India and GCC resume talks about a bilateral trade deal

Ministers will meet in Riyadh within two months for a second round of talks on a free trade agreement.

Ministers from India and the six-nation GCC will meet in Riyadh within two months for a second round of talks on a free trade agreement (FTA). Trade talks between the two have been stalled ever since the first round was held in March 2006, despite initial hopes of a deal by the end of last year. Bharathi Sihag, joint secretary at the ministry of commerce of India, said the date had almost been set: "We will be meeting very soon, next month or October."

She said her officials were now setting the final dates with representatives of the six Gulf countries. The GCC is India's second-largest trading partner after the US, with bilateral trade rising more than six-fold from US$5.55 billion (Dh20bn) in 2001 to $35bn in the last financial year. India is the world's fifth-largest consumer of oil, while Gulf countries import India's food and manufactured goods.

Ms Sihag said the deal was unlikely to be agreed before next year's GCC-India Industrial Conference, which was expected to be held in Saudi Arabia. "We are early in the talks," she said. "It's still the second round. Before the momentum builds up and we begin to exchange lists, it will take a couple of more rounds." The resumption of GCC-India talks follows closely after the collapse of the Doha round global free trade talks in Geneva at the end of last month.

Moves towards the GCC-India free trade deal began with the Framework Agreement on Economic Co-operation the two signed in August 2004, six months after the first GCC-India Industrial Conference was held in Mumbai. Kamal Nath, the minister of commerce and industry, said during a visit to Dubai in April the amount of work going into the Doha talks had slowed progress on the GCC-India deal. The collapse of the Doha negotiating round, while not necessarily final, is expected to give renewed impetus to bilateral trade deals.

Dan Ikenson, associate director of Cato Institute's Center for Trade Policy Studies, said: "In the wake of Doha, countries are asking, 'What next?' Bilaterals seem to be the only game in town." He said the growth in bilaterals showed the US policy of "competitive liberalisation", giving impetus to the Doha talks by simultaneously seeking bilateral deals, had backfired. "It didn't have the intended effect," he said. "Other World Trade Organisation members said, 'We can play this game, too.' So, off went Japan and China and Thailand and Australia, and now Europe and India, pursuing their own bilaterals."

The GCC also held talks on a bilateral deal with the Europe Free Trade Association (EFTA) this summer, although the deal has yet to be signed. It is also holding talks with South Korea, Canada and Mexico. India has signed bilateral trade deals with Sri Lanka, Thailand and Indonesia, is close to signing a deal with the Association of Southeast Asian Nations, and has begun talks with the Europe, Brazil, South Korea, China, Australia and Japan.

Ms Sihag last week met representatives from India's mostly state-controlled oil refining and chemical sector to gauge their views ahead of next month's talks. It was opposition from these sectors that proved a major hurdle in the last GCC-India bilateral talks, as they demanded some protective tariffs to be maintained, fearing a free trade deal would expose them to cheap imports from the Gulf's growing refining and petrochemicals sector.

"In India, the petrochemical and plastics industry has made huge investments and the industry has a very, very strong lobby," said Dr Rajesh Mehta, a senior fellow at New Delhi-based research institute Research and Information Systems and an adviser on trade talks to the Indian government. "The few companies that control it joined hands to oppose the GCC deal." India also depended on the revenue import taxes brought, he said.

"The major import of India is petroleum, and the duty on it provides a huge share of India's customs revenue. Bringing it to zero is very difficult and government is in a fix about what to do. It's basically down to the political will of the government." Still, some kind of a deal with the GCC was imperative, he said. "We have to give importance to the GCC because oil is the main thing that India needs and our exports have also been growing rapidly. India is an emerging market and the GCC can bring a lot of investment to India."

He added that a trade agreement would be concluded sooner rather than later. "It will not go on for 20 years like the GCC-EU negotiations. It will maybe take two years or something like that." Meanwhile, the impasse between India and the US on farm import rules was widely blamed for the failure of the Doha talks, with India insisting on its right to protect its farmers from market fluctuations by imposing temporary protective tariffs.

Devinder Sharma, president of India's Forum for Biotechnology and Food Security, who had campaigned against freeing up food imports into India, said bilateral deals risked opening up borders even more fully than the Doha negotiations. "I see that the free trade agreements that have been signed are actually going to be more damaging than Doha, because it's WTO-plus. They are more aggressive than what is in the WTO."

But he said the absence of a significant GCC agricultural sector made a GCC-India deal less threatening. "With the Middle East, we don't have any problem with agriculture. The only sector would be poultry and possibly the meat sector. The Middle East would like to take advantage of India's cheaper agriculture, so that may be one positive thing." Arun Patankar, chief adviser on GCC countries for the Confederation of Indian Industry, agreed there was not much disagreement. "There's no question of one party saying 'yes' and another party saying 'no'. Both countries want to go ahead with it."

@email:[e-mail]