Issues and Challenges for SMEs in WTO Era: Can RTA’s help?

Tamanna ChaturvediConsultant

Indian Institute of Foreign Trade

  LaoVietna

mMyanma

r Cambodia Thailand China

Situation 1  3  2.5  4  3  3

Situation 2  2  4  3  4  4Situation 3  4  4  3.5  5  4.5

Situation 4

Are you satisfied with the products that you have?

Rate your level of satisfaction (between 1 to 5)

5 1

Highly satisfied Highly dissatisfied

  LaoVietna

mMyanma

r Cambodia Thailand China

Situation 1  3  2.5  4  3  3

Situation 2          Situation 3          

Situation 4

Are you satisfied with the products that you have?

Rate your level of satisfaction (between 1 to 5)

5 1

Highly satisfied Highly dissatisfied

Globalization gives more satisfaction to

the country

Who’s won the race?1

Textiles

2Marine

3Rice

4Coffee

Wood 5

EXPORTS OF CLMV COUNTRIES BY PRINCIPAL COMMODITIES

Lao PDR 2007 2008 2009 2010 2011 CGR

Garments 99 100 78 106 111 2.90

Wood products 79 71 62 69 78 -0.32

Coffee 15 9 11 7 7 -17.35

Vietnam 2007 2008 2009 2010 2011   CGR

Rubber 166 271 378 597 787 47.56

Wood 344 460 609 1139 1517 44.91

Textiles 1975 2732 3609 4385 4806 24.90

Rice 624 726 720 950 1399 22.37

Coffee 391 322 505 641 725 16.69

Marine products 1816 2036 2200 2400 2741 10.84

My exports are on a rise for last so many years? ….BUT!!.....does it mean the trend would remain for ever?

Let’s see how & why?

  2007 2008 2009 GrowthIndia 322 240 248 -10%Pakistan 215 273 308 -2%Thailand 205 222 217 -7%Vietnam 168 224 190 -4%

Brazil 3824 3491 3458 -12%India 4057 3251 3663 -12%Vietnam 3474 3358 3098 -15%

India 2068 1798 1913 -4%Kenya 2165 1596 1639 -3%Vietnam 2317 2241 1953 -4%

Decline in Prices: Case of CLMV countries

Netherlands(24.45), Spain(23.51), Mexico(19.65),USA(4.79)

Loosing Competition in International market….

USA(58.67), Brazil(23.64), Argentina(7.06), Paraguay(4)

France(19.55),USA(14.83), Italy(10.56),Chile(8.66)

Spain(35.89),USA(15.68),Mexico(5.39),Greece(5.14)

Ecuador(22.85),Costa Rica(13.65),Colombia(11.05)

USA(26.68), Australia(16.22), Canada(13.3), Netherlands(9.19)

Thailand

Japan27%

0%US31%

China14%

EU11%Mekong

17%

EWEC COUNTRIES: NEED FOR MORE ASEAN INTEGRATION

Vietman

Japan21%

US31%

China13%

EU24%

Mekong11%

Lao

Mekong56%

China3%

Japan2%

EU39%

Didn't we expect WTO to solve all these

problems?

Some facts…

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.

Location : Geneva, SwitzerlandEstablished : 1 January 1995Created by : Uruguay Round negotiations Membership : 153 countries Head : Pascal Lamy (DG)Secretariat staff : 550

1. Afghanistan2. Algeria3. Belarus4. Bhutan5. Bosnia6. Ethipoia7. Iran8. Iraq9. Kazakastan10. Lao PDR11. Libya

12. Russian Federation

13. Saudi Arabia14. Serbia15. Seychelles16. Sudan17. Tazakistan18. Tonga19. Ukraine 20. Uzbekistan21. Yemen

Observer Status Countries

BASIC PRINCIPLES

1. NON-DISCRIMINATION MFN (Most Favored Nation) Members are bound to grant to the products

of other members treatment not less favorable than that accorded to the products of any other country.

National Treatment Once goods have cleared customs, imported

goods must be treated no less favorably than the equivalent domestically produced goods.

2. PREDICTABLE AND GROWING ACCESS TO THE MARKETS

Prohibition of Quantitative Restrictions Binding of Tariffs Bound Tariffs cannot be increased Progressive reduction in the protection. Exceptions: Safeguards, BOP.

