Trade negotiations on the India- ASEAN FTA were finally concluded on 7 August 2008. According to the Framework Agreement on Economic Cooperation signed between the two countries in October 2003, the negotiations were supposed to be completed by June 2006 with the FTA itself being implemented by 1 January 2007. However, the inability to resolve several contentious issues due to fierce protection of domestic industries attempted by the two parties drastically delayed the conclusion of the agreement.

Negotiations had so far stalled over India's tariff cut offers on crucial agricultural products which were considered inadequate by ASEAN members. India refused to roll back tariffs on petroleum, palm oil, pepper, tea and coffee in order to protect its sensitive domestic sector. Most significantly, negotiations were on the verge of collapse as Malaysia and Indonesia sought larger access for their palm oil exports requiring India to lower import duties from its preferred 45 per cent to 30 per cent. India attempted a compromise by trimming its negative list from 1,414 products down to 560 before finally settling at 490 products, in contrast to ASEAN which increased its negative list from the initial 600 to a 1,000 plus products. Nonetheless, ASEAN's insistence on obtaining greater concessions on palm oil exports ensured the excessive delay in reaching an agreement.

Trade between India and ASEAN stood at US$30.7 billion in 2006-07, surpassing the target of US$30 billion by 2007. In his speech at the 6th India-ASEAN Summit in November 2007, the Indian Prime Minister, Manmohan Singh, proposed to set a trade target of US$50 billion by 2010. While India's share in ASEAN's trade has remained modest, ASEAN's share in India's total trade has been significant. There has also been a lack of diversification in the India-ASEAN trade profile with the majority of trade taking place in fats and oils, mineral products, chemicals, and machinery and electrical appliances. The agreement thus opens up tremendous potential for increasing trade and investment on both sides.

The FTA will improve India's trading position in the region in light of the preferential access extended to China by ASEAN. Preferential tariffs enjoyed by ASEAN members among themselves too have contributed to the deteriorating competitiveness of Indian exports to the region. With the FTA in place, India can look forward to greater market access with better terms of trade and hope to compete successfully with goods from other countries in the region.

More importantly, the FTA sets the field for moving on to freer trade in commercial services between India and ASEAN. It bolsters India's attempt to engage in more complex forms of economic cooperation and strengthens India's market-based integration with countries in the region. The FTA assumes special significance in light of the recent failure of WTO talks as it allows Indian industry to experiment with free trade within the smaller and more guarded scope of regional trade liberalization. It can thus set a precedent for successful multilateral trade liberalization by enabling Indian industries to adapt to international competition and evolve structurally towards efficiency and optimization.

Given China's rising competitiveness in global trade and investment, the FTA will enable India to forge ties with ASEAN in order to ensure its support as a crucial ally. It is important for India to consolidate its position in East Asia in light of China's growing influence through trade, aid and investment. With countries in the region moving at a fast pace towards an East Asian Community, it is important that India substantiates its position in the grouping in order to secure its economic and strategic interests in the region. The FTA certainly is a crucial first step in this direction.

With the FTA now in place, it is important for India to ensure that it undertakes concomitant reforms in taxation, infrastructure, and governance. Such measures are important to prevent any adverse outcomes of such an agreement on Indian industry and to ensure that the opportunities presented by the FTA are utilized to the maximum. It also needs to guard against the so-called 'noodle bowl effect' that is resulting out of East Asian trade integration. The plethora of FTAs within East Asia has given rise to a complex set of non-uniform and overlapping rules of origin, a situation that presents the risk of fuelling trade disputes. A sincere attempt towards effective management of the regional integration process should include dismantling non-tariff barriers if any long term advantages are to be expected from the FTA.

With both benefits and costs associated with the FTA, it is important that adequate efforts be taken to bolster the former and mitigate the latter. In this regard, India should ensure that it successfully utilizes the FTA as a stepping stone and expands into areas of economic and strategic importance. Eventually, it should look to contribute to an overall effort at consolidating East Asian FTAs in order to eliminate risks pertaining to trade diversion and increasing administrative and business costs associated with the East Asian 'noodle bowl.' Most importantly, the overall commitment towards multilateral trade liberalization should be upheld, with the FTA being a means to that end and not an end in itself.