The Upcoming Indo-ASEAN CECA: of Great Expectations and Areas of Concern

The Upcoming Indo-ASEAN CECA: Of Great
Expectations and Areas of Concern

Debashis Chakraborty
Assistant Professor, Indian Institute of Foreign Trade (IIFT), New Delhi
debchakra@gmail.com
Since the initiation of economic reforms in 1991, Look East Policy has been a major component of Indias
trade diplomacy. During the first decade after inception of WTO, India relied heavily on the multilateral
trade reforms for securing export growth, but slow progress of the Doha Round negotiations caused it to shift
focus on the regional trade agreements (RTAs) instead from 2004 onwards. The Association of Southeast
Asian Nations (ASEAN) in Southeast Asia emerged as Indias natural trade partner with its lucrative
market but the negotiations proved to be a complex exercise. The Indo-ASEAN Free Trade Agreement (FTA)
covering merchandise products has boosted bilateral trade flows, but the balance of trade has improved
in ASEANs favour. The current article attempts to analyse the potential trade effects for India from its
deepened trade relationship with ASEAN through the proposed Indo-ASEAN comprehensive economic
cooperation agreement (CECA) covering trade in services and investment provisions.
Keywords: Trade policy, international trade organisations, economic integration
Introduction
The Indian economic liberalisation process initiated in 1991 paved the way for exportpromoting growth strategy in place of the archaic import-substitution model being
followed earlier. The simultaneous breakdown of the erstwhile USSR and political
unrest in several Eastern European countries led to concerns for identifying alternate
export markets. In this backdrop, the tariff reforms through the Uruguay Round negotiations of General Agreement on Tariffs and Trade (GATT) during 198694 and the
subsequent inception of World Trade Organization (WTO) in 1995 was considered
important for the long-term economic interests of the country. In particular, the export
success of the East and Southeast Asian Tigers during 1970s and 1980s through the
CHINA REPORT 50 : 3 (2014): 259276
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260
help of Japanese Foreign Direct Investment (FDI), that is, the Flying Geese model
(Hayter and Edgington 2004) was identified and a similar model was conceived for
Indian economy through removal of industrial licensing procedure, easing of the norms
for allowing foreign investment etc. Moreover, the importance of partnering with the
growing economies of Asia both in trade and investment plane was understood and
the Look East Policy was initiated in that context (Chakraborty 2014).
Indias expectation of obtaining enhanced market access through multilateral
WTO-led reforms on both trade in merchandise and services however fell short of the
desired level due to slow progress of the Doha Round negotiations from 2001 onwards
(Chakraborty and Khan 2008; Gootiiz and Mattoo 2009). This mismatch motivated
India to adopt a twin strategyon one hand it started negotiating more vigorously
at the WTO negotiations through groupings like G-20, G-33, NAMA-11, etc., and
entered into a number of regional trade agreements (RTAs) for export promotion on
the other (Chaisse et al. 2011). It also learned to protect its defensive sectoral interests
through suitable policy instruments (Chakraborty et al. 2013).
After the failure of the Cancun Ministerial meeting of WTO (2003), India started
considering the RTA route for export promotion more seriously (Chakraborty and
Sengupta 2005). The evolving Indian perspective on RTAs can be understood from an
address by the then Minister of Commerce and Industry during the signing of Trade
and Economic Framework Agreement between India and Australia in March 2006:
Our Prime Ministerforesees the rise of a major free trade area in Asia covering
all major Asian economies, including China, Japan and South Korea and possibly
extending to Australia and New Zealand. This Pan-Asian Free Trade Area could be
the third pole of the world economy after the European Union and North Atlantic
Free Trade Area (GoI 2006).
From the beginning, the Association of Southeast Asian Nations (ASEAN) enjoyed
a special role in Indias RTA strategy, and considerable increase in bilateral merchandise (Joseph and Parayil 2004; Sen et al. 2004) as well as services (Karmakar 2005;
Mukherjee et al. 2003) trade in the post-bloc period had been predicted in existing
literature. Several studies have projected positive outcome of the proposed comprehensive economic cooperation/partnership agreements (CECAs/CEPAs), estimated in
terms of merchandise and services trade growth potential and investment attractiveness
resulting from the integration (Kumar 2005; Sinha Roy 2004).
Indias trade integration with ASEAN was initiated with the Early Harvest
Programme (EHP) under the Indo-Thai Free Trade Agreement (FTA) (2004) and
the Indo-Singapore CECA (2005). The negotiations on Indo-ASEAN FTA in merchandise goods started with the expectation that once these discussions are concluded,
negotiations covering trade in services and investment collaboration would commence.
However, the FTA negotiation itself took a long time to conclude due to differences
over several issues, namelysequencing of tariff reforms, covering negative list and

