India has launched a thorough examination of its trade agreement with the Association of Southeast Asian Nations (Asean) to rectify various issues hindering domestic manufacturing. The review aims to address concerns such as the inverted duty structure, which puts local manufacturers at a disadvantage.
The Ministry of Commerce and Industry has reached out to industry stakeholders for input to identify products affected by the inverted duty structure, where taxes on input items exceed those on finished goods. This review, prompted by challenges facing domestic manufacturing, is expected to be completed next year.
Efforts to strengthen local manufacturing include the implementation of production-linked incentive (PLI) schemes, heightened import tariffs, and enhanced import monitoring. However, existing trade agreements pose challenges to these initiatives.
India's trade deficit with Asean has widened significantly, reaching $43.6 billion in FY23 from $25.8 billion in 2021-22 and $5 billion in 2010-11. Concerns have arisen regarding third countries leveraging Asean's duty benefits to route exports, exacerbating the trade deficit.
The review process entails collating data on the inverted duty structure and consulting with industry representatives to address issues related to duty, rules of origin, and non-tariff barriers. Certain products, such as ferro alloys, aluminium, copper pipes and tubes, textile staple fibres, and chemical preparations, are particularly affected by the inverted duty structure.
India's determination to rectify these issues underscores the importance of deeper trade relations with Asean. The trade pact, which came into effect in 2010, aimed to progressively eliminate duties on 75% of goods and reduce tariffs on 15% of goods. However, variations in tariff elimination commitments among Asean member states have led to a diverse duty structure within the agreement.
Experts emphasize the need to address inverted duty structures in free trade agreements, especially when they constitute a significant share of overall imports. With tariffs already at zero for most industrial products under the Asean-India FTA, correcting imbalances has become increasingly challenging.
As India strives to promote domestic manufacturing and address trade imbalances, the ongoing review of the Asean trade pact represents a pivotal step in ensuring fair and mutually beneficial trade relations.
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