INDIA-ASEAN FTA MODERNIZATION: ADDRESSING TRADE IMBALANCE AND REVAMPING STRATEGIES

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TAG: GS 2: INTERNATIONAL RELATIONS, GS 3: ECONOMY

THE CONTEXT: India and the ASEAN bloc are gearing up to reevaluate and modernize their Free Trade Agreement (FTA) dating back almost 15 years.

EXPLANATION:

• Top of Form
• The primary intention behind this initiative is to rebalance the FTA, which currently appears skewed against India’s interests.
• However, this modernization exercise will focus on revitalizing elements like product-specific rules and trade remedies, omitting newer areas such as labour, environment, Small and Medium-sized Enterprises (SMEs), and gender-related aspects.

Negotiation Schedule and Objectives

• Negotiations to review the ASEAN India Trade in Goods Agreement (AITGA) will commence on February 18-19 in New Delhi, with a projected timeline aiming to conclude by 2025.
• The discussions are slated to follow a quarterly schedule to streamline the revision process.
• India has long pushed for a reassessment of the AITGA, particularly due to the imbalance in trade.
• The current trade deficit of $43.57 billion with the ASEAN, significantly expanded from $7.5 billion annually when the agreement was initiated, prompts India to seek a more balanced trade scenario.

Challenges and Industry Inputs

• Various industry sectors in India have raised concerns regarding both tariff and non-tariff barriers encountered in trade with ASEAN nations.
• Sectors like chemicals, alloys, plastics, rubber, minerals, leather, textiles, gems, and jewellery need enhanced market access, according to industry analyses.

Key Components of FTA Revamp

• Modernizing the AITGA encompasses significant alterations in the Rules of Origin (ROO), intending to favour India by potentially expanding market access for specific products and preventing the circumvention of goods by China through ASEAN nations.
• This revamp is anticipated to introduce Product Specific Rules (PSRs) within the ROO chapter to facilitate relaxed rules for certain items to bolster exports and curb potential loopholes exploited by China.
• Additionally, the revised AITGA will include a chapter on trade remedies, aiming to shield domestic industries against unfair trade practices or sudden surges in imported goods.

Exclusion of New Areas in FTA

• The updated FTA will not include additional domains like environment, labour, MSMEs, or gender-related aspects.
• The primary focus remains on optimizing the existing pact without complicating it with newer issues.

ASEAN’s Role and Impact on India’s Trade

• The ten-member ASEAN bloc, including countries like Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia, constituted 11.3% of India’s global trade in the 2022-23 period.

Conclusion

• The modernization of the India-ASEAN FTA aims to rectify trade imbalances and reinvigorate the agreement to benefit both parties.
• By addressing concerns regarding market access, rules of origin, and trade remedies, the updated agreement seeks to foster a more equitable trade relationship between India and the ASEAN bloc.

SOURCE: https://www.thehindubusinessline.com/economy/india-asean-set-to-review-trade-pact-for-modernisation-in-february/article67673605.ece