In a major post-Cold War diplomatic reorientation in the early 1990s, India launched its 'Look East' policy to connect with East Asian nations and in particular with the Association of South East Asian Nations (ASEAN). This led to growing economic interaction between two economically resurgent regions.

ASEAN with a combined GDP of around US$700 billion signed the historic ASEAN Charter on 20 November 2007, to accelerate the formation of the 'ASEAN Economic Community' and create a highly competitive single market and production base. Sensing the importance of increased interdependence with ASEAN, Indian Prime Minister Manmohan Singh termed India's ties with ASEAN as an important pillar of our Look East policy, and proposed to bolster two-way trade from current levels of around US$30 billion to US$50 billion by 2010.

Indo-ASEAN trade although rising, is only a seventh of Sino-ASEAN trade. A study by the Federation of Indian Chamber of Commerce and Industry (FICCI) has shown that while India's share in ASEAN trade improved marginally from one per cent to 1.6 per cent between 1997 and 2006, China's share went up from 3.7 per cent to 11.4 per cent during the same period. Recognising the need for a Regional Trade and Investment Area (RTIA) to progressively liberalise trade in goods, services and investments, ASEAN and India signed a Comprehensive Economic Cooperation Agreement (CECA) in 2003.

The first step to establish a RTIA was to negotiate a free trade agreement (FTA) in goods to progressively eliminate tariffs and non-tariff barriers. Accordingly, it was decided that the agreement shall enter into force in 2004 and the FTA be concluded by 2005. The Early Harvest Programme (EHP) aimed at accelerated tariff elimination on certain categories of products could not be implemented in 2004 as per schedule due to ASEAN's insistence on a liberal Rules of Origin (ROO) regime.

On the sensitive list, the reason for the current deadlock, the Indian approach is more flexible vis-a-vis the ASEAN approach. While India has a uniform Negative List of 489 products covering less than 5 per cent of ASEAN exports to India, each country of the ASEAN bloc has a separate Negative List. India has already shown high degree of flexibility by offering to reduce customs duty to 50 per cent on crude palm oil (CPO) and to 60 per cent on refined palm oil (RPO) by 2018. Malaysia, the world's largest producer of palm oil, and Indonesia are however pressing for reduction of duties on CPO and RPO to 30 per cent and 40 per cent respectively. On pepper and black tea, while India is willing to cut duties to 50 per cent by 2018, Vietnam, in particular, wants further reduction of duty on these items by at least 10 percentage points. To offer anything more on these highly sensitive products would invoke pressure from the Left, as the plantation sector in Kerala is already crying hoarse about the adverse impact of India's proposed palm oil concessions to ASEAN. The ruling UPA Chairperson Sonia Gandhi had also written to Manmohan Singh calling for a guarded approach on opening up of the agricultural sector in the FTA negotiations.

The ASEAN stand is in conflict with Article 2 of CECA which clearly stipulates that both parties will show flexibility in negotiations addressing their sensitive areas. As India is in the process of starting separate economic partnership negotiations with both Malaysia and Indonesia, it would be prudent to seal the Indo-ASEAN deal and have further negotiations on specific products during these bilateral FTA meetings. However, Malaysia might adopt a tougher stand on the tariff liberalization issue after the diplomatic row over the treatment of ethnic Indians in Malaysia..

ASEAN pressure for added concessions probably stems from its realization of a certain degree of anxiety in India to ink the ASEAN-India FTA (AIFTA) in goods to get a greater foothold in East Asia. India wants to seal the FTA in goods and quickly move on with the services sector negotiations where we have a distinct advantage. ASEAN has already concluded an FTA in goods and services with Japan and South Korea. The ASEAN-China FTA in goods has also been inked and negotiations in services are in progress. Further, ASEAN is willing to indulge in some hard bargaining probably because it feels that India can ill-afford the failure of AIFTA after the setback of the Indo-U.S nuclear deal. Other proposed trade deals such as BIMSTEC and Indo-Thailand FTA are no where near completion.

ASEAN and India have already traversed a long way by agreeing to a Normal List covering 80 per cent of two-way trade which would attract zero tariffs over a period of time and a Sensitive List where 5 per cent tariff rates would apply. Both parties have considerably narrowed down differences over the four highly sensitive products and the FTA can be clinched by March 2008 if ASEAN shows a degree of flexibility and appreciates that India has already gone an extra mile to clinch the deal despite domestic compulsions.

Note: The views expressed are those of the author and do not represent those of the Indian Government.