The document discusses the Indo-Asean Free Trade Agreement (FTA). Some key points: - The FTA aims to eliminate tariffs between India and ASEAN nations over a period of time through normal and sensitive tracks, with rules of origin requiring a minimum 35% value addition within ASEAN/India. - It allows for non-tariff measures and safeguards by member countries. Tariff reductions will benefit certain Indian exports and imports from ASEAN nations. - India's exports to ASEAN grew from $19 billion in 2008-2009 to $18 billion in 2009-2010, while imports increased from $25 billion to $26 billion over the same period. Specific industries may face

1. Indo-Asean Free Trade Agreement
Presents

2. exclusive !!A
Agenda
 Overview of INDO-ASEAN FTA
– Introduction
– Tariff reduction and elimination
– Rules of Origin [important factors governing FTA]
 Impact of Indo-Asean FTA on Indian Industries
 Impact of China-Asean FTA on India’s trade (considering cost
effectiveness and competitiveness in international markets)
 Indian Industries – Challenges and Opportunities

3. Overview of INDO-ASEAN FTA

4. exclusive !!A
WTO and RTAs
Regionalism is described in the Dictionary of Trade
Policy Terms, as
““actions by governments to liberalize or facilitateactions by governments to liberalize or facilitate
trade on a regional basis, sometimes through free-trade on a regional basis, sometimes through free-
trade areas or customs unions”.trade areas or customs unions”.

5. exclusive !!A
WTO and RTAs
 In the WTO context, RTAs have both a more general
and a more specific meaning:
– more general, because RTAs may be agreements
concluded between countries not necessarily belonging to
the same geographical region;
– more specific, because the WTO provisions which relate
specifically to conditions of preferential trade
liberalization with RTAs.

6. exclusive !!A
Scope of RTAs
 Modern RTAs tend to go far beyond tariff-cutting exercises.
 They provide for increasingly complex regulations governing
intra-trade (e.g. with respect to standards, safeguard
provisions, customs administration, etc.) and they often also
provide for a preferential regulatory framework for mutual
services trade.
 The most sophisticated RTAs go beyond traditional trade
policy mechanisms, to include regional rules on investment,
competition, environment and labour.

7. exclusive !!A
 RTAs can complement the multilateral trading system of
WTO, help to build and strengthen it. But by their very nature
RTAs are discriminatory: they are a departure from the MFN
principle, a cornerstone of the multilateral trading system.
 Though RTAs are designed to the advantage of signatory
countries, expected benefits may be undercut if distortions in
resource allocation, as well as trade and investment
diversion, potentially present in any RTA process, are not
minimized, if not eliminated altogether.

8. exclusive !!A
Motivations: why do countries engage in RTAs?Motivations: why do countries engage in RTAs?
 Economic Rationale
– search for larger markets
– deeper integration
– defensive necessity
– lock out competition
– lock in investment
– More secure access to
developed markets than
GSP programs
 Political Reasons
– increase bargaining power
– prevent backsliding on
political/economic reforms
– ensure or reward political
support

9. exclusive !!A
Effects of RTAs on the multilateral system areEffects of RTAs on the multilateral system are
manifold:manifold:
 Positive
– economies of scale
– laboratories for change
– provide competition
– attract FDI
– allow countries to hone
negotiating skills
 Negative
– strains negotiating capacity
– dampens enthusiasm for
multilateral negotiations
– creates vested interests
– complex rules of origin
– trade and investment
diversion
– weakest countries left out

10. exclusive !!A
The WTO rules for RTAs
WTO Members are permitted to enter into RTAs under
specific conditions which are spelt out in three sets of rules:
Paragraphs 4 to 10 of Article XXIV of GATT:
provide for the formation and operation of customs unions and
free-trade areas covering trade in goods;
The Enabling Clause [Decision of 28 November 1979 (L/4903)]:
refers to preferential trade arrangements in trade in goods between
developing country Members; and
Article V of GATS:
governs the conclusion of RTAs in the area of trade in services,
for both developed and developing countries.

