FTA: India, ASEAN sort out differences over tariff cuts

NEW DELHI: India and the ASEAN have finally concluded talks on a free trade agreement (FTA), sorting out long-standing differences over proposed tariff cuts in sensitive farm products such as palm oil.

The India-ASEAN trade negotiations committee, which met in Brunei this week, managed to resolve pending issues and sealed the deal, which would result in tariff elimination on four-fifths of all traded commodities in a phased manner over the next 10 years.

Trade ministers from the 10 Asean countries and India will meet later this month to formally approve FTA, following which the legal framework for the deal will be drafted. The agreement will be signed by heads of states during the next Asean summit in December in Bangkok.

The FTA will be implemented from either January 1, 2009, or June 1, 2009, depending on how soon individual Asean members are able to ratify it, government sources said. The agreement is expected to give a big boost to bilateral trade, currently ruling at $30 billion per annum.

With the free trade agreement in place, ASEAN now seems to be ready to start talks on services and investment, which was initially supposed to be part of a comprehensive economic co-operation agreement.

When trade ministers of India and ASEAN meet on August 28, they will fix a date for beginning negotiations on services and investment. Sources said negotiations in the two areas were likely to begin in September this year with the aim of concluding it by December 2009.

An agreement on palm oil duties was reached after India decided to improve its offer in crude palm oil (CPO) to 37.5% and refined palm oil (RPO) to 45% over its offer of 43% and 51%, respectively, made in January this year, sources said. Indonesia, which had earlier proposed to end rates of 35% for CPO and 42.5% for RPO, agreed to India’s new offer.

Disagreement over tariff reduction in palm oil, rubber, tea and coffee had stalled talks for over a year. India has agreed to bring down import duties on tea and coffee to 45% (from the existing bound rate of 100%) and rubber to 50% (from the existing bound rate of 70%) by 2018.

Tariff negotiations in all trade agreements are based on bound rates, which is a ceiling beyond which a country can never increase tariffs under any situation. The applied tariffs, which are existing duties at a given point of time, are often considerably lower than the bound tariffs.

India-ASEAN trade talks have gone through several rough patches ever since discussions began in 2001. An early harvest scheme, including tariff elimination on a handful of identified products over a relatively short period of time, had to be abandoned due to disagreement over rules of origin (ROO).

ROO is a vital part of any trade agreement as it determines how much value addition to an imported product should be done by the partner country to make it qualify as a product originating there, and hence, eligible for duty concessions in the market of the other partner.

India wanted a strict ROO to prevent third-country goods flowing into the country through ASEAN nations at concessional duties.

ASEAN, on the other hand, wanted ROO to be more relaxed. The disagreement was finally sorted out once the FTA talks began. The 10-member ASEAN includes Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, Singapore and Vietnam.