India-ASEAN Trade Deal Review

Syllabus: GS2/IR

Context

• Over the last one year, India has held nine meetings with the Association of Southeast Asian Nations (ASEAN) to review the trade agreement signed with the grouping, but no progress has been made on any item.

About

• The original agreement was signed in 2009.
• India opened 71% of its tariff lines to the ASEAN countries whereas countries like Indonesia opened 41%, Vietnam 66.5%, and Thailand 67%.
• In the last 15 years, India’s exports to ASEAN have doubled, but the imports have tripled.
  • These factors necessitated a review of the deal.
  • The review by a joint committee began in 2024.

Association of Southeast Asian Nations (ASEAN) – It was established in 1967 in Bangkok, Thailand. – It was founded by five countries like Indonesia, Malaysia, the Philippines, Singapore, and Thailand. – Aim: To promote regional cooperation and stability amid Cold War tensions. – Headquarters: Jakarta, Indonesia. – Current Member States: ASEAN currently consists of 10 member countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. – ASEAN maintains dialogue partnerships with multiple countries and organizations, including India, China, the USA, Japan, Australia, the EU, and others.

Brief on India-ASEAN Relations

• Foundation: Cooperation began in the 1990s.
  • Driven by shared economic and strategic interests.
  • Also a response to China’s growing influence in the region.
• Policy Framework: “Look East Policy” initiated in the 1990s, it was transformed into the “Act East Policy” in 2014, marking a more action-oriented approach to deepen ties with ASEAN.
• Milestones in the Partnership:
  • 1992: India became a Sectoral Dialogue Partner.
  • 1996: Elevated to Full Dialogue Partner.
  • 2012: Upgraded to a Strategic Partnership.
  • 2022: Elevated to a Comprehensive Strategic Partnership.
• Trade and investment: India and ASEAN have signed a Free Trade Agreement (FTA), significantly boosting trade and investment.
  • ASEAN is India’s 4th largest trading partner, with total trade reaching US$110.4 billion in 2021-22.
• Regional connectivity: India is working to improve connectivity with ASEAN through projects like the India-Myanmar-Thailand (IMT) trilateral highway and the Kaladan Multimodal Transit Transport project.
• Defense and security: Defense ties between India and ASEAN have deepened through joint military exercises such as the ASEAN-India Maritime Exercise and participation in the ASEAN Defense Ministers’ Meeting Plus (ADMM+).
  • India also places ASEAN at the heart of its Indo-Pacific vision for regional security and growth (SAGAR – Security and Growth for All in the Region).
• Socio-cultural cooperation: To strengthen people-to-people connections, India and ASEAN have promoted various cultural exchanges, such as the ASEAN Students Exchange Programme, training courses for ASEAN diplomats, and the ASEAN-India Network of Think Tanks.

India-ASEAN FTA

• The Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India was signed in 2003, establishing the legal foundation for subsequent agreements.
  • These agreements include the trade in goods agreement, trade in services agreement, and investment agreement, which together form the ASEAN-India Free Trade Area (AIFTA).
• The ASEAN-India Trade in Goods Agreement was signed and came into effect in 2010.
  • Under this agreement, ASEAN member states and India committed to gradually open their markets by reducing and eliminating tariffs on 76.4% of goods.
• The ASEAN-India Trade in Services Agreement, signed in 2014, includes provisions on transparency, domestic regulations, market access, national treatment, recognition, and dispute settlement.
• The ASEAN-India Investment Agreement, also signed in 2014, ensures protection of investments, including fair and equitable treatment for investors, non-discriminatory practices in cases of expropriation or nationalization, and guarantees of fair compensation.

Challenges With AIFTA

• Widening Trade Deficit: India’s trade deficit with ASEAN has consistently widened since the FTA.
  • Indian imports from ASEAN grew faster than exports, leading to asymmetrical gains.
  • India’s trade deficit with ASEAN has risen to $44 billion in FY23, compared to $8 billion in FY13.
• Limited Market Access for Indian Services: Despite India’s strength in services, ASEAN countries offered limited liberalisation in sectors like IT, professional services, and healthcare.
• Non-Tariff Barriers (NTBs): ASEAN members often impose complex standards, licensing requirements, and other regulatory barriers.
  • These nullify tariff concessions and restrict Indian exports, especially in agriculture and pharmaceuticals.
• Rules of Origin Issues: Lax rules of origin enable third countries (like China) to route goods via ASEAN to India, exploiting tariff benefits.
  • This undermines domestic manufacturing under Make in India.
• Limited Gains for Indian Agriculture: Indian agricultural products face high sanitary and phytosanitary standards and quota restrictions.
  • Meanwhile, ASEAN countries export cheap palm oil, rubber, and spices, hurting Indian farmers.
• Negotiation Imbalance: India often faces difficulty in securing reciprocal concessions.
  • ASEAN acts as a bloc, whereas India negotiates alone, leading to less negotiating leverage.

Way Forward

• India and ASEAN agreed in 2022 to review the FTA to address asymmetries.
  • Stronger safeguard measures and stricter rules of origin are needed.
• With India’s rising diplomatic influence and its leadership in the Global South, a deeper partnership with ASEAN offers mutual benefits and fosters regional stability. 
• Since 2024, India has significantly increased its engagement with Southeast Asia. 

Source: TH