The successful conclusion of negotiations on the Indo-Asean free trade agreement (FTA) should lift some of the gloom over the collapse of the Doha Round of WTO talks. Equally, if not more importantly, it should dispel the notion of India as a difficult trade negotiator, a tag that western countries, notably the US, have frequently attached to us. The agreement with the 10-member Association of South-East Asian Nations (Asean) has been six years in the making and is the fourth regional trade agreement after the FTA with Sri Lanka, Thailand and the Comprehensive Economic Cooperation Agreement with Singapore.

Under the deal, beginning January 2009, tariffs on 80 per cent of the commodities traded between the two sides will be reduced and will be finally eliminated by 2015. Clearly, it is not that India is unwilling to lower tariff barriers as some western countries have alleged; it is simply that trade negotiations must have an element of give-and-take or reciprocity in WTO parlance. Without that, no country will be willing to lower tariffs unilaterally, whatever the benefits of unilateral reduction in textbook economics. Issues such as rules of origin aimed at ensuring that third country exports do not get the benefit of zero tariff, and India’s willingness to allow freer import of sensitive products such as palm oil, tea, coffee and pepper did pose a problem initially.

But given the widely divergent positions on the most contentious issue — the negative list on which no tariff cuts are to be made — where India initially wanted a list of over 1,400 items and Asean, a much smaller number, the final list of 489 negative items, is remarkable progress. It is a measure also of what dogged trade negotiations can achieve, provided both sides are serious. Of course, bilateral trade agreements are much easier than multilateral negotiations. The deal will give a fillip to bilateral trade between two of the fastest-growing parts of the world, which is currently only $35 billion, less than a fifth of that between China, which already has an FTA with the trade group, and Asean. This is expected to go up to $50 billion by 2010 and once talks for trade in services and investment are also concluded by end 2009, it is bound to increase even further.