Video Summary

[RSTV The Big Picture] India-ASEAN FTA

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 ASEAN has widened.
By IT's Video Summary Team
September 16, 2019

Contents

  • Introduction
  • IT’s Input
  • Need to review the FDA pact
  • Problems associated with trade to ASEAN
  • Factors that widen trade deficiency
  • Changes to be expected in FTA
  • Suggestions
  • Way Forward

[RSTV The Big Picture] India-ASEAN FTA

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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’s trade deficit with ASEAN has widened significantly since the pact was implemented in January 2010. A review of the India-ASEAN FTA could help improve utilisation in India by making the pact simpler and more user-friendly.
  • India 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.

IT’s Input

  • The Association of Southeast Asian Nations (ASEAN) is a regional intergovernmental organization comprising ten countries in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration among its members and other countries in Asia.
  • It was established in 1967 in Bangkok, Thailand.
  • Currentl,y there are 10 permanent members and 1 observer member in ASEAN. Its headquarter is in Jakarta (Indonesia).
  • ASEAN Countries ― Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. 1 Observer – Papua New Guinea.
  • SAARC countries­– Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
  • BIMSTEC member states—Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan
  • Regional Comprehensive Economic Partnership (RCEP) is a proposed mega free trade agreement being negotiated among 16 countries including 10-nation ASEAN bloc and its six trading partners — India, China, Japan, South Korea, Australia and New Zealand.

Need to review the FTA pact:

Need to review the FTA pact

India was trying to review the ASEAN FTA due to following reasons:

  • Trade imbalance between India and ASEAN countries and present economic decline in various sectors.
  • Absence of the review or an exit clause in ASEAN FTA, through which India can ask for FTA review formally.
  • NITI Aayog study reveals that India’s trade deficit with ASEAN doubled to $10 billion in 2017 from $5 billion in 2011.
  • India’s negative list is quite short, only about 10% of the total goods and services, whereas some of the ASEAN countries have a much bigger negative list. (A negative or sensitive list includes products which are to be excluded from tariff reduction commitments under an FTA.)

Political aspect for FTA

  • Trade with ASEAN countries is fundamental to India’s overall Act East and Look East policy in terms of overall national interest.
  • For each ASEAN country and India, anything which affect its internal dynamics such as employability, GDP growth etc., which is linked to export growth and regional trade, is of enormous importance.
  • The trade of India with ASEAN is of about 80 plus billion dollars.

Problems associated with trade to ASEAN

  • All the Southeast Asian countries are following export led growth and India’s expanding market is an advantage for them as ASEAN countries can easily import to India, while India faces difficulty in exporting to ASEAN countries.
  • This difficulty resulted in Trade deficit. India’s trade deficit with ASEAN is around 21-22 billion dollar which has grown approx. fifty percent which is really high.
  • India is not able to provide competitive prices at par with some Southeast Asian countries. Imports from ASEAN countries have increased at the rate nearly 14 percent whereas India’s export is increased about only 9-10 percent.
  • Working terrorist camps in some Northeastern part of India might be a challenge for the trade as the route of trade with Southeast Asia is linked by these areas.

Factors that widen trade deficiency

  • Lack of ability to access to markets of Southeast Asian countries because of various regulatory measures or rules of origin requirements and non-tariff barriers. Many of the exporters are not aware of the rules and regulatory mechanisms of these countries.
  • China is an important factor in this concern and it is challenging India’s power not only in the Asian region but everywhere.

Changes to be expected in FTA

  • Simplification of agreement and making it user friendly.
  • Making the complexities of regulatory mechanism and non-tariff barriers more transparent and much easier for Indian exporters.
  • Implementation of connectivity Projects to ASEAN countries through roads and rail. The concentration of this expected change will be more as both ASEAN and India will be benefited.
  • Trying to get market access in ASEAN countries for India’s service professionals which has been previously denied

Suggestions

  • The solution to Barrier free ASEAN FTA lies in greater connectivity and better infrastructure. Easy flow of goods and services can be achieved through road and rail networks connecting north-east India via Myanmar to Bangkok, which in turn also promotes investments.
  • Also, there are some areas of mutual interest such as financial technology, connectivity, start-ups and innovation, empowerment of youth, and women and MSME development which are to be cooperated.
  • Given the low utilization of the FTA route by Indian exporters, there should be Capacity building for Indian exporters to make them more aware about the trade rules exists in ASEAN countries.
  • India has to secure the maritime to trade with Southeast Asian countries. Apart from the trade and services, the agreement could have worked out with areas of education and tourism.
  • Agreements in FTA should be negotiated clause by clause and area by area.
  • There is a good chance for India to make the asymmetric and unequal trade pro-India trade by revising the clause of FTA with ASEAN.
  • India is one of the country bridging SAARC and ASEAN countries. This bridging led to the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Now, countries such as Thailand and Myanmar, through which India can do trade in south east, are also part of BIMSTEC. Hence, India should strengthen its position in South east Asia by strengthening the BIMSTEC region.
  • Currently, India is the only country which has not accepted RCEP agreement. If RCEP comes into force, the member countries will have to offer higher tariff concessions as RCEP and ASEAN FTA overlaps. Hence, India has to be careful while negotiating ASEAN FTA as India might have to renegotiate the ASEAN FTA if RCEP comes into force.

Way Forward

  • There is lot of scope for cooperation between India and ASEAN in cultural ties, tourism, financial, technology, startups and MSMEs. However, there is some uneven relationship between India and ASEAN which India have to address
  • In the wake of US and China trade war, India need to look at the other countries for its export markets and the ASEAN region may be a good choice.
  • With languishing exports and declining industrial sector, India has to compete in the world of export market apart from these regional agreements. Promotion of economic growth, promotion of productivity, competitiveness of industrial sector and agriculture sector will make India a competitive exporter.

 

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