[Diplomacy] India-ASEAN: Relation, FTAs in Goods, services and investment

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IAS Mock Interviews
  1. Prologue
  2. ASEAN: Origin
    1. Musyawarah & Mufakat
    2. TAC Treaty
  3. Timeline: Growth of ASEAN since 90s
    1. ASEAN Community (2015)
    2. ASEAN Performance: GOOD
    3. ASEAN Performance: NOT so GOOD
    4. Chinese Arm twisting
  4. India-ASEAN Relations
    1. Why ASEAN important for India?
    2. India-ASEAN FTAs: A Timeline
    3. India ASEAN FTA in Goods
    4. India ASEAN FTA in services and investment
    5. Benefits of FTA in services and investment?
  5. Mock Questions for Mains

Prologue

  • This is an old article, I’ve only updated the bottom part of it (FTA in services and investment)
  • As such that FTA topic was part of September week1 current series but for better revision of theory + trade relations, I’ve fitted it into this old article.

ASEAN: Origin

  • Recall the Article on Colonization of Asia. We had seen how the British, French and Americans had colonized almost entire South Asia.
  • After Second World War, most of these colonies attained independence. But they also had internal dispute regarding territories and borders.
  • One such dispute was Indonesia-Malaysia conflict over the Borneo islands.
  • This conflict + the then ongoing Vietnam War raised fears of increased external involvement in the newly independent states.
  • They feared that south east region would become a theatre of western vs. communist ideologies
  • Hence they decided to form a common platform:
  • To resolve bilateral issues among themselves
  • Present a collective front to the world.
  • 1967, five countries signed “Bangkok declaration” to form the Association of Southeast Asian Nations (ASEAN), later another 5 joined. Thus today ASEAN has 10 members
List of 10 ASEAN nations
  1. Indonesia (ASEAN HQ is here, in Jakarta)
  2. Malaysia
  3. Philippines
  4. Singapore
  5. Thailand
  1. Brunei
  2. Cambodia
  3. Laos
  4. Vietnam
  5. Myanmar

Musyawarah & Mufakat

ASEAN follows the principle of “ASEAN way”. Meaning,

  1. Musyawarah And Mufakat  [deliberation and consensus]
  2. don’t use force/confrontation
  3. don’t interfere in the internal matters of states
  4. Informal discussion
  5. minimal institutionalization

To achieve “the ASEAN way”, Treaty of Amity and Cooperation in Southeast Asia (TAC) was signed.

TAC Treaty

It provides the guiding principles of ASEAN

  1. they’ll not interfere in the internal affairs of one another,
  2. they’ll not use threat or use of force to settle differences / disputes
  3. they’ll settle of differences or disputes by peaceful means,
  4. They’ll effectively cooperate among themselves.
  5. they’ll mutually respect each other’s’ independence, sovereignty, equality, territorial integrity and national identity
  6. Every State has right lead its national existence free from external interference, subversion or coercion,

India had signed TAC treaty with ASEAN in 2003.

Timeline: Growth of ASEAN since 90s

1994ASEAN regional forum (ARF). already discussed in separate article click me
1997ASEAN+3 is formed to increase regional integration. This includes

  1. China
  2. Japan
  3. South Korea
2002Treaty to control haze pollution in South East Asia
2006ASEAN gets observer status in UNGA (General assembly)
2007Cebu declaration for energy securities and renewable energy.
2010Chiang Mai Initiative (CMI)

  • It is a currency swap agreement among ASEAN +3,
  • It provides emergency liquidity to those economies during crises.
2012
  • Asean Human Rights Declaration
  • 21st ASEAN Summit in Phnom Penh Combodia with theme:“ASEAN: One Community, One Destiny”
2013
  • 22nd ASEAN summit in Brunei, theme: Our People, Our Future Together.
2015ASEAN community will be setup.

ASEAN Community (2015)

Similar to European Union. will be setup in 2015 and will have three pillars

  1. ASEAN Political Security Community
  2. ASEAN Economic Community
  3. ASEAN Socio-Cultural Community

ASEAN Performance: GOOD

ASEAN has a mixed record of achievements since its formation.

