Prime Minister Shri Narendra Modi at the 16th ASEAN-India Summit in Bangkok on 3 November 2019[i]
The year 2020marks the tenth year of the India-ASEAN Trade in Goods Agreement, which was signed on August 13, 2009, and came into effect on January 1, 2010, after six years of negotiations. This agreement was based on the India-ASEAN Comprehensive Economic Cooperation Agreement [CECA]signedon October 8, 2003, in Bali, Indonesia, to institutionalise a framework for future economic cooperation.Apart from trade in goods, theIndia-ASEAN CECA also covered trade in services and investment, which together form the India-ASEAN Free Trade Area [FTA].[ii]
India-ASEAN Trade: Gains and Challenges
India’s total trade with ASEAN has grown since the signing of the FTA, from US$ 96.79 billion in 2018-19 and estimated to reach US $ 300 billion by 2025.[iii] Post-FTA, India’s exports to ASEAN increased substantially, and in particular to Thailand, Cambodia, Vietnam, Malaysia, the Philippines, and the Lao People’s Democratic Republic. Imports into India from Vietnam, followed by, the Philippines, Malaysia, Singapore, and Thailandincreased even more substantially. The sectors that registered notable increases in exports are apparel, textiles, food products, other crops, wood and wood products, fisheries, mineral products, machinery, beverages and tobacco, and leather and leather products.[iv]
Union Commerce and Industry Minister, Piyush Goyal at the 16th ASEAN Economic Ministers – India Consultation, in which an agreement was reached for a review of the FTA[v]
While India’s exports to ASEAN increased from US $ 23 billion in 2010 to US $ 37.47 billion in 2018-19, its imports increased from US $ 30 billion to US $ 59.32 billion in the same period.[vi] The increasing asymmetry in the balance of trade for India has raised concerns as in the past, prior to theFTA it enjoyed a favourable trade balance with most of the ASEAN Member States [AMS]. On the completion of ten years, India and ASEAN are undertaking a review of the FTA. India’s Prime Minister Modi while addressing the ASEAN Summit in Bangkok in November 2019, welcomed ASEAN countries’ decision to have a relook at the FTA in goods with India to make it ‘user-friendly, simple, and trade facilitative’. According to PM Modi, the decision to re-examine the ASEAN-India FTA will make the economic links stronger and will make trade more balanced.[vii] In a written reply to the Rajya Sabha on November 29, 2019, the Commerce and Industry Minister, Piyush Goyal stated that the proposed scope of the review of the ASEAN-India FTA could “…include implementation issues, rules of origin; verification process and release of consignments; customs procedures; to take into account other negotiations on further liberalisation of trade in goods; and sharing and exchange of trade data".[viii] Thisshould help in removing rules that adverselyaffect Indian producers and exporters andshould promote Indian exports leading to a more beneficial trade balancebetween India and ASEAN.
Reassessing the Partnership at the time of the Pandemic
The ongoing crisis from the outbreak of the novel coronavirus is having an unprecedented impact on economies and livelihoods across the globe with disruptions in the flow of goods and services. Further, increasing inward-looking tendencieserodingexisting production networks and interdependence make economic recovery an uphill challenge. The India-ASEAN FTA which is currently being reviewed requires undertaking necessary measures to help in the economic recovery while also expanding cooperation in areas that have immense potential in the emerging economic environment.
