ASEAN Nations Opening Arms For India

ASEAN- Association Of Southeast Asian Nation is a geopolitical and economic

organization of 10 nations which is located in the southeast Asia. The organization
was formed on 8 August 1967 by its 5 member nations which consisted of
Indonesia, Malaysia, Philippines, Singapore and Thailand. The organization has
successfully ordained itself in its area of concern. The extension of its member list
to 10 is a perfect example of its eminence and success. The membership’s base is
now beef up to Brunei Darussalam (1984), Vietnam (1995), Burma (Myanmar)
(1997), Cambodia (1999), and Laos (1997).

The organization was actually formed by its founder members in Bangkok by

signing of the famous ASEAN Declaration which is better known as The Bangkok
Declaration. The major desideratum of this declaration included various ingredients
of promotion of nation building with economic growth, boosting the economic
standard of living and amelioration of various other qualitative aspects of the
economy and its people. Today, the economic bloc of 10 nations is spread over the
vast area of 4.46 sq km with the population of about 587 millions in 2008.

ASEAN operates with a vision of "One Vision, One Identity, One Community"."10
countries, 1 identity" unity of these ten nation forms the base of this organization.
The nations have a different vulture amongst themselves. But still they stand firm
for their development and growth. They stand together for regional peace and
prosperity with the help of economic integration and cooperation. And finally they
stand hand in hand for their people. They are entwined together by the common
goal of human and social development.

AFTA And ASEAN

The thirst of economic and social development together, made the member nation
not only to think about itself but also about its co members. ASEAN has emphasized
regional cooperation in the “three pillars” of security, sociocultural and economic
integration. The regional grouping has made the most progress in economic
integration, aiming to create an ASEAN Economic Community (AEC) by 2015.

The serious mode of organization about the issue regarding trade was seen by the
world first of its kind in January 1992 when, a proposal to set up a Free Trade Area
in ASEAN was first mooted by the then Thai Prime Minister Anand Panyarachun,
which was acceded with amendments during the ASEAN Seniors Economic Official
Meeting (AEM) in Kuala Lumpur. The freedom of free trade in the area was given by
the Singapore Declaration which was signed in January 1992. No doubt, the step
proved to be a pivotal landmark in the history of organization. Since then, the
organization has been spreading itself over the line of free trade. The member
nations were wise enough about not taking a very strong step of going for a free
trade policy in one go. The member nations opted for free trade policy in steps. And
finally ASEAN became an area of free trade only in January 2003.

There can be no two thoughts about how crucial the decision of entering free trade
is for any nation. The policy happens to be a valuable parameter about deciding any
country’s economic condition in the world scenario and economic trade. But another
important factor about the same is the policy of free trade adopted by the nation.
Any organization can either delve into free trade by adopting a common tariff policy
against all items imported and imposing no tariff on goods traded within. In another
case, organization can have members who may impose no tariff or minor tariffs on
goods traded within the organization and each nation can have a separate policy
regarding tariff on the goods entering from outside the organization. The ASEAN
nations have ratified the later model for itself. Each ASEAN member may impose
tariffs on goods entering from outside ASEAN based on its national schedules.
However, for goods originating within ASEAN, its members are to apply a tariff rate
of 0 to 5 percent (the more recent members of Cambodia, Laos, Myanmar and
Vietnam, aka CMLV countries, were given additional time to implement the reduced
tariff rates) by 2003, which was later known as the Common Effective Preferential
Tariff (CEPT) scheme.

Mechanism Of AFTA
The Common Effective Preferential Tariff (CEPT) scheme is the main implementing
mechanism of AFTA. Under the CEPT member countries gradually lower tariffs on
each other's imports ASEAN will truly be a free trade area once obstacles to trade
are removed and taxes or tariffs on goods traded among member countries are
reduced to zero to five percent.

The objectives of ASEAN nations behind this scheme are judged to be as follows:

 To augment the intra ASEAN trade.

 To increase region’s competitive edge.

 To bait more foreign direct investment.

The nations were wise enough not to take this drastic step of free trade hurriedly
but to go step by step. The implementation of CEPT was done in dividing all the
tariff lines and products in three categories:

1. Fast Track. Fifteen (15) products identified at the Fourth ASEAN Summit
shall be covered by a fast track scheme, which sees a lowering of tariffs to 0-
5 percent within 7-lO years.

 Tariffs above 20 percent will be reduced to 0-5 percent within ten years.
 Tariffs 20 percent and below will be reduced to 0-5 percent within seven
years.
 Product-groups under the fast-track program are the following
 Vegetable Oil
 Cement
 Chemicals
 Pharmaceutical
 Fertilizers
 Plastics
 Rubber Products
 Leather Products
 Textiles
  Ceramic and Glass Products
 Gems and Jewelry
 Copper Cathodes
 Electronics
 Wooden and Rattan Furniture

It should be noted that the sectors covered by the Fast Track program actually
includes more than the 15 products originally agreed upon in the 1992 Singapore
Declaration. The notable additions are mechanical appliances and mineral products.
There are a total of 14,855 tariff lines.