ASEAN performed well here:
PeaceSuccessfully maintaining peace in the region. e.g. during Thailand and Cambodia conflict over Preah Vihear temple (2011)
EconomyHas made comprehensive deals like

  • ASEAN Free Trade Area (AFTA)
  • ASEAN Comprehensive Investment Area(ACIA)
  • Chiang Mai Initiative (CMI)
  • Aims to setup the ASEAN Economic Community 2015, having a single market and production base.

ASEAN Performance: NOT so GOOD

ASEAN didnot perform well here
EconomyASEAN Failed to prevent the 1997 financial crisis.
Human rights
  • ASEAN has been too soft on the authoritarian regime of Myanmar.
  • Despite call from international community it didn’t suspend Myanmar or put economic sanction on it during the military regime’s crackdown on peaceful protestors.
  • 2012: ASEAN released declaration on Human rights. But led to lot of protests from civil society and NGOs. They terms it as just another piece of paper.
Environment
  • In 2002, ASEAN came up with Treaty to control haze pollution in South East Asia. still there were outbreaks of Haze in 2005 and 06.
  • ASEAN also has mechanism for wildlife protection. Yet it hasn’t drastically reduced the illegal trade in endangered species (especially for medicine).

Chinese Arm twisting

ASEAN is becoming a victim of Chinese assertiveness/pseudo-bullying. for example in the the meeting of ASEAN (Dec [email protected] Phnom Penh), no joint communique was issued-for the first time in the 45 years of history of ASEAN Summits. WHY? Because…

  • Cambodia (host of the summit) is an ally of China
  • China did not want the joint communique text to mention South China Sea as a standing conflict.
  • but other gang members- Vietnam, Philippines, Malaysia and Brunei wanted the text to contain  their respective grievances regarding territorial issues with China.
  • In wake of such unprecedented influencing of China into the ASEAN matters, the ASEAN is looking towards India like never before.
  • India is being seen as the counter balance to China at the ASEAN platform.

Now, let’s focus on:

India-ASEAN Relations

Combined Population~1.8 billion = ~1/4th of total world population
Combined GDP~4 trillion USD
Two way investment40+ billion dollars in past decade
  • India is actively contributing to ASEAN+1, the ASEAN Regional Forum (ARF), the East Asia Summit (EAS) and the ASEAN Defense Ministers’ Meeting (ADMM) Plus etc.
  • We have institutionalized annual summits, ministerial consultations; and nearly 25 mechanisms for dialogue and cooperation.

Timeline of India-ASEAN relations

1990India starts engaging with ASEAN, part of Look East Policy.
1992India becomes a sectoral dialogue partner of ASEAN
1996India becomes full dialogue partner of ASEAN
2002India starts having annual summits with ASEAN
2003India accedes to the Treaty of Amity and Cooperation in Southeast Asia (TAC)India signs counter-terrorism declaration with ASEAN.
2009
  • FTA* in goods signed
  • This established Free Trade Area established between India-ASEAN.
2010
  • FTA in goods becomes effective
2012
  • 20th Anniversary of ASEAN-India Dialogue.
  • ASEAN – India Commemorative Summit is held.
  • Now India becomes a strategic partner of ASEAN
  • FTA* in services and investment- talks concluded
2014FTA in services and investment signed- by all ASEAN nations with India. Except Philippines.

Why ASEAN important for India?

Strategically

  1. ASEAN nations are at the intersections of major land and sea routes.
  2. The Future architecture of Asia is going to be shaped by the US, China and India.
  3. Maritime boundary disputes between China and a number of ASEAN countries; claims over South China Sea – hence those ASEAN countries look towards India as a counterbalance against China.
  4. For India, a stronger posturing at ASEAN provides its stature as a global power. After all, without becoming a strong regional player first, we cannot dream of becoming global power!

