24/04/2008 (The Economic Times), New Delhi - Indonesia has turned out to be the surprise sore point in the proposed India-Asean free trade agreement (FTA) that was scheduled to be in place last month. Jakarta’s insistence on offering lower market access to India than other Asean members has held up the pact.
Efforts, however, are on to break the deadlock with trade ministers from all ten Asean countries and India scheduled to meet in Indonesia on May 4. India is hopeful that the market access issue will be ironed out in the ministerial meet and the FTA would be in place by June.
Indonesia is insisting on not going beyond marginal reduction in import tariffs on a large number of products from India which goes against the provisions of the FTA.
Less-than-expected access to Indian palm oil market, which has been the main point of contention during the FTA negotiations, seems to be the reason behind Indonesia’s reluctance to open up its markets to India. Indonesia’s aggressive stand could be attributed to the fact that export of palm oil comprises 35% of its total exports to India.
However, India claims the reason is unjustified since it had offered substantial cuts in palm oil duties. “Our cuts offered in palm oil is much higher than the marginal cuts offered by Indonesia on products with similar export weightage for India,” an official said.
As per the provisions of the FTA, 80% of the total traded tariff lines of a country have to be gradually reduced to zero over the agreed number of years. While 5% of the goods can be put in the negative list and insulated from cuts, the remaining 15% will be in the highly sensitive list with tariffs between 0-5%.
India has decided to reduce duties on palm oil by 42% (from 80% to 45%) and not eliminate it. For Indonesia, this means India would not be eliminating tariffs on at least 35% of traded goods. To give Indonesia a fair deal, India agreed that Indonesia should also be allowed to reduce duties on 35% of products by 42%.
Indonesia, however, wants the cuts to be much lower at 5-10%. “How can we accept a 5-10% cut on more than one-third of our exports to Indonesia when we have agreed to reduce our duties by 42% on palm oil,” the official added.
Moreover, instead of reserving 5% of items for the negative list, Indonesia wants 15% products to be kept away from tariff cuts.
“All Asean members and India are keen to push the FTA off the ground. We are hopeful that the matter will be resolved in the May 4 meeting,” the official said.
In fact, it was Malaysia and not Indonesia which had been taking a hard stand on the issue of palm oil ever since the FTA negotiations kicked off in 2005. In fact, Malaysia, at one point of time, had also threatened to call off the talks if India did not better its offer for farm products including palm oil, rubber, tea and coffee.
The ten member Asean includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, Singapore and Vietnam.