is it finally time for india s free trade agreements? the ... · xxiv of the general agreement on...

Is It Finally Time for India’s Free TradeAgreements? The ASEAN “Present”and the RCEP “Future”

Debashis CHAKRABORTY*Indian Institute of Foreign Trade, [email protected]

Julien CHAISSE**Chinese University of Hong Kong, Hong Kong [email protected]

Xu QIAN***Chinese University of Hong Kong, Hong Kong [email protected]

AbstractSince the inception of the WTO in , India enthusiastically explored export-promo-tion strategies through multilateral trade reforms. However, the country has movedtowards the regional trade route since , primarily owing to the slow progress ofthe Doha Round negotiations. As a result, the whole architecture of international tradelaw and governance is being redesigned in the Asia Pacific region. This paper focuseson the pivotal role played by India in this rebalancing. Given the stress on services exportsand investment requirements, India focused on entering into comprehensive agreementsencompassing merchandise and services trade as well as investment provisions.Presently, India is involved in the ongoing Regional Comprehensive EconomicPartnership [RCEP] negotiations, where ASEAN remains at the core. The current analysisevaluates the Indo-ASEAN trade patterns and evolving dynamics over the last decadethrough select trade indices, and comments on the future of the RCEP.

Given the slow progress of the World Trade Organization [WTO] Doha Roundnegotiations, the attractiveness of entering into Regional Trade Agreements[RTAs] has deepened during the last two decades. WTO members are permittedto enter into RTAs under specific conditions within three sets of rules, Article

* Professor of International Economics, Indian Institute of Foreign Trade.** Professor of International Law, Faculty of Law, Chinese University of Hong Kong.*** Faculty of Law, Chinese University of Hong Kong. Shujiro URATA, “Mega-FTAs and the WTO: Competing or Complementary” ()

International Economic Journal .

Asian Journal of International Law, (), pp. –doi:./S© Asian Journal of International Law,

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XXIV of the General Agreement on Tariffs and Trade [GATT], the EnablingClause, and Article V of the General Agreement on Trade in Services [GATS].

RTAs formulate rules aiming at trade liberalization, which cover the formation andoperations of custom unions and free trade agreements [FTAs]. One of the favour-able impacts of RTAs on the WTO is the possibility of facilitating WTO negotiations,given that RTAs generally reach a higher level of tariff elimination. In addition, RTAscan also broaden its coverage in rule-making by accepting new members. In contrast,the proliferation of RTAs also generates integration concerns in the light of the factthat some RTAs are “light and superficial”.

Several Asian countries, particularly in Southeast and East Asia, have aggressivelyentered into multiple trade blocs, namely the Association of Southeast Asian Nations[ASEAN] FTA (), the Sino-ASEAN FTA (), the South Korea-ASEAN FTA(), the Japan-ASEAN FTA (), the Australia-New Zealand-ASEAN FTA(), the ASEAN-India FTA (), and so on. The tariff and rules of origin[ROOs] reforms as well as the trade facilitation measures implemented throughthese preferential trade agreements have significantly contributed in deepening theglobal value chains [GVCs] and international production networks [IPNs] in theregion. The recent initiative to enhance the trade relations of the region withNorth America has, however, been stalled after the pull-out of the US from theTrans-Pacific Partnership [TPP]. It has been conjectured that the US pull-out fromthe TPP may accelerate the ongoing negotiations on another mega-regional bloc,namely he Regional Comprehensive Economic Partnership [RCEP] involving

Art. XXIV of the General Agreement on Trade in Goods, online: WTO <https://www.wto.org/eng-lish/docs_e/legal_e/gatt__e.htm#articleXXIV>; art. XXIV: sets out the general principle thatunderlies the formulation of RTAs to facilitate trade progress between the Contracting Parties onthe one side, and to avoid creating barriers within such territories.

Enabling Clause Regulating the Regional or Global Arrangements for Trade in Goods BetweenDeveloping Country Members, online: WTO <https://www.wto.org/english/docs_e/legal_e/enabling_e.htm>.

Art. V of the General Agreement on Trade in Service, online: WTO <https://www.wto.org/english/docs_e/legal_e/-gats__e.htm#articleV>. See Julien CHAISSE and Mitsuo MATSUSHITA,“Maintaining the WTO’s Supremacy in the International Trade Order: A Proposal to Refine andRevise the Role of the Trade Policy Review Mechanism” () Journal of InternationalEconomic Law .

Regional Trade Agreements and the WTO, online: WTO <https://www.wto.org/english/tratop_e/region_e/scope_rta_e.htm>.

Urata, supra note at . Ibid.; In recent years, there has been a strong preference for bilateral agreements with significant geo-

graphical overlap; see generally Roberto V. FIORENTINO, Jo-Ann CRAWFORD, and ChristelleTOQUEBOEUF, “The Landscape of Regional Trade Agreements and WTO Surveillance” inRichard BALDWIN and Patrick LOW, eds., Multilateralizing Regionalism: Challenges for theGlobal Trading System (Cambridge: Cambridge University Press, ), .

Richard BALDWIN and Patrick LOW, “Introduction” in Richard BALDWIN and Patrick LOW,eds., Multilateralizing Regionalism: Challenges for the Global Trading System (Cambridge:Cambridge University Press ), .

Javier LOPEZ-GONZALEZ and Przemyslaw KOWALSKI, “Global Value Chain Participation inSoutheast Asia: Trade and Related Policy Implications” in Lili Yan ING and Fukunari KIMURA,eds., Production Networks in Southeast Asia (Abingdon: Routledge, ), .

Pasha L. HSIEH, “Trade Strategies of the TPP- Countries: Asian Regionalism in TurbulentTimes”, Research Collection SMU School of Law, Working Paper, November .



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ASEAN and its six FTA partners. It is expected that the RCEP, a bloc connectingeconomies from a wider development spectrum and spread across a significant partof the continent, would be instrumental in augmenting cross-border trade andinvestment flows by addressing concerns about a “noodle bowl” of overlappingbilateral agreements. As the bloc by scope and coverage targets “WTO-consistent”provisions only, it scores over other similar mega-regional provisions (e.g. theTPP). However, the development divergence among the RCEP countries andASEAN’s existing FTAs with six partners is possibly posing a significant hurdle infurther liberalizing trade. For instance, securing the “appropriate forms of flexibil-ity including provision for special and differential treatment” poses a major chal-lenge for the negotiation process. As a result, arriving at “common consensus”has been a problem, as the products under tariff elimination commitment inASEAN’s FTA partners are “only .% on average”, compounding the processof negotiations.

The RCEP was launched in November and the negotiations began in May. The objective of launching the RCEP negotiations was “to achieve a modern,comprehensive, high-quality and mutually beneficial economic partnership agree-ment among the ASEAN Member States and ASEAN’s FTA Partners”, thatwould “cover trade in goods, trade in services, investment, economic and technicalcooperation, intellectual property, competition, dispute settlement and otherissues”.

The remaining TPP Members renamed the TPP the Comprehensive Progressive Trans-PacificPartnership [CPTPP], kept its contents largely intact, and signed it in March . The CPTPPtook effect on December , online: <http://www.eastasiaforum.org////the-new-trans-pacific-partnership-hunkers-down-against-trump/>; Hiro LEE and Ken ITAKURA, “U.S.Withdrawal from the Trans-Pacific Partnership and the Effects of Alternative Trade IntegrationScenarios in the Asia-Pacific” University of Washington (March ), online: University ofWashington <https://faculty.washington.edu/karyiu/confer/sea/papers/Lee_Hiro.pdf>.

Sanchita Basu DAS and Reema B. JAGTIANI, “The Regional Comprehensive Economic Partnership:New Paradigm or Old Wine in a New Bottle?”, ISEAS Economics Working Paper No. -,Singapore: Institute of Southeast Asian Studies, .

Jeffrey D. WILSON, “Mega-regional Trade Deals in the Asia-Pacific: Choosing Between the TPP andRCEP?” () Journal of Contemporary Asia . See also Julien CHAISSE, “Deconstructingthe WTO Conformity Obligation: A Theory of Compliance as a Process” () FordhamJournal of International Law .

Young-Chan KIM, “RCEP vs. TPP: The Pursuit of Eastern Dominance” in Young-Chan KIM, ed.,Chinese Global Production Networks in ASEAN: Understanding China (Cham: SpringerInternational Publishing, ), .

Association of Southeast Asian Nations, “Guiding Principles and Objectives for Negotiating theRegional Comprehensive Economic Partnership”, online: ASEAN <https://www.asean.org/wp-content/uploads/images//documents/Guiding%Principles%and%Objectives%for%Negotiating%the%Regional%Comprehensive%Economic%Partnership.pdf>.

LA Meeryung, “Regional Comprehensive Economic Partnership (RCEP): Progress and Challenges”() World Economy Brief .

The founding documents, approved November , are the “Joint Declaration by Leaders on theLaunch of the Regional Comprehensive Economic Partnership” and the “Guiding Principles andObjectives for Negotiating the Regional Comprehensive Economic Partnership”. Quotations arefrom the preamble to the Department of Foreign Affairs and Trade, “Guiding Principles andObjectives for Negotiating the Regional Comprehensive Economic Partnership”, online: DFAT<https://dfat.gov.au/trade/agreements/negotiations/rcep/Pages/regional-comprehensive-economic-partnership.aspx>.

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The first round of negotiations was held in May , and by July twenty-two rounds as well as several RCEP Ministerial Meetings had taken place. The thirdRCEP Ministerial Meeting acknowledged the attempts by countries to progress with“offers and requests in goods to achieve the maximum ambition possible, while bal-ancing sensitivities through suitable mechanisms like staging periods and line excep-tions”. With a growing focus to conclude the final agreement, negotiations havebecome increasingly more complex, with around officials gathering for negotia-tions in , compared to sixty delegates at the meetings in .

The Joint Leaders’ Statement after the first RCEP Summit on November reit-erated the commitment of the bloc to facilitate trade liberalization through marketaccess, rules, and co-operation. The gaining momentum in negotiations on eighteencore areas (Trade in Goods, ROOs, Trade in Services, Financial Services,Telecommunication Services, Remedies, Investment, Competition, GovernmentProcurement, Intellectual Property, E-Commerce, Dispute Settlement, etc.) was notedand the group’s objective to conclude negotiations at the earliest was underlined.

