Union Commerce Secretary Rahul Khullar said on Monday that the Indo-European Union Free Trade Agreement is “likely to be concluded by the end of the summer, after another round of talks in May.”

Speaking after inaugurating the new premises of the office of the Commissioner for Special Economic Zones (SEZ) and Export Oriented Units in Bangalore, Dr. Khullar said, “The FTA is not confined to merely trade in goods, but would encompass services, investment, Sanitary and Phytosanitary (SPS) measures, Technical Barriers to Trade (TBT), public procurement and a gamut of issues.”

Asked whether the imposition of Minimum Alternate Tax (MAT) on units operating out of SEZs would adversely affect them, Dr. Khullar said prospective units might be deterred from remaining within SEZs because the tax differential between units within and outside SEZs may be more than compensated by the fact that those located outside SEZs have the flexibility of selling within the domestic tariff area. “Those who are focussed mainly on the export market may still find it profitable to remain within SEZs,” he said.

Dr. Khullar pointed out that the Direct Taxes Code (DTC), which is under consideration, might further skew the pitch against the SEZs. “The move will definitely dampen enthusiasm of companies to move into SEZs,” he said. Asked if interest in SEZs is already dwindling, he said, “Nobody would want to take a decision until they know what the DTC will look like.”

The Commerce Secretary said the policy on manufacturing was “in the last stages of finalisation and would be ready in about a month.”

Asked if the SEZ policy is likely to undergo changes, Dr. Khullar said, “The economic landscape has changed dramatically since 2005, when the SEZ Act was passed by Parliament.” He said the political climate with reference to SEZs had also changed significantly. “When the SEZ Act was passed, the issue of land was not such an emotive issue, as it is today,” he said. “Access to land, ownership rights and rehabilitation have all become major issues now,” he added. “The new thinking,” he said, was evident in the draft legislation on mining, which seeks to vest forest dwellers with rights as stakeholders.

“The provisions of the existing law may need to be redesigned,” Dr. Khullar said. The “preponderance of SEZs, especially IT SEZs around urban sprawls also needs to change.”

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