Events &
Issues
New
Delhi, 5 October 2009
FTA With ASEAN
MORE PAIN THAN GAIN FROM
By
Dr P K Vasudeva
After six long years India
and the Association of South East Asian Nations (ASEAN) finally managed to get
their act together and sign a Free Trade Agreement (FTA) as part of the
Comprehensive Economic Cooperation Agreement. This is no doubt an important
landmark in relations between the two sides since it will be instrumental in
freeing the bilateral trade exchange, which was worth around $40 billion in
2008-09 and is targeted to hit $50 billion by 2010.
But the process leading up to the signing of the FTA has been a tortuous
one, the pressures during the final lap perhaps being serious enough to bring
forward the signing by a couple of months. According to one school of thought, New
Delhi has been somewhat impatient to get on with its ‘policy of engagement’
with the eastern world so much so that the signing was advanced (it was earlier
scheduled to be timed with the October ASEAN summit.)
The fact is that the India-ASEAN FTA stipulation on some plantation
items has raised the hackles of the farm community, specially in the South, wherein
Prime Minister Manmohan Singh himself has been forced to take the initiative to
allay their fears by deputing senior Central Ministers to look into their
problems. Apart from crude palm oil, items such as auto parts, textiles,
electronics, food processing and milk products have been put on the zero-duty
list, which will result in cheaper imports from ASEAN.
Consumers on this end of the Bay of Bengal
might appreciate this but manufacturers have reason to worry. The Government is
aware of this and has consequently approached the ADB for an Asian Integration
Adjustment Assistance Facility for protection of the affected manufacturers.
Some may find it difficult to understand why items (around 5,000) which had
been put on the negative list in both the India-Singapore and India-Thailand
free trade agreements have been put on the zero-duty list with ASEAN,
indicating a difference in treatment not justified by ground realities.
Since ASEAN import duties are already on the low side compared to
India’s — more than 75 per cent of Indian exports already enter the ASEAN
market duty-free — the former stands to gain more from the FTA than India. Seen
another way, while the ‘macro gain’ will be ASEAN’s, the ‘micro pain’ will be
felt by India’,
as is in fact being widely apprehended.
The good news, however, is the opening up of the services and
investments sectors, negotiations on which are expected to be concluded by year-end.
After all, ASEAN services imports were worth $180 billion in 2007, and India is well
placed in terms of cost and expertise to exploit it effectively.
The moot point is that does the FTA in goods — agriculture and manufactured
— with ASEAN promise gains to both the parties? While it will definitely
provide greater market access to ASEAN of the biggest market in India, the same does not hold good for India vice
versa in ASEAN markets of 10 countries in different stages of development.
The agreed modalities between the two parties and the interaction with
trade policy analysts suggest that under the India-ASEAN FTA, New Delhi has offered to
bring down the Customs duty on more than 7,300 tariff lines by end-December
2013. This would constitute over 71 per cent of the imports from ASEAN to India. Each
tariff line is just a category of related products and might contain more than
one item. Indian Customs tariff contain over 11,000 individual tariff lines.
The impact of such duty-free import regime on the Indian industry can be
gauged by contrasting the items India
deemed sensitive and opt not to offer any duty cut under the FTA individually
with Singapore and Thailand with
that of ASEAN now.
Since the Customs duty is being whittled down to zero on more than 70
per cent of products by end-December 2013, India’s list covers thousands of
items being manufactured by its small and medium industries. They include many
tariff lines from the sectors such as food processing, milk products,
agricultural items, paper products and pharma items, besides light
manufacturing goods, electronics, motorcar equipment, and textiles.
Trade policy experts cite reports of India’s move to approach the ADB
for loan assistance to compensate industries that are likely to be hit by the
FTA. In fact, the former Minister of State for Commerce, Jairam Ramesh, sought
from the ADB last November for such an Asian Integration Adjustment Assistance
Facility to help countries contracting FTA that gives “macro gains but also
inflicts micro pains”.
Industry people quip that the macro gain would go to the ASEAN and the
micro pain is what they are left with. They state that the product on which
zero duty regime is scheduled to be ushered covers over 55 per cent of India’s
global imports (2007-08 figures), offering ASEAN large scope of trade expansion
at the cost of other efficient suppliers to India. Thus, imports from ASEAN
would replace imports from other countries, even as the cheap imports from
ASEAN countries would affect most domestic segments of industry, besides
agriculture by entering here duty-free.
On the negative list by which no duty cut is proposed, both the parties
resolved that while India
had to maintain one consolidated negative list of 489 items for all the ASEAN
countries, individual ASEAN country would hold negative list of 489 tariff
lines as per individual country sensitivity to Indian imports. Effectively this
implies that India
has less than 50-60 items in its negative list for each ASEAN country, a patent
asymmetric pact from negotiation angle, leaving legions of domestic industries
vulnerable to dumping and material injury.
While India-ASEAN trade has boomed from $7 billion in 2000-01 to $39
billion in 2007-08 with a compounded annual growth rate of 28 per cent, so too
has India’s
trade deficit with the ASEAN members from a level of $3.5 billion to $14.5
billion in 2007. This was at a time when India was having a high tariff
wall.
India and ASEAN
are currently negotiating Agreements on Trade in Services and Investment, which
are to be concluded by December 2009. New
Delhi looks forward to access the vast services market
of ASEAN. India’s
total trade in services was $ 137.50 billion in 2006. The corresponding figure
for ASEAN is $ 280.90 billion. Similarly, Foreign Direct Investment (FDI)
attracted by India
in 2007-08 was $ 24.60 billion, whereas ASEAN member countries attracted FDI
totalling $ 60.50 billion in 2007.
Perhaps, all is not lost as the imbalance in goods trade could be
surmounted by beginning negotiations on services with ASEAN under the Comprehensive Economic Cooperation
Agreement (CECA) since India
is the 10th largest exporter of services and ASEAN is a net importer. --INFA
(Copyright,
India News and Feature Alliance)
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