India-ASEAN FTA: Implications For India’s Northeast

By James R. Ruolngul

Introduction

India and the Association of Southeast Asian Nations (ASEAN)

[i] have concluded negotiations for a Free Trade Agreement (FTA) after years of difficult negotiations. This agreement will be signed into a treaty at the India-ASEAN Summit to be held in Bangkok on December 2008 and will come into force from January 1, 2009 if everything goes as planned.

Expectations from the India-ASEAN FTA are high. The Joint Media Statement of the Sixth ASEAN Economic Ministers (AEM)-India Consultations stated that the AIFTA could be a major avenue in harnessing the regions vast economic potentials towards sustained progress and improved welfare not only for ASEAN and India but for the greater East Asian region as well

[ii] The India-ASEAN FTA is the result of many international and domestic factors. On one hand, the trend of international regionalization and the proliferation of FTAs and the failure of the Doha round of multilateral talks to yield concrete results led both India and the ASEAN countries to consider alternative solutions towards freer trade. On the other, the adoption of policies by India and ASEAN to develop better cooperation with their immediate neighbors in recent years has helped accelerate this negotiation.

In this context, India’s Northeast came to be seen in a new light. Several steps have been taken to improve relations with India’s immediate neighbor Myanmar. India has also trade relations with Thailand and Singapore. India and Myanmar shared a 1643 km long border. Myanmar being a member of ASEAN, the north eastern states of India become an important link between the two parties.

This paper is an attempt to analyze what forebode India and its Northeast states in the light of the much-hyped India-ASEAN FTA. It will start by looking into the relationship between India and ASEAN and culminate with the present agreement. After that, the paper will analyze the implications the AIFTA can have on the north eastern states of India. It will, however, not delve into the security-insurgency dimension that has almost become an anthem for most writers on north eastern India except in giving some passing remarks. It will, instead, try to highlight the many projects, plans and proposals that has been undertaken in the north east during the past few years and explore possible opportunities, problems and solutions for this region and for the FTA.

India and ASEAN: Shared ties, divergent policies and convergence?

Although India and ASEAN countries have shared cultural and historical ties, India’s interactions with ASEAN countries was quite limited during the Cold War as the two pursued policies which were not very conducive to deep rooted interactions and commitments to each other. Soon after the end of the Second World War, India championed the process of decolonization and drew recognition and appreciation from different parts of the world. It became one of the founding members of the Nonaligned Movement (NAM). Even though Indonesia was also a member of NAM alongside India, this relationship did not extend beyond that.

The arrival of bipolar politics in Southeast Asia, the Vietnam crisis and India’s close ties with the Soviet Union led to the adoption of divergent policies by both India and ASEAN. ASEAN was formed in 1967 during the Vietnam War primarily to diffuse regional conflicts and to promote better relations between members. Communist victories in Vietnam, Laos and Cambodia soon worsened the already fragile security situation of Southeast Asia. Thus by 1976, ASEAN was forced to contemplate to become an association with security as its main concern. The reunification of Vietnam and the Vietnamese invasion of Cambodia created another security dilemma. While ASEAN chastised Vietnam, India supported Vietnam. ASEAN’s suspicions of the Soviet Union and the paranoia it had with anything communist led many, including India, to regard ASEAN as allies of the capitalists or a pro-American bloc. Suspicion was so high during this time that India refused to hold dialogues with ASEAN twice in 1975 and 1980.

