ASEAN Member Nations Opening Arms For India. Nidhi

ASEAN Member Nations Opening Arms For India.Member countries which has mooted the idea of conglomerate in line with European Union which has transcended their borders for better economic trade and security. ASEAN- Association Of Southeast Asian Nation is a geopolitical and economic organization of 10 nations which is located in the southeast Asia. The organization was formed on 8 August 1967 by its 5 member nations which consisted of Indonesia, Malaysia, Philippines, Singapore and Thailand. The organization has successfully ordained itself in its area of concern. The extension of its member list to 10 is a perfect example of its eminence and success. The membership’s base is now beef up to Brunei Darussalam (1984), Vietnam (1995), Burma (Myanmar) (1997), Cambodia (1999), and Laos (1997). The organization was actually formed by its founder members in Bangkok by signing of the famous ASEAN Declaration which is better known as The Bangkok Declaration. The major desideratum of this declaration included various ingredients of promotion of nation building with economic growth, boosting the economic standard of living and amelioration of various other qualitative aspects of the economy and its people. Today, the economic bloc of 10 nations is spread over the vast area of 4.46 sq km with the population of about 587 millions in 2008. ASEAN operates with a vision of "One Vision, One Identity, One Community"."10 countries, 1 identity" unity of these ten nation forms the base of this organization. The nations have a different vulture amongst themselves. But still they stand firm for their development and growth. They stand together for regional peace and prosperity with the help of economic integration and cooperation. And finally they stand hand in hand for their people. They are entwined together by the common goal of human and social development. AFTA And ASEAN The thirst of economic and social development together, made the member nation not only to think about itself but also about its co members. ASEAN has emphasized regional cooperation in the “three pillars” of security, sociocultural and economic integration. The regional grouping has made the most progress in economic integration, aiming to create an ASEAN Economic Community (AEC) by 2015. The serious mode of organization about the issue regarding trade was seen by the world first of its kind in January 1992 when, a proposal to set up a Free Trade Area in ASEAN was first mooted by the then Thai Prime Minister Anand Panyarachun, which was acceded with amendments during the ASEAN Seniors Economic Official Meeting (AEM) in Kuala Lumpur. The freedom of free trade in the area was given by the Singapore Declaration which was signed in January 1992. No doubt, the step proved to be a pivotal landmark in the history of organization. Since then, the organization has been spreading itself over the line of free trade. The member nations were wise enough about not taking a very strong step of going for a free trade policy in one go. The member nations opted for free trade policy in steps. And finally ASEAN became an area of free trade only in January 2003. There can be no two thoughts about how crucial the decision of entering free trade is for any nation. The policy happens to be a valuable parameter about deciding any country’s economic condition in the world scenario and economic trade. But another important factor about the same is the policy of free trade adopted by the nation. Any organization can either delve into free trade by adopting a common tariff policy against all items imported and imposing no tariff on goods traded within. In another case, organization can have members who may impose no tariff or minor tariffs on goods traded within the organization and each nation can have a separate policy regarding tariff on the goods entering from outside the organization. The ASEAN nations have ratified the later model for itself. Each ASEAN member may impose tariffs on goods entering from outside ASEAN based on its national schedules. However, for goods originating within ASEAN, its members are to apply a tariff rate of 0 to 5 percent (the more recent members of Cambodia, Laos, Myanmar and Vietnam, aka CMLV countries, were given additional time to implement the reduced tariff rates) by 2003, which was later known as the Common Effective Preferential Tariff (CEPT) scheme. Mechanism Of AFTA The Common Effective Preferential Tariff (CEPT) scheme is the main implementing mechanism of AFTA. Under the CEPT member countries gradually lower tariffs on each other's imports ASEAN will truly be a free trade area once obstacles to trade are removed and taxes or tariffs on goods traded among member countries are reduced to zero to five percent. The objectives of ASEAN nations behind this scheme are judged to be as follows:  To augment the intra ASEAN trade.  To increase region’s competitive edge.  To bait more foreign direct investment. The nations were wise enough not to take this drastic step of free trade hurriedly but to go step by step. The implementation of CEPT was done in dividing all the tariff lines and products in three categories: 1. Fast Track. Fifteen (15) products identified at the Fourth ASEAN Summit shall be covered by a fast track scheme, which sees a lowering of tariffs to 0-5 percent within 7-lO years.  Tariffs above 20 percent will be reduced to 0-5 percent within ten years.  Tariffs 20 percent and below will be reduced to 0-5 percent within seven years.  Product-groups under the fast-track program are the following  Vegetable Oil  Cement  Chemicals  Pharmaceutical  Fertilizers  Plastics  Rubber Products  Leather Products  Textiles  Ceramic and Glass Products  Gems and Jewelry  Copper Cathodes  Electronics  Wooden and Rattan Furniture It should be noted that the sectors covered by the Fast Track program actually includes more than the 15 products originally agreed upon in the 1992 Singapore Declaration. The notable additions are mechanical appliances and mineral products. There are a total of 14,855 tariff lines. 