CALCUTTA, India, Dec. 1 (UPI) -- In a move to set a tone for a durable relationship with the South East Asian countries and strengthen economic ties, India on Tuesday signed a "partnership agreement pact" with ASEAN at the third India-ASEAN summit in Vientiane, Laos. This agreement is important for India in many ways but significantly, it will allow India to forge strong economic relations with ASEAN that could catalyze trade between the two sides from $13 billion at present (year 2003-04) to $30 billion by 2007.
It will also bring the country closer to economic powers like Japan, China, and South Korea since this agreement involves a new ASEAN grouping that now includes these three countries.
In its original form, the ASEAN, short for Association of South East Asian Nations, is a union of Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar, and Vietnam. About a decade back a new grouping called East Asian Economic Caucus was proposed by the erstwhile Malaysian leader Mahathir Mohammed but the notion was quashed due to stiff opposition from the United States that feared it would be pushed aside from its central security role in Asia.
However, the 1997 Asian financial crisis revived a sense of greater urgency among the leaders of ASEAN and these countries as well as India in setting up a regional trade bloc that finally took a concrete shape in the current two-day summit concluding today. The trading zone this new grouping creates will have a combined gross domestic product exceeding $2 trillion.
"This landmark document incorporates a plan of action for more intensive cooperation on political and security issues as well as in the economic, social and cultural fields," said India's external affairs minister K Natwar Singh. "It is indeed a matter of gratification that a number of new dimensions, such as cooperation in remote sensing, space technology and information technology have been added to our two millennia old cultural, religious and civilization links."
But even as this partnership takes yet another step ahead in bringing Asian countries closer to creating a significant trading block capable of a global impact, experts in India have already started doubting if this pact will work at all, and if yes, when?
"The experiences of the recent Indo-Thai FTA as well the Singapore Comprehensive Economic Cooperation Agreement (CECA), give enough reasons to fear this pact too is set to drag on interminably," said Prasun Joshi, an international trade commentator
Indeed, despite years of efforts the now-on-now-off Singapore CECA is yet to see the light of the day, stuck by many controversies, the most recent being the Indian Finance Ministry's objection raised on November 27 to the elimination of duty-free imports on certain "sensitive" items. The Indo-Thai deal too is being viewed with concern by the Indian industry sectors.
The common factors in all these pacts are; one, Indian industry is not yet sure about its competitive efficiency. Second, many industry sectors say that they do not want competition in their home turf, which is still protected to a great extent. And finally, there is a huge fear among corporate India that such pacts will be misused as a staging ground for cheaper exports to India.
Some of these concerns are genuine, as city- states like Singapore are trading rather than manufacturing hubs with the presence of 4,000 plus multinational companies. And Thailand, known as the Detroit of Asia poses threat for the India's nascent automotive industry struggling to make a mark in the global arena.
This is why India in all FTAs insists that imports originating in the trading partner and not a third country. This leads to complicated rules of origin which are difficult to enforce. Related is the issue of value addition or domestic content, which is 40 percent for free trade agreement with Thailand. Measuring value addition from the point of view of customs enforcement also presents a number of challenges in its own right.
Moreover, after a decade of engagement, Indo-ASEAN trade touched $13 billion in March 2004 and the country's hopes of pushing it to $30 billion in the next two years certainly looks daunting as long as Indian industry -- rightly or wrongly -- harbors reservations about opening up too quickly.
"Getting our tariff levels to ASEAN levels and concluding an FTA with ASEAN as a whole calls for a consensus of sorts within Indian industry," said Joshi. "And in the backdrop of the delays over finalizing agreements with Thailand and Singapore, the future of this pact (Indo-ASEAN) pact too looks cloudy."
Yet, ASEAN leaders are optimistic that the two major pacts (with China and India) ASEAN signed at the two day summit that concluded on Tuesday, will not only work, but also secure the future of ASEAN. "We recognize the emergence of China and India in the global trading environment," said Malaysian Prime Minister Abdullah Ahmed Badawi. "South East Asia needs greater integration with these trading partners and cannot remain competitive merely by strengthening intra-regional co-operation."
For that matter, India could also be a hedge for the ASEAN, which is hoping that a new agreement with India pull this South Asian giant closer into its fold as it urgently needs a counterbalance to the trading bloc's growing dependence on China.
"We in Southeast Asia have no wish to become merely an adjunct to the Chinese economy," Singapore's trade and industry minister George Yeo told members of the industry lobby Confederation of Indian Industry during a trip to India in February: "Hence, our decision to move closer to all economies that want closer links to us."
Admittedly, there's little doubt that China's dominance in the region's economy is overwhelming. In 1991, ASEAN accounted for about 6 percent of China's imports; in 2002, that figure exceeded 8 percent. While trade with India at $13 billion accounts for a mere 2% of ASEAN's total trade, the trade between China and ASEAN members amounted to $62 billion in 2003 (up 40 percent from 2002). In the first nine months of 2004, China's trade with ASEAN grew by 35 percent from a year earlier and is due to surpass $100 billion this year.
Moreover, growing ties with China have brought another worry: Southeast Asia's success is becoming too closely tied to China. Last year's outbreak of severe acute respiratory syndrome (SARS) shut down factories and slowed trade, sending shivers through foreign companies that are increasingly relying on their Chinese operations.
According to experts, therefore, the need to develop an alternative market has become that much more imperative for ASEAN members because of the specter of China applying brakes on its scorching economy and rattling their economic foundations in turn.
