21/11/2007 (The Economic Times), Singapore - The India-Asean FTA, which is at the core of India’s look east policy, was to have kicked off from early 2008. This was the broad timeline decided at the India-Asean meet at Cebu city, Philippines. The two sides had committed to finalise the FTA by July 2007 and had agreed to start business by early 2008. That, of course, did not happen. There have been too many last mile problems in sewing up details of the deal.

In fact, the disagreements had reached such levels that the current India-Asean meet at Singapore has not been preceded by any ritual interaction, which happens at the official level, a commerce ministry official said. “Normally, we go with a pre-cooked agenda. It is not there this time,” he said.

However, early this month PM Manmohan Singh made a personal intervention with Mr Lee Kwan Yu, father of modern Singapore, who was in New Delhi on a private visit, and persuaded him to use his considerable political weight to ensure there is something to take home for everybody at the India-Asean summit. Singapore, being host as well as a key driver of Asean, has attempted to break ice on India’s behalf with Malaysia, Indonesia and Vietnam, who have raised some issues with the India-Asean FTA.

The whole agreement appears stuck because of insistence by Malaysia, Indonesia and Vietnam that India drop its import tariff drastically on palm oil, tea, coffee and pepper. India has argued its political economy, at the current stage, would not permit dropping duties to less than 45% in any of these agriculture items.

Current duties on these items range between 80% and 100% .With millions of domestic oil seed farmers struggling to get a decent price, and about 20 million workers dependant for livelihood on tea and coffee plantations, and with elections looming on the horizon, the medium-term choice for India is very clear. It cannot yield beyond what it already has on duty reductions.

But the hardnosed negotiators on the other side will not look at India’s political compulsions. For Malaysia and Indonesia, 26% of their total exports to India is palm oil. For Vietnam, about 30% of its exports to India is tea, coffee and pepper.

They just want to push these items in the main. This is precisely the deadlock the two sides have not been able to resolve since the India-Asean meet at Cebu city which promised a lot.However, if you look at the glass as half full, a lot was achieved at Cebu city. The two sides have agreed to bring down import duties to zero on 80% of all tariff lines by 2015.

Also, there is agreement that no tariff reduction need be committed on about 450 items by both sides but these do not exceed 5% of the total trade between India and Asean. Thus there is agreement on nearly 85% of all traded goods.The problems lies only with the big five items of special interest to Malaysia, Indonesia and Vietnam.

For the UPA, the big dilemma is how to communicate to its political constituency back home on the need to extend itself a little more to flesh out its look east policy. For China has given virtually zero duty access to Asean countries on items like Palm oil, tea, coffee and pepper, China uses its huge trade surplus with the US to accommodate imports from E. Asia to extend its influence. At present, India cannot possibly match China’s generosity.