2. Normal Track. Products under the normal track will see their tariffs lessen
over a period between 10-15 years. There are a total of 25,918 tariff lines
included the normal track of the tariff reduction scheme of AFTA. Malaysia
leads with most number of tariff lines under the normal track (5,710) while
the Philippines has the lowest (3,432). The biggest submissions are in base
metals and metal articles, machinery and electrical appliances and
chemicals.

Tariffs above 20 percent will be reduced in two stages:

a) A cut within 5-8 years;

b) A final reduction to 0-5 percent after another seven years, or a total of 15 years.

Tariffs of 20 percent and below will be reduced to 0-5 percent in ten years.

3. Temporary Exclusions - Member States which are, in the interim, not

ready to include certain sensitive products in the CEPT Scheme may exclude such
products on a temporary basis. Products in the Exclusion List cannot enjoy the CEPT
tariff from other ASEAN Member States. The bulk of submissions in the temporary
repudiation list are in the chemicals, plastics and vehicles sectors. As of December
1993, the six ASEAN countries have submitted a total of 3,322 tariff lines for
temporary exclusion from tile CEPT. The temporary exclusion list will call to mind by
the eighth year of the CEPT scheme. The ASEAN countries will make an effort to
remove products in the exclusion list and subject them to a schedule of tariff
reduction to bring the tariffs down to 0-5% within the remaining seven years of the
program. The bulk of submissions in the temporary exclusion list is in the chemicals,
plastics and vehicles sectors.

The other measures included steps like abrogation of quantitative measures like
quota fixation on imports, non tariff barriers, etc and abolition of restrictions related
to foreign exchange and other non tariff barriers.

A member country enjoys the rates under CEPT if:

 At least 40 percent of the value of its products originates from any one or
more member states.

 The product has certificate “Form D” which is issued when a product has to

have a program of tariff reduction approved by the AFTA Council.

 The product has to be included in the Inclusion Lists of both the exporting
and the importing countries and must belong to the same tariff
band, i.e., above 20% or 20% and below.

The plan of the organization is to cast out all export duties by 2010 for ASEAN-6 and
by 2015 with flexibility for CLMV.

The cooperation in free trade was accompanied by cooperation in various fields

relating to economy, banking and finance. Such cooperation include cooperation in
the field of industrial development, cooperation in field of banking and finance,
cooperation in investment, cooperation in agriculture, food and forestry,
cooperation in minerals, cooperation in energy, etc.

Evaluating AFTA

It is a stands as a challenging job to comment on the pros and cons of formation of

such and organization. Commenting on its serious steps like that of formation of
AFTA is another tedious task. But going by the world scenario and after studying the
formations and implications of such organization in history, it can be said that the
effects of the event can be very well evaluated positively when it comes to its effect
on world peace and harmony. It cannot be declined that the countries in such
situation would be encouraged to promote peace and harmony. Being interlocked
through such relationships derogates the likelihood of war. If you are engaged in a
mutually beneficial relationship with other countries then there is no incentive to
jeopardize this relationship through aggression. This promotes peace, which is an
universal good.

There can be no second opinion about the fact that such organization promotes
maximum efficiency, and the cheapest prices, can only be maintained by a tariff
free international economy. The more efficiently allocated are the resources the
lesser is the waste and the more affordable goods will become for consumers.

Such steps not only promote free flow of goods but also that of services in the
region. The free flow of expert services not only help in development and growth of
economy at macro level but also help in raising the level of standard in absolute
form. The growth of the developing world is a universal good, because the
improvement in the quality of life of millions of people is clearly a moral imperative.
Free trade helps countries by maximizing their comparative advantage in free trade
circumstances.

But each coin has 2 sides and in the same way, each idea is always accompanied by
its negative impacts. In case of ASEAN, formation of CEPT is no exception to this
truth.

Free trade does not always promote the universal good of peace. Trading countries
have gone to war against each other. If there is anything in that argument at all it
holds well for any good natured trading relationship, not necessarily just a tariff free
one.

International economics isn’t as simple as increasing the efficiency of global

resource allocation above all else. Tariff revenue is a perfectly legitimate and useful
source of government income. Second, without tariffs governments cannot protect
the job security of their citizens. The tariff has its own advantages when evaluated
practically. It stays as an important tool in hands of the government when it comes
to protection of domestic companies from foreign competition. The domestic
industries cannot be sacrificed anyhow in the name of better resource allocation.

If capital were rational in its flows it would be beneficial. In practice liberalized

capital flow can destabilize developing countries, which are prone to fickle
speculation, based on investor whom rather than economic fundamentals.

