Bharath asked: India has FTA with ASEAN as a whole and also with some of the individual member states of ASEAN. Isn't there a conflict/overlap here?

Sampa Kundu replies: The ASEAN-India Framework Agreement on Comprehensive Economic Cooperation (CECA) came into effect in 2010. The Agreement provides the basis for the ASEAN-India FTA in goods, services and investments, which will be fully functional by 2016. The FTA with the ASEAN is India’s first major multilateral FTA and a key step towards enhancing India’s Look East Policy.

Besides, India has also signed a Framework Agreement for Establishing FTA with Thailand which came into effect in 2004, a Comprehensive Economic Cooperation Agreement with Singapore which came into effect in 2005 and also with Malaysia which came into effect in 2011. Negotiations are on for a similar agreement with Indonesia as well. India already has a border trade agreement with Myanmar which came into effect in 1995.

The ASEAN-India FTA will liberalise tariffs on goods (including electronic goods, chemicals, certain capital goods, some categories of textiles and so on) and will cover almost 80 per cent of the trade between India and the ASEAN. Together, India and the ASEAN offer themselves a market of 1.8 billion people and the ASEAN-India FTA is also one of the largest in the world.

As per a FICCI report, the ASEAN-India FTA will be extremely beneficial for the Indian professionals and service providers if the FTA in services and investment can be accelerated since the ASEAN region is a net importer of services. On the other hand, India enjoys a clear advantage in services.

At present, the debate between bilateral and multilateral trade agreements is almost over and most economists believe that both of them have their advantages and disadvantages. Hence, the best strategy would be to develop a good combination of bilateralism and multilateralism.

At the same time, it is believed that while multilateral trade agreements (e.g. WTO) are sometimes difficult to manage due to different preferences and choices made by the members, and bilateral trade agreements can lead to ‘spaghetti bowl effect’ by creating a multifaceted web of overlaps and conflicting rules, the regional trade agreements (RTAs) in that case could be the third and the best option for today’s economy. Some even call RTAs as ‘building blocks’ for future multilateral arrangements. However, the RTAs too have some problems particularly if ‘power asymmetries’ within the region favour one member at the expense of the others.

Posted on July 11, 2014