India faces 'tariff asymmetry' in ASEAN agreement, says official

Highlights:

• India is facing a widening trade deficit with the Association of Southeast Asian Nations (ASEAN), with imports significantly outpacing exports. A key issue identified by Indian officials is the tariff asymmetry within the India-ASEAN Free Trade Agreement (FTA). India is pushing for a review of the trade deal, aiming for completion by 2025, to address this imbalance.

The Call for a Review

Tariff Asymmetry and Imbalance:

• According to Rajesh Agrawal, Additional Secretary in the Department of Commerce, India faces an uneven tariff structure in the agreement. India has a “74%+” tariff elimination for ASEAN nations, with higher eliminations from less developed economies, while receiving lower concessions from larger, fast-growing economies. This asymmetry is seen as detrimental to India, and addressing it is a priority during the review process.

Country-Specific Approach:

• India is also considering a country-wise approach in negotiations, as ASEAN is not a customs union but a bloc of 10 countries at different stages of economic development. However, ASEAN typically prefers a unified set of concessions, posing a challenge to India's proposal for bilateral flexibility.

Background of the India-ASEAN Trade Deal

Signed in 2009:

• The India-ASEAN FTA was signed in 2009 and has become an essential source of raw materials for Indian industries, including palm oil, natural gas, and natural rubber sourced from ASEAN nations like Indonesia, Malaysia, and Thailand. However, Indian industries have increasingly raised concerns, particularly about the influx of subsidized industrial imports and Chinese products being routed through ASEAN to claim FTA benefits.

Rising Trade Deficit:

• India's trade deficit with ASEAN has grown from $8 billion in FY13 to $44 billion in FY23, partly due to rising imports after the pandemic. This growing deficit has fueled calls for a more balanced trade agreement. Additionally, ASEAN's membership in the China-led Regional Comprehensive Economic Partnership (RCEP) has heightened fears of increased imports from the region, especially from China.

Slow Progress in Review Talks

Delayed Review Process:

• India and ASEAN agreed to a review of the trade deal during the 16th ASEAN-India Economic Ministers Meeting (AIEMM) in 2019, but progress has been slow. It took three years just to agree on the scope of the review in 2022, with little advancement since then. Indian officials have expressed frustration with the slow pace, especially as the deal is perceived to disproportionately benefit ASEAN over India.

Economic Impact and India's Stance

India's Trade with ASEAN:

• ASEAN remains a critical trading partner for India, accounting for 11% of India's global trade. In 2023-24, India’s exports to ASEAN totaled $41.2 billion, while imports stood at $80 billion, contributing to the widening trade deficit.

Strategic Importance of the Review:

• The review is a long-standing request of Indian industries, which seek a more balanced agreement that reduces trade barriers and curbs the misuse of the FTA. This experience with ASEAN has also influenced India's decision to exit the RCEP negotiations in 2019, after nearly a decade of talks, due to concerns over rising imports from China.

Prelims Takeaways:

• India-ASEAN FTA
• Regional Comprehensive Economic Partnership (RCEP)