The Hindu : Tamil Nadu / Chennai News : "Remove irritants in pacts to tap trade potential"

Online edition of India's National Newspaper
Friday, Jun 17, 2005

Tamil Nadu

Tamil Nadu - Chennai

"Remove irritants in pacts to tap trade potential"

Special Correspondent

A chance for Tamil Nadu to boost business, say experts

CHENNAI: : Tamil Nadu, with its strategic location as an entry point from many countries, has the potential to take advantage of the existing and proposed free trade agreements with Sri Lanka, Thailand, Singapore and the Association of South East Asian Nations (ASEAN), if irritants in the operation of the agreements are removed, according to senior professionals and experts.

At a conference on "Tamil Nadu-Leveraging Trade Agreements for Growth", organised by the Confederation of Indian Industry here on Thursday, Sunjay Sudhir, First Secretary (Economics and Commerce) in the Indian High Commission in Colombo, said the India-Sri Lanka FTA, which completed five years, helped to substantially expand investment and trade both ways. It also reduced the adverse balance against Sri Lanka by two-thirds. However, many problems remained.

Among the irritants was the continuation of Tamil Nadu's discriminatory (sales) tax on imports, which violated the basic norm of non-discrimination and most favoured nation treatment under the World Trade Organisation. Though the Centre had been persuading Tamil Nadu to end the discrimination, it did not succeed.

The permission given by India to Sri Lanka's Export Development Board to effect retail sales at its display centre in Chennai was withdrawn after three years. This was another negative factor. Also, India had for long imposed restrictions on entry points for Sri Lankan tea.

On its part, Sri Lanka had failed to use the quota for textiles and tea exports. Also, "circumvention" of the rules of origin by Sri Lankan exporters of copper, cloves, tubes and zinc anodes created doubts about the enforcement of the rules.

Referring to the broader cooperative partnership agreement under discussion between India and Sri Lanka, which would cover services, investment and other areas, Mr. Sudhir said the trade negotiating committee had taken note of the risk of differential treatment for the same products under the India-Sri Lanka FTA and the proposed BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation) FTA.

R. Raghuttama Rao, Joint Managing Director, ICRA Management Consulting Services, said Tamil Nadu's automobile sector could benefit not only in components manufacture but also in engineering design, auto-related BPO services and financing and accounting services because the proposed FTAs would cover services and investment.

FTAs provided opportunities in market access abroad and sourcing of competitive suppliers from abroad as well as in competition from imports. Negotiations for FTAs should focus more on tariff code than on individual products.

Tamil Nadu's failure to implement the State-level value added tax (VAT, in place of sales tax) led to manufacturers being denied the benefit of tax credit on inputs. This weakened their capacity to take advantage of FTAs, Mr. Rao said.

Chitranjan, Economic Advisor, Tariff Commission, Union Ministry of Commerce and Industry, said when regional trade agreements had become the order of the day, no country could afford to be left behind. Hence, India had taken the initiative to promote FTAs with countries located far and wide.

Ram Upendra Das of the Research and Information System for Developing Countries (RIS), New Delhi, said a manufacturing presence in Sri Lanka would help Indian companies take advantage of additional benefits that the island nation was likely to be offered under a renewed generalised system of preferences by the European Union.

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