ASEAN FTA - A Bizxchange.in Exclusive !!

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Mr. Sudhakar Kasture's presentation at the exclusive seminar organised by Bizxchange on ASEAN FTA and its impact on Indian businesses

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ASEAN FTA - A Bizxchange.in Exclusive !!

  1. 1. Indo-Asean Free Trade Agreement Presents
  2. 2. exclusive !!A Agenda  Overview of INDO-ASEAN FTA – Introduction – Tariff reduction and elimination – Rules of Origin [important factors governing FTA]  Impact of Indo-Asean FTA on Indian Industries  Impact of China-Asean FTA on India’s trade (considering cost effectiveness and competitiveness in international markets)  Indian Industries – Challenges and Opportunities
  3. 3. Overview of INDO-ASEAN FTA
  4. 4. exclusive !!A WTO and RTAs Regionalism is described in the Dictionary of Trade Policy Terms, as ““actions by governments to liberalize or facilitateactions by governments to liberalize or facilitate trade on a regional basis, sometimes through free-trade on a regional basis, sometimes through free- trade areas or customs unions”.trade areas or customs unions”.
  5. 5. exclusive !!A WTO and RTAs  In the WTO context, RTAs have both a more general and a more specific meaning: – more general, because RTAs may be agreements concluded between countries not necessarily belonging to the same geographical region; – more specific, because the WTO provisions which relate specifically to conditions of preferential trade liberalization with RTAs.
  6. 6. exclusive !!A Scope of RTAs  Modern RTAs tend to go far beyond tariff-cutting exercises.  They provide for increasingly complex regulations governing intra-trade (e.g. with respect to standards, safeguard provisions, customs administration, etc.) and they often also provide for a preferential regulatory framework for mutual services trade.  The most sophisticated RTAs go beyond traditional trade policy mechanisms, to include regional rules on investment, competition, environment and labour.
  7. 7. exclusive !!A  RTAs can complement the multilateral trading system of WTO, help to build and strengthen it. But by their very nature RTAs are discriminatory: they are a departure from the MFN principle, a cornerstone of the multilateral trading system.  Though RTAs are designed to the advantage of signatory countries, expected benefits may be undercut if distortions in resource allocation, as well as trade and investment diversion, potentially present in any RTA process, are not minimized, if not eliminated altogether.
  8. 8. exclusive !!A Motivations: why do countries engage in RTAs?Motivations: why do countries engage in RTAs?  Economic Rationale – search for larger markets – deeper integration – defensive necessity – lock out competition – lock in investment – More secure access to developed markets than GSP programs  Political Reasons – increase bargaining power – prevent backsliding on political/economic reforms – ensure or reward political support
  9. 9. exclusive !!A Effects of RTAs on the multilateral system areEffects of RTAs on the multilateral system are manifold:manifold:  Positive – economies of scale – laboratories for change – provide competition – attract FDI – allow countries to hone negotiating skills  Negative – strains negotiating capacity – dampens enthusiasm for multilateral negotiations – creates vested interests – complex rules of origin – trade and investment diversion – weakest countries left out
  10. 10. exclusive !!A The WTO rules for RTAs WTO Members are permitted to enter into RTAs under specific conditions which are spelt out in three sets of rules: Paragraphs 4 to 10 of Article XXIV of GATT: provide for the formation and operation of customs unions and free-trade areas covering trade in goods; The Enabling Clause [Decision of 28 November 1979 (L/4903)]: refers to preferential trade arrangements in trade in goods between developing country Members; and Article V of GATS: governs the conclusion of RTAs in the area of trade in services, for both developed and developing countries.
  11. 11. exclusive !!A About Association of Southeast Asian Nations [ASEAN] Original Members Other Members ASEAN was established on 08.08.1967 with signing of the ASEAN Declaration by Indonesia, Malaysia, Philippines, Singapore and Thailand Brunei Darussalam joined in 1984, Viet Nam in 1995, Lao PDR and Myanmar in 1997, Cambodia in 1999
  12. 12. exclusive !!A Why ASEAN?  The ASEAN Countries individually had low trade penetration  On a country basis, negotiating international deals would have been difficult  Economic development would occur at a faster rate if they would act together.  Major beneficiaries of this treaty are – Vietnam, Cambodia, Loas and Brunei.
