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India and Singapore to ink trade pact soon

Published by The Straits Times, Singapore on 2004-09-06

NEW DELHI - Mr Kamal Nath, India's exuberant Minister of Commerce and Industry, freely concedes that he's always enjoyed being a global traveler. In his 24 years in the Lok Sabha, the 545-member Lower House of Parliament - which include his dozen or so years as a Cabinet minister in various administrations - the 52-year-old Mr Nath has frequently served as an emissary for his nation, negotiating everything from complex environmental treaties to trade pacts.

He lands in Singapore Tuesday morning for what Mr Nath calls "one of the most significant missions I have ever undertaken." It involves expediting the long pending Comprehensive Economic Cooperation Agreement between India and Singapore. Mr Nath promised in a conversation with The Straits Times on Friday that CECA would be "completed and ready to be signed by or before October 15."

In view of several unresolved issues such as "Rules of Origin" - which determine the percentage of local value addition that entitle exports from originating countries to concessional tariffs in the importing country - isn't the commitment a tad ambitious?

"Not at all," Mr Nath said. "With increasingly warm relations between the peoples of India and Singapore, it's about time that we also engage with each other in real economic terms. That vehicle for engagement will be CECA. Prime Minister Manmohan Singh has assured Singapore that we will conclude CECA expeditiously. I'm totally committed to that. That's why I'm visiting Singapore. This is to signal the importance that India is attaching to the trade agreement."

His visit will actually be in two segments. The Saturday stay will be very brief because Mr Nath leaves in the afternoon for Jakarta to attend an energy and economic conference. He returns to Singapore on Tuesday, and will then stay for three days.

"We are in the last lap of CECA negotiations now," Mr Nath said, adding that in addition to Mr Lim Hng Kiang, the new Minister of Trade and Industry, he expects to meet with Mr Lim's predecessor and current Foreign Minister, Brigadier General George Yeo. Indian officials have reportedly been informed that a meeting with Prime Minister Lee Hsien Loong may also be arranged.

"India has become a human resource and services outsourcing hub for the world," Mr Nath said. "We want to enhance our competitive advantage in this, and build it up as a brand. We want to make 'Served From India' an internationally recognized mark of quality service.

And that means what?

"That means India wants to accelerate its economic engagement with South-east Asia, and with Singapore in particular," Mr Nath responded. "Our strong feeling is that this combined engagement will result in a new economic powerhouse for Asia."

With US$1.27 billion already invested in Indian telecom companies and port and other projects, Singapore is Asia's biggest investor in India, and the third biggest overall after the United States and Mauritius. Former Prime Minister - and now Senior Minister - Goh Chok Tong recently brought good news for Prime Minister Singh: Singapore, he said, would most likely double its investment in forthcoming months. Mr Nath is expected to meet with potential investors during his visit.

There is also the likelihood that Singaporean investors will acquire more stakes in India's securities market, which currently is valued at US$330 billion, almost half of the country's gross domestic product. Singapore is also India's largest trading partner among the countries of Asean. India, however is Singapore's 15th biggest trading partner.

Under the India-Singapore Comprehensive Economic Cooperation Agreement, each nation will make several concessions and accommodations to the other in the expectation of increasing bilateral trade, which has increased since 1999 from US$3.23 billion to US$4.64 billion last year. But the trade balance is in Singapore's favour: in 2003, Singapore exported computer parts and other goods totalling US$3.16 billion to India, while importing rice, sugar, crude petroleum and silk fabrics worth US$1.48 billion.

Singapore wants large Indian companies to establish offices on the island and trade shares on the Singapore exchange. It also wants Indian researchers to patent their products and inventions there and sees opportunities for tourism to India; fewer than 50,000 Singaporeans visit India annually, while some 500,000 Indians go each year to Singapore, where about eight percent of the country's population of 4.5 million is ethnic Indian, primarily from South India.

Beyond the question of Rules of Origin, the CECA faces other hurdles. One concerns the opening of economies to free trade, which has been mandated by the World Trade Organisation, to which both India and Singapore belong.

If the WTO's Doha Round proceeds in December 2005 as planned, the world economy would eventually add more than US$500 billion annually to the current US$10 trillion of annual global trade, and developing nations would earn more than US$300 billion each year in new income, according to a World Bank study.

Another hurdle concerns tariffs. Singapore imposes no tariffs on most imports, while India - despite the economic liberalisation of recent years - still has among the highest tariff regimes in the world.

And still another hurdle concerns the proposed integration of the capital markets of Singapore and India. The Indian rupee - whose exchange rate to the US dollar is currently Rs 44 - is nonconvertible. But India's central bank, the Reserve Bank of India, has expressed reservations that the rupee is not yet "mature to face full convertibility." India's capital markets may face greater volatility if foreign speculators trade in rupees, according to Reserve Bank officials.

One major question regarding CECA has already been resolved before Mr Nath arrives in Singapore today. His colleague, Civil Aviation Minister Praful Patel, has said that all of India's major airports would be open to Singapore carriers.

Both Mr Nath and his boss, Prime Minister Singh, say they want India to be a co-equal trading partner with its neighbours, and not a first among equals. They privately say that India has been consistently trying to shed its image of "big daddy" in South-east Asia.

Mr Nath said. "I understand the importance of personal relationships in the pursuit of policy making. At the end of the day, you've got to make your economic partners your allies as well. I'm not going to Singapore just to negotiate - my bureaucrats can do that quite competently. I'm going to build and strengthen relationships. In a world of growing globalisation, political and economic relationships will shape our collective progress. And in this case, India sees Singapore as a natural ally, as a gateway to the wider world."

"Besides," the minister added, "it's a terrific place to visit."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist


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