The Commerce and Industry Minister has called for a renegotiation of the India-ASEAN free trade agreement (FTA).

Why such move?

• The MCI aims to prevent its misuse by ‘third parties’ and remove trade restrictions as well as non-tariff barriers that he said had hurt Indian exports disproportionately since the pact was operationalized in 2010.
• The focus needed to be on new rules to eliminate misuse ‘by third parties outside ASEAN’, the minister said, hinting at China.
• India had to deal with several restrictive barriers on exports in the ASEAN region, particularly in the agriculture and auto sectors.

About ASEAN

• Members:
• Officially the Association of Southeast Asian Nations, ASEAN is an economic union comprising 10 member states in Southeast Asia.
• It promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration between its members and other countries in Asia.

India-ASEAN Free Trade Agreement

• The initial framework agreement for ASEAN–India Free Trade Area (AIFTA) was signed on 8 October 2003 in Bali, Indonesia.
• The FTA came into effect on 1 January 2010.
• The FTA had emerged from a mutual interest of both parties to expand their economic ties in the Asia-Pacific region.

Background of the AIFTA

• India’s Look East policy was reciprocated by similar interests of many ASEAN countries to expand their interactions westward.
• After India became a sectoral dialogue partner of ASEAN in 1992, India saw its trade with ASEAN increase relative to its trade with the rest of the world.
• Between 1993 and 2003, ASEAN-India bilateral trade grew at an annual rate of 11.2%, from US$2.9 billion in 1993 to US$12.1 billion in 2003.
• Total Indian FDI into ASEAN from 2000 to 2008 was US$1.3 billion.

Acknowledging this trend and recognising the economic potential of closer linkages, both sides recognised the opportunities to pave the way for the establishment of an ASEAN–India Free Trade Area (FTA).

Structure of the AIFTA

• The signing of the ASEAN-India Trade in Goods Agreement paves the way for the creation of one of the world’s largest FTAs – a market of almost 1.8 billion people with a combined GDP of US$2.8 trillion.
• It sees tariff liberalisation of over 90 percent of products traded between the two dynamic regions, including the so-called “special products”.
• The products include palm oil (crude and refined), coffee, black tea and pepper.

Criticism

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.

• Opening-up its market: This FTA will allow them to increase the market access of their products.
• No specific gains: It is criticised, however, that India will not experience as great an increase in market access to ASEAN countries as ASEAN will in India.
• Export driven ASEAN: The economies of the ASEAN countries are largely export-driven. Considering India’s expansive domestic market, the ASEAN countries will look eagerly towards India as a home for its exports.
• Huge trade deficit: Since the early 2000s, India has had an increasing trade deficit with ASEAN. It is feared that a gradual liberalisation of tariffs and a rise in imported goods into India will threaten several sectors of the economy.
• Inaccessible Markets: As a dominant exporter of light manufacturing products, ASEAN has competitive tariff rates that make it difficult for India to gain access to the industry market in ASEAN countries.
• Cheaper imports: The state of Kerala is an important exporter in the national export of plantation products. It fears that cheap imports of oil palm, rubber, coffee, and fish would lower domestic production, adversely affecting farmers and ultimately its economy.

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