Consumers can expect duty-free imports of a range of products like capital goods, some textiles, electronic goods and chemicals from next year after India successfully concluded negotiations on a Free Trade Agreement (FTA) for goods with the 10-member Association of Southeast Asian Nations (Asean) in Singapore today.
The formal pact will be signed this December at the India-Asean summit at Bangkok, which is expected to be attended by Prime Minister Manmohan Singh.
The breakthrough comes after six years of negotiations for the trade pact, which is expected to add $12 billion by 2010 to trade between the participating nations.
|A SNEAK-PEEK AT THE INDO-ASEAN FTA|
|* Reduces tariffs to zero in over 4,000 goods out of 5,000 that are traded. To be done in a phased manner over six years|
|* Partial reduction in import tariffs on highly sensitive farm goods. Tea, coffee — 45%, pepper — 50%, crude palm oil — 37.5%, refined palm oil — 45%|
|* Sensitive list of goods with partial duty cuts — 606 items, (Agricultural — 16, Textile — 304, Machinery & auto — 60, chemicals & plastic — 226)|
|* Negative list with no duty cuts — 489 items. (Agricultural — 302, Textile — 81, Machinery & auto — 52, chemicals & plastic — 32, Others — 22)|
|* Operational from Jan 1, 2009, Deal to be signed in December, 2008 at Bangkok|
|* Bilateral Trade (Apr-Feb 07-08) — $34.38 billion which is 9.59% of India’s global trade|
|* Exports — $14.02 billion, Imports — $20.36 billion|
The deal comes at a time when the Doha round of world trade talks are stalled.
The India-Asean FTA also comes at a time when China has already signed a similar pact with the economic bloc, as a result of which bilateral trade between them soared to over $171 billion last year.
Today, a joint statement issued after a meeting of trade ministers from India and key Asean members said the agreement will facilitate the creation of an open market for 1.7 billion people with a combined gross domestic product of $2.4 trillion.
“It took six years for India and Asean to understand the sensitivities of each other,” Indian Commerce and Trade Minister Kamal Nath told reporters in Singapore.
The India-Asean pact on goods trade will result in the signatory countries abolishing customs tariffs on 80 per cent of goods including key raw materials like iron ore and aluminum, plastic goods and certain kinds of machinery.
The joint statement added that negotiations for trade in services and investment as a single undertaking will begin as soon as possible and wind up by end-2009. “India is ready. The onus is on Asean to gather its team and start negotiations on services and investment,” Singapore Trade Minister Lin Hng Kiang said.
During the course of the FTA talks, several issues had emerged as stumbling blocks, which included composition of the negative list (trade items that are outside the purview of duty cuts mandated by the pact) and tariff cuts on five highly sensitive farm products (see chart).
In fact, India had to compromise on several of these issues and accede to demands of nations like Vietnam, Indonesia and Malaysia. The sticking points included reducing the number of items in the negative list, reducing tariffs on highly sensitive farm products as well as Rules of Origin, norms that ensure that products from non-Asean countries like China are not routed to India at zero duty under the FTA.
Once the deal is operational — which is likely from January 2009 — the signatories to the pact will begin cutting import tariffs in a phased manner.
Normal goods will see import duties reduced to zero over six years, items in the sensitive list, will see partial tariff reductions over a longer period of time (see chart).
Talks for the India-Asean FTA began during the National Democratic Alliance government, with both sides initialling a framework agreement in late 2003.
It is a measure of the importance that the current United Progressive Alliance (UPA) government has placed on expanding India’s role in trade with the Asean nations that the pact has been finalised.
The UPA had internal concerns over reducing tariffs on five highly sensitive farm products — tea, coffee, pepper crude, refine palm oil. In fact, UPA chairperson Sonia Gandhi and minister of state for commerce Jairam Ramesh had last year written to Prime Minister Singh expressing concern over the possible adverse impact of such a move.
India is also negotiating similar bilateral free trade agreements with Asean member nations like Thailand, Malaysia and Indonesia. It already has an “early harvest” scheme with Thailand under which duty free trade takes place in about 82 products including automotive components.
The joint statement added that negotiations for trade in services and investment as a single undertaking will begin as soon as possible and wind up by end-2009. “India is ready. The onus is on the Asean to gather its team and start negotiations on services and investment,” Singapore trade minister Lin Hng Kiang said.
Asean secretary general Surin Pitsuwan described the conclusion of the pact in goods as an “important milestone”. He said the move will give impetus to the stalled Doha round of WTO talks which Asean ministers say should be revisited.