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Friday, Nov 08, 2002

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Asean initiative

ADMITTEDLY, NEW DELHI has made a big splash in South-East Asia with its suggestion — by the Prime Minister, Mr Atal Bihari Vajpayee, in Phnom Penh at the first India-Asean summit — to set up a free trade area with the 10-member bloc. However, for Asean, though important given the size of the Indian market, of far more economic significance would be the almost simultaneous signing of agreements with Beijing and Tokyo to set up a free trade zone and an "economic partnership" respectively in the next 10 years. Quite rightly, sceptics point out that a great deal will have to be done to make success of the Chinese and Japanese initiatives, particularly with regard to the Japanese-Asean project. But for New Delhi what this means is that if it wants its own push for a free trade area to succeed, it will have to better the offer to Asean businessmen of doing free trade with China and Japan.

What precisely are the attractions of doing business with the Asean group which will benefit Indian trade and industry most without harming their interests? The most important appears to be the opportunity provided by the free trade area to set up shop in the bloc and manufacture and trade products that command a good market within and outside the region. It is common knowledge that the Indian performance in this respect has been less than encouraging. Nor has it reflected adequately the latent economic strength of the country, which is unfortunate given the huge trade and business potential the Asean offers. Now, with the plans to have a Chinese and Japanese free trade arrangement by the end of the next decade, the prospects of Indian investors taking advantage of Mr Vajpayee's free trade area proposal become even more remote. On the other hand, a free trade area, which will almost certainly entail reduction of tariff and non-tariff barriers to cheap imports across the board, could mean Asean products pushing more easily into the Indian market to the discomfiture of domestic manufacturers. It remains to be seen how this problem will be tackled; an additional complication is that Asean free-trade concessions will have to be consistent with WTO guidelines. As for setting up of Asean manufacturing units, it is almost certain that investors will be put off by the the various hurdles that are already scaring away foreign investors from India. One area where India stands to gain is infrastructure in which Malaysian expertise and investment have already made an impact.

However, the proposed Asean free trade arrangement should not be seen in isolation especially in view of New Delhi's SAARC obligations. Indeed, it can even be said that Mr Vajpayee's Phnom Penh initiative has sent a strong message to the SAARC partners that big-brother India is more interested in aligning itself with the stronger Asian players than with their own economic structures, a number of which are classified as least developed. Those who feel that Mr Vajpayee's Asean initiative is a death-knell for SAARC may not be very wrong. Indeed, a move towards Asean — Asia's economic powerhouse — may be much more productive for the economy than being fettered by the petty politics of SAARC which, in any case, is hostage to the India-Pakistan problem.

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