India will move away from a ‘zero-duty’ model in future free trade agreements (FTAs) it negotiates as it is not very comfortable with arrangements where tariffs have to be eliminated.
“We are doing some restructuring on how we negotiate. Territorial Joint Secretaries have been asked to examine how to fast-track potential trade agreements in a manner that India is comfortable with. We are not very comfortable with zero and this is a clear signal we are giving to our trade partners,” a Commerce Ministry official told BusinessLine .
India is examining possible FTAs with a host of countries, including Russia, Canada, Peru, Chile, Iran, New Zealand, Australia and the European Union. “The idea is to either not move to zero duties on any item in such pacts or keep such items to the bare minimum,” the official said.
Where it is a legacy of the past and commitments have been made, it would not be possible to backtrack, the official said.
“We have already agreed to zero duties for a substantial number of items in our FTAs with Japan and Korea and the Asean. In the Regional Comprehensive Economic Partnership (RCEP) structure, too, the architecture is towards zero. So, those are the givens that we can’t do much about,” the official said.
For both Japan and South Korea, tariffs have to be eliminated by India on about 70 per cent of tariff lines over 10 years of implementation. In the RCEP being negotiated, New Delhi has agreed to eliminate duties on more than 40 per cent of items with China — the country Indian industry is most apprehensive about.
The Prime Minister’s Office and the Finance Ministry, too, support the strategy of moving away from zero duties. “The overall thinking in the government is that the FTAs should be structured such that the Indian industry and farmers should not have major issues with it,” the official added.
Low utilisation Interestingly, despite India signing a large number of FTAs with individual countries and groups, industry is yet to utilise them properly. A study carried out by the Commerce Ministry earlier this year showed that Indian exporters preferred the normal route for exports to FTA partner countries, paying higher duties, rather than using the FTA route and paying lower duties as they found procedures difficult to comprehend.
According to estimates, the utilisation rate of India’s FTAs varies between 5 per cent and 25 per cent — which is one of the lowest in Asia.