Asean members rely more on FTAs for their trade

The India Asean FTA was signed in Bangkok on Aug 13, 2009, came into effect from Jan 1, 2010

Deloitte Touche Tohmatsu, in association with industry body Ficci, has released a white paper on India-Asean Free Trade Agreement. Association of South East Asian Nations (Asean) is a grouping of 10 countries including Singapore and Indonesia. FTA with Asean was inked in August 2009 and has been implemented with 8 countries so far, including Malaysia, Thailand and Singapore.

As the current India-Asean FTA pertains to goods only, the report restricts its analysis to the impact on those sectors that are directly impacted by the FTA. However, inter-industry linkages and multiplier effects in the economy are important determinants and accordingly the report also sheds some light on the benefits of an agreement that would include free trade in services as well.

The report provides macroeconomic evidence on the benefits that are likely to accrue to certain industries in India and the Asean countries as a result of the FTA. It also identifies several large scale projects initiated and announced in the Asean region in the recent past that may open up opportunities for Indian businesses in Asean.

The report finds some evidence to suggest that the chemicals, pharmaceuticals, textiles, leather and handicrafts industry will benefit from free trade given India’s relative competitive advantage in these industries. From an Asean perspective, the electronic goods and machinery industries will benefit more from greater trade with India. Other sectors may benefit depending on how the productivity in these industries evolve over time.

The report duly emphasises the importance of an enabling policy environment that can enhance or pull down the chances of the FTA becoming a catalyst in India’s growth story.

It cautions that the benefits from an FTA in terms of fostering trade, growth and employment creation in a country cannot be realised if the FTA is juxtaposed against a myriad set of conflicting subsidies and taxes in the domestic front. It calls for greater policy coordination across all ministries both in India and the Asean countries.