16 May ASEAN-India Trade in Goods Agreement

THIS ARTICLE COVERS ‘DAILY CURRENT AFFAIRS’ AND THE TOPIC DETAILS OF “ASEAN-India Trade in Goods Agreement”. THIS TOPIC IS RELEVANT IN THE “ ECONOMICS” SECTION OF THE UPSC CSE EXAM.

Why in the News?

The fourth Joint Committee gathering, which aimed to reassess the ASEAN-India Trade in Goods Agreement (AITIGA), took place in Putrajaya, Malaysia. Participants engaged in discussions focused on enhancing AITIGA to facilitate trade better and bring greater benefits to businesses throughout the region.

About the ASEAN-India Trade in Goods Agreement

• The ASEAN-India Trade in Goods Agreement (AITIGA) is a trade pact between the ten ASEAN member states and India. It was ratified during the 7th ASEAN Economic Ministers-India Consultations held in Bangkok, Thailand, in 2009 and took effect in 2010. 
• AITIGA is also known as the ASEAN-India Free Trade Agreement and primarily focuses on trade in tangible goods and merchandise. Its main objectives are the reduction or elimination of customs tariffs and non-tariff barriers to facilitate trade among the participating nations.

Key features of AITIGA 

• It includes its coverage limited to the exchange of physical goods, excluding services. It establishes one of the world’s largest free trade areas, spanning nearly 1.8 billion individuals.
•  The agreement mandates ASEAN and India to gradually abolish duties on a significant portion of goods and liberalise tariffs. It incorporates varying tariff rates based on the economic development stages of the ASEAN member countries.
• AITIGA contains provisions for lowering tariffs on sensitive products and instituting transparent, predictable trade practices to mitigate non-tariff barriers. The agreement’s overarching goal is to enhance trade efficiency, stimulate trade growth, and address trade imbalances between ASEAN and India.

Elements of AIFTA(ASEAN-INDIA Free Trade Agreement):

• Trade in Goods Agreement: This agreement, which came into effect on January 1, 2010, aims to gradually diminish and eradicate tariffs on 76.4% of goods exchanged between ASEAN member states and India.
• Trade in Services Agreement: Established in November 2014, this agreement encompasses clauses concerning transparency, domestic regulations, recognition, market access, national treatment, and dispute resolution.
• Investment Agreement: Also ratified in November 2014, this agreement guarantees equitable and impartial treatment for investors, non-preferential treatment in cases of expropriation or nationalisation, and just compensation.

Advantages of AITIGA for Businesses in India and ASEAN

The ASEAN-India Trade in Goods Agreement (AITIGA) presents notable advantages for enterprises in India and ASEAN by fostering trade facilitation, strengthening economic collaboration, and encouraging mutual prosperity. Here are the principal benefits of AITIGA:

• Trade Expansion: AITIGA endeavours to facilitate the continued expansion of trade between India and ASEAN in an equitable and sustainable manner. The agreement establishes a framework for diminishing or eradicating tariffs and non-tariff barriers, facilitating smoother trade interactions, and creating an enabling environment for heightened trade volumes.
• Increased Market Access: AITIGA amplifies market access for businesses in India and ASEAN by furnishing a platform for simplified entry into each other’s markets. This expanded access unlocks fresh opportunities for enterprises to explore and broaden their market presence, potentially fostering growth and diversification of trade endeavours.
• Mutually Beneficial Trade: The agreement is crafted to be mutually beneficial for both India and ASEAN nations. By nurturing a more conducive trade environment, AITIGA aims to tackle trade imbalances, improve trade efficiency, and foster an equitable and balanced trade relationship among the participating entities.
• Tariff Reduction: AITIGA commits ASEAN and India to progressively eliminate duties on a substantial portion of goods, resulting in diminished tariffs and rendering trade more economically viable for enterprises. This tariff reduction has the potential to lower the cost of imported goods, enhancing their competitiveness in the market and benefiting consumers alike.
• Increased Collaboration: The agreement encourages collaboration between India and ASEAN nations across various domains, including technical regulations, standards, and conformity assessment procedures. By aligning these practices, AITIGA seeks to streamline trade processes, mitigate barriers, and facilitate smoother trade flows between the regions.

