The Hindu Business Line : FTA optimism

The commitment made at Cebu, The Philippines, by New Delhi and the Asean (Association of South-East Asian Nations) to hammer out a Free Trade Agreement by July is welcome, especially in view of the perceived hardening of the Asean position late last year. But it remains to be seen whether the target will be achieved within the allotted time, given the strong views held by both sides on the reduction of duties on such items as palm oil (refined and crude), black tea and pepper; indeed this issue has all but derailed the negotiations.

There is now broad agreement that the import duties on these items will be reduced to 50 per cent by 2022, the cuts beginning five years after the FTA comes into operation. The problem is that some Asean countries would like the reduction to begin earlier but this, as the Commerce Minister, Mr Kamal Nath, has made clear, will be difficult for New Delhi to accept because of the strong "political sensitivities" involved. The problem is compounded by the fact that palm oil accounts for as much as 20 per cent of all Indian imports from Asean. Thus, any duty reduction on this item will be of inordinate importance to bilateral trade, particularly to Malaysia and Indonesia, which export to India crude palm oil worth $1.7 billion every year. In fact, Malaysia had even threatened to have the FTA talks suspended if New Delhi did not concede more ground on this item; obviously this issue has to be sorted out in the next six months. Also to be discussed is the pace of duty reduction for the 700 sensitive items (mainly engineering and chemical products), the rates for which will be reduced to between zero and five per cent by 2018 (New Delhi had pitched for 2015). Clearly, as India enjoys a competitive advantage on manufactured goods, New Delhi should be able to leverage the pace of duty reduction for this list to get the best deal on the agro-products front.

The stark fact is that India needs to sign an FTA with Asean if it does not want to be left out of the intra-Asian region `trade boom' that is sure to follow the implementation of a web of such trade accords currently being negotiated between Asean and the Asian giants, China and Japan. The Prime Minister, Dr Manmohan Singh's assertion that India will shortly lower import duties to Asean levels is to be welcomed because it unequivocally projects the message that New Delhi is willing to be part of the pan-Asian free-trade community. However, for New Delhi to be able to participate in such arrangements effectively it needs to jack up domestic competencies in the production of agro-produce such as edible oils so as to make them competitive with imports from Asean.

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