asean-india fta - issues and prospects - amended

7/30/2019 ASEAN-India FTA - Issues and Prospects - Amended

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ASEAN-India FTA: Issues and Prospects

By Mohamed Ariff and Lim Chze Cheen**

1. Introduction

For the past few decades, the most distinctive feature of the world economy has been its

integration through trade and investment. The average rate of growth of global trade had more

than doubled the rate of growth in global GDP (gross domestic product) while the FDI

(foreign direct investment) flows increased at a rate double that of global trade (AFTA-India

Study, 2002). Although world trade received a boost from multilateral trade liberalisation

through the GATT/WTO (World Trade Organisation) process, regional integration

arrangements have also proliferated especially in the last decade.

Regionalism in Southeast Asia has a long history that dated back to the early 1960s. It is a

well-known fact that the ASEAN (Association of South East Asian Nations) was crafted on

political and security promises, rather than on economic grounds. From its establishment in

August 1967, it took ASEAN nine years to lay the requisite political foundation for regional

economic cooperation. However, in the 1990s, the region, in particular the ASEAN-5

founding members, has been relatively successful in attracting FDI and other sources of

global capital, reducing poverty (though still a concern), and expanding trade.

Although ASEAN economies are a heterogeneous grouping in terms of size, history, culture,

industrial development, and level of development, a common denominator exists. That is,

their commitments to the free market system and the global orientation of their economies. In

this context, ASEAN has never been an inward-looking regional entity. While fostering

regional integration, ASEAN remains open to the rest of the world.

*This paper is partly based on the findings of the Study on AFTA-India Linkages for the Enlargement of Tradeand Investment, jointly prepared by the Indian Institute of Foreign Trade (IIFT) and the Malaysian Institute ofEconomic Research (MIER) for the Government of India and the ASEAN Secretariat. Hereafter, the study willbe referred to as the AFTA-India Study.

**The authors wish to thank Suthipand Chirathivat, Mukul Asher and Rahul Sen for helpful comments andsuggestions on this paper.

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India, on the other hand, formulated economic policies in the 1990s with the broad perception

that integration with the world economy is both inevitable and desirable. This has resulted in

its trade policy gradually shedding its bias in favour of import substitution and against

exports. Despite its commitment to a rule-based multilaterally liberalised trade environment,

India is also making inroads into various regional arrangements, driven by the challenges of

globalisation and the growing economic interdependence in Asia.

A natural direction to look for cooperation is towards ASEAN in tandem with Indias Look

East Policy. At the onset of India's 1991 economic reforms, Indias engagement with the

ASEAN nations was to accelerate the expansion and modernisation of Indian infrastructure.

Despite a strong domestic opinion that certain sectors of the domestic economy are

encountering fierce international competition, this has gained momentum over the years.

The ASEAN-India ties have grown from a sectoral dialogue partnership in 1992 to a full

dialogue partnership in 1995 and subsequently to a summit-level interaction (Gaur, 2003).

Such progressively closer relation between ASEAN and India has brought about the

strengthening of not only economic linkages but also political and security ties. In light of

this, Indian Prime Minister Atal Behari Vajpayees offer of a free trade pact between India

and ASEAN at the Phnom Penh ASEAN-India summit marked the beginning of a new phase

in their relations.

Besides signing a Framework Agreement for an FTA with ASEAN, India has already

established a functional FTA with Sri Lanka and signed a Framework Agreement for an FTA

with Thailand in 2003. Moreover, India and Singapore are expected to sign the

Comprehensive Economic Cooperation Agreement (CECA), which envisages a free trade

area, investment promotion and open skies for charter flights, during Singapore Prime

Minister Goh Chok Tong visit to New Delhi in April 2004.

As such, the Indian Institute of Foreign Trade (IIFT) and the Malaysian Institute of Economic

Research (MIER) were approached by the Government of India and the ASEAN Secretariat to

prepare a study which would evaluate the current state of play in the trade and economic

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linkages between the two, explore and exploit complementarities and synergies, as well as

suggest a policy-cum-institutional framework for deepening and broadening these linkages,

that is, the establishment of an ASEAN-India Regional Trade and Investment Area (RTIA).

The rest of this paper is structured as follows. Section 2 provides an overview of the current

ASEAN-India economic relations. The prospects of deepening ASEAN-India relations are

discussed in Section 3. Section 4 takes a look at the opportunities presented and the challenges

posed by the prospective ASEAN-India RTIA. Finally, Section 6 sums up the paper.

2. The Current ASEAN-India Economic Relations

As ASEAN integrates as a region, it remains open to the rest of the world, which is evident in

the formation of ASEAN+3, ASEAN-CER, and ASEAN-EU relations. Being a Dialogue

Partner of ASEAN since 1995, India certainly features in the network of ASEANs external

linkages. Table 2.1 indicates that ASEAN trade with India has increased over the years and

that ASEAN countries export more to India than import from it. The formation of a

preferential trade and investment agreement would thus serve as a catalyst to spur the growing

ASEAN-India trade and investment.

Besides, India has put in place a Look East Policy since the early 1990s, which over the

years, has changed from a passing glance into a more attentive gaze. Incidentally, Indias

trade policy was liberalised in line with its commitment to the WTO, which include key

measures like the dismantling of the import licensing system, and the phasing out of all NTBs

(non-tariff barriers) except for consumer goods. Such hopeful signs are evident in Indias

trade with ASEAN members, which has improved progressively. Trade of the eight members

of ASEAN with India increased by leaps and bounds from US$2.9 billion in 1993 to US$9.9

billion in 2001, despite having its trajectory derailed by the East Asian crisis. However, even

near its peak in 2000, ASEAN-India trade amounted to less than two percent of ASEANs

total trade, although its share is larger in Indias total trade (see Table 2.2).

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Table 2.1

ASEAN Trade with India by Country (1993-2001)(value in US$ thousand)

COUNTRY EXPORT

1993 1994 1995 1996 1997 1998 1999 2000 2001

Brunei

Darussalam

- 12.0 23.6 25.4 0.0 0.0 0.0 225.1 52,243.0

Cambodia - - - - - - - 134.6 50.1

Indonesia 99,926.1 269,191.3 381,023.6 422,753.6 703,491.4 722,894.3 923,938.5 1,151,282.3 1,053,939.5

Malaysia 209,670.1 504,856.4 760,167.3 1,073,705.9 1,049,552.7 1,642,516.3 1,860,377.8 1,703,016.8 1,482,583.5

Myanmar - - - - - - 150,904.5 247,846.9 349,659.2

Philippines 225,618.6 12,988.7 20,228.4 36,562.2 33,779.0 37,510.4 41,539.8 63,998.5 71,145.7

Singapore 948,738.1 1,202,483.5 1,659,609.1 1,954,417.2 2,297,082.8 2,433,700.3 2,503,431.1 2,786,528.5 2,719,634.2