China Report 50, 3 (2014): 259276
The Upcoming Indo-ASEAN CECA
261
sensitive items (particularly in agriculture), determining rules of origin (ROO) provisions, reducing import duty on refined palm oil and other agricultural products, etc.
(Chakraborty and Sengupta 2010). The agreement finally came into force only in 2010.
The negotiation for Indo-ASEAN CECA is also continuing for a long time and the
delay caused India to seek access in ASEAN market through the Indo-Malaysia CECA
(2011). In addition, the Indo-Indonesia CECA is currently under negotiation. It is
expected that the Indo-ASEAN CECA will formally enter into force shortly, though
a specific date has not been finalised yet (ET 2013). The present article intends to
analyse the realised success through the FTA in merchandise products, and the potential
opportunities from the expanded coverage for India in the ASEAN market.
IMPLICATIONS ON MERCHANDISE TRADE
It is observed from Figure 1 that in line with the expectations, the importance
of ASEAN countries in Indias export basket has improved from 8.67 per cent in
19967 to 11.69 per cent in 20134 and displaying a rising trend. On the contrary,
Figure 1
ASEAN Presence in Indian Trade Basket (%)
14
X
12
10
8
6
4
20132014
20122013
20112012
20102011
20092010
20082009
20072008
20062007
20052006
20042005
20032004
20022003
20012002
20002001
19992000
19981999
19971998
19961997
Source: Constructed by the author from the Export Import Data Bank, Ministry of Commerce, GoI
(undated).
Note: For 20134, data is provided for April to June.
China Report 50, 3 (2014): 259276
262
the share of ASEAN imports in Indias import basket reached a peak of 9.75 per
cent in 20067, but oscillated around 8.6 per cent since then. A sharp rise in export
share of ASEAN in Indias export basket has been noted in 20112 after the IndoASEAN FTA entered into force, but the recession effect in the subsequent period
has lowered the share.
As per trade theory literature after formation of any trade bloc, tariff barrier declines,
thereby leading to a rise in bilateral trade flows. Since average tariff in India in 2010
has been higher vis--vis ASEAN countries, it was expected that the Indo-ASEAN FTA
will lead to higher rate of import growth in India as compared to the corresponding
figure for ASEAN. Therefore, one major area of concern for Indian policymakers in
the period preceding the FTA has been managing the potential effects of ASEAN
imports on several sensitive domestic sectors, namely, fisheries, plantations, oilseeds,
automobiles etc. It was hoped that on one hand, Indian exports to the ASEAN
market would simultaneously increase and the participation of the country in Asian
international production networks (IPNs) will deepen with the parts and components
imports from ASEAN, on the other.
However Table 1, which summarises the Indo-ASEAN trade balance scenario,
clearly indicates that such expectations are yet to be fulfilled. Indias cumulative trade
deficit more than doubled during the Indo-ASEAN FTA negotiation period (20056
to 200910) vis--vis the earlier period (19967 to 20045). Indias trade deficit after
the Indo-ASEAN FTA entered into force (20101 to 20134) has only marginally
Table 1
Indias Trade Balance Trends with ASEAN Countries
Total Trade Balance (USD Billion)
Country
19967 to
20045
20056 to
200910
20101 to
20134
Major Export Items
Major Import Items
Vehicles, Meat products,

Electrical equipment
Mineral fuels
Pharma products,
Cotton, Food residues
Rubber products,
Apparel and Footwear
Brunei
0.03
1.24
0.99
Cambodia
0.09
0.21
0.28
Indonesia
5.42
16.13
24.43
Processed mineral fuels,

Organic Chemicals,
ships and boats, Cereals
Animal and Vegetable

fat and oils, Mineral
fuels, Ores, slag and ash
Lao PDR
0.02
0.02
0.18
Vehicles, Meat,
Aluminium and Pharma
products
Ores, slag and ash
Malaysia
8.06
14.78
15.10
Processed mineral fuels,

