The Hindu : FTA: India looks to ASEAN

Online edition of India's National Newspaper
Wednesday, Dec 31, 2003

Business

Business

FTA: India looks to ASEAN

By Sushma Ramachandran

NEW DELHI DEC. 30. India is moving slowly on entering into a free trade agreement with the Association of South East Asian Nations (ASEAN) despite the enormous benefits that may accrue as a result of such an arrangement. Official estimates are that the trade potential from an FTA with this critical economic bloc can run into hundreds of billions of dollars in the long run, but it is felt that the domestic industry should be given a chance to prepare for this scenario.

The Union Commerce Ministry, which has carried out studies on the prospects for an Asean-India free trade agreement, has found that there could be numerous benefits for such an arrangement. These include the huge market size, which creates opportunities for reaping economies of scale both from the supply and demand perspective.

At the same time, the Ministry recognises that one of the major hurdles in the way of moving faster towards an Asean-India FTA is the impact on the domestic industry. As it is, the framework for the free trade agreement entered into with Thailand has caused ripples here with domestic auto component manufacturers concerned over cheap imports entering the market from that country. Some large automobile manufacturers have units in that country which can be used to source components in case import tariffs are reduced. Similar fears have been expressed regarding other Asean countries. It is for this reason that the creation of FTA has been envisaged as a gradual process, taking over a decade to be finalised.

The framework agreement itself, entered into with the Asean in October this year, envisages that negotiations will start initially for the creation of a regional trade and investment areas (RTIA), which would then enlarge to encompass a free trade area.

This would begin with goods and expand to cover trade in services and investments.

A study by the Ministry shows that there is strong trade complementarity, which could lead to huge trade expansion. It points to the skewed export structure of Asean and India in bilateral trade which points to the huge scope existing for expanding trade through diversification. The removal of trade and investment barriers through the proposed RTIA is expected to bring about greater competition within the domestic market and thus give an incentive to indigenous industry to move towards becoming internationally competitive.

Besides, the formation of an RTIA could well lead, it is felt, to more foreign direct investment from Asean countries. In turn, it could provide opportunities to large India companies, which are now trying to achieve market access in Southeast Asia through investment rather than exports.

In regard to bilateral economic cooperation, several areas have been identified where technical collaboration prospects appear to be bright between Asean countries and India.

These include tourism, infrastructure, pharmaceuticals, education and human resource development as well as media and entertainment.

The framework agreement provides for exchange of tariff concessions to commence from November 1, 2004. There would be a common list of 105 items on which exchange of tariff concessions will take place. Tariffs will be eliminated on these items in three years between India and six of the Asean countries — Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. In the case of Cambodia, Laos, Myanmar and Vietnam, India will remove tariffs on these items within three years while they will do so for India in six years.

China has also entered into an agreement with Asean, which also envisages an FTA within a ten year timeframe. In the case of India, however, the target date for the FTA is 2016 while with China it is 2015.

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