PM sticks to his guns on FTA issue

Serious differences have emerged within the government over India's strategy of pursuing free trade agreements with nations such as China.

Some ministers have endorsed Congress President Sonia Gandhi's views on these pacts, especially with regard to their impact on agriculture.

Gandhi has raised the matter twice "" first in a letter to various economic ministers on March 23 and later in a missive to Prime Minister Manmohan Singh on April 11.

Singh replied to Gandhi on April 20 and upheld the case for regional economic partnerships. Highlighting the benefits of economic co-operation with the Association of South East Asian Nations (Asean), he had said adequate safeguards were being put in place for the ongoing negotiations.

The prime minister, sources close to the development said, also pointed out that world-wide experience had shown that regional economic co-operation was beneficial in generating income and increasing employment.

Last week, while addressing an Asian Development Bank meeting in Hyderabad, Singh said more FTAs would be signed.

"We have concluded FTAs with Saarc, Singapore and Thailand. We are working on similar arrangements with Asean, China and South Korea."

On Monday , a government functionary seemed to lash out at the strategy when he said a pact with China would be "suicidal for the Indian industry.

The ministry of external affairs (a portfolio currently held by the prime minister) is pushing for an FTA with China. A decision (to sign an FTA with China) will be purely political. It has nothing to do with economics. It is very important to realise this".

The functionary also said a similar agreement with the Gulf Cooperation Council "can kill our petro-chemical industry".

He added that the problem areas with the India-Asean pact mainly related to liberal norms governing the value-addition norms and the rules of origin.

"Any Asean member can import, say, milk from China, skim it, and then export it duty-free to India to the detriment of our farmers," he said.

This view has resulted in strong resistance from some ministries that want a comprehensive "negative list" of items to protect the interest of farmers. This view conflicts with that of Asean members like Malaysia, which refuses to have a negative list of items.

Yet, there seems to be acceptance of the fact that FTAs with Asean, Sri Lanka (to be converted into a comprehensive economic partnership), Mauritius, Singapore and eventually Thailand (with which India currently has a framework agreement) will go forward.

The sources added that a compromise mechanism in the form of tariff rate quota (TRQ) might be adopted. Under this, duty-free or concessional duty market access is made available only for a set quantity.

The moment the set level is reached, normal duties are once again levied. TRQs are being considered for at least three items "" tea, coffee and oil. There is also a demand for expanding the list to cover rubber and pepper.