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Looking eastwards for trade

After six years of protracted negotiations, the 10-member Association of South East Asian Nations (ASEAN) has finally clinched a Free Trade Agreement (FTA) with India. The deal was done at last week’s annual meeting of Economic Ministers in Singapore and the finer details will be worked out at the official level before its formal acceptance by the leaders at the Bangkok summit scheduled for December. There has been tough bargaining ahead of the settlement, and the Indian industry may well feel New Delhi has conceded more ground than it has gained from the ASEAN negotiators. It was Malaysia and Indonesia that held out till the end and extracted the concessions they wanted on sensitive items such as palm oil, tea, coffee, and pepper. This deal relates only to trade in goods and negotiations will soon begin on a separate pact on services and investments. India should be able to secure a more advantageous agreement on these two key issues. As a result of the FTA, trade between India and the ASEAN, which is now $38 billion, is expected to surge to $50 billion by 2010. India had already slashed most of its tariff lines, but the hitch was on the relatively large number of items on the “sensitive list.”

When the negotiations failed to make headway after several rounds of official level talks, it needed a push from Prime Minister Manmohan Singh and the ASEAN leaders to achieve a breakthrough in time for the 2008 summit. Indian industry and trade tend to be sceptical about such FTAs because they generally happened to put the other side at a greater advantage. This they feel is true of the one with ASEAN as much as of the bilateral trade agreement with Sri Lanka. But the deal with the Southeast Asian neighbours was essential at this stage as it serves to demonstrate that New Delhi is indeed committed to regional cooperation and freer trade. It has to be seen in the context of the failure of the Doha round of trade negotiations and the perception in the West that India had taken an uncompromising, protectionist stance on opening up trade in sensitive sectors. It is time Indian industry became more competitive to ensure that FTAs do not really hurt. Similarly, India Inc. will expect the government to work seriously on the agreement on trade in services as well as investments before the December 2009 deadline that has now been agreed upon. That could correct any imbalance in benefits from the pact on trade in goods. This FTA should further strengthen India’s ties not just with ASEAN, but very soon with the whole East Asian region as well. It marks another milestone in New Delhi’s “Look East” policy.

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