NEW DELHI: The Union Cabinet on Monday approved the Comprehensive Economic Cooperation Agreement (CECA) with Singapore, paving the way for three of its top banks to set up wholly-owned subsidiaries in India as part of the first-of-its-kind bilateral accord with any country.

Briefing newspersons after the Cabinet meeting, the Commerce Minister, Kamal Nath, said that CECA, "a milestone in further cementing India's traditional ties with Singapore," would be formally signed by the Prime Ministers of the two countries on June 29 during the visit of the Singaporean Premier. Once the historic accord comes into effect from August 1, the customs duties on 506 items of trade between the two countries will immediately stand eliminated, to start with, as part of the "early harvest programme".

"National treatment"

Elaborating on the banking operations, Mr. Nath said that three Singaporean banks, namely, DBS Holdings, Overseas Chinese Banking Corporation and United Overseas Bank (UOB), would be accorded "national treatment" at par with Indian banks with regard to branches, place of operation and prudential requirements. In reciprocation, Indian banks already functioning in Singapore would also qualify for national treatment in that country. In effect, it means that they would be allowed electronic fund transfer (EFT) and clearance besides the use of local ATMs.

To boost foreign investments between the two nations, the CECA has weaved in an amended Double Taxation Avoidance Agreement on the lines of the accord with Mauritius by way of providing additional safeguards such as sharing of information and improved tax treatment so as to prevent its misuse.

The 739-page CECA also has provision for easing of visa restrictions for about 120 Indian professions. There will be mutual recognition of 129 education degrees given by UGC-recognised universities for visa purposes.

Allaying fears about Chinese goods flooding the Indian markets through Singapore, Mr Nath said that the agreement has very stringent Rules of Origin comprising simultaneous application of change in tariff heading and value addition of 40 per cent. Also, certain well-defined "insufficient operations" have been prescribed under CECA so as to ensure that only goods which are actually manufactured in the two countries stand to benefit under the accord. Singapore has also agreed to allow Indian beer to be exported but the ban on tobacco continues.

Services sector

As for the services sector, India and Singapore have taken commitments beyond their offer at the WTO.

In financial services, in particular, a deeper integration with Singapore's financial services is expected to take place, Mr. Nath said. Turning to the markets, Mr. Nath said the Securities and Exchange Board of India (SEBI) had put a cap of 10 per cent on investment by foreign institutional investors (FIIs) in a company. This is to be raised to 20 per cent for Temasek and Singapore Government Investment Company, he said. Also, asset management companies (AMCs) would be allowed to be set up in India for managing operations outside India.

The CECA, Mr. Nath said, was an integrated package comprising trade in goods and services, on investments and mutual recognition agreements in services and conformity assessment of standards in goods. It also has pacts in customs duties, science and technology, education, media, e-commerce and intellectual property rights.

Customs duty

In customs duty, for instance, apart from eliminating the duty on 506 items comprising 80 per cent of goods presently traded between the two countries, there would be phased elimination of duties on 2,202 items and phased reduction on 2,407 items by the year 2009. This apart, there would also be a negative list of 6,551 items where no concessions are offered. Trade in goods will include exchange of tariff concessions under the eight-digit ITC "Harmonised System Code" covering 11,666 items.

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