and security of invested capital. These protections are in addition to the guarantees an investor may find in the seven bilateral treaties Myanmar has with other countries (Thailand, Laos, Vietnam, Philippines, China, Kuwait and India). Similar investor protection provisions can be found in the newly enacted Myanmar SEZ Law, which is applicable in 3 SEZ (Dawei, Thilawa and Kyauk hyu).

former is both Myanmar’s largest foreign investor and its second largest foreign creditor. Myanmar FDI law has also brought in the element of protection and also states those sectors where joint ventures with local companies are permitted. Myanmar allows 100% foreign investment in projects approved by the Myanmar Investment Commission and mandates that the foreign partner must contribute at least 35% of the capital.

2 largest investors are China and Thailand, which together account for US$25 billion worth of investments. The

To have a national level O-FDI strategy will be a positive move as this will encourage Indian companies to establish base. China already has a FDI strategy and has huge investment in sectors such as Oil, Infrastructure, etc in Myanmar. Myanmar’s


8.4 billion in 2012, followed by Myanmar with US$ 2.2 billion worth of inflows and Cambodia with US$ 1.6 billion.

“Look East Policy” by India in 1992 was an initiative towards developing extensive economic and strategic relations with the ASEAN nations. Since then India has progressed from a dialogue partner to the present status of a strategic partner. Among the CLMV countries, FDI inflows into Vietnam were the highest at US$

EEPC India believes that there should be a national level O- FDI in India to encourage businesses who are interested to invest in the CLMV countries. The adoption of

A nnex u res

87

88

Identify mechanisms to facilitates O-FDI

Table A.8: continued... To have a national level O-FDI strategy will be a positive move as this will encourage Indian companies to establish base. China already has a FDI strategy and has huge investment in sectors such as Oil, Infrastructure, etc in Myanmar. Myanmar’s 2 largest investors are China and Thailand, which together account for US$25 billion worth of investments. The former is both Myanmar’s largest foreign investor and its second largest foreign creditor. Myanmar FDI law has also brought in the element of protection and also states those sectors where joint ventures with local companies are permitted. Myanmar allows 100% foreign investment in projects approved by the Myanmar Investment Commission and mandates that the foreign partner must contribute at least 35% of the capital. Investment security Concern: The Myanmar FDI law has specific provisions that protect foreign investment from nationalisation and guarantees repatriation of profits and security of invested capital. These protections are in addition to the guarantees an investor may find in the seven bilateral treaties Myanmar has with other countries (Thailand, Laos, Vietnam, Philippines, China, Kuwait and India). Similar investor protection provisions can be found in the newly enacted Myanmar SEZ Law, which is applicable in 3 SEZ (Dawei, Thilawa and Kyauk hyu).


EEPC India believes that there should be a national level O- FDI in India to encourage businesses who are interested to invest in the CLMV countries. The adoption of “Look East Policy” by India in 1992 was an initiative towards developing extensive economic and strategic relations with the ASEAN nations. Since then India has progressed from a dialogue partner to the present status of a strategic partner. Among the CLMV countries, FDI inflows into Vietnam were the highest at US$ 8.4 billion in 2012, followed by Myanmar with US$ 2.2 billion worth of inflows and Cambodia with US$ 1.6 billion.

Identify mechanisms to facilitates O-FDI


89

A government initiative in this regard will help industry as Myanmar Financial system is still underdeveloped. Although, Myanmar recently became a full member of World Bank’s MIGA, which makes direct foreign investment into Myanmar eligible for the agency’s investment guarantees (e.g. covered risks include expropriation, breach of contract, transfer restriction, failure to honour financial obligations, or war/civil disturbance). Government led International treaties for sectors will help to begin with and private companies may then take forward. Govt of Myanmar and its investment agency may be approached to discuss upon automatic route or government route for FDI in given sectors.


