review of asean fta
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INDIA-ASEAN FREE TRADE AGREEMENT:-A SETOR-WISE IMPACT ANALYSIS
(REVIEW OF LITERATURE)
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INDIA- ASEAN FREE TRADE AGREEMENT:-A SECTOR-WISE IMPACT ANALYSIS
(REVIEW OF LITERATURE)
ASEAN emerged as a major actor in the politics of Asia Pacific region
after the end of cold war. Date back history reveals that India had
extensive cultural, economic and political ties with the Southeast Asian
Nations. But after Independence, this region was overlooked by India.
The changed global circumstances in 1990 andIndias Look East
policy forced India to adapt the New Economic world order i.e.
regionalism. A quantum jump in Indo-ASEAN relations came with theeffort to forge closer links with the Southeast Asian countries after 1991.
The ASEAN-India nexus has grown from sect oral dialogue partnership
in 1992 to full dialogue partnership in 1995 and subsequently to a
summit level interaction, with the first India-ASEAN summit held in
2002. Trade is one of principal channels of India and ASEAN
integration. Both the parties are complementary to each other. From the
last seven years, trade has done manifold increase i.e. 150% increasewhich is remarkable.The present review is an attempt to examine the
existing literature regarding India- SEAN Trade relations. There is
growing body of literature on the concerned issue. For this, under, four
broad themes literature has been analyzed. At first, Trade Relations
between India-ASEAN in historical perspective has been examined.
It is observed that India and ASEAN are not awkward strangers. They
have shared close relationship since the ancient times. Second sectiondeals with growth of trade between the two actors from time to time. It is
observed there is drastic increase in bilateral merchandise trade and
commercial services.
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Smitha Francis in her research paper title A Sectoral impact Analysis
of the ASEAN India FREE Trade Agreement (2011) analyzed the
pattern and composition of Indias trade with the major ASEAN
countries and Indias tariff reduction scenario in different sectors usingthe data for the Period 1995_2008. It was observed that under AIFTAG,
the trade blocs members will have increased access to the Indian market
for semi-processed and processed agricultural products and close
substitutes, which could adversely affect the countrys agricultural
sector. Indian small and medium enterprises in food and other
agriculture-related products, some intermediate goods, and light
manufacturing products are also likely to suffer. She Concluded Tariff
reduction and its elimination under the AIFTA will not only disrupt
farmers domestic markets, but also reduce their bargaining power and
lead to a fall in domestic prices because of the increased supply of
agricultural and related semi-processed (and processed) products.
Further, it should be noted that even while utilizing safeguard provisions
under the FTA, tariffs cannot be raised above the levels scheduled in it.This means that India will have the right to raise tariffs with ASEAN
only to the highest level that it is committed to in the agreement. With
tariffs dropping to zero in most cases, this becomes meaningless.
Therefore Indias commitments under the AIFTA are likely to have a
significant negative impact on livelihoods and food security across
several segments of the rural population in the country.
She further argue that recent trends in Indias export and import
structures point to its increasing participation in FDI-driven production
networks centered on ASEAN. The implications of Indias tariff
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reduction commitments under the AIFTA for its agricultural and non-
agricultural sectors were analyzed against this backdrop. It is established
that ASEAN countries will gain significantly increased market access in
India in several semi-processed or processed agricultural products. Both
the reduced demand for local agricultural products because of this and
increased imports of close substitutes could lead to a fall in the prices of
local crops, thus adversely affecting the domestic agricultural sector.
Further, Indian SMEs in agriculture-related products and food products,
as well as in some intermediate goods and light manufacturing productsare likely to be negatively affected by the drastic tariff liberalization
under the AIFTA. However, import liberalization in intermediate goods
will impel MNCs to undertake production rationalization across the
region, particularly in the transport equipment and machinery sectors.
This might also help Indian MNCs that are active in the region,
especially in the chemicals and iron and steel sectors. The paper argues
that this will lead to Indias deeper integration in production networks in
some industries such as machinery, chemicals and transport equipment.
