Byapaar.com – The Indian Business Blog

It has been six long years since India and South East Asian trade block known as ASEAN started negotiations on free trade in goods (TIG). Finally it has concluded in a meeting of economic ministers held in Singapore. The deal is up for final sign in a summit to be held in next December in Bangkok, Thailand.
Indian industry minister Kamal Nath has described the conclusion of the TIG deal as a “key regional milestone” that will create a European Union like open market for goods. It has even bigger prospect than the EU with booming markets and an estimated 1.5 billion people waiting to be conquered by consumerism.
Kamal Nath says,

“It took six years for India to understand the sensibilities of Asean, and for the Asean to understand the sensitivities of Indian.”

Actually, the deal was supposed to be concluded last year but due to differences on the list of products to be excluded, it took one more year. Now that it has been finalized, both parties will remove import duties on 71 percent of products by December, 2012 and additional nine percent by 2015. The ten percent which have been kept under sensitive list will also see duties brought down to five percent. The deal also has provisions for fast track reduction of import duties on five products which are so vital in trade relations. These goods are coffee, tea, crude and refined palm oil and pepper. Currently, trade volume between India and Asean is to the tune of $38 billion which is to go up to $50 billion by 2010. At present India holds seventh position in Asean’s overall trade and the group holds 9.8 percent of India’s global trade volume.
According to a joint press release, both parties also resolved to negotiation on similar agreements in services and investments sector.

“So the potential for enhanced economic engagement between Asean and India is profound.”

Mr Nath says. The question is can this new economic block create same impact as that of EU? It certainly has potentials with fast growing economies and an ever increasing group of middle class flush with disposable income. But my personal opinion is it still has long way to go. First, China must be included in the group so as to have a major global impact. Secondly, unlike the EU, the group does not have a single monetary system. Still, both the parties will benefit hugely with this pact and more so if they could do the same in other sectors too.

The European Union (EU) and Indian government have been trying to come to a Free Trade Agreement for quite sometime now and it was to get formalized by the end of this year 2008. But what has been coming out of it has become a  big frustrating experience for the Union Government.

The main contentious issues are still to be addressed properly  and not only that, instead of problems being solved, they are mounting by the day. The negative list, non-tarrif barriers and other differences remain though time is running out. India wants its service industry to get more ground in the EU and the EU wants its products to have easy access to the vast Indian market.

A ministerial meeting is scheduled to be held next month between the two parties in order to sort out differences and exchange negative lists. But negative lists of both sides are growing by the day as more and more products and even allied industries  are seeking protection in the negative lists. The EU has already handed over its negative list that might affect India’’s export of goods primarily based on petrochemical products, not to mention textiles, cosmetics, glassware, fertilizers and pharmaceuticals. Originally, India and the EU were supposed to keep 90 percent of the products under the agreement. But it seems that the figure will decrease to a great extent. The finalization of India’s negative list is still going on as more Indian companies or products are lobbying to get into the negative list to protect their business. It should be mentioned that, goods falling under the negative list would cost more due to high tarrifs.

According to a study by FICCI (Federation Of Indian Chambers Of Commerce and Industry), the Indo-EU trade could reach $572 billions by 2015 if the agreement is properly and timely  implemented. Naturally, Kamal Nath, the Indian Commerce Minister is very disappointed with the slow pace of talks.

On the other hand, some experts feel that India should forget these kind of agreements and look for more pacts which would be integrated with India’s reform policies and thuse bore more fruits.