MTR drafts strategy for FTA with ASEAN
Friday, 20 May 2005
New Delhi: The Mid Term Review (MTR) of the Tenth five year plan has cogently argued that India should push for free trade areas with various regional groupings and suggested that the country reduce its Most Favoured Nation (MFN) tariffs to a "very low level" in preparation for the FTA with ASEAN.
"It is desirable that we set a target range of 5 per cent to 10 per cent to be achieved within two years. A longer period would be considered for products with high tariffs," the review says.
The MTR, approved by the Cabinet yesterday, has to be cleared now by the National Development Council at it’s meeting to be held soon.
The Appraisal says to prepare for the Indo-ASEAN FTA it would be necessary that India’s tariffs are speedily reduced to ’ASEAN levels.’ A complicating factor is that there is considerably difference in the tariff levels in the large ASEAN countries.
The simple average of MFN applied duties for non-agricultural products was 8.4 per cent in Indonesia, 8.1 per cent in Malaysia, 6.8 per cent in Philippines, zero in Singapore and 15.5 per cent in Thailand. Furthermore, these countries have agreed to eliminate all tariffs within a limited period as part of their commitment in the APEC context.
The Appraisal says F T A agreements and Customs Unions are acceptable in economic terms if the trade creation exceeds trade diversion. That is more likely to happen if the agreement aims at comprehensive liberalisation. An argument in favour of regional agreements is that they help to prepare the ground for MFN liberalisation.
"In any case, economic integration among geographically contiguous countries has become a geo-political imperative in modern times, and India has to continue to pursue Free Trade Areas in the SAARC region as well as with the South East Asian and East Asian countries. The bigger the Free Trade Area the greater will be the benefit for India and other partner countries", the MTR says.
The document says in negotiating FTA agreements the objective must be to eliminate the barriers to trade comprehensively and progressively over the agreed time frame. Early harvest by way of elimination of duties in a short period on a limited number of products should be avoided as such a step can lead to negative protection in India on account of substantial tariffs on raw materials, intermediates and capital goods.
For the Free Trade Area with these countries to be successful it must be ensured that India’s MFN tariffs are not far out of line with those of these countries.
If there are large tariff differentials especially on capital goods and raw materials, Indian manufacturers would be put at a disadvantage, as their competitors in partner countries would have access to cheaper inputs, the MTR says.
India’s current engagement in RTAs is as follows:
Bangkok Agreement (1975)
Bilateral Non-Reciprocal Treaty with Nepal (1991)
South Asia Preferential Trade Agreement (SAPTA) (1993)
Bilateral Non-Reciprocal Treaty with Bhutan (1995)
India-Sri Lanka FTA (1998)
Generalised Scheme of Trade Preference (GSTP) (1998)
Framework Agreement between India and Thailand (October 9, 2003)
Agreement on South Asian Free Trade Area (SAFTA) (January 6, 2004)
India-MERCOSUR PTA (January 25, 2004)
BIMST-EC FTA (February 8, 2004)
India-GCC (Gulf Cooperation Council) Framework Agreement (August 25, 2004)
India-Singapore Comprehensive Economic Cooperation Agreement (CECA)
India-Sri Lanka Proposal for Bilateral Comprehensive Economic Partnership Agreement
India-SACU (Southern African Customs Union) Framework Agreement
Joint Study Group with Mauritius
Joint Study Group with China
Joint Study Group between India and Republic of Kore
Joint Study Group between India and Japan