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Trade is key in Asean-India ties

by July 19, 2017 General

THOSE in South-East Asia who are in the habit of peering at crystal balls may ponder whether the Indian army’s recent action in Bhutan – when it went to the aid of the Royal Bhutanese Army to block Chinese soldiers from building a service road in territory claimed by Thimphu – is worth extrapolating in a future context involving the region. India’s southernmost point is in the Nicobar islands of the Andaman Sea, so close to Indonesia’s Sumatra island that India is virtually a South-East Asian state as well.

What’s more, India has latterly embarked upon a policy of beefing up its strategic presence in the Andamans, and in a first for itself, indicated it is open to allowing a foreign presence on the islands by discussing a small power project with Japan, which had control of the area during World War II.

The Indian Navy is also to start continuous patrolling of the area, indicative of heightened security sensitivities about the region. In an earlier era, plans for the Indian Air Force to station a squadron of Jaguar fighter bombers on the islands were shelved so as not to alarm South-East Asian states. Things have clearly changed since China changed the status quo with its assertive policy in the South China Sea.

“Asean has a natural interest in the growing ties between India and Japan,” Indian Foreign Secretary S. Jaishankar said in Singapore last week. “Gradually and steadily, Japan has emerged as a special strategic partner with whom India increasingly shares a global agenda.”

Clearly, ties between India and Asean have come a long way since 1992, the year the grouping accepted the South Asian giant as a sectoral dialogue partner.

Four years later, this was upgraded to full dialogue partnership status, and in 2012, to a “strategic” partnership. Currently, there are 30 dialogue mechanisms between India and Asean, including an annual summit and seven ministerial dialogues.

Ties with individual Asean states are also deepening by the day. Meanwhile, issues beyond – China and the United States being two – are also taking on salience in the relationship.

At the 9th Delhi Dialogue with Asean, India’s Foreign Minister Sushma Swaraj described the future focus of India-Asean cooperation in terms of three Cs – Commerce, Connectivity and Culture. In prioritising commerce, Swaraj hit the right button.

For much of South-East Asia, trade is the lifeline. A crimping of export markets hurts heavily – see how quickly the Philippines came to Beijing’s heel after China leaned on its fruit shipments – because it hurts ordinary people’s lives. More than all the warships that could potentially be sailed into the South China Sea or the foreign direct investments into mines and factories, access to markets is what touches the ground most.

Yet, on openness to trade, India’s record is less than stellar. While there has been an uptick in the Asean-India trade relationship in the past year, this comes on the back of two years of trade regression.

At US$70bil, two-way trade is not only way short of potential, it is also dismally short of the US$100bil target for 2015 India had itself set with Asean.

What’s worse is that India has been taking a singularly unhelpful attitude when it comes to negotiating the Regional Comprehensive Economic Partnership (RCEP), an Asean-driven initiative to build a regional trading bloc between Asean and the six nations with which it has existing free trade agreements.

Its negotiators change too frequently and when they sit down for talks, voice reluctance to give equal market access to all RCEP members. When prolonged negotiations lead to an agreement to consider a unified structure for all, they seek to add a clause of “with minimal deviation” for some economies such as China, New Zealand and Australia. Behind the scenes, some Asean states suspect it of lobbying large economies such as Indonesia to agree only to 80% or so goods coverage for tariff reductions, whereas many Asean states seek a higher threshold.

Indian negotiators also press the point that their economy’s strengths and competitive advantage lie in the services sector.

Consequently, they demand freer access for its professionals and services companies to enter partners’ markets.

While that is not an unreasonable demand, India should know that even in the World Trade Organisation, trade in goods and services are separate issues and not negotiated in tandem. Besides, unlike trade, almost every service you can think of – the medical, legal and accountancy professions to name just three – tend to have individual regulators, making this a far more onerous task than a simple goods agreement.

This is where New Delhi needs to take a strategic view. Unequivocal endorsement of a high-quality RCEP is as much a political statement as an economic one. It will signal a level of Indian confidence in its own destiny and ability to compete that few other gestures can match.

New Delhi should be aware that it is not the only country to have a trade deficit with China. Every Asean country is in the same situation but their instinct is not to build walls around them.

Already, there are murmurs in some quarters of seeking a “Minus One” solution if Indian recalcitrance persists – essentially seeking to proceed without India, and giving it the option of joining RCEP at a future date. That would be a pity.

The next round of RCEP talks is to be held later this month in the southern Indian city of Hyderabad. It is a good occasion for New Delhi to take the necessary steps to make speedier economic integration a tangible good for the more than 600 million who call South-East Asia home. It would also make the Asean heads of state travelling to India’s Republic Day in January next year feel a lot more welcome.

  • Ravi Velloor is Associate Editor of The Straits Times, Singapore. The views expressed here are entirely the writer’s own.