11. exclusive !!A
About Association of Southeast Asian Nations
[ASEAN]
Original Members
Other Members
ASEAN was established on
08.08.1967 with signing of
the ASEAN Declaration by
Indonesia, Malaysia, Philippines,
Singapore and Thailand
Brunei Darussalam joined in 1984,
Viet Nam in 1995,
Lao PDR and Myanmar in 1997,
Cambodia in 1999

12. exclusive !!A
Why ASEAN?
 The ASEAN Countries individually had low trade
penetration
 On a country basis, negotiating international deals
would have been difficult
 Economic development would occur at a faster rate
if they would act together.
 Major beneficiaries of this treaty are
– Vietnam, Cambodia, Loas and Brunei.

13. exclusive !!A
ASEAN Aims
 Collective Economic growth
 Collective effort towards enhanced security
measures
 Collective efforts towards greater cultural balance
 Collective efforts for greater social harmony
 Collective efforts for stable and prosperous society

14. exclusive !!A
ASEAN Economic Community
Single Market And
Production Base
Competitive Economic
Region
Equitable Economic
Development
Integration into
Global Economy
Free flow of goods Competition Policy SME Development External Economic
Relations
Free flow of Services Consumer protection Initiative for ASEAN
Integration
Enhanced Participation
In Global Supply
Networks
Free flow of
Investment
Intellectual Property
Rights
Free flow of Capital Infrastructure
Development
Free Flow of Skilled
labor
Taxation
Priority Integration
Sectors
E-Commerce
Food Agriculture and
Forestry
Human Resource
Development
Research and
Development

15. exclusive !!A
ASEAN as a Market
 4.46 Million km2.
 GDP in 2009 combined US $ 1.4994 Trillion.
 Average growth rate of 5.6% per annum.
 With a combined population of 577 million.
 Estimated 51% of the population belongs to the middle class compared to
27% in 1990s.
 Average Per capita Income of ASEAN in 2009 was US$ 2,533.5 compared
to India’s US$ 1,032.

16. exclusive !!A
ASEAN-FDI Inflow
0.00
10.00
20.00
30.00
40.00
50.00
60.00
USDBn
2008 0.24 0.82 9.32 0.23 7.32 0.98 1.54 10.91 8.57 9.58 49.50
2009 0.18 0.53 4.88 0.32 1.38 0.58 1.95 16.26 5.96 7.60 39.62
Brunei
Daruss
alam
Cambo
dia
Indone
sia
Lao
PDR
Malays
ia
Myanm
ar
The
Philippi
nes
Singap
ore
Thailan
d
Viet
Nam
ASEA
N

17. exclusive !!A
ASEAN future
 ASEAN is following footsteps of EU
– Aims of both are similar Economic prosperity, preservation
of competitiveness, regional security
 ASEAN has a strongly committed intergovernmental
approach for integration
 ASEAN wants to retain its sovereignty
 ASEAN will bring about political stability in the region

18. exclusive !!A
India's Current Engagements in RTAs
 Association of South East Asian Nations (ASEAN) and India Free Trade
Agreement (FTA) negotiations
 India-South Korea Comprehensive Economic Partnership Agreement
(CEPA) negotiations
 India-Japan Comprehensive Economic Cooperation Agreement (CECA)
negotiations)
 India-Sri Lanka Comprehensive Economic Partnership Agreement (CEPA)
negotiations
 India-Thailand Comprehensive Economic Cooperation Agreement (CECA)
negotiations
 India-Malaysia Comprehensive Economic Cooperation Agreement (CECA)
negotiations
 Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC) Free Trade Agreement (FTA) negotiations
[BIMSTEC consists of ‘India, Bangladesh, Sri Lanka, Thailand and Myanmar]

19. exclusive !!A
 India-Gulf Cooperation Council (GCC) Free Trade Agreement (FTA)
negotiations
 India-Mauritius Comprehensive Economic Cooperation and Partnership
Agreement (CECPA) negotiations
 India-SACU Preferential Trade Agreement (PTA) negotiations
 India-Singapore Comprehensive Economic Cooperation Agreement
 Preferential Trade Agreement (PTA) between India and Chile
 India-Pakistan Trading Arrangement
 India-Nepal Treaty of Trade
 Agreement on South Area Free Trade Area (SAFTA)
 India-EU Board Based Trade and Investment Agreement negotiations
 India European Free Trade Association (EFTA) Negotiations on broad
based Bilateral Trade and Investment Agreement
 Global System of Trade Preferences (GSTP)
 Asia Pacific Trade Agreement (APTA)

