Indo-ASEAN free trade deal in trouble
IPS | 10 April 2006
ECONOMY
Indo-ASEAN Free Trade Deal in Trouble
Paranjoy Guha Thakurta
NEW DELHI, Apr 10 (IPS) - A proposed free trade agreement (FTA) between India and the ten-nation Association of South East Asian Nations (ASEAN) has hit a major roadblock with India’s agriculture ministry objecting to the inclusion of commodities like pepper, rubber, palm oil, coffee and tea in an ambitious tariff liberalisation programme.
’’We cannot have a free trade agreement just for the sake of it, especially if it means compromising our farmers’ interests,’’ a top government official in New Delhi told IPS requesting anonymity under briefing rules. This bureaucrat, who is closely associated with the negotiations underway, added that problems arose from the fact that over half the exports to India of at least five members of the ASEAN were of a single commodity.
These countries are Indonesia, Malaysia, Burma, Thailand and Vietnam. The five other members of ASEAN are Brunei, Cambodia, Laos, the Philippines and Singapore. An India-ASEAN FTA would merge more than two billion people into one economic community.
While some analysts told IPS that these snags could be overcome, others argue that the agreement is unlikely to materialise in a hurry as it would hurt the interests of Indian farmers.
India’s federal agriculture ministry, headed by pro-liberalisation minister Sharad Pawar, wants the farm commodities mentioned to be included in a ’sensitive’ list under the FTA, while ASEAN members, including the ’single product’ exporting countries, want India to not only to bring import tariffs on these commodities down to zero but also removed from the sensitive list.
FTA deals work on the principle that at least 80 percent of the trade of a country should be covered under the agreement. If items like pepper, rubber, palm oil, coffee and tea are kept under a sensitive list, ’single product’ exporting countries like Malaysia (which mainly exports palm oil to India) or Thailand (a major exporter of rice) will not meet the criterion of substantial trade coverage.
The issue is now expected to come up before Indian Prime Minister Manmohan Singh’s Trade and Economic Relations Committee and subsequently move to the cabinet for a final decision. "Given the fact that Singh is very keen on India building closer economic links with the ASEAN, I think he will try hard to find a way out of the problem," D. N. Rao, professor, Centre for Economic Studies and Planning at New Delhi’s Jawaharlal Nehru University, said in an interview with IPS.
India’s agriculture ministry says the commodities mentioned are in a list of ’special products’ in the World Trade Organisation (WTO) and should not hence have zero tariffs on them under any FTA. In the case of commodities like pepper and palm oil, rising imports from Sri Lanka under the Indo-Sri Lanka FTA has adversely impacted farmers in south Indian states like Kerala, especially small growers.
’’This is a particularly sensitive issue as what we are dealing with is not just trade but the livelihoods of large numbers of people,’’ says Nagesh Kumar, director general, Research and Information System for Developing Countries, a New Delhi-based, government supported thinktank. He told IPS that he is not in the least surprised that the issue of tariffs on farm commodities has become a stumbling block in the finalisation of the proposed FTA.
’’Trade in agricultural commodities is a common problem in all trade negotiations, whether these relate to developed or developing countries or take place at a multilateral, regional or bilateral level,’’ adds Kumar. ’’There is a stalemate in the Doha round of talks at the WTO because developed nations don’t want to reduce farm subsidies and the highest tariff peaks are invariably applicable to agricultural products.’’ Thus, there are differences on this score among the United States, Europe and Japan as well as between developed and developing nations, he points out.
Some observers feel New Delhi has already compromised on the issue of Rules of Origin with ASEAN members. India has reportedly agreed to have 35 percent value addition and change in tariffs at the level of sub-headings, whereas in the case of bilateral arrangements with individual countries like Thailand and Singapore, the rules specify 40 percent value addition and tariff changes at the level of headings. (A 35 percent value-addition with a change in tariff heading will mean that imports shall have to have at least 35 percent value-addition in case a product contains an input imported from a third country.)
India, which had initially proposed a negative list of 1,414 items, has pruned it down to around 900. Four months ago, ASEAN members had asked India to prune its negative list of items on which duties will not be cut. India had then said that since the negative list for the Bangladesh-India-Burma-Sri Lanka-Thailand Economic Cooperation (BIMSTEC) grouping had around 1,000 items, the negative list for ASEAN could not be shorter since certain countries like Thailand were members of both ASEAN and BIMSTEC.
Nevertheless, India later pruned its negative list. ASEAN has, however, so far not provided its own negative list of sensitive items. The implementation of the India-ASEAN FTA has already been delayed by over a year and both sides have dropped a proposed ’early harvest’ programme of tariff cuts.
The new deadline for implementation of the FTA is Jan. 1, 2007, but some officials believe this deadline too may be missed. ’’The challenge is to have an FTA without hurting the interests of individual nations,’’ said the unnamed top official quoted earlier. Considering the example of palm oil that is imported in substantial quantities by India from Malaysia, he said the question of zero tariff levels was less important than the issue of providing market access without reducing tariffs.
This is not the first time the proposed India-ASEAN agreement has encountered difficulties. In December 2005, ASEAN members began pressing India to completely remove duties on 90 percent of imports of agricultural and non-agricultural products by 2011. For the remaining 10 percent, ASEAN wanted tariffs to be brought down to 10 percent.
There was opposition to the proposal from a section within the Indian government that felt that such a step could adversely impact India’s negotiating position at the WTO. India is seeking flexibility at the WTO for developing countries to designate 20 percent of tariff lines in agriculture as ’special products’ on which tariff cuts would be nil or minimal.
Certain analysts contend that a delay in the finalisation of the India-ASEAN FTA can slow down negotiations on bilateral agreements with countries like Thailand and Indonesia since enforcing the FTA with ASEAN would eventually override any bilateral agreement with individual member countries of the bloc. India and ASEAN had signed a framework ’comprehensive economic cooperation’ agreement in October 2003.
Not everyone is so pessimistic. Kumar says "the rest of the negotiations between India and the ASEAN should not be held hostage to differences of opinion on trade in certain agricultural commodities". Every country wants to protect certain domestic industries, he points out. For instance, Malaysia has imposed 300 percent tariffs on imports of automobiles to protect its government-supported Proton, the country’s national car maker.
Rao adds that the FTA would eventually materialise because both India and ASEAN want to come closer to each other. ’’My hunch is that many ASEAN members are more eager to build closer ties with India rather than with China," he states, adding that "India too is very keen on getting into ASEAN and not just as an observer, more so in light of the current stalemate in the WTO.’’
