The government is set to change the guidelines for determining the negative list of items while negotiating free trade agreements. The exercise will be followed by negotiations for FTAs with China, Japan and South Korea.

The negative list of items are those on which no tariff concessions are given under the bilateral agreements. These will now be linked to the tariff structure instead of export volumes.

Senior government officials told Business Standard that Commerce and Industry Minister Kamal Nath had also proposed that all future bilateral trade agreements would be negotiated as Comprehensive Economic Cooperation Agreements, a step beyond an FTA.

The officials said the decision was taken after it was found that certain segments of domestic industry were misusing the duty-free access provided under FTAs to take advantage of the differential duty structure and bring in cheap imports.

For instance, under the FTA with Sri Lanka, India had finalised the negative list on the basis of volume of imports. Vanaspati, which was not among the items imported from Sri Lanka, was thus not considered as a sensitive item.

"It has now been found that domestic manufacturers of vanaspati have set up base in Sri Lanka and are exporting the item duty free from there into India, resulting in a surge of imports from the country," the officials said.They pointed out that there was a substantial difference in the import duty on crude palm oil in India and Sri Lanka.

This resulted in more palm oil being imported to Sri Lanka from Southeast Asia. This was being used to manufacture vanaspati in Sri Lanka and exporting it into India.

Further, by making vanaspati from palm oil these manufacturers are fulfilling the criteria of transformation at the four-digit level. Thus, they were not legally violating the norms of the treaty, the officials said.

"Having learnt from our earlier FTAs with various countries, we will now look at all those items on which we have a higher tariff vis-à-vis other countries. The higher tariffs are being maintained to protect our domestic sector from imports. Hence, this will be our principle for sensitive items," an official said.

India already has an FTA with Sri Lanka and has operationalised the early harvest scheme under the FTA with Thailand. It is negotiating Economic Cooperation Agreements with Singapore, the Association of Southeast Asian Nations and a preferential trade agreement with Mercosur.

A bilateral trade pact with the Gulf Co-ordination Council is also in the offing and preliminary work for similar deals with China has also commenced.

Prime Minister Manmohan Singh had recently convened a meeting on the issue of rules of origin with regard to the Asean, at which the issue of taking a fresh look at tariffs was discussed.

Trade guidelines

The negative list of items are those on which no tariff concessions are given under bilateral agreements

The list serves to protect the domestic sector from imports