INDIA-ASEAN FREE TRADE AGREEMENT:-A SETOR-WISE IMPACT ANALYSIS

(REVIEW OF LITERATURE)

INDIA- ASEAN FREE TRADE AGREEMENT:-A SECTOR-WISE IMPACT ANALYSIS (REVIEW OF LITERATURE)

ASEAN emerged as a major actor in the politics of Asia Pacific region after the end of cold war. Date back history reveals that India had extensive cultural, economic and political ties with the Southeast Asian Nations. But after Independence, this region was overlooked by India. The changed global circumstances in 1990 and Indias Look East policy forced India to adapt the New Economic world order i.e. regionalism. A quantum jump in Indo-ASEAN relations came with the effort to forge closer links with the Southeast Asian countries after 1991. The ASEAN-India nexus has grown from sect oral dialogue partnership in 1992 to full dialogue partnership in 1995 and subsequently to a summit level interaction, with the first India-ASEAN summit held in 2002. Trade is one of principal channels of India and ASEAN integration. Both the parties are complementary to each other. From the last seven years, trade has done manifold increase i.e. 150% increase which is remarkable.The present review is an attempt to examine the existing literature regarding India- SEAN Trade relations. There is growing body of literature on the concerned issue. For this, under, four broad themes literature has been analyzed. At first, Trade Relations between India-ASEAN in historical perspective has been examined. It is observed that India and ASEAN are not awkward strangers. They have shared close relationship since the ancient times. Second section deals with growth of trade between the two actors from time to time. It is observed there is drastic increase in bilateral merchandise trade and commercial services.

Smitha Francis in her research paper title A Sectoral impact Analysis of the ASEAN India FREE Trade Agreement (2011) analyzed the pattern and composition of Indias trade with the major ASEAN countries and Indias tariff reduction scenario in different sectors using the data for the Period 1995_2008. It was observed that under AIFTAG, the trade blocs members will have increased access to the Indian market for semi-processed and processed agricultural products and close substitutes, which could adversely affect the countrys agricultural sector. Indian small and medium enterprises in food and other agriculture-related products, some intermediate goods, and light manufacturing products are also likely to suffer. She Concluded Tariff reduction and its elimination under the AIFTA will not only disrupt farmers domestic markets, but also reduce their bargaining power and lead to a fall in domestic prices because of the increased supply of agricultural and related semi-processed (and processed) products. Further, it should be noted that even while utilizing safeguard provisions under the FTA, tariffs cannot be raised above the levels scheduled in it. This means that India will have the right to raise tariffs with ASEAN only to the highest level that it is committed to in the agreement. With tariffs dropping to zero in most cases, this becomes meaningless. Therefore Indias commitments under the AIFTA are likely to have a significant negative impact on livelihoods and food security across several segments of the rural population in the country. She further argue that recent trends in Indias export and import structures point to its increasing participation in FDI-driven production networks centered on ASEAN. The implications of Indias tariff
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reduction commitments under the AIFTA for its agricultural and nonagricultural sectors were analyzed against this backdrop. It is established that ASEAN countries will gain significantly increased market access in India in several semi-processed or processed agricultural products. Both the reduced demand for local agricultural products because of this and increased imports of close substitutes could lead to a fall in the prices of local crops, thus adversely affecting the domestic agricultural sector. Further, Indian SMEs in agriculture-related products and food products, as well as in some intermediate goods and light manufacturing products are likely to be negatively affected by the drastic tariff liberalization under the AIFTA. However, import liberalization in intermediate goods will impel MNCs to undertake production rationalization across the region, particularly in the transport equipment and machinery sectors. This might also help Indian MNCs that are active in the region, especially in the chemicals and iron and steel sectors. The paper argues that this will lead to Indias deeper integration in production networks in some industries such as machinery, chemicals and transport equipment. On the other hand, there are hardly any immediate benefits for Indian producers as average percentage tariff drops in Malaysia, Indonesia and Thailands Normal Track products are much lower than Indias. Further, the ASEAN-5 economies are leading exporters of light manufacturing products. India will also be competing with China and South Korea in the ASEAN market, which already have FTAs with ASEAN. Thus
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Indian SMEs will find it difficult to hold their own against these countries in such sectors. Apart from China and South Korea, ASEAN has also signed FTAs with a number of other major countries such as Australia and New Zealand. While India has signed CECA with South Korea, other countries could make use of the AIFTA to route their products through ASEAN into the Indian market. China is a major producer of agricultural goods and a variety of other manufactured goods. Meanwhile, the fall in Japans share in Indias imports is linked to Japanese MNCs reorganizing their production networks in Asia after the progress of bilateral FTAs in the region. It should also be noted that Australia and New Zealand are major producers of milk products. So the rise in Indias imports could be much more than is currently possible to envisage. There is also little doubt that companies across these countries will reorganize their production and procurement strategies, following the Japanese example. The consequent decline in the need for setting up production facilities in India in favour of imports from any of these countries is also likely to have a significant negative effect on employment and livelihoods. In conclusion, neglect of the development needs of domestic agriculture and a manufacturing base for the expected gains from service sector liberalization with ASEAN, together with the known problems in service sector liberalization, are likely to make Indias employment and livelihood issues even more challenging.

