News and Analysis • Volume 12 • Number 4 • August 2008

Regional News- ASEAN Strengthens Trade Ties

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Just a month after the collapse of the Geneva ‘mini-ministerial’, the Association of Southeast Asian Nations concluded new free trade agreements with India, Australia and New Zealand.

The 10-member ASEAN bloc and India announced on 28 August that they had wrapped up six years of negotiations on trade in goods, a first step toward a comprehensive economic partnership agreement both sides hope to finalise by December 2009. “Single undertaking’ negotiations on services trade and investment are slated to start ‘as soon as possible’.

Tariffs on 80 percent of all agricultural and industrial products will be eliminated by 2015 (71 percent of tariff lines by end-2012, and another 9 percent three years later). Duties on an additional 8-10 percent of products will be brought down to 5 percent by 2015.

The merchandise deal was bogged down for years over sensitive products. While India initially sought to shield more than 1,400 products from tariff reductions, the parties ultimately agreed that each had the right to a ‘negative list’ of 489 tariff lines exempt of any cuts. More than 200 farm products figure on India’s negative list, including poultry, fish, milk and milk products, as well as many vegetables and cereals such as wheat, maize and rice. Other cut-exempt items include textiles, auto products, chemical and petrochemical products, alcoholic beverages and rubber. In addition, India may limit imports of the negative list products to 5 percent of its total imports from any ASEAN member. ASEAN countries may protect the same number of products from Indian imports.

India did, however, agree to reduce its bound duties on five sensitive products of major export interest to some ASEAN members over a ten-year period. The current 90 percent tariff on crude palm oil will be halved and that on refined palm oil will be reduced from 80 to 37.5 percent. The duty on black tea, coffee and pepper will be brought from 100 to 40 percent. ASEAN countries will also have long timelines for implementing cuts on their most import-sensitive tariff lines that are of export interest to India.

Despite the exceptions, the ASEAN-Indian pact is estimated to cover more than 95 percent of the value of total trade between the parties once it is fully implemented. Indian Commerce Minister Kamal Nath noted that the extensive market access commitments would not have been possible if India had not unilaterally reduced many of its applied tariffs earlier. For instance, the applied duty on palm oil is already zero and that on crude palm oil is 7.5 percent.

The goods deal, together with an agreement on dispute settlement, will be signed at the ASEAN-India summit next December. If all governments involved manage to ratify the treaty this year, tariff reductions will start as of 1 January 2009.

In addition to the goods pact with India, ASEAN has inked a comprehensive free trade agreement (goods, services and investment) with Australia and New Zealand, with ratification by all parties expected over the next few months. Over the past few years, the bloc has also concluded FTAs with China, Japan and South Korea.

Talks launched in May 2007 with the European Union, however, appear stalled. ASEAN Secretary-General Surin Pitsuwan said that the EU-ASEAN trade agreement was among the ‘most challenging’ the 10-member bloc had ever undertaken, adding that the two sides were still “working very, very hard trying to find some common ground to move forward.” Reportedly, one of the problems holding back progress is European reluctance to enter into any agreement with ASEAN member Myanmar without evidence that the country would move toward democratic civilian government.

Meanwhile, negotiations continue on a comprehensive trade agreement between India and the EU. Both sides originally hoped to conclude the deal by end-2008, but that date may slip.