The Asean folly

The deadlock over talks on a free trade agreement (FTA) between India and the 10-member Association of South-East Asian Nations (Asean) is no surprise, especially in view of the tough stance both sides have taken on various issues. The most contentious among them that seems to have led to the impasse is the negative list of 854 items proposed by India. Of course, this list is long even after it was pruned down from a whopping 1,414 items and, should it remain unchanged, could dilute, if not wholly defeat, the very purpose of an FTA of this kind. But, at the same time, an outright rejection of the agreement by Asean, too, is difficult to defend, considering that Asean itself had identified close to 2,000 items in its recent FTA with China in which it offered no tariff concessions. Also, the demand for confining the negative list to no more than 60 items seems impractical and, as such, untenable from the Indian standpoint.

What needs to be realised is that FTAs are meant primarily to promote mutual trade for economic development and not to jeopardise legitimate interests of domestic producers. As far as India is concerned, it has to be extremely cautious on this count as its experience with FTAs with some other countries has not been totally devoid of problems. Significantly, most problems emanated from inadequate safeguards built into the agreements because of the failure to foresee adverse consequences for domestic sectors. No doubt, many of these issues have been settled or are in the process of being resolved through minor amendments in the terms of the FTAs, but the mistake cannot, obviously, be repeated. And the UPA government cannot be expected to do so, especially after receiving missives from the UPA Chairperson Sonia Gandhi to ensure that the interests of Indian farmers are not adversely hit due to an FTA with Asean.

Indeed, measures like a negative list, tariff rate quotas (TRQ) and rules of origin stipulating minimum value-addition are the universally accepted safeguard mechanisms in global trade. As such, India is well within its rights to moot TRQs for sensitive products like edible oils, especially palm oil, and plantation produce like pepper, tea and coffee. Understandably, palm oil being a major item of export to India, exporting countries like Malaysia and Indonesia will not want any curbs on it. But, a limitless import of this cheap edible oil can virtually wipe out domestic oilseeds production, to the detriment of millions of small farmers who grow these crops on unirrigated land. As such, India cannot accept the Asean proposal for slashing the import duty on palm oil to zero by 2011 without any TRQ.

Under the circumstances, Asean needs to adopt a more realistic attitude towards such critical issues to allow India to concede some ground for the sake of arriving at a workable agreement. After all, Asean stands to gain more by roping in a country with as vast a market as India. Since it has also initiated a dialogue with Pakistan for an FTA, the stage seems set for some kind of an Asian economic community taking shape in future, as once envisaged by Prime Minister Manmohan Singh. But the ball clearly is in Asean's court.