Structural Stability of India's Export Demand Function

Sluggish progress in multilateral trade negotiations has provided an impetus to the growth of bilateral trade agreements the world over. The Indo-Thai Free Trade Agreement (FTA), the first phase of which was operational from September 2004, is one such effort that provides access to the manufacturers of both countries to enter into each others' markets beginning with the phased reduction of tariffs on 82 selected items. Since the signing of the agreement, there have been apprehensions from two Indian industries, namely colour TV & picture tube and auto industry in terms of experiencing likely adverse impact. In this paper, the authors first explore the key provisions of Early Harvest Scheme (EHS) of Indo-Thai FTA and its likely impact on Indian colour TV/colour picture tube and auto industry, especially in post September 2006 era, when the tariffs on 82 items would become zero for both sides. While highlighting the likely impact on Indian industries, the authors have compared and analyzed the import performance of items at HS code-6 and 8 digit levels for 2004 and 2005. A detailed analysis of the short and long term impact on the CTV/CPT and auto industries has been carried out by comparing cost structures, advantages and disadvantages. The paper also includes the major disadvantages being faced by the Indian industries vis-a-vis their Thai counterparts. It concludes with suggestions for Indian manufacturers and policy-makers to counter the likely adverse impact.