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INDIA – ASEAN: CHANGING DYNAMICS IN CONTEXT OF FTA

27 Dec 2023 INDIA – ASEAN: CHANGING DYNAMICS IN CONTEXT OF FTA

Posted at 10:19h in Daily current-affairs by
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UPSC MAINS SYLLABUS GS2: Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.

WHY IN NEWS? 

  1. Recently, the Prime Minister (PM) of India attended the 20th Association of Southeast Asian Nations (ASEAN)-India Summit and the 18th East Asia Summit (EAS) in Jakarta, Indonesia.
  2. The two summits were an opportunity for India to strengthen its relationships with ASEAN countries and reaffirm its commitment to a free, open, and rules-based Indo-Pacific.

WHAT IS ASEAN? 

  1. ASEAN was established on 8 August 1967 in Bangkok, Thailand, with the signing of Bangkok Declaration by the 5 Founding Fathers of ASEAN: Indonesia, Malaysia, Philippines, Singapore and Thailand (IMPST).
  2. ASEAN currently comprise of 10 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
  3. It aims to promote stability and economic growth across these nations.
  4. Chairmanship rotates annually, based on the alphabetical order of the English names of Member States.
  5. The region has one of the largest economies in the world, and it is believed that by 2050, it will have the 4th-largest economy in the world.

IMPORTANCE OF ASEAN FOR INDIA: 

  1. ASEAN forms an integral part of India’s Act East policy which focusses on the extended neighborhood in the Asia-Pacific region.
    1. Policy originally conceived as an economic initiative, has gained political, strategic and cultural dimensions including establishment of institutional mechanisms for dialogue and cooperation.
    2. By aligning India’s Act East Policy with the U.S. Pivot to Asia, India seeks to expand its geo-strategic space to contend with China’s growing assertiveness and foster balanced relations.
  2. ASEAN engulfing regions of Indo-Pacific is integral for India for various important aspects:
    1. Indo-Pacific Region makes up 65% of the global population & generates 62% of global GDP. For India, 50% of its total trade volume is concentrated in the Indo-Pacific region.
    2. In addition to being a wealthy market, the region also manages international supply networks through important straits such as Strait of
    3. The immense quantities of marine resources found in the Indo-Pacific Oceans include offshore hydrocarbons, methane hydrates, seabed minerals, Rare earth metals, fisheries, etc.
    4. A competitive environment for the exploitation of these resources has been established by the extensive coastlines and Exclusive Economic Zones (EEZs) of littoral countries. For example: China claiming vast lands in South China Sea under its “9-dash” line strategy.
    5. Thus, India seeks to guarantee freedom of navigation, protect choke points, end conflicts amicably, and confront unconventional security concerns in the Indian Ocean region (IOR).

INDIA – ASEAN FREE TRADE AGREEMENT (FTA):

WHAT IS AN FTA? 

  1. Free Trade Agreement (FTA) is a pact between two or more nations to reduce barriers to imports and exports among them.
  2. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
  3. The concept of free trade is the opposite of trade protectionism or economic isolationism.

FTA WITH ASEAN:

  1. India signed an FTA with ASEAN (its 4th largest trading partner), known as the ASEAN-India Trade in Goods Agreement (AITIGA), on 13th August, 2009 followed by an FTA in Services and investments in 2014.
  2. Apart from this, India has a Comprehensive Economic Cooperation Agreement (CECA) with various countries of the ASEAN region which has resulted in concessional trade and a rise in investments.
  3. However, it did not bore significant results as envisaged by India as there were various Shortcomings:
    1. ASEAN-India trade took over a decade to double in value.
    2. India has been particularly concerned with the rising trade deficit with ASEAN, which increased to US$ 43.57 billion in the 2022 from just US$ 5 billion in 2010-11.
    3. India’s net exports to countries without a trade agreement were only marginally lower than its net exports to countries with FTAs while imports from countries with trade agreements were substantially higher, pushing India into a trade deficit.

REASON FOR FAILURE OF FTA WITH ASEAN:

  1. Lack of market access and connectivity: Some Indian products do not have market access in ASEAN countries due to a number of factors such as high tariffs and non-tariff barriers.
    1. Despite efforts in this direction, physical and digital connectivity between India and ASEAN countries remains limited, which affects trade, investment, and people-to-people ties.
  2. ASEAN strict rules of origin: This makes it difficult for Indian exporters to export products to ASEAN countries and benefit from the tariff reductions under the FTA.
    1. On the other hand there are a number of alleged instances where merchandise is being re-routed from China, via ASEAN countries with minimum value addition, thereby misusing the India-ASEAN FTA.
  3. Nature of engagement: India still engages with ASEAN countries more on a bilateral basis rather than through a multilateral approach leading to problems of coordination and consensus-building.
  4. Competing regional agreements: Engagement of ASEAN countries with other regional agreements like the RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) diverts attention and resources away from the ASEAN-India relationship.

