The Association of South East Asian Nations (ASEAN)-India Trade in Goods Agreement (AITIGA) was signed and entered into force on January 1, 2010. The AITIGA (also known as ASEAN-India FTA) was a culmination of a series of efforts by both ASEAN member-States and India to ameliorate their ties. After completing a decade of the AITIGA in 2019, ASEAN and India mutually decided to review the agreement through consultations. While attending the 20th ASEAN-India Summit in 2022 at Jakarta, the Indian Prime Minister emphasised the need to complete the AITIGA in a time-bound manner. At the same Summit, the scope of the review was agreed upon. Both parties have decided to make the agreement more effective, user-friendly, simple, and trade-facilitative, while aligning it with current global trading practices as well as supporting sustainable inclusive growth. A detailed action plan for the review was also finalised and the deadline of 2025 was set for completing the process. An early conclusion of the review would significantly contribute to the trade relations.

The Association of South East Asian Nations (ASEAN)-India Trade in Goods Agreement (AITIGA) was signed and entered into force on January 1, 2010. The AITIGA (also known as ASEAN-India FTA) was a culmination of a series of efforts by both ASEAN member-States and India to ameliorate their ties. After completing a decade of the AITIGA in 2019, ASEAN and India mutually decided to review the agreement through consultations. While attending the 20th ASEAN-India Summit in 2022 at Jakarta, the Indian Prime Minister emphasised the need to complete the AITIGA in a time-bound manner. At the same Summit, the scope of the review was agreed upon. Both parties have decided to make the agreement more effective, user-friendly, simple, and trade-facilitative, while aligning it with current global trading practices as well as supporting sustainable inclusive growth. A detailed action plan for the review was also finalised and the deadline of 2025 was set for completing the process. An early conclusion of the review would significantly contribute to the trade relations.

ASEAN-India trade took over a decade to double the value of trade. The bilateral trade was $ 56 billion in 2010-11, when the FTA came into effect, became $ 132 billion in 2022-23 and then declined to $ 121 billion in 2023-24. During this period, the AITIGA saw tariff liberalisation of over 90% of products traded between them and tariffs on over 5,000 product lines eliminated by 2023. While India’s exports to ASEAN increased from $ 25.63 billion in 2010-11 to $ 41.21 billion in 2023-24, its imports increased from $ 30.61 billion to $ 79.66 billion in the same period. Especially in the case of ASEAN, the trade balance has deteriorated after the implementation of the FTA. With Vietnam, the surplus in trade balance in 2010 changed to a deficit in 2020, standing at $ 1068.6 million. After the implementation of the ASEAN-India FTA, a surplus in trade balance has been recorded with Cambodia, Lao PDR, the Philippines and Myanmar. This also indicates that the ASEAN has gained a trade surplus on the current account, whereas India has witnessed a trade deficit. Increasing asymmetry in the balance of trade for India has raised concerns. Therefore, it is worth reviewing the AITIGA and the corresponding trade linkages.

A popular question always haunts the ASEAN-India trade: why the trade between them is always remained a slow starter? The answer is India’s bad luck and timing. Generally speaking, series of global headwinds slowed down the ASEAN-India trade soon after India implemented the AITIGA. Both of their trade with the world had faced three major shocks since 2010-11:

• the collapse in oil prices from 2014 to 2016,
• the United State (US)-China trade war, and
• the Covid-19-induced pandemic. These all primarily triggered the plunge of trade and resulted in slowing down the economic growth in India as well as ASEAN. India and ASEAN also witnessed a V-shaped rise in their respective global trade post-pandemic.

What is the neat gain from the first phase of AITIGA? Quality of trade has picked up the demand. For example, trade in non-oil and/or non-mineral better represents the quality of trade integration. India's non-oil and non-mineral export to ASEAN continued to rise. In 2010, the export of non-oil and non-mineral was $ 15.74 billion (accounting for 68.5% of India's total exports to ASEAN), which became $ 30.49 billion in 2021 (accounting for 75% of India's total exports to ASEAN). In case of imports, India's total imports of non-oil and non-mineral from ASEAN were valued at $ 21.36 billion in 2010, accounting for 72.1% cent of the total imports from ASEAN, which later increased to $ 53.38 billion in 2021, accounting for 82.3% of the total imports from ASEAN. What follows is that non-oil and non-mineral products have dominated India's imports from ASEAN in post-FTA phase, which include textiles, electronic goods, chemicals, and machinery. These products are vital to India's manufacturing and services sectors, and the significant increase in their imports in 2021 suggests the growing demand for these products in India.

India’s trade composition with ASEAN has also shifted from agricultural raw materials and food to more manufactured goods. The export of manufactured goods has increased from 35.29% in 2010 to 39.53% in 2020, whereas its imports have climbed from 32.12% in 2010 to 38.57% in 2020. This shift in export composition is driven by transport equipment, chemicals and textiles. Interestingly, imports of transport equipment from ASEAN are increasing at a more increasing rate than their exports. Declining shares of exports and imports of minerals, mineral fuels and oils in the post-FTA indicate that trade between ASEAN and India has diversified into non-oil non-mineral sectors, thereby suggesting higher value addition of the real economies, which is one of the primate objectives of the AITIGA.

