Source: The Stitch Times


China has generally been ahead of us in manyareas including entering into FTAs with other countries. It has been ahead of India in signing and operationalising FTA with Asean countries. The beginning of the yearhas seen the opening of the world's third largest Free Trade Zone (FTZ), inSouth-East Asia when China joined the 10-member Association of South-East AsianNations (ASEAN) countries in lowering trade barriers. Trade between the groupand China has gone up to nearly $200 billion in 2008, and the new regime isexpected to push that up even further. Only the European Union (EU) and NorthAmerican Free Trade Area (NAFTA) have larger volumes.

The canvas of new FTA covers a staggering 1.9billion people and is expected to help the Asean countries expand exportsespecially vital commodities like iron ore, cotton and fuels like coal and oil.The tariff regime envisages a lowering of import barriers from an average of 5per cent to a little over 0.1 per cent for member nations. Since the tarifflevels were already low, there has been little opposition to the move from theWestern economies which see the region as one of the growing markets.


But this is not a tasty cup of tea for some ofthe countries within the fold of Asean and not all member countries see this asa boon. Several, like Indonesia are concerned that the lowering of tariffbarriers may see their markets flooded by cheap Chinese products especiallytextiles, steel, petrochemicals and electronics. China, Indonesia, Thailand, Philippines, Malaysia, Singapore and Brunei will lower their barriers toalmost zero in 2010, while the four new ASEAN members Cambodia, Laos, Vietnam and Myanmar will do so by 2015. China has recently overtaken the US to become the third largest trading partner of ASEAN, after Japan and the EU. The lowering oftariff barriers means the Chinese will now have a slightly stronger balance oftrade. The benefit to the Asean countries is of course the access to theworld's largest consumer population, though they will be competing on equalterms with domestic manufacturers there.


Some of the countries within Asean fold like Singapore, Malaysia and Thailand have small trade deficits with China, but countries like Vietnam have a large gap in trade, and are therefore concerned about this widening evenfurther. However, agricultural produce imports are likely to go up in China, especially tropical fruits and palm oil. All these moves have implications on Indiantrade as well. Indian exports to the region represent a significant chunk ofour products, from agricultural commodities to finished goods. With the comingof the trade regime, India will be under pressure to sign similar agreements ifit is to avoid losing out on this market. China could well upstage tradingbalances of countries like India and South Korea to the region. At a time whencountries are scrambling to find business due to the decline in Europe and the US over the last two years, this represents a major challenge. India has been pushing foran Asean membership for a long time, but has so far had little success. Oureconomic, cultural and political ties to the region have always been low, witha focus towards Western markets and those in the Middle East. But it may now betime for us to push hard in this direction as well.


In fact, India would need to tread its path withthe FTA with Asean countries more carefully, because it is likely to encounterthe similar kinds of problems as are being faced by some the Asean countries.Once India enters into FTA with Asean countries, who have already entered intothe similar FTA with China, it is inevitable that Chinese products, importedunder FTA within Asean countries could find their way very conveniently intoIndian market. Is our indigenous industry competent and competitive enough tocompete with Chinese products at FTA rates in Asean countries? The Governmentof India would need to look into the same before inking FTA with Aseancountries and make suitable provisions so as to avoid situation of Chinesegoods flowing into our economy and edge out our domestic industry.


Originally published in The Stitch Times: February 2010