  13. 13. exclusive !!A ASEAN Aims  Collective Economic growth  Collective effort towards enhanced security measures  Collective efforts towards greater cultural balance  Collective efforts for greater social harmony  Collective efforts for stable and prosperous society
  14. 14. exclusive !!A ASEAN Economic Community Single Market And Production Base Competitive Economic Region Equitable Economic Development Integration into Global Economy Free flow of goods Competition Policy SME Development External Economic Relations Free flow of Services Consumer protection Initiative for ASEAN Integration Enhanced Participation In Global Supply Networks Free flow of Investment Intellectual Property Rights Free flow of Capital Infrastructure Development Free Flow of Skilled labor Taxation Priority Integration Sectors E-Commerce Food Agriculture and Forestry Human Resource Development Research and Development
  15. 15. exclusive !!A ASEAN as a Market  4.46 Million km2.  GDP in 2009 combined US $ 1.4994 Trillion.  Average growth rate of 5.6% per annum.  With a combined population of 577 million.  Estimated 51% of the population belongs to the middle class compared to 27% in 1990s.  Average Per capita Income of ASEAN in 2009 was US$ 2,533.5 compared to India’s US$ 1,032.
  16. 16. exclusive !!A ASEAN-FDI Inflow 0.00 10.00 20.00 30.00 40.00 50.00 60.00 USDBn 2008 0.24 0.82 9.32 0.23 7.32 0.98 1.54 10.91 8.57 9.58 49.50 2009 0.18 0.53 4.88 0.32 1.38 0.58 1.95 16.26 5.96 7.60 39.62 Brunei Daruss alam Cambo dia Indone sia Lao PDR Malays ia Myanm ar The Philippi nes Singap ore Thailan d Viet Nam ASEA N
  17. 17. exclusive !!A ASEAN future  ASEAN is following footsteps of EU – Aims of both are similar Economic prosperity, preservation of competitiveness, regional security  ASEAN has a strongly committed intergovernmental approach for integration  ASEAN wants to retain its sovereignty  ASEAN will bring about political stability in the region
  18. 18. exclusive !!A India's Current Engagements in RTAs  Association of South East Asian Nations (ASEAN) and India Free Trade Agreement (FTA) negotiations  India-South Korea Comprehensive Economic Partnership Agreement (CEPA) negotiations  India-Japan Comprehensive Economic Cooperation Agreement (CECA) negotiations)  India-Sri Lanka Comprehensive Economic Partnership Agreement (CEPA) negotiations  India-Thailand Comprehensive Economic Cooperation Agreement (CECA) negotiations  India-Malaysia Comprehensive Economic Cooperation Agreement (CECA) negotiations  Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Agreement (FTA) negotiations [BIMSTEC consists of ‘India, Bangladesh, Sri Lanka, Thailand and Myanmar]
  19. 19. exclusive !!A  India-Gulf Cooperation Council (GCC) Free Trade Agreement (FTA) negotiations  India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) negotiations  India-SACU Preferential Trade Agreement (PTA) negotiations  India-Singapore Comprehensive Economic Cooperation Agreement  Preferential Trade Agreement (PTA) between India and Chile  India-Pakistan Trading Arrangement  India-Nepal Treaty of Trade  Agreement on South Area Free Trade Area (SAFTA)  India-EU Board Based Trade and Investment Agreement negotiations  India European Free Trade Association (EFTA) Negotiations on broad based Bilateral Trade and Investment Agreement  Global System of Trade Preferences (GSTP)  Asia Pacific Trade Agreement (APTA)
  20. 20. exclusive !!A India-Malaysia Comprehensive Economic Cooperation Agreement (CECA) negotiations  MoC, Mr. Anand Sharma signed ‘Agreement towards implementing CECA between India and Malaysia’ at Kuala Lumpur on 27.10.2010.  The entire CECA with legal texts would be signed by 31.1.2011 and would be implemented on 1.7.2011.  The India-Malaysia CECA envisages being more liberal compared to the commitments under the ASEAN FTA.  The CECA is envisaged to lead to growth in bilateral trade and investment resulting in economic benefits to both India and Malaysia.