One area which needs to be relooked is agricultural trade between India and ASEAN which has been on the rise even prior to the signing of the FTA.The agricultural trade flows between India and ASEAN increased from US $19.8 billion in 2000 to US $75.5 billion in 2008.[ix]Import of agricultural items such as coffee, rubber, tea, pepper, and vegetable oil from ASEAN has had an adverse impact on India’s agricultural sector. Therefore, India has been cautious in offering duty concessions to agricultural products from ASEAN. India despite eliminating tariffs for about four thousand products, sensitive and high growth industries were included under the Sensitive and Exclusion lists; both of which covers agricultural products.[x] ASEAN Members States has also continued to keep rice and sugareither in their exclusion or sensitive list.In January 2020, Indiamade a deal with Indonesia to increase its rice, sugar, and bovine meat export in return for a higher quantity of palm oil imports.[xi]
Further, with the outbreak of the COVID-19, Thailand, Myanmar, Vietnam, and Cambodia have placed temporary curbs onthe export of rice to the other ASEAN countries. This kind of unilateral action undertaken has raised concerns and has prompted the rice-importing ASEAN states to increase imports from India. In May 2020, Malaysia contracted to import a record 100,000 tonnes of rice from India. This purchase by Malaysia is nearly twice the average annual volume of rice Malaysia imported from India in the last five years.[xii]India being one of the world’s largest producers of rice as well as other agricultural produce, a further trade liberalisation in the primary products with ASEAN would enable a major surge in India’s exports and a more balance bilateral trade. Further, the shortages faced by some of the ASEAN countries in the ongoing pandemic crisis, should call for a serious deliberation on the prevailing trade barriers in the import of agricultural products.
Another area for deeper cooperation is in the information and technology [IT]sector which remains pivotal and is shaping the future of all economic activities especially in the aftermath of COVID-19. India being a global leader in software development and other IT services while the ASEAN region is a net importer of telecommunications, computer and information services, provides opportunity for greater cooperation. Further, with the signing of the ASEAN-India Agreement on Investment and Trade in Services on November 13, 2014, there is immense scope for cooperation. The agreement on services and investment which came into effect on July 1, 2015, also provides access in financial services which is yet to fully realize its potential. This needs to be explored since this sector would be crucial to help the ASEAN- India economic integration process. Establishing a robust network of financial mechanisms would encourage greater trade as it would enable smoother payment options for carrying out business transactions. The cooperation in this sector alsoprovides scope to facilitate the financing of small and medium enterprises andwould help businesses and encourage better trade.[xiii]
The ASEAN-India economic partnership needs to be reassessed to overcome the economic fallout from the ongoing pandemic, which also provides an immense opportunity.Evenbefore thepandemic, the global supply chains [GVC] had been under stress due to increasing protectionism and unfavourable political developments. Further, the COVID-19 has revealed major flaws in the existing supply chains such as single-source dependencies that lead to production and supply across the globe coming to a halt. Therefore, experience from the outbreak of the pandemic has pushed the move towards establishing a flexible and adaptable supply chain even though the cost would be higher.[xiv]This move towards more flexible and multi-level sourcing provides an opportunity for India as it seeks to enhance its participation in the GVC.[xv]ASEAN would be an ideal partner for India as it has one of the highest GVC participation indices in the world.[xvi]India and ASEAN looking at further economic integration should build their regional value chain [RVC] as it would attract multi-national companies that are looking to diversify their strategy when it comes to sourcing. At present India is not directly engaged with ASEAN through an RVC, the ongoing review of the AIFTA that is also looking at further liberalisation of trade rules and regulations would help promote RVC between Indian and its immediate Southeast Asian neighbors which holds great potential to generate higher trade.
The period of economic recovery from the impact of the COVID-19 would be a long and an uphill challenge with countries becoming more inward looking. The post-COVID-19 period, markedby increasing protectionism along with regionalism where countries are starting to look closer home for meeting their supply and demand, is also creating an opportunity for greater intra-regional trade. For India and ASEAN, the completion of ten years of their FTA provides enough experience and understanding to work out and take forward the partnership which when first conceived was based on facilitating economic cooperation. ASEAN countries are not new to facing the challenges posed by the outbreak of major tropical and infectious diseases and in the past, have been able to achieve recovery by showing great resilience. As India’s economy has also been severely impacted by the pandemic, ASEAN would be a crucial partner in the economic recovery process. Given the increasing level of economic partnership between ASEAN and India over the last decade, the recovery from the pandemic would require deeper cooperation by strengthening connectivity for themovement of goods and services along with further liberalization of trade and investments.
*Dr. Temjenmeren Ao is a Research Fellow at Indian Council of World Affairs.
Disclaimer : The views expressed are personal.
[i]See:// https://www.pmindia.gov.in/en/news_updates/pm-attends-16th-india-asean-summit-in-bangkok/, accessed on July 10, 2020.
