Opinion Look South East Policy
Since March 2004,when the India-ASEAN trade negotiation committee was formed,there have been many meetings to...
Since March 2004,when the India-ASEAN trade negotiation committee was formed,there have been many meetings to thrash out various contentious issues: rules of origin,operational certification procedure,rate of reduction of import tariff on various products,most important being agricultural products. Finally,a free-trade agreement on goods has been announced,coming into force from January 1,2010. ASEAN has already inked such deals with China,Japan,Australia-New Zealand and South Korea.
India and ASEAN have negotiated a timeframe up to 2019 for reduction of tariff on so-called highly sensitive items: palm oil,pepper,coffee and black tea. Tariff rates on sensitive track goods will be reduced gradually,up to 2016 for five major trading partners within ASEAN; others are to be reduced and finally eliminated by 2013. Some countries in ASEAN Cambodia,Myanmar and so on will get more time (three to five years more) to reduce tariffs. An exclusion list with items where India may not want to reduce tariffs will be reviewed every year.
I have carried out a study of exports to ASEAN countries. The most crucial point is that unlike most other trading blocs,the overall trade of India with ASEAN nations has not been trade-diverting. Trade diversion is a well-known tendency,in which trade is diverted to the FTA bloc at the expense of non-FTA countries which means that overall welfare in the world economy goes down,and every country is harmed,in the long run. This does not appear to be a fear with ASEAN,which is in keeping with the spirit of the WTO,and might well strengthen multilateralism further.
It is worth noting that ASEANs own member states trade with the rest of the world has doubled over 1993 to 2000. Thus the increase in trade between India and ASEAN should be looked at from the point of view of expanding multilateralism,which is the real,ultimate goal of the world economy if we want to achieve the optimum level of economic welfare.
Amongst ASEAN countries,from 1992 onwards,the reduction and elimination of tariffs spurred greater production efficiency and long-term competitiveness vis-à-vis the rest of the world. At the same time,intra-ASEAN trade increased from US $44.2 billion to US $95.2 billion in 2000 an annual average increase of 11.6 per cent. Export growth is even more impressive: 29.6 per cent till 1997. (The economic and financial crisis that engulfed some of these countries thereafter only temporarily slowed expansion.)
These are genuinely impressive figures. They should give us an inkling of the potential this FTA has if the various involved parties,including the government,take due care and calibrate their responses to the challenges that lie ahead. In particular,preparatory work on internal reforms in areas that will face external pressure should be started right away.
In addition,the government will have a political challenge to deal with,one which has already started brewing in our midst. When dealing with those who worry about being losers from this FTA,it is wise to remember that calibrated uncertainties are extremely useful if taken proper advantage of.
One sector that will particularly benefit in terms of increased trade is engineering and industrial goods. That will mean India has a unique opportunity to upgrade its products to compete with those from Japan,the EU,America and China in the ASEAN market. This agreement will also enable the strengthening of Indias economy in various aspects of trade in goods. ASEANs trade with Japan,China and the EU is almost three to four times its trade with India. This will push us to take one more step towards playing in that league. The agreement should also enhance Indias economic competitiveness vis-à-vis its competitors.
But the challenges definitely have to be faced squarely. First among those is providing all necessary and reasonable support to various stakeholders affected by the trade agreement especially those in unorganised sectors like agriculture. Their production efficiency should be helped to be aligned to those of the ASEAN countries. Productivity is the key; and according to this author,self-governed bodies of farmers,ably supported by specialised government/ outside-government organisations are most capable of tackling this problem in a sustainable and fruitful way.
The writer is a fellow of ICRIER in New Delhi express@expressindia.com
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