  21. 21. exclusive !!A India-Malaysia Comprehensive Economic Cooperation Agreement (CECA) negotiations  Malaysia is the 3rd largest trading partner of India amongst ASEAN countries.  India – Malaysia trade increased from US$ 3.38 billion to US$ 8.01 billion between 2004-05 and 2009-10 after reaching a peak of US$ 10.60 billion in 2008-09.  The main exports of India include petroleum products, metals, machinery, meat, chemicals, spices and cereals; our main imports include petroleum products, electronic goods, edible oil, wood, chemicals and metals.
  22. 22. exclusive !!A INDO-ASEAN FTA  The FTA reflects the commitment of India and ASEAN to develop a Free Trade Agreement w.e.f. 01-Jan- 2010.  This treaty bring a host of import products into India under the 0% duty net  Also bring lot of Indian Exports in other countries under the 0% duty net
  23. 23. exclusive !!A FTA Legend Category Singapore , Thailand Malaysia Indonesia and Brunei Philippines NT-1 Normal Track 1 by 2013 BCD = 0% Normal Track 1 by 2018 BCD = 0% NT-2 Normal Track 2 by 2016 BCD = 0% Normal Track2 by 2019 BCD = 0% ST Sensitive Track by 2016 BCD = 5% Sensitive Track by 2019 BCD = 5% Special Products Special Products refer to India’s crude and refined palm oil (CPO and RPO, respectively), coffee, black tea and pepper These have been given a fixed schedule for imports into India EL Exclusion List Not included in FTA
  24. 24. exclusive !!A Features of FTA  Non Tariff measures can be imposed in accordance with WTO rights and obligations  Safeguard Measures can also be initiated by member countries under this agreement  The benefit of this agreement can only be given to goods originating from the ASEAN or Indian origin
  25. 25. exclusive !!A Rules of Origin  Goods must of either Wholly produced / obtained in ASEAN or India  Or ASEAN-India Free Trade Area (AIFTA) content should be minimum 35%, in other words, Value Addition should be 35%
  26. 26. exclusive !!A Rules of Origin  If Wholly produced/ obtained – plant and plant products grown and harvested – live animals born and raised – minerals and other naturally occurring substances – products obtained or produced in the party solely from products mentioned above
  27. 27. exclusive !!A Rules of Origin  Not wholly produced/ obtained i.e (Manufactured or processed in any of the Indo-ASEAN countries) – the AIFTA content is not less than 35 per cent of the FOB value; and – the non-originating materials have undergone at least a change in tariff sub-heading (CTSH) level of the Harmonized System, i.e. at six digit level. AIFTA Material Costs + Direct Labour Costs + Direct Overhead Costs + Other Costs + Profit -------------------------------------------------------------------------------- X 100 >= 35% FOB Price
  28. 28. exclusive !!A Rules of Origin  Operations not considered as manufacturing according to this treaty are – simple operations consisting of removal of dust, sifting or screening, sorting, classifying, matching (including the making-up of sets of articles), washing, painting, cutting; – changes of packing and breaking up and assembly of consignments; – simple cutting, slicing and repacking or placing in bottles, flasks, bags, boxes, fixing on cards or boards, and all other simple packing operations;
  29. 29. exclusive !!A Rules of Origin – simple mixing of products whether or not of different kinds, where one or more components of the mixture do not meet the conditions laid down in this Annex to enable them to be considered as originating products; – simple assembly of parts of products to constitute a complete product; – disassembly; – slaughter which means the mere killing of animals; and mere dilution with water or another substance that does not materially alter the characteristics of the products
  30. 30. exclusive !!A Operations covered under Chap. 6 of FTP-DTA Sales by EOUs. For EOUs engaged in following operations are not permitted to sale in DTA. – Packaging • the technology and art of preparing a commodity for convenient transport, storage, and sale – Labeling • To identify or designate with a label; describe or classify – Segregating • The act or process of segregating [to separate or set apart from others or from the general mass] – Refrigeration • To freeze or chill for preservations
  31. 31. exclusive !!A – Compacting • To press or join firmly together • To make by pressing or joining together; compose. • To consolidate; combine. – Micronisation • To reduce to particles that are only a few microns in diameter – Pulverization • To pound, crush, or grind to a powder or dust. • To be ground or reduced to powder or dust. – Granulation • The act or process of granulating. • The condition or appearance of being granulated – Conversion of monohydrate form of chemical to anhydrous form or vice-versa
  32. 32. exclusive !!A  In other words, Ministry of Commerce considers these operations in the category of “non- manufacture”.  Hence, there is a possibility that any of these processes which may not have been incorporated so far, may be added later by amending Customs Notification.