According to Viswanathan and Shah (2008), the launching of trade reforms and liberalization policies in the post-World Trade Organization (WTO) context has already seriously affected the Indian plantation sector in general and tea and rubber production in particular. One of the most explicit effects of the trade reforms has been the emergence of market uncertainties, leading to high volatility or a steep fall in the international and domestic prices of commodities due to the removal or dilution in tariff and nontariff trade barriers. The extent of decline in prices and their instability have both been the highest for rubber and tea, which have had adverse effects on production. In the case of rubber, liberal trade policies have resulted in the removal of quantitative restrictions (QRs), which in turn enabled manufacturers of rubber products to directly import rubber through duty-free channels (as and incentive for exporting rubber products). The coping mechanisms adopted by the tea and rubber planting communities (medium and large tea planters and small rubber producers) have included cost-saving and labour-displacing measures such as diluting or even discarding scientifically recommended agro-management practices; labour

retrenchments; lockouts; and resistance to routine tripartite wage negotiations. A large number of medium- and small-scale tea estates have closed in the major tea-growing regions of India due to the crisis and troubled labour relations. This has severely affected the livelihoods of labourers and their dependent communities, as there has been a slump
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in employment, non-payment of wage and non-wage benefits, and the disappearance of other social security measures.

In his study Ramphul ohlan (2012) investigates the pattern and trends in Indias bilateral trade with ASEAN countries during 1980-2008. India and ASEAN countries trade specialization products have been estimated applying Lafay (1992) index. The prospect for Indias expansion in ASEAN is examined using to estimate the changes in pattern of Indias comparative dynamics of Indias trade specialization have been compared with growth in the world demand. The empirical findings on the share in ASEAN countries trade has slightly grown, but has been less than that of Japan and China. Further, this shift has been more marked in the case of imports. While the ASEAN countries are not a major destination for Indias exports, these countries play a significant role in Indias imports.

India runs a large and worsening trade deficit merchandise trade deficit with ASEAN was US$ 16.3 billion in 2008, a 12.1 per cent or US$ 1.7 billion increase over 2007. Indias ratio of balance of trade to total foreign trade worst in case of its trade with ASEAN countries than its overall foreign trade. During the last three decades, Indias trade intensity in intensity in ASEAN countries has deteriorated. SEAN export to India when matched against Indias import profile are more
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compatible in contrast with Indias exports to ASEAN and its import profile. In the context of competition between ASEAN countries and India, the study explores that Indias comparative advantage is rather poorer than ASEAN countries. The policy implication is that in order to benefit from ASEAN-India Free Trade Agreement in Goods India needs for enhancing its competitiveness. Indias simple average MFN applied advalorem tariff rates were higher than ASEAN countries.

Ohlan suggests that tariff elimination under ASEAN-India Free Trade Agreement in Goods is likely to increase import surges in India. Indias exports basket is highly diversified. India has a comparative advantage in some of the fastest growing sectors of the world demand. It shows signs of Indias potential benefits from multilateral trade liberalization.

(Okimoto 2005) find that Intra Industry Trade (IIT) among ASEAN countries and China is quite significant but there is still very little intraindustry trade between ASEAN and India. Indias relatively high tariff rate and lack of dynamism in the manufacturing sector can be possible reasons behind this. Also, foreign direct investment (FDI) received by India has been mostly in the services sector while China has received most of its FDI in the manufacturing sector.

