25/09/2007 (The Economic Times), NEW DELHI - Brunei Darussalam, part of the 10-member Asean group, has demanded that India should cut import duties on oil and natural gas as part of the proposed India-Asean free trade agreement (FTA).

While India is in no mood to consider the demand, at least not for the group as a whole, the development doesn’t augur well for the negotiations, already facing turbulence over inclusion of sensitive agriculture items like palm oil, coffee, tea and pepper.

Commerce ministry sources told ET that Brunei, which is rich in oil & natural gas but doesn’t have any other significant indigenous industry, had recently proposed that oil & natural gas, too, be made part of the India-Asean FTA. This means India should take on commitments for gradual lowering of import duties on natural gas with the objective of eliminating them over the next few years.

However, India is clear that the demand could not be met, at least for the whole group. “It is not possible for us to remove duties on oil & natural gas for all the Asean members. We are examining if some concessions could be made for Brunei,” an official said.

The 10-member Asean includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Although both India and Asean have said that they would make attempts to wrap up the FTA talks before the Asean Summit in November this year, there are a lot of loose ends that need to be tied up.

The two sides have not been able to sort out their differences over the treatment of four sensitive agriculture commodities, palm oil, tea, coffee and pepper. Asean wants India to bring down duties on palm oil to 30% and the other three products to 20% over a period of five years. India wants to reduce duties on all four products to 50%.

“Till this difference is resolved, there is no chance of the pact working out,” the official said. The framework for an comprehensive economic cooperation agreement (CECA) between India and Asean was signed way back in October 2003 during the second Asean-India summit.

The idea was to move towards a free trade regime for trade in goods, services and investment. However, Asean members managed to convince India to first conclude a goods pact and then move over to services and investment. Even if the two sides conclude an agreement on goods, there is no guarantee that there would be one on services and investments.

Due to the controversy over the Asean FTA and the criticism over farmers getting affected due to growing import competition, the government is trying to negotiate CECA that includes services as well as investment rather than just FTAs.