Minute details of the negotiations remain largely confidential, although officialreports provide updates on progress made—e.g. two chapters (on Small and Medium-sized Enterprises, and Economic and Technical Cooperation [ECOTECH]) had beenconcluded by the end of . The recent status of RCEP negotiations can be assessedfrom the Joint Leaders’ Statement released after the second RCEP Summit on

November . The RCEP Participating Countries [RPCs] noted the conclusion ofnegotiations on provisions for five key provisions, namely: Customs Procedures andTrade Facilitation [CPTF]; Government Procurement; Institutional Provisions; Sanitaryand Phytosanitary [SPS] Measures; and Standards, Technical Regulations, andConformity Assessment Procedures [STRACAP]. The statement expressed satisfactionover considerable progress in negotiations on goods and services market access andon investment reservation lists through a series of negotiations during .

It is clear from past trends that RCEP negotiations aim to minimize possible grie-vances among Member Countries once the trade reforms are initiated. For instance,the negotiations for the creation of cohesiveness among members, i.e. small

Association of Southeast Asian Nations, “Joint Media Statement-The Fifth Regional ComprehensiveEconomic Partnership (RCEP) Intersessional Ministerial Meeting”, Tokyo, , online: ASEAN<https://asean.org/storage///ISSL-MM-Joint-Media-Statement-FINAL-July.pdf>.

Government of India, Press Information Bureau, “rd RCEP Inter-sessional Ministerial Meeting” (May ).

“RCEP Pact: Officials from Nations to Meet in Hyderabad” The Economic Times ( June).

Association of Southeast Asian Nations, “Joint Leaders’ Statement on the Negotiations for theRegional Comprehensive Economic Partnership (RCEP)”, online: ASEAN <https://asean.org/stor-age///RCEP-Summit_Leaders-Joint-Statement-FINAL.pdf>.

“RCEP Negotiations Conclude on a Secret Note” The New Indian Express ( July ). Association of Southeast Asian Nations, “Joint Leaders’ Statement on the Negotiations for the

Regional Comprehensive Economic Partnership (RCEP)” (), online: ASEAN <http://asean.org/storage///RCEP-Summit_Leaders-Joint-Statement-FINAL.pdf>.

Ministry of Economy, Trade, and Industry, “Joint Leaders’ Statement on the RegionalComprehensive Economic Partnership (RCEP) Negotiations”, online: METI <http://www.meti.go.jp/press////-.pdf>.



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enterprises, technical co-operation, trade facilitation, SPS measures, and conformityassessment procedures, have been concluded before finalizing the trade in goods pro-visions, given the dominance of small and medium-sized enterprises [SMEs] in con-stituent developing economies, which are characterized by diverging levels ofinternationalization.

The RECP thus displays clear emphasis on economic co-operation to deal with theproblems of the developing Member States and, once completed, it will offer a power-ful boost to the rules-based global trading system. It encompasses the first everagreements that cover China, India, Japan, and South Korea. As the most ambitiousagreement ever negotiated by the developing countries, it changes the landscape andoffers new evidence of Asian leadership in world trade. One of the crucial advan-tages of the proposed RCEP bloc is the existing bilateral agreements among partners,gradually deepening trade links, and the associated familiarity effects. Despite thesedrivers, the slow progress of RCEP negotiations, which includes an ambitiousagenda covering trade in merchandise products, services, investment, and WTO-Plus areas like competition policy, can be partly explained by the delays in finalizingtariff preferences in currently non-existing arrangements in the mega-RTA. Pressure ismounting on countries like India, whose average tariff is higher than the correspond-ing figure for ASEAN. Also, the process of establishing the missing linkages in thetrade agreement architecture has been slow. For instance, China and India are notlinked through a preferential agreement at present, and arriving at a mutually bene-ficial tariff reform arrangement at the RCEP involving these two countries has sofar proved to be difficult. This is despite the potential optimality of dealing withChina through an RTA rather than a bilateral agreement. A practical challengefor the RCEP had been to streamline trade reforms among RCEP partners withouta prior relationship, and rounds of negotiations have eased the concerns. It hasnow been agreed at the third RCEP Ministerial meeting on August that

Naoyuki YOSHINO and Ganeshan WIGNARAJA, “SMEs Internationalization and Finance inAsia”, presented at “Frontier and Developing Asia: Supporting Rapid and Inclusive Growth”,IMF-JICA Conference, Tokyo, February .

Peter PETRI and Michael PLUMMER, “The Case for RCEP as Asia’s Next Trade Agreement”, EastAsia Forum ( November ), online: East Asia Forum <http://www.eastasiaforum.org////rcep- evidence-of-asian-leadership-on-trade/>.

See generally Julien CHAISSE and Richard POMFRET, “The RCEP and the Changing Landscape ofWorld Trade” () Law and Development Review .

Dezan SHIRA and Associates, “RCEP Negotiations Reach Critical Stage-Likely to be Inked by Year-End”, ASEAN Briefing (), online: ASEAN Briefing <https://www.aseanbriefing.com/news////rcep-negotiations-reach-critical-stage-likely-inked-year-end.html>.

Sanchita Basu DAS, “Challenges in Negotiating the Regional Comprehensive Economic PartnershipAgreement” ISEAS Perspective (), online: ISEAS Perspective <https://www.iseas.edu.sg/images/pdf/ISEAS_Perspective__.pdf>.

Dato’ Dr Mahani Zainal ABIDIN, “RCEP: Can It Create the World’s Largest FTA?” The EdgeMalaysia ( March ).

“Trade Calculations: India Offers to Parley on RCEP Tariff Terms” The Economic Times ( May).

Smitha FRANCIS, “RCEP: Is It in India’s Interests?” Business Today ( August ). Hardeep Singh PURI, India’s Trade Policy Dilemma and the Role of Domestic Reform (Washington,

DC: Carnegie Endowment for International Peace, ).

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“India would do a .% threshold with China reciprocating with a .% thresh-old, New Zealand doing a .% threshold and Australia doing an % thresholdover a year period”.

The RECP’s economic effects are expected to be substantial, althoughmuch dependson the template that emerges as only eighty percent of tariff lines are with long phase-out periods, while for the Comprehensive and Progressive Agreement for Trans-PacificPartnership [CPTPP], some countries may reduce one hundred percent. Further, theUS-China trade war complicates RCEP negotiations. On the bright side, it may acceler-ate the process of completing the RCEP, especially with the US introducing a “poisonpill” clause in the United States-Mexico-Canada Agreement [USMCA]. Under thisclause, it effectively nullifies the ability of any three members to conclude a deal witha country that “at least one Party has determined to be a non-market economy for pur-poses of its trade remedy laws”, such as China. Some commentators alsoworried thatthe trade war will shift Chinese exports to their markets; in the meantime, India andVietnam may enjoy greater access to the US market.

The current analysis intends to look into the major trends involving India’s tradepattern with ASEAN countries and other RCEP members, and to understand whetherthe performance of the country under the ASEAN-India FTA [AIFTA] in any wayinfluences its participation in the RCEP negotiations. The paper is arranged alongthe following lines. First, the background of the AIFTA negotiations is briefly men-tioned. The legal architecture of the AIFTA is analyzed next in the light of theother bilateral agreements of ASEAN. The modest outcome of the AIFTA so far isanalyzed next with help of select trade indicators. Finally, based on the findings,the policy conclusions are drawn.

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After the inception of the WTO in , India initially focused on the multilateralroute for export promotion. However, the euphoria over achievements at the DohaMinisterial () of the WTO gradually subsided after the modest achievementsfrom the Cancun Ministerial () onwards. Since , India increasingly startedto explore the RTA route for export promotion.

Ministry of Commerce and Industry, “Inputs on Initial Offer of Goods under RegionalComprehensive Economic Partnership (RCEP)”, online: MCI <commerce.gov.in/writereaddata/uploadedfile/MOC__Inputs_trade_goods_under_Regional_Comprehensive_Economic_Partnership.pdf>.

Sean HIGGINS, “US-Mexico-Canada Deal Targets China with ‘Poison Pill’ Provision” WashingtonExaminer ( October ), online: Washington Examiner <https://www.washingtonexaminer.com/policy/economy/us-mexico-canada-deal-targets-china-with-poison-pill-provision>.

Ibid. See also Julien CHAISSE and Mitsuo MATSUSHITA, “China’s ‘Belt and Road’ Initiative:Mapping the World Trade Normative and Strategic Implications” () Journal of WorldTrade .

Higgins, supra note . Debashis CHAKRABORTY and Dipankar SENGUPTA, “Learning Through Trading? India’s

Decade Long Experience at WTO” () South Asian Survey .



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A. Genesis of the Indo-ASEAN FTA

Given the slow progress of negotiations on the South Asia Free Trade Area [SAFTA]and the development profile of ASEAN members, India subsequently entered into anEarly Harvest Programme [EHP] under the Indo-Thai FTA () and Indo-Singapore Comprehensive Economic Cooperation Agreement [CECA] ().These initiatives fitted in with the broad Indian policy frameworks, namely the“Look East Policy” () and the “National Common Minimum Programme”(). To deepen India’s trade with Southeast Asia further, the FrameworkAgreement of the AIFTA was signed in . However, the conclusion of the FTAwas delayed due to differences over several issues, covering the sequencing of tariffreforms, negative list and sensitive items (particularly in agriculture), determiningROOs, reducing the import duty on refined palm oil and other agricultural products,and so on. The agreement to liberalize trade in merchandise finally came into forcein . The primary motivation for India to embrace a trade relationship withASEAN was a positive expectation towards a rise in bilateral trade volumes in thepost-bloc period. The rise in merchandise trade was expected to follow from bothtariff and non-tariff barrier [NTBs] reforms. Moreover, enhanced investmentflows to an India rich in skilled labour from technologically advanced ASEAN mem-bers (e.g. Singapore, Thailand) and other regional partners, with the potential fortechnology transfer, were among the expected benefits.

Apart from the potential rise in merchandise trade, a considerable increase in ser-vices exports from India was also predicted. It is observed that while severalSoutheast Asian countries are more competitive vis-à-vis India for merchandise pro-ducts, in professional services categories the competitiveness pattern is reversed.

