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An estimated 10-minute read

India’s trading arrangements with ASEAN – “Deepening ASEAN-India Alliance” Part I By Hemant K Batra

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“I am never satisfied with the progress, I want things to move faster…” this was said by ASEAN Secretary General, H.E. Mr. Ong Keng Yong to the Business Standard, a business news publication, on the sidelines of a seminar organised by non-aligned Research and Information Systems and the Federation of Indian Chambers of Commerce and Industry (FICCI).

It is indispensable to appreciate the significance of intra-regional trade as it has a positive impact on the other countries, which forms the inter-regional trade. An important trend has been the growth of the intra-regional trade. Some people view world trade as consisting generally of intra-regional trade and the        inter-regional trade. There is also talk of regionalisation versus globalisation of world trade. In 1980s, the share of intra-regional trade in total world trade increased in Western Europe, North America and Asia. In 1990 intra-regional trade in goods accounted for 61% of total trade in goods of the European Community – 41% for Asia and 35% for North America. Over 60% of the trade of the Pacific rim nations stays within the area. Regional integration schemes tend to increase intra-regional trade. Trade between the 12 members of the European Community (EC) increased to 60% in 1990. Intra-regional trade increased in the European Free Trade Association (EFTA) and the Association of South East Asian Nations (ASEAN).

Now, coming to one of the most important economic grouping in Asia – ASEAN and its relation with India a burgeoning developing country.

This paper makes an attempt to describe the panorama of trade within ASEAN and outside it, with other countries. The Association of Southeast Asian Nations (ASEAN) is a political, economic, and cultural organization of countries located in Southeast Asia. Founded on August 8th 1967, its aim is to foster cooperation and mutual assistance among members. The member countries meet annually every November in summits. The current member countries of ASEAN are, Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Viet Nam, Laos, Myanmar and Cambodia. Papua New Guinea enjoys the status of an observer in the ASEAN. The first four countries as mentioned above are its founding members. ASEAN regularly conducts dialogue meetings with other countries and organizations, collectively known as the ASEAN dialogue partners. They are Australia, Canada, The People’s Republic of China, North Korea, South Korea, the United States, India, Japan, Mongolia, New Zealand, Russia, and the European Union. ASEAN Headquarters is located in Jakarta, Indonesia.

The ASEAN Regional Forum (ARF) is an informal multilateral dialogue of 23 members that seeks to address security issues in the Asia-Pacific region. The ARF met for the first time in 1994. The members include the 10 member states of the ASEAN, the observer Papua New Guinea, and the 12 ASEAN dialogue partners. The association includes about 8% of the world’s population and in 2003 it had a combined GDP of about US$700 billion (roughly equivalent to South Korea) and this GDP was growing at an average rate of around 4% p.a. The economies of member countries of ASEAN are diverse, although its major products include electronic goods, oil and wood. The ASEAN countries are culturally diverse and they include the third largest number of English speakers in any other geopolitical entity (after the US and UK), around 50 million, mostly in the Philippines. ASEAN also includes more Muslims than any other geopolitical entity — about a quarter of a billion, mostly in Indonesia and Malaysia. Other main religions of the various people in the region include large numbers of Buddhists in Thailand, Myanmar, Laos, Cambodia, Vietnam and Singapore and the predominantly Catholic Philippines. This simply proves that ASEAN is the only organisation with such diversity. ASEAN has governments with widely differing views on governance and political process, including practices in areas such as suffrage and representation. Government types range from democracy (capitalism) to communism and socialism. The level of corruption in ASEAN governments is also an area with large disparity.

ASEAN’s interest in India arises from two considerations. First, ASEAN has traditionally engaged all the major powers of the world. India’s rising economic and technological competence has the prospective to provide considerable opportunities for ASEAN countries. Second, ASEAN and India are working towards a free trade agreement, which leaders hope to make operational in a decade. This requires a considerably enhanced understanding of each other’s economic structures, institutions, and political systems.

ASEAN has been a hot topic in India for quite sometime now. There is a lot of talk about how ASEAN can boost Indian economy and how relations with ASEAN can boost India’s foreign trade. India’s engagement with the ASEAN started with its “Look East Policy” in the year 1991. ASEAN has a membership of 10 countries namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. India became a Sectoral Dialogue Partner of ASEAN in 1992 and Full Dialogue Partner in 1996. In November 2001, the ASEAN-India relationship was upgraded to the summit level.

The 1st ASEAN Economic Ministers (AEM) – India Consultations were held on 15th September 2002 in Brunei Darussalam where the Ministers, after discussing the Joint Study Report decided to establish an ASEAN-India Economic Linkages Task Force (AIELTF). The AIELTF was asked to prepare a draft Framework Agreement to enhance the ASEAN-India trade and economic cooperation before the 2nd AEM – India Consultations. Subsequently, at the First ASEAN-India Summit held on 5th November 2002 in Phnom Penh, Cambodia, the former Prime Minister of India Mr. Atal Bihare Vajpayee made the following major announcements:-

·         India will extend special and differential trade treatment to ASEAN countries, based on their levels of development to improve their market access to India;

·         FTA within 10 years timeframe; and

·         India is committed to aligning its peak tariffs to East-Asian levels by 2005.

