India is in the process of re-negotiating its free trade agreement with ASEAN to address a widening trade deficit and seek deeper tariff cuts on exports like chemicals and gems. The review also aims to strengthen rules of origin to prevent trade misuse. ASEAN may request more concessions. The process is expected to conclude by 2025, with key negotiations advancing by September and further progress by November.
The India-ASEAN trade pact, officially known as the India-ASEAN Free Trade Agreement (FTA), was signed on August 13, 2009. The agreement covers trade in goods and was signed in Bangkok, Thailand, after six years of negotiations. The agreement came into effect on January 1, 2010.
In the initial scope of the FTA, ASEAN Member States and India agreed to open their respective markets by progressively reducing and eliminating duties on 76.4% coverage of goods. The significant benefit that ASEAN has experienced compared to India is clear when observing the trend of a widening trade deficit between the two countries post the agreement. As a result, India has requested a review of the existing free trade agreement, which is currently underway.
India’s trade deficit with ASEAN has surged from US$ 5 billion in 2010-11 to US$ 38.5 billion in 2023-24, by seeking additional tariff reductions on key export items. The country aims to improve market access for its products and tackle barriers such as stringent food certification requirements in ASEAN markets. Electronics, machinery, and palm oil are among India’s major imports from ASEAN. The country’s exports to ASEAN totaled US$ 41.2 billion in the previous financial year, against imports of US$ 79.6 billion.
On the positive side, however, India’s exports of non-oil and non-mineral products have increased in the 10 years post-FTA. Imports on the other hand are dominated by non-oil products like, textiles, electronic goods, chemicals and machinery that are vital to Indian manufacturing. In fact, India’s exports of manufactured goods had a higher share of 39.5% in 2020 as compared to 35.3% in 2010. Interestingly, a number of items put by India in the exclusion list (around 1,297 tariff lines) have seen an increase in imports.
Source: Ministry of Commerce and Industry
India encounters several other challenges in its trade with ASEAN, despite notable progress. According to experts, the latter’s engagements with other regional agreements like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) divert attention and resources from the ASEAN-India relationship. The presence of regional powers such as China further limits ASEAN’s ability to fully utilize India’s potential for enhancing regional stability. Additionally, limited physical and digital connectivity between India and ASEAN countries hampers trade, investment, and people-to-people interactions.
As part of a comprehensive review of its free trade agreement with ASEAN, India is pushing for cuts in tariffs on chemicals, metals, machinery, plastics, rubber, textiles, leather, and gems and jewelry. The country also wants to tighten the rules of origin (RoR) norms due to concerns about trade influx from third countries exploiting the FTA’s preferential access. India has often expressed concerns of misuse of norms by other countries for exports to India, without meeting the desired RoR criteria.
ASEAN is expected to request further concessions on items where India has not yet offered significant tariff cuts. Both parties aim to complete the review process by 2025. By next month, they will finalize the text for negotiations on eight key areas of the review, including market access and rules of origin.
The plan involves making the RoR chapter more detailed and aligning it with standards from current trade agreements. The existing FTA requires a 35% domestic value addition for manufactured products and stipulates that final processing must occur in the exporting country. The revised RoR aims to support high-value exports like gems and jewelry, which currently struggle to meet the value addition requirement.
Separate sub-committees have been established for each of the eight review areas, which include market access, standards, technical regulations, sanitary and phytosanitary measures, legal and institutional issues, customs procedures, trade facilitation, trade remedies, and technical cooperation. In the recent fifth joint committee meeting in Jakarta, all sub-committees met for the first time, with negotiations beginning in four of the areas. By September, negotiations are expected to advance in all eight sub-committees, with potential progress in some chapters by the next joint committee meeting in India in November.
Are you interested in enhancing your exports to the ASEAN region? Do you face any significant trade related roadblocks while exporting to ASEAN countries? Please reach out with your queries to Nisha Parveen at researchdesk@tpci.in
