• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Sethuraman

Since the "Look-East" policy was enunciated in 1993, India has made good headway in promoting greater co-operation with South-East Asia. Those gains were consolidated further at the Asean Summit, where member-nations committed themselves to creating a continental free trade area by 2020.

ASIAN nations have demonstrably committed themselves to creating a continental free trade area by 2020, with several promising accords to maintain peace and security in the fastest-growing region with half the world's 6.3 billion people.

This is a giant step forward, though uneven progress may retard the pace of negotiations at different levels of integration for a hugely ambitious but achievable undertaking. Sound governance, macroeconomic stability and sustained growth of countries of the region would be a pre-requisite, besides political determination, to consummate an Asian Economic Community by 2020.

The Ninth Asean Summit (October 6-8) was a landmark session, bringing together, on the enchanting island of Bali, leaders of the ten South-East Asian nations, heads of Governments of China, India and Japan, and the President of the Republic of Korea.

The focus of the Summit was a common endeavour to expand trade in goods and services and investment flows and safeguard peace and security in a region threatened by terrorism.

Bali became the launching pad for a series of agreements on free trade in goods and services, strategic partnerships for peace and prosperity, and accession by China and India, both nuclear powers, to the Asean Treaty of Amity and Cooperation, to which Japan and Korea are expected to become parties shortly.

China's signature to the Treaty is also seen as a reflection of its desire to resolve peacefully the dispute with some of its neighbours over the oil-rich Spratly islands in South China sea.

The Prime Minister, Mr Atal Bihari Vajpayee, signed the Framework for the India-Asean Free Trade Area by 2012. China and Asean signed a similar framework last year to bring the FTA into operation not later than 2010.

The Japan-Asean economic partnership framework aims at minimising trade barriers and strengthening economic linkages between them and the two sides would hold consultations on liberalisation of trade in goods, services and investments from the beginning of 2004.

Asean leaders express confidence that, however overlapping and inter-locking the regional agreements may look, there would emerge at the end of it all the world's largest trade alliance covering Asia as a whole with a GDP of $6.5 trillion (inclusive of Japan) — one-fifth of the world output.

Developing Asia has a GDP of about $2.5 trillion, of which China's share is one trillion.

Asean itself, under the "Bali Concord", will become an integrated economic community only by 2020 while its FTAs with China and India get operationalised within a decade from now. Singapore and Thailand tried in vain to get Asean to agree on a faster pace to integrate as a common market.

Given its slow-moving record over 35 years, it is no wonder even its limited AFTA (Asean Free trade Area) has not made much headway.

It is now reconciled to removal of barriers in eleven identified priority sectors (including wood-based products, rubber, fisheries, electronics, textiles, automobiles, healthcare, air-travel and tourism) and getting them vertically integrated only by 2020.

The South-East Asian nations, on an export-led growth path since the 1970s, have managed to maintain strong growth performance during the l990s, despite the financial crisis of l997, with trade contributing 40-80 per cent of GDP. The emergence of China as one of the world's strongest economies with explosive export growth rates and huge reserves has dramatically transformed the outlook for Asia's future.

What is important is China trades more within Asia though its foray into Western markets, especially the US. This has become an issue of concern and invited the charge that Beijing is manipulating its currency to boost exports.

While 43 per cent of its exports were to Asia, 58 per cent of China's imports in 2002 came from the rest of Asia. Intra-regional trade in Asean totalled $91 billion, less than 25 per cent of the bloc's total exports with a global share of 6.5 per cent.

Asean also exports more (about 60 per cent of the total)) to the rest of Asia. In contrast, only 27 per cent of India's exports go to other Asian countries with imports at 25 per cent.

Thus, a large proportion of trade is already taking place within Asia and the World Bank has projected that East Asia (which includes S-E Asia) will maintain sustained high growth in per capita GDP and exports over the long term.

For Asian countries, in general, and East and South-East Asian countries, in particular, China has become the driving force for growth, opening its vast market to goods from its neighbours.

A realisation that it cannot ever depend on US market alone has brought Asean closer to looking for integrating their markets with China's. This has also partly moderated the concern of Asean over its declining share of foreign direct investment flows, with China attracting the maximum ($52 billion in 2002).

Asia has more than half of the inward stock of FDI ($1,400 billion) in the developing world and, notwithstanding the slowdown, foreign investments so far in Asean countries account for a sizeable ratio of GDP.

In the decade since the "Look-East" policy was enunciated in 1993, India has come some way in reorienting its trade and investment policy to promote greater co-operation with South-East Asia. India's relatively higher tariffs are to be brought down to 20 per cent, closer to Asian levels, by 2005.

Clearly, the dynamism in the region cannot be overlooked by a country aspiring to be a regional economic power, already far lagging China.

Unobtrusively, the two Asian giants were wooing the countries of this grouping at Bali, holding out their respective strengths and potential for Asean to take advantage of in expanding their own manufactures with value addition and services.

To kickstart its FTA with Asean, China signed a protocol on "early harvest" of benefits for Asean, with tariff reductions on agricultural and manufactured goods from January 1, 2004. Work on lowering tariffs within the framework of FTA would begin from 2005. The China-Asean FTA will be the biggest, with 1.7 billion consumers and GDP of about $2 trillion.

By 2010, it will cover the original Asean-6 and, by 2015, the other four member-countries. Already, the two-way trade is rapidly growing at annual rate of $70-75 billion, and Chinese officials expect it to touch $100 billion in 2005.

Not to be outdone, Mr Vajpayee also offered unilateral tariff concessions on items of export interest to the weaker countries — Cambodia, Laos, Myanmar and Vietnam — as incentives for long-term engagement.

Addressing the Asean Business and Investment Summit, Mr Vajpayee invited business leaders to take advantage of India's liberal investment regime, its high return and record of profit repatriation. He underlined India's strengths, particularly in IT, financial, pharmaceuticals, health and entertainment sectors. He has set a target of two-way trade at $30 billion by 2007, against the present $12.5 billion.

China's Prime Minister, Mr Wen Jiabao, on his first visit to South East Asia, injected a refreshing approach of conciliation and moderation, voicing his country's determination to co-operate fully in building the prosperity of the region and to share the gains of its own progress.

He had brought a 48-member business delegation of manufacturers (auto and telecom) and bankers, perhaps outnumbering the Indian contingent. He assured Asean leaders that China would remain a big market for them and a big investor. Already, it was sharing with the region the gains from its exports made up of inputs imported from Asian countries.

China has listed fields for strengthened cooperation such as agriculture, information and telecommunications, human resource development, investments and Mekong River Basin Development.

The failure of the Doha Round negotiations at Cancun in September has added momentum to bilateral, plurilateral and regional free trade agreements upon which the US has aggressively embarked as the surest way of bringing about a world free from tariffs.

Notwithstanding the commitment to multilateralism as well as to regional integration, India is pursuing bilateral deals with Singapore and Thailand.

(The author, a former Chief Editor, PTI, is a freelance writer.)

Article E-Mail :: Comment :: Syndication

Stories in this Section
Messy grain management

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line