ASEAN-India FTA Review

ASEAN-India FTA Review

Subject: Economy

Section: External sector

• Negotiations in February: India and the ten-member Association of South East Asian Nations (ASEAN) will commence negotiations in February to modernize their 15-year-old free trade agreement (FTA) officially known as the ASEAN India Trade in Goods Agreement (AITGA).
• Review Objectives: The primary objective of the review is to address the trade deficit for India and modernize the FTA, considering the significant changes that have occurred since its signing. New elements, including product-specific rules and trade remedies, will be introduced to enhance efficiency.
• First Round of Negotiations: The initial round of negotiations is scheduled for February 18-19 in New Delhi, with subsequent negotiations following a quarterly schedule aiming to conclude by 2025.
• Disproportionate Benefits: India has long advocated for a review of the AITGA, as the current pact resulted in disproportionate benefits for the ASEAN. India’s trade deficit with the region has grown substantially from $7.5 billion per annum to $43.57 billion in FY23.
• Trade Deficit Concerns: India aims to bring balance to the FTA, considering the escalating trade deficit. Input from various sectors on tariff and non-tariff barriers faced in the ASEAN has been collected by the Commerce Department.
• Sectors Needing Attention:Industries such as chemicals and alloys, plastics and rubber, minerals, leather, textiles, gems, and jewelry require support, as per industry analysis.
• Rules of Origin Changes: Modernizing the AITGA includes changes in the Rules of Origin (ROO) to favor India by increasing market access for certain items and preventing potential rerouting of goods by China through ASEAN countries.
• Introduction of PSRs:Product-Specific Rules (PSRs) will be introduced, allowing India to relax rules for certain items to boost exports while blocking loopholes to prevent circumvention by China.
• Trade Remedies Chapter: The modernized AITGA will feature a chapter on trade remedies to provide a safety net for domestic industries against unfair trade practices or unforeseen surges in imports.
• Exclusions in Review: No new areas, such as labor, environment, Small and Medium Enterprises (SMEs), or gender, will be added to the AITGA. The focus is on making the existing pact more efficient without complicating it with additional issues.
• ASEAN’s Trade Contribution: The ten-member ASEAN, including Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia, accounted for 11.3% of India’s global trade in 2022-23.

ASEAN–India Free Trade Area (AIFTA):

1. Formation: A free trade area among the ten member states of the Association of Southeast Asian Nations (ASEAN) and India.
2. Commencement: Came into force from January 2010.
3. Objective:
   • Facilitate trade and economic cooperation between ASEAN member states and India.
   • Promote the exchange of goods and services.
4. Elimination of Duties:
   • The pact outlines timelines for the gradual elimination of duties on a wide range of goods traded between ASEAN and India.
5. Key Features:
   • Aims to boost economic relations and enhance trade flows.
   • Provides a framework for reducing or eliminating tariffs to create a more open and integrated market.
   • Encourages collaboration in areas beyond trade, fostering economic ties in investment, technology, and other domains.
   • AIFTA contributes to the broader goal of regional economic integration among ASEAN countries and India.
   • Intended to have a lasting impact on the economic landscape by creating a more conducive environment for businesses and trade.