The importance of Asean for India

The evolving regional trade context should be the primary guiding factor for the AITIGA review

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The review of the Asean-India Trade in Goods Agreement (AITIGA) is scheduled to begin next month. This has been a long-pending demand from the Indian industry seeking to alter the provisions of the agreement so that the bilateral trade balance, which is in favour of Asean, can be potentially reduced or reversed. Statements by the Indian industry, lowing soon after the review announcement last November, flagging an increase in certain imports from Asean (Business Standard, December 11, 2023), reflect the same sentiment. However, it would be best if the Indian negotiations are not guided solely by these apprehensions but undertaken keeping in view the evolving global and regional trade context.

The AITIGA, signed in 2009, was a shallow free-trade agreement (FTA) with less than 80 per cent tariff line liberalisation. The FTA also granted a greater advantage to some of the Asean economies through a relatively large negative list. Additionally, the rules of origin (ROO), specified a lower value-added content relative to India's bilateral FTAs with member economies such as Singapore.

The expected compensatory gains in the agreement on services liberalisation also did not materialise due to the prolonged time period over which it was negotiated and Asean's limited internal services sector liberalisation.

The increasing deficit with Asean, though, is more on account of India's higher tariffs, and hence a relatively high preferential margin accorded to Asean economies, as also due to India's limited export competitiveness. These two contributory factors are true for India in almost all its FTAs, given that India maintains relatively high average applied mostfavoured nation (MFN) tariffs in the non-agriculture sector. So, it would be useful for India to reduce its import tariffs before the start of the revision process next month. The Budget, due on February 1, may be a good time to accomplish this long-sought trade reform.