Organic Chemicals,
Meat products, Cereals
Animal and Vegetable

fat and oils, Mineral
fuels, Electrical and
Electronic equipment
(Table 1 Continued)
China Report 50, 3 (2014): 259276
263
(Table 1 Continued)
Total Trade Balance (USD Billion)
19967 to
20045
20056 to
200910
20101 to
20134
Myanmar
1.90
3.47
Philippines
1.62
Singapore
Country
Major Export Items
Major Import Items
2.67
Pharma products,
Iron and Steel, Food
residues, Machinery and
equipment
Articles of wood,
vegetables
2.01
1.90
Vehicles, Rubber, Meat

and Pharma products,
Cereals, oilseeds
Electrical and
Electronic equipment,
Vehicles, Machinery
and equipment
0.99
3.83
19.77
Processed mineral
fuels, Ships and boats,
Gems and jewellery,
Machinery and
equipment, Organic
Chemicals
Mineral fuels, Electrical

and Electronic
equipment, Organic
Chemicals, Ships
and boats, Gems and
jewellery
Thailand
1.53
2.89
6.32
Gems and jewellery,

Machinery and
equipment, Iron and
Steel, Food residues,
Meat products, Organic
Chemicals
Machinery and
equipment, Plastic
and Rubber products,
Electrical and
Electronic equipment,
Organic Chemicals,
Gems and jewellery
Vietnam
2.06
5.46
5.31
Meat and Fish products,

