India’s resolve to get closer to Asean countries is faltering at the altar. After signing a free trade agreement on goods with Asean, a similar pact on trade in services and investment — unarguably India’s strong suit — still eludes the country. Marked by public squabbling between ministries, it is quite likely that the final agreement will be signed only after elections.

Make that one year from now. Once the new government takes over, it will be another six-seven months before it can sink its teeth into bilateral trade deals. This is tragic because while India has an advantage in services, India’s existing trade balance with Asean is negative.

Confusion, delays India signed a free trade agreement (FTA) with Asean — an economic bloc of 10 countries — for only goods in 2009. This was to be followed up with the signing of a separate FTA on services and investment, negotiations on which have been continuing for some time now. There is no clarity on the benefits that such an FTA will offer since the agreement is not yet in public domain, but it can be safely said that it will allow India to leverage its competitive offerings in finance, education, health, IT, telecommunications, transport and movement of professionals.

Consequently, Indian service providers will be able to offer services to Asean customers with greater ease than what is available currently.

A formal conclusion to negotiations was signalled through an Asean secretariat communiqué in Delhi on December 20, 2012: “...we welcome the successful conclusion of the negotiation on ASEAN-India Trade in Services and Investment Agreements.” The session concluded with Prime MInister Manmohan Singh also endorsing the end of negotiations.

This led to speculations about probable dates, with August 2013 emerging as consensus deadline. On October 10, 2013, at another Asean Summit, Manmohan Singh provided another deadline: “India stands ready for the signature of the India-Asean FTA on Services and Investment by the end of this year and its early implementation.” The Cabinet then on December 19, 2013, approved a services and investment treaty with Asean, raising hopes that the deal would be sealed soon.

Sadly, that cut-off date too has lapsed and the agreement seems to have fallen into the cracks that lie between promises and approvals. The delay is being blamed on shadow-boxing between Ministry of Commerce and Industry, which wants India to push ahead with the agreement, and Ministry of Finance, which wants a detailed study on the performance of all FTAs signed so far. While the Cabinet over-ruled all opposition, a delay is now inevitable.

India’s economic strength lies in services, given that over 50 per cent of GDP comes from services. It is, therefore, counter-intuitive that bickering and delay should bog down an advantageous trade pact.

Missing the target The unsigned, unconsummated FTA is to be formalised under the umbrella framework of Comprehensive Economic Cooperation Agreement (CECA) which India and Asean inked in 2003. CECA — which has two components, goods, as well as services and investment — is similar to most FTAs, but earns the “comprehensive” sobriquet by including investment. India has signed CECAs with Japan, Singapore and Australia.

Under CECA with Asean, the Agreement on Trade Goods was signed in 2009. Asean comprises Singapore, Brunei, Malaysia, Indonesia, Thailand, Cambodia, Laos, Vietnam, the Philippines and Myanmar. Indo-Asean trade has grown from $30 billion in 2008 (before FTA on goods was initialled) to $76 billion in 2012. But, given the pace of progress, it seems the 2015 target of $100 billion will be missed.

The source of inter-ministerial conflict lies in the disaggregated numbers. The Finance Ministry’s contends that there should be a proper study on performance of all FTAs. Specifically, it feels that Asean countries have gained more than India — in simple terms, that means India has imported more from Asean countries than it has exported to them.

For example, India’s trade deficit with Thailand has grown by 111.55 per cent between 2008-09 and 2012-13.

Finance Minister P Chidambaram found vocal support from three sources. First, RBI governor Raghuram Rajan alluded to misaligned FTAs in a November speech: “I am worried because we seem to be reverting to a dialogue of protection and subsidies that we left behind long ago...While we should not enter into free-trade agreements that give foreign manufacturers an undue advantage, that is no reason for us to now respond by giving domestic manufacturers protection.”

Industry lobbies Ficci and Assocham also pitched in. A Ficci survey among its members showed that many respondents felt trade in goods with Asean either had no impact on exports or had an adverse impact, but only a minimal beneficial effect.

An Assocham report was a bit more hard-hitting and cautioned the government to incorporate lessons from the Asean goods FTA into the Indo-EU trade negotiations.

Interestingly, apart from the Indian side, Asean members have been also holding up the talks, even as tariffs on a number of items keep coming down every year. For instance, it is believed some Asean countries are opposed to free movement of professionals, given rising unemployment in their countries.

Some of them are insisting that Indian professionals should obtain local qualifications; for instance, a doctor wanting to practice in Thailand must obtain a licence from Medical Council of Thailand.

India, on the other hand, wants to sign a mutual recognition agreement with Asean so that there is a mutual recognition of professional qualifications; in case there is no such agreement at the Asean level, India will then have to sign such an accord with each country separately.

The clock is ticking. Every wasted moment results in India importing more goods (which eventually affects domestic manufacturing) while being handicapped in using its competitive advantage of services export.

(The author is Senior Geoeconomics Fellow at Gateway House: Indian Council for Global Relations)

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