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Ever since India and ASEAN upgraded their Sectoral dialogue partnership to full dialogue partnership in 1995, there have been suggestions that India and ASEAN enter into a Free Trade Agreement (FTA). Admittedly, in the initial period – and even today – there has been greater pressure and interest from the ASEAN side in a FTA, possibly because of the potential attractiveness of the large and untapped Indian market following economic reforms and the opening up of the Indian economy since the early 1990s and the imperatives of globalization; although, Indian leaders and officials have repeatedly spoken about the need to integrate the Indian economy with those of Southeast and East Asia – described by our Prime Minister as the “arc of advantage”- and in that context to bring down India’s high tariff rates to the ASEAN tariff levels, there have been reservations expressed on the proposed FTA, largely out of fears of being swamped by cheap ASEAN exports, perceived need to protect the nascent Indian industry, absence of complementarity and the lack of competitive edge in our major exports.
In my view, such fears are largely misplaced, as were fears of our economic survivability following the Marakesh WTO Accords in 1995. It was only in 2003 at the Bali Summit that India and ASEAN agreed to finalize a framework FTA in goods in the first instance in a short time frame, possibly driven by China’s swift progress in finalizing a FTA with ASEAN and also possibly occasioned by the fluid and uncertain economic environment and increasingly difficult to penetrate western markets due to protectionist measures adopted by these countries.
Also, by this time, the Indian economy had shown resilience to face pressures of globalization and was more confident of withstanding competition and sustaining growth. The Asia-Pacific began to emerge as an important area of focus. It has taken over six years of tortuous negotiations to reach partial Comprehensive Economic Cooperation Agreement (CECA), including a FTA in goods, with ASEAN. As has been pointed out by experts, it is estimated that India-ASEAN bilateral trade, now at nearly US$40 billion annually and growing at approximately 27 percent since 2000, will double by 2015.
India has agreed to reduce tariffs in phases to zero within six years on a majority of the 5000 goods being traded, keeping 489 mostly agricultural and some manufactured goods (Eg: processed foods, fruit juices, natural rubber, textiles, chemicals and petro chemicals) in the negative list. At a later stage, India hopes to bring within the purview of the FTA trade in services and investments, which according to experts, will give a major boost to our economic and commercial ties as some of these are in sectors of India’s core competency and there is complementarity with ASEAN. The FTA will also provide incrementality and flexibility to India’s trade.
Multiple Advantages
The significance of the FTA is both economic and political. The Asia-Pacific is one of the most dynamic regions of the world and India cannot afford not to integrate her economy with this fast growing region. For India, the FTA, deepening relations with ASEAN and East Asian countries, linkages with Southeast and East Asian institutions/forums like the East Asia Summit (EAS), Bangkok Agreement, Mekong–Ganga Cooperation (MGC), Bay of Bengal Multi-sectoral Technical and Economic Cooperation (BIMSTEC), Asian Cooperation for Development (ACD), Japan, China, India and Korea Cooperation (JACIK), Chiang Mai Initiative and the proposed FTAs with Japan, Korea and China are all building blocks of a future Asian Economic Community and one day, hopefully, of the Asian Union.
Vision
India’s long term interest would arguably be best served by such Pan Asian multilateral arrangements. Multilateralism should be our preferred choice and should secure India’s interests best. Politically and strategically, India belongs to this region. This is the imperative of our history, geography and today’s globalized world. The FTA signals India’s desire and determination to become an integral part of this region and to play a pro- active role in shaping its evolving strategic and economic architecture.
China too is regionally pursuing the same path. India and China need not be adversaries in this space and can work together, to the extent possible, to further their own and the region’s shared interests and goals. The FTA could become an instrument of this larger goal. China, Korea and Japan also have more liberal FTAs with ASEAN. We should endeavour to remain abreast and not be sidelined, for the stakes in this region are high.
Safeguards Adequate
The skeptics would argue, as they had done after the Marakesh WTO dispensation came into being in 1995, that India-ASEAN FTA is weighted in favour of ASEAN. Nothing can be farther from truth. We must give credit to our negotiators for safeguarding our interests. This is a win-win agreement and should benefit both, as trade is a two way affair and cannot be sustained in the absence of mutuality of interest. India for now has left out sensitive products; duty reductions are in phases allowing us time to prepare ourselves; in that sense, it is more of a Preferential Trade Area (PTA) than a FTA. The CECA, when expanded to include trade in Services and Investments should open new opportunities for India.
In any case, India-ASEAN FTA is neither exclusive nor irreversible. India is also engaged in similar exercises with EU, US, Japan, ROK, GCC and China. In today’s highly competitive and rapidly changing economic scene, India has to seize every option, short and long term, and maximize its opportunities and secure its interests. I believe that, India-ASEAN FTA is an overdue first step in the right direction. It has to be seen in context and as a policy option the imperative of which is inescapable. What then is the road ahead for India? India clearly needs a benign, peaceful and predictable economic and strategic regional and global order in which she could pursue her national goals. The bilateral, sub-regional and regional arrangements should be seen as building blocks of an Asian Economic Community, a large free trade area, leading to an Asian Union on the lines of the European Union.
A multilateral framework, arguably, would serve and enhance India’s long term interests best. Fortunately, Asia-Pacific is slowly but surely moving in that direction. Until then, we will have to pursue a more limited approach which will meet the exigencies of the day; but the vision should always remain to create a Pan-Asian economic space in which we have a stake and a responsibility commensurate with our size and strength, enabling us to contribute to the shaping of this region’s architecture. In the emerging global order, Asia-Pacific can become a major force only if we have a supra-national vision and work in partnership for progress. The India-ASEAN FTA is a modest but necessary first step to achieve this. |
