Free Trade Agreements (FTAs) offer Small and Medium Enterprises (SMEs) an opportunity to deeply integrate with the global supply chain, Amitendu Palit, Head (Development and Programmes), Institute of South Asian Studies, National University of Singapore, said on Friday.

In his key-note address at a seminar on ‘Leveraging Free Trade Agreements,' organised by the TANSTIA FNF (Friedrich Naumann Stiftung) Service Centre (TFSC), Mr. Palit said SMEs had to realise that the access to global marketplace need not always be in the finished goods sector to be fruitful.

Pointing out that while the India-ASEAN FTA provided Indian SMEs access to the Eastern markets and other FTAs were in the pipeline with Japan, Malaysia and Indonesia, Mr. Palit said there was immense scope for leveraging FTAs to engage with regional value chains.

Citing the example of a famous jeans brand, Mr. Palit pointed out that tracing the source of origin of a product was becoming complex as intermediate stages were carried out in different countries and there was no reason why Indian SMEs could not integrate with the value chain of such enterprises. “It will be erroneous to focus on the final products. It is also always better to tap deeper into carefully selected markets than to spread resources thin across a number of markets,” he said.

Stressing the importance of quality upgradation, Mr. Palit pointed out that rather than scaling up technological and marketing capabilities by directly dealing with consumers in global markets, a better route would be to access the global marketplace through regional production networks.

Rajeev Ranjan, Principal Secretary, Industries, said the growth of regional trade blocs in the international arena was an important development in the context of multilateral systems floundering. The infructuous Doha round of the World Trade Organisation had led to a stridency in regional integration through FTAs.

The important issues for India are assessing the impact of an FTA on the small players and the potential for raising the proportion of trade in the GDP, Mr. Ranjan said. The strategic requirements of FTAs was to maintain consistency of negative lists, or the list of sensitive lists of goods and services, spell out a framework of rules of origin of products, reduce transaction costs between countries and to provide a dispute redress forum.

“It is vital to be forewarned and forearmed while negotiating FTAs,” Mr. Ranjan said.

He also stressed the importance of working to implement SME schemes to ensure benefits reached target segments. In spite of having in place a policy framework, benefits were not flowing to the SMEs as unhindered as desired, he said.

D. Sabitha, COO, TFSC, said the FTA was a flexible and not a fixed agreement and local interests could be protected by excluding product categories that could be hit by the trade agreement with another country.

K. Gopalakrishnan, TANSTIA general secretary, said the growth of SMEs was hampered by credit delivery constraints. The reluctance of banks to advance credit to enterprises fearing a bad debt situation was nullifying the benefits of various schemes to promote the sector, he said.

T.S. Dhanapalan, TFSC chairman and Prasad Madhavan, Director participated.