In other words, Indian policy-makers became aware of the possibility that potentiallosses in the ASEAN market on the merchandise front might be compensated forby the gains in the service sectors. The negotiations to remove barriers to trade in

Debashis CHAKRABORTY, “The Economic Aspects of India’s Foreign Policy” in AmitabhMATTOO and Happymon JACOB, eds., India and the Contemporary International System:Theory, Policy and Structure, Australia India Institute Foreign Policy Series III (New Delhi:Australia India Institute, Regional Centre for Strategic Studies and Manohar Publishers, ), .

Debashis CHAKRABORTY and Dipankar SENGUPTA, “Integration Experience and TradePerformance of the Indo-ASEAN FTA: A Review of Issues” in Philippe GUGLER and JulienCHAISSE, eds., Competitiveness of the ASEAN Countries: Corporate and Regulatory Drivers(Cheltenham: Edward Elgar ), .

Rahul SEN, Mukul G. ASHER, and Ramkishen S. RAJAN, “ASEAN-India Economic Relations:Current Status and Future Prospects” Economic and Political Weekly .

Mohammed SAQIB and Nisha TANEJA, “Non-tariff Barriers and India’s Exports: The Case ofASEAN and Sri Lanka”, Indian Council for Research on International Economic Relations,Working Paper No. , July .

Nagesh KUMAR, “Towards a Broader Asian Community: Agenda for the East Asia Summit”,Research and Information Systems for the Non-Aligned and Developing Countries, DiscussionPaper No. , .

Suparna KARMAKAR, “India-ASEAN Cooperation in Services-An Overview”, Indian Council forResearch on International Economic Relations, Working Paper No. , November .

Debashis CHAKRABORTY and Mansi KEDIA, “An Analysis of India’s Recent Engagements inComprehensive and other Trade Agreements in East and Southeast Asia” () TaiwaneseJournal of WTO Studies . .

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services in Indo-ASEAN trade followed after inception of the FTA in merchandiseproducts. However, the negotiation on revised offers and sectoral exceptions (i.e. mar-ket access and national treatment limitations) from ASEAN members proved to be alengthy process. The delays to the conclusion of the negotiations for the Indo-ASEAN CECA therefore caused India to seek access to key ASEAN markets bilat-erally through the Indo-Malaysia CECA (), and to initiate discussions for theIndo-Indonesia CECA in . In , an agreement on trade in services wasreached, in which both sides decided to open up sectors such as “telecommunicationand financial and insurance services, while regulating the movement of naturalpersons”.

B. India’s “Act East Policy”

India launched the “Act East Policy” in , with an explicit focus on expandingeconomic co-operation with the Asia-Pacific. With the conclusion of the India-South Korea Comprehensive Economic Partnership Agreement [CEPA] and AIFTAin , and the India-Japan CEPA in , India’s trade with both Southeast andEast Asia started increasing. The linkage of the Indian manufacturing sector withfirms located in these two subregions increased as a result of the tariff reforms. Inthis context, participation in the RCEP has been considered an ideal move to enhanceIndia’s trade with Asia-Pacific in general, and to deepen its integration in Asian IPNsand GVCs in particular. However, India’s average trade deficit with ASEAN hasworsened from US$.bn in – to US$.bn in –, and further toUS$.bn in –. Given the central role of ASEAN in the RCEP

“Slow Progress in ASEAN Talks on Services, Investments” The Hindu ( July ). Debashis CHAKRABORTY, “The Upcoming Indo-ASEAN CECA: Of Great Expectations and Areas

of Concern” () China Report . Preety BHOGAL, “India-ASEAN Economic Relations: Examining Future Possibilities”, Observer

Research Foundation, Issue Brief No. , New Delhi, . Prashanth PARAMESWARAN, “Modi Unveils India’s ‘Act East Policy’ to ASEAN in Myanmar”

The Diplomat (), online: The Diplomat <https://thediplomat.com///modi-unveils-indias-act-east-policy-to-asean-in-myanmar/>; Ashok SAJJANH, “Taking Stock of India’s ‘Act EastPolicy’”, ORF Issue Brief (), online: ORF Issue Brief <https://www.orfonline.org/wp-content/uploads///ORF_Issue_Brief__A_Sajjanhar.pdf>.

Biswajit DHAR, “Are Free Trade Agreements a Dead End for India?” East Asia Forum (),online: East Asia Forum <http://www.eastasiaforum.org////can-india-adapt-to-new-trade-realities/>.

Witada ANUKOONWATTAKA and Mia MIKIC, eds., India: A New Player in Asian ProductionNetworks? Studies in Trade and Investment (Bangkok: United Nations Publications, ).

Ram Upendra DAS and Jay Dev DUBEY, “Mechanics of Intra-Industry Trade and FTA: Implicationsfor India in RCEP”, Research and Information System for Developing Countries, Discussion PaperNo. , March ; Amitendu PALIT, The Trans Pacific Partnership, China and India:Economic and Political Implications (Abingdon: Routledge, ); Amitendu PALIT, “RCEP: AnIndian Perspective” in Sanchita Basu DAS and Masahiro KAWAI, eds., Trade Regionalism in theAsia-Pacific: Development and Future Challenges (Cambridge: Cambridge University Press, ),.

Debashis CHAKRABORTY, “Picking the Right Alternative: Should India Participate in TPP Insteadof RCEP?” in Julien CHAISSE, Henry GAO, and Chang-fa LO, eds., Paradigm Shift in InternationalEconomic Law Rule-Making: TPP as a New Model for Trade Agreements? (Singapore: Springer,), .



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arrangement, the intensity of India’s negotiations at the RCEP forum can be consid-ered an indirect function of realized modest success of the AIFTA, driven further byapprehension on expected benefits.

A couple of factors significantly influenced the bilateral trade and investment flowsbetween India and ASEAN. First, the Indo-ASEAN agreement became operationalfrom , considerably later than ASEAN’s engagements with China (),

South Korea (), and Japan (). With the consequent tariff reforms,these partners had a lead time over India to consolidate their positions in theASEAN market. Moreover, the investment integration of ASEAN with Japan andSouth Korea flourished from the late s following the “Flying Geese” model,which paved the way for technology transfer, the fragmentation of productionblocs, and intense bilateral flows. The South Korea-ASEAN and Japan-ASEANFTAs, through explicit trade facilitations provisions, significantly enhanced bilateraltrade volumes, which often were intra-industry trade [IIT] in nature. On a similarnote, China pushed for market economy status in ASEAN in the post-FTA period,which significantly improved its export penetration.

On the other hand, India, a latecomer to the ASEAN market as an FTA partner,had to withstand intense competition from the existing partners and the associatedtariff preferences. For instance, Vietnam imposed a duty of five percent and zeropercent on the import of Linear Alkyl Benzene Sulphonic Acid from India andSouth Korea, respectively, and similar examples abound. Second, slow reforms ofthe NTBs in the ASEAN market, particularly the Sanitary and PhytosanitaryMeasures [SPS] and Technical Barriers to Trade [TBT] related ones, reduced oppor-tunities for Indian exports. Even with the comprehensive partners, the lack of

The Associated Chambers of Commerce and Industry of India, “India ASEAN Trade and InvestmentRelations: Opportunities and Challenges” (), online: ASSOCHAM <http://www.assocham.org/upload/docs/ASEAN-STUDY.pdf>.

Association of Southeast Asian Nations, “ASEAN-China Free Trade Agreements”, online: ASEAN<https://asean.org/?static_post=asean-china-free-trade-area >.

Association of Southeast Asian Nations, “ASEAN-Korea Free Trade Agreement”, online: ASEAN<https://www.asean.org/storage/images/resources/ASEAN%Publication/%(.%Nov)%-%AKFTA.pdf>.

Association of Southeast Asian Nations, “Agreement on Comprehensive Economic Partnershipamong Member States of the Association of Southeast Asian Nations and Japan”, online: ASEAN<https://asean.org/?static_post=asean-japan-free-trade-area->.

Roger HAYTER and David W. EDGINGTON, “Flying Geese in Asia: The Impacts of JapaneseMNCs as a Source of Industrial Learning” () Tijdschriftvoor Economische en SocialeGeografie .

United Nations Conference on Trade and Development, “Trade Facilitation in Regional TradeAgreements” (New York/Geneva: UNCTAD, ).

Debashis CHAKRABORTY and Animesh KUMAR, “ASEAN and China: New Dimensions inEconomic Engagement” () China Report .

Ibid.; Higgins, supra note at . H.A.C. PRASAD, “Reviving and Accelerating India’s Exports: Policy Issues and Suggestions”,

Department of Economic Affairs, Ministry of Finance, New Delhi, Working Paper No. /-DEA, January .

Lili Yan ING, Santiago Fernandez de CORDOBA, and Olivier CADOT, “Non-Tariff Measures inASEAN”, Economic Research Institute for ASEAN and East Asia and United Nations Conferenceon Trade and Development, April .

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mutual recognition of standards is a major challenge for Indian exports. Conversely,ASEAN partners often raised voices against existing tariffs as well as the NTBs in theIndian market. Third, a wide range of trade-restrictive measures including NTBs stillpersist in the ASEAN market on service imports, much to the chagrin of India.Fourth, despite launching the Indo-ASEAN CECA and the introduction of initiativessuch as “Make-in-India” at home, the Foreign Direct Investment [FDI] policy reformin India was more influenced by the political economic undercurrents. For instance, amajor set of FDI reforms was implemented by the ruling party after its defeat in a stateelection. Fifth, the modest performance of the country in terms of Ease of DoingBusiness (ranked th and st during and , respectively) further con-tributed to lower FDI inflows. The country considerably improved its ranking toth position in the subsequent year, which is expected to increase FDI inflows.

Finally, India has been ranked th in the Logistics Performance Index , withonly Singapore (ranked th) and Malaysia (ranked nd) among ASEAN memberspositioned above it. The cumulative effects of this mismatch in the level of trade facili-tation, existing tariff barriers, and NTBs, and other concerns, could not enhance India’smanufacturing sector competitiveness vis-à-vis ASEAN to the desired extent on the onehand and limited bilateral trade flows on the other. This observation underlines theneed for further improvements in trade facilitation measures and the mutual recognitionof product standards. In all, while the AIFTA formalized the trade relationship, unfin-ished reforms at both ends possibly undermined the realization of trade potentials.