But with the end of the Cold War, interactions between India and ASEAN became more frequent; and relations between the two began to improve at a very fast pace. Following the end of the Cold War and the collapse of the Soviet Union, India began to adopt liberalization policies. Meanwhile, ASEAN had also emerged as an important regional organization with great potentials and opportunities for growth. The transformation of the international system and new outlooks led to the adoption of the Look East Policy by India. When India initiated its Look East Policy in 1991, it marked a strategic shift in its foreign policy and perceptions towards its eastern neighbors. ASEAN’s strategic importance in the larger Asia-Pacific region and the potentials it has in becoming India’s major partner in trade and investment also added an impetus to India to develop closer ties with it. In addition, considering that the proposed South Asian Free Trade Area (SAFTA) is unlikely to produce any solid outcome, this policy shift and agreement on the part of India is as strategic as it is important. The Indian Prime Mister Manmohan Singh commented thus, This was not merely an external economic policy; it was also a strategic shift in India’s vision of the world and India’s place in the evolving global economy. Most of all it was about reaching out to our civilization neighbors in the region

[iii] In continuance of India’s Look East Policy, the process of interregional cooperation was institutionalized with India becoming a sectoral dialogue partner of ASEAN in 1992; a full dialogue partner in 1995 and member of the ASEAN Regional Forum (ARF) in 1996. India became a summit-level partner of ASEAN in 2002 and concluded the ASEAN-India Partnership for Peace, Progress and Shared Prosperity in 2004. India also became engaged in regional initiatives such as the Mekong-Ganga Cooperation (MGC) and the Bay of Bengal Initiative for Multi Sectoral Technical and Economic Cooperation (BIMSTEC). India has now become a member of the East Asia Summit (EAS) since December 2005.

The deepening of relationship between India and ASEAN is reflected in the buoyancy of trade figures between the two. During April-September 2007-2008, trade grew from US$ 15.06 billion to US$ 17.02 billion, that is, trade grew by 13 per cent. India’s Foreign Trade with ASEAN, according to the Directorate General of Commercial Intelligence and Statistics (DGCIS), is also on the rise. During the period 2005-2006 to 2006-2007, India’s exports to ASEAN registered a growth rate of 20.67 per cent. Similarly, India’s imports from ASEAN during the same period registered a growth rate of 66 per cent. India-ASEAN trade stood at US$ 38.37 billion in 2007-2008 and is projected to reach US$ 48 billion during 2008-2009.

[iv] At the first India-ASEAN Summit held at Phnom Penh on November 5, 2001, India called for an India-ASEAN FTA within a 10-year time frame. In this context, the second India-ASEAN Summit held at Bali on October 8, 2003 was a significant landmark in India-ASEAN relations. This Summit saw the signing of the Framework Agreement for Comprehensive Economic Cooperation between India and ASEAN. This agreement envisaged the establishment of an FTA within a period of ten years. In March 2004, an ASEAN-India Trade Negotiations Committee (AI-TNC) was established to negotiate the implementation of the provisions of the Framework Agreement. India has, since then, entered into numerous agreements with ASEAN. At the sixth India-ASEAN Summit held at Singapore on November last year, India proposed to increase its bilateral trade with ASEAN to the tune of US$ 50 billion by the year 2010. The latest agreement is therefore, the result of many years of tactful policies that led to the thawing of the ice between these two important emerging economic powers in Asia.

In addition to these agreements with ASEAN, India has also made consistent efforts to develop bilateral ties with ASEAN members. With Thailand, India has 61 years of diplomatic relations. India also has a Free Trade Agreement with Thailand that was signed in 2004. The framework agreement on bilateral FTA of 2003 was the basis of this FTA with Thailand. Trade between the two increased from a mere US$ 606 million to US$ 3.14 billion in 2006-2007.

With the CLV countries (Cambodia, Laos and Vietnam), India entered into a number of bilateral agreements for cooperation in the fields of trade, science and technology , agriculture, defence, visa exemption, tourism, IT and culture. India has major projects in the fields of education, entrepreneurship development and IT in these three countries. In 2004, India extended a credit line of US$ 27 million to Vietnam.