Shankaran Nambiar (2011) concluded that Indias age structure favours development for variable fields in the service sector. In contrast to the other major Asian nations, India's working population will increase rather than decrease for another 30 years. Within ASEAN, only Cambodia and Laos have an increasing working population while the share of people aged 15 to 64 will decrease in all other ASEAN nations by 2020.

This trend will lead to increasing demand of services in ASEAN and India will prove to be a good partner to reduce and maybe even overcome this shortage. Additionally, ASEAN nations will face a lack of skilled labour, a factor that could be filled by India. Due to their enormous growth in the past years, economies like Malaysia, Singapore and Thailand face shortages in manpower at all skill levels. He argued that India needs to engage member countries on services. This suggestion is made because the service sector integration within ASEAN has yet to be accomplished and ASEAN is relatively closed to Foreign Service providers that unless India and ASEAN sign an agreement on free movement on service providers on a bilateral basis with ASEAN. Nambiars study has tried to explore the future prospects of IndianASEAN relations. The agreement on trade in goods that came into effect at the beginning of 2010 was possibly a starting point in this respect. The next stage in Indias economic relations will be to seek completion
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of an agreement on trade in services. This is an area in which Indias contribution to the region can be fully realized. He suggest that services prove to be a very good starting point to enhance cooperation further, there are several political as well as organizational obstacles that have to be resolved before India and ASEAN can take their cooperation to the next level.

He opined that an agreement on services trade would be well advised, since it might help to overcome the bias in benefits from the current agreement towards ASEAN states. On the other hand, ASEAN states need to come to terms with the direction in which ASEAN integration will precede. If this question remains unsolved, it is unlikely that ASEAN states will be able to represent themselves as one body in global negotiations. Nevertheless, given their different levels of development, India will have to engage with the states with due consideration to their economic conditions. In addition to the possibilities that India can find within the services sectors of the respective ASEAN member states, there are other areas for cooperation. These areas include capacity building and the improvement of connectivity through infrastructure development. Indias technical expertise can also be extended to ASEAN by cooperating in disaster forecasting and management. Indeed, Indias engagement with ASEAN should be comprehensive and Wideranging. Nevertheless, the question of how this involvement will be
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executed depends on the framework that is selected. The two options that are possible are ASEAN+4 and ASEAN+6. Since there are political barriers that may have to be overcome in accessing these regional architectures, it would be to Indias benefit to initiate its engagement with ASEAN member states on a bilateral basis. This will give India the opportunity to build a firm basis for involvement with ASEAN regardless of the framework that eventually emerges. Jagdish Bhagwati argues in Going It Alone: the Case for Relaxed Reciprocity in Freeing Trade , about certain assumptions regarding Indian trade and economic arrangements. He believes that the analysis implies that India should Be considering the regional option as a serious complementary effort to securing Further liberalization at home and abroad. India has recently signaled its willingness to depart from an exclusive reliance on the multilateral approach by announcing its desire to negotiate a free trade agreement with ASEAN countries.

According to him, India has already fired the regional salvo. Perhaps the curious choice of ASEAN as India's preferred regional trade partner is justified under the current circumstances. But, it raises the question whether there has been a considered and strategic assessment of the desirability of pursuing regional integration.

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Chandrima sikdar and Biswajit nag in their cross country analysis of following implementation of the FTA, bilateral trade between India and ASEAN increases phenomenally. While Cambodia, Indonesia, the Lao Peoples Democratic Republic, the Philippines and Viet Nam provide additional markets for almost all Indian exports, Malaysia, Singapore and Thailand provide markets for some of the fastest growing exports from India. Malaysia, Thailand and Viet Nam become major importers of Indian goods in terms of total exports by that country to ASEAN. They also provide markets for the fastest growing items 32 exported by India. In particular, Thailand consistently provides a large market for Indian products under all three scenarios. The increase in Indias imports from ASEAN is due to increased exports by Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam, plus the rest of ASEAN. These countries also supply the items that register the largest increases in Indias imports from ASEAN following the implementation of the FTA.

Santosh kumar das and Ritika Tiwari examined the India-Asean FTA with special reference to north-east region and concluded Trade on several occasions has proved to be the engine of growth in many regions. Similarly, increasing regional and international trade can shape the future course of development of the northeastern region. Hence, the
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free trade agreement between India and ASEAN is likely to offer enough opportunities for the development of the NER by providing scope for industrialization. However, there exist certain structural impediments, which are likely to limit the trading activities between the NER and its neighboring Southeast Asian countries, which ultimately affect growth and development of the region.