Oilseeds, Cereals
Coffee, Tea, Rubber

products, Electrical
equipment
11.04
26.98
22.45
Overall
Source: Computed by the author from Export Import Data Bank, Ministry of Commerce, GoI (undated)
and Trade Map Data, ITC (Undated).
Note: For 20134, data is provided for April to June.
come down. It is also observed from the table that India enjoys a surplus only with
respect to Cambodia, the Philippines, Singapore and Vietnam.
One underlying reason behind the poorer trade balance scenario is that while
India is exporting intermediate goods and consumer products to most of the ASEAN
countries, it is importing consumer and capital goods, which are high value items.
The difference in the level of trade in value-added products is one of the major
factors responsible for the unfavourable trade balance experienced by India so far
(Chakraborty and Kedia 2013). For instance, although India imports several manufacturing products from Philippines, exports to that country consists of high value
machinery (electronics, automobile products, etc.), which turns the overall balance
China Report 50, 3 (2014): 259276
264
positive. Similarly, petroleum and mineral fuel products are the major import item
from Indonesia, which causes persistence of the trade deficit. The other reason is that
since ASEAN countries already had a much lower tariff schedule vis--vis India (that
is, the domestic production was characterised by greater efficiency), the initial trade
effects of Indo-ASEAN FTA led tariff reforms has been realised by the Southeast Asian
countries more effectively.
The Herfindhal Concentration Index (h) is used extensively in trade literature to
understand the diversification/concentration in a countrys trade pattern with respect
to its partners. The h index can be calculated by the formula: h = Ssi2 where si indicates the share of commodities at the HS 2-digit level in a countrys trade basket. A
higher value of h indicates concentration of fewer products in a countrys trade basket
and vice versa. It is expected that after formation of any trade bloc the trade basket of
the member countries will be wider, that is, h will register a decline. Therefore, the h
index calculated in this manner with IndiaASEAN export-import data enables one
to understand the diversification patterns after inception of the Indo-ASEAN FTA in
2010. Table 2 indicates a falling concentration of Indian exports to Brunei, Cambodia,
Indonesia, Malaysia and Myanmar. Only in the case of Singapore the concentration in
2012 increased vis--vis the 2010 level due to the growing prominence of processed
mineral fuel exports. On the other hand, regarding imports, the concentration is
quite high for countries like Brunei who are exporting mineral fuels to India, which
partially explains the trade deficits as well. On the whole, several ASEAN countries
display higher concentration index as compared to the corresponding Indian figure.
The observation indicates that there is considerable scope for India to diversify its
export basket to several ASEAN countries.
Table 2
Diversification Pattern of Indias Trade Basket with ASEAN: H-Index
Exports
Imports
Country
2010
2012
2010
2012
Brunei Darussalam
0.14
0.12
0.99
0.99
Cambodia
0.16
0.13
0.72
0.24
Indonesia
0.20
0.11
0.27
0.31
Lao PDR
0.14
0.22
0.97
0.99
Malaysia
0.06
0.05
0.13
0.14
Myanmar
0.12
0.11
0.50
0.45
Philippines
0.07
0.07
0.22
0.23
Singapore
0.31
0.38
0.17
0.11
Thailand
0.07
0.07
0.10
0.10
Vietnam
0.08
0.10
0.16
0.17
Source: Computed by the author from Trade Map Data, ITC (undated).
China Report 50, 3 (2014): 259276
265
Table 3
Growing Integration of Indo-ASEAN Merchandise Trade Pattern?
Trade Complementarity Indices
Indian Export/Partner
Import
Partner Export/Indian
Import
Intra-Industry Trade
Indices
Partner
2008
2012
2008
2012
2010
2012
0.32
Brunei
50.21
56.43
38.08
41.89
0.16
Cambodia
43.81
52.42
5.33
12.07
0.22
1.97
Indonesia
63.43
63.18
57.45
61.45
10.07
10.77
Lao PDR
57.70
53.21
19.36
29.18
0.22
0.19
Malaysia
51.84
54.86
52.65
54.86
19.66
31.64
Myanmar
48.82
52.08
1.24
3.62
Philippines
54.24
57.50
34.00
35.10
14.29
20.09
Singapore
49.81
49.39
53.02
51.54
52.27
42.82
Thailand
63.28
63.08
44.74
44.72
31.96
30.78
Vietnam
62.36
52.50
47.45
35.38
9.10
12.31
Source: Computed by the author from Trade Map Data, ITC (undated).
The observed concentrations cast a shadow over the extent of deepening of IndoASEAN merchandise trade ties and calls for further exploration. Table 3 summarises
the bilateral Trade Complementarity Index (TCI) between India and ASEAN countries,
higher values of which over time indicate increasing similarities between export basket
of a country and import basket of its trade partner. The TCI is calculated by using
the following formula:
TCI ij = 100
( | M jk X ik |)
2
where Xik is the share of commodity k in country is total exports, and Mjk is the share
of commodity k in country js total imports at HS 2-digit levels.
Table 3 also reports the bilateral Intra-Industry Trade (IIT) index between
India and ASEAN countries. The higher values of bilateral IIT indicate higher
trade in intermediate products between the two countries at disaggregated level,
which can be interpreted as deeper participation in IPNs. The IIT is measured
by the GrubelLloyd Corrected (GLC) index, which can be calculated by using
the following formula:
GLC =
( X i + M i ) | X i M i |
X 100
( X i + M i ) | X i M i |
China Report 50, 3 (2014): 259276
266
where, Xi and Mi represent the simultaneous export and import of the i-th product
at HS 4-digit levels respectively.
It is observed from Table 3 that Indias export complementarity with imports of
ASEAN partners displays a mixed trend for 2008 and 2012. The export complementarity indices are moderately high, and import complementarity is lower for
several economies. While export complementarity has increased for five countries,
the reverse is true for the remaining partners. A somewhat similar picture also
emerges on import complementarity as well. The result suggests that the convergence of Indo-ASEAN trade pattern has occurred quite slowly. If the TCI results
are judged in the light of the existing similarity in the export structure of India
and ASEAN members, the mutual urge to negotiate hard for greater access in each
others market can be better understood, which also contributed in prolonging the
negotiating period. In addition, a comparison of the IIT indices indicates that
Indo-ASEAN trade in intermediate products (that is, simultaneous export and
imports) have not grown considerably after 2010, particularly with respect to the
smaller economies. In other words, the Indian dream of joining the ASEAN IPN
has not yet been fulfilled.
The observations lead to the key question, why despite the massive predicted
potential, the trade integration with ASEAN countries have progressed slowly? Two
major factors deserve careful observations. First, the Indo-ASEAN FTA has been able
to reduce the tariff barriers, but the process of arriving at the Mutual Recognition
Agreements (MRAs) involving the product standards has not yet been complete.
Indian exports have witnessed several non-tariff barriers (NTBs) in the ASEAN
market, which erode their competitiveness and hence export potential (ET 2011;
Saqib and Taneja 2005). The observation draws support from the Global Trade
Analysis Project (GTAP) analysis by Nag and Sikdar (2011), which notes that relatively bigger ASEAN members are expected to derive higher welfare augmentation
from the trade integration, while India will be benefited only when the agreement
is fully implemented.
Second, India is by no way the only country enjoying preferential trade relationship with ASEAN, as the FTA partners of the latter are spread over countries from
East Asia (for example, China, Japan, South Korea), Oceania (for example, Australia,
New Zealand), Europe (for example, the EU), Americas (for example, Canada, Costa
Rica, Peru, US), Central and West Asia (for example, GCC, Jordan, Ukraine) and
Africa (for example, Egypt). Although all the trade blocs of ASEAN are presently
not operational with a uniform degree of cooperation, trade integrations have grown
deeper in several arrangements, especially in the ones involving China, Japan and
South Korea. Figure 2 shows the number of RTAs involving the individual ASEAN
countries. It is obvious that despite enjoying tariff preference vis--vis the MFN
rate, Indian players still need to be competitive in the individual ASEAN markets
for expanding exports.

