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A trade pact with ASEAN

THE PRIME MINISTER, Atal Behari Vajpayee's offer of a free trade pact between India and the ten-member Association of South East Asian Nations (ASEAN) at the Phnom Penh ASEAN-India summit marks the beginning of a new approach in the country's economic relations with the rest of the world. If ASEAN does reciprocate positively, it will still be some years before the idea bears fruit. Yet it is a milestone since this is the first free trade pact India is exploring outside South Asia. Geography and the drift in the South Asian Association for Regional Cooperation have until now made India less than enthusiastic about regional groupings. But a failure to join a regional grouping outside South Asia would have placed Indian exporters in an increasingly disadvantageous position. The danger is real as more and more regional groups get formed every year and as new bilateral free trade pacts are finalised every month. It is clear that regionalism is now as strong a force as multilateralism. A trade pact with ASEAN is the best beginning since India has traditionally enjoyed many economic links with the region even if they have not grown to yield large volumes.

The economic fortunes of ASEAN which took a beating during the economic crisis of 1997-98 have begun to look up, even if the region is yet to recoup the dynamism of the 1980s and early 1990s. It is therefore no longer short of suitors. China has actively sought and obtained ASEAN's agreement on a free trade area. A framework trade agreement drawn up in Phnom Penh clears the way for a market of 1.7 billion. Not to be outmanoeuvred by China, Japan (which has made major investments in ASEAN) too has agreed to work towards a free trade pact with ASEAN, though this will come about much later than the ASEAN-China trade pact. India then is third in the line of ASEAN's suitors. It is, however, also in ASEAN's interests to seek closer relations to the west with India as a counterweight to China, since unease about the growing economic clout of the neighbour to the north is strong in the ASEAN nations. But the volume of China's trade with ASEAN is more than four times the size of India-ASEAN trade. Besides, there are also major differences in the tariff rates between India and the major ASEAN economies. Since India's customs duties are on the average at least twice and in many cases thrice as high as in ASEAN, it will be necessary to first establish a rough equalisation of tariffs before a free trade pact can even appear on the horizon. The export sectors of the major ASEAN economies (Singapore, Malaysia, Thailand and even Indonesia) are a couple of notches above that of India, so any free trade pact has to be drawn up carefully so that in the search for integration the domestic producers do not end up as losers. India has also tried to sweeten its offer by promising tariff concessions to the weaker members of ASEAN — Cambodia, Laos, Myanmar and Vietnam.

India's new enthusiasm to forge a free trade pact with ASEAN stands in stark contrast with its attitude towards SAARC and even towards bilateral relations with its neighbours in South Asia. That a free trade area in South Asia remains a non-starter is not entirely the fault of Pakistan; India too has been lukewarm about making the larger concessions that will be necessary to make a South Asian grouping a reality. The free trade agreement with Sri Lanka has been held hostage by regional producers of textiles and agricultural commodities. Similar interests have slowed the freeing of trade relations with Bangladesh. There have been other regional initiatives in the Asian region which have not yet sprouted branches. BIMSTEC, the grouping of countries around the Bay of Bengal, and the much larger Indian Ocean Rim Initiative both offer India an opportunity to develop closer economic links in the regions. But both regional associations have suffered for a want of interest from most of its members. As India pursues the idea of a free trade zone with ASEAN it may help if it simultaneously energises the other regional initiatives so that the Indian economy develops a multi-layered set of networks in the larger Asian and Indian Ocean region.

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