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India Reviews Free Trade Agreements After Palm Oil Flood Warning

Existing ASEAN, South Korea and Singapore trade agreements all renegotiated by current administration.

Photo: In danger of submerging the subcontinent: The palm trees of the ASEAN bloc. (Shutterstock.com)
In danger of submerging the subcontinent: The palm trees of the ASEAN bloc.
Photo: In danger of submerging the subcontinent: The palm trees of the ASEAN bloc. (Shutterstock.com)
In danger of submerging the subcontinent: The palm trees of the ASEAN bloc.

The Indian government has begun reviewing a number of the Free Trade Agreements (FTAs) and Comprehensive Economic Cooperation Agreements (CECAs) signed by previous administrations. In particular, it has turned its attention to those treaties that have created a perceived imbalance, specifically those relating to the country's trade with South Korea, Japan and the ASEAN bloc.

While the reviews were sparked by a number of factors, the majority are believed to relate to burgeoning trade deficits and / or the declining market share of Indian products in certain partner economies. One of the first to come under such scrutiny was the India-ASEAN FTA.

Overall, the ASEAN bloc is India's fourth-largest trading partner, with total trade between the two in 2016-17 valued at US$71.69 billion, representing almost 11% of India's overall global trade of $660.6 billion for the same period. Digging deeper into the figures, India's total exports to ASEAN were $31.07 billion, while its imports were $40.63 billion, resulting in an adverse trade balance of $9.56 billion.

As well as the trade deficit, the review also centred around the agricultural impact of the existing agreement. Despite being only marginally covered by the FTA and without full duty elimination having been agreed for certain plantation products, India still maintains it has been flooded by imports of vegetable oils (including palm and coconut oil), rubber, fruit, nuts, cocoa, coffee, vanilla, cinnamon and cloves. At present, the trade deficit in terms of palm oil alone is said to be in excess of $5.8 billion, with rubber accounting for a further shortfall of $703 million. In line with this, the review has sought to curtail the imbalance prompted by these two product sectors in particular.

In terms of the Comprehensive Economic Partnership Agreement (CEPA) signed in 2010, the review saw India seek greater access to South Korea's IT, education and healthcare sectors. With both signatories concurring that improvements needed to be made to the utilisation rate of the bilateral concessions, South Korea conceded to calls to reassess the visa requirements for Indian teachers looking to participate in the English Program in Korea (EPIK), while India gave the go-ahead for Korean companies to invest in its domestic agricultural food processing and marine products sectors, with a view to a higher level of value-added items being exported across East Asia.

One of the most far-reaching reviews initiated by India, however, related to the 2005 Comprehensive Economic Cooperation Agreement (CECA) it signed with Singapore, its first truly wide-ranging FTA, which extended across investment and services co-operation as well as the trade in goods. This marked the second review of the initial agreement, following an earlier 2007 reappraisal.

Overall, India is Singapore's largest trading partner in South Asia, while Singapore is second only to Indonesia in terms of India's ASEAN trade. Since the signing of the initial agreement, bilateral trade between the two has expanded steadily, rising from $6.15 billion in 2005 to $13.41 billion in 2015 and totalling $16.7 billion for the period 2016-17. At present, India's key exports to Singapore are petroleum oils, jewellery, and precious metals, while its lead imports from the city-state include machinery, styrene and gold.

Under the terms of the latest review, both parties have agreed to eliminate or reduce tariffs across 30 additional product categories, relax the rules of origin requirements, ensure mutual recognition of nursing standards and introduce new product-specific rules relating to machinery parts and edible oils. Changes to preferential tariffs have also been agreed in the case of certain foodstuffs and nylon-moulding powder.

In an additional move, India has also conceded to a new de minimis ("regarding minimal things") provision. This will see certain goods qualify as originating from Singapore even if the proportion of inputs used in their production does not comply with the exact requirements specified under the terms of the new tariff agreements.

With some 500 weekly flights now linking Singapore to 16 cities across India and with additional services already planned, the review also saw the existing civil-aviation agreement amended in order to facilitate an expanded number of scheduled and chartered connections.

Mitra Dave, Mumbai Consultant

Content provided by Picture: HKTDC Research
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