Southeast Asia - Articles

The ASEAN-India Free Trade Agreement has been waiting for long marked by a series of inconclusive meetings, stalemate in negotiations, and bureaucratic procrastination causing exasperation to advocates of the FTA, as also traders and investors in India and ASEAN. The Trade Negotiation Committee, set up under the Framework Agreement for Comprehensive Economic Cooperation in 2003, was mandated to negotiate and develop modalities for establishing an FTA. After three years and more than 15 meetings of the Committee, the ASEAN-India FTA remains distant. The objective here is to identify the spoilers in the ASEAN-India FTA negotiations.

The proposed sensitive list submitted by India can be identified as the most important spoiler in the negotiations. Also known as the negative list, this list identifies items on which no tariff concessions will be made and mainly comprises agro-products. India initially offered a negative list of more than 1400 items. Facing objection from ASEAN, India reduced the list to 854 items in June 2006. This list was summarily rejected by ASEAN and the negotiations halted. India further revised the list to 560 items in August 2006 and to 490 items in January 2007. However, the ASEAN member countries want India to reduce its negative list to only 60 items. Perturbed by India's indecisiveness and protectionist policy, ASEAN raised the number of items under its negative list from 600 to more than 1000. After 15 rounds of negotiations, the two sides have come to a deadlock over five products in India's negative list - crude oil, refined palm oil, tea, coffee and pepper.

India has been claiming that it has offered to ASEAN what it had offered to Singapore. While India's initial list covered only 14.6 per cent of Singapore's exports to India, it covers 64.8 per cent of Indonesian exports, 60 per cent of Malaysian exports, 98 per cent of Myanmarese exports, 65 per cent of Cambodian exports and 46 per cent of Thai exports (Malaysia Economic News, 9 December 2005). India seems to have overlooked the differing economic structures, economic growth and composition of trade within ASEAN countries. The proposed list, therefore, has not taken into account the interests of other ASEAN member countries (including powerful members like Indonesia and Malaysia), whose export commodities differ enormously from the export items of Singapore. While palm oil constitutes the bulk of Malaysian and Indonesian exports to India, coffee constitutes an important export item for Vietnam.

The coalition structure of the Indian government ensures that the farmers' lobby and the extreme protectionist and no-risk taking approach of its policymakers make it difficult for India to negotiate. In its revised offer, India agreed to reduce the duty on agro-products under the sensitive list initially for five years, and then annually. This offer was approved by the Trade and Economic Relations Committee headed by the Prime Minister Manmohan Singh. However, the revised offer was vehemently opposed by the Indian Ministry of Agriculture and one of the senior officials in the same ministry said that India could not afford to make this five-year concession. This prompted the Malaysian trade minister to declare that the process of negotiation on ASEAN-India FTA had stalled.

Malaysia, which is the coordinating country for the ASEAN-India FTA, is another spoiler in the process. When Indian representatives insisted on keeping palm-oil, which constitutes over 60 per cent of Malaysia's exports to India, in the sensitive list, the Malaysian government declared that the FTA negotiations had come to a halt. This implies that larger inter-regional cooperation and possible Asia-wide cooperation are being held hostage to narrow national interests. This perception gained weight in the light of Malaysia's advocacy of the bilateral nature of economic cooperation. Now the question arises that if Malaysia cannot accept India's proposed sensitive list then how could it accept the same list to forge bilateral economic cooperation? Put another way, does Malaysia's insistence on the bilateral approach reflect its discomfiture in dealing with India in a multilateral forum. Or is this a bargaining tactic to extract greater concessions? Malaysia's negative attitude towards India was evident during India's claim for Asia Pacific Economic Cooperation (APEC) membership and joining the East Asia Summit.

Foreign investment and entry of foreign players has often been stalled by India's protectionist policies. The fear of external competition in the domestic market blocked the Tata-SIA bid for Air India in 2001, and similar factors are influencing the negotiations on the ASEAN-India FTA. There is a need for India to be more confident to achieve its strategic objectives. Political will has sustained the process of negotiations, but needs to strengthen further on all sides for the FTA to fructify in the next round of negotiations to be held in Manila in May 2007.