INDIA-ASEAN GOODS TRADE AGREEMENT – ECONOMY

News: India, ASEAN agree to review goods trade pact by 2025 to fix ‘asymmetry’

 

What's in the news?

       India and the Association of Southeast Asian Nations (ASEAN) have agreed to conclude the review of the ASEAN-India Trade in Goods Agreement (AITIGA) by 2025.

 

ASEAN-India Trade in Goods Agreement (AITIGA):

       ASEAN-India Trade in Goods Agreement is a trade deal signed in 2009.

       The agreement covers trade in physical goods and products. It does not apply to trade in services.

       ASEAN and India signed a separate ASEAN-India Trade in Services Agreement in 2014.

       Along with the ASEAN-India Investment Agreement, the three agreements collectively form the ASEAN-India Free Trade Area.

 

Need to review the ASEAN-India Trade in Goods Agreement (AITIGA)?

Trade Deficit:

       In 2022-23, India’s exports to ASEAN increased to $44 billion from $42.32 billion in 2021-22.

       However, imports grew faster as it jumped to $87.57 billion in 2022-23 against $68 billion a year ago.

       The trade deficit widened to $43.57 billion in the last financial year, from $25.76 billion in 2021-22. It was just $5 billion in 2010-11.

       In this context, India’s Commerce and Industry minister had said the trade agreement with ASEAN was an “ill-conceived” agreement and unfair to the Indian industry.

 

Other concerns of India:

       India has been worried about the routing of goods from third countries in India through ASEAN countries members by taking the duty advantages of the agreement.

 

Significance of ASEAN to India:

1. ASEAN’s centrality in India’s foreign policy:

       A cohesive, responsive, and prosperous ASEAN is central to India’s Indo-Pacific Vision and India’s Act East Policy and contributes to Security and Growth for All in the Region (SAGAR).

2. Economic:

       ASEAN is one of the largest markets in the world comparative to the EU and North American markets.

       It’s also the 4th most popular investment destination globally.

       Investment opportunities for Indian businesses - Cost of production is lower in Laos, Cambodia, and Myanmar, which means that Indian firms can gain significantly by investing in these countries.

3. Countering China:

       Cooperation between India and ASEAN is crucial to counter China’s power projection in the region.

       Both have territorial and border issues with China, disputes over the South China Islands and waters for ASEAN and over land boundaries for India.

4. Integration with regional and global supply chains:

       Increasing engagement with ASEAN is pivotal to facilitate India’s integration with regional and global supply chain movements.

5. North-East development:

       Connectivity projects with the ASEAN nations keeping Northeast India at the centre can ensure the economic growth of the land-locked north-eastern states.

6. Edible oil dependence:

       India has been importing approximately half of the country's total requirement of edible oils.

       Most of the edible oil imported by India is refined palm oil or palmolein and much of the imported oil comes from Indonesia and Malaysia.

       India is the world’s largest importer of palm oil from its largest producers, Indonesia and Malaysia.

7. Counter-terrorism:

       Collaboration with the ASEAN nations is necessary to counter insurgency in the Northeast, combat terrorism, etc.

8. Maritime security:

       The Indian Ocean carries 90% of India’s trade and its energy sources. Presence of choke points such as the Malacca strait makes the South-East Asian region significant for countering traditional and non-traditional maritime threats like piracy and terrorism.

9. Indian Diaspora:

       About 9-8% of the population in Malaysia and Singapore is of Indian origin, in Myanmar-4% and Indonesia about 0.5%.

 

Challenges in India - ASEAN relations:

1. Drug trafficking menace:

       Cross country organized crime like drug trafficking between Myanmar, Thailand and Laos forming the Golden Triangle could not be contained by ASEAN.

2. China factor:

       India’s effort in this regard is meager when compared to China’s dominance in the region

       China’s assertive military, political and economic rise, as well as the South China Sea disputes have divided ASEAN without unanimity amongst them.

3. RCEP relations: 

       India walking out of RCEP can become a sticking point between India and ASEAN, since India’s domestic market was considered a key element in the RCEP negotiations.

       India has not signed RCEP for various reasons like non-transparency in RCEP, RCEP’s non-accounting of India’s service sector relaxations, etc.

       By not signing the RCEP India also lost access to new market opportunities created in East Asia.

4. Delayed projects: 

       Though India has committed to many connectivity projects, they have not been completed at the rate on par with China

       China, on the other hand, through its BRI, is able to gain the trust of these countries.

5. Economic challenges: 

       India has an unfavourable balance of trade with the ASEAN nations.

 

WAY FORWARD:

       ASEAN-led mechanisms should be regarded as a viable regional architecture platform for the Indo-Pacific region.

       India is one of the founding members of the East Asia Summit.

       ASEAN continues to maintain its central role in the evolving regional architecture in Southeast Asia and its surrounding regions.

       India should increase its bilateral and multilateral engagements with ASEAN.

       ASEAN countries need to work to restore the ‘ASEAN centrality and unity’ through the strategic environment of competing interests.

       India should push for the reconciliation between Myanmar and the ASEAN.

       The focus must be on emerging challenges to international peace and security.