To ensure smooth movement of professionals and business long- term VISA is the need of the hour. Sector specific trade delegations to the CLMV countries followed by Buyer-Seller meets will also facilitate investment. EEPC India also believes that improvement of physical connectivity between India and the CLMV countries will facilitate investment. Trilateral India-Myanmar-Thailand Highway Project & its extension to CLV will boost India – CLMV bilateral trade &investment environment.

d) VISA rules.

c) Available benefits for the investors;

a) Sectoral opportunities present in the CLMV countries; b) Details of investment rules and regulations;

Creation of an India – CLMV business forum is necessary to facilitate O-FDI from India to the CLMV countries. EEPC India also suggests developing a web portal in this regard. The web portal should contain following information:

90

Sectors of priority for O-FDI

Table A.8: continued... Scope for establishment of manufacturing units in Vietnam for value added leather products and footwear.

Infrastructure, Oil, Mining, Pharmaceuticals, Textile


Tata Motors along with its partner Apex Greatest Industrial Co. Ltd. (AGI) has recently launched its first fully integrated 3-S Commercial Vehicle Dealership in Yangon, Myanmar. Myanmar is highly dependent on two-wheelers, accounting for more than 80 per cent of the market while passenger cars represent 11 per cent. Meanwhile, trucks and buses only make up 3 per cent and 1 per cent respectively. There is a rising demand of cars in Myanmar. Indian car manufacturers can explore this opportunity.

Myanmar is giving importance to enhance its transport infra and offers investment opportunity for Indian auto companies. Tata Motors had signed a turnkey contract with the Myanmar Automobile & Diesel Industries Limited (MADI), an enterprise under the Govt. of Myanmar’s Ministry of Industry, for setting up a heavy truck assembly plant, at Magwe, in central Myanmar, funded by a US$ 20 million Line of Credit from the Government of India.

Indian power companies also can explore opportunities in the CLMV countries as the countries are in a process of upgrading their existing power generation and transmission system. India’s Tata Power Company has won a US$ 1.8 billion contract to build coal-fired thermal power plants in southernVietNam.

At present CLMV countries are emphasizing infrastructure development. Many of our major construction companies can explore this opportunity.

91

How to integrate the SME involvement in RVCs

Myanmar is keen to work towards development of its own SMEs. About 99.4% of registered enterprises in Myanmar are SMEs and about 88% of these are in non-formal sectors. SMEs in Myanmar are unable to work with full potential owing to financial, skilled labour and technology constraints. Regional Integration will certainly be of interest to SMEs in Myanmar as well as rest of CLMV. Indian SMEs may be linked by forming clusters/consortiums at SEZs being developed in Myanmar as large investments are likely to be based in these locations. Service sector related SMEs can be engaged through offshore assignments as well. Western countries and other ASEAN countries such as Japan and Korea are investing in Myanmar and other CLMV countries in sectors of interest to India. This may be seen as an opportunity for Indian SMEs to connect with MNCs. However a study on such potential investors alternatively a help desk at India High Commission will help SMEs to find potential partners. Regional Integration is the need of the hour for SMEs to develop and to take advantage of international business opportunities. Myanmar SMEs will certainly gain from Indian SMEs strength of technology and skilled manpower. Once again we recommend a study or a help desk to initiate such regional integration.

