The Hindu Business Line : Elusive FTA

Considering the roadblocks in the way of the India-Asean FTA, it might be a better idea to pursue individual accords with countries in the grouping.

In late August, following the Manila meeting between Asean and Indian officials, there was hope that by November the free trade agreement between Asean and India would be signed. It was also stated that the FTA would push Indian exports to the region to $22 billion by 2012 from $8 billion now — a near 300 per cent jump in five years. It is, therefore, clear that there’s a big pot of gold waiting at the end of the FTA rainbow. However, going by current indicatio ns, it seems the pot cannot be had in a hurry.

On his return from Manila, the Union Commerce Secretary had said that the modalities would be finalised “by September this year” and that the much-awaited announcement on the FTA would be made then. He had also indicated that the prospects were good since “several rounds of successful meetings” had been held with Asean officials on the proposed agreement. After two weeks, however, the signs do not seem propitious because the response from some Asean countries to specific suggestions made by the Indian side in Manila has not been encouraging. The focus now is on the five special products (crude and refined palm oil, tea, coffee and pepper) on which New Delhi has said there will be no further tariff reductions, its offer being that tariffs would be cut. The Government has in the recent past reduced import tariffs on palm oil (crude and refined) but, clearly, this has not impressed the Asean economies with a special interest in the commodity — Malaysia and Indonesia. The Asean demand is that import duties on palm oil should be slashed to 30 per cent, and on tea, pepper and coffee to 20 per cent, which is not acceptable to New Delhi, and for good reason. Countries such as Vietnam have argued that keeping tea, pepper and coffee out of the tariff reduction fold would mean blocking 29 per cent of their trade with India, making a mockery of any effective FTA. India’s counter to this is that Vietnam’s putting as many as 450 items on its highly sensitive list would mean excluding an equal percentage of India’s trade with that country. Clearly, both sides will have to make concessions, and quickly, to meet the September-end deadline, but there is no sign of any progress yet.

It is not only the special products issue that needs to be settled before any real progress can be made on the FTA. There are other “minor” hurdles — for instance, a lack of agreement on tariff lines in the negative list, the five-year standstill issue and special and differential treatment for Cambodia, Laos, Myanmar and Vietnam — which have to be overcome before the FTA goal is reached. It will perhaps not be wrong to say that, barring a miracle, the India-Asean FTA, though a good idea, is as good as stillborn. (It was originally slated to take effect from mid-2005). Pursuing similar accords with individual member-countries of the grouping, as with Thailand, may be a better proposition.

Related Stories:
Asean FTA: India warily hopeful of negotiations
India-Asean FTA glitches
Speed-breakers in trade talks

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