. -

The slow progress of the RCEP negotiations can further be explained through the pos-sible divergences in the operational aspects, e.g. () the comprehensiveness of tariffelimination, () the differing rules of origin, and () differences in legal architecture

“India Urges Singapore, S. Korea and Japan to Sign MRAs on Degrees” Live MINT ( August).

“Malaysia Says Non-tariff Barriers Hinder Asean-India Trade Ties” The Hindu Business Line (August ).

The World Bank, “ASEAN Services Integration Report”, World Bank, Report No: ACS, . Ministry of Commerce and Industry, “India’s Request List to Indonesia”, online: MCI <https://com-

merce.gov.in/writereaddata/trade/Indonesia.pdf>; and Ministry of Commerce and Industry, “India’sRequest List to Malaysia”, online: MCI <https://commerce.gov.in/writereaddata/trade/Malaysia.pdf>,particularly pertaining to movement of professionals (Mode ) and horizontal commitments maybe referred to as cases in point.

“Big Wins for Reforms after Loss in Bihar” The Economic Times ( November ). Press Information Bureau Government of India, Ministry of Commerce & Industry, “World Bank

Doing Business Report” (), online: PIB <http://pib.nic.in/newsite/PrintRelease.aspx?relid=>.

The World Bank, “India Jumps Doing Business Rankings with Sustained Reform Focus” (),online: The World Bank <https://www.worldbank.org/en/news/press-release////india-jumps-doing-business-rankings-with-sustained-reform-focus>.

The World Bank, “International LPI Global Rankings ”, online: The World Bank <https://lpi.worldbank.org/international/global>.



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among the ASEAN+ (i.e. ASEAN plus five other jurisdictions, namely, Japan, China,South Korea, Hong Kong, and Taiwan) countries. First, through a stocktaking of theprovisions in existing ASEAN trade agreements, Shujiro Urata noted that the actualtrade liberalization rate (defined as the proportion of tariff lines subject to tariff elimin-ation) under the AIFTA had remained at a moderate level vis-à-vis other agreements. Forinstance, the ASEAN-Australia/New Zealand FTA has the highest trade liberalizationrate at . percent, with tariff elimination on almost all imports from ASEAN countriescompleted. While a similar level of trade liberalization is visible in ASEAN’s FTAs withChina (. percent), Korea (. percent), and Japan (. percent), the correspond-ing figure for the AIFTA stand at the lowest level of . percent. In other words, theproportion of tariff lines under “negative list” and “safeguard list” is much wider in theAIFTA, with consequent trade repercussions.

The low trade liberalization rates in the AIFTA can be attributed to three factors.First, in many product segments sharp competition prevails between India and theASEAN countries for capturing the global market, e.g. apparel products, iron andsteel products, auto components, etc. On the other hand, Indian export patternsare not evolving in line with the import pattern of several ASEAN countries, asreflected in a moderate trade complementarity scenario. In other words, a trade fric-tion as well as a trade focus mismatch are quite apparent. Second, because the level oftrade liberalization is negotiated bilaterally in ASEAN + FTAs, reciprocity is of cru-cial importance. India’s level of trade liberalization is significantly lower than that ofASEAN’s other FTA partners, and the ASEAN countries’ commitments tend to belower in their agreements with India. For instance, the overall trade liberalizationrate for Singapore stands at percent for all five ASEAN + FTAs, indicating com-plete tariff elimination. The corresponding figures for other ASEAN countries are:Brunei Darussalam (. percent), the Philippines (. percent), Thailand (. per-cent), Malaysia (. percent), Cambodia (. percent), Viet Nam (. percent),Lao PDR (. percent), Myanmar (. percent), and Indonesia (. percent).Conversely, trade liberalization figures for Indonesia in the AIFTA register a rate of. percent. Hence, for arriving at an RCEP, the need for incremental reformunder the AIFTA is far more complex as compared to the other five ASEAN + FTAs.

Second, the FTAs might have various types of ROOs, namely: wholly obtained orproduced in a country [WO], regional value content [RVC], change in tariff heading[CTH], and specific process rule [SPR]. If a country is wary of a surge in imports inthe post-bloc period, they can opt for twin criteria, involving: () value addition and() substantial transformation. On the former, both sides may agree on a minimumvalue addition level (e.g. thirty, thirty-five, or forty percent) in the partner country,so that the export can be eligible for a preferential tariff at the point of import.

Shujiro URATA, “Constructing and Multilateralizing the Regional Comprehensive EconomicPartnership: An Asian Perspective”, Asian Development Bank Institute Working Paper No. ,December .

Ibid. Chakraborty and Sengupta, supra note . Urata, supra note , at .

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RVC enables the exporting country to procure the necessary parts and componentsfrom partner countries within the bloc (e.g. for Thailand to import from anotherASEAN member such as Singapore and then export to India after necessary valueaddition). If the value addition requirement under the RVC is lower (e.g. thirty per-cent), it implies that the partners are agreeing to allow the import of more raw mate-rials (either more cost efficient or characterized by better quality) to enter fromcountries outside the bloc. On the latter front, if the countries agree to a change inchapter ([CC], i.e. at Harmonized System -digit level), it means that there has tobe substantial transformation of the import from outside the bloc. For instance,under this provision India can import cotton products (say, HS ) fromMexico (a non-member country) and export garment products (HS ) toThailand (an FTA partner). The substantial transformation requirement is quite strin-gent in this context. Conversely, for a change in tariff heading ([CTH], i.e. atHarmonized System -digit level) and a change in tariff sub-heading ([CTSH], i.e.at Harmonized System -digit level), the stringency gradually comes down.

The complexity of the ROOs in the five existing ASEAN + FTAs can be comparedin Table . First, it can be seen that, while there are no products with CC requirementsin AIFTA, the application of twin criteria—an RVC of thirty-five percent (of the f.o.b.value) plus CTSH, is quite common for India. It can be noted that India follows thethirty-five percent RVC (of the f.o.b. value) and CTSH with South Korea and Japan,while forty percent RVC and CTSH is followed for Singapore and Thailand. Second,the application of a single ROO criterion has not been considered in the Indian context.Barring the other exception of the ASEAN-People’s Republic of China [PRC] FTA,ASEAN follows a co-equal rule: a minimum of forty percent RVC or a CTH criterion.The co-equal rule is less restrictive than a single rule, because it gives traders a choice inthe application of ROOs, and they can select the less restrictive rule as applied to theirspecific goods. For the ASEAN-PRC FTA, the general rule is that a forty percent RVCor product-specific ROOs are applied. Comparing the AIFTA with the other fiveASEAN-centric FTAs, it can be noted that the RVC requirement at thirty-five percentfor India is less restrictive when compared to the corresponding figure of forty percentin the other FTAs, but the CTSH requirement (i.e. at HS -digit level) might add to theoperational complexity of the arrangement. Harmonization of the ROOs among theRCEP for RCEP partners would therefore be a complex process.

Last, the legal provisions under ASEAN’s FTAs with China, India, Japan, andSouth Korea are compared with help of Table , by obtaining information fromthe ADB ARIC database. For market access of goods, special safeguard measuresare regulated under Article of the ASEAN-Japan FTA and Article of the

World Trade Organization, “Trade Policy Review: India” (Geneva: WTO, ). Association of Southeast Asian Nations, “Rules of Origin Criteria of ASEAN’s Free Trade

Agreements” ( January ), online: ASEAN <https://www.aseanbriefing.com/news////rules-origin-criteria-aseans-ftas.html>.

Asian Development Bank, “Asia Regional Integration Centre (ARIC)-Comparative FTA Toolkit”,online: ADB <https://aric.adb.org/fta-comparative>.

Article of ASEAN-Japan FTA: Measures to Safeguard the Balance of Payments: “Nothing in thisChapter shall be construed to prevent a Party from taking any measure for balance-of-payment



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Table . Frequency by type of rules of origin used in ASEAN + Free TradeAgreements.

Type of rules of origin AANZFTA ACFTA AIFTA AJCEP AKFTA

Single Rule or stricterWOCCCTHCTSHRVC(<)RVC()RVC(>)RVC()+CTSHCC with exception*CTH with exception*Various**

,

,

Sub-totalPercentage share in total

.%, .% , % , .%

.%“RVC() or CTH” or more flexible

RVC() or CTHRVC() or CTH or Specific

Process Rule RCV() or CTSHRVC() or CTH or [RVC()+CTSH] RVC() or CTH orTextile Rule

,

,

,

,


,(.%)

.%

%, .% ,

.%Other “or” rules

RVC() or CC or Textile RuleRVC() or CCVarious***


(.%)

(.%)

( %)

(.%)

.%Total number of -digit HS() lines , , , , ,

Source: Urata (; see ftn ), Table , based on research by E.M. MedallaNotes: AANZFTA = ASEAN-Australia/New Zealand FTA; ACFTA = ASEAN-People’sRepublic of China FTA; AIFTA = ASEAN-India FTA; AJCEP = ASEAN-JapanComprehensive Economic Partnership; AKFTA = ASEAN-Korea FTA. CC = product-specificrules about change of commodity classification. CTH = change in tariff heading at the HS-digit level. CTSH = change in tariff heading at the HS -digit level, making it lessrestrictive than CTH. * Exception varies, from sourcing of materials to process; ** e.g.CTH + RVC(), CC + RVC(), CC + Textile Rule; *** e.g. [RVC()+Textile Rule] orCC, RVC(>), or CTH.

purposes. A Party taking such measure shall do so in accordance with the conditions establishedunder Article XII of GATT and the Understanding on the Balance-of-Payments Provisions ofthe General Agreement on Tariffs and Trade in Annex A to the WTO Agreement.”

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Table . Comparing ASEAN’s Free Trade Agreements by provisions.