20. exclusive !!A
India-Malaysia Comprehensive Economic Cooperation
Agreement (CECA) negotiations
 MoC, Mr. Anand Sharma signed ‘Agreement towards
implementing CECA between India and Malaysia’ at Kuala
Lumpur on 27.10.2010.
 The entire CECA with legal texts would be signed by 31.1.2011
and would be implemented on 1.7.2011.
 The India-Malaysia CECA envisages being more liberal
compared to the commitments under the ASEAN FTA.
 The CECA is envisaged to lead to growth in bilateral trade and
investment resulting in economic benefits to both India and
Malaysia.

21. exclusive !!A
India-Malaysia Comprehensive Economic Cooperation
Agreement (CECA) negotiations
 Malaysia is the 3rd
largest trading partner of India amongst
ASEAN countries.
 India – Malaysia trade increased from US$ 3.38 billion to US$
8.01 billion between 2004-05 and 2009-10 after reaching a
peak of US$ 10.60 billion in 2008-09.
 The main exports of India include petroleum products,
metals, machinery, meat, chemicals, spices and cereals; our
main imports include petroleum products, electronic goods,
edible oil, wood, chemicals and metals.

22. exclusive !!A
INDO-ASEAN FTA
 The FTA reflects the commitment of India and ASEAN
to develop a Free Trade Agreement w.e.f. 01-Jan-
2010.
 This treaty bring a host of import products into India
under the 0% duty net
 Also bring lot of Indian Exports in other countries
under the 0% duty net

23. exclusive !!A
FTA Legend
Category
Singapore , Thailand Malaysia
Indonesia and Brunei
Philippines
NT-1 Normal Track 1 by 2013 BCD = 0%
Normal Track 1 by 2018 BCD =
0%
NT-2 Normal Track 2 by 2016 BCD = 0%
Normal Track2 by 2019 BCD =
0%
ST Sensitive Track by 2016 BCD = 5%
Sensitive Track by 2019 BCD =
5%
Special
Products
Special Products refer to India’s crude
and refined palm oil (CPO and RPO,
respectively), coffee, black tea and
pepper
These have been given a fixed
schedule for imports into India
EL Exclusion List Not included in FTA

24. exclusive !!A
Features of FTA
 Non Tariff measures can be imposed in accordance
with WTO rights and obligations
 Safeguard Measures can also be initiated by member
countries under this agreement
 The benefit of this agreement can only be given to
goods originating from the ASEAN or Indian origin

25. exclusive !!A
Rules of Origin
 Goods must of either Wholly produced / obtained in
ASEAN or India
 Or ASEAN-India Free Trade Area (AIFTA) content
should be minimum 35%, in other words, Value
Addition should be 35%

26. exclusive !!A
Rules of Origin
 If Wholly produced/ obtained
– plant and plant products grown and harvested
– live animals born and raised
– minerals and other naturally occurring substances
– products obtained or produced in the party solely from
products mentioned above

27. exclusive !!A
Rules of Origin
 Not wholly produced/ obtained i.e (Manufactured or processed in any of
the Indo-ASEAN countries)
– the AIFTA content is not less than 35 per cent of the FOB value; and
– the non-originating materials have undergone at least a change in
tariff sub-heading (CTSH) level of the Harmonized System, i.e. at six
digit level.
AIFTA
Material
Costs
+
Direct
Labour
Costs
+
Direct
Overhead
Costs
+
Other
Costs +
Profit
-------------------------------------------------------------------------------- X 100 >= 35%
FOB Price

28. exclusive !!A
Rules of Origin
 Operations not considered as manufacturing
according to this treaty are
– simple operations consisting of removal of dust, sifting or screening,
sorting, classifying, matching (including the making-up of sets of
articles), washing, painting, cutting;
– changes of packing and breaking up and assembly of consignments;
– simple cutting, slicing and repacking or placing in bottles, flasks, bags,
boxes, fixing on cards or boards, and all other simple packing
operations;

29. exclusive !!A
Rules of Origin
– simple mixing of products whether or not of different kinds,
where one or more components of the mixture do not meet the
conditions laid down in this Annex to enable them to be
considered as originating products;
– simple assembly of parts of products to constitute a complete
product;
– disassembly;
– slaughter which means the mere killing of animals; and mere
dilution with water or another substance that does not
materially alter the characteristics of the products

