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S. D. Naik

India's compulsions of integrating with Asean have assumed a new urgency with the recent failure of the WTO Ministerial at Cancun and the threat issued by the US of bypassing WTO for bilateral trading arrangements. Mr Atal Bihari Vajpayee pushing the idea of closer ties with Asean and Japan, China and South Korea should see a roadmap being charted for a new economic cooperation in the region, says S. D. Naik.

NEW DELHI's East Asian diplomacy saw an unusual flurry of activity at the second India-Asean summit in Bali earlier this month. When the Prime Minister, Mr Atal Bihari Vajpayee signed India's accession to the Treaty of Amity and Cooperation with the Asean, it truly heralded the beginning of a new era of partnership with all the member nations of the Association. The Prime Minister also signed two broad agreements, for Comprehensive Economic Cooperation and Combating Terrorism, thus imparting a new dynamism to the emerging partnership between India and Asean in trade and investment.

Though India had evinced interest in joining the Asean as early as 1987, India's engagement with it began only in 1992 as a sectoral dialogue partner as part of Mr P. V. Narasimha Rao Government's Look East policy. Since then, the progress has been painfully slow; the relationship was upgraded to full dialogue partnership in 1995 and a membership of the Asean Regional Forum in 1996. The first summit-level interaction in November 2002 took place in Cambodia.

Following the recent failure of the WTO trade talks at Cancun and the threat issued by the US — India's largest trading partner — of bypassing WTO for bilateral trading arrangements, India's compulsions of integrating with Asean have assumed a new urgency. While India would continue to seek a rule-based and fair multilateral trading system, "regional trading arrangements offer immediate advantages, particularly for geographically contiguous regions", argued the Prime Minister, Mr Vajpayee, in his address to the Asean Business and Investment Summit.

Not surprisingly, India is now keen to make up for the lost time and catch up with the other dialogue partners of the Association — China, Japan and South Korea — which are already busy forging closer economic relationship with this bloc through Asean+3 process. The Indian Prime Minister made this amply clear when he said that the development of closer political and economic linkage between India and Asean "is in consonance with our efforts for a multipolar world order and for expanding our economic opportunities".

Mr Vajpayee not only invited Asean investors to take a fresh look at India of the 21st century but offered several concessions and incentives unilaterally. For instance, he offered `open skies' policy to specified South-East Asian airlines, which will be free to operate daily flights to the Indian metropolitan centres, outside any bilateral aviation pact. The framework agreement on comprehensive economic cooperation between Indian and Asean also provides for ``early harvest'' programme, which specifies the areas for collaboration and a common list of items for exchange of tariff concessions.

January 2004-June 30, 2005 is the deadline for negotiations for FTA in goods and 2005-2007 for services and investments. January 1, 2006 is the target date to start tariff reductions. India has agreed to eliminate tariffs in 2011 for Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam. While Brunei, Indonesia, Malaysia, Singapore and Thailand will reciprocate and eliminate their duties for India in the same year, the new Asean member-states — Cambodia, Laos, Myanmar and Vietnam — will do so by 2016. India and the Philippines will eliminate tariffs for each other on a reciprocal basis by 2016.

The early harvest programme for exchange of tariff concessions on listed goods will start from November 1, 2004. The exchange of tariff concessions and elimination of tariffs on an agreed common list of 105 items based on common reciprocity between Indian and Asean-6 will take place within three years. For others — Cambodia, Laos, Myanmar and Vietnam (CLMV) — while India will remove tariffs on these items within three years, they will do so for India in six years.

India will extend unilateral tariff concessions to CLMV on 111 items in line with Mr Vajpayee's commitment at the first India-Asean summit last year to extend special and differential treatment to Asean countries based on their levels of development so as to improve their market access to India. This gesture should go some way to answer critics who have been saying that India imposes higher tariffs on developing country imports than on western ones.

India's Framework Agreement with Asean is further complemented by sub-regional agreements towards enhanced economic cooperation. These include the bilateral free trade agreements with Thailand and Singapore. The trade and investment between Singapore and India is already on the rise for sometime now. On October 9, India and Thailand signed five agreements covering a wide range of issues, including a landmark free trade agreement. The two countries have also decided to slash tariffs by 50 per cent on 84 products under an early harvest scheme that will become effective from March 1, 2004.