Provision

ASEAN-People’s Republicof China ComprehensiveEconomic Cooperation

Agreement

ASEAN-IndiaComprehensive

Economic CooperationAgreement

ASEAN-JapanComprehensive

Economic Partnership

ASEAN-[Republic of]Korea ComprehensiveEconomic Cooperation

Agreement

Market Access of GoodsSpecial safeguards (SSG) – – Article Article

Non-Tariff Measures / Quantitative RestrictionsProhibitions Article Article Article Article

Exceptions – Article – –

Trade FacilitationCustoms Procedure - Transparency Article Article Article Article

Customs Procedure - Release of Goods Article Article – –

Standards and conformance - TBT Article – Chapter Article

Standards and conformance - SPS – – Chapter Article

Mutual recognition - Product Standards – – Article –

ServicesScope and coverage - Cross border trade(modes and )

Article – – –

Scope and coverage - Commercial presence Investment Section – Investment Provision –

Scope and coverage - Mobility of persons – – – –

Exceptions/Reservations – – – –

Domestic regulation - Licensing andcertification

– – – –

Intellectual Property Article . – – Article

E-commerce Article . – – –

Dispute Settlement Article Article Chapter Article

Labour Standards – – – –

Environmental Policy Article . – – –

Source: Compiled from ADB ARIC database (as of September ),

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ASEAN-Korea FTA, respectively. In contrast, this type of provision is absent underthe AIFTA and ASEAN-China FTA. Safeguard remedies are imposed based on theconcept of fair-trade practice in the form of import restrictions. In general, safeguardmeasures aim at ensuring that a domestic economy “does not suffer serious harmfrom imports and trade concessions”.

Under the non-tariff measures, only the AIFTA provides exceptions under Artcile and incorporates Article XX of the GATT, which normally serve as the rationaleand justification for trade-restrictive policies, such as the protection of human, animal,or plant life. With regard to trade facilitation measures, customs procedure for therelease of goods is regulated under Article of the ASEAN-China FTA andArticle of the AIFTA, whereas it is absent from the ASEAN-Japan FTA andthe ASEAN-Korea FTA. In respect of standards and conformance for the TBT,

the ASEAN-China FTA, the ASEAN-Japan FTA, and the ASEAN-Korea FTA all pro-vide such regulations under Article , Chapter , and Article individually, otherthan the AIFTA. Apart from the ASEAN-China FTA and the AIFTA, SPS are

Article of ASEAN-Korea FTA Safeguard Measures: . “Each Party which is a WTO member retainsits rights and obligations under Article XIX of GATT and the WTO Agreement on Safeguards.Actions taken pursuant to Article XIX of GATT and the WTO Agreement on Safeguards shallnot be subject to the Agreement on Dispute Settlement Mechanism under the Framework Agreement[…].”

Mitsuo MATSUSHITA, Thomas J. SCHOENBAUM, Petros C. MAVROIDIS, and Michael HAHN,The World Trade Organization: Law, Practice, and Policy (Oxford: Oxford University Press, ). On safeguard measures, see Julien CHAISSE, Debashis CHAKRABORTY, and AnimeshKUMAR, “Mastering a Two-edged Sword: Lessons from the Rules and Litigation on Safeguardsin the World Trade Organization” () Richmond Journal of Global Law and Business .

Art. of AIFTA: “General Exceptions: Each Party retains its rights and obligations under ArticleXX of GATT , which shall be incorporated, mutatis mutandis, into and form an integralpart of this Agreement.”

See Ingo VENZKE, “Making General Exceptions: The Spell of Precedents in Developing Art. XXinto Standards for Domestic Regulatory Policy” () German Law Journal ; IngoVENZKE, How Interpretation Makes International Law: On Semantic Change and NormativeTwists (Oxford: Oxford University Press, ) ; Julien CHAISSE, “Exploring the Confines ofInternational Investment and Domestic Health Protections-Is a General Exceptions Clause aForced Perspective” () American Journal of Law & Medicine ; Lorand BARTELS,“The Chapeau of the General Exceptions in the WTO GATT and GATS Agreements: AReconstruction” () American Journal of International Law .

Art. . of ASEAN-China FTA: “Measures to strengthen co-operation shall include, but shall not belimited to: promotion and facilitation of trade in goods and services, and investment, such as: i) stan-dards and conformity assessment; ii) technical barriers to trade/non-tariff measures; and iii) customsco-operation.”

Art. . of AIFTA: “For prompt customs clearance of goods traded among the Parties, each Party,recognising the significant role of customs authorities and the importance of customs procedures inpromoting trade facilitation, shall endeavour to: (a) simplify its customs procedures; and (b) harmon-ise its customs procedures, to the extent possible, with relevant international standards and recom-mended practices such as those made under the auspices of the World Customs Organization.”

Tania VOON, “United States-Measures Affecting the Production and Sale of Clove Cigarettes”() American Journal of International Law .

Chapter regulates the Standard, Technical Regulations and Conformity Assessment Procedures indetail.

Art. of ASEAN-Korea FTA: “WTO Disciplines Subject to the provisions of this Agreement and anyfuture agreements as may be agreed pursuant to the reviews of this Agreement by the Parties underArticle , the Parties hereby agree and reaffirm their commitments to abide by the provisions of theWTO disciplines as set out in Annexes A and C to the WTO Agreement, which include, amongothers, non-tariff measures, technical barriers to trade (hereinafter referred to as ‘TBT’), sanitary

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regulated under Chapter of the ASEAN-Japan FTA and Article of the ASEAN-Korea FTA. TBT and SPS aim to ensure that the measures undertaken are not discrim-inatory and do not create unnecessary obstacles to trade. To elaborate, the nationalmeasures should not condemn for imposing discriminatory treatment or unjustifiablecosts in order to favour domestic industry. At the same time, TBT and SPS recognizea state’s right to implement measures by regulating goods. The measures can be imple-mented in ways that are different from market regulation in order to protect import-ant values; however, such a distinction between protectionist measures and“justifiable regulatory autonomy” is difficult to make. Last, mutual recognitionon product standards is only identified under Article of the ASEAN-Japan FTA.

For provisions regarding services, Article of the ASEAN-China FTA recognizescross-border trade under modes and exclusively, compared with mode (commer-cial presence), defined under the investment sections of both the ASEAN-China FTAand the ASEAN-Japan FTA. Article . of the ASEAN-China FTA and Article ofthe ASEAN-Korea FTA stipulate the protection of intellectual property. In thelonger term, it is expected that “the effective utilization and exploitation of intellectualproperty” between ASEAN and its external trade partners will contribute “higherexports and greater in-flows of investment”. The ASEAN-China FTA engages mat-ters in relation to E-commerce and environmental policy under Articles . and .,in contrast to the other three ASEAN FTAs which lack such provisions, although

and phytosanitary (hereinafter referred to as ‘SPS’) measures, subsidies and countervailing measures,anti-dumping measures and intellectual property rights.”

Chapter of ASEAN-Japan FTA regulates Sanitary and Phytosanitary Measures in detail. Gabrielle MARCEAU and Joel P. TRACHTMAN, “AMap of the World Trade Organization Law of

Domestic Regulation of Goods: The Technical Barriers to Trade Agreement, the Sanitary andPhytosanitary Measures Agreement, and the General Agreement on Tariffs and Trade” () Journal of World Trade .

Ibid., at . Art. of ASEAN-Japan FTA: “Cooperation: . For the purposes of ensuring that standards, tech-

nical regulations and conformity assessment procedures do not create unnecessary obstacles to tradein goods among the Parties, the Parties shall, where possible, cooperate in the field of standards, tech-nical regulations and conformity assessment procedures … .”

Art. of ASEAN-China TFA: “Trade in Services With a view to expediting the expansion of trade inservices, the Parties agree to enter into negotiations to progressively liberalise trade in services withsubstantial sectoral coverage. Such negotiations shall be directed to: … (c) enhanced co-operation inservices between the Parties in order to improve efficiency and competitiveness, as well as to diversifythe supply and distribution of services of the respective service suppliers of the Parties.”

Art. .. of ASEAN-China FTA: “Co-operation shall be extended to other areas, including, but notlimited to, banking, finance, tourism, industrial co-operation, transport, telecommunications, intel-lectual property rights, small and medium enterprises (SMEs), environment, bio-technology, fishery,forestry and forestry products, mining, energy and sub-regional development.”

ASEAN-Korea FTA, supra note . Elizabeth Siew-Kuan NG, “Intellectual Property Interoperability in ASEAN and Beyond” in

Elizabeth Siew-Kuan NG and Graeme W. Austin, eds., International Intellectual Property and theASEAN Way: Pathways to Interoperability (Cambridge: Cambridge University Press, ), at–.

Art. .. of ASEAN-China FTA: “The Parties agree to strengthen their co-operation in priority sec-tors as follows: (b) information and communications technology.”



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differences over intellectual property and e-commerce remain two main hurdles tocross during the RCEP negotiations.

Two major observations emerge from the analysis. First, trade facilitation provi-sions under the AIFTA are narrower in scope as compared to the ASEAN-JapanFTA, as mutual recognition of SPS or product standards are not explicitly includedtherein. The observation partly explains the relatively modest trade performance ofthe AIFTA observed so far. Second, service-related provisions do not form a majorcomponent of the ASEAN-centric FTAs. However, for India, facilitating serviceexports through the RCEP market is of crucial importance. India’s cautious approachduring the RCEP negotiations needs to be viewed in this light. Finally, the SPS stan-dards, NTBs, and intellectual property rights related provisions are not evenly coveredunder the ASEAN-centric FTAs, and India needs to include these provisions in theRCEP for securing export success.

. ?In order to evaluate whether the initial expectations from the Indo-ASEAN FTA havebeen fulfilled so far, a data analysis has been conducted in the following. Table

shows India’s merchandise trade with ASEAN partners during –. The analysishas been conducted with Trade Map data. The study period has been divided in twosub-periods, namely, – and –. While the former period depicts the lim-ited trade integration (barring the Indo-Singapore CECA) of India with ASEAN, thelatter provides insights on the post-bloc dynamics. The observations are noted in thefollowing.

