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Navigating the difficult road ahead

The recently stalled negotiations between India and ASEAN on the proposed free trade agreement represent more than a temporary setback. A planned meeting of the two sides on May 29 that was meant to take the negotiations forward did not take place. ASEAN refused to come to the table expressing its unhappiness at India's long negative list. The June deadline for concluding negotiations looks to be slipping away. Far from being an isolated roadblock waiting to be cleared through the customary give and take, the deferral of the talks brings into focus the complexities faced by India in entering into and monitoring trade agreements, whether regional or bilateral. Prime Minister Manmohan Singh has been a strong votary of the free trade agreement with ASEAN, viewing it as a significant step forward in a "look east policy" that could, over time, bring India into an expanded free trade area encompassing all the major Asian economies. The Prime Minister's thinking is entirely in line with current global developments. Existing trade treaties are being strengthened and expanded. In Asia there is even a talk of a currency union involving China, Japan, and South Korea. Though it is in a preliminary stage, the fact that such an idea has been mooted at all shows that countries might be willing to look at an agenda that is inherently larger and more complex than just trade pacts. The thrust on bilateral and regional trade groupings becomes especially relevant when the preferred option of multilateral trade liberalisation under the WTO has made little progress after Hong Kong. Having missed an April deadline, leading countries are meeting in Geneva next week. But the chances of a breakthrough are slim.

The latest impasse in the ASEAN trade talks is unfortunate. Compared to the modalities reached in the South Asian Free Trade Agreement (SAFTA) and the early harvest scheme with Thailand, India's position has been more flexible here. For example, it has lowered its stipulation of minimum value addition in the originating country to 30 per cent. It was 40 per cent under SAFTA. The negative list has been pruned from 1400 items to 991. But there are difficulties with specific products. Palm oil is one outstanding example, where ASEAN's interest in promoting it is as understandable as India's attempts to protect the indigenous industry. The road ahead is no doubt difficult but the way forward is to assimilate the lessons learnt from other bilateral trade treaties. The Indo-Thai FTA has emphasised the need for selecting the right items for early harvest and equally importantly the need to redress the inverted duty structures resulting from multiple trade agreements. Second, there is the need to tighten the framework relating to rules of origin, to avoid third country exporters reaping the benefits of bilateral trade agreements with India.

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