The Hindu Business Line : No future for India-Asean FTA

With every passing month it is becoming increasingly clear that there is no future for a free trade agreement between India and the Association of South-East Asian Nations. If the developments over the past couple of years are considered, two points emerge which can be seen as major stumbling blocks. The first is the single-minded quest of some Asean economies to penetrate the Indian palm oil market through a lowering of the associated Indian import duties; the second is the gross anomaly in the overall negotiating framework where, while one side is represented by one sovereign state, on the other there is a polyglot of 10 national interests (under the Asean umbrella) representing 10 different and specific agendas.

It is therefore not at all surprising that since October 8, 2003, when the agreement on `Comprehensive Economic Cooperation' between the two sides was signed, there has not been much more than just halting progress on the different subjects under negotiation, the entire process today having got mired in the fundamental issue of the contents of the `negative lists' proposed by the two sides. In fact, the state of play on the negative list issue provides a good enough idea of the nature of the obstacles in the way of an FTA, perhaps even of the prospect of an agreement between the two sides being impossible.

Negative List differences

Negotiations on the negative list began immediately after the Comprehensive Agreement was signed. One would have expected that by now the gap between the two sides would have been narrowed. On the contrary, the differences have increased manifold, which should ordinarily be interpreted as a hardening of positions. The interesting part of this process is that, as far as New Delhi is concerned, there has been a steady whittling down of its negative list — to the latest level of 490 (announced in late December last year) from more than the 1400 proposed earlier.

On the other hand, Asean has greatly expanded its negative list — from a consolidated 600 (that is, doing away with the overlapping of lists provided by the different Asean member-states) to one of 1000-plus. As the Commerce Secretary has pointed out, the Asean negative list vis-à-vis China is much lower than what has been offered to India, one inference being that Asean prefers a more constricted free-trade arrangement with India than it does with China. It is possible that the Asean negotiators are piling the pressure on the Indian side with the objective of forcing it to concede as much as possible — a strategy some observers may say is possibly working if New Delhi's December reduction of the list (from 560 to 490) in reply to the November-end expansion of the Asean list (to a consolidated 1000-plus) is any indication. But, clearly, this process cannot continue because if it does the only sufferers would be, among others, agri-players in the Indian economy, who are in direct competition with Asean producers and exporters of the same products.

Bleak outlook

Reports indicate that, in the latest round of negotiations held last week in Cebu (the Philippines) — in the run-up to the Prime Minister's visit to attend the Asean summit — the Commerce Minister, Mr Kamal Nath, was able to make his hosts accept the reduced Indian negative list, which is certainly an advance from the previous position attained in the negotiations. But the all-important point is whether this progress will lead to a breakthrough resulting in the successful conclusion of the FTA talks.

The outlook is bleak, if the reported reaction of the Asean Secretary-General, Omg Keng Yong, is any indication. He is reported to have said that even with this agreement, "it may be optimistic" to expect an agreement to be finalised by July 2007 — the pushing back of the implementation date was, incidentally, was another point of consensus reached at the Cebu negotiations (the date was first pushed back to January 2007 from January 2006 at a meeting of Asean economic officials held in September 2005).

At least one school of thought would like to suggest that, as far as Asean is concerned, there is no need to pursue the goal of an FTA, which is gradually turning into a chimera not merely because of conflicting trade interests but also (as suggested earlier) because of a lack of an integrated, unitary Asean trade policy. Admittedly, this drawback in the Asean `framework' has not prevented the grouping from concluding FTAs with other economies.

But as far as India is concerned, it just does not seem to be working with such member-states as Malaysia in particular putting their foot down on any effort to go slow on prising open the Indian palm oil market. In fact, the Malaysians have made it abundantly clear that unless there is practically free entry of its palm oil (products) into the Indian market, it is not interested in forging an FTA with this country.

Intra-Asean harmonisation

Not surprisingly, there is a well-advanced move within Asean itself to `harmonise' intra-Asean relations so that, among other things, it can present a more united economic face to the outside world. As the spokesman for the 12th Asean summit has been quoted as saying: "You can't have 10 different economic programs in an area not as large as China or India... We should act as one market. That's half a billion people already. There's lots of sense in pulling ourselves together... "

At the Cebu summit, an important part of the agenda was discussing ways to "becoming a legal entity after nearly 40 years of existence, writing a new charter and drawing up trade regulations and rules in which members can be censured or suspended from the group."

But all this will not happen overnight, which means that the right sort of India-Asean FTA will continue to be unattainable — that is, an agreement which will protect Indian domestic interests as well as afford a freer exchange of goods and services to the mutual benefit of both the sides. New Delhi has made enough concessions as far as the rules of origin and classification of traded items aspects are concerned. It should draw the line somewhere as regards an FTA and focus instead on other aspects of cooperation listed in the October 2003 agreement, which has among its objectives the strengthening and enhancing of "economic, trade and investment cooperation" between the two sides.

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