The Hindu Business Line : Politics of Asean-India trade pact

The Asean-India pact goes beyond the more immediate context of the Doha talks. In a sense, politics of the diplomatic kind, rather than hard-core quantitative economics, seems to have guided India in clinching this deal.

The Minister of Commerce and Industry, Mr Kamal Nath (left), and Singapore’s Minister of Trade and Industry, Mr Lim Hng Kiang, at ASEAN Economic Ministers meet in Singapore… Asean has scored more in economic terms than India, which has settled for some political gains instead.

P. S. Suryanarayana

It is no surprise that India’s first-ever trade pact with an economic bloc has the Association of South-East Asian Nations (Asean) at the other end of the equation. Significantly, it was with Singapore, a prominent Asean member-state, that India had signed its first-ever Comprehensive Economic Cooperation Agreement (CECA) with a trade partner country.

In the three years since the CECA, the regional and global economic landscape has changed. So the timing of the India-Asean accord has lent it a political aura.

By August 28, when this new accord was announced a few hours after the consultation among Asean-India economic ministers in Singapore, the global focus was still centred on the recent “failure” of the Doha Round mini-ministerial talks in Geneva.

For historical and purely economic reasons, the developed bloc and some of its starry-eyed admirers within the Asean-network have consistently seen India as a difficult negotiating partner. In this context, top Asean officials now saw their new deal with India as a plus-factor for the future of the Doha Round talks as well. Conspicuously recognised was India’s continuing commitment to economic multilateralism.

On balance, though, the long-term politics of the Asean-India pact goes beyond the more immediate context of the Doha talks. In a sense, it is arguable that politics of the diplomatic kind, rather than hard-core quantitative economics of pluses and minuses, guided India in clinching this deal.

Bargaining triumph

The Asean countries had, individually and collectively, argued for precisely such an approach by India throughout the negotiations that took nearly six years to complete. For the Asean states, therefore, it is now a case of one more triumph of their traditional tactics of hard bargaining with big powers.

The bottomline for the collective 10-state Asean, as a smaller entity, is that it poses no threat but offers an opportunity to big economies. This tactical line gained greater credibility when China, an ascendant economic giant, became the first to do a trade-in-goods deal with Asean a few years ago.

Significant, indeed, in this larger context is the relative absence of a ‘win-win solution’ with reference to this new Asean-India deal.

The implication is that the quantitative pluses for the two sides are not really comparable. Their minuses, as in any such deal, imply that neither side has got all it wanted. And, as for the positives themselves, Asean has scored more in economic terms than India, which has settled for some political gains instead.

A relevant question is not whether this kind of trade-off is wrong as a principle or as policy, either for India or the Asean. The issue, simply, is whether there is any other way in which an Asean-India trade pact could have been accomplished. Familiarity with the collective Asean psyche and working style will show that the answer is in the negative.

The issues that threatened to hold up an accord centred on the Asean perception that India’s proposals to reduce its import duties on palm oil, coffee, tea, pepper and petroleum products did not go far enough for a free trade pact. India finally committed to reduce substantially the tariff rates on all these products and do so in a progressive fashion by 2018.

The obvious beneficiaries will be Malaysia, Indonesia, Vietnam and Brunei, the last depending almost entirely on its export of petroleum products.

Market access

The key Asean importers of Indian goods have also agreed to concede greater market access. But, measure-for-measure, the possible benefits to India do not match those given to the other side. Two reasons have been cited for this skew.

Singapore’s Trade and Industry Minister, Mr Lim Hng Kiang, who co-chaired the Asean-India meeting which clinched the deal, has traced this asymmetry to the fact that the economies of these two “entities” are “not complementary”.

The “similar structures” of the two economies, the Asean being seen as a single entity, also explain the protracted nature of the negotiations and the asymmetrical result.

Above all, the final pact is to be assessed on the touchstone of not just the Asean-India engagement but also the respective compulsions of the two sides with regard to their other priority markets.

And, according to the Commerce and Industry Minister, Mr Kamal Nath, the pace and quality of India’s own “unilateral liberalisation” have had much to do with the shape and substance of the deal with Asean.

After legal scrubbing, the fine-print of the accord will be signed during the Asean-India summit in Bangkok in December this year. That might also signal the commencement of negotiations on a liberalised flow of services and investments in either direction.

The two sides now hope to conclude these talks by the end of 2009. While Asean expects India to parley from a commanding position in the services sector, investments may prove to be tricky negotiating terrain for both sides.

Gains for India

For India, the balance sheet on this trade pact, prior to its implementation, reveals a major political gain in green ink. Ever since the former Prime Minister, P. V. Narasimha Rao, enunciated the “Look-East Policy” in the early 1990s, the Asean grouping has, in a subtle manner, treated India as a potential player in China’s league in the group’s own domain.

The idea of two-way market access does not necessarily or easily translate into strategic gains of the political type; but a “rising” India’s place in the fast-globalising world could slide in the absence of such access.

New Delhi is, therefore, seen to have finally decided to do with Asean what China has already done in the trade sector.

Authoritative Chinese sources say it was not an easy call for Beijing to do a trade deal with Asean. And, in any case, the Asean group’s exclusive pacts with Beijing and New Delhi cannot really be compared and contrasted, given China’s unique proximity, in more than just the geographical sense, to South-East Asia.