After six long years of tough bargaining, India and the 10-member Association of South East Asian Nations (ASEAN) have clinched a Free Trade Agreement that will take effect on January 1, 2010. There has been a great deal of give and take and compromises in the format of the agreement, but negotiations on services and investments are still on. Only when they too come under the FTA umbrella can India derive full benefits. Any such agreement invariably comes under the scanner of domestic special interest groups, and sure enough, the FTA with ASEAN has met with some stiff resistance from industrial and agricultural constituencies in India as also in some of the South East Asian countries. As a result, the number of items under the ‘sensitive’ list remains large, with the deadline for scrapping them extending to 2019. India-ASEAN trade climbed to $40 billion last year, and it should grow significantly in the coming year. The balance of trade remains in ASEAN’s favour and it can be corrected only when the present agreement, which now covers goods, is enlarged to include services and investments also. The pact should have been inked at least two years ago, but the reservations on both sides and the general election in India delayed it.
In India, much of the opposition comes from Kerala, which had also resisted the FTA with Sri Lanka. Its concerns centre on the plantation sector, notably coconuts, coffee, pepper and rubber. These have been retained in the sensitive list for now. As a result, Indonesia and Malaysia succeeded in binding the tariff on crude palm oil at 37.5 per cent and the one on refined palm oil at 45 per cent. The other area of concern for Indian industry relates to auto components, but 52 of them figure in the sensitive list. At some stage, domestic producers will have to face up to international competition under the World Trade Organisation agreements. Free trade with ASEAN would be of great benefit to the economy as a whole, particularly consumers. Regional trade blocs such as this should be seen as building blocks for global free trade. The India-ASEAN trade bloc becomes the fourth largest in the world and should be welcomed in the setting of New Delhi’s ‘Look East’ policy, ushered in about 15 years ago. Coming close on the heels of a pact with South Korea, this advances that policy further. As the Federation of Indian Chambers of Commerce and Industry (FICCI) Secretary-General Amit Mitra says, India should work to secure 8 to 10 per cent of ASEAN’s $1 trillion import. After all, Indian goods and services too will have access to that market at 5 per cent duty initially and zero duty before long.