Against the backdrop of deadlock in the Doha Round, negotiations over the Comprehensive Economic Cooperation Agreement (CECA) with Malaysia mark a next step in India's strategy to pursue bilateralism as part of its efforts to integrate with the global economy. Conceived in 2004, the idea of CECA between India and Malaysia, moved towards reality after the submission of the report of a Joint Study Group (JSG), formed in 2006. The JSG in its report declared that the CECA between both countries was economically feasible and mutually beneficial with the potential of increasing the bilateral trade from US$ 6.6 billion in 2006-07 to US$16 billion in 2012. The CECA comprises the liberalization of trade in goods and services along with the facilitation of the flow of investment.

As a result, negotiations in this regard started in January 2008 and both sides have decided to conclude them by March 2009. However, the experience of India-ASEAN FTA negotiations indicates that the negotiations to implement CECA between India and Malaysia are unlikely to be a cakewalk.

The progress in FTA negotiations between India and ASEAN has been blocked due to a clash of interests over issues between India and Malaysia. It is specifically the Malaysian demand within ASEAN, for a huge tariff reduction in the import duties of palm oil that has made the India-ASEAN FTA a non starter. In ASEAN, Malaysia is the largest exporter of palm oil to India. Therefore, it is quite likely that this issue will be a hindering factor in the way of implementation of CECA negotiations between India and Malaysia.

Palm oil is expected to become a sensitive issue because just before the beginning of negotiations Malaysia had warned India that it seeks a significant cut in the tariffs. The tariff rate on palm oil is important for Malaysia because it comprises one-fourth of Malaysia's total export to India. India also can not overlook the issue because of the sensitivities of coconut growing farmers of South Indian states, especially Kerala.

Therefore, how smoothly the negotiation will move depend on how flexible both countries would be over the issue of tariff reduction on palm oil. Given the criticality to both parties of this issue, a deadlock in the negotiation is anticipated. While India has recently, as a temporary measure, drastically reduced the import duties on the palm oil, due to its increasing price in the domestic markets, the new import duties are well below what is demanded by Malaysia. It is quite unlikely that India will accept the Malaysian demand of tariff reduction on palm oil as an obligatory provision of CECA.

However, on the investment front the implementation of FTA would be a win-win situation for the both parties. While at present, bilateral investment is limited, Malaysia is the 16th largest investor in India and India is ranked as the 31st biggest investor in Malaysia. Since 1991, total investment from Malaysia to India has been US$135.8 million but the total investment from India to Malaysia is just US$ 9.9 million or 0.06 per cent of total investment in Malaysia.

India's low investment in Malaysia is a result of its a few bad experiences in dealing with Malaysia such as the falling through of a deal between the Indian Oil Corporation (IOC) and Petronas of Malaysia, and of a joint venture between Indian Antrix and Malaysian Maxstar and, in 2003, the Malaysian government's refusal to award a railway track-building contract of US$3.4 billion to the Indian Railway Construction Company (IRCON) despite issuing a letter of intent.

While, Malaysia has reissued the contract to IRCON, the CECA offers additional opportunity for exploiting the existing complementary mutual investment synergies such as in the field of infrastructure development in India and in the field of high knowledge-based industries in Malaysia.

In the service sector, too, there is ample scope for harnessing the available complementarities for both sides' services providers. Malaysia can be used as a doorway to the ASEAN market by the Indian service industry - the JSG has identified all forms of modern-day tourism, ICT services, financial services, consultancy service and education as areas of mutual interest.

However, to facilitate greater cooperation in the service sector, a provision regarding mutual recognition of professionals should also be taken into account as a priority. In addition, given the huge numbers of the Indian workforce in Malaysia it becomes necessary to address issue regarding their welfare. Thus, an agreement to organize cooperation in labour-related issues is also needed. It could either be discussed as a part of CECA or separately.

The bottom-line is that though the JSG has given the green signal for the negotiations on CECA, there are some issues in the agenda of the discussions that can complicate implementation. To overcome this situation is likely to be difficult as happened in the case of the India-ASEAN FTA negotiations, unless both sides stop viewing the issues through the lenses of a narrow zero-sum game rather than as the building block of a long-term economic opportunity.