Economics for Everyone-Going Global- India Asean FTA

India Infoline News Service | Mumbai |

The services negotiations are taking place on a request-offer basis, wherein both sides make requests for the openings they seek and offers are made by the receiving country based on the requests.

The ASEAN secretariat, which is compiling requests from ASEAN countries for opening up of various services sectors in India, is expected to present the requests list at the meeting beginning on February 2010. India has already sent its requests to the ASEAN members. India will try to expedite negotiations on opening up trade in services with the 10-member ASEAN team in Jakarta.The services negotiations are taking place on a request-offer basis, wherein both sides make requests for the openings they seek and offers are made by the receiving country based on the requests.

According to a report by industry body CII, the services part of the India-ASEAN FTA is crucial as India seeks market access for its IT, ITES, health, education and other services in ASEAN with its rapidly growing middle-class. The ASEAN market is very important for India as the region is a net importer of services and imported over $180 billion worth of services in 2008. Services sector contributes over 55% to India’s gross domestic product (GDP). While the India-ASEAN FTA in goods — which will allow duty-free trade in more than 4,000 goods in a phased manner — is operational since the beginning of January, the agreement on services and investment is still being negotiated. 

Anand Sharma, the Commerce and Industry Minister, who signed the agreement for India, remarked "This is a historic development, given rising engagement between India and ASEAN and the enhanced economic cooperation.  This agreement will open new opportunities for multi-sectoral engagement". 


Association of Southeast Asian Nations (ASEAN)


The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997, and Cambodia on 30 April 1999.

According to their DECLARATION –"The Association represents the collective will of the nations of to bind themselves together in friendship and cooperation and, through joint efforts and sacrifices, secure for their peoples and for posterity the blessings of peace, freedom, and prosperity. (The ASEAN Declaration, Bangkok, 8 August 1967)"


Objectives of Asean:

To accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian nations, and

To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the United Nations Charter.


Background


The India-ASEAN Free Trade Agreement (FTA) was finally signed, on 13 August 2009 at Bangkok, after six years of negotiations, on the sidelines of a meeting of Economic Ministers of ASEAN. The agreement was only for trade-in-goods and did not include software and information technology.  Negotiations for agreements on services and investment sectors have commenced only in October 2008 and are expected to be finalised now. 

ASEAN is India’s fourth-largest trading partner after the E.U., the United States and China.  Two-way trade between India and ASEAN was $ 47 billion in 2008.  Both the parties to the FTA are expecting a $10 billion increase in trade even in the first year. India’s trade with ASEAN is mainly concentrated in Singapore, Malaysia and Thailand.  Singapore continues to remain the largest market in ASEAN for India’s merchandise exports. 

The likely beneficiaries in India are the exporters of machinery, steel, oilcake, wheat, buffalo meat, auto components synthetic textiles, refined petroleum products, organic chemicals, pharmaceuticals, gems and jewelery. 

The FTA was effective from January 1, 2010. The FTA would eliminate tariffs for about 4000 products (which include electronics, chemicals, machinery and textiles) out of which duties for 3200 products will be reduced by December 2013, while duties on the remaining 800 products will be brought down to zero or near zero levels by December 2016.

The 489 items excluded from the list of tariff concessions and 590 items excluded from the list of tariff eliminations in the agreement pertain to farm products, automobiles, certain auto-parts, machinery, chemicals, and crude and textile products.  Tariff cuts in respect of some sensitive items like palm oil, tea, coffee and pepper will be graduated during a period of 10 years.The accord, India’s first with a trade bloc; will cover 11 countries with a combined Gross Domestic Product of over $2.3 trillion. The combined population is of the order of 1.7 billion.


Free Trade Agrrement (FTA)


Free trade area is a type of trade bloc, a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all)goods and services traded between them. It can be considered the second stage of economic integration. Countries choose this kind of economic integration form if their economical structures are complementary. If they are competitive, they will choose customs union.

E.g. European Free Trade Area (EFTA)

North American Free Trade Area (NAFTA)


Trade Blocks

A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.

In simple terms, it is a group of countries who act together for a common purpose, united by treaty or agreement.

There are mainly five types (also stages of integration) of trade blocks.

  • Preferential Trading Area
  • Free Trade Area
  • Customs Union
  • Common Market
  • Economic Union

The aim of a free trade area is to so reduce barriers to easy exchange that trade can grow as a result of specialisation, division of labour, and most importantly via (the theory and practice of) comparative advantage. The theory of comparative advantage argues that in an unrestricted marketplace (in equilibrium) each source of production will tend to specialize in that activity where it has comparative (rather than absolute) advantage. The theory argues that the net result will be an increase in income and ultimately wealth and well-being for everyone in the free trade area.Many governments, throughout the world have either signed FTA, or are negotiating, or contemplating new bilateral free trade and investment agreements.

The agreements are like stepping stones towards international integration into a global free market economy. Unlike a customs union, members of a free trade area do not have a common external tariff (same policies with respect to non-members), meaning different quotas and customs. To avoid evasion (through re-exportation) the countries use the system of certification of origin most commonly called rules of origin, where there is a requirement for the minimum extent of local material inputs and local transformations adding value to the goods. Goods that don't cover these minimum requirements are not entitled for the special treatment envisioned in the free trade area provisions.


SAFTA- South Asia Free Trade Association


The origin of the present vision dates back to The 13th Summit of SAARC (South Asia Association of Regional Cooperation) in Dhaka (2005). It took two groundbreaking decisions. One, it decided to admit Afghanistan as its eighth permanent member, and USA,South Korea,China and Japan as ‘observers’. Two, it declared to set up a Free Trade Area (FTA) by January 2006. The Free Trade Agreement was signed during the Islamabad summit of January 2004.

The region is home to world’s one-fifth population, some of them among the poorest of the world. The summit that has dedicated the next decade to

 

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