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That New Delhi has told Asean it will give no tariff concessions on completely built units in the auto and bike sectors should help reduce tension in the domestic industry, but it is clear that the road ahead on the Free Trade Agreement will not be as smooth as expected. Select Asean members, such as Thailand, are certain to strongly oppose this stand, which in fact promises to become another friction-point in the talks already plagued by irritants such as the palm-oil imp ort duty issue the past couple of years.

This is perhaps why the auto and auto components industry has increased the stakes while making its case for continuation of protective tariff walls. It is argued that lowering the import duty on CBUs and components would lead to a diversion of foreign investment to Asean countries from India as Asean exports would become more competitive than Indian products. (According to one estimate, the Indian auto sector needs around $35-40 billion by 2016 to become an international auto hub.) And if car and bike CBUs are placed on the “sensitive list” — attracting a maximum of five per cent import duty — it would lead to an inverted duty structure where the import duty on finished products would be lower than on components. These are cogent arguments for protection of the Indian auto sector, but the Asean view is quite different. The latter is, in fact, fully geared to fighting for CBU imports to be put on the “sensitive list” (the present import duty on CBU cars and bikes is more than 60 per cent) and as few auto components as possible to be included on the “negative list” (which will not be subjected to tariff reductions).

On two other FTA subjects, namely, the Indian import duty on palm oil and its derivatives and the rules-of-origin issue, there has been some progress, which may indeed ‘rescue’ the FTA negotiations. New Delhi has recently slashed import duties on palm oil to fight high domestic prices, which has come in handy in the FTA talks because of the make-or-break status given to the subject by such Asean exporters as Malaysia and Indonesia. On the rules-of-origin issue, a middle cut-off level of 35 per cent is reported to have been agreed on, the Indian and Asean bargaining positions being 40 and 30 per cent, respectively. Even so, it is still too early to predict a date for the implementation of the FTA (now slated for early 2008) as the problems and the mindset that prevented it from seeing the light of day in mid-2005 still remain.

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