  33. 33. Impact of Indo-Asean FTA on Indian Industries
  34. 34. exclusive !!A Exports to ASEAN (2009-10) 24.44 45.54 3,063.36 16.93 2,835.41 207.97 748.77 1,740.16 1,838.95 7,592.17 0 1000 2000 3000 4000 5000 6000 7000 8000 BRUNEI CAMBODIA INDONESIA LAO PD RP MALAYSIA MYANMAR PHILIPPINES SINGAPORE THAILAND VIETNAM SOC REP USD Mn SOURCE: DGCIS
  35. 35. exclusive !!A Imports from ASEAN (2009-10) 428.65 5.05 8,656.66 20.05 5,176.78 1,289.80 313.07 6,454.57 2,931.52 521.81 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 BRUNEI CAMBODIA INDONESIA LAO PD RP MALAYSIA MYANMAR PHILIPPINES SINGAPORE THAILAND VIETNAM SOC REP SOURCE: DGCIS
  36. 36. exclusive !!A India’s total trade with ASEAN 2008-2009 In USD Mn %Share 2009-2010 In USD Mn %Share %Growth Exports to ASEAN 19,140.63 10.3298 18,113.71 10.1335 -5.37 Total Exports 185,295.36 178,751.43 -3.53 Imports from ASEAN 26,202.96 8.628 25,797.96 8.946 -1.55 Total Imports 303,696.31 288,372.88 -5.05 Total Trade with ASEAN 45,343.59 9.27 43911.67 9.40 -3.26 Total Trade 488,991.67 467,124.31 -4.68 SOURCE: DGCIS
  37. 37. exclusive !!A Top ten ASEAN trade partner countries/regions, 2009 (as of 15 July 2010) value in US$ million; share in percent Trade partner country/region Value Share to total ASEAN trade Exports Imports Total trade Exports Imports Total trade ASEAN 199,587.3 176,620.1 376,207.3 24.6 24.3 24.5 China 81,591.0 96,594.3 178,185.4 10.1 13.3 11.6 EU-27 92,990.9 78,795.0 171,785.9 11.5 10.8 11.2 Japan 78,068.6 82,795.1 160,863.7 9.6 11.4 10.5 USA 82,201.8 67,370.3 149,572.1 10.1 9.3 9.7 Republic of Korea 34,292.9 40,447.4 74,740.3 4.2 5.6 4.9 Hong Kong 56,696.7 11,218.6 67,915.2 7.0 1.5 4.4 Australia 29,039.3 14,810.8 43,850.1 3.6 2.0 2.9 India 26,520.3 12,595.5 39,115.8 3.3 1.7 2.5 UAE 10,569.5 13,797.0 24,366.5 1.3 1.9 1.6 Total 691,558.3 595,044.0 1,286,602.3 85.3 81.9 83.7 Others 118,930.9 131,310.1 250,241.0 14.7 18.1 16.3 Total 810,489.2 726,354.1 1,536,843.3 100.0 100.0 100.0 Source: ASEAN Merchandise Trade Statistics Database
  38. 38. exclusive !!A Impact on Indian Industries  Market access for Indian exporters to Asean  Sourcing can be at competitive prices, particularly in the sectors - such as machinery and machine parts, steel, agricultural products, auto components, chemicals and synthetic textiles.  Joint venture operations – Manufacturing/Outsourcing e.g. -->
  39. 39. exclusive !!A India Exports ingredients to manufacturer at Malaysia imports will be @ concessional or nil Customs duty under AIFTA Malaysia India After manufacturing, processing in Malaysia goods can be exported to Other overseas markets Imports in India will also be @ concessional or nil Customs duty under AIFTA. Goods will be sold in Indian Markets Possibility of indirect penetration into other Markets, taking advantage of other FTAs, treaties, etc.
