News Room - Business/Economics

Posted on 14 Apr 2009

India-ASEAN trade talks in deep freeze

With the recession worsening and many countries resorting to raising import tariffs to protect domestic industries, a trade deal between India and Asean remains on a shaky ground.

 

A senior federal government official said the June 1 deadline for eliminating duties on more than 4,000 products traded between the two sides will need to be rescheduled.

 

India is not ready to sign the deal as per the proposed free trade agreement (FTA) in April due to the upcoming general elections, said the official. The implementation of tariff cuts will now be postponed by more than a month, depending on when the new government decides to sign the pact.

 

The FTA provides elimination of tariffs on 80% (about 4,000 items) of traded products - both agricultural and industrial - such as consumer electronics, a range of farm products, metals and chemicals in a phased manner by 2015. For about 10% (500 items) of additional products that have been placed on the sensitive track, the tariffs will not be eliminated but brought down to 5%.

 

India has 489 items, mostly farm products, on the negative list that will not be subject to tariff cuts.

 

"Since the new government will be in place in June, it will not be ready to take a call on such agreements before July as it will need at least one month to settle down," said the official at federal commerce and industry ministry.

 

"Although the India-Asean FTA has more or less been finalised and just needs to be signed by the two sides, it will not be possible to stick to the June 1 schedule for implementing tariff cuts."

 

The FTA that was to be signed in December last year could not be ratified because of disagreements over the list of sensitive products and political upheaval in Thailand. It was then decided that the agreement would be signed at the Asean summit in February. However, as the meeting was not at the prime ministerial level, the government deferred the signing to this month when the India-Asean summit was scheduled.

 

Since elections are due in April and May, it was finally decided by the ruling United Progressive Alliance (UPA) that the agreement should not be signed so close to the votes. The fate of the pact will be sealed after the elections.

 

Industry leaders, however, say that India needs to expedite the trade pact with Asean to boost exports.

 

A slump in demand for Indian goods overseas slashed the country's exports by 16% in January, the fourth straight fall, and trade officials fear contraction in the last quarter (January to March) of the current fiscal year.

 

"To mitigate the sagging trade with their recession-ridden major trading partners in the United States, the European Union and Japan, the India-Asean FTA is highly imperative to counter rising protectionism and prosper economic co-operation for both the economies," said Sajjan Jindal, president of the Associated Chambers of Commerce and Industry (Assocham).

 

Earlier, India had set a target of US$50 billion for two-way trade between India and Asean by 2010 from $39.1 billion in 2007-08. Mr Jindal said the target appears a distant dream.

 

According to IMF projections, the world trade is estimated to contract by 2.8% this year in contrast to the growth rate of 4.1% in 2008 and 7.2% in 2007. Exports from advanced countries are likely to contract by 3.7% while imports estimated to decline by 3.1%. For the emerging and developing economies such as India and Asean, exports have been estimated to take a hit by 0.8% whereas imports declining by 2.2%.

 

India has registered negative growth in exports for five consecutive months to February 2009 and the trend is unlikely to be reversed soon considering the global slowdown in demand and rising protectionism world over.

 

The Assocham, with its 200,000 industry members, has suggested India should pitch for stronger economic ties to trade in services with Asean. India has global competitiveness in service exports with a share of 2.73% (ranked eighth) in world exports of commercial services, while Asean is a net importer.

 

Possessing high expertise in services such as IT, telecommunication services, professional services, health-care and distribution, India can tap the Asean markets and enhance co-operation with the trading bloc with an agreement pertaining to trade in services just like the proposed agreement on trade in goods (TIG) due to be ratified and operationalise the FTA in merchandise trade.

 

According to a recent study by the Assocham, Asean economies with an average trade-to-GDP ratio of 147% are much more vulnerable to the current economic crisis as their major trading partners including the United States, the European Union and Japan are witnessing unprecedented pressure on their economy resulting into trade deterioration. India, meanwhile, has a relatively balanced trade to GDP ratio of 44.7%.

 

However, in recent years this has been growing. The study also found that India still has a much higher average applied ad-valorem tariff rate of 34.4% for agricultural products and 11.5% on non-agricultural products against 13% and 7.4% respectively for Asean.