Thailand - - - 235,340.3 389,288.7 381,240.5 247,882.8 602,569.8 481,719.0

TOTAL 1,483,952.9 1,989,531.9 2,821,052.0 3,722,804.6 4,473,194.6 5,217,861.8 5,728,074.5 6,555,602.5 6,210,974.2

COUNTRY IMPORT

1993 1994 1995 1996 1997 1998 1999 2000 2001

Brunei

Darussalam

- 3,987.9 7,575.7 16,012.0 13,777.4 14,023.1 6,282.0 6,445.3 3,967.7

Cambodia - - - - - - - 9,194.3 2,811.4

Indonesia 335,399.7 350,998.8 478,847.3 655,799.9 697,412.3 292,930.2 275,458.1 524,827.4 486,258.5

Malaysia 316,080.1 308,465.7 429,417.1 666,144.8 662,554.0 428,650.9 474,784.6 735,220.6 1,070,714.6

Myanmar - - - - - - 62,474.9 70,218.6 79,360.5

Philippines 109,670.9 130,465.5 106,635.1 218,616.2 228,172.3 141,937.2 135,620.5 166,393.8 237,481.1

Singapore 668,492.1 753,088.6 815,937.5 952,468.5 1,075,852.2 604,900.9 738,893.4 1,077,460.7 1,117,967.2

Thailand - - - 334,778.1 1,717,685.1 267,966.3 451,366.5 624,076.6 673,492.2

TOTAL 1,429,642.8 1,547,006.5 1,838,412.7 2,843,819.5 4,395,453.3 1,750,408.6 2,144,880.0 3,213,837.3 3,672,053.2

Source: ASEAN Secretariat

Table 2.2

Shares of ASEAN and Indian Trade in Partners Total Trade, 2000

CountryIndias Share in ASEAN Trade ASEANs Share in Indian Trade

Exports Imports Exports Imports

Brunei Darussalam - 0.49 - -

Cambodia - 0.61 - -

Indonesia 1.85 1.57 1.07 2.55

Lao PDR - - - -

Malaysia 1.96 0.88 1.49 4.26

Myanmar 13.86 2.83 - -

Philippines 0.16 0.52 0.34 0.14

Singapore 2.08 0.80 2.21 3.36Thailand 0.87 1.06 1.24 1.25

Vietnam 0.16 1.02 - -

Total 1.61 0.91 6.40 14.56Source: Authors calculation using IMF Direction of Trade Statistics, 2002.

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Table 2.3

ASEAN-India Trade by Section

Export Import

Chapter Section 1993-95 1996-98 1999-2001 1993-95 1996-98 1999-20011-5 Live Animal 2,903.5 7,528.0 6,584.2 215,250.2 697,285.5 594,842.4

6-14 Vegetable Products 145,792.9 260,410.6 636,597.2 348,889.0 881,837.4 557,542.115 Fats and Oils 763,817.8 2,420,726.3 3,371,487.7 7,804.7 22,864.6 35,114.4

16-24 Prepared Foodstuffs 129,619.9 195,898.0 168,600.3 633,610.9 1,250,931.0 721,440.8

25-27 Mineral Products 1,083,364.7 1,890,812.6 3,000,750.0 232,212.0 1,478,436.8 446,917.2

28-38 Chemicals 501,850.9 991,278.1 1,603,700.5 428,121.7 790,425.6 1,298,439.5

39-40 Plastics 216,299.0 596,269.6 562,429.4 206,966.0 131,389.5 187,330.3

41-43 Hides and Leather 6,569.0 13,255.8 22,123.5 63,067.6 57,824.1 69,110.3

44-46 Wood and Wood articles 110,679.5 218,517.7 566,859.4 12,088.4 9,627.7 10,331.9

47-49 Pulp and paper 109,284.0 253,859.3 346,043.1 30,223.1 38,594.6 57,185.8

50-63 Textiles and apparel 168,124.6 308,717.0 549,616.1 575,812.3 756,985.5 660,248.9

64-67 Footwear 5,802.6 4,537.7 12,323.1 18,854.8 35,077.1 21,315.0

68-70 Stone/Cement/Ceramics 72,568.6 108,286.2 129,142.4 68,047.3 100,256.7 74,804.6

71 Gems 168,438.0 512,378.2 319,503.8 314,303.2 371,171.2 872,486.5

72-83Base metal and Metalarticles 644,439.9 679,667.2 782,474.2 723,201.8 789,807.8 1,006,899.3

84-85

Machinery and Electrical

Appliances 1,525,384.9 3,322,372.6 5,223,592.7 743,856.4 1,241,956.5 2,039,780.886-89 Vehicles 291,744.6 762,122.2 315,839.9 115,000.5 183,148.5 152,338.0

90-92Optical, precision &musical instruments 155,355.9 284,607.9 369,588.5 21,211.6 76,709.5 77,292.5

93 Arms 2.8 52.6 10.4 9.9 74.0 442.9

94-96MiscellaneousManufactured articles 25,634.5 40,039.4 63,158.3 22,107.4 21,780.6 25,937.7

97-98 Antiques and works of art 166,728.0 360,566.4 255,466.2 33,317.9 48,629.4 49,375.5

Other Other 131.2 181,957.5 37,855.8 1,105.3 4,867.8 9,119.4

Total ALL 6,294,536.8 13,413,861.0 18,343,746.6 4,815,062.0 8,989,681.4 8,968,295.7Note: Figures cover only Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand (1993 - 1998)

Figures cover only Brunei Darussalam, Indonesia, Malaysia, Myanmar, Philippines, Singapore and Thailand (1999)Figures cover only Brunei Darussalam, Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Singapore and Thailand (2000 - 2001)

Source: ASEAN Secretariat

The composition of ASEAN-India trade, on the other hand, is varied and covers various

sectors, with some figuring more prominently than others. ASEANs exports to India are

mostly in the industrial products (Chapter 25-98) area. Total trade in industrial products for

the period 1999-2001 amounted to US$ 21.2 billion, which constituted around 77.7 percent

out of total trade between ASEAN and India, respectively. This, however, does not mean that

agricultural commodities are not important. In fact, total trade in animal, vegetables fats and

oils has been increasing steadily over the years.

Nevertheless, the lack of diversification in the ASEAN-India trade profile is clearly apparent.

Although ASEAN has been increasingly exporting a variety of products to India in recent

years, the bulk of it remains concentrated in few areas, namely Fats and Oils (Chapter 15),

Mineral Products (Chapter 25-27), Chemicals (Chapter 28-38), and Machinery and Electrical

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Appliances (Chapter 84-85). This is also evident in the individual countries statistics obtained

from the ASEAN Secretariat as shown in details in the Appendix I. Moreover, the major

export items to and the major import items from India do not vary much as indicated in the

snapshots of trade profile in 1997 and 2001.