First and foremost, there has been a sharp rise in India’s bilateral trade flows withall ASEAN partners, indicating growing convergence. The rise in the absolute value ofIndian exports has been sharper with the relatively bigger economies, namelyIndonesia, Malaysia, Singapore, and Thailand. Interestingly, with all these economies,India either has a bilateral comprehensive arrangement or is in the process of negoti-ating the same. Exports to Vietnam have also witnessed a sharp rise. A similarchange in imports has been noted as well. Second, the rise in import value hasbeen sharper, thereby widening India’s trade deficits with ASEAN. In the post-blocperiod, India’s average trade balance witnessed a surplus with only four ASEANmembers—Cambodia, the Philippines, Singapore, and Vietnam. Interestingly, thetrade deficit has increased in the post- period, indicating that the Indo-ASEANFTA has significantly increased imports from partners. Also, India has a negativetrade balance with Malaysia and Indonesia, the former already a “comprehensive”trade partner and the latter expected to be so shortly. The observation indicates

“ASEAN FTAs: An overview” Business Times ( July ), online: Business Times <https://www.businesstimes.com.sg/asean-business/asean-ftas-an-overview>.

International Trade Centre, “Trade Map Database”, online: ITC <http://www.trademap.org/>. For instance, India has been negotiating the Bay of Bengal Initiative for Multi-Sectoral Technical and

Economic Cooperation Free Trade Area [BIMSTEC FTA], which involves Thailand, since .

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Table . India’s export and import scenario with ASEAN countries (–).

Partner

Export Import

Trade Value(US$

Million)

(% Share inIndia’sExports)

CAGR(%)

Trade Value(US$

Million)

(% Share inIndia’sExports)

CAGR(%)

Trade Value(US$

Million)

(% Share inIndia’sImports)

CAGR(%)

Trade Value(US$

Million)

(% Share inIndia’sImports)

CAGR(%)

– Average – Average – Average – Average

Brunei Darussalam . . . . . . . . . . . .Cambodia . . . . . . . . . . . .Indonesia . . . . . −. . . . . . .Lao PDR . . . . . . . . – . . .Malaysia . . . . . . . . . . . .Myanmar . . . . . . . . . . . −.Philippines . . . . . . . . . . . .Singapore . . . . . −. . . . . . −.Thailand . . . . . . . . . . . .Viet Nam . . . . . . . . . . . .ASEAN . . . . . . . . . . . .

Source: Computed by authors from ITC (undated).

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that India’s market penetration in ASEAN remains modest so far. Third, the import-ance of the ASEAN partners in India’s trade basket has increased, but not in a verysignificant manner. Interestingly, the share of the Philippines and Singapore, withwhom India enjoys a trade surplus, is declining in India’s export basket. OnlyVietnam stands out in the list. Finally, the compound annual growth rate [CAGR] fig-ures reveal that India’s export growth has generally declined for its ASEAN partners(barring the exception of Myanmar) in the post- period, i.e. after the formationof the AIFTA. While the result can be in part explained by the lower trade base during, the competition faced by India in the ASEAN market from other preferentialtrade partners in the bloc is also underlined.

To gain a wider perspective, India’s trade performance with ASEAN comparedwith the other five FTA partners of the bloc is presented in Table . The study periodhas been divided in three sub-periods, namely –, –, and –. Thefirst two periods indicate the modest trade link of the partners with ASEAN. The lastperiod, however, indicates a time when all the FTAs had been signed, i.e. a period ofdeeper integration. Several interesting insights emerge from the table. First, only Indiaand New Zealand have witnessed a decline in their trade balance with ASEAN overthe period. However, the extent of the trade deficit decline has been sharper for India.Second, Australia and Japan also experienced a trade deficit with ASEAN, but theextent is narrowing. South Korea, on the other hand, witnessed a growing trade sur-plus with ASEAN over the period. However, China registers a massive turnaround asits trade deficit with ASEAN during – narrowed during – and finallyturned into a surplus during –. Second, the importance of ASEAN in theexport basket increased for all the partners, with the exception of Australia andNew Zealand. However, the increase during – has been quite sharp forChina, Japan, and South Korea. Finally, ASEAN’s share declined in the import basketonly for Australia. In particular, ASEAN’s penetration in Chinese and Indian importsis relatively modest vis-à-vis their performance in Japan and South Korea. The resultsfurther indicate that, among all the RCEP partners, India’s trade performance vis-à-vis ASEAN has been quite humble.

The extent of trade integration between India and its ASEAN partners can be fur-ther understood by analyzing the bilateral Trade Intensity Index [TII], which showswhether two countries are engaged through trade more intensely vis-à-vis their globaltrade flows. The TII is calculated by the following formulation:

TII =∑

sd Xsd/∑

sw Xsw∑wd Xwd/

∑wy Xwy

In the numerator, Xsd refers to the bilateral exports of a given country pair (say, Indiaand Thailand), while Xsw indicates their global exports. In the denominator, Xwd andXwy represent world exports to a country pair (e.g. India and Thailand) and to theworld, respectively. The value of the TII above for any given country pair (say,India and Vietnam) indicates that the trade relation is “intense”, while a value lessthan indicates otherwise. It is expected that, as a result of the formation of a

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trade agreement, the index would increase and eventually cross . The TII indiceshave been obtained from the ADB ARIC database.

The average TII results for total trade flows are summarized in Table . The studyperiod has been divided in three sub-periods, namely, –, –, and –

. The last period is known for the deeper trade integration of ASEAN with its FTAtrade partners. To compare India’s performance in the light of other RCEP partners,the corresponding results for China, Japan, and South Korea are also reported. Theresults indicate that, at the aggregate level, India is not having an intense trade rela-tionship with four ASEAN countries during –, namely Cambodia, LaoPDR, the Philippines, and Thailand. The corresponding numbers for China, Japan,and South Korea are one (Brunei), two (Cambodia, Lao PDR), and two (Brunei,Myanmar), respectively. While India’s non-intense trade relations, even after the for-mation of the FTA, with almost fifty percent of ASEAN members is a matter of con-cern; the development profile of these countries is also telling. For instance, thepresence of only the Philippines and Thailand, two developing countries in the list,underlines India’s limited market penetration vis-à-vis other RCEP partners.

The intensity of a country to reach the partner markets as compared to rest of theworld, particularly for key economic sectors, can be understood through the ExportIntensity Index [EII]. The EII can be calculated by the following formulation:

EII = xij/Xiw

xwj/Xww

In the numerator, Xij refers to the bilateral export of a given country pair (say, India’sexports to South Korea), while Xiw indicates India’s global exports (either in totaltrade or in a particular sector, say, pharmaceuticals). In the denominator, Xwj andXww represents world exports to the importing country (i.e. South Korea in this

Table . Comparison of trade balance scenario of RCEP members with ASEAN.

RCEPMembers

Average TradeBalance (US$ Million)

Percentage Shareof ASEAN in

Export Basket (%)

Percentage Shareof ASEAN in

Import Basket (%)

– – –

–

–

–

–

–

–

Australia −. −. −. . . . . . .China −. −. . . . . . . .India −. −. −. . . . . . .Japan . −. −. . . . . . .South Korea . . . . . . . . .New Zealand −. −. −. . . . . . .


Asian Development Bank, supra note .



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Table . India’s Overall Trade Intensity Index with ASEAN in comparison with select RCEP members.

ASEAN Partners

India China South Korea Japan

– – – – – – – – – – – –

ASEAN . . . . . . . . . . . .Brunei Darussalam . . . . . . . . . . . .Cambodia . . . . . . . . . . . .Indonesia . . . . . . . . . . . .Lao PDR . . . . . . . . . . . .Malaysia . . . . . . . . . . . .Myanmar . . . . . . . . . . . .Philippines . . . . . . . . . . . .Singapore . . . . . . . . . . . .Thailand . . . . . . . . . . . .Viet Nam . . . . . . . . . . . .

Source: Constructed by authors from ADB (undated).

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case) and to the rest of the world, respectively. A value of the EII above for any givencountry pair (say, India and South Korea) indicates that export penetration from Indiais “intense”, while a value of less than indicates otherwise. As with the TII, it isexpected that trade integration would result in a rise in the index, which eventuallymay pass .

The EII indices have been computed from the Trade Map data. EII data for six keysectors, namely Inorganic Chemicals (HS ), Organic Chemicals (HS ), Garments,Knitted or Crocheted (HS ), Machinery and Equipment (HS ), ElectricalProducts (HS ), and Automobile Products and Components (HS ) have beencomputed for India, China, Japan, and South Korea, involving their trade with keyASEAN countries. Also, for additional insight, the EIIs for ASEAN’s four FTA part-ners in their bilateral trade with the bloc have been reported.

The sectoral EII results summarized in Table indicate how the effects of regionalintegration on merchandise trade influence the current RCEP negotiations. First,India’s EII is generally above unity with ASEAN countries for several sectors, under-lining its deeper penetration in respective markets vis-à-vis the rest of the world.However, for electrical products and garments, its penetration to most of theASEAN economies has not deepened even in the post-bloc period. Second, India’sEII is generally less than unity in all six sectors with China, Japan, and SouthKorea. This prevails despite the tariff preferences implemented under the Indo-Japan and India-Korea CEPAs. Third, China enjoys an intense export relationshipwith most of the ASEAN economies and its three FTA partners, indicating its growingcompetitiveness and urge to push for the RCEP. Finally, Japan and South Korea enjoya favourable EII in most of the ASEAN markets and China. However, in the Indianmarket for garments sector the EII is less than unity for both countries. In addition,Japan also witnessed a non-intense export relation with India in the chemical sectors.

The EII observations underline India’s negotiating perspective in the RCEP, consid-ering its practical gains in the Indo-ASEAN FTA, and the Indo-Japan and India-KoreaCEPA. The non-intense relation in several sectors with the FTA partners is reflected inIndia’s rising trade deficits. Similarly, the sectoral non-intense relations with the threeRCEP partners, despite the tariff preferences on its exports, may prompt India toadopt a cautious approach during RCEP negotiations. On the other hand, Chinaenjoys an intense export relation with India, which it would like to formalize throughfurther tariff reforms in India under the RCEP. India, however, would be cautiousagainst possible Chinese dumping in the post-bloc period, an issue which is alreadya major area of concern. Japan and South Korea, on the other hand, look forwardto further trade reforms and economies of scale for investment projects through theRCEP in a wider geographical region.

