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The debate on free trade agreements continues to rage. With Asean putting pressure on the Indian government to lower tariff on imported items, the opposition to FTAs is expected to grow. With even UPA chairperson Sonia Gandhi expressing reservations on FTAs, what is the best way to protect the domestic industry and the farm sector? In the light of the recent controversy, where Congress President Sonia Gandhi asked Prime Minister Manmohan Singh to "very carefully scrutinise" India-ASEAN FTA to safeguard benefits of domestic farmers, here's a look at the pros and cons on free trade agreements (FTAs). Official estimates are that the trade potential from an FTA with this critical economic bloc can run into hundreds of billions of dollars in the long run, but it is felt that the domestic industry should be given a chance to prepare for this scenario. Several analysts have mentioned the benefits of an FTA. These include the huge market size, which creates opportunities for reaping economies of scale both from the supply and demand perspective. In regard to bilateral economic cooperation, several areas have been identified where technical collaboration prospects appear to be bright between India and ASEAN. These include infrastructure, tourism, pharmaceuticals, education and human resource development as well as media and entertainment. At the same time, some analysts recognise that one of the major threats posed by ASEAN-India FTA agreement is the gradual corrosion of the domestic industry. As it is, the framework for the free trade agreement entered into with Thailand has caused ripples here with domestic auto component manufacturers concerned over cheap imports entering the market from that country. Some large automobile manufacturers have units in that country which can be used to source components in case import tariffs are reduced. Similar fears have been expressed regarding other ASEAN countries. It is for this reason that the creation of FTA has been envisaged as a gradual process, taking over a decade to be finalised. However, PM was in no doubt that the government would undertake bilateral and regional economic negotiations only after a serious and professional study of the issues concerned to ensure that domestic agriculture is not adversely affected. Also, he assured that the government was always careful in the case of agriculture and had often placed quantitative restrictions to protect the interests of Indian farmers with consultations being held in advance with stakeholders. Beginning this May, the Prime Minister's trade and economic relations committee met to clear some of the thorny issues in the India-ASEAN FTA negotiations while approving preferential trade agreement (PTA) with Mauritius and South African customs union. Earlier to this, Agriculture Ministry objected to inclusion of farm products like pepper, rubber, palm oil, coffee and tea in the tariff liberalisation programme. The Ministry wants these commodities to be included in the sensitive list under the FTA, while ASEAN members want India to have zero tariffs on them. According to the Agriculture Ministry, these commodities form a part of its list of Special Products in the World Trade Organization and have sensitivities involved. Industry experts warned that FTAs work on the principle of all trade-that at least 80 per cent of the trade of a country should be covered under the agreement. And, if these commodities are kept in the sensitive list, then single product-exporting countries like Malaysia will not meet the criterion of all trade. In particular, it was the vanaspati manufacturers and the dairy industry that pointed to loopholes in the agreement through which the island nation was said to have dumped the products at low prices in India. Another commodity that caused much concern was pepper. Low-grade pepper from Vietnam found its way through Sri Lanka into India, depressing prices of the condiment in this country. Similarly, Guatemalan cardamom was coming in through Nepal. With pressure mounting on India to sign FTAs with Thailand and now with ASEAN and the Gulf, the commerce ministry is therefore treading with caution. While the Sri Lankan FTA is being re-negotiated to upgrade it to a comprehensive economic partnership agreement (CEPA), Singapore already has signed the comprehensive economic cooperation agreement (CECA) with India. Apart from an FTA being negotiated with ASEAN and the Gulf Cooperation Council (GCC), India is also considering a CEPA with Mauritius. The India-ASEAN FTA currently under negotiation has around 900 items on the negative list, which in effect moves out one-third of tradable items out of its scope. The Indian industry has also called for a comprehensive negative list. However, several ASEAN countries insisted on a positive list-those products that they want to trade in. Now, the commerce ministry has proposed tariff rate quota (TRQ) route for these products-a specific quota offered to a country for exports at a fixed duty, which is lower than the importing country's normal duty.
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