With the limited progress at the Doha Round of negotiations, countries are speeding up bilateral negotiations in the hope of consolidating their trade positions amid slowing growth forecasts. India is set to sign a trade pact on services and investment with the Association of South East Asian Nations (ASEAN) in August this year.
India first formulated its 'Look East' policy back in 1992. Twenty years on, the relationship has not matured to the level that was envisaged. But India realises the importance of a strategic and growing relationship with ASEAN. For India, a stronger posturing at ASEAN will give a major boost to its stature as a growing global power. India is well aware of the fact that without being a strong regional player, becoming a global power is futile. The India ASEAN trade has grown over ten times in 10 years. The Goods FTA with ASEAN was signed in 2009. Before this agreement, the India-ASEAN annual trade was $ 30 billion. It has increased to $ 80 billion in 2012. And it is expected to increase to $ 100 billion by 2015 and $ 200 billion by 2022. ASEAN investments into India have also multiplied. ASEAN countries also have emerged as major investment destinations for Indian companies.
What is now on the cards is a step towards greater economic integration - an agreement on services and investments between the regions. Because of slowing global trade in merchandise goods, an FTA in services and investment assumes greater significance. Moreover, it is the services sector which has largely contributed to India's growth story in the last two decades. India is also one of the most preferred and leading destinations of FDI in the world and India is moving towards outward FDI in a big way. In this backdrop, the impending India-ASEAN services and investment FTA is timely and will go a long way in not only further enhancing strategic relations with ASEAN but also giving a boost to India's growth prospects. India is pushing for greater market access for its services exports with ASEAN, including movement of natural persons.
A Deloitte and FICCI joint study shows that India has a greater comparative advantage in the service sectors than the ASEAN nations. Sectors such as computer and information services, telecommunications, e-commerce, and engineering services have shown greater advantage for India. In the area of financial and insurance services, however, both partners have similar advantage -- both partners would compete on an equal footing which would help raise competition. The ASEAN nations have a greater lead compared to India in construction services, engineering services, shipping and transportation services. With regard to investment flows into the Indian market, prime sectors for the ASEAN include energy, transport and logistics.
Despite the complementarities, there are considerable challenges to services trade. The ASEAN Framework Agreement on Services (AFAS) negotiations need to be completed, as does the ASEAN regional integration for key service sectors. Until then, extra-ASEAN trade partners will have to negotiate bilaterally with individual member countries for sector-wise market access and movement of professionals. The target end date for integration is an optimistic 2015 with flexibility for sensitive sectors.
Service sectors, particularly professional services, in most ASEAN countries continue to remain highly protected. India needs to push for progressive improvements in market access and ensuring equal national treatment for service suppliers, as demand is expected to be coming from both producer services as well as consumer services. India's focus should be on easing restrictions and improving flexibilities for the allowances of expatriate workers, duration of stay, multiple entry visa for business travelers and professionals and relaxing requirements to acquire work permits for professionals (and their spouses in case of longer periods of stay).
To facilitate easier movement of professionals, mutual recognition of professional credentials must be pushed. Mutual Recognition Arrangements (MRAs) enable qualifications of professional service supplies, such as engineering, architecture, accountancy etc, to be mutually recognized by signatory member countries. A minor snag in the context of the India-ASEAN services agreement is that apart from incorporating liberalized Mode 4 access (Mode 4 refers to the movement of natural persons for providing services) in the agreement, India would have to sign MRAs on qualifications and license equivalence agreements with individual ASEAN members, making the process more time consuming. Regardless, India should push for MRAs.
The welfare gains arising from the services agreement appear to be in India's favour. The policy focus of both ASEAN and the individual member nations has been on merchandise trade liberalization, inducing foreign investment led transfer-of-technology, resulting in low regional integration in services. Trade in services gives India an opportunity to use its competitive strength to become a services export hub to the ASEAN region. With both the goods FTA and services FTA in place, India is well set on the path of a comprehensive economic partnership with ASEAN. India, whose services sector contributes about 55% to the country's GDP, has been keen to sign the services FTA with ASEAN as it will help the Indian companies tap the ASEAN markets easily.
(The writers are with Observer Research Foundation, Delhi)
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Courtesy : The Pioneer, July 13, 2013
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