Similarly, Indias export structure with ASEAN is also highly skewed. The share of top 50

products at six-digit HS code level in total exports varies between 64 per cent and 100 per

cent within ASEAN (see Table 2.4). But, as shown in Table 2.4, these shares conceal more

substantial concentration. Only one commodity, i.e. oil cakes and other solid residues (HS

Code 230400) can be identified as the most important export product from India for most

member countries. For the period of 1998-99, this product accounted for 36 per cent of Indias

total agro-exports to ASEAN and 10 per cent of total exports (AFTA-India Study, 2002).

Table 2.4

Share of Top 50 Products (HS Digit Level) in Indias Exports to ASEAN (1998-99)

Singapore 64% Thailand 81%Malaysia 68% Vietnam 85%Indonesia 72% Cambodia 97%Myanmar 75% Brunei 98%Philippines 77% Lao PDR 100%

Note: For Laos, total exports are accounted for by only 20 HS 6 digit codesSource: AFTA-India Study, 2002

Table 2.5

Extent of Concentration in Indias Exports to ASEAN (1998-99)

Share of one product (Thailand) 30%Share of one product (Indonesia) 28%Share of top three products (Vietnam) 28%Share of top four products (Philippines) 42%Share of top five products (Malaysia) 30%Source: AFTA-India Study, 2002

3. Prospects of Deepening ASEAN-India Relation

ASEAN has always been very close to us in terms of history, geography and culturalassociation We would like to see these linkages flourish in the future in the interest of ourcollective security and prosperity

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Indian Prime Minister Atal Bihari Vajpayee(during his visit to Hanoi, 8 January 2001)

After establishing the current ASEAN-India relations, we now take the next step to evaluate

the desirability of a regional arrangement between ASEAN and India. At the ASEAN-IndiaSummit on 4-6 November 2002, the Indian premier mentioned that We decided to work

towards an India-ASEAN Free Trade Agreement within the next 10 years As a first step we

will look at special and differential trade treatment for the less developed ASEAN countries

and thereafter an India-ASEAN preferential trade arrangement. The same optimism was

shared by ASEAN ministers as well. Singapore Prime Minister Goh Chok Tong, for example,

used the analogy of a plane to describe the ASEAN-India relation, by saying that the

ASEAN members formed the body of the plane while China, Japan and South Korea

provided one wing of the plane but you cant fly with one wing. The other wing (India) has

been completed today (at the ASEAN-India Summit). Now, the ASEAN jumbo will be able to

fly well and in all kinds of weather. The natural question is then, will the new wing bring the

ASEAN jumbo to greater heights and longer distance in the years ahead?

First of all, ASEAN is one of more successful groupings among the developing countries with

a strong political as well as economic agenda. Geographical proximity and strategic interests

bolstered by long standing cultural and family ties could serve to further strengthen the

ASEAN-India relations. Moreover, widely divergent levels of development of the ASEAN

members offer India a large potential for bilateral exchange of the whole spectrum of goods

and services.

The establishment of a regional arrangement between ASEAN and India would be made

easier, given the fact that ASEAN is already on a fast track to AFTA while India is a signatory

of the SAPTA to SAFTA agreement. Both sides are familiar with the trade liberalisation

issues and processes at a regional level. In geo-political and geo-economic terms, the India

factor could serve as a counterweight for ASEAN to the economic might of China. Given the

strong outward-looking policy of the ASEAN and Indias aspirations of becoming a

permanent member of the UN Security Council, it is crucial for India to work out an

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association right now. This is particularly so given the rising competition for global trade and

investment, especially after Chinas accession into the WTO.

For ASEAN, India represents a large and growing regional market which, for most members,

has remained unexplored. In purchasing power parity (PPP) terms, India is the fourth largest

economy in the world. For some sectors, such as the information technology sector, Indias

supply capability is world class, and this can be accessed for ASEANs growth. India is also a

market for large infrastructural projects in which some ASEAN countries are vitally

interested. Let us now take a closer look at some of the essential economic conditions for a

regional arrangement to evaluate the prospect of deepening ASEAN-India relations.

Economic Conditions for Regional Arrangements

Following the AFTA-India study (2002), the relative success of a regional arrangement

depends on some of the following parameters:

The aggregate market size and the relative income levels of the partner countries

The current share of the partners in each others trade.

The divergence in costs and prices in the partner country from those of the rest of the

world.

The extent of diversification in production and export structure of the partners.

The level and distribution of external tariffs in the partner countries before the

agreement.

The compatibility of trade structure of the partners.

In terms of GDP, a comparison of the market size of ASEAN and India indicates an almost

equal partnership but Indias GNP is approximately 33 per cent higher in PPP terms. From the

trade perspective, ASEAN is considerably larger than India with total exports and imports 9

and 7 times more than India, respectively. There is no doubt that the combined market size of

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a regional arrangement between ASEAN and India is large and it is expected to grow

substantially on a medium-term basis, and this creates a favourable base for a free trade

arrangement. Furthermore, as mentioned in the earlier section, the lack of diversification in

both ASEANs and Indias trade profile may prompt them to look beyond these sectors and

identify new potentials.

Table 3.1

India and ASEAN Relative Market Size, 1998

Population GDP GNP in PPP terms Total Total Trade GDP

Total Per capita Total Per capita Import Export Ratio

Thousand US$ Million US$ Billion USD mil USD mil (%)

India 982,223 420,305 428 2,018 2,060 42,648 36,624 18.86

Brunei 315 - - - - 2,353 1,979 -Cambodia 10,716 - - 14 1,246 1,080 796 -

Indonesia 206,338 88,552 429 490 2,407 27,337 48,843 86.03

Lao PDR 5,163 1,108 215 8 1,683 591 650 112.00

Malaysia 21,410 67,484 3,152 171 7,699 58,319 73,470 195.29

Myanmar 44,497 4,819 108 - - 2,374 1,195 74.06

Philippines 72,944 65,107 893 280 3,725 31,393 29,496 93.52

Singapore 3,476 84,379 24,276 80 25,295 101,606 109,886 250.65

Thailand 60,300 117,039 1,941 338 5,524 43,108 54,489 83.39

Vietnam 77,567 24,597 317 129 1,689 12,545 9,220 88.49

ASEAN (Total) 502,726 453,066 1,510 280,706 330,024 134.79

Note: For Myanmar, Population and GDP data were taken from EIU Report.Source: AFTA-India study (2002), statistics obtained from UNCTAD Handbook of Statistics for GDP and

population data, IMF Direction of Trade Statistics for trade data and World Development Indicators forPPP data.

Turning to the tariff rates, a glance at the statistics facing ASEAN and India in Table 3.2

reveals that the tariff rates in India are significantly higher than those of ASEAN. Insofar as

ASEANs imports from India are concerned, bilateral tariff rates, both simple and weighted,

are in line with the average unweighted MFN tariff rate, which reflects the fact that Indias

exports to ASEAN face more or less the same level of tariffs as ASEANs imports from the

rest of the world. Weighted tariffs faced by India in ASEAN are, however, much lower in

Indonesia, Malaysia and Thailand. This is probably due to relatively larger number of exports

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of products which currently have lower rates of tariffs, as compared to the average rate of

duty.

