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Indian business groups wary of Thai FTA

Bangkok Post | 21 October 2006

Indian business groups wary of Thai FTA


Under pressure from local industrialists who fear they are losing out to foreign competition, the Indian government is reviewing a number of free-trade pacts, including those pending with Thailand and Asean.

"Bilateral agreements having divergent standards with different countries may not help India remain competitive in the international market," said R.V. Kanoria, a international trade expert with the Confederation of Indian Industry, a New Dehli-based trade group.

"Liberalisation of tariffs by the Indian government should be calibrated with internal reforms in labour, infrastructure and agriculture," he said in an interview with the Bangkok Post.

Toyota, Honda and Procter & Gamble are the three multinational corporations that have benefited the most from the Indo-Thai FTA, noted an economic analyst.

In October 2003, India signed a signed a limited trade deal with Thailand that came into effect in September 2004. Under the so-called "early-harvest" agreement, which expires in 2008, Indian and Thai firms can freely import and export 82 items. The deal calls for tariffs to be reduced by 50% in 2004-05, 75% in 2005 and 100% in 2006.

Bilateral trade in these 82 items consequently doubled to US$430 million in 2005 from $217 million in 2004, with Thailand recording a trade surplus of $253 million.

The lopsided numbers soured the Indian business community, particularly the automotive components makers, and talks on a more comprehensive deal that would cover thousands of items has since stalled. Recently CII said it was working to modify existing FTAs and implement a new set of industry recommendations for future trade deals, while claiming that multilateral agreements under the World Trade Organisation would benefit the country more than bilateral agreements.

"Toyota, Honda and Procter & Gamble are the three multinational corporations that have benefited the most from the Indo-Thai FTA," said Sharif D. Rangnekar, an economic analyst and editor of the website.

He added that "these three companies find the logistics of doing business with India rather attractive because they have major manufacturing units in Thailand and find it easy to launch their products in India".

Indian products don’t have a large market in Thailand.

Indian products, on the other hand, "don’t have a large market in Thailand even if they have the required certification," Mr Rangnekar said, explaining that this is partly due to the fact that India’s population of 1.1 billion dwarfs that of Thailand.

Criticism of the India-Thai FTA has come from a wide range of sources, including industry groups, independent research think-tanks and columnists. In 2004, the National Council of Applied Economic Research slammed the pact, primarily because of the complicated issue of "rules of origin". It also questioned if the "early-harvest" agreement is compatible with WTO rules.

Last year, India’s Ministry of Commerce undertook an impact assessment study of the limited trade scheme with Thailand, which analysed trade flows and drew inferences for the future. The Tariff Commission also submitted a similar study to the federal Department of Industrial Policy and Promotion in New Delhi.

The CII committee headed by Mr Kanoria will soon come up with guidelines for the Indian government to consider before negotiating FTAs. These are expected to include guidelines relating to negative list, common floor prices and rules of origin.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI), one of the largest apex industry associations in India together with the CII, found in 2005 that imports from Thailand rose phenomenally under the limited FTA, while exports from India to Thailand actually declined.

"Indian industry has proved that it can be globally competitive and is, therefore, not asking for protectionist measures _ all that we are saying is that lowering tariffs under FTAs should be accompanied with labour, fiscal and infrastructure reforms," said T.S. Vishwanath, senior adviser to the CII, in an interview.

He said it would be "unfair" to claim that Indian companies were not able to compete with their counterparts in Thailand.

The Indian government has been widely criticised by independent experts for rushing into bilateral trade agreements as part of its "Look East" foreign policy.

"The initial homework on the FTA with Thailand and the proposed one with Asean was never done by India," says Biswajit Dhar, a professor and head of WTO Studies at the Indian Institute of Foreign Trade (IIFT) in New Delhi.

He said the Indian government never took along representatives of industry associations with it before entering into negotiations with governments of other countries.

"This is why so many problems have arisen with the India-Thailand FTA," Mr Dhar said.

 source: Bangkok Post