Linking SMEs with large companies locally and the latter gets engaged in O-FDI

Linking SMEs with MNCs in CLMV

Linking SMEs on a stand-alone basis with their counterpart s in CLMV



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Transport and Connectivity

Feasibility of time frame


I. Asian Highways i. 2 Asian Highways, viz., AH1 (from Japan to the border of Bangladesh) and the AH2 (from Indonesia to Iran) are passing through India. AH1 connects India with Pakistan, Bangladesh and Myanmar. India has participated actively in the Asian Highways programme since its inception and the standards of National Highways portions of Asian Highways in India are generally at least to the prescribed minimum standards of the Asian Highways. ii. Out of 11,690 km Asian Highway routes in India, about 6,901 km has been developed to 4-lane standards under National Highway Development Project (NHDP) and 4-laning of about 2,254 km length is under implementation under NHDP and Special Accelerated Road Development Programme in the North East States (SARDPNE). :Under ADB’s South Asia SubRegional Economic Cooperation (SASEC) Programme, ADB is funding stretches in the following projects in Indian side which would serve as links for connecting ASEAN member countries in proximity to North-East of India through Myanmar and Strengthen India’s engagement with these countries: a) AH-2 (Panitanki-NaxalbariShivmandirFulbari) for 48.7 km length. b) AH-48 (Jaigaon-Hasimara-TeliparaMainguri-Changrabandha) for 125.6 km length. c) Imphal-Moreh (India-Myanmar Border) – 126 km; and d) Bridge on Mechi River (India-Nepal Border) – 0.6 km.

II. North East – Myanmar Land Connectivity III. Bus Services with Myanmar: Discussions for starting a cross border bus service between Imphal and Mandalay (Myanmar) is underway. The bus service agreement has recently been initialed in Myanmar by the officers of the two countries. Protocol of the bus service is being finalized and thereafter the agreement will be signed. Poor connectivity and Infrastructure are major hurdles in Myanmar

Time frame for launching the overall strategy towards CLMV with special emphasis on RVCs encompassing trade in goods, trade in services and O-FDI : ONE YEAR. Time Frame for an Interim draft Strategy: SIX MONTHS


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Cambodia and Vietnam are major exporters of value added leather products and footwear and are also competitors for India. Yet

Source: Varied Sources

Other issues


India’s Strategy for CLMV Prioritisation of areas in identified Sectors for trade: The table below depicts the potential engineering product category, where India’s export to CLMV is greater than US$5 million (as in 2013), and India’s share of exports to CLMV with respect to the World is greater than 10 per cent.

Among all engineering products at HS 6 digit level, the codes mentioned below are India’s potential products to CLMV. It is also to be noted that among these 16 HS 6 digit engineering items, HS codes: 730820,720918 and 850164 are the foremost items where CLMV ‘s IIT index is close to 1 .i.e there exists intra industry trade, highlighting CLMV’s export and import demand. US$ Million

HS Code at 6 digit

India's Per centage share of exports to CLMV wrt World

India's exports share to CLMV imports

ITC (HS) Code at 6 Digit

% share in 2013

Value in 2013

Iron and Steel and Products

720810

0.35

0.97


720839

0.15

0.05


730820

0.12

0.36


720918

0.13

0.17

Industrial Machinery

841990

0.17

0.19


842139

0.13

0.13


720827

0.11

0.17

Miscellaneous- railway transport

860691

1.00

1.00

Miscellaneous-Other construction machinery

842952

0.13

0.02


721914

0.12

0.48

Electric Machinery and Equipment

850164

0.19

0.22


843890

0.13

0.30


721913

0.12

0.03

Miscellaneous- railway transport

860400

0.98

0.80


720890

0.43

0.31

Electric Machinery and Equipment

853529

0.17

0.17

Products Category

Source: ITC Trade Database. Note: The codes are identified based on the following parameters: India’s export to World and India’s export to CLMV are taken India’s Exports to CLMV as on 2013 > 5 million- 38 codes (on HS 6 digit level) are taken India’s Per centage share of exports to CLMV w.r.t World (Only those share > 10% are taken)-further filtering to 16 codes. CLMV IIT Index for the respective codes is calculated.

A nnex u res

Identification of Prioritized areas for trade among all CLMV countries separately:

For every country under the CLMV region, we have identified the top potential engineering items at HS 6 digit level.