  40. 40. exclusive !!A Thailand Exports ingredients to manufacturer at India imports will be @ concessional or nil Customs duty under AIFTA India Thailand After manufacturing, processing in India goods can be exported to Imports in Thailand will also be @ concessional or nil Customs duty under AIFTA. Goods will be sold in Indian Markets Possibility of indirect penetration into other Markets, taking advantage of other FTAs, treaties, etc. Other overseas markets
  41. 41. exclusive !!A  India’s share in ASEAN total trade is just 2.5% as against other countries – China, EU, USA, Korea, etc.  ASEAN countries already have very low import tariffs, India, therefore doesn’t gain much from tariff reductions.  In manufacturing, applied tariffs are much lower than agri tariffs in ASEAN and India will find it tough to compete.  ASEAN countries are the world's lead exporters of light manufacturing products which India can never hope to displace.  China already has a head-start over India as it has an existing FTA with ASEAN.
  42. 42. exclusive !!A  The Rules of Origin (ROO) have been diluted to 35%. This means that ASEAN members can add 35% value to products imported from non-ASEAN countries and sell it in India.  On the other hand, India's FTAs with ASEAN members like Thailand and Singapore have ROO pegged at 40%. Even the China-ASEAN FTA has a 40% ROO standard.  There are innumerable semi-processed products from China that may undergo 35% processing in ASEAN countries and be eligible to be traded in India.  Among India's exports to ASEAN countries, refined petro products stand at the top.
  43. 43. exclusive !!A  Organic chemicals, pharmaceuticals, gems and jewelry and metal scraps follow.  However, since import tariffs in ASEAN countries on these products are already quite low, there is not much scope for increasing trade.  Opposition from some states in India, for example: Kerala and Karnataka, feared that their farmers would be hurt by an influx of goods such as coffee, tea and palm oil from ASEAN. Reduction in duty for these products (‘Special Products’) under AIFTA, is as under:
  44. 44. exclusive !!A  Special Products refer to India’s crude and refined palm oil (CPO and RPO, respectively), coffee, black tea and pepper.  Applied MFN tariff rates for the Special Products will be reduced in accordance with the following tariff reduction schedules:  Any better offers made by India to other competing oils/fats shall also be duly offered to palm products
  45. 45. Impact of China-Asean FTA on India’s trade with Asean
  46. 46. exclusive !!A China-ASEAN FTA  Trade in goods – entered into force in July 2005  Trade in services - entered into force in July 2007  Agreement on investment – signed agreement in August 2009
  47. 47. exclusive !!A Tariff reduction & Elimination for tariff lines  Items under Normal Track: Applied MFN tariff rates gradually reduced and eliminated according to the following Schedules: ASEAN 6 – Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand
  48. 48. exclusive !!A
  49. 49. exclusive !!A
  50. 50. exclusive !!A To summarise, Normal Track items Member countries MFN rates will be reduced to zero by ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) 01.01.2010/ 01.01.2012 Vietnam 01.01.2015/ 01.01.2018 Cambodia, Lao PDR and Myanmar 01.01.2015/ 01.01.2018
