Asean FTA could send trade level rising to $30 bn by 2007

New Delhi, Nov 21 | Updated: Nov 22 2005, 05:30am hrs
The proposed free trade agreement (FTA) between India and the Association of South East Asian Nations (Asean) is expected to increase bilateral trade to $30 bn by 2007 from the present level of $19 bn.

Speaking to FE, external affairs ministry officials said the trade negotiations committee (TNC) working out the FTA, in its recent meeting in New Delhi, agreed that the $19 bn mark could be reached in the next two years provided the FTA is implemented soon.

The TNC, however, was not able to sort out the rules of origin (ROO) issue which continues to remain a sticking point. Officials, however, express hopes that the matter would be sorted out soon.

ROO lays down the rules which determine whether a product should be considered to be originating from the countries signing the FTA and hence get preferential tariff treatment.

While India has agreed to Aseans condition of maintaining the level of the value-added criteria (the minimum level of value addition to imported inputs for qualifying to be traded on preferential terms) at 40% instead of 60%, Asean is not ready to agree to Indias terms on the second criteria of change in tariff heading (CTH).

CTH heading calls for transformation of imported inputs to such an extent that it moves to a different (harmonic system) classification) of traded goods. CTH is generally applicable at the four-digit level.

While Asean was initially insisting that it would only agree to the value- added criteria, it now wants that instead of asking for change at a four-digit level, the level of transformation should be at six-digit or an eight-digit level.

The higher the level of classification, the more detailed is the definition of a product. So if a product is judged at a higher level of classification, it can qualify as a product different from the input used even if very little physical transformation has taken place.

Disagreement over the ROO had made Asean and India drop the implementation of the early harvest scheme. The two have to come to an agreement on the issue to implement the FTA so that the potential of trade could be realised.