India and the ten-member Association of Southeast Asian Nations (ASEAN) are set to commence crucial negotiations in February with the goal of modernizing their decade-and-a-half-old Free Trade Agreement (FTA). This move comes as part of a broader effort to address the significant trade imbalance currently existing between India and ASEAN countries.
The ASEAN India Trade in Goods Agreement (AITGA), which was originally signed in August 2009 and implemented in January 2010, has led to a trade deficit heavily skewed against India. Over the years, this deficit has ballooned from $7.5 billion per annum at the time of the pact’s implementation to a staggering $43.57 billion. In the fiscal year 2022-23 alone, India’s exports to ASEAN countries were valued at $44 billion, while imports from these nations stood at $87.57 billion.
The primary focus of the upcoming negotiations, which are scheduled for February 18-19 in New Delhi, will be on introducing more balance into the trade pact. This will involve a comprehensive re-evaluation of the entire FTA with an emphasis on modernization. Key aspects under consideration include the introduction of product-specific rules, trade remedies, and revisions to the Rules of Origin (ROO) criteria. The ROO are essential in determining the origin of a product and establishing whether it qualifies for duty cuts under an FTA. By revising these rules, India aims to increase market access for certain items while simultaneously preventing the circumvention of goods, particularly by China, through ASEAN countries.
The review process is expected to be conducted on a quarterly basis, with the goal of completing the negotiations by 2025. However, it has been indicated that new areas such as labor, environment, SMEs, and gender issues are likely to be excluded from the discussions to avoid complicating the FTA and maintain focus on making the existing pact more efficient.
This modernization initiative is crucial for India as it seeks to address concerns about the routing of goods from third countries via ASEAN nations, which has been a longstanding worry. The objective is to curb this issue through the review process. Furthermore, the trade balance has been in favor of ASEAN countries, with imports to India growing at a much faster pace compared to exports from India to these nations.
In summary, the review of the India-ASEAN trade pact is a significant step towards rectifying the trade imbalance and updating the agreement to reflect the current economic and trade dynamics. This modernization effort aims to foster a more equitable and efficient trade relationship between India and the ASEAN countries.