It is true that India's pro-active approach to engage the Asean gathered momentum after China offered to have an FTA with Asean by 2010 and the proposed creation of Asean-Plus-Three East Asian Economic Community. But this belated move has been whole-heartedly welcomed by Asean, because India will provide the western wing to balance the economic co-operation offered by the East Asian wing of China, Japan and South Korea.

Fortunately, unlike in the past, India now commands a new respect among the comity of nations as a growing economic power in this region. Till 1991, economic interaction between India and Asean did not flourish despite geographical proximity and age-old trade and cultural links because of India's inward looking import substitution model of industrialisation and the politics of Cold War era. As an Indian analyst said, ``during the Cold War period, India was regarded by the Asean countries as politically suspect, economically unimportant and, at times, militarily threatening''.

With the end of the Cold War, India's strategic orientation underwent a radical shift and so did Asean's view of India. Moreover, with the decisive shift in its economic policy since the launching of the process of liberalisation and globalisation, India has emerged as one of the fastest growing economies in the world with the potential of becoming a new powerhouse of manufacturing after proving its capability in software and information technology.

Incidentally, the sizeable population of Indian origin (about three million in ten Asean member countries), which played an important role in industrialisation and trade promotion of these countries, can act as a vital link in developing mutually beneficial ties between India and Asean. Moreover, the new breed of Indian migrants that include software engineers, financial analysts, management professionals etc, are likely to play an even more important role in promoting Indo-Asean economic relations.

The growing stature and maturity of the Indian economy is also evident from the fact that the country has pledged $1 billion for an Asian Bond Fund, launched by some of the central banks of the Asia-Pacific region. The Fund has been created to help Asean member countries to deal with financial crises of the type witnessed in 1997-98. The idea is to eventually minimise dependence on the IMF as a lender of last resort and create an alternative financial architecture for the Asean region. True, the corpus of the Fund is still quite small, but considering the huge capital inflows being attracted by the Asian economies in recent years, and Japan's willingness to support an alternative financial architecture for Asia, the prospects of a bigger fund emerging are quite bright.

While the two-way trade between India and Asean has steadily gone up from just $3.1 billion in 1991 to a little over $12 billion in 2002, it is still far below the potential. Now Mr Vajpayee has set a target to raise this to $30 billion by 2007. Even this target appears quite modest considering what China has achieved already and what it wants to do further. The quantum of Sino-Asean trade last year was $55 billion and China has targeted a trade level of $100 billion with the region in 2005. Mr Vajpayee has admitted that the ``China factor'' is an important impulse in New Delhi's efforts to improve the relations with the Asean.

Since China, Japan and South Korea have offered economic cooperation with Asean, India's integration with the Association is also expected to facilitate greater cooperation between India and these countries. The Prime Minister's historic official visit to China in June this year has helped put political and economic relations between India and China on a new footing. South Korean companies have already expanded their activities in India using it as manufacturing base for their global exports. Now efforts are needed to upgrade economic cooperation between India and Japan.

Mr Vajpayee has already put forward the idea that Asean should be more closely integrated with India, Japan, China and South Korea to form an Asian Economic Community that would "more efficiently exploit our synergies". In this context, Dr Nagesh Kumar, Director-General of the New Delhi-based RIS suggested in a recent article in The Hindu (October 7, 2003) that Japan, Asean, China, India and Korea (JACIK) provide a good roadmap to move ahead on the path of Asian economic integration.

According to RIS research, JACIK has 14 of the fastest growing economies with vast complementarities. These have a population of 3 billion or half the world's and a GNP of over $7.2 trillion, comparable to the EU's in 2000 and exports adding up to $1.37 trillion compared to $1.2 trillion of NAFTA. The combined official reserves of JACIK economies at about $ 800 billion would be much larger than those of the US and the EU put together. Thus, the region would have sufficiently large market and financial resources to support and sustain expedited development of the region's economies.

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