Business Standard (India)
By Niharika Chandola & Rituparna Bhuyan / New Delhi
May 28, 2009

The last remaining differences between India and the Association of South East Asian Nations (Asean) on the ambitious Free Trade Agreement (FTA) on merchandise goods have been ironed out and the deal is ready for signing.

Government officials said the Asean FTA, as well as a similar pact with South Korea involving free trade of goods, services and investment, could be signed on the sidelines of the summit of Asean nations, scheduled in October this year.

Early this year, Asean demanded duty cuts twice a year if the treaty was to be signed in 2009. This was because, according to the original schedule, the FTA was to be signed in December 2008, with duty cuts being carried out in predetermined slabs placed at 12 months starting January 2009

Since the treaty could not be signed, Asean members wanted the first round of duty cuts to be implemented as and when the deal was signed in 2009, followed by the next round in January 2010, according to the original schedule. However, India declined to undertake duty cuts twice in a period of one year.

“These differences have been sorted out now. India will undertake duty cuts only once in a period of 12 months,” said an official.

The new arrangement on Asean FTA is likely to lead to the first round of tariff cuts being implemented a year later than the original schedule. Thereafter, the tariff cuts will be announced in various slabs (see table) every January.

The India-South Korea Comprehensive Economic Partnership Agreement (CEPA) is also ready for signing, sources added.

“Representatives from India and South Korea will attend the forthcoming Asean summit in Thailand and hence, both the deals could be signed there. Such high profile summits are favoured for announcing or inking deals,” the official said.

Both the FTAs will need approval from the Union Cabinet before they are signed.

The proposed India-Asean FTA has been delayed several times owing to differences over issues like that of restricted list of goods, duty cut in farm products like palm oil and norms related to value addition.

Negotiations on the South Korean CEPA have been comparatively smoother, apart from some issues related to enhanced market access in services-related sector like healthcare.

Both the free trade deals will be signed at a time when world trade is expected to shrink by 9 per cent in 2009.

The trade deals will be the first ones to be signed during the present UPA regime, which in its earlier term had initiated about 15 negotiations on similar pacts with other countries and economic blocs like the European Union.

“The FTA with Asean will lead to closer economic integration, taking the level of cooperation between both the sides several notches higher. Moreover, the CEPA with South Korea will get India locked into the growth dynamic seen in the region,” said Biswajit Dhar, director general, Research and Information System for Developing Countries.

Asean, which accounts for nearly 11 per cent of India’s exports and 9 per cent of imports, is seen to have strategic importance for the country.