India-Asean free trade agreement hits a snag

The proposed India-Asean Free Trade Agreement has hit a roadblock. This is after the 10-member Asean began pressing India to remove import duties on 90 per cent of agriculture and non-agriculture products by 2011. For the remaining 10 per cent products, Asean wants tariffs brought down to 10 per cent by 2011.

The demand is expected to delay the signing of a bilateral trade deal which was expected to take place during Prime Minister Manmohan Singh's visit to Kuala Lumpur for the Asean summit later this week.

While officials said the issue would be resolved soon, some sections in the government pointed out that agreeing to the proposal could adversely impact India's negotiating position at the World Trade Organisation.

India is seeking flexibility at the WTO for developing countries to designate 20 per cent of tariff lines in agriculture as special products on which tariff cuts will be nil or minimal.

The two sides had earlier this month successfully resolved the "rules of origin" by agreeing to a 35 per cent value-addition and a change in tariff heading. The "rules of origin" are the criteria used to decide where products are made.

A 35 per cent value-addition with a change in tariff heading will mean that imports will have to have at least a 35 per cent value-addition in case a product contains an input imported from a third country.

The "rules of origin" for Asean are already more liberal than those for Thailand and Singapore where value-addition has been set at 40 per cent.

Asean has also asked India to prune its negative list on which duties will not be cut. However, officials pointed out that since the negative list for Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Co-operation (BIMST-EC) programme had around a 1,000 items, the negative list for Asean could not be less since some countries like Thailand were members of both Asean and BIMST-EC.

Trade experts contend that a delay in the finalisation of the India-Asean FTA can slow down negotiations for other bilateral agreements with countries like Thailand and Indonesia since enforcing the FTA with Asean will eventually override any bilateral agreement with individual member countries of the trade grouping.

India and Asean had signed the "Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India" in October 2003.