The Association of South East Asian Nations (ASEAN) Secretary General Ong Keng Yong said that his organization has “gone beyond” characterizing “China as the best economy and India as a secondary economy” and has now accepted India “as a strong economy.” In an exclusive interview with The Hindu, Yong said that “ASEAN-India relationship has reached a high point” but continued to be “bogged down by bureaucratic tussle.”
Hinting that there is political willpower to reached a free trade agreement (FTA) but the agreement itself is mired in bureaucratic disagreement, Yong suggested that the “magical moment” created by politicians need to be carried forward. He asserted that the ASEAN nations and India cannot to without the proposed FTA but acknowledged that there is doubt” about “how this FTA will impact” respective national economies. He pointed out that India wants a “step-by-step” format in “reduction in tariff” but ASEAN believes that this argument will not hold good for some products such as palm oil, coffee, and pepper. Yong’s reasoning is that there is a very limited production of palm oil in India and hence a monetary tariff barriers impedes trade but it is not clear what he meant by coffee and pepper since India is one of the largest producers of both.
ASEAN views the palm oil issue in isolation and does not understand the Indian context. India is the world’s largest importer of palm oil close to 4 million tons. China has increased the intake of palm oil primarily because of the high cost of importing soyabean oil from South America and the US compared to the cheaper import of palm oil from ASEAN nations (specifically Malaysia). However, the tariff structure in China is that it has a two-tier system of 9% for in-quota imports and a 60% rate for out-of-quota rates. India on the other hand has a flat rate of 45 per cent duty on soyabean oil and 80 percent on crude palm oil. Indonesia and Malaysia has been urging India to rationalize the rates asking for parity in rates but India says that good domestic production has increased flow of these oils in the market and hence has to protect domestic industry over imports. Also, if India were to make imports cheaper than domestically produced oil, the whole production cycle of mustard, groundnut, sunflower, and corn oil will collapse leading to large-scale disgruntlement among farmers already affected by numerous policy gaffes. Besides, India is complying with the Uruguay Round of the World Trade Organization (WTO) which stipulates removal of quantitative restrictions on imports of edible oil but is not imposing the maximum permissible duty of 300 per cent under “bound tariffs” on palm oil. Although required to comply with “bound tariff” guidelines by 2004, India voluntarily lowered its rates in 2001. Palm oil is also not the preferred oil in Indian cuisine. It is provided by the government to poorer people at subsidized rates through the public distribution system and offers palm oil only because it is the cheapest oil.
To circumvent these complex “product by product” discussions, Yong favors a “strategic approach” adopted by political leaders and is depending on “political will to crack the puzzle.” Acknowledging that it is perhaps “not a smart idea to just depend on that,” ASEAN nations are looking at some strategic issues such as “energy security” to build “very good credit chips” to establish as “stronger cooperative spirit” to provide the stalled FTA some momentum.
But such side-stepping will not go very far as India complains that the “negative list” of ASEAN is too large. Yong ducked this question saying that the while the two sides could get the “best deal over 25 years of negotiation” it may “no longer” be a “good deal.” He acknowledged that the biggest stumbling block is that both sides are worried about the reaction of their respective “domestic constituency.” In an interview to The Economic Times, Finance Minister P. Chidambaram said that the two sides “are almost there” and he has instituted mechanisms to bring down “customs duties on many items” and that he did plan on these cuts in the budget to bring “average customs duty” to eight per cent. He justified earlier higher customs duty to check “upward pressure on prices” but acknowledged that both sides need to go “some more distance to reach ASEAN levels.”
Yong insisted that ASEAN nations have stopped characterizing “Chias as the best economy” and “India as a secondary economy” because they have now realized that “India has emerged as a strong economy.” However, he ducked questions on ASEAN plus three format where India was consciously excluded and did acknowledge on how the various nations are still trying to evolve a common charter. He held out the possibility that perhaps India, Australia, and New Zealand may be included in the changed scenario.