Hike duty in FTAs: CII

Opposing the government's move to forge free trade agreements (FTA) with countries like Thailand and Sri Lanka, the Confederation of Indian Industry (CII) has sought a 5 per cent hike on duties on all imports, apart from raw materials, from these countries.

"The government consulted Indian industries post-facto and did not seek industry inputs on the list of items under FTA," a CII official said.

Under the FTA with Sri Lanka, several companies in southern states are forced to import from the island nation as it is cheaper than buying from other states where a central sales tax of 4 per cent is applicable.

"Some edible oil companies are looking at setting up manufacturing bases in Sri Lanka," the official said.

The zero-duty structure will prove to be detrimental as duties on products cannot be increased in the future and this will affect firms that have backward linkages. "A minimum duty of 5 per cent will negate the imbalance in trade," he said.

Some companies are hit by cheaper FTA imports, particularly with Thailand. Exports from Thailand was $50 million in September-November 2004 while India exported goods worth only about $ 125,000.

There have also been reports showing a 400:1 trade surplus favouring Thailand vis-à-vis 82 items of the Early Harvest Scheme during the first three months since the Indo-Thai Free Trade Agreement came into effect from September 1, 2004.

The chamber representatives have met commerce ministry officials on several occasions on this issue and are trying to persuade the government to change the duty structure.

"We have asked the government to form a small task force which would be called an 'FTA group' that will include ministry representatives and industrialists, and will look into the details of FTA," the CII official said.

Rahul Bajaj, CMD Bajaj Auto and past president of CII, is also looking at forming a special group within CII to look into the issue.

"With the FTA with Singapore and talks of FTA with the US on services coming up, serious concerns are being raised on their impact on the Indian economy. Most countries have huge capacities and resort to export pricing, keeping the cost low, and this has to be counteracted," the official said.

Most automobile manufacturers feel that there can be threats from Malaysian car companies which can register their cars in Singapore for an entry into India just as the Japanese majors can leverage the Indo-Thai FTA to their advantage as Japanese companies have huge manufacturing bases in Thailand.

The commerce ministry is also said to be receiving complaints from Indian companies on 'value addition norms and rules of origin' and is working on mechanisms to check under-invoicing by foreign firms.

CII is also asking the government to restore the multilateral route. "Bilateral trade agreements are proving to be a drain on domestic resources, so the government should revive the multilateral agreements like those of Saarc," the official said.