Malaysia is a major source of Foreign Direct Investment (FDI) for India, particularly in the areas of LPG, power plants and highway constructions. Trade between the two rose from US$ 2.2 billion in 2002-2003 to US$ 6.6 billion in 2006-2007. Indian public sector undertakings such as BHEL and IRCON have also undertaken and completed a number of projects in Malaysia. Presently, after the India-ASEAN FTA negotiations, it is reported that about 150 Indian engineering firms are eying to diversify their export base in ASEAN markets and are planning to make Malaysia the regional hub to penetrate the region.

[v] Many of these companies are exploring the possibilities of joint ventures, technology transfers and investment opportunities.

It was mainly because of the insistence of Indonesia that India became a part of the East Asia Summit in 2005. Relations between the two had been very good for many years. Bilateral trade between the two increased by 44 per cent from 2005-2006 to 2006-2007.

India has a Comprehensive Economic Cooperation Agreement (CECA) with Singapore since 2005. This agreement included bilateral investment promotion treaty, double taxation avoidance agreement, an air services agreement and an FTA. Singapore, along with Indonesia had been an important factor for India’s inclusion into the East Asian Summit. In addition, it was Singapore’s role that paved the way for India’s association with the ARF. Singapore is the biggest source of FDI for India among ASEAN countries. During the period 2000 to 2008, the cumulative FDI of Singapore into India was worth a whooping US$ 4.35 billion. Concurrently, over two thousand Indian companies were based in Singapore.

India also has plans for a free trade area with Brunei, Indonesia and Malaysia by 2011 and with the remaining ASEAN countries by 2016. Since 1995, India had actively engaged Myanmar in trade. It has signed several agreements and MOUs including the Tripartite Maritime Agreement with Myanmar and Thailand, Border Trade Agreement and for cooperation between civilian authorities between India and Myanmar. Since 2000, a number of high level visits have taken place. During these visits, several agreements and MOUs have been signed in areas ranging from hydroelectric projects on the Chindwin River and IT cooperation to cultural exchange programs. In the year 2003 alone, seven Agreements/MOUs were signed to promote trade and communication facilities. By 2006-2007, bilateral trade between India and Myanmar reached US$ 650 million as compared to US$ 341.40 million in 2004-2005.

India-ASEAN FTA, Look East Policy and the Northeast

The announcement came after the conclusion of the 6th ASEAN AEM India Consultations held at Singapore on 28 August 2008. The text of the India-ASEAN Trade in Goods Agreement will be finalized before the India-ASEAN Summit to be held in December 2008 at Bangkok where it will be formally signed into a treaty and will come into force from January 1, 2009. This Summit will be attended by the Indian Prime Minister Manmohan Singh.

This agreement, it is expected, will bring a free trade regime to about two billion people from 11 countries with a combined GDP of $2,381 billion as of 2007. The agreement covering billions of dollars in trade in goods but not in services was supposed to have been concluded last year but talks were bogged down because of differences over products that India wanted excluded from tariff cuts. India had submitted a list of 1,414 products but ASEAN’s target was only 400. In the end, the agreement permits India to have 489 products in the exclusion list and 606 sensitive goods that will come under partial duty reductions.

This agreement is to be viewed against the backdrop of the long drawn-out Doha round of multilateral talks. As the Doha talks continue to drag on, this agreement between India and ASEAN can be seen as a natural course of action for countries refusing to entangle themselves in the protracted Doha round of talks. This agreement, along with the comprehensive FTA between ASEAN, Australia and New Zealand (AANZ FTA), became the first major trade agreement in the post-Doha era of trade policy negotiations.

The India-ASEAN FTA is also the result of recent changes in ASEAN’s policy towards its immediate neighbors and other important trading partners all over the world. In recent years, ASEAN has been involved with its major trading partners in concluding FTAs. In 1999, the ASEAN+3

[vi] was formed for the establishment of a common market and a currency. China was the first to conclude an FTA with ASEAN followed by Japan and South Korea. The present FTA between India and ASEAN, and the AANZ FTA completes this trend. ASEAN will now be able to strike a fine balance in trade among its immediate neighbors.

