India to go slow on trade agreements

India has decided to go slow on preferential and free trade agreements following protests from domestic industry. The finance ministry has also raised the issue of revenue loss due to such trade pacts.

Officials told Business Standard that Commerce Secretary Dipak Chatterjee had asked his colleagues to be selective in deciding on future free trade and regional trade agreements.

In the case of some proposals, like the one received from the Gulf Co-operation Council, certain sections in the government have raised security concerns.

Over the past year, India has committed itself to a host of free and preferential trade agreements, including those with Thailand, the Association of South-East Asian Nations (Asean), Bimstec, Mercosur and Singapore, where the Comprehensive Economic Co-operation Agreement will cover goods and services.

Mercosur comprises Brazil, Argentina, Uruguay and Paraguay, while Bimstec includes Bhutan, Myanmar, Nepal, Sri Lanka and Thailand. Requests have also been received from Israel, and the government is considering a free trade pact with Brazil and South Africa.

Due to the rise in free trade agreements, a number of tariff anomalies have crept into the system. The government will, therefore, need to initiate corrective measures like reduction in duties on some chemicals. Commerce Minister Arun Jaitley will take up the matter with Finance Minister Jaswant Singh.

The government has changed the duty structure in the steel and aluminium sectors to remove the anomalies faced by automobile component manufacturers following the free trade pact with Thailand.

Officials said the directorate-general of foreign trade was pushing for extension of deemed export benefits to all automobile part manufacturers as part of the government's efforts to bring Indian companies on a par with their Thai counterparts.

The Customs and commerce department are also facing difficulties in standardisation of norms as a result of these agreements. Chatterjee has advised his colleagues to ensure that norms are standardised and India adopts common rules of origin in all future negotiations on free trade pacts, to avoid such problems.

What prompted the decision

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• Protests from domestic industry
• Revenue loss due to zero/lower tariff commitments in FTAs
• Security concerns raised about some trade pacts
• Govt machinery may be unable to cope with the large number of agreements and anomalies