Current Article : India Asean Free Trade Pact

What is ASEAN?
Association of Southeast Asian Nations is a geo-political and economic organization of 10 countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Membership has expanded since then to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. So there are 10 economies in ASEAN.
Aims of ASEAN:
  1. Acceleration of economic growth,
  2. Social progress,
  3. Cultural development among its members,
  4. The protection of the peace and stability of the region,
  5. To provide opportunities for member countries to discuss differences peacefully.

ASEAN is a area with combined nominal GDP of USD $1.4 trillion in 2008.
What is ASEAN Free Trade Area?

  1. ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the ASEAN supporting local manufacturing in all ASEAN countries.
  2. The AFTA agreement was signed on 28 January 1992 in Singapore.
  3. When the AFTA agreement was originally signed, ASEAN had six members, namely, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand.
  4. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in 1999.
  5. AFTA now comprises the ten countries of ASEAN.
  6. All the four latecomers were required to sign the AFTA agreement in order to join ASEAN, however they were were given longer time frames in which to meet AFTA’s tariff reduction obligations.

What is Background of India-ASEAN Free Trade Agreement?

  1. The Indo-Asean Free trade pact will be signed this December at the India-Asean summit at Bangkok, which is expected to be attended by Prime Minister Manmohan Singh.
  2. This agreement will require India to lower and abolish duties on 85 percent of its imports from the region between 2010 and 2019.
  3. Initial bilateral framework of this agreement was signed in Bali on 8 October 2003, and the pact was supposed to be finalised by 30 June 2005. Negotiations on services would start in 2005 and end in 2007.
  4. However there were a lot of impediments over a period of five years, India and the Association of South East Asian Nations (ASEAN) have finally negotiated a bilateral free trade agreement — with plenty of difficulty.
  5. The negotiations came to a halt in June 2006 when India released its ’negative list’ of items to be excluded from tariff reductions — with 900 products, both industrial and agricultural, figuring on the list. India had initially given the negative list of 1410 items which was reduced in 2006 to 900 items.
  6. India’s agriculture ministry, in particular, was arguing hard to exclude commodities like rubber, pepper, tea, coffee and palm oil from the deal. Rules of origin have been the other thorny issue.
  7. In August 2006, Delhi issued a revised list, the number of the negative list items was cut down to 560 items.
  8. By early 2007, in the midst of the new bio fuels boom, palm oil became a central blockage point as Indonesia and Malaysia, both top palm oil exporters, struggled to get India to lower its tariffs.
  9. On 28 August 2008, a deal was finally concluded. The agreement is supposed to be signed in 2009.

Some Main Points:

  1. This pact Reduces tariffs to zero in over 4,000 goods out of 5,000 that are traded. To be done in a phased manner over a period of 6 to 10 years.
  2. The Pact also includes Partial reduction in import tariffs on highly sensitive farm goods. Tea, coffee — 45%, pepper — 50%, crude palm oil — 37.5%, refined palm oil — 45%.
  3. The list of goods including partial duty cuts includes 606 items viz. Agricultural — 16, Textile — 304, Machinery & auto — 60, chemicals & plastic — 226,
  4. The goods with no duty cuts (the negative list ) includes 489 items viz. Agricultural — 302, Textile — 81, Machinery & auto — 52, chemicals & plastic — 32, Others — 22)

Why India Needs This Pact ?

  1. China has already signed a pact with ASEAN and this has dramatically increased the exports of China.
  2. Since India’s trade agreements with European Union will take a long time, to boost her exports India needs to sign this kind of bilateral agreements.
  3. ASEAN has 600 million people and its GDP is about the same as India’s ( India is a $1.1 trillion Economy), so the FTA will open up a substantial market, not far from home, for Indian exporters.
  4. ASEAN is also a critical component in the country’s “Look East” policy, and there is already a regrettable history of failure to meet past FTA signing deadlines.
  5. China is already active in the ,market and we can’t afford any economically set back by not signing this agreement.
  6. The FTA is said to have the potential to multiply bilateral trade between India and ASEAN. India has several compulsions under its ‘Look East’ policy to be in good terms with its southeastern neighbours which are close to China.
  7. In 2008, bilateral trade between China and ASEAN totalled US$231.1 billion, up 14 percent from 2007.

