The ASEAN-India Trade in Goods Agreement (the âAgreementâ) is a trade agreement between the ten ASEAN member states and India.
ASEAN and India signed the agreement at 7e Consultations between ASEAN economy ministers and India in Bangkok, Thailand, 2009. The Agreement, which entered into force in 2010, is sometimes referred to as the ASEAN-India Free Trade Agreement.
The Agreement has led to a steady increase in trade between ASEAN and India since its signing. In 2019-2020, trade between India and ASEAN amounted to US $ 86 billion. While this is a decrease from US $ 97 billion in 2018-19 due to the COVID-19 pandemic, it is an increase from US $ 81.3 billion for the fiscal year 2017-18.
Here we provide an overview of the Agreement and explain why it may be changed in the future.
Establishment of a free trade area
The agreement stems from the framework agreement on Comprehensive Economic Cooperation between India and ASEAN established in 2003. As its title suggests, this framework agreement laid the groundwork for India and the United States. ASEAN to negotiate future trade agreements.
The Agreement covers trade in physical goods and products; it does not apply to trade in services. ASEAN and India signed a separate ASEAN-India Trade in Services Agreement in 2014. Together with the ASEAN-India Investment Agreement, the three agreements collectively form the ASEAN-India Free Trade Area.
Once into force in 2010, the Agreement established one of the largest free trade areas in the world, covering a combined market of nearly 1.8 billion people. Under the Agreement, ASEAN and India committed to phase out tariffs on 76.4% of goods and to liberalize tariffs on more than 90% of goods.
Elimination of customs duties on goods
Due to uneven levels of development and different economic policies within ASEAN, the Agreement applies two different classes of tariff rates depending on whether or not they are members of the WTO. In general, the agreement gives less developed ASEAN members with less liberalized economies, such as Myanmar and Laos, a longer period to reduce their tariffs.
Tariff reductions on ânormal routeâ products have been achieved for Brunei, Indonesia, Malaysia, Singapore, Thailand, the Philippines and India. The deal requires Cambodia, Laos, Myanmar and Vietnam to have their last “normal” tariff cuts in place by December 31, 2021.
The agreement allows the parties to maintain tariffs of four to five percent for certain sensitive products. A number of these âsensitive trackâ products are still being cut for Cambodia, Laos, Myanmar, Vietnam, the Philippines and India. The last tariff reductions for âsensitive trackâ products are due for Cambodia, Laos, Myanmar and Vietnam by December 31, 2024.
In addition, the Agreement includes unique tariff reduction provisions for India’s âspecial productsâ, which are crude and refined palm oil, coffee, black tea and pepper. As of December 31, 2019, the prices of these products have been reduced from 37.5 to 50%, depending on the product.
Finally, the parties are authorized to include certain tariff lines in âhighly sensitive listsâ to manage tariff reductions for sensitive products, as well as an âexclusion listâ for products excluded from the Agreement, which the parties must review annually.
In addition to reducing tariffs, the Agreement calls on all parties to establish predictable, consistent and transparent business practices to reduce non-tariff barriers. This includes simplifying customs procedures, ensuring that authorized non-tariff measures are transparent and preventing countries from instituting or maintaining non-tariff measures that do not comply with the WTO.
The agreement also establishes a joint committee made up of representatives of the parties. Among other responsibilities, the Joint Committee reviews the implementation and operation of the Agreement, reviews and recommends modifications, and oversees and coordinates the work of subcommittees established under the Agreement.
Other provisions of the Agreement include references to the ASEAN-India DSM Agreement for dispute settlement, exemptions to protect security interests, and safeguard measures to protect against tariff cuts resulting in increases in imports. so important that foreign products exceed domestic products.
What’s next for the Accord?
In 2020, the Indian government expressed its willingness to review the Agreement. At the time, India expressed disagreement on negotiations for an RCEP trade agreement, which included ASEAN, and abandoned the talks. The ASEAN side, however, said it was prioritizing RCEP negotiations before revising the agreement.
Some Indian officials are concerning on the country’s trade imbalance with ASEAN and other Asian economies and fear that the Agreement will disproportionately benefit ASEAN. The Indian government is particularly interested to gain better market access for the ASEAN automotive and agricultural sectors. Currently, India trade deficit with ASEAN is about $ 24 billion.
Obstacles to increasing ASEAN-India trade include significant non-tariff barriers in India and several ASEAN markets, as well as an inconsistency between ASEAN products and the ASEAN supply chain. India. Indian Minister of Trade and Industry Piyush Goyal said that the removal of non-tariff barriers and other obstacles would increase ASEAN-India trade from about US $ 80 billion to US $ 200 billion.
Now that the RCEP has been finalized – without India’s participation – India and ASEAN trade representatives may give renewed attention to revising the agreement in the near future.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and has offices throughout ASEAN, including Singapore, Hanoi, Ho Chi Minh City, and Da Nang In Vietnam, Munich, and Esen in Germany, Boston, and Salt lake city in the USA, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner companies in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at [email protected] or visit our website at www.dezshira.com.