Table 3.2

Average MFN Tariff Rates, Average Tariff Rates of Imports into India from ASEAN

and into ASEAN from India for the year 1998

Country AverageMFN Tariff

Rates

Average Tariff Rates of IndianImports from ASEAN

Average Tariff Rates of ASEANImports from India

Simple Weighted Simple Weighted

Brunei 2.1 22.4 17.3 5 0.8

Indonesia 11.2 23.3 22.7 8.9 2.5

Malaysia 10.2 29.6 28.7 10.3 1.2

Philippines 9.7 25.4 20.9 12.8 19.1

Singapore 0.4 24.7 27.6 0 0

Thailand 22.5 23.7 33.5 21.1 8.3

India 30.1 22.4 17.3 5 0.8

Source: Adapted from the AFTA-India Study, data computed from TRAINS 2000 data.

Looking at the frequency distribution of tariff rates further support the notion that the bulk of

Indian exports into ASEAN (with the exception of the Philippines) face only a tariff level of

up to 10 per cent, while ASEAN exporters face a much higher tariff wall of up to 30 percent

for most of their products. Given these, a preferential trading arrangement would benefit

ASEAN much in terms of market access.

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Table 3.3

Frequency Distribution of Nominal Tariff Rates in ASEAN and India, 1998

(By value of Imports)

(per cent)

TariffRange (%)

Frequency Distribution of Tariffs in ASEAN Frequency Distribution of Tariffs in India

Indonesia Malaysia Philippines Singapore Indonesia Malaysia Philippines Singapore

>0 to 587.52 89.90 5.67 100.00 40.17 20.47 4.49 23.91

>5 to 108.83 9.17 4.36 0.00 6.91 0.57 7.16 12.49

>10 to 150.03 0.74 47.95 0.00 0.00 0.00 0.00 0.00

>15 to 203.47 0.14 31.45 0.00 2.42 3.78 4.98 11.60

>20 to 25

0.00 0.01 0.00 0.00 3.88 17.24 13.4 0.00

>25 to 300.15 0.00 0.00 0.00 39.65 56.22 43.82 35.94

Above 300.00 0.04 10.57 0.00 6.98 1.72 26.10 16.07

Total100 100 100 100 100 100 100 100

Source: AFTA-India Study (2002), estimates calculated using 1998 import data from TRAINS.

To analyse bilateral and multilateral trade linkages, the export and import intensity indices are

computed. The use of double-relative measure for trade intensity effectively removes the

large country effect. The exports and imports intensity indices show that trade between India

and ASEAN-5 is neither a major source of imports nor a major destination for exports, and

Indias trade relations with ASEAN-5 were stronger than implied by their bilateral export and

import shares. An export intensity index of 1.33 for the year 2001 implies that the share of

Indias exports to ASEAN-5 was 1.33 times the ASEAN-5s share of imports from the rest of

the world, suggesting a slight over-representation of ASEAN-5 as an export market to India.

This, however, does not mean trade opportunities do not exist between ASEAN-5 and India.

There is still much room for further trade in the relatively untapped markets such as the

Philippines as well as greater liberalisation efforts.

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Table 3.4Trade Intensity Indices among ASEAN Countries and India for 2000 and 2001

ASEAN-5 Malaysia Singapore Indonesia Thailand Philippines

India (Exporter)

2000 1.22 1.19 1.08 2.12 1.34 0.702001 1.33 1.34 1.29 1.91 1.45 0.82

India (Importer)2000 2.07 1.89 2.92 2.60 1.14 0.232001 2.24 2.46 3.09 2.59 1.02 0.29

Source: Authors calculation using IMF Direction of Trade Statistics.

For a technical note, please refer to Appendix II.

To further support the trade potentials of ASEAN nations and India, the compatibility indicesare estimated. The trade compatibility indices, which refers to compatibility of the trade flows

of the two partners-ones imports and the others exports, indicate that the scope for bilateral

trade is high for at least four of the ASEAN-5 members as shown in Table 3.5.

Table 3.5

Trade Compatibility Index, 1997

CIM

Singapore 0.87Malaysia 0.95Indonesia 0.85Thailand 0.94Philippines 0.67

CIXSingapore 0.83Malaysia 0.93Indonesia 0.88Thailand 0.92Philippines 0.75

Notes: CIM = Index Of Compatibility Of Imports Of Country J With Exports Of Country K (partner)CIX = Index Of Compatibility Of Exports Of Country J With Exports Of Country K (partner)

An index value of nearer to one signifies higher trade potential and vice versa.Source: AFTA-India Study (2002), computed from UN COMTRADE Database For a technical note, please refer to Appendix II.

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4. ASEAN-India FTA: Opportunities and Challenges

Opportunities

The various statistics put forward do suggest that there are vast opportunities for cooperation

between ASEAN and India. Economic ties are very often the usual and most obvious starting

point for links between countries and regions. For years, ASEANs functional and economic

cooperation with India cover a wide gamut of projects in the areas of trade and investment,

science and technology, information technology, transport and infrastructure, electronics,

human resource development, space technology, people-to-people contacts, tourism, and

capacity building. Although the initial process of forming the FTA would involve the hesitant

removal or reduction of tariff barriers on a selective basis, it would gradually get transformed

into complex and comprehensive linkages in terms of movement of goods, services, capital,

technology and people.

At present, much cooperation has already taken place at different levels. To cite some

examples, ASEAN and India established the ASEAN-India Joint Cooperation Committee

Meeting (AIJCC), and set up working groups on trade and investment, science and

technology, and development cooperation as well as the ASEAN-India business council. On a

bilateral level, Thailand, for example, together with India has founded the BIMST-EC

(Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation) and the

Mekong-Ganga Cooperation frameworks, as well as the formation of Indo-Thai free trade

agreement.

It is envisaged that the proposed ASEAN-India FTA would bring about numerous benefits,

which include increased trade and investment, improved security and diplomatic relations,

enhanced political and economic bargaining power, closer levels of cooperation for projects

undertaken jointly, strengthening of domestic reforms processes, etc. In particular, the depth

and scope of liberalisation in the services trade, as set out in the framework agreement, goes

beyond those undertaken by ASEAN countries and India under the GATS (General

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Agreement on Trade in Services). Let us now take a closer look at the some of the sectoral

opportunities.

