New Delhi, Aug. 13 India-ASEAN Free Trade Agreement (FTA) on goods after six years of ‘painstaking negotiations’, overcoming last-mile glitches in the form of opposition from influential Ministers of the Union Cabinet may not end up accruing gains to the Indian industry and trade.
The moot point is that does the FTA in goods — agriculture and manufactured — with ASEAN promise gains to both the parties? While it will definitely provide greater market access to ASEAN of the biggest market in India, the same does not hold good for India in terms of greater market access to the ASEAN markets of 10 countries in different stages of development.
The agreed modalities between the two parties and the interaction with trade policy analysts by Business Line suggest that under the India-ASEAN FTA, New Delhi has offered to bring down the Customs duty on more than 7,300 tariff lines by end-December 2013.
This would constitute more than 71 per cent of the imports from ASEAN to India. Each tariff line is just a category of related products and might contain more than one item. Indian Customs tariff contain more than 11,000 individual tariff lines.
Import regime impact
The impact of such duty-free import regime on the Indian industry can be gauged by contrasting the items India deemed sensitive and opt not to offer any duty cut under the FTA individually with Singapore and Thailand with that of ASEAN now.
More than 5,000 items, which were on the negative list of both the India-Singapore Comprehensive Economic Cooperation Agreement and the India-Thailand FTA early harvest scheme, have now been granted zero duty access into the Indian market effective from December 31, 2013. Thus, even items that were considered sensitive few years ago would no longer be so from January 1, 2014 — in less than four and a half years from now.
Since the Customs duty is being whittled down to zero on more than 70 per cent of products by end-December 2013, India’s list covers thousands of items being manufactured by its small and medium industries on which zero duty has been offered to ASEAN. They include many tariff lines from the sectors such as food processing, milk products, agricultural items, paper products and pharma items, besides light manufacturing goods, electronics, motorcar equipment, and textiles.
Trade policy experts cite reports of India’s move to approach the ADB for loan assistance to compensate industries that are likely to be hit by the FTA. In fact, the former Minister of State for Commerce, Mr Jairam Ramesh, sought from the ADB last November in a special lecture for such an Asian Integration Adjustment Assistance Facility to help countries contracting FTA that gives “macro gains but also inflicts micro pains”.
Industry people quip that the macro gain would go to the ASEAN and the micro pain is what they are left with.
Zero duty regime
The sources state the product on which zero duty regime is scheduled to be ushered cover more than 55 per cent of India’s global imports (2007-08 figures), offering ASEAN large scope of trade expansion at the cost of other efficient suppliers to India.
Thus imports from ASEAN would replace imports from other countries, even as the cheap imports from ASEAN countries would affect most domestic segments of industry, besides agriculture by entering here duty-free.
Even on the negative list by which no duty cut is proposed, both the parties resolved to keep 489 lines at the HS 6 digit level. Whereas India had to maintain one consolidated negative list of 489 items for all the ASEAN countries, individual ASEAN country would hold negative list of 489 tariff lines as per individual country sensitivity to Indian imports.
Effectively this implies that India has less than 50-60 items in its negative list for each ASEAN country, a patent asymmetric pact from negotiation angle, leaving legions of domestic industries vulnerable to dumping and material injury.
While India-ASEAN trade has boomed from $7 billion in 2000-01 to $39 billion in 2007-08 with a compounded annual growth rate of 28 per cent, so too has India’s trade deficit with the ASEAN members from a level of $3.5 billion to $14.5 billion in 2007.
This was at a time when India was having a high tariff wall.
What would be the scenario when duty cut is steep from India’s point of view on its own industries from cheap ASEAN goods, even as in ASEAN’s large zero import duty regime, more than 75 per cent of Indian goods already enter that market duty-free.
Finally, they say all is not lost as the imbalance in goods trade could be surmounted by beginning negotiations on services with ASEAN under the CECA since India is the tenth largest exporter of services and ASEAN is a net importer.
Source : Business Line