3. FAIR COMPETITION4. TRANSPARENCY5. ENCOURAGE DEVELOPMENT

Market Access

Domestic Support

Export Subsidies

S & D

Market Access

Non

Tariffs

Tariffs

Bound Rate(max)

Least Developed Countries do not have to undertake any tariff reduction

The Harmonized System (HS) codes are an international method of classifying products for trading purposes. This classification is used by customs officials around the world to determine the duties, taxes and regulations that apply to the product.

The Harmonization Code System (HS-Code) is a system of progressively more specific identifiers for a commodity. This number is an aggregate of a series of codes starting with a broad category assigned a 2-digit identifier. It is then assigned a 4-digit identifier and goes down further.

Now what is this HS Code?

PRODUCTS OF ANIMAL ORIGIN….HS CODE 04

MilkEgg Feather

Honey

Meat

….HS CODE 4 DIGIT

Milk 0401Egg 0402 Feather 0407

Honey 0405

Meat……

Milk 0401……HS 6 dgt

Milk powder040110

Butter oil040120

Cheese040130

Butter040150

04011010: Milk and cream containing fat not exceeding 1%.

04011020: Milk and cream containing fat > 1% but < 6% by wt.

04011030: Milk and cream containing fat > 6% by wt.

Tariff Reductions for selected food items

10,000 tons

Import duty rates Tariff Rate Quota

4%

< 10,000 tons

400%

Decision making for Exporter on the basis of TRQ: case for rice exporter

Mr. X is a rice exporter from your country. He is a consistent player in the rice trade with export capacity of 20,000 tons, however faces tough competition from Mr. Luan Hay of Thailand. He is looking for a right destination for his export consignment. As per the past trends , he shortlists three markets i.e Indonesia, Japan and Srilanka. Now considering the parameters under TRQ, which market will you suggest him to finally choose for his rice exports why?

What does this Tariff Rate Quota mean to GMS exporter?

Market TRQ volume

In-quota tariff rate

Out of quota tariff rate

Srilanka 25,000 mt

4% 4000%

Indonesia 22,000 mt

15% 75%

Japan 15,000 mt

25% 100%

Let’s use TRQ for identifying our target export market

Ag Product TRQ In Quota Tariff Out Quota TariffChina      Wheat 9.63 1-10 65Corn 7.2 1-10 51Rice short & medium grain 2.66 1-9 46Rice long grain 2.66 1-9 46Soyabean Oil 3.581 9 63.3Palm oil 3.168 9 63.3Rapeseed oil 1.243 9 63.3Sugar 1.95 15 50Thailand      Cane or beet sugar 13760    Instant coffee 134    Rice 249757    Pepper 45    Maize 54700     Green Tea 150    Black Tea 437.5    Copra 1157    

PARTICIPANT’S EXERCISE Please go to www.wto.org Click on “Trade Topics” Then click on Agriculture Then click on “more on official

documents and country notifications” Download your country’s list of

products under “Tariff Rate Quota”

Can SMEs in CLMV ever compete in International Market?

Can SMEs from LDC survive in global competition?

How can they benefit from Globalization?

Let’s see how RTAs can help SMEs?

In such a scenario………

HOW CAN RTA’S HELP IN THIS CONTEXT?

Reduction in Import duty on goods

Liberalization of Services

Liberalization of InvestmentsDevelopment of International Production

Networks

Yarn purchased

Rep of Malaysia

Weaved & DyedIn Vietnam

by subsidiary

Cut in Laos

subcontractor

Stitched in Thailand

Zipped in Indonesia

These are International Production Networks

Finally sold in USA and EU

Collective efficiency due to…1. Scale: purchase of inputs, technology, pool of skilled

workers, pooling production capacity to meet large volume orders

2. Specialization: by producing a joint output by div of labor

3. Joint Action: collaboration through producer association.. Learning jointly about new market standards

4. Enhanced attractiveness as suppliers: reduce transaction cost of buyers sourcing otherwise from small firms

How will it help?

RTA provide member countries with a comprehensive legal framework to provide greater market access for goods and services.

Negotiations are certainly faster.

It allows countries to develop partnerships in areas not covered by WTO.

Going beyond WTO