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RSTV: THE BIG PICTURE- INDIA- ASEAN FTA

RSTV: THE BIG PICTURE- INDIA- ASEAN FTA

Introduction:

            India and the 10-member ASEAN have agreed to initiate a review of the bilateral free trade agreement (FTA) in goods to make it “more user-friendly, simple and trade facilitative”. India is not happy about the fact that its trade deficit with ASEAN has widened significantly since the pact was implemented in January 2010. A NITI Aayog study reveals that India’s trade deficit with ASEAN doubled to $10 billion in 2017 from $5 billion in 2011. A review of the India-ASEAN FTA could help improve utilisation in India by making the pact simpler and more user-friendly. In the joint statement, the Ministers welcomed the recommendations of the ASEAN-India Business Council to further promote the potential of bilateral trade through the utilisation of the ASEAN-India FTA as well as cooperation in some areas of mutual interest, such as financial technology, connectivity, start-ups and innovation, empowerment of youth, and women and MSME development.

 

ASEAN–India Free Trade Agreement:

  • The ASEAN–India Free Trade Area (AIFTA) is a free trade area among the ten member states of the Association of Southeast Asian Nations (ASEAN) and India.
  • The initial framework agreement was signed on 8 October 2003 in Bali, Indonesia and the final agreement was on 13 August 2009
  • .The free trade area came into effect on 1 January 2010.
  • India hosted the latest ASEAN-India Commemorative Summit in New Delhi on 26 January 2018.
  • In the financial year 2017-18, Indo-ASEAN bilateral trade grew by almost 14% to reach US$81.3 billion. India’s imports from ASEAN were valued at US$47.13 billion while its exports to ASEAN stood at US$34.2 billion.
  • The ASEAN–India Free Area emerged from a mutual interest of both parties to expand their economic ties in the Asia-Pacific region. India’s Look East policy was reciprocated by similar interests of many ASEAN countries to expand their interactions westward.

 

The Association of Southeast Asian Nations (Asean) has agreed to India’s long-pending demand to review the free trade agreement (FTA) between the two sides.

The exercise could help address India’s concerns that it has not benefitted from the agreement and its goods trade deficit with the 10-member grouping has widened. The trade gap was $22 billion in FY19, up from $13 billion in FY18.

Need for review:

  • While there are many benefits to the ASEAN-India FTA, there is concern in India that the agreement will have several negative impacts on the economy.
  • As previously stated, the two regions aim to reduce their tariffs on a majority of their traded goods. This will allow them to increase the market access of their products. It is criticised, however, that India will not experience as great an increase in market access to ASEAN countries as ASEAN will in India
  • India is not happy about the fact that its trade deficit with ASEAN has widened significantly since the pact was implemented.
  • A NITI Aayog study reveals that India’s trade deficit with ASEAN doubled to $10 billion in 2017 from $5 billion in 2011.
  • One of the reasons for the growing deficit is the low utilisation of the FTA route by Indian exporters to ASEAN countries because of difficulties faced in negotiating the rules.
  • A review of the India-ASEAN FTA could help improve utilisation in India by making the pact simpler and more user-friendly.

 

UNEQUAL BENEFIT

  • Policymakers hold the view that FTAs have adversely impacted India’s manufacturing, which the government is trying to boost through its Make in India initiative in order to generate jobs.
  • The finance ministry has begun a review of India’s FTA framework to assess the impact of such pacts on the overall economy.

 

Non-adherence to Origin Norms

  • The country’s premier think tank Niti Aayog has said that India’s quality of trade has not improved after the FTA.
  • There is no exit or review clause
  • It said that liberalisation under the India-Asean FTA covers 75% of the two-way trade. India kept around 10% of tariff lines in exclusion.
  • Strict regulatory measures
  • These included motor vehicles, textiles, petroleum products, sugar, wheat, vegetable oil dairy products and other food products.
  • However, Thailand, Philippines, Myanmar, Brunei and Vietnam kept a higher number of tariff lines under exclusion.
  • The two sides have agreed to open their respective markets by progressively reducing and eliminating duties on 76.4% coverage of goods.
  • Moreover, the surge in goods imports into India is accentuated by instances of non-adherence to origin norms and lack of full cooperation in investigating and addressing such breaches.
  • In contrast, the utilisation of preferential tariffs by India under the India-Asean FTA is below 30% because of standards, regulatory measures and other non-tariff barriers in the region.
  • Ships, boats, floating structures, mineral fuels, mineral oils and meat are India’s largest exports to the grouping while telecom equipment, electrical machinery, mineral fuels, mineral oils and animal or vegetable fats and oils are the biggest imports.
  • The review will help bring back manufacturing and it will also go a long way towards Make in India, helping our agriculture and bring more manufacturing and jobs to India

 

Way Forward:

  • Indian business should realise the multifold market size that it will be able to tap by investing in this region.
  • Need for maritime cooperation and centrality of trade for the prosperity of the strategic IndoPacific region.
  • Simplifying agreement.
  • India must speed up work on connectivity projects, such as the India-Myanmar-Thailand trilateral highway, and building new trade and transport linkages with all the ASEAN Nations.
  • Stronger strategic and security relations with equally strong economic ties will create greater interdependence between India and the ASEAN members.
  • There are tremendous opportunities in enhancing physical and digital connectivity between India and ASEAN.
  • There is still much room to expand air links to support growing business and tourism.
  • A robust maritime connectivity between India and ASEAN is crucial for realization of the full potential of the India ASEAN trade.
  • An alternative, economic corridor based multimodal connectivity such as Mekong-India Economic Corridor may be promoted, which will connect Indian coast with unexplored Southeast Asian coast and beyond.
  • Enhanced maritime connectivity would provide lower logistic costs, and motivate increased trade in goods and services.

 

Conclusion:

  • India’s geostrategic interests in the Indo-Pacific region depend on India’s bilateral and multilateral engagements with the countries in the region.
  • Maintaining cordiality with ASEAN as an organisation and with the individual Southeast Asian countries remains crucial for India.
  • India’s ‘Look East’ (later rechristened ‘Act East’) narrative of more than 25 years deserves more results. Improving economic relations with its close neighbours will spell the success or failure of such policy.
  • It is important for India to analyse its ASEAN strategy more closely, as it has the potential to result in significant benefits in many fronts — economic, political and geostrategic.

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