After months of deadlock India and ASEAN decided on 24 August 2006 to resume negotiations on implementation of a Free Trade Agreement (FTA), as stipulated under the Framework Agreement on Comprehensive Economic Cooperation signed on 8 October 2003. More than 16 meetings of the ASEAN-India Trade Negotiation Committee have already taken place. Yet, both sides failed to complete the process of negotiation by January 2007, which led another extension of the deadline to July 2007. The process is on but it remains doubtful if implementation will happen even by this new deadline.

There are principally two issues that come in the way of smooth implementation of the FTA: 'sensitive/negative list' and 'rules of origin'. Though India has significantly reduced its negative list from the first offer of 1414 items to the latest offer of 490 items, comprising mainly agro-product, textiles and products of interest to small scale industries, the number is still unacceptable to ASEAN, which has demanded that the list be no larger than 60 items. After a series of negotiations, India proposed a compromise formula of splitting the negative list into two - one, with items where duties will never be cut, and the other containing sensitive items like palm oil, tea and pepper on which there would be no duty cuts for the first five years, followed by annual phased reduction to 50 per cent by 2018. Some ASEAN countries have however, characterized this formula, as 'too little too late.'

Yet another problem is ASEAN's demand that all its members be allowed to maintain separate negative lists with India while the latter itself should have a common negative list for all the 10 ASEAN members. Indian experts consider the demand "unreasonable" on the basis of principle of reciprocity. In other words, "If ASEAN members want to give individual negative lists to India then they should also be prepared for separate negative lists from India."

The second issue between India and ASEAN is the one on the rules of origin (ROO). In the existing free trade arrangements with various countries/groupings, India follows a 'twin criteria' approach for the ROO - the 'value addition method' and the 'change in tariff heading (CTH) method.' (The CTH simply implies that during the process of manufacture the raw material becomes an entirely different product, with the raw material and the finished product falling under different headings.) India wants to pursue the same approach with ASEAN as well, whereas ASEAN has been consistently following only the 'value addition method' in all its free trade arrangements. The negotiations are thus hindered by what is known as "clash of consistencies." Interestingly, in its bilateral FTAs with Singapore and Thailand, the two key members of ASEAN that account for 35 per cent of India's imports and 45 per cent of India's exports with the ASEAN region, India follows the same twin method of value addition - a precedent that might eventually come to India's help. In addition, New Delhi has also climbed down to 35 percent value addition norm from its earlier condition of 40 percent and to six-digit level of CTH from a four-digit level. The level relates to the extent to which a product undergoes a change. If a product is judged at a higher level of classification, it can qualify as a product different from the input used even if very little physical transformation has taken place.

The fact that both sides are committed to FTA is appreciable. Despite their large economic size the two sides have always traded at less than the potential, partly because of the preoccupation of Indian goods with traditional markets like US and Europe and partly because of low competitiveness of Indian goods in the ASEAN region due to the latter's high quality, low cost goods. However, India-ASEAN trade has grown phenomenally during the last four years increasing from US$9.7 billion in 2002 to US$23.1 billion in 2005 and is expected to touch US$30 billion by the end of 2007. An India-ASEAN FTA will be a market of 1.5 billion people and a combined present GDP of US$1.8 trillion, covering trade in goods services and investments. To increase the trade potential further, India should incorporate areas like science and technology, information technology, biotechnology, tourism, and human resource development.

If the India-Thailand Early Harvest Programme is any indicator, then the India-ASEAN FTA offers huge economic benefits to ASEAN through access to the Indian market and liberalized trade. Present terms are already in favour of ASEAN and therefore it should go ahead in implementation at least by July 2007. India, meanwhile, should look at the way ahead and view the proposed FTA as a gateway to the larger market of the ASEAN+3. The India-ASEAN FTA could be a stepping stone for a Pan-Asian Economic Community - "the arc of advantage" - with a population of over 3 billion and economic activity of US$10 trillion, and representing a quarter of world GDP. If there is further delay in clinching the deal, India will be left behind. Politically, too, the hold-up might make India an "outsider" in "ASEAN plus" consolidation of relations.