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India sticks to plan on creating regional manufacturing hubs in CLMV nations

LiveMint logoLiveMint 27-02-2017 Asit Ranjan Mishra

New Delhi: Even after the new US administration under President Donald Trump has abandoned the proposed Trans-Pacific Partnership (TPP) agreement, India is willing to pursue its original plan to create manufacturing hubs in the CLMV countries (Cambodia, Laos, Myanmar, Vietnam) to create regional value chains.

TPP was negotiated among 12 nations: Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam, which together account for 40% of the world’s gross domestic product (GDP).

Although the deal was aimed at countering China’s influence in international trade, India feared that it could adversely affect the country through trade diversion and stringent non-tariff measures.

India was seeking to safeguard its interest under a TPP regime where it may have partly lost markets to the developed countries, by creating manufacturing hubs, especially textiles, in countries like Vietnam, which was part of the TPP negotiations.

India’s cabinet had cleared a Rs500 crore project development fund in August 2016 for exploring such opportunities in CLMV countries and facilitating private companies to establish presence in these four countries.

One critical reason was the availability of Generalized Scheme of Preferences (GSP) to the CLMV countries through which they have less or no duty on their exports to developed countries.

India still enjoys GSP benefits in certain sectors but the US and European Union have been threatening to end India’s GSP benefits, given its rising share in world exports.

“GSP is one very big attraction to CLMV countries. If Indian manufacturers go to CLMV countries and produce, they will be able to utilize the GSP benefits to get market access in the developed countries,” India’s commerce minister Nirmala Sitharaman told reporters at the Fourth India-CLMV business conclave organized by the Confederation of Indian Industry (CII). The business conclave was attended by the trade ministers from Cambodia, Myanmar and Vietnam. A commerce ministry official speaking under condition of anonymity said TPP would have been an additionality, but since these countries have GSP benefits because of their least developed country status, India’s approach to CLMV is unlikely to change.

“Our target was to leverage both TPP as well as their GSP access. So, even without TPP, our strategy does not change. Exim Bank has identified sectors such as textiles, leather and healthcare where project identification work will start soon,” he added.

India’s exports to CLMV countries increased by more than eightfold to $6.4 billion in 2015 from $800 million in 2005, accounting for 24.3% share in India’s exports to Asean (Association of Southeast Asian Nations) region.

India’s imports from CLMV, on the other hand, increased by nearly sixfold from $600 million in 2005 to $3.9 billion in 2015, accounting for 9.4% share in India’s imports from the Asean region.

Ever since Vietnam started negotiating the TPP, many foreign investors had announced they would increase their investments into the country’s garment and textile industry to enjoy duty-free exports to the US market and other TPP member states.

“Indian textile manufacturers (should) take the opportunity to enter the Vietnamese market catering to the entire textile value chain,” an Exim Bank report in April 2015 had said.

The project development firm (PDF), which will facilitate private investments in CLMV countries, is housed in the Department of Commerce, and will be operated through Exim Bank. It will be governed by an inter-ministerial panel under the chairmanship of the commerce secretary. The PDF will be used to identify projects which support regional value chain (RVC) and help integrate Indian firms into the RVC. The projects identified under the initiative, if found feasible, will be incorporated through special purpose vehicles in CLMV countries.

The reporter was in Jaipur to attend the Fourth India-CLMV business conclave on the invitation of CII.

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