The Hindu Business Line : FICCI urges caution on free trade pacts

(from right) Dr Amit Mitra, Secretary-General, FICCI, Mr Saroj Kumar Poddar, Senior Vice-President, Mr H.F. Khorakiwala, Vice-President, addressing the national executive committee meeting in Bangalore on Thursday. — G.R.N. Somashekar

Bangalore , July 14

FICCI has urged the Centre to exercise great caution while entering into preferential or free trade agreements.

The rules on the origin of goods should be studied carefully and followed strictly with any preferential partner; otherwise it would lead to a flood of re-exported goods from a non-manufacturing country, the FICCI Senior Vice-President, Mr S.K. Poddar, and the Secretary-General, Dr Amit Mitra, told a news conference here.

With India, as South Asia's prime mover, currently negotiating a dozen regional, free or preferential trade arrangements, the origin of goods would be of key concern as these imports would have a direct impact on the domestic industry.

FICCI proposed to draw up an India strategy paper on FTAs.

It would also strongly push for such pacts with developed countries such as Japan and the US on services as these would have beneficial technological spin-offs.

In the case of Japan, a joint study group was working on the feasibility and the first found of talks would be held this month-end.

He expected a report to be ready in 3-4 months and some tangible progress in a year.

"We urge the Government to strongly ensure that the rules of origin are strictly adhered to," Dr Mitra said.

"FTAs, if properly handled with appropriate country, will benefit us. Otherwise, they will end up in a lose-lose proposition."

The cases should be taken up country wise and by each industry.

Mr Poddar and Dr Mitra were speaking after a national executive committee meeting where the apex body released its preliminary study on `FTAs, their issues and implications on the national economy'.

Referring to last month's landmark pact with Singapore - the Comprehensive Economic Cooperation Agreement or CECA - and the preferential trade agreement with Sri Lanka, they said these had pitfalls. While Singapore is the transit country for 45 per cent of goods, under CECA, India could end up with a flood of Chinese goods at nil duty if it did not watch out.

Likewise, Sri Lanka, which does not produce copper, would be exporting the commodity to India at zero duty. Import of pepper and vanaspati was also an issue.

Likewise, there was a "perverse and inverted duty structure" with Thailand as in the case of glass for TV picture tubes, which threatened domestic manufacturers.

However, there was no denying the benefits and increased market reaches of FTAs with the right partners, as the study showed. South Asian SAFTA opened up a combined market of $750 billion; Bangkok agreement creates a market of 2.5 billion people; there were Bimstec and Mercosur; while the FTA with Asean would potentially increase goods trade turnover to $30 billion by 2007.

Mr Poddar said FICCI would be meeting the Finance Minister for correction on the controversial fringe benefit tax issue. Circulating copies of the circular issued by the additional commissioner of income-tax, Ahmedabad, to Gujarat businessmen, Mr Poddar said the circular clearly said the FTB was being levied on even non-employee related expenses of companies.

The higher tax impact was against a Supreme Court ruling and it would be opposed, he said.

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