India and Thailand Reset Bearing Tariffs

India and Thailand have settled long-running trade negotiations, cutting high tariffs on 82 items, including bearings. The changes follow an October 2003 free trade agreement eliminating all tariffs between the two countries by 2010. Eventually, Bangladesh, Myanmar and Sri Lanka are expected to be included in that free trade area. Trade between the two countries now totals more than USD $2.1 billion each year, but with Thailand running a substantial deficit. The tariff adjustments, particularly because they involve high value products, are expected to boost trade on both sides. Thailand now imposes tariffs ranging from 1% to 60% on products from India, while India charges duties on Thai-origin products that range from 10% to 100%. The key stumbling block in the Bangkok negotiations had been establishing rules to define "origin" and "substantial transformation," with bearings the key manufactured product involved. Under substantial transformation rules now, tariffs on manufactured products are based on the degree of change between raw material (particularly imported raw materials) and the end product. India, with the stronger manufacturing economy, wanted both direct-origin and substantial transformation products classed together, while Thailand's negotiators contended doing so would effectively wipe out their exports from five industries, including bearings. The final compromise states ball bearings and four other items must contain 20% to 40% local content to qualify as substantially transformed and local origin. Tariffs on all the negotiated products will be cut in half by the end of September 2004, and cut in half again by September 2005. By September 2006, the treaty requires eliminating all tariffs.