Trade strategy beyond tariffs

Written by Biswajit Dhar | Updated: Jul 31 2009, 03:43am hrs
The decks seem to have been cleared for the formal signing of the India-ASEAN Free Trade Agreement (FTA). This is despite spirited opposition, most recently from Kerala.

Seen as the cornerstone of Indias look east policy, negotiations on this FTA were initiated in 2003 as a part of the Framework Agreement on Comprehensive Economic Cooperation between India and the ASEAN, through the establishment of an India-ASEAN Regional Trade and Investment Area (RTIA). The RTIA was to be realised through progressive elimination of tariffs and non-tariff barriers in goods and progressive liberalisation of trade in services. The negotiations were initiated with rather ambitious targets: the deal on trade in goods was scheduled to conclude by June 2005, while the services negotiations were to be concluded by 2007.

The FTA agreement that India reached with the ASEAN marked a significant departure from our erstwhile position on bilateral agreements. Until then, India was wedded to the multilateral trading system. The only aberrations were bilateral deals with immediate neighbours in South Asia. This preference for the multilateral trading system was aptly reflected in a discussion paper on regional trading arrangements (RTAs) that India tabled at Doha in 2003. It argued, The multilateral framework for international trade under the WTO rule-based system needs to be strengthened by addressing issues of concern emerging on account of formation of such a large number of RTAs including their impact on development. In the period since, India has initiated negotiations for many comprehensive economic cooperation agreements, including the critical one with the EU.

When fully functional by 2016, the FTA will eliminate tariffs, in a phased manner, on 80% of the traded items. Import tariffs on 10% of the (sensitive) items will not be eliminated, while those on the remaining 10% will be brought down to 5%. In the third category of products, tariff reductions will be completed by 2019. This is expected to give a fillip to Indias merchandise exports to the ASEAN region, which have been stagnating at around 10% of our total exports.

But the FTA will not yield all potential gains unless India does the necessary homework to exploit the markets in one of the worlds fastest growing regions. Even eliminating import tariffs does not automatically ensure larger access, especially in the face of behind the border measures being taken by many countries. These include increased non-tariff barriers, which often take the form of technical barriers to trade and food safety measures. WTO data shows that in the past couple of years, ASEAN members have submitted more than 250 notifications indicating use of such barriers.

These challenges can only be overcome if industry and government work in unison.The latter needs to get into project mode, identifying sectors in which domestic stakeholders can take advantage of the tariff cuts.

The author is director general, Research and Information System for Developing Countries