One of the neglected areas is infrastructure. For instance, only a mere two per cent of Indias

roads are four-lane, 34 per cent two-lane, 64 per cent single-lane, and nearly half of the

600,000 Indian villages, according to the Rakesh Mohan Committee in 2001 as quoted in the

Gulf News (2003), are yet to be connected by all-weather roads. This is mainly due to small

fiscal allocations for building new roads - 1.4 per cent in the first five-year plan (1951-56) to

0.6 per cent in the eighth five-year plan (1992-97). The same committee estimated the

economic cost of bad roads at between Rs200 and Rs300 billion a year (US$ 4.3 to US$ 6.5

billion).Then there is the problem of power shortage, which the World Bank estimated to beapproximately 10 per cent of total electrical energy and roughly 20 per cent of peak capacity

requirement. Most ports and railways, on the other hand, suffer from inefficiency, poor

draught, low productivity, high costs and long vessel turnaround times. These deficiencies in

the infrastructure sector opens up a whole range of opportunities for construction companies

in ASEAN (we have already seen some Malaysian-Indian consortium taking road construction

projects in India).

India has been in the forefront of science and technology in terms of research and

development (R&D). In recent years, several ASEAN countries have taken a few strides, in

their efforts to move up the value-added ladder in areas, such as biotechnology, advanced

materials and information technology. There is thus great potential for closer collaboration

between ASEAN and India in these areas. In this regard, a Working Group to explore

cooperation in Science and Technology has been established. Joint workshops have been

proposed to bring together ASEAN and Indian scientists and technologists to identify specific

topics and types of activities for collaboration particularly in the areas of advanced materials,

biotechnology, information technology, non-conventional energy sources, robotics, fibre

optics and laser technology, the engineering industry, machinery and machine tools,

chemicals, pharmaceuticals and related products. What could also be done is to establish

specialised institutions together with the development of an appropriate management

framework for collaboration in the respective fields.

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Let us elaborate further on the potentials in the pharmaceutical industry. India is at the

forefront of global pharmaceutical production with companies like Dabur. India has

approximately 10,000 manufacturing units, of which 45 have international presence in 2001.

ASEAN, on the other hand, needs to build up its indigenous pharmaceutical industry given its

growing and aging populations, and increasing healthcare expenditures, and countries like

Singapore and Malaysia are trying to do this by becoming biotech hubs. This would mean

greater opportunities for ASEAN-India investment in the industry, which include, among

others, acquiring the nascent technology and create joint-venture partnerships.

Another opportunity of further development would be tourism, which is an important sector to

both India and ASEAN countries, given the cultural and historical linkages. There is thus

much potential to increase regional tourism between ASEAN and India. Strategies would

include

building up tourist infrastructure in ASEAN countries and India, increasing marketing efforts,

implementing mutually recognised standards and incentives,

increasing ASEAN-India tourism links (air, sea, and land travel), elimination of visa

requirements, and creating relevant niche tourism markets (health tourism, heritage tourism,

etc.)

Except for Singapore and Brunei, pockets of poverty surface in varying degrees in the other

ASEAN countries and such problems are also thriving in India. Beside the possible spillover

effects from trade and investment liberalisation to address the problem of poverty, joint efforts

by ASEAN and India to fight poverty can be carried out.

In brief, ASEAN-India linkages could be strengthened through information sharing, increased

opportunities for people-to-people contact via exchange programmes and possibly visa

elimination, promotion and facilitation of each others products, services and investments.

Other areas of cooperation could include custom matters, standards and quality, intellectual

property rights protection and the promotion of private sector linkages. Considering the

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opportunities available for mutually beneficial cooperation, it would be essential for ASEAN

and India to look at the possibility of accelerating these potential areas of cooperation.

Challenges

Even though ASEAN and India have raised the level of their economic interactions, various

challenges lie ahead for both ASEAN and India, with respect to the narrower aspect of the

bilateral ASEAN-India relations and in the wider international dimension.

Lets take the bilateral aspect first. Before we proceed, we need to ask the pertinent question

to what length and breadth will the ASEAN-India FTA encompass? and what are the

potential hurdles faced? Here we will put forward some issues, particularly those related to

the mechanics of the establishment of an FTA, and discuss them.

The first challenge would be to come out with a functional architecture of the ASEAN-India

FTA (the framework agreement has been signed) and an effective mechanism to propel trade

and investment under the framework. In this respect, there will be questions raised on the

coverage, the approaches to trade coverage, exemptions, rules of origin, market defense

mechanism, dispute settlement mechanism, compatibility with WTO, etc. Let us dwell on a

couple of issues pertaining to the above.

The issue of coverage in the establishment of an FTA inevitably arises. Which approach to

trade coverage, a positive list or a negative list approach, is more appropriate? To compare

notes, regional arrangements related to ASEAN and India adopt different approaches with

SAPTA (South Asian Preferential Trading Arrangement) following the positive list approach,

while India-Sri Lanka FTA and AFTA practicing the negative list approach.

Then what should the ASEAN-India FTA include? Should agricultural products be included?

Although agricultural products are included in the SAPTA and the India-Sri Lanka FTA, we

need to be a bit cautious and consider it under the positive list approach 1, especially staple and

1 The positive list approach would exclude almost everything related to agriculture and what is left is a short listof products that are currently bringing export earnings to the respective countries.

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selected food items such as edible oils, sugar, etc., because of their sensitivities to some

nations. Even within ASEAN, there is dissatisfaction among members regarding agricultural

products. For example, Indonesia and the Philippines, unlike Thailand, seem a bit out of place

with the CAIRNS group, which they belong to. Nevertheless, it would be more appropriate for

the ASEAN-India FTA coverage to be consistent with the AFTA framework at the beginning.

In addition, the current mandated negotiations under Article XX of the Agreement on

Agriculture will have to be kept in mind.

How about the services sector? Services sector in India and several ASEAN countries

currently comprises a large and growing segment of national GDPs, particularly with policy

emphasis on the knowledge economy. Moreover, it is believed that a developed services

sector is a necessary requirement for trade expansion. Countries, which are WTO members,

including India and ASEAN, have already made some market access commitments and

further negotiations are currently ongoing in the WTO. ASEAN countries have also made

specific commitments to open the services sector within the group. The ASEAN-India FTA

should, therefore, include the services sector selectively. However, keeping in view the

complexities involved in opening up the services sector, a positive list approach may be more

practical which is also compatible with GATS. Within the positive list, which will most

probably include the offers already made or to be made in GATS, the trade partners may go

for higher level of commitments in the ASEAN-India FTA framework.

After highlighting some questions on the mechanics of the ASEAN-India FTA, we now move

on to other challenges. There may still be a lack of information and some misconceptions

about the opportunities in trade and investment between ASEAN and India. On the Indian

side, ASEAN markets may be seen as being over competitive and on the ASEAN side, Indian

markets may be viewed as being over bureaucratic and over protected despite Indias efforts

to reduce the red tape and putting its economic house in order.

One can argue that many entrepreneurs in ASEAN countries are unaware of recent economic

reforms in India but the fact remains much more reform is desired. Although the Indian

Premier remarked at ASEAN Business and Investment Summit that import duties (in India)

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are moving towards ASEAN levels, and sectoral caps on foreign investment are rising,

ASEAN investors still face a system of laws and regulations that hinder private sector from

investing such as labour law regarding dismissal of workers and the protection of small-scale

industries as well as poor infrastructure and high cost of capital.