Regional Comprehensive Economic Partnership (RCEP): 

  1. RCEP is the world’s largest trading bloc comprising 33% of Global Population & 30% of World’s GDP.
  2. The RCEP negotiations began in 2012. It was officially signed in November 2020, marking a major milestone in regional trade.
  3. 15 member countries include ASEAN countries & 5 Associate states: China, Japan, South Korea, Australia & New Zealand.
  4. The RCEP negotiation includes trade in goods, services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs) and other issues.
  5. It majorly aims to reduce or eliminate tariffs and non-tariff barriers to trade.

India was a founding member of the RCEP, However In 2019, India decided to withdraw from the RCEP negotiations due to following concerns:

  1. Flooded by Cheap goods from Manufactuing hubs like China & Vietnam. 
    1. Poor Manufacturing Sector: In the recent period, manufacturing holds a share of 14% in India’s Gross Domestic Product (GDP).
    2. Share of Manufactimng as % of GDP for other countries: China: 27 %, Indonesia: 20 % & Germany:19 %
    3. India already has a massive trade deficit with China, amounting to $53 billion (€48 billion)
  2. India was also concerned about the RCEP’s potential impact on sectors like agriculture, which would affect the country’s vast rural population.
    1. Indian agriculture is largely subsistence-based and beset by alarmingly low levels of modern technology, packaging, processing and storage facilities.
    2. Opening it up to competition from much more advanced agriculture producers in places like Australia, New Zealand and Japan would have led to an economic and social crisis. For example: Concerns raised by dairy and food processing sectors.
  3. Even bigger industrial sectors, like Steel, iron and rubber manufacturing, were not in favor of the trade pact. These industries in India are dominated by big family-controlled firms, which are protectionist in nature.
  4. Protectionism: The Atmanirbhar Bharat campaign has also exacerbated the view that India is increasingly becoming a protectionist closed market economy.

WAY FORWARD:

  1. Building Resilient Supply Chain: Current engagement in value chains between ASEAN and India is not substantial. Thus, ASEAN and India must upgrade their logistics services and strengthen the transportation infrastructure. India has focused on promoting connectivity with other ASEAN states through Myanmar and Thailand. For example:
    1. India-Myanmar-Thailand (IMT) highway,
    2. Bhutan-Bangladesh-India-Nepal (BBIN) road-rail network
    3. Kaladan Multimodal Project
    4. Mekong-Ganga Economic Corridor.
  2. Maritime Security in Indo-Pacific region is crucial for the protection of India’s interests as well as those of ASEAN: 
    1. To ensure it’s role as Net Security Provider (NSP) in region, India participates in Indian Ocean Rim Association (IORA), ASEAN-led frameworks like the East Asia Summit, the ASEAN Defense Ministers’ Meeting Plus, ASEAN Regional Forum as well as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). 
  3. Also, ASEAN should emphasize the principles of the UN Convention for the Law of the Sea (UNCLOS) to solve the disputes in the South China Sea region.
  4. Regional Tourism: India and ASEAN should also enhance regional tourism and people-to-people connectivity as they already have civilizational and cultural influences on each other.
  5. Unfolding Act-East Policy: Reciprocity and mutual understanding on common concerns will help both ASEAN and India to overcome some of the challenges.
    1. Thus, Coordination in the fields of Digitalization, Pharmaceuticals, Agriculture Education and Green Growth is imperative. 

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PREVIOUS YEARS PRELIMS QUESTIONS: 

Q1. India is a member of which among the following? (2015)

  1. Asia-Pacific Economic Cooperation
  2. Association of South-East Asian Nations
  3. East Asia Summit

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 3 only

(c) 1, 2 and 3

(d) India is a member of none of them

Answer: (b)

Q2. Consider the following countries: (2018)

  1. Australia
  2. Canada
  3. China
  4. India
  5. Japan
  6. USA

Which of the above are among the ‘free-trade partners’ of ASEAN?

(a) 1, 2, 4 and 5

(b) 3, 4, 5 and 6

(c) 1, 3, 4 and 5

(d) 2, 3, 4 and 6

Ans: (c)

Q3. The term ‘Regional Comprehensive Economic Partnership’ often appears in the news in the context of the affairs of a group of countries known as (2016)

a) G20

(b) ASEAN

(c) SCO

(d) SAARC

Ans: (b)

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