30. exclusive !!A
Operations covered under Chap. 6 of FTP-DTA
Sales by EOUs.
For EOUs engaged in following operations are not permitted
to sale in DTA.
– Packaging
• the technology and art of preparing a commodity for convenient
transport, storage, and sale
– Labeling
• To identify or designate with a label; describe or classify
– Segregating
• The act or process of segregating [to separate or set apart from
others or from the general mass]
– Refrigeration
• To freeze or chill for preservations

31. exclusive !!A
– Compacting
• To press or join firmly together
• To make by pressing or joining together; compose.
• To consolidate; combine.
– Micronisation
• To reduce to particles that are only a few microns in diameter
– Pulverization
• To pound, crush, or grind to a powder or dust.
• To be ground or reduced to powder or dust.
– Granulation
• The act or process of granulating.
• The condition or appearance of being granulated
– Conversion of monohydrate form of chemical to anhydrous form or
vice-versa

32. exclusive !!A
 In other words, Ministry of Commerce considers
these operations in the category of “non-
manufacture”.
 Hence, there is a possibility that any of these
processes which may not have been incorporated so
far, may be added later by amending Customs
Notification.

33. Impact of Indo-Asean
FTA on Indian
Industries

34. exclusive !!A
Exports to ASEAN (2009-10)
24.44
45.54
3,063.36
16.93
2,835.41
207.97
748.77
1,740.16
1,838.95
7,592.17
0 1000 2000 3000 4000 5000 6000 7000 8000
BRUNEI
CAMBODIA
INDONESIA
LAO PD RP
MALAYSIA
MYANMAR
PHILIPPINES
SINGAPORE
THAILAND
VIETNAM SOC REP
USD Mn
SOURCE: DGCIS

35. exclusive !!A
Imports from ASEAN (2009-10)
428.65
5.05
8,656.66
20.05
5,176.78
1,289.80
313.07
6,454.57
2,931.52
521.81
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000
BRUNEI
CAMBODIA
INDONESIA
LAO PD RP
MALAYSIA
MYANMAR
PHILIPPINES
SINGAPORE
THAILAND
VIETNAM SOC REP
SOURCE: DGCIS

36. exclusive !!A
India’s total trade with ASEAN
2008-2009
In USD Mn
%Share
2009-2010
In USD Mn
%Share %Growth
Exports to ASEAN 19,140.63 10.3298 18,113.71 10.1335 -5.37
Total Exports 185,295.36 178,751.43 -3.53
Imports from
ASEAN
26,202.96 8.628 25,797.96 8.946 -1.55
Total Imports 303,696.31 288,372.88 -5.05
Total Trade with
ASEAN
45,343.59 9.27 43911.67 9.40 -3.26
Total Trade 488,991.67 467,124.31 -4.68
SOURCE: DGCIS

37. exclusive !!A
Top ten ASEAN trade partner countries/regions, 2009 (as of 15 July 2010)
value in US$ million; share in percent
Trade partner
country/region
Value Share to total ASEAN trade
Exports Imports Total trade Exports Imports Total trade
ASEAN 199,587.3 176,620.1 376,207.3 24.6 24.3 24.5
China 81,591.0 96,594.3 178,185.4 10.1 13.3 11.6
EU-27 92,990.9 78,795.0 171,785.9 11.5 10.8 11.2
Japan 78,068.6 82,795.1 160,863.7 9.6 11.4 10.5
USA 82,201.8 67,370.3 149,572.1 10.1 9.3 9.7
Republic of
Korea
34,292.9 40,447.4 74,740.3 4.2 5.6 4.9
Hong Kong 56,696.7 11,218.6 67,915.2 7.0 1.5 4.4
Australia 29,039.3 14,810.8 43,850.1 3.6 2.0 2.9
India 26,520.3 12,595.5 39,115.8 3.3 1.7 2.5
UAE 10,569.5 13,797.0 24,366.5 1.3 1.9 1.6
Total 691,558.3 595,044.0 1,286,602.3 85.3 81.9 83.7
Others 118,930.9 131,310.1 250,241.0 14.7 18.1 16.3
Total 810,489.2 726,354.1 1,536,843.3 100.0 100.0 100.0
Source: ASEAN Merchandise Trade Statistics Database

