In the early 1990s, Manmohan Singh as finance minister brought down the maximum import duty from 350 to 50 per cent. The drastic reduction did not lead to the death of Indian industry as some industrialists had feared; on the contrary, those years saw a lovely industrial boom. It eroded industry’s fears, and the government could contemplate trade liberalization.

I.K. Gujral, who became foreign minister under H.D. Deve Gowda in 1996, was keen on better relations with neighbours. He set up a Joint Cooperation Council with ASEAN in November 1996. It deepened the dialogue, and first conceived of a trade agreement. Its efforts led to the signing of a Framework Agreement on Comprehensive Economic Cooperation in 2004. Its scope was limited; the number of products on which tariffs were to be eliminated by 2007 was only 105, and they were chosen for their insignificance. But all the elements of economic cooperation were put in place by that treaty; succeeding governments had only to accelerate the programme set out therein. It set the stage for working out a treaty for ASEAN-India Free Trade Area in goods.

The accession of the UPA government in 2004 slowed down progress on the agreement. The Congress, the dominant partner, wanted to woo farmers. It maintained the high level of agricultural tariff protection that the earlier government had left behind. It was also intent on monopolizing trade in foodgrains and using it to expand subsidized foodgrain distribution. Trade liberalization did not fit well into this scheme. So while the government continued to hold annual meetings with ASEAN, it proceeded with deliberate lack of speed. It was not only with ASEAN; it also broke off negotiations on a new trade round under World Trade Organization repeatedly on the excuse that it was protecting the interests of Indian farmers. To soften up ASEAN, the government started negotiations on free trade agreements with a number of its members, including Thailand, Malaysia and Indonesia, and actually signed an agreement with Singapore.

The commerce ministry got a wakeup call in January 2007, when China suddenly signed an FTA with ASEAN. Sino-ASEAN trade is eight times Indo-ASEAN trade. The free trade agreement meant that China would absorb ASEAN into its trade orbit within a few years. India could not continue to prevaricate. The negotiations between ASEAN and India gathered speed.

Out of the 10,000 odd tariff items, the Indo-ASEAN trade agreement covers only the 5,000 that the two trade blocs trade with each other. Of these, tariffs will be abolished over six years on about 4,000. It is the remaining 1,000 that are interesting. They include all the agricultural goods in which ASEAN is highly competitive — tea, coffee, pepper and palm oil, for example. They will continue to give considerable protection to textile, machinery and chemical industries.

Thus, the agreement does not envisage radical import liberalization. It is the kind of agreement that might have been made by an Indian government of the 1970s or 1980s, when protection was the mantra.

The trade agreement with ASEAN is probably Kamal Nath’s last hurrah. By repeatedly breaking off the talks on the new WTO round, he gave them the kiss of death. Now, the lame duck government in the US is on the way out. And by the time the US elects a new President, the government of Kamal Nath will be on the way out in India. So ends a rather unsuccessful tenure of a hyperactive commerce minister.
 

The author is Consultant Editor of Businessworld.

ashok (dot) desai (at) gmail ( dot) com

 

(Businessworld Issue 16-22 Sep 2008)