Energy

  1. ASEAN countries, particularly Myanmar, Vietnam and Malaysia can potentially contribute to India’s energy security.
  2. Oil and natural gas deposits in the South China Sea region.
  3. India and several ASEAN countries are net importers of hydrocarbon. They need to develop alternative energy sources. But R&D in renewable =need truckload of ca$H hence regional cooperation essential for financing those projects.

Economy

  1. In terms of income, India-ASEAN community is roughly the size of the EU
  2. In terms of Trade, India-ASEAN community NAFTA.
  3. The ASEAN is India’s fourth-largest trading partner after the EU, the US and China.
  4. India – ASEAN is slated to grow faster than the rest of the world due to a favorable demographic profile and growing market for goods and services.
  5. India’s trade relations are shifting from West economies towards the East, comprising of Japan, China, Korea and ASEAN.
  6. India-ASEAN linkage provides for large-scale movement of people, capital, ideas and creativity.

For Indian States

  1. The coastal states: West Bengal, Orissa, Andhra Pradesh and Tamil Nadu are looking to rebuild maritime links with ASEAN nations to boost their own trade and economy.
  2. Union government is also building infrastructure while in the Northeastern states so they can engage in commerce with South East Asian nations.

Diseases

Pandemics and disease are no longer limited to national boundaries and have assumed a trans-national dimension. SARS and H1N1 virus have in recent times afflicted the region. Hence cooperation is essential between India-ASEAN.

Now let’s take a look @India-ASEAN trade relations

India-ASEAN FTAs: A Timeline

Timeline of India ASEAN FTAs
2009India ASEAN FTA in goods signed.
2010India-ASEAN FTA in goods became effective.
2012India ASEAN FTA in services and investment-talks concluded.
2013, DecemberIndian Cabinet approved FTA in services. (Those ASEAN nations need to get such FTAs approved from their respective parliaments.)
2014, Sep
  • Nine out of ten ASEAN countries have signed FTA in services and investment, with India.
  • Only Philippines remains. Philippines opposed saying it’ll harm their domestic service sector given the India’s expertise (and cheapness) in the services sector.

 

Trade volume
YearTrade /expectation (USD)
201275 billion
By 2015100 billion
By 2022200 billion

India ASEAN FTA in Goods

  1. Signed in 2009, effective from 2012.
  2. Before this agreement, the India-ASEAN annual trade was ~30 billion but quickly jumped to ~75 billion$ in 2012.
  3. Main products: – metal parts and components, electronic components, processed fruits, ceramics, gloves and knittings, fertilizers, chemicals like fatty alcohol, coconut and vegetable oil, refined glycerine.
  4. But did India benefit from this? Answer is no.
  5. Cheaper palm oil from ASEAN = hurting local producers in Kerala.
  6. Our groundnut and pepper farmers also suffering due to cheaper ASEAN imports.
  7. Hence over all, the goods import from ASEAN nations increased but our exports did not increase. Consequently, trade deficit between India-ASEAN widened.
  8. Thus India did not benefit much from FTA in goods.
  9. However, FTA in services may help in reducing trade deficit with ASEAN, because we’ve comparative advantage over them in education, healthcare, IT-software, Accountancy and consultancy services.

India ASEAN FTA in services and investment

  • This Trade agreement in services and investment =follows “8+1+1” pattern.
  • Meaning, agreement provides 3 separate arrangements for:
1.  For 8 countries= all ASEAN countries except Indonesia and Philippines
2. For Indonesia
  1. Special terms because services sector is vital for their economies, and they’re worried their local service sector will be hurt while competing with India’s strong services sector.
  2. Philippines most worried because ~50% of their workforce in IT sector*
3. For Philippines
  • *recall we are facing similar issue in FTA in Goods, because of cheaper plantation products from ASEAN
  • Although India is not putting all eggs in one FTA basket. We’re also doing bilateral trade agreements with individual countries in the region. for example
FTA already done
  1. Singapore (CECA in ‘05)
  2. Malaysia (CECA in ‘11)
In process
  1. Indonesia
  2. Thailand

Benefits of FTA in services and investment?

