Don’t just look East

Written by Amitendu Palit

November 19, 2014 

We must go beyond the facile language of trade agreements and sort out ground-level issues.

Act East” sounds more promising than “Look East”. India’s Look East policy of engaging its neighbours in Southeast Asia and the adjoining region has been suffering from an odd inertia.

India’s strategic engagement with Asean has increased over time. But the fact remains that it is yet to become a significant strategic presence in the region. It is not yet a decisive determinant in the strategic dynamic of the Asia-Pacific and is only marginally so for Southeast Asia.

India’s failure to punch commensurate with its weight has to do with inadequate economic achievements. Countries that have a significant say in regional affairs, such as China, Japan and Australia, have strong economic linkages with Southeast Asia.

Since the beginning of the century, India’s trade with the 10-member Asean has increased from around $7 billion to $75 bn. Considering that Asean comprises several vibrant export-oriented middle-income economies, the increase could have been much greater. Indeed, India’s trade with China and some of the Gulf countries has increased at a faster pace than with Asean during the last decade. While trade with Asean is barely a 10th of India’s total trade, trade with India is only 3 per cent of Asean’s total trade.

Various trade agreements signed with Asean and Southeast Asian countries are often cited as examples of India’s deepening economic engagement. These include the goods free trade agreement and the recently concluded services agreement with Asean, as well as bilateral trade deals with Singapore, Malaysia and Thailand. Unfortunately, rather than being examples of successful economic engagement, they are instances of the inertia and half-heartedness that characterise India’s engagement with the region.

India’s agreements with Asean offer less market access and cover fewer issues than Asean’s agreements with other countries in the region. An inherently defensive approach to trade negotiation makes the concluded agreements counterproductive. India refrained from yielding as much market access as was demanded in the goods trade negotiations. The impression stuck and Asean was less generous when it came to services.

India’s trade negotiations with Southeast Asia never took into account structural realities. Pushing manufactured exports into Asean markets requires Indian producers to be able to import cheap inputs from the region. But protective demands from domestic producers did not let that happen. As a result, exports have hardly flourished through the Asean FTA.

The services FTA with Asean has been concluded but is yet to come into force. But if history is anything to go by, optimism is not warranted. India’s biggest thrust in all service sector negotiations is to get deeper market access for its professionals. The Asean negotiations have not been an exception. The problem is that while bilateral trade agreements might formalise reciprocal access, actual movement of professionals is much more difficult to achieve. Several roadblocks impede such movement. The most important among these is mutual recognition of qualifications. Mutual recognition agreements (MRAs) are essential for skilled people to be able to migrate. Recognition needs to be agreed on by the certifying agencies from different countries. But negotiating MRAs between different agencies is difficult because of protectionist pressures. Allowing technical professionals from foreign countries to practise on home turf is an onerous challenge.

“Act East” means going beyond the facile language of trade agreements and sorting out ground-level issues like MRAs. It is important to do this quickly and purposefully. Otherwise, India’s economic engagement with Asean will remain below its potential.

The writer is senior research fellow and research lead (trade and economics) at the Institute of South Asian Studies in the National University of Singapore. Views are personal

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