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CECA: The India-Singapore Comprehensive Economic Cooperation Agreement
September 2005 | India Practice | Regional | Regional Reports

India and Singapore signed the Comprehensive Economic Cooperation Agreement (CECA) on 29 June 2005 and it came into force on 1 August 2005 after 2 years and 13 rounds of negotiations. CECA is more than just a free trade agreement. Rather, it is a comprehensive agreement covering trade in goods and services, investments, mutual recognition in services, cooperation in customs, science and technology, education, e-commerce, intellectual property and media. This is a significant development as India has thus far limited its bilateral trade pacts to preferential and free trade agreements, which have never included trade in services.

Trade
Singapore is an important trading partner of India with bilateral trade hitting S$11.7 billion in 2004. CECA provides for a tariff reduction/elimination programme (each comprising different product categories), under which India will cut tariffs on imports from Singapore to (a) zero immediately, (b) zero gradually over a 4 year period with effect from 1 August 2005, and (c) 50% of prevailing rates gradually over a 4 year period with effect from 1 August 2005.

The Indian Government has, with effect from 1 August 2005, set out product categories for which there will be (a) full exemption on the basic customs duty, (b) 10% exemption on the basic customs duty and (c) 5% exemption on the basic customs duty.

Rules Of Origin
To prevent third-country imports "piggybacking" on the preferential routes offered under CECA, strict rules of origin ("ROO") involving the simultaneous application of three criteria (change in tariff heading, value addition and manufacturing operations) have been prescribed. The function of the ROO is to ensure that any tariff concessions under CECA will apply exclusively to benefit Indian and Singaporean parties.

The Indian Government has, with effect from 1 August 2005, set out the ROO for products in respect of which the final process of manufacturing is performed in Singapore. Products would be considered as originating from Singapore if (a) the local value added content is more than or equal to 40% and the product so produced or obtained is classified in a heading, at the four digit level, of the Harmonised System different from those in which all the non-originating materials used in its manufacture are classified; or (b) the product satisfies the specified Product Specific Rules.

Investment
India has committed to accord national treatment to Singaporean investors in 22 areas such as manufacture of food products and of textiles, manufacture of paper and paper products, chemicals and chemical products and construction development projects. Singapore has committed to accord national treatment to Indian investors on a negative list basis, which means that only sectors expressly excluded (for example, beer and stout, cigars, drawn steel products and chewing gum) are not covered under Singapore's commitments. In order to protect investments, CECA provides that the expropriation of investments cannot be carried out without proper legal safeguards. Any expropriation carried out must be based on public purpose and compensation based on market value has to be paid.

National Treatment
India and Singapore will not restrict access by each other's service suppliers to their respective markets and will grant each other's service suppliers the same treatment as local service suppliers. Further, India and Singapore will ensure that their domestic regulations governing services are reasonable, impartial and objective.

Mutual Recognition Agreements
Mutual Recognition Agreements will be negotiated between India and Singapore to further liberalise and to recognise each other's educational and professional qualifications pertaining to the fields of accounting and auditing, architecture, medical (doctors), dentistry and nursing.

Services
India has committed to accord national treatment to Singaporean service suppliers in 9 service sectors while Singapore has committed to accord national treatment to Indian service suppliers in 12 service sectors. In addition, Singapore has also committed to accord national treatment to Indian service suppliers in areas such as legal consultancy services for Indian law, security consultation services, alarm monitoring services, unarmed guard services, telephone answering services, retail trading and franchising under distribution services, education services and mailing services.

Financial Services
The Development Bank of Singapore, United Overseas Bank and Overseas Chinese Banking Corporation will be allowed to operate in India on par with Indian banks while up to 3 Indian banks will be granted Qualifying Full Bank licenses in Singapore, subject to relevant admission criteria.

Telecommunication Services
India will increase its foreign equity limit from 25% to 49% for most services, and 74% for internet and infrastructure services.

Air Services
As of the date of this article, no agreement has been reached as yet, but it is hoped that India and Singapore will be able to update the Air Services Agreement dated 31 January 1968 between India and Singapore and to agree on terms more favourable to both countries.

E-Commerce Services
All custom duties or other duties, fees and charges on or in connection with the importation or exportation of digital products by electronic transmission have been abolished. As a further concession, the customs value of the carrier media will be determined by the value of carrier media alone without taking into account the value for the digital products stored in the carrier media.

Intellectual Property Rights
An agreement has also been reached for joint collaboration on the development and promotion of intellectual property rights and rights to plant varieties through symposia, seminars, workshops and other training programs.

Income-Tax
Pursuant to CECA, the Double Taxation Avoidance Agreement ("DTAA") between India and Singapore has been amended by a protocol dated 29 June 2005. The purpose of this amendment is (a) to reduce tax on royalties and fees for technical services to 10% and (b) to exempt capital gains in India on sale of securities of any Indian company arising to a resident in Singapore and vice versa. The exemption in respect of capital gains will continue till the DTAA between India and Mauritius provides for a similar exemption. Learning from experience of the DTAA with Mauritius, it has been sought not to provide the capital gains exemption to a resident of a Contracting State (that is, India or Singapore, as the case may be), which is a shell/conduit company. A resident of a Contracting State shall be deemed to be a shell/conduit company, if its total annual expenditure on operations in that Contracting State is less than S$200,000 or Indian Rs.50,00,000 in the respective Contracting State, as the case may be, in the immediately preceding period of 24 months from the date the gains arise. A listed company, being a resident of a Contracting State, would not be regarded as a shell/conduit company.

Conclusion
The last item of the Preamble of CECA suggests that the Indian government may use CECA as a template for a forthcoming Asean-India free trade agreement. It is propitious that CECA may serve as the launch pad for greater economic integration and development in the region.