The Prime Minster of India and the Heads of Nation/Governments of ASEAN members signed a Framework-Agreement on Comprehensive Economic Cooperation between the ASEAN and India during the Second ASEAN – India Summit on 8th October 2003 in Bali, Indonesia. The key elements of the Framework Agreement on Comprehensive Economic Cooperation covered FTA in Goods, Services and Investment, as well as Areas of Economic Cooperation. The Agreement also provided for an Early Harvest Programme (EHP), which covers areas of Economic Cooperation and a common list of items for exchange of tariff concessions as a confidence building measure. The highlights of the Framework Agreement are as follows: -

 (I) FTA in Goods

·            The tariff reductions would start from 1st January, 2006 and Most Favoured Nations (MFN) tariff rates to be gradually eliminated. While India will eliminate tariffs in 2011 for Brunei Darussalam, Cambodia, Lao PDR, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam; Brunei Darussalam, Indonesia, Malaysia, Singapore and Thailand will eliminate in 2011 and new ASEAN Member States i.e. CLMV will eliminate in 2016 for India. India and Philippines will eliminate tariffs for each other on a reciprocal basis by 2016.

(II) FTA in Services and Investments

·                       Negotiations to commence in 2005 and concluded by 2007.

·           The identification, liberalisation etc. of the sectors of services to be finalised for implementation subsequently.

(IV) Areas of Economic Cooperation

·            Areas of economic cooperation to include trade facilitation measures; sectors of cooperation; and trade & investment promotion measures.

 (V) Early Harvest Programme (EHP)

·          Based on the inter-Ministerial consultations and apex chambers of commerce, the items for EHP were finalised for exchange of concessions.

Referring from an economic report as made available by Mr P K Basu Managing Director, Robust Economic Analysis Pte Ltd (REAL); and Secretary, India Club, Singapore; he says that India is the fastest growing economies among world democracies.

Never in the history of mankind has a democracy with even 200 million people sustained annual real GDP (Gross Domestic Product) growth of 5.9% over a 24-year period. India’s achievement is unparalleled. In 2003, India had the world’s highest nominal GDP growth. Its because of these, India is closer to fulfilling one of its top priorities – forging stronger economic ties with the Association of Southeast Asian nations or ASEAN. India and the 10-member ASEAN group will sign deals for a plan of action and to promote “shared prosperity” at the annual summit.

It’s because of India’s strong seeking nature that economists and honchos of the trade-world believe that an FTA with ASEAN will give India an opportunity to look beyond trade. This will undoubtedly bring India closer to its target of achieving 2 per cent share in global trade. Geetanjali Nataraj, professor at the Indian Institute for Foreign Trade (IIFT), says “India is looking beyond its traditional trading partners in the West, and taking advantage of ASEAN’s increasing global trade and investment. India has set a target of achieving two-percent share in world trade, and to achieve this target we need to explore new markets, enter new markets, and ASEAN is a big market for India”. At first, ASEAN was slow to respond to Indian overtures, but that is slowly changing.

Asian countries struggled with the financial crisis of 1997, and India’s economy began showing signs of promise. Experts say ASEAN also began to see how India could balance out China’s power in Asia. The relationship has acquired momentum in the past two years. At the 2003 ASEAN summit, India and the Southeast Asian bloc agreed to create a free-trade area in goods, services and investment by 2011. Arvind Virmani, Director at the Indian Council for Research on International Economic Research, says much smaller ASEAN countries stand to gain from access to India’s market of more than one billion people, and in particular, its booming information technology sector.

 He also added that ASEAN has recognized India’s dexterity in IT and in service exports. This is the reason why more countries of the ASEAN who had a mental block to trade with India are slowly breaking out of it. International economists say that by wooing ASEAN, India ensures it is not isolated when regional trading arrangements are “en vogue”. This could include eventual economic integration with economically dynamic East Asia. In fact, New Delhi hopes closer links with ASEAN will help draw it into a larger economic community that includes China, Japan and South Korea. India’s need to build links with developing economies now is pressing as developed nations put up more trade barriers despite preaching liberalization.

 The developed countries are becoming highly protectionist and they are inflicting all sorts of barriers. Non-tariff barriers in the developed world are increasing rapidly which necessitates India to look beyond the developed world to expand its trade and ASEAN countries offer great opportunities to India. India is making better progress with some ASEAN members than with others. It has a free-trade pact with Thailand already, and, in the past year, greater investment from Malaysia and Singapore, with which it has a cooperation deal in the works.

 Still, two-way India-ASEAN trade is far lower than it could be. In 2002 it was about $10 billion, only one percent of overall ASEAN trade. Sceptics doubt India can move fast enough to change that. With Chinese goods flooding the region, India is its own worst enemy, raising tariff barriers higher than countries in East Asia. It has promised to reduce duties, but usually is slow to act. Transport and communication links with the region also need to be improved. However, as India’s economic profile grows, and its industry becomes more competitive globally, there is optimism the relationship will bear fruit.

 (Author PS: Though this article was written by me in 2005; but it does assume importance in the current scenario) 

 ……………………………………………… To Be Continued in Part II

By Hemant Batra, Lead Partner, Kaden Boriss Legal LLP, India; Vice President, SAARCLAW; Chairperson, IICLAM, Singapore; Advisory Board Member, OIC, USA


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