The India-ASEAN FTA also needs to be viewed in the broader context of global trends towards regional or bilateral trading arrangements (RTAs/FTAs). Out of the 108 RTAs notified to the General Agreements on Tariffs and Trade (GATT) over the period 1948-1994, 33 of them had been established in the early 1990s. By the year 2000, almost half of the 220 RTAs notified to the World Trade Organisation (WTO) are initiated after the Cold War. Such is the importance accorded to RTAs or FTAs in recent times that no country can ill afford to ignore it. Till July 2007, some 380 RTAs have been notified to the WTO.

[vii] For India, this agreement will be a major milestone in its Look East Policy that began after the collapse of the erstwhile Soviet Union. The current agreement will take India far beyond its existing trade agreements with Myanmar, Thailand and Singapore.

It is in these contexts that India’s Northeast came to be seen in a new light. Rajiv Sikri, the Secretary East of the Ministry of External Affairs remarked that the Look East Policy envisages the Northeast region not as the periphery of India, but as the centre of a thriving and integrated economic space linking two dynamic regions with a network of highways, railways, pipelines, transmission lines crisscrossing the region.

[viii] Myanmar, now being a member of ASEAN and having shared a 1643 km long border with India, is now becoming the major link between India and ASEAN countries. The Northeast states of India have now also been seen as the gateway to the ASEAN countries.

One early outcome of the Look East policy was the Indo-Myanmar Trade Agreement signed in 1994. According to this agreement, border trade between the two is to be conducted through Moreh in India and Tamu in Myanmar; Champhai in India and Hri in Myanmar and other places that may be notified by mutual agreement. Several Indian companies are also engaged in oil and gas exploration in Myanmar.

In 2001, India upgraded the 160 km long Tamu-Kalewa-Kalemyo highway. Plans for a 1400 km long trans-Asian highway that will connect India, Myanmar and Thailand is now being finalized. A railway link that will extend up to Imphal in Manipur in the first phase and up to Myanmar in the second phase is also being planned. Bilateral trade between India and Myanmar has also been expanding at a significant rate since 2001. India has extended a number of general and project-specific credit lines in the last few years. Some major projects between the two, besides the ones already mentioned include the Rhi-Tiddim and Rhi-Falam Roads in Myanmar, the Kaladan Multimodal Transport Project and the Tamanthi Hydro Electric Power Project.

The Kaladan Multimodal Transit-cum-Transport project agreement was signed in April this year. Jairam Ramesh, the Minister of State for Commerce said that the Rs. 548 Crore project will help increase connectivity between the two countries. This project will link Kolkata and Sittwe, Kaleutwa in Myanmar by road and would go through Mizoram in India. It also envisages the development of a 225 km waterway on the Kaladan River and the construction of ports along the way. The minister said that north eastern India will be able to boost its border trade with Myanmar. We will also consider opening up of trading points in Mizoram, Arunachal Pradesh and Nagaland. At present, we have only one trading point at Moreh in Manipur. This project will also help India to effectively integrate with the ASEAN region through Myanmar.

[ix] Plans to allow free movement of Myanmarese citizens up to Moreh town in Manipur is also afoot. The Manipur Government has also submitted a Rs. 200 Crore project proposal to the Central Government to develop infrastructure at Moreh.

In 2006, a proposal for a bus service between Imphal and Mandalay was considered and accepted by the Indian Government. But till now, no such service has been undertaken. But during the September 2008 visit of a 17-member trade delegation from Myanmar at Imphal, the Myanmar trade delegation expressed their desire to implement the proposed Imphal-Mandalay bus service definitely. This visit was a reciprocal visit after a trade delegation from Manipur visited Mandalay during the month of April 2008. After holding a series of meetings, both the sides agreed to put pressure on their respective governments to improve the existing border trade between India and Myanmar.