  51. 51. exclusive !!A Impact on Indian Trade AIFTA China-ASEAN FTA Implementation Implemented on 01.01.2010 Implemented on 01.07.2005 Categories of tariff lines Normal Track-1 Normal Track-2 Sensitive Track Special Products Highly Sensitive Lists Exclusion List Normal Track Sensitive Track Highly Sensitive Lists Tariff elimination 1) For Normal Track-1 1) For Normal Track ASEAN 5 (Brunei, Indonesia, Malaysia, Singapore and Thailand) – 31.12.2013 ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) - 01.01.2010/ 01.01.2012 Philippines – 31.12.2018 Cambodia, Lao PDR Myanmar and Vietnam – 31.12.2013 Cambodia, Lao PDR Myanmar and Vietnam - 01.01.2015/ 01.01.2018
  52. 52. exclusive !!A 2) For Normal Track-2 ASEAN 5 – 31.12.2016 There is no specific mention, however, Normal Track-2 items shall be eliminated by 2012 (as per China’s tariff schedule) Philippines – 31.12.2019 Cambodia, Lao PDR Myanmar and Vietnam – 31.12.2016 3) For Sensitive Track 3) For Sensitive Track Applied MFN tariff rates above 5% for tariff lines in the Sensitive Track will be reduced to 5% as under: ASEAN 5 – 31.12.2016 Philippines – 31.12.2019 Cambodia, Lao PDR Myanmar and Vietnam – 31.12.2016 For all members, China shall reduce the applied MFN tariff rates of tariff lines placed in it’s respective Sensitive List to 20% not later than 1 January 2012. These tariff rates shall be subsequently reduced to 0- 5% not later than 1 January 2018.
  53. 53. exclusive !!A  Above comparison shows that - – As on 01.01.2010, when India implemented AIFTA, many Normal Track tariff lines were attracting ‘zero’ MFN rate under ASEAN-China FTA (ACFTA), which means import of these items from China are already available to ASEAN 6 countries at ‘zero’ duty. – Many more items will be zero rated by 2012, whereas in case of India, tariffs on Normal Track-1 items will be eliminated by 2013 and Normal Track-2 items by 2016 for imports from ASEAN nations except, Philippines. – Further in case of imports from Philippines in India, tariff lines will be eliminated by 01.01.2018, whereas in case of China-ASEAN, the tariff lines are eliminated by 2010/2012.
  54. 54. exclusive !!A Imports into India, from China v/s. from ASEAN  E.g. Import item - Moulding boxes for metal foundry (HS Code – 8480 10 00) Year BCD applicable if imported from China BCD applicable if imported from Malaysia under AIFTA 01.01.2010 7.5% 5% 01.01.2011 7.5% 5% 01.01.2012 7.5% 2.5% 01.01.2013 7.5% 2.5% 31.12.2013 7.5% 0 01.01.2014 7.5% 0
  55. 55. exclusive !!A  Hence, due to AIFTA, India’s sourcing from Malaysia would be cheaper than that from China.  Malaysian product will have an easy access into India.  What if the same product is being imported into China from Malaysia? As per ACFTA, the same product would attract zero duty in the year 2012 hence Malaysian exporter may get more market access.  If India exports the same product to China it would be costlier as it will not enjoy zero duty treatment in China.
  56. 56. Cost Advantage, Market Access to China (by carrying out manufacturing in ASEAN and export therefrom under AIFTA)
  57. 57. exclusive !!A Exporter in China Manufacturer in Thailand Importer in India  Export of few ingredients to Thailand for carrying out manufacturing processes under ACFTA.  The mfg process will be in line with the ROO of AIFTA in Thailand.  Thailand contents would add minimum 35% value to the final products for qualifying ROO.  Thailand manufacturer can import ingredients at NIL or concessional duty under ACFTA.  He will process the goods, obtain certificate of origin as per ROO under AIFTA and export to India.  Indian importer will be importing from Thailand under AIFTA at concessional rate of duty or nil duty.