Why There is Fury in Kerala Over This Pact ?

  1. Farmers of Kerala produce & survive upon almost same products which ASEAN has-tea, coffee, pepper, rubber, edible oil and marine products.
  2. The leaders of Kerala (including chief minister ) say that if the import duty from the farm sensitive items being imported from ASEAN is partially reduced they would not be able to survive in the market, and ASEAN will grab their pie of the trade.
  3. So the leaders of Kerala are mainly fear with the provisions having far-reaching adverse impact on Kerala’s agricultural economy.
  4. Import of sea food will throw more than a million people out of jobs in the fishery sector.
  5. Farmers and local governments will not be able to control in determining the prices in the market, so farmers interests will be ruined and this would cause the cash crop production to come to an end.
  6. The negative list of the pact which includes the cash crops duty reduction equal to zero for 10 years, is also a point of objection for them, as they say that rubber, tea, coffee productivity can not be made competitive in 10 years, because the conditions in which the cultivation is done is different in the ASEAN countries and not comparable.
  7. Green revolution could not add more than a tonne per hectare in Kerala and so Kerala’s economy is much dependent upon cash crops , which going to be badly affected by this pact.
  8. Kerala’s economy has been badly affected by previous treaties like South Asian Free Trade Area Agreement in 2006.
  9. The cheap palm oil is available from Indonesia and Malaysia and this has totally ruined Coconut industry of Kerala. Since Coconut is a livelihood crop for 3.5 million households and 6 billion coconuts are produced in Kerala, the Kerala economy has been worse affected by these previous pacts.
  10. The Fishes which shall come from Thailand are also produced in Kerala, thus exposing 20 lakh fishermen to risk.
  11. There is a question on productivity too. If pepper productivity is 380 kg per hectare in India, it is 1,000 kg per hectare in Vietnam and 3,000 kg per hectare in Indonesia.
  12. For Kerala this is a shock because the state has been consistently demanding that the customs tariff of not just the primary agricultural products but also processed products like cashew kernels, tyres and coir products should be maintained at the maximum levels to protect the domestic sector.
  13. The prospects of Kerala’s pepper, tea, coffee, spices and rubber could be hurt when the markets is flooded with imports from other countries.
  14. When the agreement is implemented, the present 70 percent import duty on pepper will come down by 2 percent every year.
  15. Likewise, the import duty on tea and coffee, which is now 80 percent, would come down to 45 percent and that on rubber would come down to 50 percent after 10 years.

What is Central Govt. Stand?

  1. Prime Minister Manmohan Singh has assured Kerala that interests of the state farmers will be taken care of. There is a positive side of the pact that is not being seen by the leaders of Kerala.
  2. India’s share in business with ASEAN jumped from $6.93 billion in 2001-02 to $39.40 billion in 2007-08. Such a pact will improve the exports of India to these nearby markets.
  3. The govt. assures that out of the total 489 items in the negative list (list with zero duty cuts) , 303 items are from the agriculture sector.
  4. According to the agreement, India will have the right to decide the tariff on the items in the negative list for 10 years.

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  • Anonymous

    Superb effort …

  • Anonymous

    great initiative.. keep going!

  • Anonymous

    full on,,,,,,,,,

  • Anonymous

    thank you very much. keep up this good work bro.

  • nitish

    i th , government of kerela should look at the national interst , this pact s essential to compete with china and increase our export bu manifold

  • Anonymous

    Wondeful article.My special thanks for preparing this article. Eventhough concerns of Kerala farmers are not completely addresed, current FTA pact will help us to increase the trade with ASEAN block. We can hope soon trade amounts to more than $50 billion.

  • Anonymous

    trade agreement and trade pact are two diffent things as far as i know ,,,, i think trade pact has been signed on agust 13,2009 by anand sharma and free trade pact will be signed by manmohan in december 2009…. so i think u should have amde it clear about the terms agreement and pact …

  • Anonymous

    sorry for the above statement… trade agreement has been signed by a.sharma …. and trade pact will be signed by manmohan singh