The Hindu Business Line : TERC to decide BIMSTEC framework pact

THE Prime Minister's Trade and Economic Relations Committee (TERC) is scheduled to meet here on August 10 to take a crop of decisions concerning India's economic relations with neighbouring countries such as Pakistan, Bangladesh, South Korea and the framework agreement on the BIMSTEC free trade area.

Official sources told Business Line here that the Prime Minister, Dr Manmohan Singh, who heads the TERC, would chair the meeting in which issues like the Joint Study Group on India-South Korea and the framework agreement on the Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Cooperation (BIMSTEC) would be taken up.

The sources said South Korea has emerged as a leading trading partner as it has also shown a lot of investment interest in India, the latest being the Korean steel giant Posco's decision to set up a $12-million tonne greenfield steel plant in Orissa using the iron ore being abundantly available in the State.

It might be noted that at its last meeting, the issue of removal of specific duty on textile items demanded by Pakistan and market access by Bangladesh to Indian textile markets had figured, which was opposed by Indian textile manufacturing units as they see cheap imports from these countries throttling their capacity and pricing them out of the domestic markets. The TERC then sought a report from the Ministry of Textiles about the ramifications of these requests.

In fact, at the last month's meeting in Kathmandu for exchange of tariff concessions among the SAARC countries, the issue of negative list where concessions could not be exchanged because of domestic compulsions almost resulted in a stalemate.

Industry sources which were privy to the report commissioned by the Ministry of Textiles and made by KSA Technopak confirmed that in the light of the SAARC Preferential Trading Arrangement (SAPTA) failure and escalating number of regional trade agreements across the world, the SAARC countries' governments recognised the need of going beyond the exchange of trade preferences in a preferential trade area to the abolition of intra-regional trade restrictions and tariffs, thereby ushering a South Asian Free Trade Area (SAFTA).

According to the sources, the report has stated that signing of SAFTA has created euphoria in the South Asian countries. But there are at least two possibilities, which might make the agreement redundant. First, all the countries are members of WTO and would reduce the tariff levels in any case. If their MFN (most-favoured nation) tariffs are close to preferential tariffs under SAFTA, intra-regional trade might not grow rapidly.

But one could contend that at lower rate of import duty, with or without SAFTA, the intra-regional and trade outside the region would thrive. Second, if the negative list is large and includes most of the products of export interest of South Asian countries, the intra-regional trade would not flourish. As such, the report has argued that in view of the great potential of the SAFTA, South Asian countries should accept the short-term costs for long-term benefits.

Since SAFTA enjoins participating countries to slash import duties to a certain level and also the negative list to be reduced, the TERC might have to persuade the domestic textile industries about the need to proceed in this direction as it has a commissioned study which argues for being accommodative in this regard for long-term benefit.

The sources said the report has categorised textile products into minimal threat, mild threat, medium threat and severe threat and in the last category in which at least one of the countries has sourcing and manufacturing competitiveness vis-à-vis India with significant amount of exports to affect the Indian market. Hence specific duty in the last category should not be removed.

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