2. Normal Track. Products under the normal track will see their tariffs lessen over a period between 10-15 years. There are a total of 25,918 tariff lines included the normal track of the tariff reduction scheme of AFTA. Malaysia leads with most number of tariff lines under the normal track (5,710) while the Philippines has the lowest (3,432). The biggest submissions are in base metals and metal articles, machinery and electrical appliances and chemicals. Tariffs above 20 percent will be reduced in two stages: a) A cut within 5-8 years; b) A final reduction to 0-5 percent after another seven years, or a total of 15 years. Tariffs of 20 percent and below will be reduced to 0-5 percent in ten years. 3. Temporary Exclusions - Member States which are, in the interim, not ready to include certain sensitive products in the CEPT Scheme may exclude such products on a temporary basis. Products in the Exclusion List cannot enjoy the CEPT tariff from other ASEAN Member States. The bulk of submissions in the temporary repudiation list are in the chemicals, plastics and vehicles sectors. As of December 1993, the six ASEAN countries have submitted a total of 3,322 tariff lines for temporary exclusion from tile CEPT. The temporary exclusion list will call to mind by the eighth year of the CEPT scheme. The ASEAN countries will make an effort to remove products in the exclusion list and subject them to a schedule of tariff reduction to bring the tariffs down to 0-5% within the remaining seven years of the program. The bulk of submissions in the temporary exclusion list is in the chemicals, plastics and vehicles sectors. The other measures included steps like abrogation of quantitative measures like quota fixation on imports, non tariff barriers, etc and abolition of restrictions related to foreign exchange and other non tariff barriers. A member country enjoys the rates under CEPT if:  At least 40 percent of the value of its products originates from any one or more member states.  The product has certificate “Form D” which is issued when a product has to have a program of tariff reduction approved by the AFTA Council.  The product has to be included in the Inclusion Lists of both the exporting and the importing countries and must belong to the same tariff band, i.e., above 20% or 20% and below. The plan of the organization is to cast out all export duties by 2010 for ASEAN-6 and by 2015 with flexibility for CLMV. The cooperation in free trade was accompanied by cooperation in various fields relating to economy, banking and finance. Such cooperation include cooperation in the field of industrial development, cooperation in field of banking and finance, cooperation in investment, cooperation in agriculture, food and forestry, cooperation in minerals, cooperation in energy, etc. Evaluating AFTA It is a stands as a challenging job to comment on the pros and cons of formation of such and organization. Commenting on its serious steps like that of formation of AFTA is another tedious task. But going by the world scenario and after studying the formations and implications of such organization in history, it can be said that the effects of the event can be very well evaluated positively when it comes to its effect on world peace and harmony. It cannot be declined that the countries in such situation would be encouraged to promote peace and harmony. Being interlocked through such relationships derogates the likelihood of war. If you are engaged in a mutually beneficial relationship with other countries then there is no incentive to jeopardize this relationship through aggression. This promotes peace, which is an universal good. There can be no second opinion about the fact that such organization promotes maximum efficiency, and the cheapest prices, can only be maintained by a tariff free international economy. The more efficiently allocated are the resources the lesser is the waste and the more affordable goods will become for consumers. Such steps not only promote free flow of goods but also that of services in the region. The free flow of expert services not only help in development and growth of economy at macro level but also help in raising the level of standard in absolute form. The growth of the developing world is a universal good, because the improvement in the quality of life of millions of people is clearly a moral imperative. Free trade helps countries by maximizing their comparative advantage in free trade circumstances. But each coin has 2 sides and in the same way, each idea is always accompanied by its negative impacts. In case of ASEAN, formation of CEPT is no exception to this truth. Free trade does not always promote the universal good of peace. Trading countries have gone to war against each other. If there is anything in that argument at all it holds well for any good natured trading relationship, not necessarily just a tariff free one. International economics isn’t as simple as increasing the efficiency of global resource allocation above all else. Tariff revenue is a perfectly legitimate and useful source of government income. Second, without tariffs governments cannot protect the job security of their citizens. The tariff has its own advantages when evaluated practically. It stays as an important tool in hands of the government when it comes to protection of domestic companies from foreign competition. The domestic industries cannot be sacrificed anyhow in the name of better resource allocation. If capital were rational in its flows it would be beneficial. In practice liberalized capital flow can destabilize developing countries, which are prone to fickle speculation, based on investor whom rather than economic fundamentals. India and ASEAN