On the other hand, there are hardly any immediate benefits for Indian
producers as average percentage tariff drops in Malaysia, Indonesia and
Thailands Normal Track products are much lower than Indias. Further,the ASEAN-5 economies are leading exporters of light manufacturing
products. India will also be competing with China and South Korea in
the ASEAN market, which already have FTAs with ASEAN. Thus
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Indian SMEs will find it difficult to hold their own against these
countries in such sectors. Apart from China and South Korea, ASEAN
has also signed FTAs with a number of other major countries such as
Australia and New Zealand. While India has signed CECA with South
Korea, other countries could make use of the AIFTA to route their
products through ASEAN into the Indian market. China is a major
producer of agricultural goods and a variety of other manufactured
goods. Meanwhile, the fall in Japans share in Indias imports is linked
to Japanese MNCs reorganizing their production networks in Asia afterthe progress of bilateral FTAs in the region. It should also be noted that
Australia and New Zealand are major producers of milk products. So the
rise in Indias imports could be much more than is currently possible to
envisage. There is also little doubt that companies across these countries
will reorganize their production and procurement strategies, following
the Japanese example. The consequent decline in the need for setting up
production facilities in India in favour of imports from any of these
countries is also likely to have a significant negative effect on
employment and livelihoods. In conclusion, neglect of the development
needs of domestic agriculture and a manufacturing base for the expected
gains from service sector liberalization with ASEAN, together with theknown problems in service sector liberalization, are likely to make
Indias employment and livelihood issues even more challenging.
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According to Viswanathan and Shah (2008), the launching of trade
reforms and liberalization policies in the post-World Trade Organization
(WTO) context has already seriously affected the Indian plantation
sector in general and tea and rubber production in particular. One of the
most explicit effects of the trade reforms has been the emergence of
market uncertainties, leading to high volatility or a steep fall in the
international and domestic prices of commodities due to the removal or
dilution in tariff and nontariff trade barriers. The extent of decline in
prices and their instability have both been the highest for rubber and tea,which have had adverse effects on production. In the case of rubber,
liberal trade policies have resulted in the removal of quantitative
restrictions (QRs), which in turn enabled manufacturers of rubber
products to directly import rubber through duty-free channels (as and
incentive for exporting rubber products). The coping mechanisms
adopted by the tea and rubber planting communities (medium and large
tea planters and small rubber producers) have included cost-saving and
labour-displacing measures such as diluting or even discarding
scientifically recommended agro-management practices; labour
retrenchments; lockouts; and resistance to routine tripartite wage
negotiations. A large number of medium- and small-scale tea estateshave closed in the major tea-growing regions of India due to the crisis
and troubled labour relations. This has severely affected the livelihoods
of labourers and their dependent communities, as there has been a slump
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in employment, non-payment of wage and non-wage benefits, and the
disappearance of other social security measures.
In his study Ramphul ohlan (2012) investigates the pattern and trends
in Indias bilateral trade with ASEAN countries during 1980-2008. India
and ASEAN countries trade specialization products have been
estimated applying Lafay (1992) index. The prospect for Indias
expansion in ASEAN is examined using to estimate the changes in
pattern of Indias comparative dynamics of Indias trade specializationhave been compared with growth in the world demand. The empirical
findings on the share in ASEAN countries trade has slightly grown, but
has been less than that of Japan and China. Further, this shift has been
more marked in the case of imports. While the ASEAN countries are not
a major destination for Indias exports, these countries play a significant
role in Indias imports.
India runs a large and worsening trade deficit merchandise trade deficit
with ASEAN was US$ 16.3 billion in 2008, a 12.1 per cent or US$ 1.7
billion increase over 2007. Indias ratio of balance of trade to total
foreign trade worst in case of its trade with ASEAN countries than itsoverall foreign trade. During the last three decades, Indias trade
intensity in intensity in ASEAN countries has deteriorated. SEAN export
to India when matched against Indias import profile are more
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compatible in contrast with Indias exports to ASEAN and its import
profile. In the context of competition between ASEAN countries and
India, the study explores that Indias comparative advantage is rather
poorer than ASEAN countries. The policy implication is that in order to
benefit from ASEAN-India Free Trade Agreement in Goods India needs
for enhancing its competitiveness. Indias simple average MFN applied
advalorem tariff rates were higher than ASEAN countries.
