From Cancun to Bali

BS OPINION

Indeed, around half of global trade is estimated to be conducted through free or preferential trade arrangements among countries.

In mid-2000, according to one estimate, there were 114 regional trade pacts in existence. And that is precisely why Prime Minister Atal Bihari Vajpayee has signed a deal, at Bali, to set up a Free Trade Area (FTA) with the Asean countries within the next ten years.

Given that around 15 per cent of India's total trade takes place with these countries, it is a welcome step.

In addition, thanks to the accession of China to the Bangkok Agreement, India is negotiating bilateral concessions with China as well "" the first round of bilateral discussions took place this year.

An FTA also exists with Sri Lanka, apart from the SAPTA which is not working too well. India is clearly trying to get into FTA mode!

Yet, it is clearly a case of too little, and too late. Once you go beyond the headlines, what has been agreed to in Bali, is not too much.

As Foreign Secretary Kanwal Sibal pointed out, India remains committed to align its peak tariffs to Asean levels by 2005.

While that sounds like a huge cut, it's not, for what is being talked of is aligning of peak tariffs, and not average tariffs. India has among the highest import duties in the world.

In 1999, India's import-weighted tariffs were 28.5 per cent as compared to 5.2 per cent for Indonesia and 6 per cent for Malaysia. It must be made clear that India is not proposing to lower its import-weighted tariffs from 28.5 per cent to 6 per cent or so by 2005.

It is talking of only peak tariffs, and that too in a somewhat loose sense. It is also worth pointing out, that moving towards Asean tariff levels was something proposed by P. Chidambaram when he was finance minister way back in 1997 "" his target was that, by 2000, India would have average tariff levels equal to what East Asian countries had in 1997. Instead, India's import tariff levels have gone up since.

The actual process of creating the FTA will begin from January 1, 2006, and will carry on till 2016 "" it is proposed that tariffs will be reduced for the existing Asean countries by 2011, and by 2016 for the new Asean members.

Between January next year, and June 30, 2005, negotiations will take place among these countries, to decide which are the items on which concessional tariffs are to be given and on which they are to be eliminated altogether. So, there is no certainty that tariffs will automatically come down just because there is an FTA pact.

Given that the WTO process has now received a setback, not being able to make the most of the Bali FTA will be unfortunate, for world trade is increasingly going to be run on the basis of regional/bilateral agreements.

Eventually, though, there's no doubt that the multilateral WTO forum is the best from India's point of view since the terms of FTAs are always dictated by stronger economies.