A review of the India-ASEAN trade deal by 2025 finds a mention in Prime Minister Narendra Modi’s 10-point plan to enhance cooperation between the two side during the ongoing 21st ASEAN-India Summit. From New Delhi’s perspective, a key reason for this is the progressive shift in the trade balance in favour of the ASEAN region, coupled with a simultaneous increase in investments from China into the 10-member bloc.
The India-ASEAN trade deal was signed in 2009 during the UPA era and over the years, the Association of Southeast Asian Nations (ASEAN) has become an important source of input materials for the Indian industry. While palm oil, natural gas are sourced from Indonesia and Malaysia, items like natural rubber come from Thailand.
However, Indian industry has progressively started to call for anti-subsidy measures against industrial imports from ASEAN, on the grounds that Chinese products are being rerouted through the region to claim benefits under the India-ASEAN trade deal. Moreover, the trade deficit between the two regions is rapidly rising, especially after the pandemic.
Fears of a fresh surge in imports have also emerged as ASEAN has joined the China-led Regional Comprehensive Economic Partnership (RCEP) trade deal. India had opted out of the RCEP negotiations in 2019 fearing rising imports from China. Notably, China-ASEAN trade is on the rise, with bilateral trade growing 15 per cent in 2022 after the deal came into force.
Slow pace of FTA review
A senior government official from the Ministry of Commerce and Industry has stated that the review process is “moving slowly,” even as India pushes for revisions, as the deal is seen to disproportionately benefit ASEAN over India.
The two sides agreed to initiate a review during the 16th ASEAN-India Economic Ministers Meeting (AIEMM) in September 2019. However, it took three years to barely agree on the scope of the review at the 19th AIEMM in September 2022.
This is concerning, as India’s trade deficit with ASEAN has risen to $44 billion in FY23, compared to $8 billion in FY13. An Indian Economic Service research paper on India’s trade patterns with the 10 ASEAN nations between 1991 and 2020 highlights that while imports have grown, exports have declined since 2010, resulting in increasing trade deficits with all ASEAN countries.
The report suggests that India’s experience with ASEAN may have influenced its decision to opt out of the China-led RCEP agreement, despite nearly a decade of negotiations.
High tariffs bring larger benefits to ASEAN
Former Indian Foreign Service officer and Senior Fellow for Economic Security at the Delhi Policy Group, V.S. Seshadri, argues that high tariffs in India and fewer trade agreements have enabled ASEAN to benefit more from the trade deal compared to India. In a report released in 2022, Seshadri pointed out that the tariff preferences enjoyed by ASEAN countries in the Indian market under the ASEAN-India Trade in Goods Agreement (AITIGA) have been much greater than those Indian companies receive in ASEAN markets.
He added that the predominance of Chinese products in both Indian and ASEAN markets has affected the full benefits each region could derive from the other’s markets. Furthermore, with the ASEAN-China FTA granting China deeper access to ASEAN markets than India enjoys under AITIGA, New Delhi faces greater relative disadvantages.
Anti-dumping investigations & rerouting concerns
The rising presence of Chinese investments and products in ASEAN has raised concerns about the rerouting of Chinese goods into India through ASEAN. In response, the Ministry of Commerce and Industry initiated an anti-dumping investigation last month against steel products from Vietnam.
The latest Economic Survey had earlier noted that the increase in global trade through Mexico and Vietnam was due to Chinese firms rerouting their supply chains through these countries. The survey also pointed out that China dominates the supply of several critical minerals used in manufacturing, making it difficult to decouple from China.
Meanwhile, India’s imports from China continue to grow, surpassing $60 billion in the first seven months of 2024—a 10 per cent increase compared to $55 billion during the same period last year. In FY24, imports from China exceeded $100 billion.
The 10 member states of ASEAN include Indonesia, Thailand, Singapore, Philippines, Vietnam, Malaysia, Myanmar, Cambodia, Brunei and Laos.