29/11/2007 (Business Standard) - UPA Chairperson Sonia Gandhi wrote to the Prime Minister when the Asean Free Trade Agreement (FTA) was being negotiated many months ago, alerting him to the need to be cautious, especially where India’s agriculture interests were concerned. Now, with the FTA nearly sewn up, and the Prime Minister promising some more “flexibility”, is another Sonia letter on its way? Commerce Secretary G K Pillai tells Sunil Jain and Rituparna Bhuyan that the fears are unfounded. Excerpts:

Won’t our producers get wiped out with the low 45 per cent or so import duty levels you’re likely to agree to for items like tea, coffee, pepper and even less for palm oil?

For items like palm oil, our current effective duty levels (28.5 per cent for crude palm oil) are actually lower than what the Asean wants us to commit to after 10 years! And don’t forget that we’ll always need to import 40-50 per cent of our palm oil requirements, so lower duties help consumers. On tea and coffee, we’re around 100 per cent right now and the Asean want us to come down to 40 after ten years — that’s a reduction of 5-6 per cent per year, which is manageable. As for competitiveness, our Rs 8,000 crore revival package is critical here.

Give us the details.
We will spend Rs 8,000 crore to provide new tea and coffee bushes to revive the sector and improve productivity. We’ve already introduced weather and rainfall insurance for coffee and will extend it to other areas. This will help the farmer tremendously. Also, plantation owners have to provide electricity, water, education and even health services (their own hospitals and dispensaries) to workers — this adds around a fifth to their costs. We said the state should bear these costs since they get funds from the Planning Commission to take care of all these costs! Anyway, it has now been decided that half the cost will be borne by the government. So, by the time the duties are cut, the agriculture sector will be a lot more competitive.

In any case, we’d got a political clearance to offer 50 per cent duties, while the Asean wants 40, and we’ll negotiate on that — are you going to break off talks for a small difference? At a certain point, in any case, it is not tariff barriers but non-tariff barriers that matter — the whole world uses them. If there is a sudden surge, we can think of those.

But previous plantation revival schemes have all failed.
In the past, most schemes were just to take care of temporary pain, not to do structural changes. Plus, this time around, we have the funds. The Tea Board will run the fund, and by guaranteeing banks that their loans will be repaid, they don’t have a problem lending to the industry to modernise.

Don’t FTAs allow for trade diversion — Vietnamese pepper comes to India through Sri Lanka?
That’s why we have quotas on what can come through the Sri Lankan FTA. On vanaspati, for instance, it is 250,000 tonnes a year.

Why not offer Asean agriculture concessions to everyone? It’ll kickstart the WTO process.
Not at all. Soya trade, for instance, is much larger than the palm trade — if we offer the same for soya, it’ll finish the industry here.

But you have to concede more with FTAs than you have to at the WTO. So why go for FTAs?
That’s true, but you also get more from individual countries. In an FTA with Thailand, for instance, I can put palm oil duties at zero; in banking, I can allow Malaysian banks to come in without the fear they will over-run us like US banks will. I think FTAs allow us to test the waters. In the 1990s, we were worried globalisation would finish Indian industry, but it actually made industry stronger. If, through FTAs, we realise we’re OK, it prepares us for giving similar concessions on a multilateral basis.

Do FTAs fit into the WTO framework?
No, they don’t. The spaghetti bowl of the rules of origin, different value addition in different countries, negative lists and so on is an issue, and does make life tough for both exporters and customs agents. I suppose they’ll have to manage — customs data is computerised anyway. Indeed, while FTA duties are zero between various Asean countries, 60 per cent of trade is done at the MFN duty of 5 per cent as exporters don’t want to deal with all the paperwork and rules of origin involved in FTAs!

Are FTAs better than working under the WTO regime?
FTAs can’t get you the reduction in subsidies that the WTO can, nor can they lay down the rules of engagement, for instance, on anti-dumping or dispute settlement. And, in any case, dealing with one set of duties/rules for all countries is always easier. But while you can scrap an FTA without any problem, you have to pay a heavy price at the WTO. At the time of independence, India’s wheat and rice import duty was zero. Later, we realised we wanted to hike it to protect our farmers. We had to approach the WTO to renegotiate and the price the US made us pay was that the bound level of soya import duty was reduced to 45 per cent, at a time when that for palm oil was 300 per cent.

On the controversy of export sops, is it better to give sops now or to deal with creating jobs later for the millions that get unemployed when exports collapse, as seems to be happening?
Obviously, now is cheaper. We didn’t give the coffee sector sops during the crash three years ago. I think Rs 1,000 crore was all that was needed. We had to then write off bank debt, provide funds to pay wages … we spent Rs 4,000 crore and the sector remained sick! That’s the point we’re making and why we’re moving the CCEA on the issue.