India and ASEAN

Since its inception, the ASEAN nations have shown a keen interest in partnerships
with India. The development of relationships has been at a very brisk pace. The
landmark in this direction came in when India became a sectored dialogue partner
of ASEAN in 1992. A step further in the same direction was taken when In external
relations, the ASEAN Leaders agreed to further the engagement process involving
its Dialogue, Sectored and Consultative Partners on the basis of mutual benefit.
India was elevated from Sectored Dialogue Partner to full Dialogue Partner status
during the Fifth ASEAN Summit.

It was only in 2003, that the first proposal for free trade was put up by the ASEAN
nations in front of India. The proposal was thought about and worked over by both
the nations for a good time of 6 years. And finally the India-ASEAN Free Trade
Agreement (FTA) was signed on 13 August, 2009 at Bangkok. The agreement was
signed by Anand Sharma, the Commerce and Industry Minister for India. The step is
undoubtedly a historic development and an important step toward enhancing
economic cooperation between India and ASEAN. The agreement would open new
opportunities for multispectral engagement. ASEAN is India’s fourth largest trading
partner after E.U., the United States and China. India’s trade in ASEAN is mainly
concentrated in Singapore, Malaysia and Thailand. Singapore is the largest importer
of Indian merchandise export, providing India with a large market for its electronic
and petroleum products.

The agreement signed paved way for creation of one of the world’s largest free
trade areas (FTA)- market of about 1.8 billion people with a combined GDP of US$
2.75 trillion. The agreement has liberalized trade of about 90% of goods traded
between India and ASEAN. The list includes products like palm oil, coffee, black tea
and pepper. The tariff cuts in respect of these sensitive items will be graduated
during a period of 10 years. In words of Amit Mitra, Secretary general FICCI, who
accompanied the Commerce minister to Bangkok remarked “Our most sensitive and
vulnerable sectors are protected in terms of the negative list and sensitive list”. He
added that the “ASEAN Countries were not yet ready for an FTA encompassing
software, information technology and tourism”. There are about 489 items excluded
from the list of tariff concessions and 590 items excluded from the list of tariff
eliminations in the agreement pertain to farm products, automobiles, certain auto-

parts, machinery, chemicals, and crude and textile products.

This agreement opens a 1.7 billion consumer market to the member countries. The
likely beneficiaries in India are the exporters of machinery, steel, oilcake, wheat,
buffalo meat, auto components synthetic textiles, refined petroleum products,
organic chemicals, pharmaceuticals, gems and jewellery.

In Indian context, the agreement is seen as an important step in diversifying its

market all over the world and reducing its dependency on E.U. and United States of
America. ASEAN is an important area of diversification in this context and such step
in this context proves to a landmark in the economic history of two nations.

Not only that, the automotive industry is experiencing a new era within Asia and the
impact of AFTA will certainly go over the borders of Southeast Asian countries and
affect a lot of automobile manufacturers and their economies of scale. Therefore
they need to reposition themselves on the market to take advantages out of AFTA
and improve their trading strategies.

Moreover, the free trade agreement in case of services and investment will be open
between India and ASEAN by 2016. The sectors in which Members have taken
commitments in ASEAN are: tourism and air-transport services, business services
(including professional services), construction services, financial services,
healthcare services and ICT & telecommunication services. The other services
sectors, including professional services, are targeted for liberalization by 2020,
although consideration is being given to advance the timeline to 2015 with
flexibility for sensitive sectors. It is expected that the new policy will help broad-
base services exports from the country, to include as many of the 161 tradable
services covered under the General Agreement on Trade in Services and where
payment for such services is received in free foreign exchange; service sector
exports from India are currently dominated by software exports. Compared to other
regional groupings, as said before, ASEAN is the fifth most important market in the
world in terms of Indian exports and fourth in terms of imports. India accounts for
less than 2% of ASEAN global trade, while India’s trade with ASEAN Members
constitutes about 9.5% of India’s global trade.

The Final Word…

From the study, following can be concluded in a nutshell:

 India sees ASEAN as a major trading partner.

 The signing of the trade agreement is a major step towards diversification of

Indian trade.

 The ASEAN region is seen as a new future market for Indian service exports.

 The Indian economy has not wildly opened itself to the free trade agreement.
The cautious step of the leaders shows that the economy is in no mood to
disrupt its internal peace in the economic affairs. No compromises would be
accepted in the same respect.

 Though the omission of software and information technology comes as a

major set back to the economy as the sector would have really brought in
profits for the economy, but positive news can be soon expected.

Hence the main conclusion is that India is very much fast with its “Looking West”
ideology as its new trading ideas. The opening of ASEAN markets is definitely good
news but a step of caution is required to save the economy from the negative
effects of globalization. The economy needs and is following to follow the golden
rule of “look before you leap” before grabbing any such opportunity.