Vietnam yet to fully ratify Indo-Asean FTA

Written by Rituparna Bhuyan | New Delhi | Updated: Aug 21 2009, 04:59am hrs
Association of South East Asian Nations (Asean) member Vietnam has only partially signed the Free Trade Agreement (FTA) with India and will not be able to enjoy any import tariff benefits arising out of the pact. The bone of contention was a last-minute demand by Vietnam to be recognised as a free-market economy by India. However, India refused to accede to this, which resulted in Vietnam partially inking the trade pact.

Market economy status signifies that a country does not suppress market forces to skew pricing and other resource allocations. The Vietnam government has tight control over major sectors of the economy, and hence can influence pricing of products that can be traded with India. This could lead to very cheap Vietnamese products entering India, adversely impacting domestic industry. Indias refusal to recognise Vietnam as a free market economy will mean that the country will not be able to resort to unfair trade practices like exporting products at prices, which are lesser than the prevailing domestic price, a phenomenon known in trading jargon as dumping.

Also, India has the room to initiate strict anti-dumping measures, which are very stringent for non-market economies. Government sources told FE that Vietnam signed only two of the four embedded agreements in the India-Asean FTA on August 13 at Bangkok. The country stayed away from inking the crucial trade in goods agreement, which lays down the road map to duty cuts in over 5,000 broadly traded products and also did not sign a portion of the FTA which commitment of both the side to norms of the World Trade Organisation.

However, Vietnam gave its consent to a portion of the FTA, which seeks to amend the earlier India-Asean framework agreement on economic cooperation, signifying the Vietnams intent to be a part of the trade pact. Indian negotiators were in fact surprised at the last minute demand and insisted that the issue should be discussed separately and not be linked with the FTA, said a government official in the know. But the Vietnam decided not to budge from their stand and not sign the India-Asean FTA fully.

Significantly, it was because of Vietnams insistence that India agreed to take partial duty cuts for Coffee-a highly sensitive farm product-under the Asean FTA. In the initial stages of negotiations, India had put coffee in the negative list, a group of items that do not see any duty cuts under the Asean FTA.

Vietnam, became a WTO member in 2006, and made a commitment that it would ease out government control over issues such as foreign trade. But, it will be treated as a non-market economy till at least December, 2018. More than a dozen countries, including Australia and New Zealand has, however, given market economy status to Vietnam unilaterally.

The India-Asean FTA seeks to slash duties on over 4,000 products in the next four to seven years. In addition, 489 products will not see any duty cut while 590 products will see partial duty cuts, Moreover, tea, coffee, pepper and palm oil will see duties being cut to 37.5-50% in a span of 10 years from the date of implementation of the FTA.

India and the Asean have set a target for increasing bilateral trade to $50 billion in 2010, from $40 billion seen in 2008-09 through the trade pact.