China Report 50, 3 (2014): 259276
267
Figure 2
Preferential Market Access for India in ASEAN Market? Listing RTA Partners
of ASEAN Member Countries
38
40
35
30
25
20
29
27
22
19
18
15
16
14
12
13
10
Vietnam
Thailand
Singapore
Philippines
Myanmar
Malaysia
Lao PDR
Indonesia
Cambodia
Brunei
Source: Constructed by author from the ARIC Database, ADB (undated).
ROLE OF SERVICES AND INVESTMENT PROVISIONS IN

THE COMPREHENSIVE AGREEMENT
The economic importance of the proposed Indo-ASEAN CECA therefore needs to be

viewed in light of Indias moderate success in the merchandise trade sphere. Table 4
summarises the global market presence of India and the major ASEAN countries in
services trade. Indias overall market share is much higher as compared to ASEAN
countries, thanks primarily to the exports of computer and information services and
other business services (which covers miscellaneous business, professional and technical services such as legal, accounting, management consulting, public relations services,
advertising and market research, etc.). Barring the exception of Singapore in several categories and Malaysia and Thailand in case of travel services (relating to tourism), ASEAN
countries generally have a relatively lower market share vis--vis India. The observation
underlines Indias motivation to ensure gradual opening up of ASEAN services market
in general and securing movement of Indian professionals in particular.
In order to understand the potential benefits of the forthcoming Indo-ASEAN
CECA, key provisions of the two already existing comprehensive agreements with
Malaysia and Singapore are summarised in Table 5. The broad features are worth
mention here. First, it is observed that a positive list approach has been followed while
China Report 50, 3 (2014): 259276
268
Table 4
Global Market Presence of India and Select ASEAN Countries in Services Categories (2011)
Share
Transportation
India
Indonesia
Malaysia
Philippines
Singapore
Thailand
2.02
0.40
0.58
0.17
4.76
0.67
Travel
1.67
0.76
1.87
0.30
1.72
2.58
Communications services
1.64
1.42
0.64
0.39
0.50
0.42
Construction services
0.79
0.52
1.04
0.04
1.46
Insurance services
2.64
0.02
0.45
0.07
3.04
0.16
Financial services
1.99
0.13
0.09
0.01
4.74
0.09
18.20
0.09
0.74
0.99
0.02
Other business services
Computer and information services
3.61
0.53
0.59
0.92
2.14
0.60
Personal, cultural and recreational

services
0.97
0.45
0.45
0.17
1.42
0.26
Overall
3.06
0.48
0.84
0.42
2.45
0.97
Source: Computed by author from Trade Map Data, ITC (undated).

Table 5
Indias Existing Comprehensive Agreements with ASEAN Members
Area
Singed in
India-Singapore
CECA
India-Malaysia
CECA
June 2005
July 2011
Services and Investment related Features

Coverage
India in nine sectors

and Singapore in 12
service sectors
Approach
Positive List
Positive List
Chapter 7
Chapter 8
Trade in Services
Mode 4
Separate Chapter/
Annex
Investment
Government
Procurement
India in 10 sectors
and Malaysia in 11
service sectors
Chapter 9
Chapter 9
Separate Chapter
on Air Services
and Annexes
on Finance and
Telecommunications
Separate Annex on
Telecommunications
Chapter 6
Chapter 10
Competition Policy
Customs
Cooperation/Trade
Facilitation
Chapter 4
Chapter 4
(Table 5 Continued)
China Report 50, 3 (2014): 259276
269
(Table 5 Continued)
Area
India-Singapore
CECA
India-Malaysia
CECA
Merchandise Product Related Provisions