Earlier in April 2008, after the visit of a strong Myanmar official and business delegation to India, both the two countries had agreed to increase border trade that is restricted to only 22 items, all being agricultural products. There are now plans to free more items including life saving drugs, fertilizers, garments, x-ray papers and motor parts.

The latest agreement signed between India and Myanmar is the four-point economic cooperation agreement signed in June this year. This agreement was signed by the Indian Minister for Commerce and Power Jairam Ramesh and the Myanmar Minister for National Planning and Economic Development U Soe Tha. First, the Bilateral Investment Promotion Agreement (BIPA) was signed to encourage investment between the two countries. Second, a credit line agreement between the Exim Bank of India and the Myanmar Foreign Trade Bank was signed to finance three 290 kv transmission lines in Myanmar. This US$ 64 million project will be executed by the Power Grid Corporation of India. Third, a credit line agreement for US$ 20 million between the Exim Bank of India and the Myanmar Trade Bank was signed to finance the establishment of an aluminum conductor steel reinforced wire manufacturing facility. This facility will be used for the expansion of power distribution network in Myanmar. Fourth, the United Bank of India (UBI) and the Myanmar Economic Bank signed an agreement to encourage border trade through Moreh. There are also plans to expand trade centres to include Arangkhu and Lungwa in Nagaland, Zokhawthar in Mizoram, Pangsan Pass in Arunachal Pradesh and Behiang, Skip and Tusom in Manipur.

[x] At present, only Moreh border trade centre in Manipur is functional with other centres becoming non-functional.

Till now, results are far below expectations, especially for the Northeast. In practice, the agreements between India and Myanmar do not extend much beyond granting formal sanctions to the already existing exchanges between the local people. In effect, border trade remains insignificant and did not contribute much towards economic growth for neither country. Among the many problems faced by both countries, security concerns and the poorly developed infrastructure for trade are the most acute. For trade and commerce to flourish, the entire network of transport and communication, industries and agriculture throughout the Northeast also needs to be revamped and developed. Unless this is done, the much touted India-ASEAN FTA will be just another statistics in the minds of a very few researchers, academicians, scholars and administrators in Northeast India.

An important point to note is that although trade performance has improved with India’s eastern neighbors, many of these exchanges had been done through seaports, leaving the northeast states in the lurch. If the northeast is to benefit from any improved trade relations or any present or future FTAs, the numerous plans and proposals that has been put forth and are in paper only must be implemented and brought to fruition first. The very few roles that the northeast states are playing right now should also be promoted to a more central role so that the north east states could reap the fruits of its own fields.

In a nutshell, Northeast India, a storehouse of great natural resources but very backward economically, needs to be built up and readied if it is really going to be the gateway or centre of trade between India and East Asia. Unless the region is developed to catch up with the rest of the country in its growth rate and development, it will be hard to achieve what the people aspired for peace, security, prosperity and all round development. To make this possible, substantial investment in infrastructure, construction of roads, bridges, communication networks, harnessing of the region’s vast natural resources and other physical infrastructures that will facilitate trade and economic progress needs to be developed.

With the impending AIFTA, India’s Northeast region has suddenly become the centre of focus once again. But this region has been lacking behind other Indian states in most respects in spite of its vast natural resources and strategic position as a link between India and Southeast and East Asian countries. The main reasons why this region remains backward are the lack of any infrastructure that could facilitate any development in the region, poor market access and, to some degree, security issues.

The Indian government also concedes that the Northeast has a long way to go to achieve the national growth rate of nearly 9 per cent. The growth rate of Northeast is only 4 per cent. To increase the growth rate and economy of this region will be an important step because herein lies many solutions to some pressing political and security problems.

Therefore, in the context of the present FTA, the author is of the opinion that unless the Northeast region is developed wholeheartedly, neither India nor ASEAN will really benefit from it.

