22/10/2008 (The Financial Express) - India’s negative list of trade items is growing every year, according to Indonesia. Asked if Indonesia is not seeking undue concessions, an Indonesian official said talks on a free trade agreement (FTA) with India were stuck on five items—crude palm oil, refined palm oil, tea, coffee, and peppers.

“With the India-Asean FTA expected to be inked by the end of the year, we are still in discussions with the Indian side to address our concerns on the five items on the list,” Andi M Ghalib, Indonesian ambassador to India told FE.

With the Indonesian concerns on the five items not completely resolved, the envoy pointed out that it will not delay the India-Asean FTA, however, the bilateral India-Indonesia FTA is still a long way. According to Ghalib, “a feasibility study for FTA between the two sides has been set up and so far two meetings have taken place.”

Talks on the India-Asean FTA had started three years ago. While Indonesia has been pressing for more access for their palm oil exports to India, New Delhi has pressed for allowing greater access for exports from several sectors from India to Indonesia. Indonesia is a major palm oil producer and the product comprises around 35% of their total shipment to India.

Recently, a section of the media reported that in the early stage of the FTA talks, Malaysia too, had raised its objections on greater access for its palm oil exports to India and had even warned that it would not sign a pact if India did not meet its demands. It had also asked for more access for its rubber, coffee and tea exports. However, senior officials say, “Overall, there has been a positive movement. But Indonesia has to make further adjustments. We have asked them to rework their (negative) list, as they have not met the threshold. We hope they come back quickly.” India-Indonesia bilateral trade in 2006-07 grew 41% to $6.1 billion, with Indonesia’s exports to India contributing $4.1 billion.

The contentious issues included import duty cuts regarding four products (palm oil, pepper, tea and coffee) put forward by three countries (Malaysia, Indonesia and Vietnam). Official sources say, “the difficulties regarding Malaysia and Vietnam have been more or less settled.”

Earlier, India had agreed to reduce duties on refined palm oil from 90% to 60% and on crude palm oil from 80% to 50% by 2018. However, Indonesia and Malaysia, world’s two biggest palm oil exporters, together supplying about 70% of India’s edible oil, had pitched for an additional cut in tariffs to 40% for refined palm oil and 30% for crude palm oil. Thailand and Vietnam had asked for more duty cuts on tea, black pepper and coffee. The list of sensitive products would be reduced to 5% by 2015 from the present 15%. Both sides have agreed not to cut tariffs on goods in a negative list of 489 items (5% of the bilateral trade).

The India-Asean FTA covering trade worth around billions of dollars, not including services with the 10 members of Asean was supposed to have been concluded last year.

Issues including demands for lower duties on palm oil by Indonesia, which have not yet been fully sorted out, wanted India to make steeper tariff reduction commitments in both crude palm oil (CPO) and refined palm oil (RPO), along with Malaysia.

In January this year, India offered to reduce tariffs on CPO to 43 % and RPO to 51 %, which the Asean members agreed to.

Said Ruslan U Sitepu, commercial counsellor, Indonesian embassy, “ What New Delhi is offering on the Palm Oil is not good for our industry, therefore, we are still discussing the best way to deal with the tariff concessions.” The FTA is now scheduled to be implemented from January 1, 2009 after the governments of all Asean member countries ratify it and India.