Standards and
Technical Regulations
Chapter 5
Chapters 6 and 7
Intellectual Property
Right protection
Chapter 11
General Provisions
Economic
Cooperation
Chapters 12, 13
and 14
Chapter 11
Chapter 13
Chapter 15
Chapter 14
Transparency
Dispute Settlement
Source: Compiled by the author from GoI (2005) and GoI (2011).
securing reform commitments so as to ensure better implementation. Second, as the

movement of professionals (for example, architects, doctors, engineers, IT programmers) remains Indias major export interest, the movement of natural persons (that
is, mode 4 of trade in services) has been included separately in both the agreements.
Third, as per mutual interest, a separate chapter or annex on particular services has
been included (for example, telecom services). Fourth, cooperation in the area of
investment has been covered so as to facilitate FDI flows. Fifth, two key Singapore
Issues under WTO negotiations, namely, government procurement and competition
policy, which are part of Indo-Japan CEPA and Indo-Korea CEPA, have not been
included in the comprehensive agreements with ASEAN partners. This reflects Indias
multilateral negotiating interests. Sixth, in line with the discussions with ASEAN, customs cooperation or trade facilitation and the issue of standards have been included in
each agreement. These arrangements are conducive for smoother export flows. Finally,
there is one interesting differenceIntellectual Property Rights (IPR) protection
appears as a separate chapter in the agreement with Singapore, which is a relatively
developed economy. This reflects the fact that Singapore being a more knowledgecentric economy demands a deeper protection of IPR protection from India. On the
other hand, a separate chapter on promoting transparency appears in the agreement
with Malaysia, an economy with which India is on a comparable development plane.
As both Malaysia and India are developing countries, this reflects the mutual urge to
expand trade flows by enhancing access to information and regulations.
One problem in conducting a detailed analysis on Indias potential gains in the
area of trade in services with ASEAN is the lack of availability of bilateral trade data.1
1
The data on trade in services for India and ASEAN countries are obtained from Trade Map, ITC. The
database reports only total exports of a country to rest of the world. Disaggregated bilateral service export
data to trade partners is presently not available.
China Report 50, 3 (2014): 259276
270
Hence, to understand the trade potential, the bilateral TCI indices has been calculated
and summarised in Table 6. A comparison of 2008 and 2011 figures reveals that while
for five ASEAN countries Indias export complementarity has increased, the same has
declined for the other five countries. On the other hand, the corresponding numbers
for import complementarity has been nine and one in that order. The complementarity analysis clearly indicates growing synergies between India and several ASEAN
countries in trade in services both for exports and imports. It is evident that, Indias
export opportunity seems less bright than the expected level.
In order to understand whether the high trade potential is also backed by Indias
sectoral export capabilities, the Revealed Comparative Advantage (RCA) index of
each major service export categories is calculated for India and ASEAN countries and
compared. The index is computed by the following formula:
RCAi =
AiX / AX
WiX / W X
where,
RCAi
SAiX
SAX
SWiX
SWX
stands for RCA of the i-th service sector export from country A
stands for exports of the i-th service sector from country A
stands for summation of all service exports from country A
stands for exports of the i-th service sector from the world
stands for summation of all service exports from the world
Table 6
Indias Opportunity in ServicesTrade Complementarity Indices
Indian Export/Partner
Import
Country
2008
Partner Export/Indian
Import
2011
2008
2011
Brunei Darussalam
52.53
52.45
43.32
80.55
Cambodia
38.04
35.50
30.48
33.80
Indonesia
57.41
57.06
44.67
49.95
Lao PDR
25.05
29.18
26.80
25.51
Malaysia
56.45
52.18
49.27
53.92
Myanmar
44.63
61.60
32.54
74.64
Philippines
44.04
46.19
40.64
54.47
Singapore
60.86
86.03
54.34
80.53
Thailand
54.80
47.78
51.34
54.33
Vietnam
36.52
45.43
32.61
52.49
Source: Chakraborty and Kedia (2013).
China Report 50, 3 (2014): 259276
271
A country is said to have a RCA in a product category, if the value of the index
exceeds unity. Conversely, the country is said to be suffering from Revealed Comparative
Disadvantage (RCDA), if the value of the index is less than unity.
The RCA results (rounded up to the second decimal), comparing India with
ASEAN counties (barring the exception of Brunei) have been summarised in Table
7.2 India has an RCA value greater than unity for only two sectors, namely computer
and information services and other business services. Indias RCA index is particularly high for computer and information services. It becomes evident that, while
India in the post-CECA period may augment export of these two services in the
ASEAN market, import from ASEAN may also increase in several categories, e.g.
construction services, financial services, cultural services. The result indicates that,
Indias advantage in the services sector with respect to ASEAN do not cut across
sectors and the export prospects would vary from market-to-market depending on
existing barriers. For instance, while India have higher RCA values vis--vis most
of the ASEAN countries on several professional services, the latter market is also
characterized by a number of procedure-related barriers. India has already requested
Indonesia and Malaysia in the past for undertaking several reform measure for freeing trade in services, including, removal of local market tests (LMT) and economic
Table 7
How Competitive India is in Services Trade? RCA Results for 2011
Sectors
CAM
India
IDN
LAO
MYN MLY PHL
SIN
THA
VTN
Transportation
1.17
0.66
0.82
0.42
1.70
0.41
1.94
0.69
1.86
0.54
Travel
1.16
0.54
1.57
2.69
1.19
7.27
0.73
0.70
2.65
1.23
Communications services
1.55
0.53
2.93
6.67
3.48
0.93
0.51
0.94
Construction services
4.41
0.26
1.07
0.26
0.92
0.41
0.10
0.59
0.43
Insurance services
0.07
0.86
0.05
2.60
1.08
0.18
1.24
0.16
0.78
Financial services
0.90
0.65
0.27
0.23
0.28
0.03
1.94
0.09
3.10
5.94
0.18
5.99
2.39
0.02
0.08
0.03
0.06
0.02
0.23
0.06
Computer and
information services
Royalties and license fees
Other business services
0.45
1.18
1.09
0.65
0.58
2.21
0.87
0.62
Personal, cultural and