Case 1: Myanmar: Highlighting the top 20 items (among the 100 items identified -as given in the excel sheet), where India can penetrate Codes

Product label

India's share of exports to Myanmar

870322

Automobiles w reciprocatg piston engine displacg > 1000 cc to 1500 cc

0.00

870899

Motor vehicle parts nes

0.00

871120

Motorcycles with reciprocatg piston engine displacg > 50 cc to 250 cc

0.00

880330

Aircraft parts nes

0.00

721049

Flat rolled prod,i/nas,plated or coated with zinc,>/=600mm wide, nes

0.04

870190

Wheeled tractors nes

0.02

848180

Taps, cocks, valves and similar appliances, nes

0.00

890590

Floating docks and vessels which perform special functions

0.00

870323


0.00

732690

Articles, iron or steel, nes

0.00

840999

Parts for diesel and semi-diesel engines

0.00

890690

Vessels, incl. lifeboats (excl. warships, rowing boats and other vesse

0.00

890510

Dredgers

0.00

841480

Air or gas compressors, hoods

0.00

730890

Structures&parts of structures,i/s (ex prefab bldgs of headg no.9406)

0.01

721041

Flat rolled prod,i/nas,pltd or ctd w zinc,corrugated,>/=600m wide,nes

0.00

870840

Tansmissions for motor vehicles

0.00

731815

Bolts o screws nes,with o without their nuts o washers,iron o steel

0.00

721070

Flat rolled prod,i/nas,painted,varnished or plast coated,>/=600mm wide

0.00

843149

Parts of cranes,work-trucks,shovels,and other construction machinery

0.03

Source: ITC Trade Database. Note: The above codes signifies that there exists almost negligible trade between India and Myanmar, though India has potential to export abroad and Myanmar has adequate demand to import from the world, yet India’s export share to Myanmar is not even greater than 5 per cent. The market size for India export potential and Myanmar’s import demand is taken to be over and above US$ 10 million.

95


Case 2: Vietnam: Highlighting the top 20 items (among the 100 items identified) where India can penetrate Codes

Product label

India's share of exports to Vietnam

870322


0.00

870899


0.00

740311

Copper cathodes and sections of cathodes unwrought

0.01

880240

Aircraft nes of an unladen weight exceeding 15,000 kg

0.00

871120


0.00

870321

Automobiles w reciprocatg piston engine displacg not more than 1000 cc

0.00

880330

Aircraft parts nes

0.00

721049


0.00

890400

Tugs and pusher craft

0.00

732599

Articles of iron or steel, cast, nes

0.00

870190


0.00

848180


0.01

720810

Hot rolled iron/steel, coils, >600mm, relief pattern

0.35

760110

Aluminium unwrought, not alloyed

0.05

730511

Pipe,line,i/s,longitudinally subm arc wld,int/ext cc sect,dia >406.4mm

0.00

890590

Floating docks and vessels which perform special functions

0.00

870323


0.00

732690


0.00

840999

Parts for diesel and semi-diesel engines

0.00

840710

Aircraft engines, spark-ignition reciprocating or rotary type

0.00

Source: ITC Trade Database. Note: Other than HS Code: 720810 (Iron and Steel products)The above codes signifies that there exists almost negligible trade between India and Vietnam , where India’s export share to Vietnam is merely positive and not even greater than 5%. The market size for India export potential and Vietnam’s import demand is taken to be over and above US$10 million.

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A ppendix

Case 3: Cambodia: Highlighting the top 20 items (among the 100 items identified), where India can penetrate Codes

Product label

India's share of exports to Cambodia

870899


0.00

871120


0.00

721049


0.00

870190


0.00

848180


0.00

870323


0.00

732690


0.00

890190

Cargo vessels nes&oth vessels for the transport of both persons&goods

0.00

730890


0.00

731815

Bolts o screws nes,with o without their nuts o washers,iron o steel

0.00

761699

Articles of aluminium, nes

0.00

721070

Flat rolled prod,i/nas,painted,varnished or plast coated,>/=600mm wide

0.00

870421

Diesel powered trucks with a GVW not exceeding five tonnes

0.00

850300

Parts of electric motors,generators,generatg sets & rotary converters

0.00

840890

Engines, diesel nes

0.00

841370

Centrifugal pumps nes

0.00

760612

Plate,sheet or strip,aluminium alloy,rect or sq,exceeding 0.2mm thick

0.00

870422

Diesel powerd trucks w a GVW exc five tonnes but not exc twenty tonnes

0.00

870410

Dump trucks designed for off-highway use

0.00

850423

Liq dielectric transf havg a power handlg capacity exceedg 10,000 KVA

0.00

Source: ITC Trade Database.