Juliene CHAISSE and Debashis CHAKRABORTY, “Normative Obsolescence of the WTO Anti-Dumping Agreement: Topography of the Global Use and Misuse of Initiations and Measures”() Asian Journal of International Law .



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Table . India’s sectoral Export Intensity Index with key ASEAN players in comparison with select RCEP members.

Automobile Products and Components (HS )

ASEAN / RCEP Partners

India China Japan South Korea

– – – – – – – – – – – –

Indonesia . . . . . . . . . . . .Malaysia . . . . . . . . . . . .Philippines . . . . . . . . . . . .Singapore . . . . . . . . . . . .Thailand . . . . . . . . . . . .Viet Nam . . . . . . . . . . . .India – – – . . . . . . . . .China . . . – – – . . . . . .Japan . . . . . . – – – . . .South Korea . . . . . . . . . – – –

Electrical Products (HS )



– – – – – – – – – – – –


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Machinery and Equipment (HS )



– – – – – – – – – – – –


Inorganic Chemicals (HS )



– – – – – – – – – – – –


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Organic Chemicals (HS )



– – – – – – – – – – – –


Garments, Knitted or Crocheted (HS )



– – – – – – – – – – – –



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. -

Deepening participation in IPNs has been another major motive for India to join theSoutheast and East Asian FTAs. When a country is exporting a product (e.g. gar-ments), it can either rely on domestic players to produce the entire value chain (i.e.produce cotton, fibre, fabric, and finally garments within the country) or dependon foreign suppliers for certain stages of production (e.g. produce and export cotton,and import fabric for garment production). It may also import quality services (e.g.banking, IT, consultancy, logistics) from abroad to enhance export competitivenessand potential.

If a country liberalizes import policy (either unilaterally or through an RTA), it isexpected that, during the initial stage, the percentage contribution of domestic playersin the exported product would decline, as exporters would source quality raw mate-rials, intermediate products, and parts and components from abroad at a cheaper rate.This gives rise to the “Smile Curve” phenomenon, which may occur either due tothe exit of domestic players caused by foreign competition or because of greater inte-gration with regional IPNs. The former would lead to readjustments in the domesticsector, creating short-run resistances against liberalization. For a country like India,where participation by global multinational corporations [MNCs] remained nom-inal even two decades after liberalization, the foreign value content in exportsmay increase through the working of both forces. In the long run, as the domesticindustry consolidates and matures by gaining competitiveness, their contribution inexports is likely to increase.

In the current context, the data on origin of value added in the exports of six sec-tors is drawn from the Organisation for Economic Co-operation and Development[OECD] Trade in Value-Added [TIVA] database. The six manufacturing sectorsconsidered for analysis, namely textile and leather, chemical, base metals, computerand electronics, electricals, and transport equipment, are characterized by the pres-ence of deepened IPNs. Table summarizes the origin of the value added scenariofor these sectors during and for Indian exports from RCEP partners. Inother words, the table shows, for every US$ worth of Indian exports in each sec-tor, the value contribution from individual ASEAN and RCEP partners. The year represents the period before the formation of the major Asian FTAs, whilethe integration effects started materializing in .

The summarized results have the following interpretation. The figures presented inthe row for India for a sector (e.g. transport equipment) indicate the percentage shareof domestic value addition, while the other country rows represent the contribution offoreign value addition from that country. For instance, the last two columns reveal

World Bank, Organization for Economic Co-operation and Development, IDE-JETRO and WorldTrade Organization, “Measuring and Analyzing the Impact of GVCs on Economic Development”,.

Rahul SEN and Sadhana SRIVASTAVA, “Integrating into Asia’s International Production Networks:Challenges and Prospects for India” in Anukoonwattaka and Mikic, eds., supra note at .

Organization for Economic Cooperation and Development, “Trade in Value Added (TIVA) data-base”, online: OECD <http://stats.oecd.org/Index.aspx?DataSetCode=TIVA_OECD_WTO>.



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Table . Origin of value added in gross exports from India in select sectors (percentages).

Source Country

Textile, TextileProducts, Leather,and Footwear

Chemicals andChemicalProducts

Basic Metals andFabricated Metal

Products

Computer,Electronic, and

OpticalEquipment

ElectricalMachinery and

ApparatusTransportEquipment

ASEAN CountriesBrunei . . . . . . . . . . . .Cambodia . . . . . . . . . . . .Indonesia . . . . . . . . . . . .Lao PDR NA NA NA NA NA NA NA NA NA NA NA NAMalaysia . . . . . . . . . . . .Myanmar NA NA NA NA NA NA NA NA NA NA NA NAPhilippines . . . . . . . . . . . .Singapore . . . . . . . . . . . .Thailand . . . . . . . . . . . .Viet Nam . . . . . . . . . . . .RCEP (ASEAN+ Six) CountriesAustralia . . . . . . . . . . . .China . . . . . . . . . . . .India . . . . . . . . . . . .Japan . . . . . . . . . . . .New Zealand . . . . . . . . . . . .South Korea . . . . . . . . . . . .Trade BlocsASEAN . . . . . . . . . . . .RCEP . . . . . . . . . . . .

Source: Constructed by authors from the OECD (undated).

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that, while in domestic value addition in the transport equipment sector in India(e.g. local parts and components, labour values embodied in output) contributed. percent of value addition to the country’s total export of transport equipment,the corresponding figure in declined to . percent. On the other hand, thecontribution of Chinese players in Indian exports of this category has increased sig-nificantly from . percent to . percent over this period. This implies greaterparticipation by foreign players in the upstream activities of Indian exporting firms.While on the one hand this signifies a deepening of India’s IPN integration withthe world in the transport equipment sector, threats to domestic parts and compo-nents manufacturers from import penetration may not be ruled out.

The following observations emerge from Table . First, for exports of all six prod-uct categories, the percentage share of domestic value addition is declining for India,signifying increased sourcing from ASEAN and RCEP members and from other partsof the world. This might result from both the rise in imports of intermediate productsin India given the tariff preferences, and the possible lack of competitiveness in semi-processed and intermediate product categories. Also, the rise in value addition inexports from Singapore (CECA in ) and Malaysia (CEPA in ) signifiesthat ASEAN suppliers are becoming integrated into Indian IPNs, with the aid of tariffpreferences. However, participation by Indian players in upstream activities forASEAN’s exports still remains modest.

Second, the rise in participation from ASEAN in India’s production patternremains much weaker as compared to China, which is an indicator of the dragon’sgrowing competitiveness in the manufacturing sector, particularly in parts and com-ponents and intermediate products. The growing trade deficit of India with respect toChina, resulting from both possible imports of intermediate products and service linkcosts, needs to be viewed in this light. This is in line with China’s export pattern toother RCEP countries, where the country is expanding its share in the partner’sexport value content for several manufacturing categories.

Third, the contribution from the CEPA partners South Korea and Japan has alsoincreased in India’s exports, given the tariff and trade facilitation reforms implemen-ted through the RTA. However, their contribution looks quite modest in comparisonwith China. The phenomenon can be explained by two factors. One, because of geo-graphical proximity and associated lower transportation costs Chinese products canenter the Indian market with relative ease vis-à-vis the Japanese and Korean players,and can participate more deeply in the value chains. Two, it is often observed thatIndian traders are using the MFN route for trading with another FTA partner rather

Biswajit NAG, “Emerging Production Network Between India and ASEAN: An Analysis of ValueAdded Trade in Select Industries” in Debashis CHAKRABORTY and Jaydeep MUKHERJEE,eds., Trade, Investment and Economic Development in Asia: Empirical and Policy Issues(Abingdon: Routledge, ), .

Debashis CHAKRABORTY and Anushree CHAKRABORTY, “Economic and Political Cooperationbetween India and East Asia: The Emerging Perspective” () Journal of Economics and PoliticalEconomy .



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than following the preferential route, to avoid the associated compliance-related com-plexities. Finally, despite freeing FDI restrictions in India across sectors, the ease ofdoing business and other factors are still not favourable. The degree of FDI reform hasalso slowed down, perhaps thereby limiting the participation of Japanese andKorean players. This calls for initiating the necessary procedural reforms in existingFTAs on one hand and suitably amending the FDI policy framework on the other.

In recent global value and supply chains, particularly in process industries andlogistics operations, increasing recourse to digital and artificial intelligence [AI]related technologies is being observed. Taking note of the emerging global trend,the Digital India initiative launched by the government of India in is alreadyfocusing on this aspect. The increasing use of AI-IT applications and robotics cur-rently find applications in both the private and government sectors. It has beenobserved that “[c]ommercial applications of AI are huge and Indian start-ups arebeginning to identify them and tap into the market, which is still nascent”.

Table summarizes the intra-RCEP trade pattern from an Indian perspective, byfocusing on the stage of processing, for and , respectively. By UnitedNations Conference on Trade and Development [UNCTAD] classifications, tradeflows can be divided into four broad categories, namely raw materials (e.g. cottonyarn), intermediate goods (e.g. fibre and fabrics), consumer goods (e.g. percentcotton garments), and capital goods (e.g. textile machines). In addition to trade pat-terns, the Intellectual Property Rights [IPR] Index rank of countries in is alsonoted. Several observations emerge from the table. First, it is observed that India’sexport basket to the advanced economies, i.e. Australia, Japan, New Zealand, andSouth Korea, primarily consists of intermediate products and consumer products.Second, for countries such as Australia and Singapore, the proportional share of cap-ital goods has come down over the period. Third, India’s import basket is predomin-antly tilted in favour of raw materials (coal and petroleum products) from Australia,Brunei, Indonesia, and New Zealand. Fourth, import of intermediate goods hasincreased from advanced countries like Japan, Malaysia, Singapore, South Korea,and Thailand, on the one hand, and emerging countries like Lao PDR andMyanmar, on the other. Finally, the relative import of capital goods is high fromboth advanced countries such as China, Japan, Singapore, South Korea, andThailand, and emerging economies such as Vietnam.

Mia MIKIC, “Integrating into Asia’s International Production Networks: Challenges and Prospectsfor India” in Anukoonwattaka and Mikic, eds., supra note at .

