India - Free trade with ASEAN

India’s new trade pact with the 10-nation group can be seen as the triumph of economic diplomacy with a political focus.
By coincidence, Singapore conferred its Honorary Citizen Award on Ratan Tata, “an exemplary business leader,” just a day after India and the Association of South East Asian Nations (ASEAN) announced a trade pact in the City-State.
The trade-in-goods agreement, slated for signature by the two sides in December, will set the stage for talks on a liberalised flow of services and investments in either direction. And, while Mr. Tata had, as noted in connection with the award, “helped propel Singapore’s economy,” the City-State has remained a key prime mover on the ASEAN side for its diversified engagement with India.
Another coincidence was that Singapore’s Nanyang Technological University conferred its honorary degree of doctor of engineering on the former President, A.P.J. Abdul Kalam, on the eve of announcement of the trade pact. Singapore will co-chair the ASEAN-India panel on services; and the City-State has, for long, recognised the actual and potential contributions of Indian professionals to the economic growth of Southeast Asia.
The powerful mix of such symbolism and substantive hopes is the driving force behind the ASEAN’s engagement with India in recent years.
Obviously, experts on both sides, more so in India, are keen to comb the trade pact for signs of a caving-in by one party or the other for the sake of doing the deal, which was hanging fire for nearly six years of hard parleys. The issue of relative gains and losses becomes more acute, because neither India nor the 10-state ASEAN enthusiastically described the pact, soon after it was announced, as “a win-win deal” for both. This nomenclature is important, because the win-win approach has become a standard formula for political and other negotiations in the present post-Cold War period.
Outwardly, the ASEAN will stand to gain more from this deal than India, at least to begin with. The available indications are that India has agreed to reduce, substantially and progressively, its import tariff on a few items of utmost export-importance to some key ASEAN states such as Malaysia, Indonesia, and Vietnam. These items are palm oil, coffee, tea, and pepper. And, as for petroleum products, Brunei’s export lifeline, India has been equally accommodative.
Surely, the 10 ASEAN countries have also, variously, committed themselves to giving a greater market access than available now in respect of Indian exports. At stake, as a fundamental question, though, is different from the standard analysis of economic transactions. And, within the economic domain itself, the ASEAN, aware of its relative gains, does expect New Delhi to negotiate from commanding heights insofar as its exports of services are concerned. At the same time, the ASEAN has envisioned India as an investment-hungry partner. And, given the strengths of some ASEAN states in a few critical areas of infrastructure-related investments, this group, which specialises in projecting its image in larger-than-life dimensions, is eager to strike a hard bargain with India.
On balance, the latest ASEAN-India trade pact, which will create a free trade area of 1.7 billion people and $2.3 trillion Gross Domestic Product as of now, can be seen as the triumph of economic diplomacy with a political focus.
As India seeks to rise as a nation to its full potential, the importance of regional partners cannot be downplayed, regardless of the “centrality” of “friendship” of the United States as the sole global superpower of the day.
In fact, before the U.S. appeared on India’s horizon as a “potential partner,” the former Prime Minister, P.V. Narasimha Rao, had outlined the “Look-East policy” of developing linkages with the ASEAN and its northern neighbours. One of his reasons, in the early 1990s, was to gain for New Delhi some political and economic space in the then context of an “imploding” Soviet Union, which had, in its halcyon days, stood by India as a strategic friend in need. The ASEAN, on the other hand, was also looking at that time to widen its own circle of friends. As an economic bloc, its priority then was to try and befriend India as a potential trading partner. Yet, given the political circumstances in which the organisation was born, it was also mindful, all the time, about India’s potential role as a regional player in a neighbourhood dominated by China.
These aspects of recent history are no longer defined by the interlude of deep misgivings on the part of some ASEAN states over India’s nuclear tests in 1998. This relative new reality can be traced to the fact that the group itself is growing up, at a slow pace, as a strategically savvy outfit as well. It has indeed begun, in more recent years, to try and position itself as the nucleus of the political universe in East Asia. Uncertain future
The ASEAN’s future in this respect remains uncertain. However, the outfit has, by and large, managed to project itself as a regional force that would pose no threat to the big powers in the political domain and would, instead, provide them with opportunities in the economic sphere. To a large extent, it was this reasoning that helped the group to clinch a major trade pact with China. The accord was, of course, the first of its kind. Authoritative Chinese sources have told this correspondent that Beijing, in doing this deal with the ASEAN, felt the need to opt for a political call, as different from a total judgment on the basis of exclusively economic reasons. This does not mean that China’s mega economy cannot absorb the impact of a trade accord with a neighbouring group of small countries and a few middle-power-aspirants.
The political lustre of a trade pact with the ASEAN having become irresistible, following China’s example, India has finally decided to follow suit. This does not mean that India’s economic interests will not be served by this deal. However, as a dialogue partner of this group in the East Asian Summit and as a player eying high stakes, as evident in the current debate on India in the Nuclear Suppliers Group, New Delhi’s political choice becomes explicit.