Concluding Remarks

Lately, there has been a flurry of activities that are of great importance to the north east states with some conscious efforts being made to develop this region. The Union Minister for the Development of North Eastern Region (DoNER) Mani Shankar Aiyar said that the Centre is aiming to promote the region as a major FDI destination and an export centre. The minister added that these are all attempts to make the region the arrowhead of India’s future economic growth. On July 2, 2008, the Indian PM released the North Eastern Region Vision 2020 document which contained detailed reports for the development of the north eastern region. The PM gave his assurances that the visions contained within this document will be made a reality. To quote him extensively, he said, â??Infrastructure deficiency remains a major concern of the Government. You will be happy to know that we have decided to link all State Capitals with railway lines. These projects have been given the status of National Projects with a special funding pattern. Airports are being modernized and new ones are being built. An ambitious programme of road building has been taken up under the Special Accelerated Road Development Programme for the North East (SARDP-NE) and an amount of Rs. 31,000 Crore is being invested on roads in the 11th Five Year Plan. There are relaxed guidelines for rural roads under the Pradhan Mantri Gram Sadak Yojana (PMGSY) so that even the farthest hamlets on the border are linked by road. Within the 11th Plan period, these interventions will begin to show positive results. To bridge the infrastructure gap in the region, our Government has taken several initiatives. Work on the Tipaimukh and Loktak Downstream Hydro Electric Projects, costing about Rs.6,000 crores and Rs. 800 crores respectively, has been expedited. The 726 MW Palatana Gas based Power Plant, with an outlay of Rs.3,000 crores, a 750 MW Thermal Power Plant at Bongaigaon with an outlay of Rs. 4375 crores, and the Assam Gas Cracker Project have all broken ground. The Kumarghat-Agartala railway line has been approved as a National project, with an outlay of Rs. 750 Crores. The Jiribam Tupu-Imphal railway line, which will put the Manipur valley on the rail map of India, has also been sanctioned as a National project for Rs. 727 Crores.

[xi] On September 12, 2008, Lt. General ML Naidu visited Imphal and discussed with the Manipur Chief Minister issues pertaining to security, law and order situation in Manipur. It is still not clear if this visit has any significance in the context of our current discussions, but is certainly significant if we take into account the timing of the visit and the rank of the visitor.

End Notes

[i] ASEAN was formed in 1967. Thailand, Indonesia, Malaysia, Singapore and the Philippines constituted the five original members. Brunei became a full member in 1984; Vietnam in 1995; Laos and Myanmar in 1997; and Cambodia in 1999.

[ii] http://www.aseansec.org/21895.htm

[iii] Prime Minister Dr. Manmohan Singh’s address at the 16th Asian Corporate Conference driving global business : India’s new priorities, Asiaâ??s new realities. URL: http://www.indianembassy.org/newsite/press_release/2006/Mar/35.asp

[iv] Indiaâ??s trade statistics and other commercial information can be had from the DGCIS website at http://www.dgciskol.nic.in/

[v] http://www.bernama.com/bernama/v3/news_business.php?id=351756

[vi] ASEAN+3 include ASEAN, China, Japan and South Korea.

[vii] http://www.wto.org/english/tratop_e/region_e/region_e.htm

[viii] http://www.telegraphindia.com/1050412/asp/opinion/story_4590622.asp also see http://meaindia.nic.in/speech/2005/05/31ss02.htm

[ix] http://www.financialexpress.com/news/India-Myanmar-expects-Kaladan-project-to-increase-border-trade/292285/

[x] See http://commerce.nic.in/PressRelease/pressrelease_detail.asp?id=2280

[xi] http://pmindia.gov.in/speech/content.asp?id=693

**The author has a Ph. D. in International Politics from the Jawaharlal Nehru University, New Delhi.
His areas of interest are Southeast Asia, Southern Africa and Latin America and writes mainly on the politics of regional integration in these areas. He also writes on issues pertaining to South Asia, particularly on India’s Northeast.