India to review Asean free-trade agreement amid rising imports fear

India and the Association of Southeast Asian Nations (Asean) on Tuesday agreed to review their free-trade agreement (FTA) amid criticism from the domestic industry that the deal was helping imports rise much faster than exports.

The decision was taken during a meeting between Commerce and Industry Minister Piyush Goyal and Thai Deputy Prime Minister and Commerce Minister Jurin Laksanawisit, representing Asean, in Bangkok.

The 16th Asean India Economic Ministers (AEM) meeting saw both parties decide to make the agreement more “user-friendly, simple, and trade facilitative for businesses”, according to the commerce department.

The FTA with the 10-nation bloc came into effect on January 1, 2010. Exports to the bloc stood at $37.4 billion in 2018-19, up by 9 per cent. Imports, on the other hand, were much higher at $59.31 billion, rising by 25 per cent from the previous year’s $47.13 billion.

“The government would critically analyse a wide number of tariff lines while discussing future revisions to the deal and industry bodies may be asked to provide their input,” a senior government official said.

However, India believes the deal has been instrumental in connecting Indian businesses to their South East Asian counterparts and domestic industry needs to better utilise the concessionary rates available to them, he added.

Rising costs

According to a study by the NITI Aayog, the utilisation rate of regional trade agreements (RTAs) by Indian exporters is very low (between 5 per cent and 25 per cent). Sectors where trade deficit has worsened account for 75 per cent of India’s exports to Asean, while trade surplus sectors have also shown only marginal improvement, it had added. “Overall it can be concluded that India’s quality of trade has not improved under the AIFTA (Asean-India FTA),” it had said.

Under the initial agreement, Asean member states and India agreed to open their respective markets by progressively reducing and eliminating import duties on 76.4 per cent of all goods. Back then, India had offered around 9,000 products for complete elimination of tariffs, excluding about 10 per cent of its exports from tariff reduction.

Experts have pointed out that Thailand, the Philippines, Myanmar, Brunei and Vietnam have excluded more of their exports as compared to India.

Industry bodies have also pointed out that India has RTAs separately with Malaysia and Singapore even as they remain part of the broader AIFTA. All this has led to calls for a more stringent review of existing FTAs with South Korea and Japan, which haven’t been able to reduce India’s trade deficit with these nations.

Figures from the last Budget showed India’s revenue foregone because of the trade agreement with Asean has more than doubled to nearly Rs 26,000 crore in 2018-19.

RCEP fears

On the other hand, the government fears the figure for revenue foregone may be as high as Rs 60,000 crore for the proposed Regional Comprehensive Economic Partnership (RCEP) deal once it goes live. Based on the AIFTA, the RCEP will include all the nations with which Asean has trade deals — New Zealand, Australia, China, India, Japan and South Korea — and is the most ambitious trade pact currently under negotiation.

Under planning since 2012, the talks have seen little movement since partner nations have been unwilling to concede on crucial issues. This includes the market access for foreign goods and reduction of import duties on them, discussion areas where India is gravely cautious since manufacturing powerhouse China is part of the arrangement.

India’s repeated clashes with China, apart from richer nations like Australia and Japan, on tariff reduction has now led to a pushback from the Asean bloc, which has been adamant on deciding the key outline of the pact by the end of 2019. Over the course of the current year, multiple leaders from Asean nations have been calling for India to decide whether it remains committed to the proposed pact.

Recently, in its most direct statement on the matter since talks began, India has told the Asean bloc that its domestic industry is not convinced that the proposed deal will create a 'win-win situation for all' and ensure balanced outcomes for both goods and services.

On Sunday, Goyal attended the latest RCEP ministerial meet in Bangkok.