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Trade pacts stifle exports to Thailand, Singapore

Business Standard | 15 July 2008

Trade pacts stifle exports to Thailand, Singapore

Rituparna Bhuyan / New Delhi

Growth of exports to Thailand and Singapore has slowed after India signed bilateral duty-free agreements with these countries. But a similar pact with Sri Lanka has improved the growth in India’s exports to the island nation.

While India has signed a Free Trade Agreement (FTA) with Sri Lanka covering merchandise goods, it has inked a Comprehensive Economic Partnership Agreement (CEPA) with Singapore which covers duty-free trade in goods, services and investments.

India and Thailand trade through an Early Harvest Scheme, which ensures zero duty access to 82 goods. India is likely to upgrade the pacts with Thailand and Sri Lanka to CEPAs.

Data with the commerce ministry show that between 2005-06 and 2007-08, the annual average growth in exports to Singapore was 23.69 per cent.

In the preceding two years, it was 68.87 per cent. India and Singapore had signed a CEPA in mid-2005. After the CEPA became functional, the average annual import growth rate stood at 45.02 per cent between 2005-06 and 2006-07. In the preceding two years, it was only 36.24 per cent.

One can see a similar trend in case of Thailand. Annual growth in exports to Thailand was only 19.7 per cent between 2003-04 (when the Early Harvest Scheme was made functional) and 2006-07, while it was 22.41 per cent between 1999-2000 and 2002-03.

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India’s trade surplus with the country changed to trade deficit after the Early Harvest Scheme. The auto components sector has been complaining about cheap imports from Thailand.

A study by the Federation of Indian Chambers of Commerce and Industry (Ficci) recently found that export growth in the 82 items covered in the Early Harvest Scheme rose from $64.28 million (2003-04) to $83.03 million (2005-06), a rise of 29.16 per cent. Imports, however, rose 225 per cent, from $84.64 million to $275 million during the period.

Commerce ministry officials admit that Thailand has advantage in many of the goods covered under the scheme, but say that certain Indian items from sectors like chemicals have seen a robust increase in exports to that country.

However, the FTA with Sri Lanka has increased India’s exports to its neighbour. Another Ficci analysis on India’s trade with the island nation found that in six years between 2000 (when the FTA was implemented) and 2006, India’s average export growth rate was 25 per cent, an improvement from the 9.49 per cent rate seen in the six-year period before the FTA.

Trade experts say duty free deals like FTAs and CEPAs are just one of the contributors to the increasing bilateral trade. "Competitiveness of industrial sectors is also a factor as cheaper goods produced by factories are preferred in the international market," said a New Delhi-based trade expert.

A recent report by the United Nations Industrial Development Organisation ranked India 41st among 100 countries in industrial competitiveness. Singapore topped the list and Thailand stood at 26. Sri Lanka was at the 75th position.

Other experts say duty-free deals should not be seen just in the context of trade in goods.

"It leads to deeper economic engagement. For example, India stands to gain from its competitiveness in the services sector when it implements CEPA with Singapore. Goods trade is just one part of such an arrangement," said KT Chacko, director, Indian Institute of Foreign Trade.

It is also felt that these duty-free agreements lead to adoption of latest technologies.

"To address issues related to competitiveness, industrial restructuring gets carried out so that more value can be added at lower costs. This leads to enhanced economic activity," said Nagesh Kumar, director general, Research and Information System for Developing Countries.

 Fuente: BS