In this context, there is a need for India to undertake more trade and investment missions in

ASEAN in order to make the private sector there aware of the opportunities which exist and

vice versa.So, it would be a challenge for ASEAN and India to put each others houses in

order and then work together to sort out the issue of lack of information and rectify the

misconceptions, if any.

Another challenge is that each country is seemingly preoccupied with their respective

immediate neighbours and stronger traditional links with other powers. This may place

ASEAN-India relations relatively lower in the pecking order. The question is will other

individual regional arrangements supersede those of ASEAN-India? A reorientation in such

preoccupation cannot be expected in the short term without the benefits of favourable internal

and external developments. The emergence of China-India cooperation may warrant the

attention of ASEAN nations, which to a certain extent, have a rather similar manufacturing

structure to China. Such China-India cooperation can be seen from the fact that many Indian

software-developing companies are setting up shops in China (while) just as many hardware

manufacturers in China are shifting their operations to India (New Straits Times, 2003).

Various forms of collaborations have been sought in separate arrangements rather than with

ASEAN as a whole, with the exception of some nations like Philippines and Brunei, which

have yet to embark on forging any ties. This raises the old issue of hub versus spoke. Will

individual bilateral trade and investment take precedence over ASEAN-India trade and

investment? If they reinforce each other, there should not be any problem. But the question is

do they?

Furthermore, there may be a lack of political will at the highest-level to commit to a sincere,

frank and comprehensive India-ASEAN dialogue. Naturally, will India extend concessions

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offered to Sri Lanka and SAPTA (or eventually SAFTA) to ASEAN and vice versa? This is

made worse by the relatively poor record of ASEAN-India economic cooperation. The

projects envisaged for cooperation in the civil aviation sector (the Singapore Airlines project),

in the construction sector with a Malaysian consortium and the lack of satisfactory progress

on the establishment of information technology (IT) parks in Karnataka and Tamil Nadu have

not increased Indias credibility in the ASEAN countries. Turning the coin around, there are

also cases where ASEAN countries seems to have affected India, namely, Myanmar, Indias

immediate neighbour who has been positively inclined to allow China gain strategic depth vis-

-vis India, Malaysias decision to award the double-track railway project to a local

consortium (Gamuda-MMC) that was postponed later, and the Philippines which orchestrated

a campaign against India in the wake of Indias nuclear tests 2 in 1998.

Policy and implementation are very often two separate things. Since one of the key

requirements of trade and investment is transport, we will take the recently announced open-

sky policy for ASEAN countries as an example. Under the open sky policy, the Government

of India has allowed ASEAN carriers to operate flights daily to the 4 metropolitan cities in

India, apart from operating flights to 18 other tourist destinations in India. The ASEAN

carriers will not require bilateral agreements between the two governments to bring flights

into or out of India3

and do not need to pay any royalty to Indian national carrier for flying in.In return, Air India (AI) and Indian Airlines (IA) will also be given the right to fly to the

ASEAN region as and when airlines from ASEAN nations start operating flights to India. The

number of flights permitted would be on strict reciprocity so as not to exceed what the

foreign airline is providing, which would effectively mean that Indian carriers would get more

flight frequency to ASEAN countries in exchange for more Indian destinations for the

ASEAN airlines. Despite the intended policy, such strict reciprocity and operational

constraints as laid down in the Indian civil aviation policy might prove to be a huge hurdle.

In addition, India may be facing trade and investment competition from not only other regions

or countries outside ASEAN but from other ASEAN nations, particularly with the

2 India has recognised the nuclear-free status of Southeast Asia by entering a de jure commitment.3 ASEAN carriers and Sri Lankan Airlines can now carry Indian passengers to onward destinations such as theUS.

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enlargement of ASEAN to include newer members with lower economic standards. This may

serve to keep trade and investment within ASEAN itself, rather than divert them out of

ASEAN to countries such as India.

On the wider multilateral front, the challenge posed by major global issues of common

concern like globalisation, the need to establish a new international financial architecture, the

reform of the United Nations including the UN Security Council and nuclear disarmament

need to be adequately and delicately addressed by both ASEAN and India, especially under

pressure from various lobbying efforts. And so are the various transboundary issues like

illegal immigration, piracy, illicit smuggling of small arms, and illegal drug trafficking. This

is more so as we face the era of heightened interdependence.

5. Conclusion

The successful convening of the inaugural ASEAN-India Summit4 in November 2002,

together with the announcement by Prime Minister Vajpayee of an ASEAN-India Free Trade

Agreement within a 10-year timeframe, represents a clear statement of Indias will to raise the

historical and cultural partnership between India and ASEAN to a new level. The ASEAN-

India FTA that Prime Minister Vajpayee proposed is indeed a welcome development. On a

practical level, such an economic partnership will help India and Southeast Asia to sharpen

our competitive edge and better meet the economic challenges of an increasingly globalised

world.

With India inking a pact with ASEAN that would create an ASEAN-India free trade area by 2011, the idea of

converting echoes of the past into the realities of today is finally taking place. ASEAN-India relations are

poised to achieve new heights given the opportunities available. There are no doubts that constraints and

challenges exist but given the necessary political will, fresh commitment, new approaches and concerted effortsby all concerned, much can be achieved for the mutual benefit of both ASEAN and India in the years ahead.

4 ASEAN Leaders unanimously agreed to invite India for an ASEAN-India Summit back-to-back with the EighthASEAN Summit in Cambodia in November 2002 at the Seventh ASEAN Summit in Brunei Darussalam a yearearlier.

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Appendix I: Top Ten ASEAN Export to and Import from India by

Countries, 1997 and 2001

(Source: Data Obtained from the ASEAN Secretariat)

Brunei

Item Product Chapter 1997

Product Chapter1997

Export Import

01 - Cars, Trucks, Autos 7,212.9

02 - Electrical Equipment 1,663.903 - Edible Vegetables 1,011.7

04 - Iron and Steel 499.4

05 - Articles of Iron or Steel 401.0

06 - Edible Fruit & Nuts 341.2

07 - Fish 312.4

08 - Apparel, not Knitted 290.0

09 - Jewelry 268.2

10 - Apparel, Knitted 144.4

Share - Share 88.1

Item Product Chapter2001

Product Chapter2001

Export Import

01 Lubricants/Fuels/Oil 52,019.7 Cars, Trucks, Autos 703.1

02 Raw Hides & Skins 160.7 Edible Vegetables 659.8

03 Postal Packages & SpecialTransactions 33.0 Special Woven Fabrics 457.1

04 Cars, Trucks, Autos 14.0 Apparel, not Knitted 241.3

05 Electrical Equipment 11.2 Edible Fruit & Nuts 204.606 Toys 3.6 Articles of Iron or Steel 195.4

07 Books, Newspapers 0.6 Ceramic Products 137.8

08 Computer/Machinery 0.1 Organic Chemicals 115.1

09 Aluminum 0.1 Apparel, Knitted 86.1

10 - Computer/Machinery 77.0

Share 100.0 Share 72.5

Cambodia


Product Chapter2001

Export Import01 Man-made Staple Fibres 50.0 Pharmaceutical Products 1,426.8

02 Apparel, not Knitted 0.1 Man-made Staple Fibres 280.9

03 - Organic Chemicals 274.7

04 - Raw Hides & Skins 209.2

05 - Railway 197.4

06 - Cars, Trucks, Autos 105.7

07 - Cotton 76.1

08 - Zinc 53.3

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09 - Computer/Machinery 42.7