Richard M. ROSSOW, “India’s FDI Reforms under Modi: Once a Fountain, Now a Drip” US-IndiaInsight ( August ), online: US-India Insight <https://www.csis.org/analysis/india%E%%s-fdi-reforms-under-modi-once-fountain-now-drip>.

DHL and IBM, “Artificial Intelligence in Logistics: A Collaborative Report by DHL and IBM onImplications and Use Cases for the Logistics Industry” (), online: <https://www.logistics.dhl/con-tent/dam/dhl/global/core/documents/pdf/glo-ai-in-logistics-white-paper.pdf>.

Digital India Resources, “Artificial Intelligence & Merging Technologies” ( February ),online: <https://digitalindia.gov.in/writereaddata/files/.AI_Emerging_Tech_Part_I.pdf>.

Sudipta GHOSH and Indranil MITRA, “Artificial Intelligence and Robotics-: LeveragingArtificial Intelligence and Robotics for Sustainable Growth” ASSOCHAM India and PWC (March), online: ASSOCHAM India and PWC <https://www.pwc.in/assets/pdfs/publications//arti-ficial-intelligence-and-robotics-.pdf>.

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It can be observed from Table that India is emerging primarily as an exporter ofcomponents and consumer goods to the RCEP region, barring the exception of LaoPDR. Though trade in technology products (distributed in consumer and capitalgoods) is very much observed, exports from India to the RCEP on that front havenot yet intensified. One underlying reason behind this fact is that, through FDIfrom Japan, South Korea, and other sources over the last two decades, the ASEANcountries have reached a higher technology plane vis-à-vis India. This is reflectedin both higher R&D expenses and better IPR rankings for the ASEAN countrieswhen compared to India. In addition, AI is at a nascent stage in India now and thefocus is concentrated on basic activities like healthcare, education, infrastructure,etc. Therefore, in the short run, the India-RCEP technology trade may intensifyon the import front, and only after innovation becomes deeply rooted in the countrythrough the “Make-in-India” initiative may exports pick up.

. : ?

The analysis so far indicates that India’s achievements under the Indo-ASEAN FTAhave indeed been modest, with only partial fulfilment of initial expectations. The out-come can be explained in the following manner. Since the late s, India hasemerged as a service exporter, while the manufacturing sector has been steadily losingcompetitiveness. This poor performance has been explained by a lack of labourreforms, an absence of economies of scale, low firm turnover, imperfect market inte-gration, high concentration, prevalence of obsolete technology, etc. While themanufacturing sectors in ASEAN members and China have benefitted greatly throughtechnology transfer from Korean and Japanese investments, a similar effect on theIndian context is still missing despite the inception of the CEPAs. This cautiousapproach by foreign investors can be explained by several factors, e.g. the modestease of doing business scenario prevailing in India, infrastructural bottlenecks, poorskill levels, and so on. In addition, several Indian Special Economic Zones [SEZs]have been set up with ease of land acquisition in mind, rather than proximity to aport and ease of exporting considerations. As a result, actual exports even fromthese regions remain far below potential. In the absence of these stage two reforms,

Fukunari KIMURA, Tomohiro MACHIKITA, and Yasushi UEKI, “Technology Transfer in ASEANCountries: Some Evidence from Buyer-Provided Training Network Data”, Economic ResearchInstitute for ASEAN and East Asia, ERIA Discussion Paper No. , May .

Ibid. “National Strategy for Artificial Intelligence”, The National Institution for Transforming India,

Discussion Paper, June . Sean M. DOUGHERTY, Richard HERD, and Thomas CHALAUX, “What Is Holding Back

Productivity Growth in India? Recent Microevidence” () OECD Journal: Economic Studies; United Nations Industrial Development Organization, Indian Manufacturing Industry:Technology Status and Prospects (Vienna: UNIDO, ).

Arpita MUKHERJEE, Parthapratim PAL, Saubhik DEB, Subhobrota RAY, and Tanu M. GOYAL,Special Economic Zones in India: Status, Issues and Potential (New Delhi: Springer, ).



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Table . Comparing the composition of India’s trade with RCEP Partners (in percentages) and intellectual rights protection.

RCEP Partners

India’s Export Composition India’s Import Composition

IPR Rank()

RM IG CG KG RM IG CG KG RM IG CG KG RM IG CG KG

Australia . . . . . . . . . . . . . . . .

Brunei . . . . . . . . . . . . . . . .

China . . . . . . . . . . . . . . . .

Indonesia . . . . . . . . . . . . . . . .

Japan . . . . . . . . . . . . . . . .

Cambodia . . . . . . . . . . . . . . . .Korea, Rep. . . . . . . . . . . . . . . . .

Lao PDR . . . . . . . . . . . . . . . .Myanmar . . . . . . . . . . . . . . . .Malaysia . . . . . . . . . . . . . . . .

New Zealand . . . . . . . . . . . . . . . .

Philippines . . . . . . . . . . . . . . . .Singapore . . . . . . . . . . . . . . . .Thailand . . . . . . . . . . . . . . . .Viet Nam . . . . . . . . . . . . . . . .India – – – – – – – – – – – – – – – –

Source: Computed from the WITS (World Bank, undated) data and Property Rights Alliance (); Notes: RM – raw materials; IG – intermediategoods; CG – consumer goods; KG – capital goods.

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tariff reforms under the FTA have merely increased imports, as reflected in the risingtrade deficit and growing foreign value content in Indian exports.

Only in the recent period is India trying to make a concerted echo effect to revivethe manufacturing sector. For instance, the recent “Make-in-India” campaign tofacilitate FDI inflow and technology transfer has started to show positive results.

The “Skill India” initiative is similarly expected to create a pool of highly skilledworkers and thereby address the concerns of potential investors. The creation of cru-cial industrial corridors, linking the major economic and manufacturing centres, isanother initiative to secure a reduction in the cost of domestic production on theone hand and facilitating foreign investment on the other. Finally the introductionof a Goods and Services Tax [GST] in India since July is expected to simplifythe tax regime in the country, helping both the domestic and foreign players estab-lished in the country. However, only in the long run will these measures strengthenIndian manufacturing sector competitiveness. Hence, in the recent period, the domes-tic sector has repeatedly approached the government for respite against cheaperimports from ASEAN, often through contingency measures. Similar protectionagainst imports from China has also been sought and granted at times.

India hoped to compensate for the limited gains under the Indo-ASEAN FTA inmerchandise trade through increased export opportunities under trade in services.It agreed to participate in services sector negotiations after completion of the mer-chandise sector agreement, hoping that ASEAN would reciprocate. However, thelengthy negotiations on a services agreement with ten ASEAN countries after theentry of the FTA in goods resulted in less than expected benefits. Though India andASEAN entered into the trade agreement on services and investment in September, Indonesia and Cambodia are yet to ratify the provisions, primarily fearingentry of Indian professionals into their service markets. India is presently lookingfor further service sector reforms in other ASEAN markets as well. The country’srecent interest in a Trade Facilitation in Services [TFS] agreement needs to be viewedin this light. The increasing stringency in the US services market would also forceIndia to negotiate harder in the RCEP.

Dipanjan Roy CHAUDHURY, “Japan’s Investments in India Getting Diverse” The Economic Times( May ).

Pritam BANERJEE, “Development of East Coast Economic Corridor and Vizag-Chennai IndustrialCorridor: Critical Issues of Connectivity and Logistics”, Asian Development Bank, ADB South AsiaWorking Paper Series No. , February .

Deepshikha SIKARWAR, “Gold Jewellery Imports from ASEAN to Face .% CountervailingDuty” The Economic Times ( March ).

“Anti-dumping Duty Imposed on Import of Telecom Gear from Chinese Firms” Hindustan Times( April ).

Nayanima BASU, “Trade Remains Sore Point Between India, ASEAN” The Hindu Business Line (January ).

Arpita MUKHERJEE and Avantika KAPOOR, “India and Trade Facilitation in Services (TFS)Agreement: Concerns and Way Forward”, Indian Council for Research on International EconomicRelations, ICRIER Working Paper No. , October .

“Trump Administration Tells Court Decision to Revoke Work Permits to H Visa Holders Within Months” The Economic Times ( September ).



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The cautious approach adopted by India during the RCEP negotiations so far cantherefore be explained by the growing trade deficit with the “East” economies on theone hand and the apprehensions about the exposure of domestic players to the duty-free entry of Chinese imports on the other. The growing merchandise trade deficit isalready a matter of concern in India, with associated political repercussions. Thepartial realization of the potential benefits of service sector exports in the ASEANmarket pose another challenge for India. The past experience with ASEAN and theprevailing trade scenario rationalize India’s inclinations to conduct the RCEP mer-chandise and services agreement negotiations simultaneously rather than sequentially.The divergence in sectoral interests, e.g. China’s ambitious agenda on trade in goodsand defensive interests in services, is contrary to India’s expectations from the bloc.Second, several tariff and non-tariff barriers on Indian products in the Chinese markethave been noted in the literature, e.g. marine, chemicals, pharma, textiles and apparel,rubber, iron and steel, non-ferrous metals, plastics, and machinery sectors, amongothers. However, given the fact that ASEAN and China may press for deeperreform in India’s merchandise imports, the slow progress of the negotiations isunlikely to change. Therefore, unless India receives a matching deal in the sphere ofservices, speedy agreement on the RCEP would remain elusive.

It deserves mention that the absence of wider stakeholder consultations and accessto negotiating documents have often been criticized, which fuel a negative senti-ment against the possible ill-effects of the bloc. The negotiators therefore prefer toadopt a cautious approach at RCEP forums, and the associated delays, if interpretedas negotiating victories, might provide political mileage at home.

Vikas DHOOT, “MPs Fret over Trade Deficit with ASEAN” The Hindu ( August ). Fan HE and Panpan YANG, “China’s Role in Asia’s Free Trade Agreements” () Asia & The

Pacific Policy Studies . V.S. SESHADRI, “Emerging Dynamics on RCEP”, Research and Information System for Developing

Countries, RIS Policy Brief No. , October . Transnational Institute, “RCEP: A Secret Deal” (July ), online: TNI <https://www.tni.org/files/

publication-downloads/foe-rcep-secret-deal--web.pdf>. “RCEP Talks to Go Beyond , India Claims Big Gains” The Economic Times ( September

).

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