The Hindu Business Line : Free trade pacts bring macro gains but also micro pains

New Delhi, Dec. 11 The raft of free trade agreements (FTA) India has already signed or lined up for signing with a host of countries and the implications of such agreements on domestic industries, injured by the free entry of such preferential products, have legitimately provoked concerns.

Official sources told Business Line here that so far India has signed FTAs with Singapore, Sri Lanka, Thailand, Nepal and Bhutan and also with the South Asian Association for Regional Cooperation (SAARC), besides lining up negotiations with regional groupings such as the Association of South East Asian Nations (ASEAN), BIMSTEC (Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation) and Gulf Cooperation Council (GCC).

The India-Israel negotiations on negative lists have not yet begun. Alongside, India has signed Preferential Trade Agreements (PTAs) with Afghanistan and Chile and is also a signatory to the regional PTAs such as Asia Pacific Trade Agreement (Bangladesh, China, India, South Korea and Lao PDR and Sri Lanka as members), Mercosur (involving Argentina, Brazil, Uruguay, Paraguay and Venezuela) and Global System of Trade Preferences (GSTP) which is open to all developing countries.

Sources said since India pursued a very cautious and guarded approach towards regional trading agreements (RTAs) in the past and engaged in only a few bilateral/regional initiatives mainly through PTAs like the Bangkok Agreement of 1975 to exchange tariff concessions in the ESCAP region, the GSTP and the SAARC to liberalise trade in South Asia, these engagements resulted in only limited gains in terms of augmenting trade volumes with the member countries.

Whereas under FTAs negative lists are maintained in which no or limited tariff concessions would be available, in PTAs, negotiations are held on the basis of positive lists approach, wherein specific tariff lines are considered for offer of concessions to the partners.

In the wake of proliferation for RTAs across the globe where trade concessions remained confined only to the participating countries in such pacts, India began rather out of necessity since early part of this decade to launch a few FTAs and also Comprehensive Economic Cooperation Agreement (CCEA). The latter includes FTA in goods (i.e., having a zero customs duty regime within a fixed timeframe on items covering substantial trade and a relatively small negative list of sensitive items on which no or limited duty concessions are available), services, investment and also identifies areas of economic cooperation. India has already signed CECA with Singapore and negotiations are on with Mauritius, South Korea, Japan and European Union (EU) for such CECAs. Sources said that while the negotiations might conclude with Korea this year, they would be wrapped up with Japan by 2008 and with EU a year later.

‘A spaghetti bowl’

Trade policy expert Prof. Jagdish Baghwati of Columbia University has described various RTAs/FTAs as spaghetti bowl presumably because they criss-cross and lack clarity, distorting normal trade pattern and encouraging trade diversion among participating countries.

The Minister of State for Commerce, Mr Jairam Ramesh, when contacted, said FTAs invariably bring macro gains but also micro pains and particularly when there is an inverted duty structure under which tariffs on raw materials are higher than finished products coming under the FTA route. He said the country should be sensitive to micro-pains being inflicted on domestic manufacturers as they have to wrestle with a range of other disabilities.

Stating that he is always for open and barrier-free trade, Mr Ramesh asserts that India must also be open to having in place adjustment assistance programme for industries dislocated by FTAs especially as this entails the livelihood concerns of people in these industries. He also pointed out that having an FTA with neighbouring countries in the sub-continent has wrought an ‘embarrassing’ trade surplus for India with most of them and only in the case of Sri Lanka this has come down substantially. Hence he suggests that the “F” in FTAs should be free, fast and fair to all the stakeholders and shareholders.