 "ASEAN Ambassadors meet Harsh Shringla")
India has started a comprehensive review of its trade agreement with the 10-member Association of Southeast Asian Nations (Asean), focusing on various products where taxes on input items exceed those on finished goods. This review aims to address several anomalies that have undermined domestic manufacturing, according to a report in The Economic Times (ET).
According to sources familiar with the matter who spoke to ET, discrepancies in import duties, rules of origin, and non-tariff barriers will be closely examined. The Ministry of Commerce and Industry has asked for input from the industry to pinpoint products suffering from an inverted duty structure that puts local manufacturers at a disadvantage.
The ongoing review of the pact, which came into effect in 2010, is slated to conclude next year.
According to the ET report, an official said, "One round of physical negotiations has happened, and we have agreed on modalities of the overall review process of the pact. Both sides have different sets of expectations but at the end of it, we want deeper trade."
In order to boost local manufacturing, India has put in place certain measures such as production-linked incentive (PLI) schemes, higher import tariffs, and import monitoring, but several trade agreements negotiated earlier are seen as stumbling blocks.
India saw its trade deficit with Asean surge to $43.6 billion in FY23, a significant increase from $25.8 billion in 2021-22 and $5 billion in 2010-11. New Delhi is troubled by the trend of third countries channelling their exports through Asean members to leverage the duty benefits provided by the agreement.
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The officials said that data is being collated on the inverted duty structure. One round of consultations with the industry has taken place on various issues. An official said, "It is an offensive interest of India to correct the anomalies and gauge the challenges on duty, rules of origin and non-tariff issues. How much we will be able to correct, the contours of that will be decided."
The ET reported that the Indian industry faces a disadvantage due to an inverted duty structure in specific products such as ferro alloys, aluminum, copper pipes and tubes, textile staple fibers, and certain chemical preparations.
Ajay Sahai, director-general of the Federation of Indian Export Organisations, said it is necessary to assess inverted duty structures in free-trade agreements, especially if the Free Trade Agreement (FTA) accounts for a predominant share of the overall imports.
The ET reported that under the pact, the two sides agreed to eliminate duties on about 75 per cent of goods and reduce tariffs on around 15 per cent goods, but the 10 Asean countries made different tariff elimination commitments. Singapore said it would offer 100 per cent tariff elimination, whereas Vietnam committed to much less, leading to a varied duty structure in the agreement.
Experts pointed out that addressing such anomalies during annual budget exercises for imports under the Most Favoured Nation (MFN) principle is a more straightforward process.
ET reported that Ajay Srivastava, co-founder of economic think-tank Global Trade Research Initiative, said, "However, with the increase in FTAs, which typically remove import tariffs on most finished products, correcting this imbalance has become nearly impossible. The Asean India FTA is no exception. Tariffs are already zero on most industrial products."
Currently, significant raw materials might need to be imported from non-Free Trade Agreement (FTA) countries at elevated most favoured nation (MFN) duties, whereas the end product could be accessible for import duty-free under an FTA.
The 10 members of the Asean are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