38. exclusive !!A
Impact on Indian Industries
 Market access for Indian exporters to Asean
 Sourcing can be at competitive prices, particularly in the
sectors - such as machinery and machine parts, steel,
agricultural products, auto components, chemicals and
synthetic textiles.
 Joint venture operations – Manufacturing/Outsourcing
e.g. -->

39. exclusive !!A
India
Exports ingredients to manufacturer at Malaysia
imports will be @ concessional or nil
Customs duty under AIFTA
Malaysia
India
After manufacturing,
processing in Malaysia
goods can be exported to
Other overseas
markets
Imports in India will also
be @ concessional or nil
Customs duty under AIFTA.
Goods will be sold in
Indian Markets
Possibility of indirect
penetration into other
Markets, taking advantage
of other FTAs, treaties, etc.

40. exclusive !!A
Thailand
Exports ingredients to manufacturer at India
imports will be @ concessional or nil
Customs duty under AIFTA
India
Thailand
After manufacturing,
processing in India goods
can be exported to
Imports in Thailand will also
be @ concessional or nil
Customs duty under AIFTA.
Goods will be sold in
Indian Markets
Possibility of indirect
penetration into other
Markets, taking advantage
of other FTAs, treaties, etc.
Other overseas
markets

41. exclusive !!A
 India’s share in ASEAN total trade is just 2.5% as against other
countries – China, EU, USA, Korea, etc.
 ASEAN countries already have very low import tariffs, India,
therefore doesn’t gain much from tariff reductions.
 In manufacturing, applied tariffs are much lower than agri
tariffs in ASEAN and India will find it tough to compete.
 ASEAN countries are the world's lead exporters of light
manufacturing products which India can never hope to
displace.
 China already has a head-start over India as it has an existing
FTA with ASEAN.

42. exclusive !!A
 The Rules of Origin (ROO) have been diluted to 35%. This
means that ASEAN members can add 35% value to products
imported from non-ASEAN countries and sell it in India.
 On the other hand, India's FTAs with ASEAN members like
Thailand and Singapore have ROO pegged at 40%. Even the
China-ASEAN FTA has a 40% ROO standard.
 There are innumerable semi-processed products from China
that may undergo 35% processing in ASEAN countries and be
eligible to be traded in India.
 Among India's exports to ASEAN countries, refined petro
products stand at the top.

43. exclusive !!A
 Organic chemicals, pharmaceuticals, gems and
jewelry and metal scraps follow.
 However, since import tariffs in ASEAN countries on
these products are already quite low, there is not
much scope for increasing trade.
 Opposition from some states in India, for example:
Kerala and Karnataka, feared that their farmers
would be hurt by an influx of goods such as coffee,
tea and palm oil from ASEAN. Reduction in duty for
these products (‘Special Products’) under AIFTA, is as
under:

44. exclusive !!A
 Special Products refer to India’s crude and refined palm oil (CPO and RPO,
respectively), coffee, black tea and pepper.
 Applied MFN tariff rates for the Special Products will be reduced in
accordance with the following tariff reduction schedules:
 Any better offers made by India to other competing oils/fats shall also be
duly offered to palm products

45. Impact of China-Asean FTA on India’s
trade with Asean

46. exclusive !!A
China-ASEAN FTA
 Trade in goods – entered into force in July 2005
 Trade in services - entered into force in July 2007
 Agreement on investment – signed agreement in
August 2009

47. exclusive !!A
Tariff reduction & Elimination for tariff lines
 Items under Normal Track:
Applied MFN tariff rates gradually reduced and eliminated
according to the following Schedules:
ASEAN 6 – Brunei, Indonesia, Malaysia,
Philippines, Singapore and Thailand

48. exclusive !!A

49. exclusive !!A

50. exclusive !!A
To summarise,
Normal Track items
Member countries MFN rates will be
reduced to zero by
ASEAN 6
(Brunei, Indonesia,
Malaysia,
Philippines,
Singapore and
Thailand)
01.01.2010/
01.01.2012
Vietnam 01.01.2015/
01.01.2018
Cambodia, Lao PDR
and Myanmar
01.01.2015/
01.01.2018