The new trading arrangement will have limited impact on the development of the region due to lack of specialization in exportable products, low level of industrialization, lack of connectivity due to underdeveloped physical infrastructure, underdeveloped markets and insufficient private investment. NER will not be able to derive benefit, unless it transforms itself as a major production hub. In this context, connectivity holds the key. Improved connectivity within NER and the rest of the country is vital for the development of the region, as it will facilitate greater market integration and boost the developmental activities including the process of industrialization.

As of now, the belief that the FTA will bring open doors of opportunity for the NER and will contribute immensely in its development process is far from the reality. However, it is true that the FTA certainly provides enough opportunity for the region to grow and develop. And NER cannot take the maximum advantage, unless the above mentioned
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existing structural impediments are addressed and taken care of, and hence will have limited impact on the development of the region.

Rahul Sen, et al., see great potential for a close cooperation between India and ASEAN states (such as Malaysia, the Philippines and Singapore) since these states have developed a comparative advantage in the field of electronic hardware production. India, with its focus on software development and applications, can explore opportunities in complementing the activities in this country.These complementarities can be developed in various directions. Malaysias electronics sector is home to innumerable multinational corporations (MNCs). In the course of the development of the hardware industry, many local companies have benefited from the technology transfer and some of them have grown to become vendors to the MNCs. It is possible for Indian companies to gain access to markets through these firms. With the extension of technology and capital, it is possible for Indian companies to extend their reach into the hardware industry. The scope for entry into the Philippines could take a different track. The Philippines has a labour force that is relatively cheap, educated and fluent in English. Indian software companies could capitalize on these qualities to extend the operations of their companies and take advantage of the availability of the labour force in the Philippines and Malaysia.

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Karmakar (2005) points out, services trade in ASEAN is not only more regulated for foreign suppliers, but the restrictions are also there for intra-ASEAN trade. Efforts are being made to gradually integrate services trade among ASEAN members. The ASEAN Framework Agreement on Services (AFAS) provides the broad framework to achieve this. The target is to make ASEAN a single market and production base through free flow of goods, services, investment, skilled labour and freer flow of capital by 2015. Indo-ASEAN FTAs Impact on energy security according to Das Gupta et al (2006) is likely to help Indias quest for energy security. India is heavily dependent on west Asia for oil imports, which is a geopolitically tense part of the world. India is currently the worlds sixth largest energy consumer, and the third largest oil and gas consumer in Asia, after China and Japan. For India, oil imports account for about 72% of the total oil consumption, of which 67% is being sourced from west Asia. Hence, on the external front, India is pursuing diversification of supply sources and trying to significantly increase exploration of oil and gas. Among the ASEAN countries, India at present imports crude oil from Malaysia and Brunei, which contributes 5.4% of its total crude imports from the world.India also imports LPG from Malaysia, which comprises just 3.5% of its total LPG import. On the other hand, among the ASEAN

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countries, Indonesia, Malaysia and Vietnam have about 1% of worlds proven oil reserves and 3% of the worlds proven gas reserves.

Parthapratim Pal, Mitali Dasgupta(2008) concluded that the IndoASEAN trade in goods agreement may not be beneficial for India in the short run but it can be thought of as a part of a long-term strategy to improve Indias economic and strategic presence in the neighborhood. Though India shares a land border with Myanmar and maritime borders with Indonesia and Thailand, the ASEAN countries have never been economically very close to India. In fact, India and the ASEAN countries are not considered natural trading partners. This is in direct contrast to China which has established a distributed regional network of production and trade in this region.The Indo-ASEAN FTA can be perceived as an initial step towards increased economic integration of India with south-east Asia. From a broader perspective, the IndoASEAN FTA can also be viewed as another cog in the wheel of increasing south-south cooperation. This is important because the world economic system is presently going through some significant changes.