Since its inception, the ASEAN nations have shown a keen interest in partnerships with India. The development of relationships has been at a very brisk pace. The landmark in this direction came in when India became a sectored dialogue partner of ASEAN in 1992. A step further in the same direction was taken when In external relations, the ASEAN Leaders agreed to further the engagement process involving its Dialogue, Sectored and Consultative Partners on the basis of mutual benefit. India was elevated from Sectored Dialogue Partner to full Dialogue Partner status during the Fifth ASEAN Summit. It was only in 2003, that the first proposal for free trade was put up by the ASEAN nations in front of India. The proposal was thought about and worked over by both the nations for a good time of 6 years. And finally the India-ASEAN Free Trade Agreement (FTA) was signed on 13 August, 2009 at Bangkok. The agreement was signed by Anand Sharma, the Commerce and Industry Minister for India. The step is undoubtedly a historic development and an important step toward enhancing economic cooperation between India and ASEAN. The agreement would open new opportunities for multispectral engagement. ASEAN is India’s fourth largest trading partner after E.U., the United States and China. India’s trade in ASEAN is mainly concentrated in Singapore, Malaysia and Thailand. Singapore is the largest importer of Indian merchandise export, providing India with a large market for its electronic and petroleum products. The agreement signed paved way for creation of one of the world’s largest free trade areas (FTA)- market of about 1.8 billion people with a combined GDP of US$ 2.75 trillion. The agreement has liberalized trade of about 90% of goods traded between India and ASEAN. The list includes products like palm oil, coffee, black tea and pepper. The tariff cuts in respect of these sensitive items will be graduated during a period of 10 years. In words of Amit Mitra, Secretary general FICCI, who accompanied the Commerce minister to Bangkok remarked “Our most sensitive and vulnerable sectors are protected in terms of the negative list and sensitive list”. He added that the “ASEAN Countries were not yet ready for an FTA encompassing software, information technology and tourism”. There are about 489 items excluded from the list of tariff concessions and 590 items excluded from the list of tariff eliminations in the agreement pertain to farm products, automobiles, certain auto-parts, machinery, chemicals, and crude and textile products. This agreement opens a 1.7 billion consumer market to the member countries. The likely beneficiaries in India are the exporters of machinery, steel, oilcake, wheat, buffalo meat, auto components synthetic textiles, refined petroleum products, organic chemicals, pharmaceuticals, gems and jewellery. In Indian context, the agreement is seen as an important step in diversifying its market all over the world and reducing its dependency on E.U. and United States of America. ASEAN is an important area of diversification in this context and such step in this context proves to a landmark in the economic history of two nations. Not only that, the automotive industry is experiencing a new era within Asia and the impact of AFTA will certainly go over the borders of Southeast Asian countries and affect a lot of automobile manufacturers and their economies of scale. Therefore they need to reposition themselves on the market to take advantages out of AFTA and improve their trading strategies. Moreover, the free trade agreement in case of services and investment will be open between India and ASEAN by 2016. The sectors in which Members have taken commitments in ASEAN are: tourism and air-transport services, business services (including professional services), construction services, financial services, healthcare services and ICT & telecommunication services. The other services sectors, including professional services, are targeted for liberalization by 2020, although consideration is being given to advance the timeline to 2015 with flexibility for sensitive sectors. It is expected that the new policy will help broad-base services exports from the country, to include as many of the 161 tradable services covered under the General Agreement on Trade in Services and where payment for such services is received in free foreign exchange; service sector exports from India are currently dominated by software exports. Compared to other regional groupings, as said before, ASEAN is the fifth most important market in the world in terms of Indian exports and fourth in terms of imports. India accounts for less than 2% of ASEAN global trade, while India’s trade with ASEAN Members constitutes about 9.5% of India’s global trade. The Final Word… From the study, following can be concluded in a nutshell:  India sees ASEAN as a major trading partner.  The signing of the trade agreement is a major step towards diversification of Indian trade.  The ASEAN region is seen as a new future market for Indian service exports.  The Indian economy has not wildly opened itself to the free trade agreement. The cautious step of the leaders shows that the economy is in no mood to disrupt its internal peace in the economic affairs. No compromises would be accepted in the same respect.  Though the omission of software and information technology comes as a major set back to the economy as the sector would have really brought in profits for the economy, but positive news can be soon expected. Hence the main conclusion is that India is very much fast with its “Looking West” ideology as its new trading ideas. The opening of ASEAN markets is definitely good news but a step of caution is required to save the economy from the negative effects of globalization. The economy needs and is following to follow the golden rule of “look before you leap” before grabbing any such opportunity. By Nidhi