Ohlan suggests that tariff elimination under ASEAN-India Free TradeAgreement in Goods is likely to increase import surges in India. Indias
exports basket is highly diversified. India has a comparative advantage
in some of the fastest growing sectors of the world demand. It shows
signs of Indias potential benefits from multilateral trade liberalization.
(Okimoto 2005) find that Intra Industry Trade (IIT) among ASEAN
countries and China is quite significant but there is still very little intra-
industry trade between ASEAN and India. Indias relatively high tariff
rate and lack of dynamism in the manufacturing sector can be possible
reasons behind this. Also, foreign direct investment (FDI) received by
India has been mostly in the services sector while China has receivedmost of its FDI in the manufacturing sector.
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Shankaran Nambiar (2011) concluded that Indias age structure
favours development for variable fields in the service sector. In contrast
to the other major Asian nations, India's working population will
increase rather than decrease for another 30 years. Within ASEAN, only
Cambodia and Laos have an increasing working population while the
share of people aged 15 to 64 will decrease in all other ASEAN nations
by 2020.
This trend will lead to increasing demand of services in ASEAN andIndia will prove to be a good partner to reduce and maybe even
overcome this shortage. Additionally, ASEAN nations will face a lack of
skilled labour, a factor that could be filled by India. Due to their
enormous growth in the past years, economies like Malaysia, Singapore
and Thailand face shortages in manpower at all skill levels. He argued
that India needs to engage member countries on services. This
suggestion is made because the service sector integration within ASEAN
has yet to be accomplished and ASEAN is relatively closed to Foreign
Service providers that unless India and ASEAN sign an agreement on
free movement on service providers on a bilateral basis with ASEAN.
Nambiars study has tried to explore the future prospects of Indian-ASEAN relations. The agreement on trade in goods that came into effect
at the beginning of 2010 was possibly a starting point in this respect.
The next stage in Indias economic relations will be to seek completion
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of an agreement on trade in services. This is an area in which Indias
contribution to the region can be fully realized. He suggest that services
prove to be a very good starting point to enhance cooperation further,
there are several political as well as organizational obstacles that have to
be resolved before India and ASEAN can take their cooperation to the
next level.
He opined that an agreement on services trade would be well advised,
since it might help to overcome the bias in benefits from the currentagreement towards ASEAN states. On the other hand, ASEAN states
need to come to terms with the direction in which ASEAN integration
will precede. If this question remains unsolved, it is unlikely that
ASEAN states will be able to represent themselves as one body in global
negotiations. Nevertheless, given their different levels of development,
India will have to engage with the states with due consideration to their
economic conditions. In addition to the possibilities that India can find
within the services sectors of the respective ASEAN member states,
there are other areas for cooperation. These areas include capacity
building and the improvement of connectivity through infrastructure
development. Indias technical expertise can also be extended toASEAN by cooperating in disaster forecasting and management. Indeed,
Indias engagement with ASEAN should be comprehensive and Wide-
ranging. Nevertheless, the question of how this involvement will be
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executed depends on the framework that is selected. The two options
that are possible are ASEAN+4 and ASEAN+6. Since there are political
barriers that may have to be overcome in accessing these regional
architectures, it would be to Indias benefit to initiate its engagement
with ASEAN member states on a bilateral basis. This will give India the
opportunity to build a firm basis for involvement with ASEAN
regardless of the framework that eventually emerges.
Jagdish Bhagwati argues in Going It Alone: the Case for RelaxedReciprocity in Freeing Trade , about certain assumptions regarding
Indian trade and economic arrangements. He believes that the analysis
implies that India should Be considering the regional option as a serious
complementary effort to securing Further liberalization at home and
abroad. India has recently signaled its willingness to depart from an
exclusive reliance on the multilateral approach by announcing its desire
to negotiate a free trade agreement with ASEAN countries.
According to him, India has already fired the regional salvo. Perhaps the
curious choice of ASEAN as India's preferred regional trade partner is
justified under the current circumstances. But, it raises the questionwhether there has been a considered and strategic assessment of the
desirability of pursuing regional integration.