10 - Aircraft, Spacecraft 26.4


Indonesia

Item Product Chapter 1997 Product Chapter 1997

Export Import

01 Fats & Oils 274,200.3 Waste from Food Industry 173,640.4

02 Lubricants/Fuels/Oil 143,952.5 Seeds 96,689.6

03 Organic Chemicals 48,569.0 Cotton 89,463.3

04 Postal Packages & SpecialTransactions 39,397.3 Iron and Steel 84,929.5

05 Wood Pulp 30,289.4 Sugars 47,146.2

06 Man-made Staple Fibres 17,258.9 Organic Chemicals 36,148.8

07 Edible Fruit & Nuts 15,754.7 Computer/Machinery 32,153.8

08 Plastics 15,537.6 Inorganic Chemicals 25,007.009 Paper & Paper Board 13,801.2 Salt/Sulphur/Lime/Cement 16,756.8

10 Tanning/Dyeing Extracts/Ink 12,684.6 Aluminum 14,178.5



Product Chapter2001

Export Import

01 Fats & Oils 347,544.0 Waste from Food Industry 116,509.2

02 Lubricants/Fuels/Oil 227,080.6 Organic Chemicals 97,787.0

03 Ores 98,833.7 Sugars 35,756.1

04 Man-made Filaments 58,732.6 Cereals 34,002.2

05 Inorganic Chemicals 35,861.5 Seeds 29,803.0

06 Edible Fruit & Nuts 24,813.0 Iron and Steel 19,633.707 Misc. Chemical Products 23,049.7 Computer/Machinery 16,897.1

08 Organic Chemicals 22,214.3 Plastics 17,827.8

09 Paper & Paper Board 20,218.0 Cotton 12,576.7

10 Wood 18,838.6 Tanning/Dyeing Extracts/Ink 11,695.5Share 83.2 Share 80.7

Malaysia


Product Chapter1997

Export Import

01 Fats & Oils 488,823.7 Computer/Machinery 81,468.4

02 Lubricants/Fuels/Oil 167,859.5 Meat & Edible Meat Offal 76,350.303 Aircraft, Spacecraft 118,225.7 Electrical Equipment 66,107.6

04 Wood 75,006.1 Waste from Food Industry 59,896.4

05 Electrical Equipment 38,178.6 Cotton 40,363.8

06 Computer/Machinery 31,945.4 Edible Vegetables 37,394.5

07 Organic Chemicals 29,342.2 Iron and Steel 28,093.0

08 Ceramic Products 18,117.2 Articles of Iron or Steel 21,015.9

09 Plastics 15,086.4 Cars, Trucks, Autos 18,287.7

10 Rubber 11,898.3 Cereals 15,805.2

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Product Chapter2001

Export Import

01 Fats & Oils 490,828.7 Electrical Equipment 341,493.5

02 Lubricants/Fuels/Oil 352,398.8 Computer/Machinery 245,552.803 Electrical Equipment 186,397.2 Meat & Edible Meat Offal 96,400.3

04 Computer/Machinery 112,634.7 Edible Vegetables 31,791.1

05 Organic Chemicals 86,680.7 Cotton 29,145.0

06 Wood 74,535.3 Organic Chemicals 27,874.6

07 Man-made Filaments 43,297.3 Iron and Steel 27,604.0

08 Plastics 14,117.5 Coffee, Tea, Spices 20,448.0

09 Tin 12,004.5 Cereals 15,641.1

10 Furniture 10,084.9 Cars, Trucks, Autos 14,926.9


Myanmar


Product Chapter2001

Export Import

01 Edible Vegetables 207,398.5 Iron and Steel 18,774.2

02 Wood 135,762.7 Pharmaceutical Products 17,106.1

03 Cereals 1,752.1 Cars, Trucks, Autos 6,156.2

04 Sugars 1,404.2 Articles of Iron or Steel 4,637.8

05 Rubber 665.2 Rubber 3,983.4

06 Seeds 484.7 Computer/Machinery 3,582.3

07 Cocoa 406.8 Plastics 3,547.1

08 Fish 363.0 Malt & Wheat Gluten 3,111.3

09 Copper 329.0 Tools 2,079.6

10 Cotton 228.9 Electrical Equipment 1,709.9


Philippines


Product Chapter1997

Export Import

01 Cotton 12,044.8 Waste from Food Industry 47,939.4

02 Computer/Machinery 7,294.8 Meat & Edible Meat Offal 41,543.5

03 Electrical Equipment 3,001.3 Cotton 22,987.6

04 Fats & Oils 1,425.9 Seeds 21,015.4

05 Apparel, Knitted 1,084.2 Electrical Equipment 17,609.7

06 Cars, Trucks, Autos 883.8 Organic Chemicals 13,000.2

07 Copper 801.6 Computer/Machinery 10,004.3

08 Paper & Paper Board 755.0 Articles of Iron or Steel 6,577.3

09 Clocks 717.3 Plastics 5,665.6

10 Plastics 499.0 Iron and Steel 5,214.6

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Product Chapter2001

Export Import01 Inorganic Chemicals 14,368.1 Meat & Edible Meat Offal 43,726.1

02 Paper & Paper Board 12,812.2 Cereals 40,804.9

03 Electrical Equipment 11,701.9 Aircraft, Spacecraft 26,750.0

04 Cars, Trucks, Autos 9,469.6 Electrical Equipment 10,610.305 Computer/Machinery 3,477.5 Organic Chemicals 10,302.9

06 Glass and Glassware 2,567.1 Waste from Food Industry 9,911.607 Clocks 2,211.0 Plastics 9,644.7

08 Copper 1,644.7 Computer/Machinery 7,976.009 Apparel, not Knitted 1,517.4 Salt/Sulphur/Lime/Cement 7,649.110 Fats & Oils 1,260.3 Pharmaceutical Products 6,785.0


