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India-Asean FTA

The free trade agreement signed between India and the Association of Southeast Asian Nations (Asean) is seen as a long-awaited trade booster for both the sub-continent and the ten-nation bloc. Bilateral trade is expected to reach $60 billion in 2016, up from $47 billion in 2008, having grown 27 percent since 2000.

Indian Commerce Minister Anand Sharma calls it a historic development that will open new opportunities and new pathways.

Probably, he is looking forward to a comprehensive trade pact to include services and investment, talks on which could start as early as October this year.

The agreement “comes at an opportune time as part of the region’s response over the growing concern of a global economic and financial crisis,” Asean noted in a statement.
The accord, India’s first with a trade bloc, will cover 11 countries with a combined Gross Domestic Product of over $2 trillion.

The combined population is of the order of 1.6 billion.

The 10-nation Asean account for 10 percent of India’s global trade and are India’s fourth-largest trading partner, after the European Union, the United States and China, the ministry said.

The current FTA, set to take effect on January 1, 2010, will see import tariffs for 71 percent of Asean-Indian trade in goods gradually decrease to zero by 2013, while those for another 9
percent of trade will be lowered to zero by 2016.

The tariffs on 500 to 600 items on sensitive lists will be reduced to 5 percent by 2016, while import duties on five “highly sensitive” items - palm oil, refined palm oil, coffee, tea and pepper - will be brought down from 70 percent to 45 per cent by 2019.

The tariffs for 489 items will remain unchanged, though.

The fifth FTA signed by Asean, following agreements with China, Japan, South Korea and Australia/New Zealand, has undergone six years of painstaking negotiations, which went on and off, due mainly to disagreement over India’s insistence to retain tariffs on more than 400 products, including palm oil and petroleum.

This led Asean, which was then working on free-trade deals with China, Japan, Australia and New Zealand, to postpone the talks indefinitely. That was in 2007.

The so called negative list, the stumbling block to the FTA, almost derailed the talks. Indian analysts blamed certain members of Asean for what it saw as their ‘single-minded quest’ to penetrate the Indian palm oil market through a lowering of the associated Indian import duties. (Indonesia and Malaysia are the world’s biggest palm oil producers and exporters.) The same observers saw a ‘gross anomaly’ in the overall negotiating framework where, while one side is represented by one sovereign state, on the other there is a polyglot of 10 national interests (under the Asean umbrella) representing 10 different and specific agendas.

India and Asean signed Comprehensive Economic Cooperation on 8 October, 2003, which kicked off the FTA talks, which made a halting progress and the talks got mired in the fundamental issue of the contents of the ‘negative lists’ proposed by the two sides.

Besides, political opposition put a question mark on whether the deal would eventually be signed. The cancellation of the Asean summit in Thailand in April this year and the union elections in India then kept the FTA off the agenda.

Not many were optimistic that the meeting of trade ministers from India and the 10 Asean countries in August would be a breakthrough that could iron out the glitches, leading the eventual signing of the deal in mid-August.

For Indian Commerce Minister Anand Sharma, there were local concerns waiting to be addressed. Sharma got the go-ahead for signing the agreement only after Prime Minister Manmohan Singh allayed apprehensions of parliamentarians from Kerala that the plantation sector will not be adversely affected by the pact.

The Indian cabinet approved the FTA with Asean in Jully despite objections from government and opposition leaders who claim farmers’ livelihoods will be in peril once the markets are opened.

Shielding resistance from politicians who denounce the trade pact with the 10-member grouping, Prime Minister Manmohan Singh, backed by his senior stalwarts, managed to secure the Cabinet’s approval during a late night meeting.

“A free trade agreement with Asean is an international political commitment and is also part of the Look East Policy,” the Economic Times quoted Manmohan as saying during the meeting.

Among those who had opposed the pact were Defence Minister AK Antony and Overseas Affairs Minister Vayalar Ravi from the southern state of Kerala where thousands of farmers rely on cash crops.

Antony had claimed that the agreement would hurt traditional cash crop growers like cashewnut, pepper, natural rubber, coir and coconut, in his home state.

Joining the bandwagon were opposition parties like the Bharatiya Janata Party, Communist Party of India (Marxist) and Samajwadi Party. They demanded the government to drop the deal with Asean claiming that millions of Indian farmers would suffer because of cheap imports. Nearly 400 million Indian farmers rely on farmland for their livelihoods and 60 percent of the Indian
population is still agrarian-based.

Pro-FTA ministers even rationalised that India had more to lose if they backpaddled at this juncture. The Kerala state government had been worried that bringing down duties for tea, coffee, palm oil and rubber could hit the local farmers and industry hard.

It turned out to be a great relief for Indian planters that black tea, coffee, pepper and rubber are kept on the sensitive list finally, which could mean duties will be cut by 2019 only, but will never be eliminated. Under the trade pact, India has included 489 items from agriculture, textiles and chemicals in the negative list, meaning these products will be kept out of the duty reduction.

“I can say negotiations have been painstaking. The negotiators have ensured that our sensitive areas where we had concerns are fully addressed,” said Sharma who was obviously relieved to have seen the FTA deal wrapped up. Read the Complete Article Subscribe to ASEANAFFAIRS Magazine

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