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Chandrima sikdar and Biswajit nag in their cross country analysis of
following implementation of the FTA, bilateral trade between India and
ASEAN increases phenomenally. While Cambodia, Indonesia, the Lao
Peoples Democratic Republic, the Philippines and Viet Nam provide
additional markets for almost all Indian exports, Malaysia, Singapore
and Thailand provide markets for some of the fastest growing exports
from India. Malaysia, Thailand and Viet Nam become major importers
of Indian goods in terms of total exports by that country to ASEAN.They also provide markets for the fastest growing items 32 exported by
India. In particular, Thailand consistently provides a large market for
Indian products under all three scenarios.
The increase in Indias imports from ASEAN is due to increased
exportsby Indonesia, Malaysia, the Philippines, Singapore, Thailand and
Viet Nam, plus the rest of ASEAN. These countries also supply the
items that register the largest increases in Indiasimports from ASEAN
following the implementation of the FTA.
Santosh kumar das and Ritika Tiwari examined the India-Asean FTA
with special reference to north-east region and concluded Trade onseveral occasions has proved to be the engine of growth in many
regions. Similarly, increasing regional and international trade can shape
the future course of development of the northeastern region. Hence, the
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free trade agreement between India and ASEAN is likely to offer enough
opportunities for the development of the NER by providing scope for
industrialization. However, there exist certain structural impediments,
which are likely to limit the trading activities between the NER and its
neighboring Southeast Asian countries, which ultimately affect growth
and development of the region.
The new trading arrangement will have limited impact on the
development of the region due to lack of specialization in exportableproducts, low level of industrialization, lack of connectivity due to
underdeveloped physical infrastructure, underdeveloped markets and
insufficient private investment. NER will not be able to derive benefit,
unless it transforms itself as a major production hub. In this context,
connectivity holds the key. Improved connectivity within NER and the
rest of the country is vital for the development of the region, as it will
facilitate greater market integration and boost the developmental
activities including the process of industrialization.
As of now, the belief that the FTA will bring open doors of opportunity
for the NER and will contribute immensely in its development process isfar from the reality. However, it is true that the FTA certainly provides
enough opportunity for the region to grow and develop. And NER
cannot take the maximum advantage, unless the above mentioned
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existing structural impediments are addressed and taken care of, and
hence will have limited impact on the development of the region.
Rahul Sen, et al., see great potential for a close cooperation between
India and ASEAN states (such as Malaysia, the Philippines and
Singapore) since these states have developed a comparative advantage in
the field of electronic hardware production. India, with its focus on
software development and applications, can explore opportunities in
complementing the activities in this country.These complementaritiescan be developed in various directions. Malaysias electronics sector is
home to innumerable multinational corporations (MNCs). In the course
of the development of the hardware industry, many local companies
have benefited from the technology transfer and some of them have
grown to become vendors to the MNCs. It is possible for Indian
companies to gain access to markets through these firms. With the
extension of technology and capital, it is possible for Indian companies
to extend their reach into the hardware industry. The scope for entry into
the Philippines could take a different track. The Philippines has a labour
force that is relatively cheap, educated and fluent in English. Indian
software companies could capitalize on these qualities to extend theoperations of their companies and take advantage of the availability of
the labour force in the Philippines and Malaysia.
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Karmakar (2005) points out, services trade in ASEAN is not only more
regulated for foreign suppliers, but the restrictions are also there for
intra-ASEAN trade. Efforts are being made to gradually integrate
services trade among ASEAN members. The ASEAN Framework
Agreement on Services (AFAS) provides the broad framework to
achieve this. The target is to make ASEAN a single market and
production base through free flow of goods, services, investment, skilled
labour and freer flow of capital by 2015.
Indo-ASEAN FTAs Impact on energy security according to Das Gupta
et al (2006) is likely to help Indias quest for energy security. India is
heavily dependent on west Asia for oil imports, which is a geopolitically
tense part of the world. India is currently the worlds sixth largest energy
consumer, and the third largest oil and gas consumer in Asia, after China
and Japan. For India, oil imports account for about 72% of the total oil
consumption, of which 67% is being sourced from west Asia. Hence, on
the external front, India is pursuing diversification of supply sources and
trying to significantly increase exploration of oil and gas. Among the
ASEAN countries, India at present imports crude oil from Malaysia and
Brunei, which contributes 5.4% of its total crude imports from theworld.India also imports LPG from Malaysia, which comprises just
3.5% of its total LPG import. On the other hand, among the ASEAN
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countries, Indonesia, Malaysia and Vietnam have about 1% of worlds
proven oil reserves and 3% of the worlds proven gas reserves.
