KOLKATA - Setting the tone for a durable relationship
with the Southeast Asian countries, India on
Tuesday will sign "a landmark partnership document" with
ASEAN at the trading bloc's third summit in Laos's
capital, Vientiane. The agreement is significant not
just because it allows India to forge strong economic
relations with the Association of Southeast Asian
Nations that could catalyze trade between the two sides
from the current US$13 billion to $30 billion by 2007,
but also because it brings India closer to the region's
economic powers, such as Japan, China and South Korea,
as the deal involves a new ASEAN grouping that includes
these three countries.
ASEAN is a union of Brunei,
Indonesia, Malaysia, the Philippines, Singapore, Thailand,
Cambodia, Laos, Myanmar and Vietnam. About a decade
back, a new grouping called the East Asian Economic
Caucus was proposed by Malaysia but it was stillborn
because of stiff opposition from the United States,
which feared it would be pushed aside from its central
security role in Asia. However, the 1997 Asian financial
crisis provoked a sense of greater urgency among
ASEAN leaders, and these countries as well as India
decided to set up a regional trade bloc that might
finally take a concrete shape in the two-day summit that
concludes on Tuesday. The trading zone that this new
grouping created will have a combined gross domestic
product exceeding $2 trillion.
"The landmark
document incorporates a plan of action for more
intensive cooperation on political and security issues
as well as in the economic, social and cultural fields,"
said Indian External Affairs Minister K Natwar Singh.
"It is a matter of gratification that a number of new
dimensions such as cooperation in remote sensing, space
technology and information technology have been added to
our two-millennia-old cultural, religious and
civilization links."
Even as this partnership
takes yet another step ahead in Asia's ever closing
links, the Indo-ASEAN agreement is more significant
because it indicates a shift of the intention of
Southeast Asian nations to strengthen ties with India's
surging economy as a counterbalance to China.
There's little doubt that China's dominance in
the region's economy is overwhelming. In 1991, ASEAN
accounted for about 6% of China's imports; in 2002, that
figure exceeded 8%. While trade with India at $13
billion accounts for a mere 2% of ASEAN's total trade,
the trade between China and ASEAN members amounted to
$62 billion in 2003 (up 40% from 2002). In the first
nine months of 2004, China's trade with ASEAN grew by
35% from a year earlier and is due to surpass $100
billion this year. According to experts, therefore, the
need to develop an alternative market has become that
much more imperative for ASEAN members because of the
specter of China applying brakes on its scorching
economy and rattling their economic foundations in turn.
Growing ties with China have brought another
worry: Southeast Asia's success is becoming too closely
tied to China. Last year's outbreak of severe acute
respiratory syndrome (SARS) shut down factories and
slowed trade, sending shivers through foreign companies
that are increasingly relying on their Chinese
operations. Governments across the region have been
talking of trade deals with India for a while now and
urging their companies to take advantage of its growth.
Leading the charge is Singapore, which is using its deep
pockets - through its investment outfit Temasek - and
advanced economy to forge a bond "that will help it grow
along with an awakening India".
In fact,
Singapore openly says that promoting India's growth
should also offset worries of a possible Chinese
slowdown. "We in Southeast Asia have no wish to become
merely an adjunct to the Chinese economy," Singaporean
Trade and Industry Minister George Yeo told members of
the industry lobby Confederation of Indian Industry
during a trip to India last February, "hence our
decision to move closer to all economies that want
closer links to us."
Already, partnering with
India has been fruitful for many. For instance, India's
success as an outsourcing destination - though a sore
point in the West - has been more of a two-way street
for Philippine call centers, which have attracted
investments from some of India's big outsourcing firms
while Philippine firms have opened offices in India.
Malaysia's construction sector, too, has been profiting
from India's growth with the involvement of a few
Malaysian companies in a number of Indian infrastructure
projects. And, for Singapore's state-owned telecom
company Singtel, perhaps no other foreign investment has
yielded better returns than its 28% stake in Bharti
Tele-ventures, India's second-largest privately run
cellular company.
Nevertheless, will an Indian
pact with ASEAN really work, and if at all, when? After
all, the experience of the recent Indo-Thai free-trade
agreement (FTA) as well the Singapore Comprehensive
Economic Cooperation Agreement (CECA) give enough
reasons to fear that this pact too is set to drag on
interminably. Despite years of efforts, the
now-on-now-off Singapore CECA is yet to see the light of
the day, stuck by controversies, the most recent being
the Indian Finance Ministry's objection raised on Friday
to the elimination of duty-free imports on certain
"sensitive" items.
The Indo-Thai deal too is
being viewed with concern. The common factors in all
these pacts are: one, the Indian industry is not yet
sure about its competitive efficiency; second, many
sectors say they do not want competition on their home
turf, which is still protected to a great extent. And
finally, there is a huge fear among India Inc that such
pacts will be misused as a staging ground for cheaper
exports to India. Still, ASEAN members are hoping that
adding India to the lineup will at least produce a trade
bloc that can effectively compete with the European
Union and North America.
Since India first
embarked on its "Look East" policy almost a decade ago,
seeking institutional links with ASEAN and East Asia,
there have been significant gains. Apart from the FTA
with Thailand, India has been extending its strategic
reach beyond the Indian Ocean by signing defense
agreements with such countries as Singapore and taking
on naval policing duties in the Strait of Malacca. The
Indian navy has even had a presence in the South China
Sea.
(With inputs from Inter Press Service.)
Indrajit Basu is a Kolkata-based equity
analyst turned journalist with more than 12 years of
experience in business/finance and technology
journalism. Besides writing for Asia Times Online, he
also writes for US-based publications, as well as IT
companies.
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