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Regional trade deals scare
India
By Indrajit Basu
KOLKATA - In Asia today, free-trade agreements
are in fashion. Last November 5, at the summit of the
Association of Southeast Asian Nations held in the
capital city of Cambodia, Phnom Penh, China signed a
deal with the members of ASEAN to set up the world's
largest free-trade zone in the region. The zone would
generate US$1.2 trillion worth of trade annually.
Soon after this announcement Japan, too, said
that it would enter into a free-trade area (FTA)
agreement with the 10-member ASEAN grouping. And
subsequently, in a mega-announcement, Japan, China and
South Korea said they had also agreed to examine the
prospects of setting up an FTA that covers the three
nations (ASEAN plus 3) in the medium to short run.
Singapore is not left behind either. The country
has just concluded an FTA agreement with the United
States and Australia, and is negotiating another with
New Zealand. Moreover, the FTA agreement between
Singapore and Japan is already operational, and Japan is
pursuing similar deals with South Korea, Thailand and
the Philippines. And, from January 1 this year, the
ASEAN Free Trade Area (AFTA), an agreement that
endeavors to increase ASEAN's competitive edge as a
production base geared for the world market through the
elimination of intra-regional tariffs and non-tariff
barriers, came into force.
In a globalizing
economy, FTA agreements are attractive trade tools
because they not only offer market access through lower
tariffs, they also often include regional investment
agreements and extend credit lines and
double-taxation-avoidance agreements between
participating nations.
The frenzied deal-making
is obviously good news for other countries in the
region. However, for India, it hasn't come as such.
"Clearly, India has been left out of most of these
initiatives," said Rajesh Mehta of Research and
Information Systems for Non-Aligned Countries, adding:
"There is a real danger of India being left out of mega
trading blocks that emerge in the region."
The
Indian government is understandably worried. Soon after
all these announcements, Prime Minister Atal Bihari
Vajpayee said the country would begin work on signing an
FTA with ASEAN over the next 10 years. In fact, in his
visit to Thailand in mid-February, the country's deputy
prime minister, L K Advani, and Thai Foreign Minister
Surakiart Sathirathai agreed to put in place a framework
for an India-Thailand agreement by July. This agreement
is expected to double trade between the two countries,
which now stands at a modest $1 billion annually. And,
according to reports, a similar agreement is brewing
with Singapore. Besides, India and Australia on
Wednesday agreed to expand their $1.7 billion trade by
enhancing ties in telecom, roads and energy-related
sectors.
But some economic experts think India
has woken up too late and should be moving much faster.
"It took 10 years for India to become a summit-level
partner at ASEAN ... India must have FTA agreements in
place with all members of ASEAN in next two years," said
an editor of one of India's leading financial-news
dailies, who is also a noted economist. "Indeed, India
needs to move faster," said Souvik Mukherjee, an
economist with an industry lobby in India, adding: "In
direct contrast, China and ASEAN will announce some
tariff cuts as early as the beginning of 2004."
What is worrying Indian economic experts is that
India's trade with ASEAN countries is growing faster
than many other trading blocks, such as the South Asian
Association for Regional Cooperation (SAARC), the
Commonwealth of Independent States (CIS) countries, the
European Union and the North American Free Trade Area
(NAFTA). For instance, exports to ASEAN countries rose
by almost 20 percent in 2002, while exports to the CIS,
the EU and NAFTA actually fell by 6 percent, 5 percent
and 8 percent respectively. India has not managed to
improve its trade with its neighboring SAARC countries
either. Despite years of working on improving trade with
SAARC, exports from India to the grouping at $1.97
billion were about half of ASEAN's $3.39 billion.
Thus any adverse impact on India's trade with
ASEAN will affect the country's overall trade. For
instance, predicts Mehta, when the agreements between
China and ASEAN come into force, which will result in
huge tariff cuts between these countries, exports of
India's marine products and livestock to ASEAN, which
are significant, will be directly affected.
But
that's not the greatest of worries. China is quickly
emerging to be one of India's most prominent partner
countries for bilateral trade, and India is worried
about competition in terms of exports from ASEAN
countries to China. The ASEAN block's trade with China
is already growing. In 1991, ASEAN accounted for about 6
percent of China's imports, but in 2002, according to
official Chinese statistics, ASEAN accounted for more
than 8 percent of Chinese imports. In 2002, there was an
estimated 20 percent rise in exports to China from ASEAN
countries.
ASEAN countries, too, are getting
aggressive. According to economist Niranjan
Rajadhyaksha, ASEAN countries are proactively trying to
grow their trade with China to take advantage of that
country's $244 billion per year of imports and to reduce
dependence on America and Europe. For instance,
Thailand's exports to neighboring Asian countries,
including China, since 1999 have grown from 13 percent
to 15 percent, while the share of its trade to the
United States fell from 23 percent to 21 percent and to
Europe from 16 percent to 14 percent.
Experts
therefore feel that India's response will need to be
multi-faceted, that India will need to engage
strategically with each ASEAN member bilaterally, even
as it pursues Indo-ASEAN economic cooperation. Some say
even that may not be enough. The grouping of Japan,
China and South Korea with ASEAN is another big source
of worry. Exports to Japan from India are already
dwindling, and now ASEAN is a threat too to India, for
its exports to Japan. Experts suggest that ideally India
should join with Japan, China and South Korea to form a
forum of ASEAN plus 4.
But would India's
policymakers think alike and work toward that? India's
federal budget on February 28 will provide an indication
of which way the country is heading.
Note
ASEAN embraces Brunei,
Indonesia, Malaysia, the Philippines, Singapore,
Thailand, Cambodia, Laos, Myanmar and Vietnam.
The SAARC countries are Bangladesh, Bhutan,
India, Maldives, Nepal, Pakistan and Sri Lanka. The CIS
countries are Russia, Azerbaijan, Belarus, Georgia,
Kazakhstan, Ukraine and Uzbekistan.
NAFTA
comprises the United States, Mexico and Canada.
The EU currently comprises France, Germany,
Italy, the United Kingdom, Spain, Belgium, Greece, the
Netherlands, Portugal, Austria, Sweden, Denmark,
Finland, Ireland and Luxembourg.
(©2003 Asia
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