Progress with Asean

The fifth Indo-Asean summit, held in Cebu in the Philippines, may not have been a deal-clincher for India, but the deliberations that took place there are important. Where the much-delayed free trade agreement (FTA) between India and the 10-member Association of South East Asian Nations (Asean) is concerned, progress has been limited but is significant. It has ended the protracted row over India's list of negative items, which has gradually been pruned down from over 1,400 to 490. While agreeing to this list, Asean and India have stipulated that trade in the goods included in the negative lists of both India and Asean should not exceed 5 per cent of total mutual trade. This provides quite a lot of leeway for varying trade volumes in specific items. With this hurdle out of the way, the prospects have improved for concluding the final deal by the new deadline of July.

Some glitches still need to be sorted out. The most significant are the issue of highly sensitive items (pepper, tea and palm oil) and the schedule of tariff reductions for them. These happen to be the items on which India can ill-afford to concede any ground without hurting the interests of domestic producers. As such, India has expressed its willingness to slash duties on these commodities by 50 to 60 per cent, but only by 2022, with the reduction process starting at the end of a standstill period of five years. The Asean countries are, of course, not inclined to accept this schedule; their objection is stronger on the standstill period than the extent of duty cut. India hopes to resolve this issue, but there are no indications as to how this will be done. In any case, the government is bound to be cautious in view of Congress President Sonia Gandhi's letter to the Prime Minister some months ago, cautioning him about the adverse impact on farmers if too many FTAs are signed.

While that provides one perspective, the message from Cebu is how China continues to overshadow India in such fora. This is not only because China, having begun talks on an FTA with Asean later than India did, has managed to cover more ground and has now agreed on eliminating trade barriers, so as to facilitate free trade by 2010-15, but also because it has managed to initial a pact on market access in services which will be operative from July. This will provide China a foothold in the Asean market in sectors like telecommunication, transport, tourism, construction, energy, education and others. Surely, there must be a lesson here for India's trade diplomats. There can be little doubt that if India's negative list had been more reasonable at the start, the FTA negotiations would have made much more progress by now. The trade negotiations also underline how important it is for India to improve the productivity of its own agriculture so that it does not need to be protectionist, and to speed up the process of general tariff reform (average tariffs even today are about twice the global average).

If India scored a point at Cebu, it was in pursuing its proposal for an open skies policy with Asean and, even more significantly, through the deal on long-term energy security. Involving India, Australia, China, Japan, New Zealand and South Korea, besides the Asean nations, this pact envisages a strategic approach to cooperation in key energy projects. What would be of major interest to India is the proposed trans-Asian gas pipeline.