Regarding impact on service sector A number of studies have pointed out that there is significant complementarily between Indias serviceoriented economy and ASEANs light manufacturing driven economy (Sen et al 2004; Kumar 2002; Bhattacharya and Arif 2002). The
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Indo-ASEAN FTA should thrive to balance these complementarities and bring out a mutually beneficial deal. A services deal with ASEAN is also expected to open up significant opportunity for cross border movement of Indian professionals. One of the major barriers for movement of skilled professionals is lack of recognition of qualifications among nations. To avoid this problem it is important to have Mutual Recognition Agreements (MRAs) among trading partners. Shinoj (2009) has analyzed that in pursuance of Indias LOOK EAST policy, focus on trade between India and East Asia has heightened during the previous decade. Alongside, successive governments in New Delhi have sought to develop closed institutional links with the region, it is estimated that India exported merchandise worth Rs. 44235 corers to countries of ASEAN in 2005-06, while its imports were pegged at 45318 corers. The trade basket comprised of machinery and electrical appliances, minerals, chemicals, textile and apparels, plastics and processed foods, agriculture and vegetable products. The total merchandise trade over the timeline has revealed that both exports as well as imports have grown in double digit percentage during the decade 1995-96 to 2005-06. However the performance of Agricultural commodities in trade had been found declining. The estimates suggest that India ASEAN trade in agricultural front has been quite disappointing with the agriculture sector being out paced by other
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sectors, the fruits of various favorable policies have failed to get manifested into Indias agricultural trade with the region.

CONCLUSION:No doubt, the existing work on India and ASEAN Free Trade Agreement puts stress on mutually strong relations between the two regions. Scholars arguments are in favor of economic ties between India and Southeast Asia. But their work has failed to mention the proper future solution that needs to be implemented. There still remain various aspects which need to be looked into for the pcontinued success of their relations in the future. The singing of FTA is not sufficient way, to get maximum benefits and associated advantages from the FTA (January 2010), it is important for India to ensure that it can maintain proper policy coordination and reforms overtime. A sincere attempt towards effective management of regional integration process should ensure a progressive framework to facilitate trade at multilateral level. To conclude, it can be said that both India and ASEAN are keen to establish a sound and strong relationship with a long term emphasis on greater cooperation and integration. But there are many challenges before them which have to be accepted and try to make proper strategies so that their relationship lasts for long run.

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REFERENCES:Ahmed, S. India-ASEAN Free Trade Agreement: A sectoral analysis, SSRN Working paper 1698849 (2010). Accessed November 2010. http://ssrn.com/abstract=1698849.

Bhattacharya, B. and M. Ariff. 2002. Study on AFTA-India Linkages for the Enhancement of Trade and Investment, a report submitted to the Government of India and the ASEAN secretariat May. Bhgwati,jagdish (2002) : Going Alone: The Case for Relaxed Reciprocity in Freeing Trade. Chandrima sikdar and Biswajit Nag (2010):-Impact o India-ASEAN Free trade agreement: A cross country analysis using applied general equilibrium modeling.

Das,Santosh K. and Tewari Ritika (2010), India ASEAN Free Trade Agreement and Development of North East: Prospects and Challenges. Francis,Smitha: A Sectoral Impact Analysis of the ASEAN-India Free Trade Agreement(epw,nov.2011) Karmakar, S. (2005). India-ASEAN cooperation in services an overview, ICRIER Working Paper No. 176. Indian Council for Research on International Economic Relations, New Delhi.
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Ohlan,Ramphul ( 2012) ASEAN-INDIA FREE TRADE AGREEMENT IN GOODS: AN ASSESSMENT. Okimoto, Yumiko (2005): China and India: Challenges and Opportunities for ASEAN from Japanese Perspectives, paper presented at 30th Annual Conference of the Federation of ASEAN Economic Associations (FAEA), November. Parthapratim Pal, Mitali Dasgupta(2008):- Does a Free Trade Agreement with ASEANMake Sense? Shankaran Nambiar-Indias Engagement with ASEAN: Beyond Trade in Goods. ISAS Working Paper No. 129 26 August 2011. Sen, R, M. G. Asher and R. S. Rajan (2004). ASEAN-India economic relations: Current status and future prospects, Discussion Paper no. 73, Research and Information System for Non-Aligned and Other Developing Countries (RIS), New Delhi. Shinoj P. (2009), India-ASEAN Trade in Agriculture : Retrospect and Prospect, PolicyImplications, National Centre for Agricultural Economics and Policy Research, New Delhi. http://www.ncap.res.in

Viswanathan, P K and Amita Shah (2008): Trade Reforms and Crisis in Indias Plantation Agriculture: Case Studies of Tea and Rubber Plantation Sectors, paper presented at the Fourth Annual South Asia Conference on Trade and Development 2008, Centre for Trade and Development, New Delhi,17-18 December.
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