India must deepen ties with Asean nations, not abandon its trade agreement

Indian industry, like its counterpart anywhere in the world and at any time in history, would be happy to prosper in a more protected market. This is why the voices from within industry calling on the government to abandon India’s free-trade agreement with the Association of Southeast Asian Nations (Asean) are so loud and persistent. The government, which is currently in the process of reviewing the agreement that came into force in 2010, should ignore these self-serving pleas. India is served best by closer integration with Asian markets, not by cutting itself off to allow for more profits behind tariff walls. The 10th review meeting for the free-trade agreement (FTA) with Asean is planned in a few weeks; New Delhi should approach this meeting in a spirit of cooperation, not looking for an excuse to end a successful and strategically important trading relationship. 

Some within the government, as well as prominent voices in industry, have complained that the FTA with Asean allows for the dumping of Chinese goods in India via Southeast Asia. This is certainly a valid concern — but it should also be understood that dumping is a worry that much of Southeast Asia shares. Vietnam, for example, has imposed anti-dumping restrictions on several steel products from China. This is a shared anxiety, and common solutions should be found. The initial bureaucratic reaction, to impose non-tariff barriers, is not necessarily the correct one. Requirements on rules of origin should be designed to elicit information without unduly affecting trade efficiency, and not minimise imports a priori. It should be recalled, in addition, that rules about origins and local value addition that were developed in an earlier era need to be updated for an age of more atomistic, disconnected manufacturing in which the embedded services content has also increased sharply. 

Indian industry’s desire to dissociate from Asean is not only backward-looking but ignores the reality of how countries are managing the new era of trade. Accusations that Asean is going slow on its renegotiations with India are not entirely persuasive, given that it has just concluded discussions to upgrade its agreements with China, to include frontier industries such as digital and green sectors. Southeast Asian companies recognise that competitiveness in the new manufacturing landscape requires openness, access to technology and capital, as well as supply-chain integration. India also needs such agreements for getting deeply engaged in the global value chain and improving its competitiveness. This can happen alongside tough action against dumping, as Vietnam and others have demonstrated. The correct action for India is to move closer to higher-quality and deeper trade agreements, not exit those that it has already signed. 

In addition, the government must recognise that stakeholders in any FTA are more than just domestic-focused big businesses. All Indians, including exporters and consumers, are impacted. Detaching from Asean will impact, for example, the level and volatility of prices for cooking oil. If India’s agri exports to the region have declined, the primary reason is that the value of bovine meat exports in 2021-22 was significantly lower in current dollars than it was in 2014-15. The reason for this decline is rooted in domestic policy, not trade policy. Finally, it must be noted that Asean represents an important strategic partner in the Indo-Pacific. Dismissing it as “China’s B-team” ignores that it is up to India to ensure that the region shares and supports India’s strategic vision for the region as well.