The Hindu : Business : FTAs: India may go in for more comprehensive economic cooperation

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Sunday, Feb 20, 2005

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FTAs: India may go in for more comprehensive economic cooperation

By Our Special Correspondent

CHENNAI, FEB. 19. India is likely to go in for more comprehensive economic cooperation agreements (CECAs) covering areas such as investment and services besides merchandise trade, in preference to free trade or preferential trade agreements.

An indication to this effect was given here today by the Chairman and Managing Director of the Export Import Bank of India, T. C. Venkat Subramanian, and the Senior Economic Advisor to the Union Finance Ministry, H. A. C. Prasad.

Addressing a seminar on "foreign trade: role of FTAs", organised by the Exim Bank of India and Industrial Economist, Mr. Venkat Subramanian said only three countries, namely, Macao (autonomous region of China), Mongolia and Taiwan, out of the 148 members of the World Trade Organisation (WTO) were not involved in any preferential trading arrangement or agreement (PTA), be it a bilateral, or regional or unilateral trade concession.

Proliferation of PTAs increased the chances of arbitrariness in the terms of the agreements and confusion and complexity amounting to "memoranda of misunderstanding" and many PTAs were not successful.

The PTAs, the most important of which were the Asia-Pacific Economic Cooperation (APEC), the European Union (EU) and the North American Free Trade Agreement (NAFTA), were most effective if they were part of advancing the process of economic reform and took into account complementarities, Mr. Venkat Subramaniam said.

Mr. Prasad, expressing his "personal view", said it would be advisable for India to get into an agreement involving at least one big power, though he added that this perception was not widely shared in the country at present.

He said PTAs helped overcome non-tariff barriers, which posed the real problem in the case of countries, which had already brought down their tariff levels substantially.

The Regional Trade Agreements (RTAs) should be used as building blocks to realise the universal, non-discriminatory regime of the WTO and as a learning curve in global trade. Sequencing of economic reform should be given priority before entering into PTAs.

The RTAs were likely to fail unless they evolved into customs unions (having a common external tariff). India should leverage its large market size in the WTO negotiations and in forming RTAs, Mr. Prasad added.

S. R. Rao, Chief General Manager, Exim Bank, said Indian companies, if they had to take advantage of the proliferation of RTAs in Africa and South America such as the SADC, Comesa and Mercosur, and overcome trade barriers in those regions, should have a physical presence and investments in those markets to meet the value addition norms. He said Indian companies, including in the construction sector, should take note of the coming into force of the U.S.-Bahrain FTA in a couple of months.

K. P. Geethakrishnan, former Finance Secretary to the Union Government, sounding a somewhat different note, said emphasis on exports made sense only to the extent the export product had close links with and a firm position in the domestic market. Depending on "stand-alone exports" for economic growth would be inadvisable for a country like India with a large domestic market.

S. Viswanathan, Editor, Industrial Economist, explained the importance of the issues related to FTAs in the emerging world trade and investment scenario.

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