Bend, but not backwards
Business Standard, India
Bend, but not backwards
Business Standard / New Delhi
November 23, 2007
The “necessary flexibility” that Prime Minister Manmohan Singh has said India will show in order to conclude by March the free trade agreement with the Association of South-East Asian Nations (Asean) may not be as daunting a task as some might imagine - because the gap between the positions on the two sides does not look unbridgeable. While the Asean countries want India to fix the crude palm oil import duty at 40 per cent by 2018, these are already down to 28-29 per cent today; refined palm oil duties are at 34 per cent and these are to be fixed at 30 per cent by 2018; pepper is already down to 70 per cent and Asean would like this to fall to 40 per cent by 2018; tea/coffee are at 100 per cent and this is to fall to 40 per cent by 2018. As this list shows, in one case India already has lower import duties than being demanded (of course, this is a temporary inflation-fighting measure and tariff levels on palm oil imports are more usually 70-75 per cent). For the others, the reductions have to take place over a decade, during which the government has got, for instance, a Rs 8,000 crore revival programme to provide new bushes to the tea industry to make it more competitive and schemes to reduce the heavy social burden on plantations - for historical reasons, plantations have to provide for the education and housing of workers and the government now plans to share this cost. But while it is progressive to cut tariffs aggressively, it would be useful to keep in mind that ensuring that the plantation sector modernises is a difficult task, and one that has failed in the past - indeed, the sorry plight of the textiles sector is a good reminder of how various schemes fail to fructify.
It is equally important to keep in mind the fact that India has already displayed quite a lot of flexibility. Prime Minister Vajpayee’s original framework agreement with Asean in 2003 talked of progress in areas like services (where India has a lot to gain), but no negotiations have even begun here. In December 2005, India agreed to follow a 6-digit classification on the Rules of Origin instead of a 4-digit one - this opened up the possibility of more Asean exports to India, based on imports from non-Asean countries. The value addition norms were also reduced from 40 per cent to 35 per cent; the negative list has been brought down from 1,414 items in December 2005 to 489 now and comprises one area where more action is possible without delay.
India’s negotiators would do well to remind their interlocutors of this record. They should also keep in mind that diluted Rules of Origin for Asean will bring greater pressure to adopt similar rules for the other FTAs being worked on, such as those with Japan and the EU. The larger issue is whether FTAs are a better bet than the multilateral WTO, which offers India the flexibility to go slow on reducing tariffs in sensitive areas (Special Products) and even hiking tariffs temporarily (Special Safeguards Mechanism) when there is sharp fall in global agricultural prices, for instance. FTAs do not offer this kind of flexibility (hence the term ‘WTO-plus’ used in trade jargon). It is also an open question as to what would happen to the stalled WTO talks if India were to make Asean-like concessions on agricultural imports available to all countries.
