The Hindu Business Line : Sticky palm oil

Despite intense bargaining, it seems the India-Asean FTA will take many more months to materialise, given the inflexibility of Indonesia especially on palm oil.

The Union Commerce Minister, Mr Kamal Nath, who has just returned from a Ministerial meeting in Indonesia on the India-Asean free-trade accord issue, is optimistic about the future of the deal, which is welcome because freer trade between the two sides will benefit both. The FTA is expected to push India’s exports to Asean to a high of $22 billion by 2012, from around $8 billion now. However, the associated bargaining has been intense, leading to hopes being raised o nly for them to be dashed by the inflexibility in making necessary concessions.

The last time this happened was in August 2007, when a senior Commerce Ministry official said that work on finalising the modalities would be completed by September with the agreement being signed at the Asean summit in November. That, of course, did not happen. This time, the Commerce Minister has said that New Delhi is close to clinching the deal although, significantly, he indicated a time-frame of three months, which suggests that things are not going too smoothly. According to the earlier schedule, the negotiations were to be completed by the end of March this year, but it now seems that, barring a miracle, nothing will happen before August, at the earliest. The “miracle,” of course, will be if Indonesia agrees to do its bit by improving its tariff offers on Indian exports. What it has placed on the table is much less than what New Delhi has. Overall, India has offered to bring 80 per cent of the total tariff lines traded with Asean into the zero-duty list, the expectation being that its Asean partners would do the same. While all other Asean members have done so, fulfilling one of the basic requirements of the FTA, Indonesia has held out. Jakarta’s stand is that since 35 per cent of its total exports to India comprise palm oil (on which New Delhi wants to retain the flexibility to raise duties to 45 per cent despite having slashed it to zero recently). India has failed to cover 80 per cent of Indonesia’s tariff lines for the zero-duty list. .

New Delhi has rightly focussed on the principle of reciprocity, which means that Jakarta can extend the same degree of duty concessions to Indian products as has been offered to it, but this apparently has not cut much ice with the Indonesians. This apart, New Delhi has also asked the Asean countries to improve their offers on products listed as sensitive items — a request that is yet to be responded to. Though the FTA is urgently required, it now seems that it may take some more months for it to be finalised, given the slowdown in the international economy.

Related Stories:
Expectations from Asean
India-Asean FTA glitches
Trade with ASEAN may surpass $30 b by year-end

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