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India, Thailand may set an example of successful FTA


Last week there was a positive development relating to bilateral cooperation and trade in the region. India and Thailand have agreed to moved faster in the direction of a free trade area (FTA) by reducing by half their applied levels of tariffs on 82 select commodities. This comes into effect from September 1, 2004.

Earlier a framework agreement for establishing FTA between the two countries was signed by the trade ministers of both sides on October 9, 2003 in Bangkok. As per this framework agreement it was conceived that the process would begin from March 1, 2004 under the ‘early harvest scheme’ (EHS). But since there was delay in finalising the interim rules of origin by both parties the implementation was subsequently delayed by six months.

Delay was for better. It helped both the parties to carefully examine and subsequently amend the framework agreement and finalise the interim rules of origin with due caution. The Thai commerce minister, Watana Muangsook while singing the protocol to amend the framework agreement on August 30, 2004 remarked that it is “more than appropriate to recognise the merit that the negotiations teams have accomplished in such a short timeframe.” He said that the amendments to the framework agreement could be “astonishingly accomplished in less than a year.”

Thai trade minister’s comments raise hope for the successful implementation for faster movements towards FTA, even before 2010 as stipulated in the original framework agreement. According to the amended framework both parties have decided to reduce their applied tariff by 75 per cent in the period September 1, 2005 to August 31, 2006 and by 100 per cent by September 1, 2006. The list of commodities has been reviewed and two items have been knocked out from the earlier list of 84. Caution has been taken to avoid bringing sensitive agro commodities under the early harvest scheme of FTA. Thai textile yarns, fabrics and made-up articles currently consists of 5.31 per cent of India imports. These items do not figure in the list, keeping in view the possible emerging situation resulting from MFA quota phaseout in December 31, 2004. Vegetable oil and natural rubber are other sensitive commodity not included in the list. Vegetable oil from Thailand consists of 3.56 per cent of India’s import while natural rubber consists of 2.26 per cent. The agro products included in the list of commodities are fresh mangosteens, mangoes, apples, durians, rambutans, longans, pomegranates, durum wheat, salmon, sardines, sardinella and bristling or sparts, mackerel, crab, pure sodium, table and denatured salt. These commodities are not likely to pose any problem in implementation of the bilateral trade agreement. Only thing required is to work out acceptable quarantine and sanitary and phytosanitary standards for these commodities.

The protocol has successfully tackled the controversial issue of the ‘rules of origin’. It has come out with an interim rules of origin which will be replaced in future by another set of rules to be negotiated and implemented by parties under Article 3(6)(ii) of the agreement. The interim rules of origin specifies local content to the extent of 40 per cent in a product eligible for tariff concession, substantial transformation at the 4-digit HS level and simple operations defined as non-qualifying. the rules also prescribe for”product specific criteria” on 25 items, which are derogations from the general principles.

The rules also prescribes remedies to the possible harm that may be caused. It says: “If any product, which is covered under EHS, is imported into the territory of a party in such a manner or in such quantities as to cause or threaten to cause, serious injury to the domestic producers of such product in the importing party, the importing party may, after prior consultations, to be concluded within 90 days or on any mutually agreed timeframe, from the date of notifying the other party, suspend provisionally without discrimination the preferential treatment so accorded.”

The WTO provisions relating to modification of commitments, safeguard actions and other trade remedies like anti-dumping and subsidies and countervailing measures will be applicable till relevant disciplines are negotiated by parties in future. Parties should, however, refrain from using non-tariff measures which adversely affect trade.

The framework agreement not only calls for free trade in goods and services, but also investment and economic cooperation. India has similar FTA with Sri Lanka and Nepal and preferential trade arrangement with Bangladesh. There is a proposal for FTA in South Asian region and India’s FTA with ASEAN. Let’s hope for the success of India-Thailand FTA.

 source: Finanacial Express