TRADING on FTAs

But free trade is becoming a reality of life. India has already signed FTAs with Saarc, Singapore and Thailand and is planning similar pacts with Asean, South Korea, Gulf Cooperation Council (GCC) and even China. Besides, with World Trade Organisation talks to reduce import duties currently on, the day is not far when import duties will come down—irrespective of an FTA being in place or not.

Indian corporates—which have twin strategy of lobbying with the government against FTAs and quickly getting competitive—are complaining that by opening up domestic markets, new jobs will be created abroad instead of the country benefiting. ‘‘Indian companies are at their best,’’ says economist Dr Siddharta Roy. ‘‘They are already cutting costs to take on the competition arising out of the FTAs.’’

Lobby power

Many companies, from steel, aluminium, fertiliser and petroleum products, have asked for protection by way of increased import duties, which the government is not in a mood to oblige. While steel companies are lobbying with the government to increase import duties, the textile industry was up in arms when a similar FTA was suggested with China.

‘‘It is quite obvious that low-grade steel could be exported from these countries which can ruin our markets,’’ said an official with an Indian steel giant. The industry offers a 3-pronged solution: There should be reciprocal market access, value additions should be at least 40 per cent at the country of origin for imports and all steel products must attract same duties for both exports and imports.

‘‘We should not let our country become a dumping ground,’’ says a steel industry CEO wishing not to be quoted. It is quite natural, say corporate leaders, that companies will ask for protection when they are on the higher side of an investment cycle. The petrochemical industry was alarmed when the government started talking about an FTA with the Gulf countries where most of its competitors are based. With GCC agreement expected by early 2007, petrochem companies have something to worry about.

Battle ready

While corporates are trying their best to lobby with the government to increase import duties and delay the FTAs, it is getting ready for the competition in its own way. Reliance Industries, which is one of world’s biggest players in petrochemicals and oil and gas industry, is taking periodic steps to remain ahead of the competition curve.

‘‘Reliance understood quite early that the trade barriers will come down eventually and it started taking steps like cutting costs and absorbing latest technology on a year-a-year basis to retain its competitive advantage,’’ says a director on the Reliance board. ‘‘Today, it is one of the low-cost producers in the world.’’

On the other hand, while global consumer goods giants Sony closed down its plant in India due to a FTA with Thailand where it had a plant, Videocon realised that competition is here to stay. Its top officials say even a 10 per cent import duties on finished products from abroad will give it a competitive advantage.

Take, for example, the automobile industry—especially two-wheelers and passenger cars— which has scale, quality and costs on its side. Auto industry leaders say to make FTAs meaningful, duties on auto components and raw materials should come down to 2-5 per cent levels which will facilitate new product introduction. ‘‘With this we can import dies, make the component here and re-export,’’ says a Pune-based component maker.

Manufacturers also want raw material imports to be at zero duty, across all industries which will allow Indian companies to add value and boost growth. The government is clear that the Indian companies must face the competition head on and it has already assured them that it will keep the industry’s concern in mind while negotiating the FTAs. But the message is clear: Gear up for the competition.

–dev.chatterjee@expressindia.com