Aifta Asean - India Fta: Arguing Against The Motion

AIFTA ASEAN India FTA
Arguing against the motion
Significance of AIFTA
FTA between Association of Southeast Asian Nations & India First multilateral FTA signed by India 6 years negotiation, every nation individually agree to tariff lines Opening up agricultural products significant issue Objective was to reach zero customs duty Time frames vary by country and product Favorable for Less Develop Countries Cambodia, Lao, Myanmar & Vietnam
How to formulate an FTA

Parameters to choose an FTA Market access (larger regions better) Barriers(non tariff-standards, costs) Political parameters weigh in with economic India to provide relief from China Indias track record 20+ FTAs, performance suspect
Partner suitability, the indices

Index What it measures
Degree a countrys exports are dispersed across different destinations. Higher value indicates exports concentrated Sectoral concentration of a exports. Higher values indicate exports are concentrated Indirect measure of international market power, evaluated through countrys share of world. Higher values indicate greater market power Region exports to a destination compared with world average. Values greater than 1 indicate intense trade relationship.
Country
Value
India ASEAN India to ASEAN ASEAN to India India to ASEAN ASEAN to India India to ASEAN ASEAN to India
0.58 0.32 0.36 0.35 1.94 30.62 1.65 2.45
Regional Hirschmann Sectoral Hirschmann
Competitiveness
Trade Intensity
Higher competitiveness score of ASEAN countries reveals vulnerability of Indian Domestic industries
The Issues
Rules of origin are lax
Facilitates non member countries goods into India via preferential route
Indian tariffs higher then ASEAN, relative gain less from FTA
Trade diversion amongst ASEAN Market access increase 20% India, 75% ASEAN
More favorable terms to Chinese exporters in China ASEAN FTA Agriculture sector takes a hit
Both trade balance and employment
Goods agreement was conceded for leveraging better services agreement

High economic rationale, India competitive & ASEAN a net services importer Services sector closed and strict domestic safeguards Much more complex task to reach an agreement
Indias economy trade balance and employment Impact on Indias other trade partners Complications from many FTAs spaghetti effect
Rules of Origin
Value addition criteria diluted to 35% as compared to the usual 40% applicable in India-Singapore & India-Thailand FTAs China and similar countries can route their products into India through ASEAN with operational FTAs with ASEAN Domestic industry is not prepared to face the challenge of cheap imports
Tariffs
Predicted that India has relatively less to gain from this trade in goods agreement
Indian tariff levels generally higher than tariffs of ASEAN nations Indias average tariff rate in agriculture is 34% against 13% for ASEAN Likewise, Indias average MFN tariffs for manufacturing goods are 11.5% compared to 7.5% for ASEAN
Around 75 percent of Indian products already enter the ASEAN market at duty-free tariff rates Duties to be eliminated for 70 percent of tariff lines by 2013 which account for 55 percent of Indias yearly global imports Market access for India estimated to increase by only 20 percent against 75 percent for ASEAN as a result of this agreement
ASEAN China FTA (ACFTA)

Comprehensive economic cooperation between ASEAN and China
progressive elimination of tariffs and non-tariff barriers progressive liberalization of trade in services and investment strengthen trade facilitation measures economic co-operation in areas of common interest
More favorable terms to Chinese exporters in ASEAN China FTA Agreement signed on services trade
Agriculture
Difficult for Indian farmers to compete against cheap imports due to low levels of productivity and high costs of cultivation Increased import from ASEAN countries would cause steep fall in prices of agricultural crops, adversely affecting the farmers Farmers cultivating coconut, tea, coffee and pepper protested
About 2 million workers in the plantation sector in Kerala would be affected as it accounts for 45% of national plantation crop production
Others affected would be fishermen and workers who are working in textiles and manufacturing goods industries Safeguard duties touted as unrealistic as this safeguard mechanism will exist only for a period of up to four years
Services
Trading future gains for present costs
India has conceded much in goods trade agreement in order to leverage better deals in the services sector
India among the 10 largest exporters of services whereas ASEAN is a net importer.
Agreement on services & goods expected to boost trade to $100 billion by 2015
However, this has been delayed on account of inter-ministerial conflicts
with ministry of finance demanding study of past FTAs performance

Also, service sector in the region is protected through strict regulations and various restrictive requirements could make it difficult to reach a
fruitful conclusion
Countries like Malaysia and Thailand are not keen on allowing mode 4 of the services pact, which will make entry of Indian professionals easier in their countries
Economy trade balance & employment

Indias total imports from ASEAN steady rise until 2007
Singapore, Malaysia, Indonesia and Thailand showed significant increase in shares India runs a fairly large trade deficit vis--vis ASEAN. According to the data of Direction of Trade Statistics (dots), India had a trade deficit of $14,562 million in 2007 with ASEAN. This is around 15% of Indias total trade deficit
India has already such a huge trade deficit, reduction of tariff rates may worsen the situation unless there is a significant export boost
Even without the FTA, India faces large trade deficits with Indonesia and other ASEAN countries
Welfare gain appears to be negative at the initial stage due to negative allocative efficiency and negative terms of trade
Loss in allocative efficiency is due to a loss of import tax resulting from tariff reduction/elimination Negative terms of trade is attributed to a larger fall in Indias export prices relative to its import prices
Impact on Indias other trade partners

Trade diversion occurring in the rest of the world All other countries of the world lose substantial market access in India Among the South Asian countries, the extent of market loss in India is highest for Bangladesh, ranging between 5.49% in the current situation to 14.21 % under full liberalization Chinas market loss in India is also considerable
Gold from Singapore and Thailand will enhance at the expense of traditional gold exporters such as South Africa, Switzerland and UAE
Complications for India

Increasing imports/stagnant exports: The benefits have accrued to Indian consumers but not to the Indian manufacturing sector Two viewpoints: India is a developing country with a huge appetite for imports. Secondly countries are dumping goods and thereby destroying livelihoods Inefficient or just uninterested: Indian manufacturing sector lacks efficiency to compete with partner countries. Also they are far too focused on domestic demand Countries facing downturn: Countries facing an economic downturn are targeting growing markets like India and China Spaghetti effect: Overlapping FTAs complicated for businesses
complication from the application of domestic rules of origin while signing free trade agreements across nations leads to discriminatory trade policy because the same commodity is subjected to different tariffs and tariff reduction trajectories leads to paradoxical, and often contradictory outcomes amongst bilateral and multilateral trade partners

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AIFTA ASEAN India FTA

Arguing against the motion

How to formulate an FTA

Partner suitability, the indices

0.58 0.32 0.36 0.35 1.94 30.62 1.65 2.45

Regional Hirschmann Sectoral Hirschmann

Goods agreement was conceded for leveraging better services agreement

ASEAN China FTA (ACFTA)

However, this has been delayed on account of inter-ministerial conflicts

with ministry of finance demanding study of past FTAs performance

Economy trade balance & employment

Impact on Indias other trade partners

Complications for India

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