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India-ASEAN FTA as a Form of Economic Recovery?

    Free trade agreement agreement (FTA) between the two sides between ASEAN and India (ASEAN Today)
    Free trade agreement (FTA) between the two sides between ASEAN and India (ASEAN Today)

    India has been pushing ASEAN to enter into a Free Trade Agreement (FTA) as a form of addressing concerns over-rules and gaps in trade. In this case, India has a goal of negotiating trade agreements due to a significant increase in the trade deficit. The gap ballooned by around 70% or the equivalent of USD 43 billion in FY23 with all 10 block members. The trade deficit to the ASEAN region is a time of growth in manufacturing capacity and exports. Following the China-plus-one policy, multinational companies have invested in ASEAN.

    In FY19, ASEAN achieved a trade deficit of up to USD 21.85 billion. This is an incentive scheme that is closely related to production, thereby triggering demand for products in India. India is the largest importer of industrial capital goods and raw materials which are intermediaries from the ASEAN region. Tariff concessions based on Free Trade Agreements (FTAs) have benefited various sectors but have negatively impacted domestic companies, especially metal and chemical companies.

    Previously, discussions had been held but stopped due to the difficulty of accommodating the ten block members. When these negotiations are carried out in a faster time. ASEAN and India are negotiating with an agenda of negotiating terms and forming small-scale working groups to deal with very specific problems and demands between the two parties.

    Meanwhile, India has taken action in the form of ratification of rules of origin due to the very ineffective application of rules of origin as a result of China-ASEAN bilateral trade of around USD 641.5 billion in 2019, increasing to USD 975.3 billion in 2022.

    Various products from China have dominated the ASEAN and Indian markets so that they have an impact in the form of benefits to third parties under the Asean-India Trade in Goods Agreement (AITIGA). The existence of an FTA between ASEAN-China resulted in greater trade access for China for ASEAN. In fact, the existence of the ASEAN-China FTA provides more trade access than the ASEAN-India Trade in Goods Agreement (AITIGA), causing relatively high losses to India. 

    In order to be able to balance China or even be superior to China, India must apply the rules of origin (RoO) used by ASEAN, which have a minimum value-added criterion of 40%, not a double requirement for a minimum regional value addition of 35%, as well as changes to subheadings with appropriate tariffs that has been defined in AITIGA.

    However, in the Delhi Policy Group report, India already has several problems related to verifying countries of origin (COOs). In the years between 2018 and 2019, India saw a surge in requests from ASEAN countries, namely Singapore and Vietnam. But this actually raised doubts regarding the misuse of FTAs regarding third goods originating from FTA partners. 

    In previous years, India had to limit imports of gold from South Korea, which after an investigation found that it came from a third country but was declared to be goods of origin. In order to prevent misuse of FTAs, India has a way, namely by strengthening the rules of origin. To mitigate the misuse of the FTA, India hereby tightens the rules of origin, namely by applying the CAROTAR rule as a pacificator of the rules of origin under the FTA strictly.

    After the implementation of CAROTAR, Indonesia had concerns that the verification and clearance process would take longer, including that it is not in line with the spirit of trade liberalization in accordance with what has been agreed upon as stipulated in the ASEAN and India FTAs. On the other hand, there is a risk, namely leakage of business process information to importers.

    India to ASEAN free-trade agreement among rising import fear (Business Standard)
    India to ASEAN free-trade agreement among rising import fear (Business Standard)

    Trade between ASEAN-India requires a period of more than a decade to be able to increase trade value. Bilateral trade between ASEAN and India in 2010-2011 reached USD 57 billion and increased from 2022-2023 to USD 131 billion. This is also in line with the increase in India’s exports to ASEAN in 2010-2011, amounting to USD 25.63 billion to USD 43.51 billion and imports also increased from USD 30.61 billion to USD 87.59 billion.

    After the implementation of the FTA, several countries in ASEAN experienced a surplus, such as Myanmar, the Philippines, Laos, and Cambodia which showed that their trade balance was running smoothly. The increasing asymmetry in India’s trade balance has created something to worry about. Furthermore, the ASEAN and India agreements need to be reviewed with the aim of reassessing ASEAN’s share of trade with India and making a comparison with global trade. And for this to be successful, it is necessary to have the intervention of all member states in the formulation of policies.

    Past global barriers have made trade between ASEAN and India difficult. After 2010-2011 both ASEAN and India experienced economic shocks, which included:

    • Falling oil prices
    • Trade war between China and the United States
    • Covid-19 pandemic

    These events resulted in an economic slowdown and a drastic decline in trade. ASEAN and India are experiencing a V curve in post-pandemic trade.

    ASEAN and India finalized the FTA again with various agreements such as:

    • India’s interest is to strengthen production
    • India strengthens market access in strategic areas
    • ASEAN expands exports to India
    • Reducing trade barriers such as non-tariff barriers and increasing physical and digital connectivity

    Some of the benefits of FTA for ASEAN and India are:

    • First, increasing India’s non-oil and gas and non-mineral exports to ASEAN.
    • Second, there is a transformation of trade between ASEAN and India which was originally in agriculture into manufactured goods.
    • Third, FTA review involves assessing exempt list products so that FTAs are more effective in trade promotion issues.
    • Fourth, India’s increasing comparative advantage.
    • Fifth, India and ASEAN must streamline NTMs through the harmonization of regulations.
    • Sixth, during the renegotiation, India will have a great market.

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