15/1/07 (The Economic Times )CEBU CITY: The India-Asean summit meeting on Sunday firmed up the principles on which the two sides will base a comprehensive free trade agreement by July. Prime Minister Manmohan Singh met his Asean counterparts and agreed that the negative list — items on which no tariff reduction will be offered — will not exceed 5% of India’s total trade with Asean countries.

Asean can likewise have a negative list not exceeding 5% of its trade with India. Going by this principle, India has offered a list of 490 items — mostly related to agriculture — on which no tariff reduction will be offered. Asean has accepted this fully. Additionally, India has aggressively offered to reduce tariffs on about 700 manufactured items to 0-5% over 10 to 15 years.

These are items on which India is competitive but Asean is quite defensive. For the first time Asean has been put on the defensive by India, sources said. Asean will soon formulate its own negative list — where it won’t offer tariff reductions — and place it before India.

Besides its negative list of 490 items, India has asked for gradual tariff reduction on politically-sensitive items such as palm oil, pepper and tea. India is willing to offer tariffs of 50% to 60% on these items by 2022.

Currently, these items carry tariffs raging from 90% to 100%. Asean, however, wants India to reduce tariffs rapidly. This is the biggest issue that needs to be resolved over the next few months before a full FTA is finalised.

Indian officials are confident of thrashing out a compromise formula as Asean has accepted the basic principle of negative items not exceeding a certain ratio of trade. By laying this principle, the two sides have essentially moved away from product-wise bargaining. Within 5% of total trade, the two sides can have any number of items on the negative list.

Briefing the media after the India-Asean meet, commerce minister Kamal Nath said apart from negative list, the two sides have to pay attention to some highly sensitive items for which a compromise formula will be worked out. The commerce minister said the talks were fruitful. Mr Nath said the Asean leaders were happy at the progress in the FTA talks. They agreed the two sides must engage in creative ways as the mass of economic activity has shifted to East Asia.

Prime Minister Manmohan Singh had separate bilateral talks with Chinese Premier Wen Jiabao. The two leaders agreed that talks on the resolution of border disputes must be speeded up.

The Chinese Premier invited Manmohan Singh to China this year and the latter accepted the offer in principle. National security advisor MK Narayanan said the bilateral talks were fruitful and the Chinese Premier reiterated the strategic co-operation framework agreed to by the two sides in 2005. Mr Narayanan said China is satisfied that India is not putting any hurdles to Chinese investments in India.