India is strategically seeking targeted actions from ASEAN nations to bolster the utilization of the existing free trade agreement, especially in critical sectors like agriculture, pharmaceuticals, and automobiles. The current bilateral trade pact, known as the ASEAN-India Trade in Goods Agreement (AITIGA), is undergoing a comprehensive review process to address the significant underutilization by Indian exporters. The aim is to secure additional concessions from ASEAN countries before the conclusion of the review, anticipated to be finalized around October this year, just ahead of the ASEAN summit.
A recent study conducted by the Commerce Department sheds light on the substantial trade deficit India faces with ASEAN, which has expanded significantly over the years. Factors contributing to this deficit include the relatively low utilization rates of the FTA by Indian exporters, often hovering around 30-40% or even less. Key barriers identified include non-tariff restrictions and stringent origin rules that impact the eligibility of products for preferential treatment under the agreement. The lackluster outcomes from the ongoing review initiated in 2023 underline the urgency for both parties to address these challenges effectively.
In specific cases such as trade with Thailand, the study highlights instances where Indian exports, like vegetable oils and fat, have not maximized the benefits of the trade pact due to minimal utilization. Similarly, the pharmaceutical sector, categorized under ‘others,’ also exhibits untapped potential for leveraging the preferential rates. The duty differentials, as noted in the report, play a crucial role in incentivizing utilization, with disparities between the MFN and preferential rates serving as key determinants.
Despite India’s significant automotive exports to Cambodia, particularly under HSN 87032191, the utilization of preferential routes remains notably low, standing at only 18.50% in 2023. This is despite the considerable duty differential, indicating a pressing need to address the trade barriers hindering optimal utilization. Analyzing trade dynamics with Vietnam and Indonesia reveals promising areas for growth, with several commodities identified as having high export potential, suggesting room for enhancing trade partnerships and expanding export volumes.
The Indian government is actively soliciting industry feedback to identify and mitigate the challenges impeding the full utilization of the India-ASEAN FTA. The review process is expected to be expedited to address these issues promptly and enhance the trade relations between India and ASEAN nations. The collaborative efforts aimed at improving the utilization of the trade pact are essential for fostering sustainable economic growth and maximizing the mutual benefits for all stakeholders involved.
Key Takeaways:
– India is pressing for targeted actions from ASEAN countries to enhance the utilization of the existing free trade agreement.
– The study highlights the low utilization rates of the FTA by Indian exporters, pointing to non-tariff barriers and stringent origin rules as key challenges.
– Specific sectors like agriculture, pharmaceuticals, and automobiles show considerable untapped potential for leveraging the trade pact.
– Addressing the trade barriers and duty differentials between MFN and preferential rates is crucial for boosting utilization and fostering bilateral trade growth.
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