Clouds over India-Singapore
accord By Indrajit Basu
KOLKATA - Singapore's official interest in India
began in 1994 when Prime Minister Goh Chok Tong, on his
first visit to India, declared that he wanted to ignite
"India fever" in Singapore's business world. The fever
spread over the years, with Goh, a self-confessed
"Indophile", concluding his fifth visit last Sunday, and
perhaps his last prime ministerial one before his
deputy, Lee Hsien Loong, takes over in few months.
But now it looks as if the fever is about
develop into a case of pneumonia.
Signs from
Udyog Bhavan in Delhi, the seat of India's Commerce and
Industry Ministry, suggest that the state-of-the-art
free-trade agreement (FTA) with India that goes by the
provocative name of the Comprehensive Economic
Cooperation Agreement (CECA) may not see the light of
day any time soon under the recently elected Congress
party-led United Progressive Alliance government.
Already the finalization of CECA has been pushed back
twice this year, "and if it happens at all, the country
will enter into an agreement with a considerably
hardened stand; that's the feelers we are getting from
the new regime", say officials from Udyog Bhavan.
In fact, the much-hyped CECA, which forced trade
negotiators on both sides to meet as many as four times
last year under the previous Atal Bihari Vajpayee-led
National Democratic Alliance government, had almost gone
into cold storage after the new government came to
power. By new Industry Minister Kamal Nath's own
admission, "If Prime Minister Goh hadn't visited India,
I wouldn't have opened the CECA document at all. But
since he came I had to find out what it is all about."
But according to Prime Minister Manmohan Singh,
who has to depend significantly on his left-wing allies
to muster support for his right-wing Congress-led
government, even before he goes ahead with the FTA any
further, he will have to persuade government allies and
perhaps alter the Common Minimum Program, the new
government's political and economic doctrine, which is
silent on FTAs.
It isn't just the CECA. Ministry
officials say 10 FTA pacts signed under the previous
government are under close scrutiny. But of all the
regional and bilateral FTAs in the pipeline, CECA has
caused the greatest stir, primarily because it wants to
realign tariff rates between the two countries -
Singapore has zero tariffs, which is a knotty issue for
India since it has one of the highest tariff regimes in
the world - while covering trade in a wide range of
products and services.
"There are concerns from
various quarters on the issue [CECA] and we want those
to be addressed first," Nath said after Goh's departure.
"We have to be careful ... otherwise in six months or
one year, the agreement could run into trouble."
The main concern from India's side seems to be
the rules-of-origin factor, which determines the
percentage of value addition that will entitle exports
from the original country - in this case Singapore - to
discounted tariffs in the importing country, India. CECA
requests that India eliminate import duties on about
2,400 products on a fast-track basis, which include a
whole range of farm-related products, engineering
imports, scrap, chemicals, insecticides, fungicides,
pharmaceuticals and the like.
The fear is that
about 4,000 multinational companies that operate out of
Singapore could use CECA as a conduit to swamp the
Indian market with their products at lower tariffs. Goh,
however, assures "that isn't possible because
Singapore's rules of origin will disqualify any exports
if 30-40% of value is not added in Singapore." But
cynics such as foreign-trade expert Vijay Katti say
"since many of the requested products are not known to
be manufactured in Singapore, many are bound to get a
free ride".
The other perceived thorns in CECA
are the question of opening up all major airports to
Singaporean carriers, which is the biggest sore point of
the new government's leftist allies, and giving
multinationals based in Singapore the same treatment as
local firms from that country.
Still, even as
some Singaporean businessmen (of Indian origin) allege
that Goh's "India fever" never really caught on and
actually ran cold, Goh can bask in some reassuring
achievements as he hands over power. Goh stirred
Singaporeans to take an interest in India when it was
gingerly embracing economic reforms in the early 1990s,
against warnings of some of Goh's fellow leaders in the
Association of Southeast Asian Nations. They warned Goh
that he would regret the decision to turn to India to
promote a whole new concept in regional economic
integration.
What makes Goh's achievements even
more commendable is that he restored the India-Singapore
cord that was broken in the 1970s because of the
"ideological and myopic" policies of successive Indian
governments. When Goh unveiled his plans to bring India
to Singapore, Singapore's investment in India was next
to nothing. By 2002, Singapore ranked eighth among
foreign investors in India. It is now the third-largest
foreign direct investor in India. Mauritius commands
second place, but Goh says that often there are aspects
of investment from Mauritius that are conveniently
overlooked and questions not asked about the source of
funds from this offshore center. So, as far as genuine
foreign direct investment in India is concerned, Goh
feels Singapore can claim second place, behind only the
United States.
For 2003, total foreign direct
investment from Singapore into India was US$48 million.
In the first four months of 2004, this figure was
already $42 million, making Singapore the third-largest
FDI investor in India, after the US and Mauritius.
Goh admitted that under the current
circumstances, "FTAs don't make good politics" for
India, although, for a country that "can hope to join
East Asia as a middle-income country, FTAs are the right
thing to do". This is why he is patient and prefers to
gently nudge India instead of putting on the pressure.
"We have to learn how India operates. The first lesson
is you must have patience; to understand how the Indian
partner works with you, patience to understand how to
navigate the rules of the state and federal government,"
he said.
But for India, time may be running out.
Indeed the country has to move fast if it wants to cash
in on Goh's efforts, because if it doesn't, the next
prime minister, who "knows China very well", may just
shift Goh's bets toward Beijing instead.
According to Goh, when Singapore proposed the
FTA last year, it created a $100 million fund for India.
"The target is to raise that fund to $500 million after
the FTA is signed and to $1 billion over time." But if
the FTA is not signed, clearly this increase will not
happen, and perhaps also investments from the $100
million fund will be curtailed.
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