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FTAs hang fire

WILL FREE TRADE agreements remain the flavour of the season with New Delhi, going by the not-so-happy experience with Thailand? The firmest indication of this is the recent spate of statements by the Thai Trade Representative, Mr Prachub Chaiyasan, who has been going around the country trying to reassure the Indian side that the projected FTA will be good for both economies and, more important, that Bangkok is ready to go the extra mile to dispel the fear that the Thai economy would benefit much more than its Indian counterpart.

Indeed, the proof of this was unwittingly supplied by the Thai official himself when he said that Bangkok was prepared to bring "another 82 items" into the "early harvest" fold — in addition to the 82 announced at the time of signing the FTA in October 2003 — to assuage Indian feelings over the way bilateral trade has been performing, post FTA. Significantly, Thailand (according to the official) has given New Delhi a free hand in selecting the new items, reflecting the seriousness with which Bangkok is viewing trade developments, especially the possibility of New Delhi deciding to go slow with FTA implementation; this would hurt Thailand more than India.

Those who have maintained that the FTA will go against India's interests have been vindicated by the recent trade performance. From 1999-2000 till 2003-04, officially, the total trade between the two countries doubled from around $776 million to $1.4 billion; India's trade surplus rising nearly 80 per cent, from $124 million to $223 million. However, ever since the "early harvest" scheme came into operation, in late 2003/early 2004, the picture has changed dramatically, with Thailand beginning to enjoy a surplus, indicating that Thai goods are out-selling Indian products under the new dispensation. According to one estimate, in the past year, the two-way trade has risen to about $2 billion, the balance of trade tilting in favour of Thailand — nothing short of revolutionary, going by past trends. The fear now is that New Delhi could find the going increasingly difficult as more areas of the economy are brought under the purview of the FTA.

Even more crucial are the "rules of origin" issues governing the India-Thailand trade, and going by the experience of the past year, New Delhi will surely insist on tightening this aspect of the agreement. Thailand has proposed 40 per cent local value-addition as the norm but, as Indian businessmen believe, not without justification, either this is not enough or its implementation leaves much to be desired. Significantly, the Thai trade representative himself appears aware of the problem and has said that a new formula needs to be evolved "which is mutually beneficial", the inference being that the existing situation is not in the best interests of the two partners. The current phase has been likened to an engagement leading up to the wedding, that is, a full-fledged FTA. It would be sad if the betrothal has to be broken at this point in view of the promising possibilities for both the partners in the sphere of investment and, from the Indian point of view specifically, trade in services.

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