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Case 4: Laos: Highlighting the top 20 items (among the 100 items identified) where India can penetrate Codes

India's share of exports to Laos

Product label

870322


0.01

870899


0.00

871120


0.00

732599

Articles of iron or steel, cast, nes

0.00

870190


0.00

848180


0.00

870323


0.00

732690


0.00

730890


0.00

843149

Parts of cranes,work-trucks,shovels,and other construction machinery

0.00

870421

Diesel powered trucks with a GVW not exceeding five tonnes

0.00

850300

Parts of electric motors,generators,generatg sets & rotary converters

0.00

730820

Towers and lattice masts, iron or steel

0.02

840890

Engines, diesel nes

0.00

854460

Electric conductors, for a voltage exceeding 1,000 V, nes

0.00

841370

Centrifugal pumps nes

0.00

843143

Parts of boring or sinking machinery, whether or not self-propelled

0.00

870422

Diesel powerd trucks w a GVW exc five tonnes but not exc twenty tonnes

0.00

880230

Aircraft nes of an unladen weight > 2,000 kg but not exceedg 15,000 kg

0.00

870410

Dump trucks designed for off-highway use

0.00

Source: ITC Trade Database.

Note: The above two cases for Cambodia and Laos highlights very few potential products of market size over and above US$ 10 million under India’s potential export matrix and Cambodia/Laos import matrix. It is also to be noted that from the CLMV Potential Demand Matrix as given below, the Product Categories like Electrical Machinery and Iron and Steel have captured atleast 1% of their demand from India, where as the Auto components sector is lagging behind enormously.

CLMV Potential Demand CLMV Cumulative Import s(2010 to 2012 (value in US$ Million)

Electrical Machinery and Equipments

Iron and Steel

Products of Iron and Steel

Auto Components parts)

Cambodia

416.04

238.32

228.76

25.03

Laos**

456.15

548.80

428.49

129.00

Myanmar**

1219.76

1473.79

2897.79

272.49

Vietnam

13892.07

22043.80

6504.74

3196.05

CLMV Total Import from World

15984.02

24304.71

10059.77

3622.57

CLMV Import from India (% share w.r.t World)

214.60 (1.34%)

217.51 (0.89%)

79.61 (0.79%)

7.44 (0.21%)

CLMV Import from ASEAN (% share w.r.t World)

2391.00 (14.96%)

1505.94 (6.20%)

1028.58 (10.22%)

971.61 (26.82%)

**Myanmar’s import figures from India as well as from ASEAN are available only for 2010. Source: ITC Trade Database.

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Annexure VI Private Sector’s Inputs 1. Timber from Myanmar- A Special Case Study Immediate Provocation Myanmar’s Ministry of Environmental Conservation and Forestry implemented a ban on export of raw timber effective from 1 April 2014. This move was undertaken in keeping with Myanmar’s Forest Policy (1995) which focuses on addressing environmental protection and management, reforestation, forest industry and trade, forest research, institutional strengthening, and people’s participation and public awareness (Forest Legality Alliance).1 As per the official figures from the Ministry, almost three quarters of the timber trade has been illegal amounting to almost $6 billion. In an effort to conserve the country’s natural timber resources and layoff the illegal timber trade, the country has finally imposed a blanket ban on export of raw logs (Myanmar Times, 2014). Implication of Regulation Rapidly growing demand and paucity of domestic timber resources have made India one of the largest hardwood log importer in the world. Up till now, India’s main source of teak imports was Myanmar which is the fifth largest tropical wood producer and exporter in Asia-Pacific region (Investor.com, 2014). However, the ban on exports of raw tree logs is expected to adversely affect the Indian wood industry, more so since India’s increasing need for imported wood fiber is expected to sustain for several decades. Statistics show that the import from the Myanmar is about the 30 per cent of the total import of the logs covered under the Chapter No. 44 of HSN. Since Myanmar forms the part

