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Flexibility on FTA with Asean

Prime Minister Manmohan Singh has promised the “necessary flexibility” in settling the outstanding issues in order to reach a trade agreement with the Asean by March 2008. Trade ministers of India and Asean after an informal meeting expressed satisfaction over the progress made since the last major summit in the Philippine city of Cebu in January. However, a breakthrough in the talks — the free trade agreement was originally scheduled to start by January 1, 2006 — remains elusive even though differences have been narrowed. Particularly contentious have been four items — crude and refined palm oil, tea and pepper. India had originally agreed to slash import duties on these commodities by 50 to 60 per cent but only by 2022. Malaysia and Vietnam who are large producers of palm oil and pepper respectively have had reservations over the lengthy phasing-out period. Already, the Indian side has shown some flexibility. For instance, while Asean wanted the duty on crude palm oil to be pegged at 40 per cent only by 2018, India has already lowered it to 29 per cent. No doubt, containing domestic inflation through larger imports of edible oil has been the motivating factor behind this cut. Yet, it also suggests that a more permanent duty reduction is possible. In fact, barring tea and coffee where the current duty at 100 per cent is considerably higher than the Asean requirement of 40 per cent by 2018, tariffs on sensitive items are already close to the levels that Asean wants.

India has demonstrated considerable flexibility in other areas as well. The negative list has been pruned down to 489 items from 1,414 and value addition norms brought down from 40 to 35 per cent. On yet another contentious issue relating to rules of origin, India has already agreed to a substantial relaxation. While this would lead to more Asean exports to India based on imports from non-Asian countries, there is a possibility that other countries with whom India is pursuing free trade arrangements might ask for similar concessions. India would do well to include services in the negotiations. It should be borne in mind that, for all the benefits the free trade agreement is expected to confer, bilateral and regional trade pacts cannot substitute but can only complement the multilateral trade talks of the ongoing Doha round.

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