Parthapratim Pal, Mitali Dasgupta(2008) concluded that the Indo-
ASEAN trade in goods agreement may not be beneficial for India in the
short run but it can be thought of as a part of a long-term strategy to
improve Indias economic and strategic presence in the neighborhood.
Though India shares a land border with Myanmar and maritime borders
with Indonesia and Thailand, the ASEAN countries have never beeneconomically very close to India. In fact, India and the ASEAN
countries are not considered natural trading partners. This is in direct
contrast to China which has established a distributed regional network of
production and trade in this region.The Indo-ASEAN FTA can be
perceived as an initial step towards increased economic integration of
India with south-east Asia. From a broader perspective, the Indo-
ASEAN FTA can also be viewed as another cog in the wheel of
increasing south-south cooperation. This is important because the world
economic system is presently going through some significant changes.
Regarding impact on service sector A number of studies have pointedout that there is significant complementarily between Indias service-
oriented economy and ASEANs light manufacturing driven economy
(Sen et al 2004; Kumar 2002; Bhattacharya and Arif 2002). The
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Indo-ASEAN FTA should thrive to balance these complementarities and
bring out a mutually beneficial deal. A services deal with ASEAN is also
expected to open up significant opportunity for cross border movement
of Indian professionals. One of the major barriers for movement of
skilled professionals is lack of recognition of qualifications among
nations. To avoid this problem it is important to have Mutual
Recognition Agreements (MRAs) among trading partners.
Shinoj (2009) has analyzed that in pursuance of Indias LOOK EASTpolicy, focus on trade between India and East Asia has heightened
during the previous decade. Alongside, successive governments in New
Delhi have sought to develop closed institutional links with the region, it
is estimated that India exported merchandise worth Rs. 44235 corers to
countries of ASEAN in 2005-06, while its imports were pegged at 45318
corers. The trade basket comprised of machinery and electrical
appliances, minerals, chemicals, textile and apparels, plastics and
processed foods, agriculture and vegetable products. The total
merchandise trade over the timeline has revealed that both exports as
well as imports have grown in double digit percentage during the decade
1995-96 to 2005-06. However the performance of Agriculturalcommodities in trade had been found declining. The estimates suggest
that India ASEAN trade in agricultural front has been quite
disappointing with the agriculture sector being out paced by other
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sectors, the fruits of various favorable policies have failed to get
manifested into Indias agricultural trade with the region.
CONCLUSION:-
No doubt, the existing work on India and ASEAN Free Trade
Agreement puts stress on mutually strong relations between the two
regions. Scholars arguments are in favor of economic ties between India
and Southeast Asia. But their work has failed to mention the proper
future solution that needs to be implemented.There still remain various
aspects which need to be looked into for the pcontinued success of their
relations in the future. The singing of FTA is not sufficient way, to get
maximum benefits and associated advantages from the FTA (January
2010), it is important for India to ensure that it can maintain proper
policy coordination and reforms overtime. A sincere attempt towards
effective management of regional integrationprocess should ensure a
progressive framework to facilitate trade at multilateral level. To
conclude, it can be said that both India and ASEAN are keen to establish
a sound and strong relationship with a long term emphasis on greater
cooperation and integration. But there are many challenges before them
which have to be accepted and try to make proper strategies so that their
relationship lasts for long run.
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REFERENCES:-
Ahmed, S.India-ASEAN Free Trade Agreement: A sectoral analysis,
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for the Enhancement
of Trade and Investment, a report submitted to the Government of India
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Bhgwati,jagdish (2002) : Going Alone: The Case for Relaxed
Reciprocity in Freeing Trade.
Chandrima sikdar and Biswajit Nag (2010):-Impact o India-ASEAN
Free trade agreement: A cross country analysis using applied general
equilibrium modeling.
Das,Santosh K. and Tewari Ritika (2010), IndiaASEAN Free
Trade Agreement and Development of North East:
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Free Trade Agreement(epw,nov.2011)
Karmakar, S. (2005). India-ASEAN cooperation in servicesan
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Ohlan,Ramphul ( 2012) ASEAN-INDIA FREE TRADE AGREEMENT
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