The Hindu Business Line : Oiling up the Asean FTA?

The Asean secretary-general's recent statement that the Free Trade Agreement talks with India have not been suspended — as was indicated clearly in late July by the Malaysian Trade and Industry Minister — is a shot-in-the-arm for the negotiations which have been facing hurdles in recent months. In fact, the nature of the obstacles facing the India-Association of South-East Asian Nations exercise is not without interest in that it throws light on the dilemma facing free-trade enthusiasts — that while freer trade between economies should be encouraged, the lowering of barriers should be carefully calibrated to protect the interests of domestic industry. The danger is that at times the implementation of this policy may lead to accusations of New Delhi surrendering the interests of domestic industry too rapidly to those of foreign suppliers.

One example of this apparent `conflict' is the recent cut in the import duty on refined and crude palm oil, the official reason being that it would slow down the rise in domestic prices, which has become a political issue. This may well be the case, especially when seen in conjunction with the crude oil price increase, but FTA-baiters can also see the move as New Delhi's concession to Asean palm oil exporters (specifically Malaysia and Indonesia) who have taken the stand that unless the import duties are substantially lowered, if not abolished, there is no point in having a free-trade arrangement with India. The Asean palm oil exporters may have a point because for some of them exports to India form more than 75 per cent of their total export basket. It is perhaps keeping this in mind that New Delhi had initially offered tariff-rated quotas (TRQ), which would have given some protection to the domestic palm oil industry as well as partly met the Asean demand for freer access to its exports. The charge of capitulation by New Delhi on this score has been strengthened by the fact that the duty reduction has come despite the TRQ offer, which has been rejected, and despite Indian officials telling their Asean interlocutors that at least five years are needed before the import duty protection for the domestic palm oil industry can be lowered effectively.

The silver lining in this entire issue is that the reduction in import duty has been reasonably limited in that it varies between 11 per cent and 12.5 per cent — the effective levels still being as high as 70 per cent and 80 per cent for crude and refined palm oil, respectively — thus meeting the calibrated-policy requirement. Asean should factor this unavoidable Indian limitation into its response to the duty-cut and push on with the FTA negotiations, the successful completion of which will profit both the sides immeasurably in the years to come.

More Stories on : Editorial | Foreign Trade

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Oiling up the Asean FTA?

The State of VAT

Sublease as capital asset

A costing standard that rescued a chocolate case

Taxing non-residents — The source rule principle

Bankable deposit

Capitalism is increasingly operating outside the rule of law