  1. Will facilitate the moment of manpower and investment between India and ASEAN.
  2. Will help reducing our trade deficit with ASEAN. (Because in the goods sector, we are importing more and exporting less. Service sector will be reverse.)
  3. Will boost the trade between India and ASEAN to $100 billion by 2015.
  4. Provides joint review, dispute settlement and other mechanisms to iron out problems.
  5. Contains an annex on Movement of Natural persons- Business Visitors, Managers, Executives Specialists and Contractual Service Suppliers. This annex will help provide facilitate movement of Indian service professional in ASEAN countries.
  6. This will be a stepping stone in moving towards the regional comprehensive economic partnership (RCEP) pact.
  7. RCEP is to be signed between ASEAN and its six — Australia, China, India, Japan, South Korea and New Zealand.
  8. The agreement will also facilitate investments in both regions
Indian investors want to enter ASEAN forASEAN investors want to enter India for
  1. IT
  2. automobiles
  3. engineering
  4. Pharmaceuticals
  1. construction services
  2. Transportation services.
  3. engineering services
  4. shipping

Mock Questions for Mains

Write a note on following, 200 words each:

  1. The ASEAN way of musyawarah and mufakat resonates with India’s foreign policy and world view. Elaborate
  2. Explain the importance of ASEAN for India’s look east policy
  3. Enumerate the strategic and economic interests of India in South East Asia. How can ASEAN help achieving them?
  4. A healthy relation with ASEAN nations can help transform the Indian economy in general and Northeast India in particular. Explain
  5. There is tremendous scope for India to leverage its soft power in South East Asia. Elaborate.
  6. Chinese assertiveness in ASEAN is both an opportunity and a challenge for India. Comment.
  7. While India had signed a FTA in goods with ASEAN in 2009, the two sides have recently concluded a FTA in services. Examine the impact of 2009 FTA in goods and analyze the future potential of FTA in services and investment.
  8. Provide an account of India’s increasing involvement in the South – East Asian region.
  9. Write a note on Indian Diaspora in South East Asia.
  10. India ASEAN vision 2020

.

Mrunal recommends

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  5. Objective General English SP Bakshi
  6. Word Power made Easy -Norman Lowe
  7. Topic wise Solved Paperset by Disha

27 Comments on “[Diplomacy] India-ASEAN: Relation, FTAs in Goods, services and investment”

  1. Great work..

  2. very brilliant sir…i m fan of urs. sir if possible please also provide some material on geography and sociology in ur style

  3. Not able to study these days on internet , lot of ads pops up on browser. Also when click in hyperlink of study article some other ads page opens. Please help. Victimized by it from 2 3 months.

    1. Bittu it seems your browser has malicious software installed. I suggest a virus scan by Kaspersky, avast etc.
      I don’t have any such pop-up ads on this site.

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      2. use chrome extention named — adblock plus , it will block ads as well as pop ups …

    2. Google “Ads not by this site” and you will find very relevant solutions. I suffered from the same problem and rooted it out by solutions from net only.

    3. Bittu,
      i too had same issue. install “adblock plus” and “poper blocker”. they are free and easily available.
      Also go to “www.google.com/settings/ads” and opt-out of ads.
      Hope this helps.

  4. just lov d way u do mockery…

    1. Mrunal used to do mockery a lot better when congress was in power. Now he doesn’t seem to have courage to do the same in Modi Raj. May be he is a big Modi fan but presence of mockery simulating conversation between Ministers/Secretaries/Chairmen made many difficult topics easy to understand.

      I hope he keeps his political favoritism out of his topics and come back to those effective ways of teaching.

      I am a big fan of Mrunal but kinda disappointed that he changed his style after getting new govt elected. He used to call Chindu/Kejri etc into his topics with sarcasm but not finding the courage to do the same now.

      Please come back to your ways Mrunal Bhai. Waiting to see you neutral again.

