India postpones FTA with ASEAN

Lilian Budianto, THE JAKARTA POST, JAKARTA | Tue, 03/10/2009 11:06 AM  

Six years of negotiations have yet to convince India to sign a much-awaited free trade deal with ASEAN, as scheduled last week during the group’s summit. 

India would only ink a deal after it concludes its April general elections. 

The delay came as a surprise because the country confirmed early this year it would proceed with the agreement that would form the world’s second largest FTA after the ASEAN (Association of Southeast Asian Nations) and the China FTA inked in 2007. 

India said it had postponed signing the agreement as it would need time for its political transition, taking at least six for the newly elected government to settle in. 

The postponement has drawn concerns from Thailand, the host of the 14th ASEAN Summit, saying this would disrupt trade proposals with the country of 1.72 billion people. 

Under the planned FTA, ASEAN and India would be committed to liberalizing 95 percent of their trade in goods. 

About 75 percent of trade in agricultural and industrial products will be gradually reduced to zero by 2012, while tariffs for another 10 percent will be eliminated in 2015. The rest, consisting of sensitive items, must be renegotiated. 

Thailand has also objected to the postponement as they would have to seek new ratification from the parliament for any new date of signing. 

Indonesian Trade Minister Mari E. Pangestu said Indonesia had no particular reservations about the postponement, but wanted to make sure India proposed an exact time for the inking. 

“We hope India will provide us with a new date immediately to allow Thailand to propose it to their parliament for ratification. The signing will be conducted at either the ASEAN Economic Ministerial Meeting in August or at the next ASEAN Summit, in Vietnam.” 

Under the deal, Mari said, Indonesia would be able to benefit from the lower tariff for crude palm oil (CPO), its main export to India besides oil, copper, alcohol, phenols and rubber. 

“The bound rate for CPO is 100 to 300 percent currently, and it will drop to below 40 percent in 2017 as agreed between both countries [under the FTA bilateral arrangement],” Mari said. 

“We tried to make sure we get similar [tariff cuts] to Malaysia because in the FTA with China, we found out Malaysia got a lower tariff reduction than we did.” 

Indonesia and Malaysia are the world’s largest and second largest CPO exporters, respectively, accounting for around 80 percent of the global supply. 

With a combined population of 575 million as of 2007, ASEAN groups together Indonesia, Thailand, Singapore, Malaysia, the Philippines, Brunei Darussalam, Vietnam, Cambodia, Laos and Myanmar. 

ASEAN Secretary-General Surin Pitsuwan said recently that two-way trade volume between the region and ASEAN was expected to reach US$50 billion by 2010 after the FTA is put in place.

In 2008, the trade volume between the two regions was estimated to reach more than $40 billion, up from $37 billion in 2007. India is ASEAN’s seventh largest trading partner. 

The bloc recently inked an FTA with Australia and New Zealand and a number of international trade pacts, including the ASEAN Goods Trade Agreement and ASEAN Investment and Services Liberalization Commitment Protocol, in a bid to introduce the bloc’s economic integration commitment by 2015.