  58. 58. exclusive !!A  Chinese goods will have indirect market access in India with cost competitiveness.  This will restrict anti-dumping action against Chinese dumping.  Indian domestic players will have tough competition in home market as well as abroad.  China has very ambitious plans and economics of scale to its advantage.  Further, government policies support favourable exchange rate for Chinese exports.
  59. 59. exclusive !!A Exporter in India Manufacturer in Thailand Importer overseas  Indian exporter can also export through ASEAN countries by using AIFTA.  Export key ingredients to Thailand.  Thailand manufacturer can import @ concessional rate or NIL rate of duty under AIFTA  After processing, Thailand manufacturer on the instruction of Indian Exporter, can export goods to overseas markets.  Or the finished products can be imported under AIFTA into India by same exporter or others for sale in Indian market. This opens room for JVs in ASEAN countries for Indian Manufacturers
  60. 60. exclusive !!A  India can also have an access to China in similar manner, however there are many barriers such as – High electricity costs – Limited market access for value added products as China produces such products at cheaper costs – Economics of scale – High transaction costs – Volatile exchange rates
  61. 61. Indian Industries: Challenges and Opportunities
  62. 62. exclusive !!A  Economic reforms  Transaction costs  Investment driven export growth Challenges
  63. 63. exclusive !!A Will the ASEAN-India FTA have any negative impacts?  Many are concerned that the FTA will adversely affect India’s trade balance with some of the ASEAN countries.  A few countries like China will route their products into India through ASEAN as the China-ASEAN FTA is also operational.  The Indian domestic industry must be prepared to face the challenge of cheap imports from ASEAN flooding the Indian market.  Even without this FTA, India faces large trade deficits with Indonesia and other ASEAN countries.  This may create a difficult situation for Indian Manufacturers in home market as well.
  64. 64. exclusive !!A  Stronger influence in ASEAN  Huge market for trade in services and investment
  65. 65. exclusive !!A  India-ASEAN FTA help India step up its trade and make its presence stronger within the ASEAN region.  Trade in Services and Investments: if the FTA manages to extend not only to goods but also services and investment, India stands to achieve even greater gains.  The ASEAN region is a net importer of services and India is having competitive advantages in terms of cost and expertise in this area – This would be a ‘win-win’ situation.
  66. 66. exclusive !!A  Indian exporters stand to gain additional market access in sectors such as machinery and machine parts, steel and steel products, auto components, chemicals and synthetic textiles and agricultural products such as oilcakes, wheat, etc. as a result of tariff liberalization by ASEAN.  As there is huge scope for an increase in trade in engineering and industrial goods between India and the ASEAN countries, India has a unique opportunity to upgrade its products to compete with the likes of Japan, the EU, the US and China within the ASEAN market.
  67. 67. exclusive !!A  Both ASEAN and India need each other.  For ASEAN, India’s working age population is growing while the working age population other Asian economies, such as China, Korea, and Japan, is declining.  India is also a world leader in information technology and an attractive destination for FDI.  For India, an FTA will drive existing economic reforms, assisting India to establish itself in Asia as a growing economic power.
  68. 68. exclusive !!A  As a repercussion of AIFTA, Indian imports will rise significantly and there will be no commensurate rise in India’s exports.  Then why AIFTA is implemented? – The major political objective of the FTA is to counter China’s rising influence on ASEAN. This is clearly something that many other countries of the world (including Japan and USA) look forward to India for. – Signing AIFTA will help India to improve relationships with countries which have powerful voices in most international forums – Offsetting negative effects on trade in goods with positive effects on trade in services and investment.
  69. 69. exclusive !!A • With FTA basic customs duty gets eliminated over a period of time hence all duty credit scrips like DEPB, FMS, etc. would be phased out. • India is negotiating with many other countries for FTAs, hence, the concept and mechanism must be understood seriously. • India’s exports are only 1.2% of global exports. Given our size and potential, we should try for much higher share using, existing and proposed FTAs.
  70. 70. exclusive !!A Mr. Sudhakar Kasture – EXIM Institute
  71. 71. exclusive !!A For more, log on to www.bizxchange.in

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