recreational services
0.06
0.32
0.93
4.05
0.41
0.58
0.27
Government services, not

included elsewhere
2.08
0.27
1.63
10.26
1.86
0.13
0.04
0.17
0.41
5.09
Source: Computed by author from Trade Map Data, ITC (undated).
2
The disaggregated sector-wise service export data for Brunei is not reported for 2011 in the Trade
Map database.
China Report 50, 3 (2014): 259276
272
needs tests (ENT), easing the visa granting procedure and enhancing higher duration
and multiple entry for professionals, ensuring greater intra-firm mobility (IFM) and
higher transparency in entry procedures, removing sector and mode-specific entry
barriers etc. (Chakraborty and Kedia 2013).
The other major area of interest is, how investment integration with ASEAN can
help India in overcoming its inefficiencies in manufacturing sector, and open up newer
avenues for its blooming services sector. India has already entered into CECAs with
Singapore and Malaysia, which creates a favourable investment framework. It has also
entered into a number of bilateral investment treaties (BITs) involving several ASEAN
countries, namelyBrunei (2009), Indonesia (2004), Lao PDR (2003), Myanmar
(2009), the Philippines (2001), Thailand (2001) and Vietnam (1999). It is observed
from Figure 3 that in percentage terms FDI inflows in India from ASEAN is increasing from Singapore. The same from other ASEAN countries is also on the rise, but is
considerably lower as compared to Singapore. It has been observed from Department
of Industrial Policy and Promotion (DIPP), Government of India, documents that
the major sectors attracting FDI from ASEAN include services sector, telecommunications, construction development, petroleum and natural gas and computer software
and hardware, all of which have significant technology spill-over potential.
In particular, the investment scenario in financial services deserves special mention
here. For example, several banks from Singapore, for example, Development Bank
of Singapore (DBS), Overseas Chinese Banking Corporation (OCBC) and United
Overseas Bank (UOB) received the right to establish wholly-owned subsidiaries in
Figure 3
FDI Inflow in India from ASEAN Countries (as % of Overall Inflow)
Singapore
14
Other ASEAN Countries