Singapore


Product Chapter1997

Export Import

01 Computer/Machinery 639,951.2 Lubricants/Fuels/Oil 137,241.5

02 Electrical Equipment 427,728.1 Jewelry 133,780.1

03 Lubricants/Fuels/Oil 228,267.7 Computer/Machinery 94,642.2

04 Jewelry 154,353.0 Electrical Equipment 83,653.1

05 Organic Chemicals 111,197.5 Aluminum 69,563.2

06 Optical/Medical Instruments 86,330.8 Organic Chemicals 63,002.5

07 Postal Packages & SpecialTransactions

86,102.7 Cotton 38,299.7

08 Copper 61,143.4 Apparel, not Knitted 37,951.1

09 Plastics 54,078.9 Fish 30,785.1

10 Tobacco 38,025.7 Clocks 30,548.5



Product Chapter2001

Export Import

01 Computer/Machinery 745,527.7 Computer/Machinery 278,596.002 Electrical Equipment 577,720.4 Jewelry 144,163.8

03 Lubricants/Fuels/Oil 170,488.0 Aluminum 108,196.0

04 Organic Chemicals 164,710.3 Lubricants/Fuels/Oil 89,958.4

05 Jewelry 156,087.0 Electrical Equipment 74,178.1

06 Optical/Medical Instruments 111,346.6 Organic Chemicals 55,233.8

07 Plastics 86,172.4 Apparel, not Knitted 38,671.0

08 Postal Packages & SpecialTransactions 76,661.8

Articles of Iron or Steel 20,788.2

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09 Books, Newspapers 75,099.1 Plastics 18,930.7

10 Misc. Chemical Products 61,850.8 Optical/Medical Instruments 18,139.8


Thailand


Product Chapter1997

Export Import

01 Rubber 215,410.4 Lubricants/Fuels/Oil 1,061,345.2

02 Organic Chemicals 25,442.2 Waste from Food Industry 245,893.6

03 Electrical Equipment 26,656.8 Fish 146,683.2

04 Malt & Wheat Gluten 24,268.9 Computer/Machinery 48,103.1

05 Man-made Staple Fibers 15,551.5 Organic Chemicals 39,797.9

06 Laminated Textile Fabrics 11,544.1 Fertilizers 27,055.1

07 Clocks 11,187.2 Iron and Steel 19,032.1

08 Man-made Filaments 8,883.3 Salt/Sulphur/Lime/Cement 15,535.1

09 Prep. Cereals/Flour/Milk 8,766.0 Electrical Equipment 14,682.8

10 Wool 6,702.4 Cotton 9,615.4



Product Chapter2001

Export Import

01 Computer/Machinery 196,088.7 Jewelry 186,780.1

02 Plastics 35,191.0 Organic Chemicals 89,120.6

03 Electrical Equipment 31,212.7 Waste from Food Industry 62,999.4

04 Rubber 24,557.5 Iron and Steel 59,764.8

05 Man-made Filaments 19,318.4 Fish 45,035.3

06 Iron and Steel 15,805.7 Lubricants/Fuels/Oil 27,523.4

07 Man-made Staple Fibres 15,013.3 Misc. Chemical Products 20,343.3

08 Jewelry 14,634.1 Computer/Machinery 16,677.9

09 Organic Chemicals 13,143.7 Tanning/Dyeing Extracts/Ink 13,992.8

10 Laminated Textile Fabrics 12,474.0 Electrical Equipment 13,763.0


Share = Export Value of Top 10 Products Over Total Bilateral Exports

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Appendix II: Technical Note on Trade Compatibility and

Trade Intensity Indices

Trade Compatibility Index

The trade compatibility index refers to the compatibility of trade flows between twopartners ones exports and the others imports. It can be defined as:

CIm= 1 2

|| k

kjki

CIx= 1 2

|| k

kjki

Where

CIm = index of compatibility of import of country; with export of country j;CIx = index of compatibility of export of country; with import of country j;

| | = absolute value;

Xki = share of good k in total export of country;

Mkj = share of good k m total import of country j;

Xkj = share of good k m total export of country j;

Mki = share of good k m total import of country j;

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Trade Intensity Index

The double relative measure of trade intensity in export of country i to country j canbe defined as:

IXij =

iw

j

i

ij

Where

Mw = total world reportsXij = export of country i to trading partner j;

Xi = total exports of country i;

Mi = total imports of country i;

Mj = total imports of country j;

Similarly, the index of trade intensity in imports of country i from country j can be expressedas

IMij =

iw

j

i

ij

Where

Xw = total world exports

A value closer to one indicates high trade potential while a value closer to zero indicates lowtrade potential.

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References

ASEAN Secretariat (2003). Framework Agreement on Comprehensive EconomicCooperation Between Republic of India and The Association of Southeast Asian Nations,

available on the ASEAN Secretariat website, www.aseansec.org.

Asher, Mukul and Sadhana Srivastava (2003), India and the Asian Economic Community,RIS Discussion Paper No. 51, Research and Information Systems for the Non-Aligned andDeveloping Countries (RIS), New Delhi, India.

Baruah, Amit (2001), India to Assist Vietnam in Nuclear Research, The Hindu (India), 9January 2001.

Gaur, Seema (2003), Framework Agreement on Comprehensive Economic Cooperationbetween India and ASEAN: First Step Towards Economic Integration, ASEAN Economic

Bulletin, 20(3).

IIFT and MIER (2002), Study on AFTA-India Linkages for the Enlargement of Trade andInvestment, prepared for the Government of India and the ASEAN Secretariat.

Kumar, Nagesh (2002), "Towards An Asian Economic Community: Vision of CloserEconomic Cooperation in Asia: An Overview, RIS Discussion Paper No. 32, Research andInformation System for the Non-Aligned and Other Developing Countries (RIS), New Delhi,India.

P.Y. Chin (2004), The Mighty Roar of the Dragon and Tiger, New Straits Times Malaysia,

4 January 2004.

Rafferty, Kevin (2003), India Fails to Realise Its Democratic Advantage, Gulf NewsSpecial, 23 September 2003.

Sen, Rahul (2003), The India-Singapore Comprehensive Economic Co-operation AgreementCECA: A Good Beginning Towards An Enduring Economic Relationship, ASEANEconomic Bulletin, 20(2).

Wadhva, Charan (2000), Revitalizing India-ASEAN Economic Partnership: Recent Trendsand Future Prospects, in India and ASEAN: The Growing Partnership for the 21st Century,

K. S. Nathan (ed.), pp. 51-73. Kuala Lumpur: Institute of Diplomacy and Foreign Relations.

Yahya, Faizal (2003), India and Southeast Asia: Revisited, Contemporary Southeast Asia,25(1), ISEAS.

ASEAN--India Summit Partnership: Challenges and Prospects, Speech by Senior Ministerand Foreign Minister Hor Namhong of Cambodia, New Delhi, India, 14 March 2002.

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India and ASEAN - Shared Perspectives, Speech by Indian Prime Minister Atal BihariVajpayee, Kuala Lumpur, 16 March 2001.

The India-ASEAN partnership and Beyond, Speech by Indian Prime Minister Atal BihariVajpayee at the ASEAN Business and Investment Summit, Bali, 7 October 2003.

asean-india fta - issues and prospects - amended

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