India and the Association of Southeast Asian Nations (ASEAN) have reached an agreement to conclude the review of their existing free-trade agreement (FTA) in goods by the year 2025. The FTA between India and the 10-nation ASEAN bloc was implemented 13 years ago, and Indian businesses have long advocated for its review.
Highlights of the Agreement:
The decision to review the ASEAN-India Trade in Goods Agreement (AITIGA), signed in 2009, was a central theme at the 20th ASEAN-India Economic Ministers' meeting held in Semarang, Indonesia. An AITIGA joint committee meeting took place ahead of the ministers' meeting, establishing a roadmap for the review and finalizing the terms of reference and work plan for the negotiations.
Enhancing Trade and Addressing Asymmetry:
The goal of the review is to enhance and diversify trade between India and ASEAN while addressing the current asymmetry in bilateral trade. The ministers have committed to a quarterly negotiation schedule and intend to conclude the review by 2025.
Trade Trends and Concerns:
In recent years, India's exports to ASEAN increased to $44 billion in 2022-23, up from $42.32 billion in the previous fiscal year. However, imports grew at a faster rate, reaching $87.57 billion in 2022-23 compared to $68 billion the year before. This trade imbalance led to a widened trade deficit of $43.57 billion in the last financial year, compared to $25.76 billion in 2021-22.
Challenges and Criticisms:
Criticism of the FTA centers on concerns about the agreement's fairness to the Indian industry and the practice of routing goods from third countries through ASEAN nations to take advantage of duty benefits. India's Commerce and Industry Minister, Piyush Goyal, labeled the trade agreement with ASEAN as "ill-conceived" and unfair.
The ASEAN members participating in the FTA are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
Addressing Trade Imbalance and Misuse Concerns
India and the Association of Southeast Asian Nations (ASEAN) have recently agreed to review and update their existing free-trade agreement (FTA) in goods by the year 2025. This decision comes in response to concerns over trade imbalances and the potential misuse of the agreement by certain parties.
Reviewing the FTA:
The FTA between India and the ASEAN bloc, comprising 10 nations, was established 13 years ago. While the agreement initially aimed to boost trade between the two sides, concerns have emerged regarding its effectiveness and potential misuse.
Addressing Trade Imbalance:
The primary objective of this FTA review is to address the existing trade imbalance between India and ASEAN member countries. While India's exports to ASEAN have seen growth, imports from ASEAN nations have surged even more significantly. This trade imbalance has led to a widening trade deficit, with India importing far more than it exports to the region.
Misuse of the Agreement:
Another crucial concern is the misuse of the FTA mechanism. Some parties have been allegedly routing goods from third countries through ASEAN nations to exploit the duty advantages offered by the agreement. This practice undermines the intended purpose of the FTA and has prompted India to seek a comprehensive review to ensure fair trade practices.
Importance of the Review:
The FTA review holds strategic importance for both sides. India aims to ensure that the agreement benefits its domestic industries and economy while also fostering fair trade practices. On the other hand, ASEAN countries seek to maintain a balanced trading relationship that supports their economic growth and development goals.
Couple of examples where India has raised concerns about unfair trade practices under the ASEAN-India Free Trade Agreement (FTA):
1. Misrouting of Goods: India has expressed concerns about certain goods being routed through ASEAN countries to exploit the duty advantages provided by the FTA. This practice involves importing goods from third countries, which are then transshipped through ASEAN member countries to enter the Indian market at lower duty rates. Such activities not only distort the intended benefits of the FTA but also result in a loss of revenue for the Indian government and negatively impact domestic industries.
2. Trade Deficit and Unfair Competition: The trade deficit between India and ASEAN member countries has been widening over the years, with India importing more than it exports. Indian industries have claimed that they face unfair competition due to the influx of cheaper goods from ASEAN nations. This competition can hinder the growth of domestic industries, as they struggle to compete against products imported at lower duty rates under the FTA.
3. Non-Tariff Barriers: While the FTA aims to reduce tariff barriers, India has faced challenges related to non-tariff barriers imposed by some ASEAN member countries. These barriers include stringent regulations, technical standards, and testing requirements that can act as obstacles for Indian exports. Such barriers can make it difficult for Indian products to access the ASEAN market on a level playing field.
4. Impact on Sensitive Sectors: Some sectors within India have been disproportionately affected by the FTA. For instance, the Indian dairy industry has raised concerns about an influx of cheaper dairy products from ASEAN countries, which can adversely impact local dairy farmers and processors.
5. Safeguard Measures: To address concerns about unfair competition and trade imbalances, India has taken steps to impose safeguard measures on certain imports, including from ASEAN member countries. These measures are intended to provide temporary relief to domestic industries facing increased competition due to imports under the FTA.
In light of these challenges, India's call for a comprehensive review of the ASEAN-India FTA aims to address these issues and ensure that the agreement operates in a manner that benefits both parties while promoting fair trade practices.