51. exclusive !!A
Impact on Indian Trade
AIFTA China-ASEAN FTA
Implementation Implemented on 01.01.2010 Implemented on 01.07.2005
Categories of
tariff lines
Normal Track-1
Normal Track-2
Sensitive Track
Special Products
Highly Sensitive Lists
Exclusion List
Normal Track
Sensitive Track
Highly Sensitive Lists
Tariff elimination 1) For Normal Track-1 1) For Normal Track
ASEAN 5
(Brunei, Indonesia, Malaysia,
Singapore and Thailand) –
31.12.2013
ASEAN 6
(Brunei, Indonesia, Malaysia,
Philippines, Singapore and
Thailand) - 01.01.2010/
01.01.2012
Philippines – 31.12.2018
Cambodia, Lao PDR Myanmar
and Vietnam – 31.12.2013
Cambodia, Lao PDR Myanmar
and Vietnam - 01.01.2015/
01.01.2018

52. exclusive !!A
2) For Normal Track-2
ASEAN 5 – 31.12.2016 There is no specific mention,
however, Normal Track-2
items shall be eliminated by
2012 (as per China’s tariff
schedule)
Philippines – 31.12.2019
Cambodia, Lao PDR
Myanmar and Vietnam –
31.12.2016
3) For Sensitive Track 3) For Sensitive Track
Applied MFN tariff rates
above 5% for tariff lines in
the Sensitive Track will be
reduced to 5% as under:
ASEAN 5 – 31.12.2016
Philippines – 31.12.2019
Cambodia, Lao PDR
Myanmar and Vietnam –
31.12.2016
For all members, China shall
reduce the applied MFN
tariff rates of tariff lines
placed in it’s respective
Sensitive List to 20% not
later than 1 January 2012.
These tariff rates shall be
subsequently reduced to 0-
5% not later than 1 January
2018.

53. exclusive !!A
 Above comparison shows that -
– As on 01.01.2010, when India implemented AIFTA, many Normal
Track tariff lines were attracting ‘zero’ MFN rate under ASEAN-China
FTA (ACFTA), which means import of these items from China are
already available to ASEAN 6 countries at ‘zero’ duty.
– Many more items will be zero rated by 2012, whereas in case of India,
tariffs on Normal Track-1 items will be eliminated by 2013 and Normal
Track-2 items by 2016 for imports from ASEAN nations except,
Philippines.
– Further in case of imports from Philippines in India, tariff lines will be
eliminated by 01.01.2018, whereas in case of China-ASEAN, the tariff
lines are eliminated by 2010/2012.

54. exclusive !!A
Imports into India, from China v/s. from ASEAN
 E.g.
Import item - Moulding boxes for metal foundry (HS Code –
8480 10 00)
Year BCD applicable if
imported from
China
BCD applicable if
imported from Malaysia
under AIFTA
01.01.2010 7.5% 5%
01.01.2011 7.5% 5%
01.01.2012 7.5% 2.5%
01.01.2013 7.5% 2.5%
31.12.2013 7.5% 0
01.01.2014 7.5% 0

55. exclusive !!A
 Hence, due to AIFTA, India’s sourcing from Malaysia would be
cheaper than that from China.
 Malaysian product will have an easy access into India.
 What if the same product is being imported into China from
Malaysia?
As per ACFTA, the same product would attract zero duty in
the year 2012 hence Malaysian exporter may get more
market access.
 If India exports the same product to China it would be costlier
as it will not enjoy zero duty treatment in China.

56. Cost Advantage, Market Access to China
(by carrying out manufacturing in ASEAN and
export therefrom under AIFTA)

57. exclusive !!A
Exporter
in China
Manufacturer
in Thailand
Importer in India
 Export of few ingredients to Thailand for carrying
out manufacturing processes under ACFTA.
 The mfg process will be in line with the ROO of
AIFTA in Thailand.
 Thailand contents would add minimum 35%
value to the final products for qualifying ROO.
 Thailand manufacturer can import ingredients at
NIL or concessional duty under ACFTA.
 He will process the goods, obtain certificate of
origin as per ROO under AIFTA and export to
India.
 Indian importer will be importing from Thailand
under AIFTA at concessional rate of duty or nil
duty.