of the Indian sub-continents, the climate and weather conditions are quite identical and hence the logs and timbers grown in Myanmar are quite suitable to Indian conditions. With the abrupt ban on the export of the logs from Myanmar, the Indian wood industry is in doldrums with the major impact being on Small and Medium Enterprises (SMEs). Even as the large corporate firms are encouraged to invest and build wood processing factories in Myanmar as an effect of this ban leading to a boost in exports of processed teak in the form of ply woods and veneers to India, the SME companies are finding it difficult to sustain their factories in the absence of the raw materials. Small saw mills and veneers and plywood units are on the verge of closure. Since Indian forests are still not open for harvest, it adds to the acute shortage of raw materials leading to closure of many SMEs, small joineries and carpentries which are directly dependent on the wood. Further, these SMEs contribute a lot to the Indian exports as traditionally India has been an exporter of wood and wood product. The high skilled artisans and comparatively cheap and skilled labour have created the market for the Indian wood products world over. India caters extensively to markets such as the US and Europe by exporting high quality of wood products. In fact, 40 per cent of the Indian wood exports go to EU markets. These exports are directly affected with the ban of the logs export from Myanmar. In addition, opening up of the border trade with Myanmar at Tamu and Moreh border point, Manipur is of crucial importance. In the past when this business was in operation, the timbers used to move from Manipur till Ahmadabad in Western India leading to generation of employment opportunities in

99


the North Eastern states. But this too has been suddenly closed causing closure of several plywood units in NE states.

The Way Forward Import from Malaysia • To combat the effect of the ban, India can increase its wood imports from Malaysia although Malaysia does not offer teak and Indian importers will have to make do with other kinds of wood. Import from Laos and Vietnam • Another alternative would be to import wood products from Vietnam and Laos in the CLMV region. Given that India heavily relies on imports to satisfy the country’s growing appetite for wood products and Vietnam and Laos are both net exporters catering to all big markets such as US, EU, China, etc. but not to India, highlights the untapped potential that exists for linking Vietnam and Laos with India. These economies other than having location proximity can make use of the skilled labour and modern technology that India has to offer in exchange for supplying it high quality wood products and timber. Substitute Wood with Bamboo • In order to quench the demand growth for wood, the strategies being explored suggest that relying on imports alone may not be the right recourse for India. Substituting bamboo with timber seems to be the most viable and green solution especially for the long run. From being able to replace wood in construction business to providing nutrition in the form of food, there are over 1500 uses of bamboo. Everything from its leaves to its root is of value and can be used in various forms. For instance, furniture; fuel-wood, matchsticks, agarbattis, toothpicks, earthquake-resistant and long-lasting conventional housing and buildings, pulp and paper, particle 100

board, MDF, handicrafts, bamboo shoots as food, leaves for medicinal uses, decorative and shuttering plywood, various board products such as wafer board, strip board, laminated boards, roofing sheets etc among various other products (National Bamboo Mission)2. With the use of modern industrial techniques, the spectrum of bamboo usage can be expanded in such a manner that it can easily substitute wood. Bamboo is the 21st century eco-friendly alternative to timber and Cambodia, Laos, Vietnam and India are all rich in bamboo supplies.