Contrary to popular belief, there has been an increasing trade in items in the exclusion list. Therefore, the review of the FTA should also involve an assessment of the exclusion list products after a decade, which may have a significant impact on the effectiveness of the FTA in promoting trade. In a total of 12,169 tariff lines between ASEAN and India, around 75% of the tariff lines are governed by the normal track commitments. Among the 1297 tariff lines put under the exclusion list by India, a prominent proportion of the commodities in the agricultural sector are excluded for any reduction or elimination in tariffs. Around 17% of the tariff lines in the exclusion list tend to come from tariff lines in the textile and apparel industry. The share of India's exports to ASEAN in its total exports has only climbed marginally. There has been a considerable change in the number of tariff lines between ASEAN and India post the signing of the FTA. ASEAN countries have varying numbers of products in their exclusion lists, ranging from 150 to 2,057. Among the ASEAN countries, Vietnam has the highest number of products in its exclusion list (2,057 products), followed by Myanmar (1,613 products). With Vietnam, the number of tariff lines in imports has increased from 1,306 to 1,963. Ideally, items placed in the exclusion list must not see an increase in their imports as they are kept out of the ambit of any tariff reduction/elimination. However, in the case of India’s imports from ASEAN, an opposite traction could be seen. In a substantial number of exclusion list items, the import has gone up after the implementation of the AIFTA. Most of the exclusion list items of the machinery category saw a rise in imports from ASEAN, regardless of no tariff reduction offered by India.

There has been negligible gain in comparative advantage. India’s Preferential Tariff rate on ASEAN export has been fully liberalised. India lowered their PRF tariff rates to zero for most of the products. Though, for some products the PRF tariff rates have been increased in 2021 compared to 2015 PRF rates. The lowered PRF tariff rates led to increased ASEAN exports to India. From ASEAN, Lao PDR, Brunei, Cambodia, Indonesia, Myanmar, Vietnam and the Philippines liberalised their PRF rates for India during 2015 to 2021. Thailand shows us some opposite picture than other members of ASEAN.

Trade barriers continue to impede trade. Freer trade requires dismantling the barriers including tariffs, quotas or export/import ban. Although tariffs on trade have significantly come down over the decades, there are a host of barriers other than trade which have emerged and are acting as market access impediments for countries, of which non-tariff measures (NTMs) are the major constraints. An increase in NTMs could raise trade costs, inhibiting trade expansion. However, there has been a rise in tariffs in 2019 for several ASEAN countries as well as India. NTMs are on the rise in all 10 ASEAN countries. In the last three years, the number of NTMs in ASEAN increased by about 15%. Streamlining NTMs through harmonisation of standards and regulations and mutual recognition of conformity assessment and reduction of border procedures is important for facilitating preferential market access between ASEAN and India. Making equivalence of standards between ASEAN and India is the way forward. ASEAN and India should identify the potential products that are of interest and should build cooperation to work in areas where there are difficulties in recognising or validating certificates of testing and inspections and strengthen the use of international standards, mandatory documentation of equivalence procedure and adopting Codex consignment rejection guidelines, standards in English language and agreement on self-certification. Indian accreditation authorities should enter into mutual recognition agreements (MRAs) with similar agencies in ASEAN countries. Only then any regional trade agreements can promote trade and investment activities.

The 6th AITIGA Joint Committee and related meetings for discussions on the review of the AITIGA were held from November 15-22 2024 in New Delhi. There are eight sub-committees under the AITIGA Joint Committee to negotiate aspects related to market access, rules of origin, SPS measures, standards and technical regulations, customs procedures, economic and technical cooperation, trade remedies, and legal and institutional provisions. All the eight sub-committees met during this round of negotiations. Among these, five sub-committees managed to meet physically on the sidelines of the 6th AITIGA Joint Committee meeting. During this round of discussions, the sub-committees have made good progress in textual discussions and some ground has also been covered towards initiating tariff negotiations. The next meeting of the AITIGA Joint Committee is scheduled for February 2025 in Jakarta.

So far, trade gains are mixed. Lowering trade barriers is going to be one of the most obvious means of encouraging trade between ASEAN and India. The way forward is to renegotiate the AITIGA, making it more trade-friendly. It should promote fair competition. While renegotiating the agreement, India’s interests should be to gain higher market access in ASEAN and the rest of the world in those products that offer the GVC linkages, both forward and backward linkages, and the products gaining comparative advantages. Both ASEAN and India may like to promote quality trade and resilient production networks and supply chains. Concluding the negotiation of the AITIGA review may take time but ASEAN and India may intensify their efforts to achieve a substantial conclusion even before the deadline of 2025. Today, global uncertainties are looming large. The time today is an opportunity to finalise the review of AITIGA, leading to further intensification of the comprehensive strategic partnership between India and ASEAN, the two important pillars of Indo-Pacific.

This article is authored by Prabir De, professor, RIS, New Delhi.