INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

ASEAN FTA READY TO TAKE OFF IN JANUARY

 HERE'S the final word on the India-Asean free trade agreement (FTA) ––bigger than any other trade pact that India has entered into so far. With the controversy over impact of liberal imports on Indian farmers and domestic industry ebbing out, the prime minister's trade and economic relations committee (TERC) has given the green signal to the implementation of the FTA with Asean from beginning of 2007.

The negative list of items that are not covered under duty concessions resulting from the pact would be reduced to 850 compared to 1,414 originally proposed by India. To protect farmers from import competition –– an issue highlighted by Congress president Sonia Gandhi –– it has been decided to impose tariff-rated quotas (TRQs) for import of palm oil from Malaysia and Indonesia; tea, coffee and pepper from Vietnam; and some manufactured goods from Thailand.

Following TERC's decision to go ahead with the implementation of the FTA from January 2007, the agriculture and commerce ministries have been asked to work out TRQs for the identified items. It is understood that the quota ceilings for these commodities would be finalised in a couple of months.

There was strong pressure from Malaysia and Singapore to prune the negative list, government sources said. TERC was of the view that not implementing the FTA would hit India's chances of joining the proposed pan-Asian economic community, which also includes a common currency for the region. Apart from the 850 items on the negative list, all other items would be eligible for concessional import duty in India.

TERC discussed all issues related to the Asean FTA at a meeting earlier this month, and concluded that dynamic effects of increased trade ‘outweigh' micro considerations like notional revenue loss and impact on domestic industry and farmers due to increased competition. The observation of the committee was in response to the finance ministry's view that the estimated revenue loss would be Rs 1,400 crore in the case of palm oil alone even if TRQs are imposed and the duty cut is only 50%. India imports more than five million tonnes of edible oil and bulk of it comes from Malaysia and Indonesia.

On domestic industry's concern that duty concessions to Asean members may result in inverted duty on certain items, TERC has said such issues should be looked into by the committee set up under Planning Commission member Anwarul Hoda. Domestic industry is keen to ensure that effective customs duty on raw materials is higher than that of finished goods. While the primary concern over impact on imports from Asean is focused on agricultural products, India Inc is worried about imports from Thailand and the possibility of Chinese goods entering the country through Asean nations.