However, India has found support from Japan to make the East Asian Summit process a much wider one with Asia-Pacific dimensions. India has been calling for a pan-Asian free trade agreement on the lines of NAFTA (North American Free Trade agreement) and EU. It is not clear whether China has softened its position in this regard. Prime Minister Manmohan Singh is expected to have some discussions with the Chinese Premier Wen Jiabao on how to take the pan-Asian economic community idea forward.

Trade between China and Asean reached $160 billion in 2006, an increase of more than 23 per cent from the previous year, is much higher than India’s trade with Asean. In 2006-07, total trade is likely to cross $30-billion mark. China and Asean decided to reduce tariffs on more than 7,000 products from both sides in the meet in Cebu, Philippines. Asean and China also signed a new deal to open access to each other's markets by liberalising services in tourism, telecom, energy and computers.

However, pruning of India’s negative list did not impress the Asean much. The main roadblock in clinching the agreement for trade in goods, at present, is concerning the negative list, which includes several sensitive items for India like textiles, auto parts, chemicals and agri products. Asean had earlier turned down India’s proposal to set the tariff rate quota for agri products like palmoil, tea and pepper.

Besides its negative list of 490 items, Asean has asked for gradual tariff reduction on politically-sensitive items such as palm oil, pepper and tea. India is willing to offer tariffs of 50 per cent to 60 per cent on these items by 2022.

Currently, these items carry tariffs ranging from 90 per cent to 100 per cent. Asean, however, wants India to reduce tariffs rapidly. This is the biggest issue that needs to be resolved before a full FTA is finalised.

Indian officials are confident of thrashing out a compromise formula, as Asean has accepted that the negative items will not exceed a certain ratio of trade. By laying this principle, the two sides have essentially moved away from product-wise bargaining. Within 5 per cent of total trade, the two sides can have any number of items on the negative list.

Briefing the media after the India-Asean meet, commerce minister Kamal Nath said apart from negative list, the two sides have to pay attention to some highly sensitive items for which a compromise formula will be worked out.

Though an FTA is quite important for India, it could not be at the expense of sacrificing the interests of domestic industry and agriculture. If a full tariff liberalisation is undertaken with the Asean, the edible oil sector in India will be the hardest hit. Also, production displacement would take place in spices, tea and coffee. So, it is very important to safeguard the interests of producers and cultivators of these crops.

India needs to ask the Asean side to revisit their negative list, so that the tariff concessions to be eventually offered by them would significantly expand market access for Indian industry. Another area, which India should strongly take up with Asean, is the need for quick implementation of the agreements on services and investment. Asean’s total import of commercial services to the tune of $130 billion in 2005 signifies enormous scope for expanding India's exports of services in the region.

However, India should consider a further reduction of its negative list only if Asean also makes similar concessions.