[ii]“Strengthening ASEAN-India Partnership: Trends and Future Prospects”, EXIM Bank India, January 2018, https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/ResearchPapers/88file.pdf, accessed on June 10, 2020.
[iii]“India-ASEAN bilateral trade may double by 2025 to $ 300 billion: Study”, Business Standard, November 12, 2019, https://www.business-standard.com/article/economy-policy/india-asean-bilateral-trade-may-double-by-2025-to-300-billion-study-119111200547_1.html, accessed on June 10, 2020.
[iv]ChandrimaSikdar and Biswajit Nag, “Impact of India-ASEAN Free Trade Agreement: A Cross-Country Analysis using applied general equilibrium modelling”, Asia-Pacific and Training Network on Trade Working Paper Series, No 107, November 2011, https://www.unescap.org/sites/default/files/AWP%20No.%20107.pdf, accessed on June 10, 2020.
[v]See://https://www.aseantoday.com/2019/10/what-is-behind-india-and-aseans-decision-to-review-a-2010-fta-agreement/, accessed on June 19, 2020.
[vi]Kundan Pandey, “India failed to benefit from free trade agreements with ASEAN: Report”, Down to Earth, November 13, 2019, https://www.downtoearth.org.in/news/economy/india-failed-to-benefit-from-free-trade-agreements-with-asean-report-67740, accessed on June 15, 2020.
[vii]Dipanjan Roy Chaudhury, “ASEAN may soon conclude review of FTA with India”, The Economic Times, November 6, 2019, https://economictimes.indiatimes.com/news/politics-and-nation/asean-may-soon-conclude-review-of-fta-with-india/articleshow/71932278.cms, accessed on June 10, 2020.
[viii]“India-ASEAN FTA review: Further liberalisation of trade on agenda”, Business Standard, November 29, 2019, https://www.business-standard.com/article/pti-stories/india-asean-fta-review-could-include-further-liberalisation-of-trade-in-goods-119112901018_1.html, accessed on June 15, 2020.
[ix]Sunitha Raju, “ASEAN-India FTA: Emerging Issues for Trade in Agriculture”, Indian Institute of Foreign Trade, http://agritrade.iift.ac.in/html/Training/ASEAN%20–%20India%20FTA%20%20Emerging%20Issues%20for%20Trade%20in%20Agriculture/Sunita%20Raju%20mam.pdf, accessed on July 10, 2020.
[x]“India’s Agriculture and RCEP”, Asia Trade Centre, July 19, 2017, http://asiantradecentre.org/talkingtrade//indias-agriculture-and-rcep, accessed on July 10, 2020.
[xi]“India seeks to push sugar, rice exports to Indonesia”, The Times of India, January 17, 2020, https://timesofindia.indiatimes.com/business/india-business/india-seeks-to-push-sugar-rice-exports-to-indonesia/articleshow/73321551.cms, accessed on June 15, 2020.
[xii]Rajendra Jadhav, “Malaysia signs record rice import deal with India: exporters”, Reuters, May 15, 2020, https://in.reuters.com/article/india-malaysia-rice/malaysia-signs-record-rice-import-deal-with-india-exporters-idINKBN22R1BI, accessed on June 15, 2020.
[xiii]“Strengthening ASEAN-India Partnership: Trends and Future Prospects”, EXIM Bank India, January 2018, https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/ResearchPapers/88file.pdf, accessed on June 10, 2020.
[xiv]Carlos Cordon, “A post-COVID-19 outlook: the future of the supply chain”, IMD, May 2020, https://www.imd.org/research-knowledge/articles/A-post-COVID-19-outlook-The-future-of-the-supply-chain/, accessed on June 15, 2020.
[xv]“Making India an Alternative Supply Chain Option for the World-COVID-19 has triggered Global Supply Chain Chaos and an Opportunity for India”, Businesswire, June 16, 2020, https://www.businesswire.com/news/home/20200616005620/en/Making-India-Alternative-Supply-Chain-Option-World, accessed on June 19, 2020.
[xvi]“Strengthening ASEAN-India Partnership: Trends and Future Prospects”, EXIM Bank India, January 2018, https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/ResearchPapers/88file.pdf, accessed on June 10, 2020.