2. Steel from Vietnam- A Special Case Study Immediate Provocation The Joint Circular No. 44/2013/TTLT-BCTBKHCN dated 31 December 2013 (taking effect from 01 June 2014) issued by the Ministry of Industry and Trade and the Ministry of Science and Technology, Vietnam provides for management of domestically-produced and imported steel quality. According to it, organisations and individuals, who import steel, have to announce the applying standard (basic standards, national standards of Vietnam, standards of other countries, international standards and regional standards) for goods in the relevant import contract for customs clearance instead of only the origin of products and import contracts as done earlier (Vietnam News, 2014).3 Implication of Regulation India is currently the world’s fourth largest producer of crude steel after China, Japan and US. Of the total exports of India to Vietnam in 2013-14, US$5,441.94 million, iron and steel were the third largest exported commodities at US$362.87 million.4 Indian stainless steel industry has been exporting against a tariff disadvantage as Vietnam enjoys a special status giving it a longer period to integrate onto ASEAN.

A nnex u res

Apart from this, iron and steel is also among the top 10 imported commodities by Vietnam. This is primarily because there are Limited mills in Vietnam and major proportion of demand is met through imports and that stainless steel industry in Vietnam not fully integrated and completely dependent on imports for their HR coils. Vietnam being the largest growing nation in South-east Asia, it is a key market for stainless steel flat products. The total share of iron and steel exports from India to Vietnam is continuously rising from 1.02 per cent in 2010-11 to 6.67 per cent in 2013-145. The new regulations on import of steel that act as a nontariff barrier is likely to create problems such as: • Quality confirmation checks-at source or evaluation as per batch of goods • For batch tests there have been no guidelines from government on methods to draw and test samples from shipment and for Inspection at source. The number of mills that need inspection is very high and administrative problems are likely to cause delays. • Under the new regulation, enterprises have to register their product quality examined by management agencies. This work alone can take three to 20 days on average as only four institutions

have been authorised by the Ministry of Industry and Trade to examine quality. More complicated procedures will push up capital costs, slow down deliveries and therefore, weaken enterprises’ competitiveness.6

The Way Forward The use of equal Indian standards for testing stainless steel manufactured in India can be adopted and also request acceptance of these test reports by the authorities in Vietnam. Also, Indian agencies may be authorised to conduct testing and certification of Indian manufacturer importer in India as per standards prescribed and the result be accepted under the notification. Endnotes 1.

http://risk.forestlegality.org/countries/652/laws

2.

http://nbm.nic.in/grow_bamboo.html

3.

4.

5.

6.

http://vietnamnews.vn/economy/257048/secondarysteel-importers-in-trouble.html Data extracted from Ministry of Commerce and Industry, Government of India, 2013-14 Data extracted from Ministry of Commerce and Industry, Government of India, 2013-14 http://english.vietnamnet.vn/fms/business/112636/ new-steel-import-decree-not-helping-domestic-steelmanufacturers.html

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About the Study: Historically, India and Cambodia, Laos, Myanmar and Vietnam (CLMV) region have had civilizational, cultural and economic relations since ancient times. People, goods, capital and ideas have travelled between India and the CLMV countries over a long period. However, these linkages today are characterized by untapped potential. It is noticed that while there is a developmental divide between the CLMV region and the rest of the ASEAN region, India's Look East or Act East policy has also not focused adequately enough in terms of India- CLMV economic integration. The ASEAN region as a whole is characterized by the presence of strong production networks and Regional Value Chains (RVCs) both within and outside the ASEAN. On the other hand, India is almost left out of any signicant regional value chains in her neighbourhood. The regional value chains have somewhat bypassed the CLMV region too when compared to the rest of the ASEAN. Considering that RVCs have emerged as important vehicles for regional economic integration, they need to be facilitated with adequate policy responses so as to achieve developmental imperatives of employment generation, poverty alleviation and improving quality of life. The study in this context, by way of a major contribution to the subject, provides analytical and empirical basis for India's economic integration with the CLMV region and suggests certain policy steps that could harness the vast commercial and developmental potential that this relationship offers.

About the Author: Dr. Ram Upendra Das is Professor at Research and Information System for Developing Countries (RIS), New Delhi