      1. agreed.

        now even he dont say about various scheme which launched after name of various RSS leader. earlier he used to say about rajiv and indira gandhi a lot.

        but i am not expecting him to be neutral. expecting anyone to be neutral is contrary to “public choice theory”.

      2. Please do not be hyper-active buddy.
        That is his opinion or his style, and preference. He has got his freedom of expression.
        He likes a particular leader maybe, thats his opinion-you should have no objection in that.

        He has never blatantly been fully politically baised. Need to raise your tolerance levels.
        I was a huge kejriwal fan, but loved his sarcasms. Be tolerant, and be little more sensible.

        Hope you understand. You are free to put your comments or counters too. I have made my point.

  5. Great sir ur presentation is awesome I learned too much from ur site thanks to u

  6. Saving time is not an easy task.. You are giving vast information in fingr tips…. Undoubtedly saving our time n making our work easier…. Fortunate to have such a smart mentor…….

  7. mrunal bhai..

    iam unable to see the heading and sub-headings in the article, even when i open the homepage i cant see the name of articles listed one by one …what is the solution???

  8. Please provide some facts on Indian Diaspora in South East Asia.

  9. To remember ASEAN countries name i suggest you a mnemonic. I hope you would like it.

    Brunei ke CM ke LIPS pe TMV (tobacco mosaic virus).

    it goes like this….
    1. Brunei

    from CM
    2. Cambodia 3. Myanmar

    from LIPS
    4. Laos 5. Indonesia 6. Philippines 7. Singapore

    from TMV
    8. Thailand 9. Malasia 10. Vietnam

    1. Good way to remember :) thanx :)

  10. Sir, plz clear my doubt that
    How can bilateral trade agreements with individual countries could save our domestic industries due to influx of cheap goods as a result of our FTA in goods with ASEAN????

  11. great work!!!

  12. Sir, this article beautifully describe the ASEAN-INDIA relationship with required history . I have a doubt – Why china and India have not strategic relation?

  13. I am trying my hand at answer writing. Would be glad to receive feedback.
    a1.
    The ASEAN’s philosophy is based on 5 principles known as the “ASEAN Way”. Musyawarah and Mufakat are among these 5 and stand for Deliberation and Consensus. Not just these two concepts but also the principles of non-interference and non-confrontation deeply resonate with the Indian foreign policy and world view. Her foreign policy, based on liberalism and democracy, stresses deeply on strategic autonomy, non alignment and dispute-resolution through diplomacy.

    India realises that in today’s multi-polar and globalised world, a leader is one who can build consensus and win over by deliberation; dipomacy has a much greater role than wars in ensuring peace. Aggression can only suppress and defer disagreement but not resolve it (as can be seen in case of Iraq and Afghanistan where aggression sans resolution has produced ISIS and a stronger Taliban). Our foreign policy recognises that we seek strong, stable and mutually beneficial ties with the world- both major powers and Asian neighbours and this is not possible without strong and amicable diplomatic ties. This stance is evident through various examples: India’s stand on Non-Alignment Policy, the Panchsheel, signing of the Treaty of Amity and Cooperation with the ASEAN and so on.

    Though India’s foreign policy has long been criticized as being too soft, it has brought her great benefits. eg. The south-east asian nations look up to India as a harbinger of regional peace and counterbalance against the much aggressive China. This has opened venues for a greater role for the state in the region besides access to the high geopolitical significance and natural resources of the region. Hence, India has long followed and continues to follow the concepts underlining Musyawarah and Mufakat.

  14. Nup
    honestly speaking, felt really intimidated after reading your answer so close to mains. good job.

  15. Really great job u r doing sir…hats off to u…to explain ur effort KALIDASA from medival india has to come again.thank u so much…

  16. Great pneumonic!!!

  17. Mrunal sir am am very thankful to you, you are a “burning zeal to inspire the light of knowledge”
    Your pioneering guidance provides clearity ,knowledge and hope.
    Words can’t express gratitude for your noble deed.

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