12.54
12.25
12.23
12
10
8.79
8
6
4
2
0
0.77
20002010 (Jan Dec)
1.13
0.1
2011 (Jan Dec)
2012 (Jan Dec)
0.72
2013 (Jan Mar)
Source: Constructed by author from the Data in SIA Newsletter, GoI (2013).
China Report 50, 3 (2014): 259276
273
India. By reciprocity, Indian public sector banks, for example, State Bank of India (SBI)
and private sector banks like Industrial Credit and Investment Corporation of India
(ICICI) receive national treatment in Singapores market (Chadha 2006). Presently
nine Indian banks are operating in Singapore and around 4000 Indian entities have
registered there (FICCI 2012).
On the other hand, Indian FDI outflow towards ASEAN has so far concentrated
heavily in the Singaporean market, given its growth potential. The data obtained from
Khan (2012) reveals that Indias FDI outflow towards Singapore during 20089 explains
21.85 per cent of the total flow from the country, while the corresponding figures for
200910, 20101 and 20112 are 30.63, 23.69 and 20.69 per cent in that order.
At present Indias investment integration with ASEAN is still at the budding stage.
It is expected that inception of the Indo-ASEAN CECA will facilitate the process
further. One particular observation is that although higher FDI inflow from ASEAN
countries (other than Singapore) is expected in the post-CECA period, the investment
is more likely to be horizontal rather than vertical in nature, given the development
profile of the countries.
CONCLUDING REMARKS
Any trade bloc in the initial years of operation can experience short run adjustment
problems on trade in merchandise front, if the level of producer efficiency varies
between the partners. ASEAN itself has witnessed similar challenges after formation
of the Sino-ASEAN FTA, which led to adverse trade balance scenario for several
Southeast Asian countries (Chakraborty and Kumar 2012). The gains from trade blocs
are however expected to be more evenly distributed in long run, when the comparative advantages of both the sides can be fully exploited. Arriving at such a scenario
through Indo-ASEAN merchandise FTA soon however will be difficult from an Indian
perspective and the focus on harnessing the gains through the CECA encompassing
trade in services and investment need to be viewed in that light. In addition to the
concerns with better efficiency level of several ASEAN countries vis--vis their Indian
counterparts across several manufacturing categories, preferential access received by
other economies (particularly, China) in these markets has been a major challenge.
In this context, arriving at a mutual recognition agreement (MRA) with ASEAN
countries, covering Sanitary and Phytosanitary Measures (SPS)/Technical Barriers to
Trade (TBT) standards and other restrictive provisions, will be crucial for ensuring
Indias export success.
The Indian expectation of gaining in ASEAN countries through inclusion of trade
in services under the preferential route is based on its growing presence in global professional services export market. In addition, the growing trade in services and investment
flows through Indo-Singapore CECA in the last couple of years has created a wave of
China Report 50, 3 (2014): 259276
274
high optimism. Nevertheless, it needs to be borne in mind that like the case of merchandise products the actual gains on this front might turn out to be lesser vis--vis
expectations, primarily owing to two reasons. First, as Table 6 indicates, while India
enjoys a high complementarity of trade in services with Singapore, the same is not
observed for other ASEAN economies. Conversely, ASEAN service export to Indian
market may also rise in the post CECA period. Second, several ASEAN markets are
characterised by several entry barriers as far as trade in services are concerned (USTR
2013). The barriers are particularly high on movements of professionals, which is the
specific area of interest for India. Therefore, the size of Indias realised benefits will, to
a large extent, be a function of its negotiating success in extracting key concessions in
the ASEAN market on this front.
Finally, Indias investment integration with ASEAN in terms of both FDI inflows
and outflows has been on the rise over the last decade and it is expected that the CECA
provisions will facilitate the trend further. It deserves special mention that FDI inflows
in manufacturing sector are particularly crucial for India because of its desire to encourage technology transfer and deepen linkage with Asian IPNs (Anukoonwattaka and
Mikic 2011). FDI from Singapore and Malaysia are already coming in light manufacturing sectors like food-processing, paper, plastic, etc., as well as heavy manufacturing
sectors like machinery and equipment, chemicals, petro-chemical, etc. Greater FDI
flows from the relatively bigger and more advanced economies is therefore expected
in the post-CECA period. Moreover, the services sector has also received significant
FDI inflows from the ASEAN partners, which is likely to pave the way for deepening of services network across the two partners on one hand and augmenting Indias
competitiveness on the other in long run. In all, it is expected that in the long run the
cumulative benefits from the services and investment provisions in the Indo-ASEAN
CECA may compensate for Indias short run disadvantages witnessed in merchandise
trade. This is important because, Indias success on services front in the ASEAN market
will consolidate its prospects in the proposed Regional Comprehensive Economic
Partnership (RCEP) trade agreement, which in addition to ASEAN-10 countries,
will also include the existing Asian RTA partners (Australia, China, India, Japan, New
Zealand, South Korea) of ASEAN.
* Views expressed by the author are personal.
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