58. exclusive !!A
 Chinese goods will have indirect market access in
India with cost competitiveness.
 This will restrict anti-dumping action against Chinese
dumping.
 Indian domestic players will have tough competition
in home market as well as abroad.
 China has very ambitious plans and economics of
scale to its advantage.
 Further, government policies support favourable
exchange rate for Chinese exports.

59. exclusive !!A
Exporter
in India
Manufacturer
in Thailand
Importer
overseas
 Indian exporter can also export through ASEAN
countries by using AIFTA.
 Export key ingredients to Thailand.
 Thailand manufacturer can import @
concessional rate or NIL rate of duty under AIFTA
 After processing, Thailand manufacturer on the
instruction of Indian Exporter, can export goods
to overseas markets.
 Or the finished products can be imported under
AIFTA into India by same exporter or others for
sale in Indian market.
This opens room for JVs in ASEAN countries for Indian Manufacturers

60. exclusive !!A
 India can also have an access to China in
similar manner, however there are many
barriers such as
– High electricity costs
– Limited market access for value added products
as China produces such products at cheaper costs
– Economics of scale
– High transaction costs
– Volatile exchange rates

61. Indian Industries:
Challenges and Opportunities

62. exclusive !!A
 Economic reforms
 Transaction costs
 Investment driven export growth
Challenges

63. exclusive !!A
Will the ASEAN-India FTA have any negative
impacts?
 Many are concerned that the FTA will adversely affect India’s trade
balance with some of the ASEAN countries.
 A few countries like China will route their products into India through
ASEAN as the China-ASEAN FTA is also operational.
 The Indian domestic industry must be prepared to face the challenge of
cheap imports from ASEAN flooding the Indian market.
 Even without this FTA, India faces large trade deficits with Indonesia and
other ASEAN countries.
 This may create a difficult situation for Indian Manufacturers in home
market as well.

64. exclusive !!A
 Stronger influence in ASEAN
 Huge market for trade in services and
investment

65. exclusive !!A
 India-ASEAN FTA help India step up its trade and
make its presence stronger within the ASEAN region.
 Trade in Services and Investments: if the FTA
manages to extend not only to goods but also
services and investment, India stands to achieve
even greater gains.
 The ASEAN region is a net importer of services and
India is having competitive advantages in terms of
cost and expertise in this area – This would be a
‘win-win’ situation.

66. exclusive !!A
 Indian exporters stand to gain additional market
access in sectors such as machinery and machine
parts, steel and steel products, auto components,
chemicals and synthetic textiles and agricultural
products such as oilcakes, wheat, etc. as a result of
tariff liberalization by ASEAN.
 As there is huge scope for an increase in trade in
engineering and industrial goods between India and
the ASEAN countries, India has a unique opportunity
to upgrade its products to compete with the likes of
Japan, the EU, the US and China within the ASEAN
market.

67. exclusive !!A
 Both ASEAN and India need each other.
 For ASEAN, India’s working age population is growing while
the working age population other Asian economies, such as
China, Korea, and Japan, is declining.
 India is also a world leader in information technology and an
attractive destination for FDI.
 For India, an FTA will drive existing economic reforms,
assisting India to establish itself in Asia as a growing economic
power.

69. exclusive !!A
 As a repercussion of AIFTA, Indian imports will rise significantly and
there will be no commensurate rise in India’s exports.
 Then why AIFTA is implemented?
– The major political objective of the FTA is to counter China’s
rising influence on ASEAN. This is clearly something that many
other countries of the world (including Japan and USA) look
forward to India for.
– Signing AIFTA will help India to improve relationships with
countries which have powerful voices in most international
forums
– Offsetting negative effects on trade in goods with positive
effects on trade in services and investment.

70. exclusive !!A
• With FTA basic customs duty gets eliminated over a
period of time hence all duty credit scrips like DEPB,
FMS, etc. would be phased out.
• India is negotiating with many other countries for FTAs,
hence, the concept and mechanism must be
understood seriously.
• India’s exports are only 1.2% of global exports. Given
our size and potential, we should try for much higher
share using, existing and proposed FTAs.

71. exclusive !!A
Mr. Sudhakar Kasture – EXIM Institute

72. exclusive !!A
For more, log on to www.bizxchange.in