Challenges in India and ASEAN during AITIGA Implementation

Some prominent challenges include:

• Tariff Discrepancies: Instances of inverted duty structures have emerged, wherein import duties on raw materials or inputs surpass those imposed on finished goods. This discrepancy disadvantages domestic manufacturers and discourages value addition within the country.
• Diverse Tariff Reduction Commitments: AITIGA exhibits a varied duty structure due to the differing rates of tariff elimination committed by various ASEAN countries. While Singapore pledged complete tariff elimination, other nations, like Vietnam, agreed to a lower percentage of tariff negotiation.
• Non-Tariff Barriers: Businesses have grappled with navigating non-tariff barriers, including intricate rules of origin, standards, technical regulations, and conformity assessment procedures. Simplifying these processes is vital for facilitating smoother trade flows.
• Trade Imbalances: Over time, the trade balance has tilted increasingly in favour of ASEAN countries. India endeavours to rectify this imbalance and ensure that the agreement yields mutual benefits for both parties.
• Rules of Origin Concerns: There are apprehensions that non-ASEAN nations might reroute exports through ASEAN countries to capitalise on the tariff benefits under AITIGA. Strengthening the provisions regarding rules of origin is imperative to prevent trade diversion.
• Lack of Awareness: Certain enterprises, particularly small and medium-sized ones, may lack awareness of AITIGA’s advantages and stipulations. Augmenting awareness and providing assistance to businesses can enhance their ability to leverage the agreement more effectively.

India and ASEAN Trade Dynamics

Over recent decades, India and ASEAN have been dedicated to fortifying their trade and economic collaboration. Here are notable facets of India-ASEAN trade relations:

• In 2009, India and ASEAN inked the ASEAN-India Trade in Goods Agreement (AITIGA), which has been operational since 2010. The agreement aims to progressively eliminate tariffs on 76.4% of traded goods.
• During the fiscal year 2017-18, bilateral trade between India and ASEAN surged by nearly 14%, reaching US$81.3 billion. India’s imports from ASEAN amounted to US$47.13 billion, while exports to ASEAN totalled US$34.2 billion.
• In 2022-23, bilateral trade between India and ASEAN reached US$131.5 billion, with ASEAN contributing 11.3% to India’s global trade during that period.
• India experiences a trade deficit with six out of ten ASEAN countries, notably Brunei, Indonesia, Malaysia, Singapore, Thailand, and Vietnam. The highest deficits are recorded in Indonesia and Singapore.
• Singapore, Thailand, and Vietnam rank as India’s top three export destinations within ASEAN, while Singapore, Indonesia, and Malaysia are the primary sources of imports.

Way forward for Indo-ASEAN trade relations

• Evaluation of Trade Agreements: India and ASEAN are set to reassess the Free Trade Agreement (FTA) concerning goods to fortify production connections, enhance market entry in strategic trade sectors, and broaden export prospects. Resolving non-tariff barriers and bolstering digital and physical connectivity is pivotal in attaining greater trade parity and bolstering merchandise exports to ASEAN.
• Product-Centric Approach: India should undertake a comprehensive examination at the product level to devise a trading strategy focused on securing enhanced market penetration in ASEAN and beyond. Prioritising products with both forward and backward linkages and those where India possesses a comparative advantage can propel export expansion and fortify trade alliances.
• Integration into Value Chains: India must address the hurdles posed by extant trade pacts and large-scale Regional Trade Agreements (RTAs) facilitating ASEAN’s involvement in Global Value Chains (GVCs). Initiatives to integrate into the Asian value chain, comply with agreements like the Regional Comprehensive Economic Partnership (RCEP), and enhance trade efficacy are pivotal for India’s integration into value chains and regional trade dynamics.
•  Enhanced People to People relations: India and ASEAN have been coordinating a range of initiatives to enhance interpersonal engagement. These efforts encompass endeavors such as the Students Exchange Programme, a Special Training Course designed for ASEAN diplomats, Exchange of Parliamentarians, and involvement in forums like the ASEAN-India Network of Think Tanks and ASEAN-India Eminent Persons Lecture Series.

There are apprehensions in India regarding the potential negative impacts of AITIGA on sectors such as plantation, manufacturing, and marine products, attributable to heightened competition from ASEAN exports.

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Prelims Based Question

Q1. Consider the following statements regarding Indo-ASEAN trade relations:

1. India experiences a trade surplus with most ASEAN member countries.
2. ASEAN is India’s fourth-largest trading partner.

Choose the correct answer using the codes given below:

(a). 1 Only

(b). 2 Only

(c). Both 1 and 2

(d). Neither 1 nor 2

ANSWER: B

Mains based Question

Q1. What are the major challenges faced by businesses in India and ASEAN during the implementation of AITIGA? Discuss the implications of these challenges on trade dynamics between the two regions.

Vikas Agarwal