Asean FTA worth $10 bn in 1st year

India and Asean signed a free trade agreement on Thursday, after more than six years of negotiations, to create a European Union-style single market that will boost trade by $10 billion in the very first year.

The agreement would eliminate tariffs on products including electronics, chemicals, machinery and textiles that account for more than 80% of total trade in goods between the two sides. However, the deal did not embrace software and information technology.

The agreement will be effective from January 1, 2010, and tariffs on the products covered would be reduced to zero between 2013 and 2016, according to a joint statement.

The agreement was signed in Bangkok on the sidelines of a meeting of economic ministers of Asean — grouping Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

The pact opens a 1.7-billion consumer market to the member countries with a combined GDP of $2.3 trillion.

“This is a FTA with a regional economic community and we hope that we will be able to take it forward as we have agreed to expedite agreements on investment and services so that it becomes a comprehensive partnership,” Indian commerce and industry minister Anand Sharma said after the signing.

“Bilateral trade between India and Asean was more than $40 billion... have set a target of achieving bilateral trade of $50 billion by 2010... the current agreement would help achieve this target,” a commerce ministry statement said on Thursday.

After strong lobbying by India’s farm sector, led by Kerala and Karnataka states, the terms of the FTA let India protect its agricultural sector by excluding 489 products, mostly commodities including rubber, from tariff cuts.

Tariffs on a much smaller list of products described as “highly sensitive”, including palm oil and coffee, would be reduced over about 10 years, but only modestly.

Kerala had objected to slashing duties on fish, rubber, palm oil, pepper, tea and coffee.
“Their concerns have been adequately addressed,” Sharma said. “Now we can release details of the agreement, including the exclusion list and the highly sensitive list. Now we can do that by making them public as there has been some speculative apprehension.”

Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry, told reporters before the signing: “We came to the conclusion that it will be a win-win for both sides. Our minds have met. Of course, a few will lose, but many more will gain.”

He said the Asean countries were not yet ready for an FTA encompassing software, information technology and tourism. “India has the most powerful IT and software industry in the developing world ... It is still not clear when Asean can conclude an IT agreement with India. As soon as we sign this today, we will start negotiations on an IT agreement,” he added.

Asean is India’s fourth-largest trading partner after the European Union, the United States and China. Two-way trade between India and Asean was $47 billion in 2008, the statement said.