India-ASEAN set to review trade pact for modernisation in February

India and the ten-member ASEAN will begin negotiations in February to “modernise” their decade-and-a-half-old free trade agreement (FTA) and bring in more balance in the pact currently weighed against New Delhi. But new areas such as labour, environment, SMEs and gender are likely to be kept out, sources have said.

“There will be a complete re-look at the entire FTA with the broad objective of bringing down the trade deficit for India. We want to modernise the FTA as a lot has evolved since it was signed almost 15 years back. New elements such as product specific rules and trade remedies will be brought in to make the FTA more efficient,” the source told BusinessLine. 

The first round of negotiations for reviewing the FTA, officially known as the ASEAN India Trade in Goods Agreement (AITGA), will be on February 18-19 in New Delhi, the source said.

The negotiations will follow a quarterly schedule to wrap up the exercise by 2025.

India has been long pressing for a review of the AITGA, which was signed in August 2009 and implemented in January the following year, as the pact resulted in disproportionate benefits for the ASEAN.

  • Read: Commerce Ministry collating industry inputs for India-ASEAN FTA review
Trade deficit

India’s trade deficit with the region, which was $7.5 billion per annum when the pact was implemented, has since ballooned to $43.57 billion. In 2022-23, India’s exports to the region were valued at $44 billion, while its imports were at $ 87.57 billion.

“The Commerce Department has collected inputs from various industry sectors on both tariff and non tariff barriers faced by them in the ASEAN. Market access for Indian businesses has to go up by addressing both areas,” the source said.

Sectors that need propping up include chemicals and alloys, plastics and rubber, minerals, leather, textiles, gems and jewellery, per an industry analysis.

“India will also need to make some concessions for the ASEAN as the review will have to benefit both but the objective of bringing balance has to be central,” an industry official said.

Revamping AITGA

Modernising the AITGA will include incorporating changes in the Rules of Origin (ROO), which can work in favour of India by increasing market access for some items as well as blocking possible re-routing of goods by China through the ASEAN countries, the first source added.

ROO are the criteria to determine the origin of a product and establish if it qualifies for duty cuts under an FTA.

“PSRs will be introduced in the ROO chapter which can help India have relaxed rules for certain items to increase exports. At the same time, loopholes could be blocked to check circumvention by China,” the source explained.

The modernised AITGA will also have a chapter on trade remedies, which will seek to provide  a safety net for domestic industry against unfair trading practices or unforeseen surges in imports of goods, he added.

But no new areas, such as environment, labour, MSMEs or gender, will be added to the AITGA. “We do not want to complicate the free trade pact by cluttering it with new issues. The focus will be on making the existing pact more efficient,” the official said.

The ten-member ASEAN, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia, accounted for 11.3 per cent of India’s global trade in 2022-23.

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