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A reality cheque

Financial Express, India

A reality cheque

To max FTA gains, negotiate hard and reform

3 August 2006

An intensification of efforts for free trade agreements across countries is logical after the inconclusive Doha round. India is no laggard-with its renewed vigour on the ‘look east’ front, and with pragmatic moves for economic pacts with the US and EU. However, policymakers will not only have to dispel domestic fears about cheaper imports, but also extend support to enhance domestic competitiveness. Further liberalisation would surely aid that, as seen over the years.

India is working on the deadlock with Asean, on a comprehensive pact on trade and investment with the EU and US, and a bilateral deal with Japan, while its negotiations with South Korea are likely to attain closure next year. Joint study groups are either in place (Malaysia), or in process of being set up (Indonesia), and a regional trading arrangement with China is under consideration. All this has raised fears about losing out to cheaper imports under unequal terms. But the simple fact is, to gain significant markets for ourselves, we need to offer adequate access to pact participants.

India’s latest offer to Asean is a response to its demands for steeper tariff cuts and a leaner negative list; on particularly sensitive items such as palm oil, we would cut duties gradually over a 10-year period after the initial five years. While the idea is to arrive at a fine balance between genuinely-needed protection and opening up, our negotiations need to be backed by a high level of preparedness on part of ministry officials. For instance, laxity on rules-of-origin negotiations creates serious loopholes, as reported in the case of the Thailand FTA. The larger picture spells the need to enhance competitiveness-in the case of Asean countries, where we have competing export interests and they may have a low cost edge, as well as in all other pacts. Our farm sector has not seen the reforms needed to raise productivity. We simply can’t afford to dilly dally over the required consistency in reforms, if we wish to encash the FTA cheque. Even Japan is finally attempting reforms in its highly protected farm sector to cope with competition, as it goes ahead with FTAs.