For a relationship that began only a decade ago, India’s cooperation with the Association of Southeast Asian Nations (ASEAN) has been trotting quite at a fast pace. Relation between India and the ASEAN countries is no longer confined only within the realm of political and security dimensions. Embarking on a three-day visit to the Philippine city of Cebu to attend the 5th ASEAN-India and 2nd East Asia Summits from 13-15 January 2007, Indian Prime Minister Dr. Manmohan Singh said that free trade agreement (FTA) between India and ASEAN is an important initiative to promote a greater economic synergy in the country. The prime minister further reiterated that India’s participation in both the summits is a reflection of the increasing significance of the eastern orientation of India’s foreign policy and the country’s quest for closer engagement with southeast Asian countries.

Accompanied by a high-level delegation including National Security Advisor Mr. MK Narayanan, the Indian Prime Minister attended the 5th ASEAN-India Summit on 14 January 2007. In the summit, India and the ten-nation grouping of southeast Asia agreed to bring down the tariffs on items covered under the negative list to 0-5 percent by 2018. The two sides decided to get to a consensus formula that would speed up the signing of an ASEAN-India FTA by July 2007.

Stumbling Block

Earlier the proposed FTA had stumbled upon an unsettlement between the two sides as the ten-nation grouping urged India to restrict its negative list to just 60 items. India submitted a list of 1,414 items on the negative list, but it has reduced to 460 items, a whopping 67.5 percent reduction. Significance of negative list is that the items mentioned thereon would not be subjected to phased tariff cut under the FTA. In 2005, FTA between the two sides encountered major roadblocks because more than half the exports to India from the five ASEAN countries viz. Indonesia, Malaysia, Myanmar, Thailand, and Vietnam was from agricultural sector. The Indian Ministry of Agriculture strongly objected to the inclusion of farm products, such as pepper, rubber, palm oil, coffee, and tea in the tariff liberalisation programme. While the ministry wanted to include all these items in the negative list, ASEAN members, on the other hand, opposed this measure. ASEAN had a view that if these agricultural items are included in a sensitive list, then single-product-exporting countries, like Malaysia (mainly exports palm oil) and Thailand (mainly exports rice) will fall short of the standard of such trade agreements.

However, as per the agreement reached between India and the ASEAN countries in Cebu, New Delhi may include 490 items including rubber and coconut in the list. On all other goods that make up 95 percent of trade, there would be either elimination or reduction of duties. Minimum cuts would be on four items viz. tea, pepper, and crude and refined palm oils. By 2022, minimum cut on these items would be 50 percent. Officials of the two sides also agreed that trade coverage under the negative list should be on a reciprocal basis.

Other Dialogues

Besides ASEAN-India summit level talks, India held bilateral discussions with several other dialogue partners on the sideline of the summit at Cebu. Prime Minister Dr. Manmohan Singh’s meeting with the Chinese Premier Mr. Wen Jinbao on 14 January 2007 had yielded satisfying results. Leaders of the two countries decided to pursue vigorous dialogues on border issues. According to National Security Advisor Shri MK Narayanan, the meeting with Mr. Wen Jiabao was a logical follow-up of President Hu Jintao’s visit to India. Shri Narayanan further said that both the sides urged Sino-Indian special representatives to expedite the border talks, so that there should be no irritant in the bilateral relation between the two countries. Other eminent leaders whom the Indian Prime Minster met during the sideline meeting include President Gloria Macapagal of the Philippines and Malaysian Prime Minister Mr. Abdullah Badawi.

India’s bilateral trade with ASEAN has more than doubled in the past three years—having increased to US$21 billion in 2005-06 from US$9.7 billion in 2002-03—after the framework agreement on a Comprehensive Economic Cooperation Agreement (CECA) signed in the 2nd ASEAN-India Summit at Bali in 2003. With an agreement concerning rules of origin of products and that on the negative list, further talks between the two sides will resolve mainly around the modalities for tariff reduction and eliminations. Negotiators from India and ASEAN are expected to resolve the outstanding issues by July 2007.

