The government is in a fix over a proposal from Mercosur, a trading bloc comprising Brazil, Argentina, Paraguay and Uruguay, seeking duty reductions on nearly 450 agricultural products in a list of 1,500 items submitted during negotiations for a preferential trade agreement.

While India has resisted any move on tariff reduction on agricultural products because of the sensitivities involved, the proposal from Mercosur may not be easy to turn down since Brazil and Argentina are key members of the G 20 alliance of developing countries. The G 20 adopts a common stand in multilateral trade negotiations.

Over the last few months, India and Brazil have been working overtime to strengthen economic, defence and cultural ties. As part of the tariff negotiations for the PTA, India and Mercosur have submitted a list of around 1,500 items each, on which they want a lower duty access.

A framework agreement was signed in January this year and negotiations are scheduled to be completed by June. Trade between India and Mercosur was estimated at $2.5 billion in 2002-03, of which India's exports were estimated at around $1.5 billion.

The pharmaceutical sector tops the list of items exported from India. India's list includes products such as auto parts, chemicals, pharmaceuticals, textiles products, engineering goods and handicrafts.

On the other hand, besides farm products, Mercosur's list includes products such as auto parts, pharmaceuticals, aircraft and aircraft spares and forest products like wood and wooden boards.

Indian officials said there was no decision on tariff reduction, and the commerce ministry would shortly begin the process of consultations with industry chambers and ministries and departments concerned.

Agriculture ministry officials, however, maintained that India was not prepared to reduce tariffs on farm and dairy products since the interests of farmers could be at stake.

Some sections within the government were, however, of the opinion that farm exports from Mercosur countries might not be able to compete, given the high transportation costs involved.

Negotiations on other aspects of the PTA like rules of origin are at an advanced stage. India is seeking a set of common rules of origin for countries, with which it is signing trade agreements.