The Hindu Business Line : A non-starter FTA

As of now, all indications point to the India-Asean Free Trade Agreement — slated for implementation from January 2007 — heading for the trash bin. Clearly, for the Manmohan Singh Government, this would be an unwanted development because the regime sets much store by the FTA helping India to participate actively in the so-called `pan-Asian' economic set-up that is envisioned in line with the concept of the 21{+s}{+t} Century being this continent's. In fact, as much was said unambiguously in early May by the Prime Minister's Trade and Economic Relations Committee, which warned that India would miss the bus in the emerging Asian economic scenario if the FTA with the Association of South-East Asian Nations failed to materialise.

The problem is that this FTA has come directly in the line of fire of politicians as important as Mrs Sonia Gandhi whom the Government can hardly ignore. In fact, New Delhi's expressed determination not to yield to Asean pressure on the issue of the pruning the `negative list' is the direct result of the April letter written to the Prime Minister by the Congress chief, arguing that FTAs that would hurt the interests of the nation's farmers should not be entered into. This is the principal reason why the Government has decided to offer tariff-rated quotas on palm oil imports from Malaysia and Indonesia and pepper tea and coffee from Vietnam, as well as on some manufactured items from Thailand. This stand has been rejected by the Asean countries, with Kuala Lumpur and Indonesia insisting on zero-duty entry of these items into India. A second intractable issue is the Rules of Origin problem, the specific point of difference between the two sides being the Indian insistence on the dual-approach based on value-addition and change in tariff heading as opposed to the Asean preference for only value-addition (a minimum of 40 per cent). New Delhi's reluctance to focus only on value-addition stems from the fact that high wages and rent can lead to the floor value-addition figure being reached quickly without any material change to the intrinsic character of the product, thus enabling easy re-export of third country products (from, say, China or South Korea).

Asean would like the `negative list' to be reduced to just 60 items from the 852 at present which, among other things, gives an accurate enough idea of the almost unbridgeable gap between the requirements of the two sides. No less a problem will be the multiplicity of interests and requirements which New Delhi will have to look after, given the variegated membership of Asean. Accommodating all of them without trampling some sensitive national interests will be a tall order for the government.

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