Deadline 2018

Though India proposed to bring down the tariffs on items covered in negative list to 5 percent by 2015, ASEAN counterparts were reluctant to any deadline earlier than 2018. Concerning the matter, Union Commerce Secretary Shri GK Pallia asserted that India agreed to settle for a later deadline of 2018, but the negative list will be decided through further negotiations. The negative list that the ten-nation grouping offered to India in August 2006 consists of 2,700 items, but after subtracting the overlapping items in the country-specific list, it reduced to a consolidated figure of 600. As the August 2006 list was the one that the ASEAN offered to China in its FTA, the Union Commerce Secretary appealed that New Delhi should be treated at par with Beijing. For items under normal channels that cover nearly 77 percent of the Indian tariff lines, India offered to bring down the duty to zero by 2015, barring the CLMV (Cambodia, Laos, Myanmar, and Vietnam) nations which already have concurred to an earlier deadline of 2011.

India is likely to give ASEAN some more leverage by taking off the five-year moratorium on tariff that it is at present insisting on the highly sensitive list of four items viz. tea, pepper, and crude and refined palm oils. The logic is to bring down the tariff on crude palm oil from 65 to 50 percent by 2022. The duty on refined palm oil would be cut from 75 to 50 percent while that on tea would be reduced to 50 percent from the current 100 percent and pepper will see a duty cut from 60 to 50 percent by 2022. But the tariff reduction will be on the duty levels that exist when the FTA is finally formalised.

Preceding the 5th ASEAN-India Summit, Indian Union Minister of Commerce and Industry Shri Kamal Nath attended the meeting between the ASEAN Economic Ministers (AEM) and India on 11 January 2007. Trade ministers from Malaysia, Philippines, Cambodia, Brunei, Laos, Indonesia, Myanmar, Singapore, Thailand, and Vietnam acknowledged that a quick consensus on the FTA is not just pertinent for bilateral trade but also for larger strategic reasons. Shri Kamal Nath landed in Cebu to prepare the ground before Prime Minister Dr. Manmohan Singh’s visit on 13 January 2007 to attend the two summits as a dialogue partner. In the AEM-India meeting, Shri Kamal Nath interacted with economic ministers of ASEAN as well as other key regional partners—Australia, China, Japan, New Zealand, and Republic of Korea.

Serious talks on free trades between India and ASEAN began when Prime Minister Dr. Manmohan Singh attended the 3rd ASEAN-India Summit in Vientiane, Laos in 2004. In the summit, Dr. Manmohan Singh announced that tariff level would be reduced to match with that of all ten-member ASEAN grouping. He further proposed several measures to enhance trade relationship with the ASEAN countries in the fields of agriculture, biotechnology, pharmaceutical, space technology, communication, and remote sensing satellites strengthening physical connectivity through rail, road, air, and sea.

Look East Policy

So far, in all the ASEAN-India summits, ‘combating terrorism’ has always been an important subject of discussion. In the 3rd ASEAN-India Summit at Vientiane, India signed a significant long-term document called ‘Peace, Progress, and Shared Prosperity’ paving the way for future cooperation in political, economic, and security matters. Prime Minister Dr. Manmohan Singh in his statement at Cebu this year expressed that India’s ‘Look East’ policy, when it was initiated a decade and a half ago, marked a strategic shift in the perspective. The policy coincided with the beginning of India’s economic reform process and provided an opportunity for significantly enlarging the country’s economic engagement. At the same time, it was also a renewal of time-tested relations with the neighbours in southeast and east Asia.

Results of India’s ‘Look East’ policy are sharply demonstrated in the country’s interaction with the ASEAN. While the trade between India and ASEAN increased from US$2.4 billion in 1990 to US$21 billion in 2005, the country’s trade relation with the nations of East Asia Summit also increased from US$8 billion in 1990 to US$67.6 billion in 2005. At the same time, the period also showed an increase in FDI flow from India to the region and vice versa. Incredibly, India has emmerged as a productive and profitable investment destination in Asia. Process of ASEAN-India economic integration is one of the most significant developments of the country in the last decade. ASEAN-India FTA would impart even further momentum to the economic growth in the region.