The Hindu Business Line : Plodding on Thai FTA

A Free Trade Agreement was signed between India and Thailand in October 2003 the original schedule being that negotiations would begin in January 2004 and be completed by March 2005, the agreement itself being fully implemented (that is, zero-duty imports becoming effective both ways) by 2010. It was also agreed that talks on freeing investments would begin in 2004 and be completed by 2006. In reality, things have turned out differently with the FTA still in the works, leave alone any progress on investments. Only the early harvest programme (involving 82 items accounting for just 7 per cent of bilateral trade) has been implemented which, incidentally, has led to a steep increase in Indian imports from Thailand. Further, a joint statement on operationalising the FTA was expected to be issued earlier this week but has not materialised.

It is against this background that the visit of the Thai Prime Minister, Gen Surayud Chulanont, has to be seen, its outcome indicating that the problems to finalising the FTA still remain. Recently, Bangkok took a belated initiative to break the ice by offering to drop its demand for tariff reductions on rubber imports, clearly to goad New Delhi into responding by trimming its negative list and relaxing its tough rules-of-origin stipulations. Nothing of the sort happened because both are difficult propositions in view of the feared adverse impact on Indian industry. In fact, the domestic lobby — especially in auto ancillaries, plastic items and electronic components — has put up a big fight against allowing cheap Thai imports. ( Thai industry is much more competitive than its Indian counterpart given the infrastructure, transaction costs, interest rates, indirect taxes and flexible labour laws.) Bangkok has also been demanding an increase in the number of zero-duty items compared to what New Delhi has offered vis-À-vis the 5,200 tariff lines on the negotiating table. There is nothing on the horizon to indicate that the problem has been solved, which makes the optimism on the finalisation of the FTA (by August e nd, as Bangkok sees it) somewhat premature.

Admittedly, strenuous efforts are being made to speed things up — by holding road shows on the FTA and the kicking off of simultaneous negotiations on trade in services and investments. Gen Chulanont has also called for greater participation by Indian investors in the Thai pharmaceuticals and information technology sectors where they already have an edge. The bilateral trade turnover target for 2010 has been set at $10 billion, the current year’s performance (goaded by the early-harvest programme) expected to touch $4 billion. Though this will be an impressive target to attain, care must be taken to ensure that Indian exporters benefit as much as their Thai counterparts, which may not be the case if current performance is any indication.